THE BOURSE WHISPERER: The worst kept secret of the last week was revealed when Murchison Metals announced it had entered into a conditional sale agreement with Japanese company Mitsubishi in relation to all of the former’s interests in Crosslands Resources.
Crosslands Resources is the owner of the Jack Hills expansion project, and the much anticipated Oakajee Port and Rail project.
Proposed site of the Oakajee port. Source: OPR web site
Speculation had been mounting since Murchison was placed in a self-imposed trading halt earlier this week that Mitsubishi would emerge to take control of the $6 billion Oakajee port and rail project with $325 million straining the seams of its trouser pockets.
After it has managed to offload its Crossland interests Murchison will have no ongoing exposure to the risks associated with project development, or the requirement to continue funding their ongoing development.
As it clicked the top of its biro over the agreement, Murchison agreed to continue funding Crosslands and OPR through to completion.
It has agreed to support interim budgets for the period from 1 January 2012 to 31 March 2012, capping its net exposure to the interim budgets at $11.2 million.
Subject to a pro rata scale back the transaction should be completed before 31 March 2012.
Now with a whack of cash, some early stage projects in the Pilbara region of Western Australia, and a reasonable amount of debt; it will be interesting to see where the company heads to from here.
The transaction is subject to a limited number of conditions. These include gaining the approval of Murchison shareholders at a meeting scheduled to occur prior to 15 February 2012.
Under the terms of the transaction, Murchison is free to continue to seek superior proposals up until and if it gets the nod from shareholders.
Should the Murchison Board opt to change its recommendation supporting the transaction, recommends a third party proposal or terminates the Share and Asset Purchase Agreement due to a superior proposal it will be liable to pay a break fee of $3 million.
“The company has tested third party interest in Murchison and its assets over recent months, and at this time it is the Board’s unanimous view that the transaction is in the best interests of shareholders,” Murchison Metals managing director Greg Martin said in the company’s announcement to the Australian Securities Exchange.
“The Murchison team has worked extremely hard to unlock value for its shareholders in recent months, and it is our view that the transaction represents a solid outcome in very challenging circumstances.
“Mitsubishi has put forward an offer that represents a good financial result for Murchison shareholders, although we will also continue to pursue discussions with other parties to give shareholders comfort this is the best option available.”
That Murchison has decided to pull the pin shouldn’t really be all that surprising.
Hindsight is often quoted as being a wonderful thing and a passage from the company’s update to the market in October probably should have raised more eyebrows than it did.
“Murchison considers that the project schedule is largely dependent on the resolution of commercial arrangements between OPR and its targeted foundation customers,” the company said.
“To date, agreement on these commercial arrangements has not been achieved, such that the project development schedule remains uncertain.
“Murchison believes that restructuring the ownership of OPR represents the best means of achieving a commercial outcome that meets the needs of all parties and would enable the projects to proceed.
“Consequently, Murchison is actively engaging, or seeking to engage, with all stakeholders and parties with an interest in the development of the projects, including the WA Government, to achieve such an outcome.”
There’s no more certain way of ‘restructuring the ownership of OPR’ than selling it.