IGO to buy Western Areas for $1.1bn

Fri 17 Dec 21, 1:18pm (AEST)

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Key Points

  • IGO takes out rival nickel producer Western Areas for $1.096bn
  • New assets top up IGO's nickel assets, which have 5 years left of production
  • Combined Group will leap ahead of Pilbara Minerals in terms of market cap

IGO (ASX: IGO) formally announced its plans to acquire Western Areas (ASX: WSA) on Thursday after almost four months of speculation. 

The deal values Western Areas at $3.36 a share, which represents a 35.5% premium to where the stock was trading at before the takeover was leaked in August. 

It's an all-cash acquisition which will cost IGO $1.096bn, a complete turnaround from the script-based rumours back in August. 

Encouragingly, the new funding structure will result in no dilution for IGO shareholders. 

The company intends to fund the transaction through a $900m debt facility with the big four banks and $272m cash sourced from its existing cash reserves of $552m.

Transaction rationale 

The acquisition will top up IGO’s nickel assets and reserves at a time when its flagship Nova nickel mine is nearing depletion, with approximately 5 years left of production.

The main assets of interest include Western Areas' flagship Forrestania nickel project which has been in operation for over 10 years.

The Cosmos project is expected to begin producing nickel from FY23 onwards with a mine life of more than 10 years.

From a financial standpoint, the transaction is expected to be free cash flow accretive once the ramp-up of Cosmos is complete.

The new nickel assets will increase the company’s FY22 pro forma nickel production by around 63% to between 41,000 and 44,000 tonnes.

From a reserve standpoint, IGO resource base will pivot from 71% lithium and 22% nickel, to 53% and 43% respectively. The remaining percentage points reflect the company’s minor copper and cobalt assets.

Valuation wise, the combined Group will leap ahead of lithium rivals Pilbara Minerals (ASX: PLS) and inch closer to $10bn in market capitalisation. 


Its been a transformational year for IGO. The company divested its gold assets to Regis Resources (ASX: RRL) in May 2021 and formed a new lithium joint venture with Tianqi in June 2021.

This was reflected across the company's record financial performance, where net profit after tax lifted 254% to $549m.

What brokers think

Morgan Stanley and Citi are locking horns in terms of IGO's valuation, according to FN Arena.

Morgan Stanley wants to see more developments from the company's new portfolio to justify today's prices.

Whereas Citi believes the IGO and Western Areas duo will emerge ever larger and ready to leverage the red hot electric vehicles metals sector.

Broker consensus views IGO as a "Buy" but the target price sits at just $9.28, suggesting a 14.7% downside compared to today's prices.

Written By

Kerry Sun

Finance Writer & Social Media

Kerry holds a Bachelor of Commerce from Monash University and was Vice President of the University Network for Investing and Trading (UNIT). He is an avid swing trader, and drawn to breakouts and technical set ups. Outside of writing and trading, Kerry is a huge UFC fan, loves poker and bouldering.

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