AFTER four years of setbacks, doubts and budget blowouts, Murchison Metals has disposed of its 50 per cent share in the Oakajee Port and Rail (OPR) joint venture and the operating company forthe Jack Hills mine, Crosslands Resources, leaving the future of the massive port and rail infrastructure project wholly in the hands of Japanese company Mitsubishi Development.
Murchison released a statement on February 20 confirming it had disposed of these assets for $325 million in cash, having gained shareholder approval at a general meeting on February 13. It said it would use these funds to pay Chameleon Mining a full and final settlement for litigation against
Murchison and Crosslands ($20 million); to repay a debt facility ($61.4 million); and for other commitments including employee entitlements and a provision for contract liabilities. Following this, Murchison’s available cash would stand at $223 million.
Murchison reported that this sum was slightly higher than the previously reported figure of $217 million as a result of the completion of the sale occurring earlier than the originally assumed date of March 31, reduced corporate expenditure and lower utilisation of the debt facility, in combination with a stronger Australian dollar.
Mitsubishi was not the first party to approach Murchison in relation to purchasing its share of Crosslands and OPR: in late November, Murchison reported it had been engaged with a number of parties in a strategic review and remained open to superior proposals.
However, it soon decided that Mitsubishi’s simple and clear all-cash offer was in the best interest of its shareholders. Murchison managing director Greg Martin said in the February statement that completion of the transaction marked the end of an era for Murchison.
“Murchison had a visionary proposal for the Mid West region which ultimately proved beyond its capacity, given market conditions. That vision is now left to others to realise,” Mr Martin said. “Fortunately, we have been able to secure a cash value for our Mid West assets which recognises the value built up in those assets over a number of years, as noted in the Independent Experts Report that was prepared for the transaction.
“Ultimately, this outcome is in the best interests of the company given the significant risks associated with the very large capital costs required to develop these projects, particularly for a company of Murchison’s size, and raising ongoing working capital.”
As a result of the sale, the Murchison management team has been reduced, with 14 employees retrenched. Chairman Ken Scott-Mackenzie will remain, along with a small number of key staff required to keep the company operating.
Murchison expected to release details of a board restructure in late February. “As detailed to shareholders, we will now commence a dual track process, seeking a
ruling from the ATO [Australian Taxation Office] and finalising other administrative matters in relation to a cash return whilst we also evaluate the merits of any investment opportunities in the natural resources sector,” Mr Martin said.
“The majority of the available cash will be placed on deposit with investment grade counter parties whilst these processes are undertaken. A decision as to which of these
options is ultimately pursued will be made by shareholders in due course.” OPR was established in September 2007 to design, develop, construct and operate new rail and port infrastructure to facilitate the shipping of iron ore from WA’s Mid West.
In March 2009, the WA Government signed an agreement with OPR for the development of a deepwater port 25km north of Geraldton and a 570km railway. The project was originally estimated to cost $3 billion but that price soon increased to $5.43 billion following the completion of a feasibility study in July 2011, prompting Murchison to place its share of OPR on the market.
By late 2011, the cost estimate had experienced a further blowout to $6 billion: $678 million of which the WA and Federal Governments agreed to fund. Crosslands chief executive officer Andrew Caruso said in a statement that the transaction would reignite confidence in the Jack Hill mine and OPR, helping to attract further investment in the projects.
“This is an important building block in the development of the Mid West as a truly world-scale iron ore province,” he said. With the mine having an operational life of more than 30 years, Crosslands estimated that more than 2000 workers would be required during the peak construction phase of the project, with 1200 employed during its operational life. The Jack Hill mine project and Gindalbie Metals’ Karara project are two of the proposed foundation projects for OPR.
By Rachel Seeley