Australian mining giant Fortescue (ASX: FMG) has made a takeover bid worth as much as $254 million for up-and-coming Pilbara iron ore mine developer Red Hawk Mining (ASX: RHK).

Red Hawk operates the Blacksmith project, the largest direct shipping iron ore project in the Pilbara not owned by one of the major iron ore producers.

An independent expert’s report from BDO Corporate Finance (WA) has concluded the offer is fair and reasonable to Red Hawk shareholders.

Board recommendation

The Red Hawk board has recommended Fortescue’s proposal to acquire all of Red Hawk’s fully paid ordinary shares for a cash consideration of $1.05 per share.

The price increase to $1.20 per share if Fortescue acquires a relevant interest in 75% or more of Red Hawk shares within seven days.

The offer in its original form represents a 29% premium to Red Hawk’s 30-day volume-weighted average price (VWAP) to 24 January 2025.

That jumps to a 48% premium to Red Hawk’s 30-day VWAP to 24 January 2025 should the increased price apply.

Funding alignment

Red Hawk said the Fortescue offer aligns with the alternative funding options identified in the Blacksmith pre-feasibility study (PFS) released in May 2024.

Red Hawk conducted a comprehensive strategic process following the completion of the PFS, engaging extensively with debt providers, offtake partners, iron ore producers and potential joint venture partners or acquirers.

The company engaged with 17 parties including international groups, financiers and iron ore producers—including Fortescue—as well as steel mills and commodity traders.

Detailed discussions were held with certain parties across a range of opportunities, including a potential corporate transaction for a full or partial sale of the Blacksmith project.

Superior value

From this process, the offer from Fortescue emerged as the most compelling Red Hawk had received and, in the board’s estimation, provided superior value to Red Hawk pursuing development of the Blacksmith project independently.

Red Hawk chair Cheryl Edwardes said that, while the company firmly believes Blacksmith has the potential to be a major iron ore project, developing a project of this scale involves significant cost, time and risk.

This is especially so in the context of an uncertain broader global economic outlook.

“The board is very proud of the significant work completed by the Red Hawk team to date […] and believes that the offer is well-deserved recognition of this hard work and the significant value it has created.”