mmx should cast an eye over gwr, page-5

Sydney Morning Herald article November 1

Murchison's bid for Midwest 'premature'
Email Printer friendly version Normal font Large font November 1, 2007 - 3:49PM

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Murchison Metals Ltd's hostile takeover bid for Midwest Corporation Ltd not only undervalues the company but is premature, the target's chief executive says.

Murchison is offering one of its shares for every 1.08 Midwest shares, valuing the scrip deal at about $1.04 billion.

"A better timing for any deal would be in six months when we understand what resources we've got and are properly valued in the market according to those resources," Midwest chief executive Bryan Oliver said.

"Our long-term investors have the luxury of being able to sit and wait until the resources are better defined, and then you know you've got fair value.

"We're being offered scrip for scrip, so we have to look at the relative issues.

"We're only looking for more certainty for what value any party would offer in a 50:50 joint venture."

Mr Oliver told journalists it was unlikely Midwest would try to take over its predator in the foreseeable future.

"Anything is possible, but presently we don't think the relative values are in balance to support Midwest bidding for Murchison," Mr Oliver said.

"We don't see any imperative to do a deal right now."

He reiterated Midwest's assertion that Murchison does not have necessary resources in Western Australia's mid west region, where the two companies operate, to underpin its bid.

He said Midwest was substantially better positioned, offering far more iron ore assets to a merged entity, and was therefore undervalued by the bid.

In the mid west, Murchison has a 97 million tonne iron ore resource, entirely at its Jack Hills project, while Midwest's is 554.2 million tonnes.

However, Murchison and many analysts have ascribed no value to Midwest's Koolanooka magnetite exploration project, which forms the vast majority of its total resource at 430 million tonnes.

The most important figure is the reserve - the part of a resource that is deemed mineable - with Murchison holding 8.5 million tonnes compared with Midwest's resource of 8.4 million tonnes.

Both companies have recently undermined each other's projects, with Mr Oliver saying on Thursday he did not expect Murchison to deliver "anything significant" from its Weld Range exploration project.

"We hold a very large footprint in the (Weld Range) area ... Murchison's tenements in the area are minor," he said.

He described Murchison's Weld Range project as being "remnants" of Midwest's project of the same name, which has a direct shipping ore resource of 114.4 million tonnes.

However, he said that Midwest's Jack Hills exploration project was likely to be smaller than Murchison's producing project of the same name.

Mr Oliver said he presumed recent discussions between Murchison and Midwest's largest shareholder, British Virgin Islands-incorporated Armadale Offshore Inc, were not successful.

He said Armadale would believe fair value was not going to be offered for Midwest.

However, Murchison claimed early last month that Armadale had indicated that it believed there was value in the proposition.

"We're saying that there are likely to be some benefits in the two companies merging together but the question of the major shareholder will be the same one that I've articulated today, which is whether relative value is being offered," Mr Oliver said.

Shares in Midwest were 2.12 per cent higher to $5.30 at 1454 AEDT Thursday, while Murchison's shares were 0.37 per cent higher to $5.39.