IGO’s big buyout delayed by nickel’s current volatile prices

IGO is a Nickel, Gold and Copper-Zinc silver mining, development and exploration company. They are based in Western Australia and control an array of mining companies.

The London Metals Exchange (LME) halted nickel trading on March 8th after an unprecedented price spike. This has forced IGO to delay their $1.09 billion buyout of Western Areas. The price spike is also causing a nightmare for brokers as they struggle to pay margin calls against heavily unprofitable short positions.

Western Areas shareholders had voted to push the all cash buyout offer to May, which is a month later than expected.

In a public statement, the IGO board announced that the move was in response to “the recent significant nickel price volatility” and they expect the deal to close by May/June.

IGO’s share price ended the week at $11.91, which is a 15% drop from last week’s high of $13.75.

“The Western Areas board and the Independent Expert are continuing to consider the implications, if any, on nickel market fundamentals and expectations for medium to long-term nickel prices,” IGO said.

Western Areas shareholders will receive a scheme booklet in April. This booklet will contain an independent expert’s assessment of whether IGO’s $3.36 per share offer is fair and reasonable.

The price of nickel has spiked briefly above $100,000 USD a tonne on the exchange. This was largely due to a short squeeze that had a major Chinese Bank in hot water. The spike has also spurred on the LME’s extreme decision to halt nickel trading.

The LME’s decision was the first time it has halted trading since the collapse of an international tin cartel in 1985. The decision came as Xiang Guangda, owner of Tsingshan, made a short position on the nickel. The price spike left Tsingshan exposed to $8 billion USD of trading losses whilst struggling to meet their margin calls.

The price continued to climb higher as one of the world’s largest nickel producers, Russia decided to invade Ukraine. As the market was picking up on the short squeeze of Tsingshan, the LME had decided to intervene.

All in all, the volatility of the price of nickel coupled with the LME’s decision to halt trading has left IGO in a tricky position in regards to the Western Areas buyout. They have reassessed the situation and have made a decision to push the completion date back a month.

If you would like to take this opportunity to invest in IGO and don’t already have a trading account, you can register for a Shares or Shares CFD  account at GO Markets.

Source: GO Markets, IGO, ASX, Bloomberg, AFR