murchison looks to put up 'for sale' sign

Murchison looks to put up 'for sale' sign

PETER KLINGER, The West Australian
July 25, 2011, 7:14 am

Murchison Metals' new management team is expected to head to Canberra this week to try to ascertain whether the Federal Government would have any objections to a takeover of the embattled proponent of the Oakajee port and Jack Hills iron ore mine in the Mid West.

Having already conceded that it does not have the financial muscle to fund its share of developing the two projects worth $10 billion, Murchison is understood to have asked the Foreign Investment Review Board for a briefing to help understand the regulator's position and ensure any potential rescue deal is not thwarted by Canberra.

The FIRB visit would continue a whistlestop tour by new managing director Greg Martin to various Murchison stakeholders, including joint venture partner Mitsubishi, since his surprise appointment to the top job three weeks ago as part of the board's last-ditch attempt to rescue the embattled company.

At the same time Murchison and its corporate advisers, Rothschild and O'Sullivan Partners, began a strategic review to address a pending funding shortage that could top $2 billion.

Although all options are being considered, including selling part of Murchison's stakes in Jack Hills and the Oakajee Port and Rail venture, it appears most likely that a rescue plan will include an overseas strategic investor becoming Murchison's biggest shareholder, or the party even launching a full takeover bid. Either scenario would require FIRB approval.

FIRB has previously been asked to consider Murchison's takeover status when potential suitor Sinosteel Corp lodged an application in 2008 to acquire 100 per cent of the Perth company. However, Treasurer Wayne Swan decreed that Sinosteel could only acquire an interest of up to 49.9 per cent.

Murchison's problems stem from the fact that the OPR project remains unviable, having failed to sign up customers to use the $6 billion port and rail infrastructure development. One of the proposed customers is Jack Hills.

OPR's tariff structure, thought to be more than $40 per tonne of iron ore, has rendered both Jack Hills and Sinosteel's Weld Range, another proposed customer, unviable. As a result neither has signed a supply chain agreement (SCA) with OPR.

Mr Martin, who visited Tokyo earlier this month, is expected to have argued with Mitsubishi that OPR's tariffs have to be drastically reduced to ensure customers sign up. This would require a reworking of OPR's operating model.

There is some hope within Murchison that SCA talks with Sinosteel could resume next month, assuming Mitsubishi is supportive.

The resumption of talks is crucial for Murchison as it tries to find a white knight to ease its financial burden. Any prospective investor in OPR and Murchison would need a degree of comfort that SCAs are achievable.

Premier Colin Barnett has given Murchison until the end of this year to come up with a workable model for OPR or risk losing the mandate to develop the port.

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