IGO buys Western Areas for A $1.1 billion at a time of soaring demand for nickel

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Australian nickel and lithium miner IGO Ltd (ASX: IGO) is acquiring rival Western Areas (ASX: WSA), in an all-cash deal worth A $1.1 billion (US $793 million), marking the beginning of a trend towards nickel asset consolidation in Western Australia.

The cash outlay of A $3.36 per share will transform IGO's nickel business from a short-term single-asset operation centered on Nova Nickel and Copper to a multi-asset division in the coming decades.

This will immediately make IGO a major regional enterprise, increasing the miner's nickel production from 25000 to 27000 tonnes (as expected) in fiscal year 2022 to between 41000 and 44000 tonnes.

IGO and Western Areas have been negotiating for months, but the turning point is the all-cash nature of the deal, with the buyer taking on A $900m of corporate debt. The company said it would also use A $272 million from its cash reserves to finance the acquisition.

The deal will benefit IGO Western Areas's Forrestania nickel business, but the biggest winner is Odysseus, which is scheduled to start production by the end of 2022.

Odysseus, part of the Cosmos nickel giant, is expected to produce more than 10000 tons of nickel per year over the 10-year life of the mine.

"Forrestania and Cosmos are both high-grade, low-cost nickel sulphide businesses, and this acquisition, together with our existing world-class Nova nickel-copper-cobalt business, will consolidate our position as Australia's leading independent nickel producer." GO CEO Peter Bradford said in a 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 hopes to take advantage of rising demand for raw materials used to make batteries for electric cars.

Ahead of the imminent surge in demand for electric vehicles, miners around the world are scrambling to ensure an adequate supply of battery metal.

Australia's two biggest miners, BHP (ASX, LON, NYSE: BHP) and Wyloo Metals, are locked in a bidding war for Canada's Noront Resources (TSX-V: NOT), which owns the early Eagle Nest nickel and copper mine in the Ring of Fire in northern Ontario.

The company estimates that nickel production needs to increase nearly fourfold to meet expected demand for electric and hybrid vehicles. Similarly, copper production needs to grow exponentially to meet the needs of renewable energy generation, battery storage, electric vehicles, charging stations and related Electroweb infrastructure.

Elon Musk (Elon Musk), Tesla's boss, has expressed concern about the looming shortage of nickel. He begged miners last year to produce more nickel, promising a "giant contract" for the supply of efficient and "environmentally sensitive" production.

The American electric car giant signed a multi-year nickel supply deal with New Caledonia's Prony Resources in October. The contract guarantees about 42000 tons of metal needed to produce batteries to power its electric vehicles.

Tesla has a similar agreement with BHP Billiton.