Red Hawk Shareholders Face Dilution and Delisting Risks if Fortescue Takeover Rejected
Red Hawk Mining Limited has issued a Target’s Statement recommending shareholders accept Fortescue’s off-market takeover offer at $1.05 per share, rising to $1.20 if Fortescue secures 75% ownership. An independent expert confirms the offer is fair and reasonable, providing a significant premium and resolving funding uncertainties for Red Hawk’s Blacksmith Project.
- Fortescue’s takeover offer: $1.05 base price, $1.20 if 75% ownership achieved
- Red Hawk directors unanimously recommend accepting the offer
- Independent Expert’s Report by BDO finds offer fair and reasonable
- Blacksmith Project: 243 Mt iron ore resource with 46 Mt probable ore reserve
- Risks of not accepting: share price decline, dilution, minority shareholder status
Fortescue’s Offer and Red Hawk’s Response
On 28 January 2025, Red Hawk Mining Limited (ASX: RHK) formally responded to an off-market takeover offer from Fortescue Ltd (ASX: FMG) via its wholly owned subsidiary FMG Pilbara Pty Ltd. The offer values each Red Hawk share at $1.05 in cash, with a conditional increase to $1.20 per share if Fortescue secures a relevant interest of 75% or more by 7.00pm AEDT on 4 February 2025.
Red Hawk’s board, including an Independent Board Committee chaired by The Hon. Cheryl Edwardes, AO, has unanimously recommended that shareholders accept the offer at both the base and increased prices, subject to the independent expert’s continued conclusion that the offer is fair and reasonable. This recommendation comes amid Fortescue’s existing 19.99% relevant interest in Red Hawk shares through Call Option Deeds with substantial shareholders Todd and OCJ.
Independent Expert’s Assessment
BDO Corporate Finance Australia Pty Ltd, engaged as the independent expert, has concluded that Fortescue’s offer is both fair and reasonable to Red Hawk shareholders. Their detailed report, appended to Red Hawk’s Target’s Statement, compares the offer price to the assessed valuation range of Red Hawk shares on a controlling interest basis, finding the offer price significantly exceeds the intrinsic value of the shares.
BDO’s valuation incorporates a sum-of-parts approach, relying heavily on the independent technical valuation by SRK Consulting of Red Hawk’s key mineral assets, including the Blacksmith and Anvil projects. The Blacksmith Project alone holds a substantial 243 million tonnes (Mt) of iron ore mineral resources at 59.3% Fe, with a probable ore reserve of 46 Mt at 60.5% Fe, underscoring the project’s strategic value.
Strategic and Financial Considerations
The offer represents a significant premium to Red Hawk’s recent trading prices, with the base offer price reflecting a 28-35% premium across various volume-weighted average price (VWAP) measures. The increased offer price, if triggered, offers an even more attractive premium of 46-54%. This premium provides shareholders with immediate and certain cash value, eliminating exposure to the inherent risks of project development and funding uncertainty.
Red Hawk’s cash position was $1.3 million at 31 December 2024, with recent proceeds of $3 million from the sale of a non-core royalty to Fortescue’s subsidiary. Despite this, the company is likely to require additional equity capital in the near term, which could dilute existing shareholders if the offer is not accepted.
In addition, if shareholders reject the offer and Fortescue gains control of between 50.1% and 90% of shares, minority shareholders may face reduced influence, lower liquidity, and potential delisting risks. Fortescue has indicated its intention to delist Red Hawk should it acquire more than 75% ownership, subject to ASX requirements.
Project and Market Context
The Blacksmith Project, located in the Pilbara region of Western Australia, is well positioned near major iron ore operations and infrastructure, including the Utah Point Bulk Handling Facility in Port Hedland. The project’s pre-feasibility study completed in May 2024 outlined a robust 23-year mine life with production ramping up to 5 Mtpa of direct shipping ore (DSO) fines.
Fortescue, a global iron ore leader with substantial financial resources and infrastructure, is well placed to advance the Blacksmith Project’s development. Its acquisition of Red Hawk aligns with its strategic expansion and consolidation in the Pilbara iron ore sector.
Next Steps for Shareholders
The offer remains open for acceptance until 7.00pm AEDT on 3 March 2025, unless extended. Red Hawk shareholders are encouraged to carefully consider the Target’s Statement, the independent expert’s report, and their personal circumstances before deciding. The directors and key management personnel have indicated their intention to accept the offer, reinforcing confidence in the transaction.
Shareholders who are uncertain may choose to wait until the increased offer price condition is met before accepting. Alternatively, shareholders may opt to sell shares on-market, though this may result in missing out on the premium offered.
Bottom Line?
As Fortescue seeks to consolidate control, Red Hawk shareholders face a pivotal choice between immediate premium cash and the uncertainties of independent development.
Questions in the middle?
- Will Fortescue secure 75% ownership by 4 February to trigger the increased offer price?
- Could a superior proposal emerge before the offer closes on 3 March 2025?
- What are the implications for minority shareholders if Fortescue gains between 50.1% and 90% ownership?