IGO to buy Western Areas for A$1.1B amid soaring nickel demand

Australian nickel and lithium miner IGO (ASX: IGO) is buying rival Western Areas (ASX: WSA) in an all-cash deal valued at A$1.1 billion (about US$793 million), marking what could be the beginning of a nickel assets consolidation trend in Western Australia.

The A$3.36 a share cash splurge will boost IGO’s nickel business from a short-life, single-asset operation centered around its Nova nickel-copper mine into a multi-asset division with decades ahead of it.

The move would immediately turn IGO into a major regional player, boosting the miner’s nickel output from 25,000 to 27,000 tonnes in fiscal year 2022 on a proforma basis to between 41,000 and 44,000 tonnes.

IGO and Western Areas have been in talks for months, but the twist is the all-cash nature of the deal that will see the buyer taking on A$900 million in corporate debt. The company said it would also use A$272 million from its cash reserves to fund the acquisition.

The transaction will give IGO Western Areas’ Forrestania nickel operations, but the biggest win is arguably the Odysseus mine, which is scheduled to begin production by the end of 2022.

Odysseus, part of the giant Cosmos nickel operation, is expected to produce over 10,000 tonnes of nickel a year during a ten-year mine life.

“Both Forrestania and Cosmos are high-grade, low-cost nickel sulphide operations and this acquisition, together with our existing world class Nova nickel-copper-cobalt operation, will consolidate our position as Australia’s leading independent nickel producer,” GO’s Managing Director and CEO, Peter Bradford, said in the statement.

The deal follows IGO’s $1.4 billion acquisition of a stake in Tianqi Lithium’s Australian assets a year ago, as the company looks to capitalise on rising demand for raw materials used to make electric-vehicle batteries.

Nickel fever

Global miners are rushing in to secure an adequate supply of battery metals ahead of an imminent surge in demand for electric vehicles. 

Two major Australian miners, BHP (NYSE: BHP; LSE: BHP; ASX: BHP) and Wyloo Metals, are currently tangled in a bidding war over Noront Resources (TSXV: NOT), which owns the early-stage Eagle’s Nest nickel and copper deposit in northern Ontario’s ‘Ring of Fire’ region. 

Nickel production will need to increase nearly fourfold to meet expected demand for electric and hybrid vehicles, the company estimates. Likewise, copper output will also need to grow exponentially to meet demand from renewable power generation, battery storage, electric vehicles, charging stations and related grid infrastructure. 

Tesla boss Elon Musk has expressed worries about a looming nickel shortage. He pleaded with miners last year to produce more nickel, promising a “giant contract” for supply produced efficiently and in an “environmentally sensitive way.” 

The U.S. EV giant inked in October a multi-year nickel supply deal with New Caledonia’s Prony Resources. The contract guarantees it about 42,000 tonnes of the metal needed to produce the batteries that power its EVs. 

Tesla also has a similar agreement with BHP.