Murchison Metals shareholders have backed the sale of key assets to the company’s equal joint venture partner, Japan’s Mitsubishi, clearing the way for the $325 million deal to proceed.
Murchison’s investors overwhelmingly approved the deal at the company’s general meeting in Perth on Monday.
Mitsubishi is now left seeking a new joint venture partner for the $6 billion Oakajee port project in Western Australia’s Mid West region, after buying Murchison’s 50 per cent stake.
The Japanese trading giant also bought Murchison’s half stake in Crosslands Resources, the joint venture company that holds the Jack Hills iron ore mine, where the first stage of production was recently completed.
Since the sale was announced in November, Murchison had sought alternative proposals, but none had emerged, chairman Ken Scott-Mackenzie told the meeting on Monday.
He said it had been a very difficult year, with Murchison forced to admit it could not afford its planned projects.
The Oakajee port project, plus a $4 billion second stage of mining at Jack Hills would have cost $10 billion in total.
But Murchison had a looming debt repayment deadline, after drawing down much of a $US100 million facility with financier Resource Capital Fund, and little more than $2 million in cash at the end of December.
Mr Scott-Mackenzie said the deal allowed Murchison to realise cash value for the assets at a time of great risk to project execution, amid escalating costs and tightness in equity markets.
The only asset it is not selling to Mitsubishi is a small exploration project, Rocklea in WA’s Pilbara region, but this is also being reviewed for potential sale.
“The company will cease to hold any interests in any major operating or development projects,” Mr Scott-Mackenzie told shareholders.
Managing director Greg Mr Martin told reporters he believes Mitsubishi will introduce “significant players” to help execute the Oakajee and Jack Hills Stage 2 projects in coming years.
But for Murchison, it is “the end of an era”. “The regret is these projects outgrew the size and scale of Murchison’s balance sheet,” Mr Martin said.
Oakajee has been on the cards for well over a decade and has been designed to provide an alternative to the congested Geraldton port for the Mid West’s iron ore miners, including Gindalbie Metals.
The project started to unravel, however, when would-be foundation customer Sinosteel mothballed plans to develop its Weld Range iron ore project in the Mid West and the development cost of Oakajee shot up.
WA Premier Colin Barnett has attempted to attract Chinese involvement in Oakajee, but has conceded it won’t be easy.
A recent comment piece in Chinese newspaper The Global Times said China should not invest in Oakajee because there is a risk such a deal can be reneged on, citing Rio Tinto’s termination in 2009 of an investment agreement with Chinalco.
One thing is certain: Murchison won’t be returning to the Mid West under the terms of the Mitsubishi deal.
Post-deal and after existing debt is paid, Murchison will have $217 million in cash.
The board would like to return surplus funds to shareholders, although some investors want the company to buy new mining projects, Mr Scott-Mackenzie said.
Murchison will seek a ruling from the Australian Taxation Office, so that any distribution of cash to shareholders will be treated as a capital return and not as an unfranked dividend, he said.
This process should take about six months and the company will in the meantime examine project acquisition opportunities, potentially in different commodities and jurisdictions, Mr Mackenzie said.
Murchison had been approached by parties seeking a cashed up player for joint ventures, but nothing compelling had emerged, he said.
