Atlas Iron Ltd. (AGO.AU) offered A$828 million for Giralia Resources N.L. (GIR.AU) Tuesday, in a deal recommended by Giralia's board, which would create a merged group worth around A$2.5 billion.

Atlas said Giralia shareholders could choose between an all-share offer or a share-and-cash takeover, giving an implied offer price of A$4.57 for Giralia's shares.

"The two companies have deposits that either join or are very close to each other at Mount Webber, McPhee Creek, Beebyn Range and Western Creek. This merger is a great way to grow production, reduce operating costs, maximise cash flows and deliver significant value for all shareholders," said Atlas Managing Director David Flanagan:

Under the offer, Giralia shareholders would be able to accept either 1.5 Atlas shares or 1.33 Atlas shares plus A$0.50 cash for each of their own shares.

Atlas said that Giralia's McPhee Creek project could be combined with its own assets to create a 20 million tons a year mining hub at the Turner River.

Atlas currently produces around 6 million tons a year in ore trucked to Port Hedland from its mines in the eastern Pilbara, but is carrying out a feasibility study due in June 2011 over expanding the Turner River Hub to 12 million tons a year.

-By David Fickling, Dow Jones Newswires; +61 2 8272 4689; david.fickling@dowjones.com