Murchison Metals will be left with just a few exploration tenements and little funds if it pays shareholders with cash received from the sale of key assets to Mitsubishi.
Murchison accepted $325 million from its Japanese joint venture partner for the Perth-based firm’s 50 per cent stakes in the proposed $6 billion Oakajee port and rail development and Jack Hills iron ore mine in Western Australia’s Mid West region.
Murchison earlier this year conceded it could not fund its share of Oakajee.
Chairman Ken Scott-Mackenzie told the annual general meeting in Perth on Thursday that the deal would leave Murchison with surplus funds of $200 million to $220 million after closing out a bridging facility with minority shareholder Resource Capital Fund.
Under the deal, Murchison must spend $11.2 million in the March quarter on feasibility studies for the port project and a planned second stage of the Jack Hills mine.
The company had only $6.2 million in cash at September 30 and the first stage of mining will soon end at Jack Hills.
“So there’s not going to be any incoming revenue leading into next year but there is still ongoing spending to be done,” Mr Mackenzie said.
Managing director Greg Martin said the company was considering distributing surplus funds from the sale to shareholders.
It would also potentially sell its small Rocklea exploration project in the Pilbara region, which currently had no significant value.
“If there is a reasonable offer for Rocklea, we would seriously consider it,” Mr Mackenzie told the meeting.
If Rocklea was sold and the Mitsubishi deal proceeded, Murchison’s remaining assets would be a few small mining tenements, Mr Martin said.
“The focus now for Murchison is to actually conclude this transaction or a superior transaction,” he told reporters after the meeting.
“Then clearly the board will turn its mind to what it then does with the company and with the cash that’s inside the company.”
Murchison is free to continue talks with other parties to see if it can secure a superior offer to Mitsubishi’s.
Mitsubishi had expressed no interest in an outright takeover of Murchison, he said.
Key conditions of the deal are Foreign Investment Review Board approval and Murchison settling a legal stoush with Chameleon Mining for less than $25 million before December 23.
Chameleon said in a statement that it expected to enter talks with Murchison about a potential settlement in coming weeks, which Mr Martin said would be in the best interest of both companies.
Both Mr Martin and WA premier Colin Barnett said they hoped the transaction would be successful because it brought stronger players with better balance sheets to the Oakajee project, which was being designed to cater for several Mid West players.
Mr Barnett also said the deal was “not the final piece in puzzle” because Mitsubishi was expected to sell some of its interest to Chinese parties.
Murchison shares soared on news of the deal after emerging from a trading halt entered into on Monday, closing up 52.7 per cent at 42 cents.
Chameleon shares jumped 20 per cent to 0.6 cents.
