AFTER months of negotiations, WPG Resources has sold its iron ore assets in South Australia to OneSteel Limited for $320 million, equivalent to $1.32 per share.
The sale, during a period of historically high iron ore pricing, represented an impressive 350 per cent return on WPG’s investment of $70 million in 2006. According to WPG chairman Bob
Duffin, the sale delivered a number of attractive benefits to shareholders in an otherwise turbulent international market.
“What this deal does is deliver certainty to the shareholders in what is a very volatile and uncertain economic climate,” Mr Duffin said. “Shareholders will benefit from the certainty of a cash distribution of $1.05 per share, which will be made up as a fully franked dividend of $0.63 per share (with an attractive franking credit of $0.27 per share) and a return on capital of $0.42 per share.”
The $1.32 per share price tag represented a premium of 49 per cent on WPG’s closing share price of $0.885 on August 19, and 46 per cent, 42 per cent and 49 per cent respectively on WPG’s
10, 30 and 90 day volume-weighted average prices.
In the deal, OneSteel acquired the Peculiar Knob mining lease, the Buzzard mineral claim and all of the approval of tenements in the Coober Pedy area necessary to develop the Peculiar Knob project, the Hawks Nest exploration licence, and the Mt Brady and Windy Valley tenements.
The transaction included the sale of WPG’s subsidiaries Southern Iron, Central Iron and Coober Pedy Resources on a cash-free, debt-free basis. However, the sale did not cover WPG’s other subsidiaries – including Spencer Gulf Ports, which owns land in Port Pirie and the right to develop a bulk commodities export facility according to development consent previously announced.
Furthermore, the acquisition did not involve the sale of the Southern Coal Holdings and Evergreen Energy joint venture that owns the Penrhyn and Lochiel North coal deposits, and which has the exclusive rights to use Evergreen’s coal upgrading technology in Australia for the first 15 million tonnes per annum of product coal from any project, not just from tenements that it currently owns.
WPG acquired all of the issued capital in Southern Iron in 2006 with the intention of developing state-of-the-art infrastructure on its land at Port Pirie to enable the transport, storage and export
of iron ore.
According to Mr Duffin, OneSteel approached WPG in June this year with an offer to purchase and, after careful consideration, the WPG board agreed to sell.
“OneSteel approached us quite out of the blue and said they were interested in our project because they wanted to expand their own scale of operations and expand their port at Whyalla,” he said.
“We were certainly not a forced seller. We took the view that it’s best to monetise the deposit now rather than wait until we are forced to respond with a climbing iron ore environment. We responded to an opportunistic approach and we are very happy with the outcome.” The sale was dependent on a number of items including approval by WPG’s shareholders, which was granted in
October. As part of the arrangement, OneSteel would provide a bridging finance facility of up to $140 million to enable project development to continue at its current pace. “We have the certainty that we have the funding to develop the project and they have agreed to that. So in the most unlikely event that the transaction doesn’t proceed, then the project itself will proceed nonetheless,” Mr Duffin said.
According to OneSteel chief executive officer Geoff Plummer, OneSteel’s objective was to continue the development of the Peculiar Knob mine (which included a port) with the aim of lifting the rate at which the company could ship. OneSteel planned to start shipping the additional capacity in the last quarter of the next calendar year.
“The announcement reflects significant work carried out by the company over an extended period to ensure we maximise the opportunities from our port facilities at Whyalla, and
is consistent with our stated strategy of investing to grow our resources-focussed mining and mining consumables businesses,” Mr Plummer said. The strategic decision to diversify and strengthen OneSteel’s holdings came just days after rival BlueScope Steel announced it would slash at least 1400 jobs across the country as the high Australian dollar and weakening domestic demand continued to plague the steel making industry. Mr Plummer said the acquisition would complement a near doubling of its iron ore export capacity from 6.5 million “Opportunistic approach” reaps rewards
The Penrhyn coal deposit lies within the Arckaringa Basin, and the quality of its sub-bituminous coal is generally similar to other coals from the region The 2010 drilling program defined four significant coal seams together with two coal-bearing stratigraphic horizons that host between two and four seams Remediation work at Port Pirie is near completionmetric tonnes to about 12mmt a year by the end of 2012. “We expect the combination of the high-quality iron ore and our ‘speed to market’ through our proven capability to quickly expand the port and related infrastructure will deliver attractive returns for OneSteel and its shareholders,” Mr Plummer said. Half of WPG’s 20-person-strong employee base was offered employment
with OneSteel, along with all of the construction and service provider contractors who were already engaged by WPG to develop and operate the Peculiar Knob project. The remaining staff members would stay with WPG, eager to see the next project through.
“We have been successful in delivering this project and an excellent return to shareholders…and we are all motivated to do it again,” Mr Duffin said.
“We are in the business of looking for new investment opportunities right now and we have set ourselves a pretty clear set of guidelines as to what it is exactly that we are looking for, where it occurs and how we can repeat this experience for the benefit of everyone.”
Mr Duffin said that WPG – having exited the deal with $16 million in the bank, as well its coal projects in South Australia, virtually all of its key management staff and its most tactical asset, Port Pirie, intact – would continue to look for further value-adding investment opportunities.
“We have the key block of land and the development approvals to construct the bulk commodities facility in Port Pirie…that’s a pretty strategic asset,” he said.
“As everybody in the bulk commodities business finds out sooner or later, the key to being able to develop successful business is the ability to get the product to the market. “In Port Pirie we’ve solved that port access issue. So while we won’t be developing Port Pirie for our own Peculiar Knob project, we will be using it as leverage to acquire interests in other iron ore and coal projects.”
By Kate Christou