How a price assessment might thwart an acquisition

Platts often learns how its price assessments are used in contracts – mostly as a third-party benchmark between buyers and sellers in negotiations for procuring a particular commodity. But a newly discovered use has come to light – as a possible deal-killer for a major acquisition.

And senior executives at Australia’s BC Iron could start to chew on their fingernails if iron ore prices weaken any further.

The Perth-based company plans to buy fellow West Australian iron ore company, Iron Ore Holdings, for A$250 million ($233.7 million), a deal that IOH has accepted. The mine life at BC Iron’s 75%-owned Nullagine mine in the Pilbara only has another seven years or so to run, and the company has its eyes set firmly on developing IOH’s flagship Iron Valley project.

But the terms of the takeover deal include the following clause, found on page 82 under conditions of the offer. In short, the deal is off, if:

“Between the Announcement Date and the end of the Offer Period (each inclusive), the Platts IODBZ00 IODEX 62% Fe CFR China iron ore price (converted from US dollars to Australian dollars using the official exchange rate published by the Reserve Bank of Australia on the relevant day) does not close below A$90/dmt on any 20 consecutive days on which Platts publishes an iron ore assessment.“

An analyst in Australia pointed out that Platts’ 62% IODEX price on September 3 of $85.75/dry mt CFR was A$91.72/mt at the current exchange rate. “I don’t expect the iron ore price will stay that low for 20 days in a row, but it could get scary,” he said.

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	Platts Steel Markets Daily is a leading source for scrap metal prices and iron ore news and prices. It is the only publication that publishes global metallurgical coal spot prices on a daily basis and contains two iron ore price benchmark assessments in one report: Platts IODEX and TSI 62% iron ore.