The famed Mineral Resources Christmas ham hamper had only just been sent out to key partners and suppliers when the Chris Ellison-led mining services juggernaut delivered a festive present of a different currency to Norwest Energy’s about 6700 shareholders.
MinRes’ (ASX: MIN) scrip offer for Norwest (ASX: NWE), announced on Friday to value the target at $403 million or 6¢ a share, might not be as surprising as the timing was.
Ever since September last year when MinRes made the bumper Lockyer Deep conventional gas discovery on permit EP368 in the Perth Basin, investors have taken a keener interest in the highly prospective but underexplored onshore acreage north of Perth.
In particular, they have wondered if MinRes, as the EP368 operator and 80 per cent owner, would move to consolidate the permit by picking up Norwest’ 20 per cent stake. The fact MinRes already is Norwest’s largest shareholder with 19.9 per cent added to the market’s view of a bid as when, not if.
MinRes, which has been steadily building its Perth Basin position since 2015, is the region’s largest acreage holder and has been systematically establishing and executing its exploration strategy.
The potential of the Perth Basin has long been talked about, not least because of its easy access to key pipelines and proximity to Western Australia’s dominant energy markets of the Perth metropolitan area and the South West. It took one-time ASX-listed stock AWE to inject some energy into the Basin with its Waitsia discovery in 2014 before Strike Energy (ASX: STX) and Warrego Energy (ASX: WGO) added the West Erregulla conventional find in 2019.
As an aside, MinRes was an underbidder in the takeover battle for AWE in 2018 (the winning suitor was Mitsui) while Gina Rinehart’s Hancock Prospecting is in pole position to secure Warrego in an auction underway at the moment.
MinRes’ move on Norwest is different, however, because unlike the battles for AWE and Warrego this is about consolidating a Perth Basin position, not creating one.
The Lockyer Deep well spudded in July 2021 and by September that year, having reached a total depth of 4274m, was declared “a significant discovery”.
Norwest’s stake in EP368 and a similarly sized holding in nearby EP426 are its core assets and the company’s future success – and project cost contributions – dependent on what MinRes, the operator of both permits, does.
Appraisal drilling of Lockyer Deep is expected to start next month.
MinRes wants to make substantial gas discoveries in the Perth Basin to provide a low-cost, long-life energy source for its iron ore and lithium operations across Western Australia. In addition, the introduction of owned gas will allow MinRes to increasingly remove diesel from its energy mix en route to net zero by 2050.
Lockyer Deep should play a key role in MinRes’ dual-focus gas strategy and the market is now awaiting news on the discovery’s size (expected to be more than a trillion cubic feet), development options and capital cost.
Mr Ellison told investors on Friday he expected Lockyer Deep to produce first gas around 2025 while providing some colour around the timing of the Norwest bid.
“We need to clean it (the Lockyer Deep ownership structure) up and bring it in-house, it will make it easier for us going forward,” he said.
“It’s about $15 million a (drill) hole to try to find out how much (gas) is there. We really truly don’t know how much gas is there until we put down 3 or 4 more holes.
“A couple of others in the (Perth) Basin have been a bit bullish on what they have found … and they have had to pull back.
“I don’t want to be in a position of creating false expectations to pump our share price, I just want to tell the news as it is.
“We really don’t know until we can get the drill rods cranked on it.
“We got some great news first hole in the ground, whoopee we got gas, but we have been around long enough to know that as we progress anything you get some bad news some days as well.
“There is no particular reason for the timing (of the Norwest bid). It’s Christmas time, we give the Norwest guys the ultimate present – MinRes shares wrapped in a bow.”
Norwest’s board has issued the standard “take no action” interim response while it ponders its next move.
As a share-swap offer – one MinRes unit for every 1367 Norwest shares (Norwest has 6.7 billion shares on issue) – the implied value of Norwest will move in line with MinRes’ share price and investors will focus on the suitor’s share price performance and forecast.
The Christmas present quip was Mr Ellison’s call to Norwest shareholders to see the value of becoming a MinRes investor – and participate in the potential MinRes share price upside he is so confident about – rather than focusing on a cash offer.
Norwest jumped 31 per cent to 5.9¢ in response to the bid news – and aligned with MinRes’ Friday close of $81.22.
As MinRes’ bidder’s statement, released on Friday night, emphasised, the suitor’s track record of delivering sustained value for shareholders is almost unmatched among ASX200 companies.
No one can deny MinRes’ extraordinary performance since the company listed on the ASX in 2006 at 90¢.
There is no guarantee of future success though some of the analysts who follow MinRes maintained their bullish stance upon hearing of the Norwest bid news.
Barrenjoey has an $88 share price target, Macquarie is at $127, Bank of America is at $95, Bell Potter is at $100 and Royal Bank of Canada is at $98.
MinRes’ bid is almost unconditional, a rarity in today’s M&A world, and there is no minimum acceptance hurdle.
The fact Norwest’s shares immediately jumped to the see-through bid value suggests the market expects MinRes to be successful once the offer opens for acceptance by the target’s shareholders in early January.