Despite his company’s recent merger with Warwick resources, Atlas Iron managing director David Flanagan does not believe that consolidation among junior iron ore players in the Pilbara is inevitable in their quest to compete with Rio and BHP.
“A rampage is the quickest way to destroy value,” he told MINING DAILY.
“There have been people who have announced mergers and their justification has been to create a bigger company, and it does not work.
“That is not a good reason to consolidate two companies.”
Flanagan’s views are in stark contrast to those of BC Iron managing director Mike Young, who earlier this week said that iron ore juniors need to consolidate in order to strengthen both infrastructure and resources.
BC Iron has recently struck an infrastructure deal with larger iron ore miner Fortescue Metals.
Flanagan said that while there are certainly consolidation deals that work it is not as simple as two companies combining their resources, both in terms of cash and commodities.
“It is not inevitable that you can look at the companies and see real synergies and real values that can be created,” he said.
“There are plenty of companies that exist and there is zero value in going anywhere near them.”
DJ Carmichael resource analyst James Wilson disagrees with Flanagan and believes that smaller iron ore companies with limited access to infrastructure risk being left behind if they do not join with another company.
“There are only a few pair ups left to do because there are only a certain number of iron ore players with existing resources, and it is not going to be long before those particular dance partners pair up,” he told MINING DAILY.
“You do not want to be left with no dance partner because you might find yourself out in the cold.”
Wilson in fact point to the Atlas-Warwick deal as a perfect example of crucial consolidation.
“A company with resources of only 30 million tonnes in the East Pilbara, such as Warwick, would have found it quite difficult to get that project up and running,” he said.
“They would have needed significantly more resources in order to be able to push the button on that economically.”
While Flanagan of course agrees that the deal with Warwick is sound, he cautions that all of the right boxes for such a deal will not always be ticked.
“For consolidation to happen it needs to be a deal that delivers real value in an operating sense, and for shareholders,” he said.
“In a perfect world those things are always possible, but in reality they are not.”