Nickel Price Spike could Pull the IGO’s Western Area Deal into Shreds

Nickel's historically violent run in March 2022, following Russia's war in Ukraine, might rip IGO's (ASX:IGO) $1.1 billion deal to buy Western Areas (ASX:WSA) apart, according to reports. An independent analyst stated the price proposed was neither fair nor acceptable.

Stainless steel, a key component in batteries, was the bestperforming metal among the major commodities in March, rising more than 30% to US$32,107/t. It is currently purchasing US$33,245 per tonne. That's a 70.5 percent increase over the US$19,500/t price when IGO announced the recommended allcash buyout for $3.36 per share on December 16 last year.

Western Areas' independent expert KPMG now believes its proposal is out of the money, according to IGO, after a reassessment spurred by nickel's crazy bull market had pushed the scheme of arrangement's closing date from April to June. Western Areas has halted trading, but IGO has spilt the beans. IGO wants to buy WSA's Forrestania and Odysseus nickel mines to offset the shortened life of its Nova nickel and copper mine.

"IGO's understanding of the primary reason for this trading halt is that Western Areas' Independent Expert has concluded in its draught Independent Expert's Report (IER), which IGO has not seen, that the Scheme is neither fair nor reasonable to Western Areas shareholders and, as a result, is not in the best interests of Western Areas shareholders; as a result, the Board of Western Areas intends to adversely change the Scheme based on the terms of the current Scheme."

To boil it down, WSA intends to inform its shareholders that they should not sell to IGO at this time. It comes after IGO reached an agreement with potentially contentious WSA stakeholder Andrew Forrest, who had built a 10% position in the company through his private explorer Wyloo Metals.

Despite the fact that WSA was trading significantly above the IGO offer price at $3.65 prior to the trading halt, IGO believes its $3.36 bid is still a fair call.

"As previously stated, IGO's valuation of Western Areas and the proposed Scheme consideration of $3.36 per share in cash were based on IGO's long-term assessment of nickel market fundamentals and price. Despite recent nickel price volatility, "IGO's long-term view on the nickel price has not fundamentally changed," according to the business.

"IGO is committed to exploring growth opportunities that benefit its shareholders. IGO will remain diligent in the execution of all merger and acquisition activity as it evaluates all options available with respect to the Scheme."