Hi all, here's an article that partially explains the share price slump.
Murchison Shares Slump on Project Funding Concern (Update1)
By Jesse Riseborough
Sept. 18 (Bloomberg) -- Murchison Metals Ltd., seeking to develop a A$3.5 billion ($2.8 billion) iron ore project with Japan's Mitsubishi Corp., fell to its lowest in almost two years in Sydney trading on concern borrowing costs may rise.
Murchison slumped 17 percent to A$1.10 at the 4:10 p.m. Sydney close on the Australian stock exchange, the lowest since Dec. 4, 2006. The stock has slid 44 percent this week, giving it a market value of A$453 million. Mitsubishi fell 0.2 percent to 2,380 yen in Tokyo.
Asian stocks slid to the lowest level in three years as credit markets seized up, pushing the corporate bond default risk to records in the region today. Mitsubishi, responsible for arranging the debt funding for the project, will need as much as A$2.5 billion in loans to fund the Oakajee port, rail and mine project in Western Australia, John Veldhuizen, a resources analyst at BBY Ltd., said today by phone from Sydney.
``These are large, hungry, capital intensive projects which need lots of money,'' Veldhuizen said. ``It is just a total crisis of confidence.''
An initial study into developing the Oakajee project is scheduled to be completed by the middle of next year and, if approved, the port may open as early as 2012. Murchison and Mitsubishi won a tender to develop the port in July, beating a rival proposal from a China-backed venture.
``We are pretty surprised by the reaction,'' Murchison Chief Financial Officer John Westdorp said today in a phone interview. ``Clearly we are getting caught up in the panic that's going on in the market.''
Mitsubishi spokeswoman Yukari Abe declined to comment.
Talks with Banks
Murchison has A$165 million in cash, and will continue talks with banks through to the completion of a feasibility study due at the end of next year, Westdorp said. The company is talking with ``major domestic banks'' and ``significant offshore banks,'' he said, without naming them.
The debt may amount to more than A$2 billion, he said, without providing a specific amount.
The Oakajee port will be able to ship 35 million tons of iron ore a year and construction may start in 2010, Christopher Eves, chief executive officer of the Oakajee Port & Rail Pty venture, said July 30. Eves said the project may cost 17 percent more than an earlier A$3 billion estimate after adding on the cost of trains and wagons to the project.
Capital Costs
``If Mitsubishi wasn't there, given the capital cost of this project now and the size of the resource base and the difference in the resource base, in this sort of market it would have been nearly impossible to fund,'' BBY's Veldhuizen said.
Mitsubishi and Murchison are seeking to take advantage of rising iron ore prices which have gained for six consecutive years to a record. Prices may climb 18 percent in 2009, Goldman Sachs JBWere Pty said in a Sept. 16 report.
``Mitsubishi's strength is unquestioned and not undermined in any way by what is going on at the moment,'' Westdorp said. ``If you have got to look at who in the future will in this uncertain climate be able to attract funding support, you'd have to say it is an organization like Mitsubishi.''
To contact the reporter on this story: Jesse Riseborough in Melbourne at [email protected]
Last Updated: September 18, 2008 03:54 EDT
MMX Price at posting:
$1.20 Sentiment: Buy Disclosure: Held
