Asset sales for struggling mid-tier players

TWO Western Australian resources companies have sold their main assets during the past week, proving that not every commodities play is a winner, especially in the mid-tier space.

The biggest deal was the agreement by Murchison Metals to sell its 50 per cent stakes in Oakajee Port & Rail and Crosslands Resources to its joint venture partner Mitsubishi for $325 million after it ran out of time to fund the project.

A much smaller deal was that of Tap Oil, which exited its troubled stake in the Harriet joint venture, selling it to majority owner Apache Energy for around $10 million.

While vastly different in scale, both deals involve the company severing ties with its major asset under pressure from the markets. Both also involved small companies selling to much bigger joint venture partners.

In the case of Murchison, the company is largely a cash box after selling out of Crosslands, through which it held its interest in the Jack Hills iron ore project in the state’s Mid West, and the proposed $6 billion port at Oakajee north of Geraldton.

Speculation had long centred on Murchison’s ability to fund its half of the mine and port, both massive projects in their own right. That was heightened by the state government’s focus on seeing Oakajee receive funding approval by the end of last year.

Murchison will have $223 million to distribute to shareholders, or invest, after paying out debts including $20 million to Chameleon Mining, to settle litigation over tenement ownership, and $61.4 million to Resource Capital Funds to extinguish a debt facility.

According to the WA Business News online corporate finance database, Mitsubishi was advised by Macquarie Capital while Murchison was advised by Rothschild and O’Sullivan Partners, with KPMG brought in as the independent expert (see story page 13).

The sale by Tap Oil, advised by Miro Advisors, ended an even longer-running saga. Its 12.2 per cent stake in the Harriet joint venture was sold to Apache, which already held 68.5 per cent. 

The drama surrounding Tap’s exposure to gas contracts with Burrup Fertilisers and issues relating to the Varanus Island gas explosion had gone on for years. Even the collapse of Burrup at the end of 2010 did not bring that matter to a head. Apache, advised by PwC, acquired the majority stake in Burrup in December but Tap said that did not necessarily extinguish its potential liability.

Under last week’s deal, Tap retained third party gas contracts, which will generate approximately $30 million in revenue.