Australian energy and resources market update

Articles Written by Stuart Clague (Partner), Jarrod Wilksch (Senior Associate), Candy Cheung (Associate), Haerim Nam (Associate), Cloe Woodward (Associate), Tom Barrett (Senior Associate)

The Australian Energy & Resources Market Update highlights recently announced deals, recently completed deals and market rumours and opportunities in the Australian mining, oil & gas and electricity and renewables sectors.

Mining

Recent announcements

 
Alt Resources receives takeover offer from Aurenne Group Holdings

On 7 May 2020, ASX-listed Alt Resources Limited announced that it received a conditional off-market takeover offer from Aurenne Group Holdings Pty Limited to acquire 100% of the shares in Alt Resources.

If accepted, the takeover will be conducted through a wholly owned subsidiary and for consideration of A$0.0505 per share.

Aurenne Group has agreed to lend A$3.68 million through a convertible note which will provide Alt Resources with funding security to meet its final vendor payment commitments in securing the Bottle Creek Gold Project mining leases as well as to continue delivery of the Maiden Ore Reserve and the Mt Ida and Bottle Creek Pre-Feasibility Study without further dilution.

Access the full ASX announcement here.

 

RNC Minerals to acquire Spargos Reward Gold Project in Western Australia

On 11 May 2020, Royal Nickel Corporation dba. RNC Minerals (RNC) announced that it entered into a purchase agreement to acquire the Spargos Reward Gold Project from Coronoa Resources Ltd.

Under the agreement, RNC is obligated to make a non-refundable payment of A$250,000 on signing for an exclusive three-month period to complete due diligence. A further A$4 million will be payable on closing by cash, RNC shares or a combination of both.

RNC reportedly will be subject to a minimum spending commitment of A$2.5 million on exploration and development at the Spargos Reward Gold Project for a two-year period post-closing.   

Access the full media release here.

 

APAC Resources proposes to seek mandate to boost shareholding in Metals X to up to 40% for maximum consideration of A$35m

On 15 May 2020, Hong Kong-based commodity trading house APAC Resources announced its 12 month mandate to increase its 15.31% shareholding in ASX-listed Metals X, Australia’s largest tin producer, up to 40% for a maximum consideration of up to A$35 million.

The announcement notes that APAC has continuously been looking globally for investment opportunities in listed securities in the resources sector in both resources investment and primary strategic investment business segments. It also noted that it wishes to acquire more shares in Metals X in the future.

Access the full media release here.

 

Decmil Group receives firm offer for Homeground asset

On 19 May 2020, ASX-listed Decmil Group Ltd. confirmed that it is negotiating with three serious buyers for the sale of its Homeground Gladstone Accommodation Village, a workforce accommodation asset revalued to A$56.6 million (previously valued at A$85.4 million). It has received one offer to date.

Decmil stated that the re-valuation was undertaken in light of falling oil prices and the impact of COVID-19 on tourism.

Access the full ASX announcement here.

 

Alkane Resources plans to demerge, list Australian Strategic Materials on ASX

On 20 May 2020, ASX-listed Alkane Resources Ltd announced its proposed demerger and ASX listing of its critical materials subsidiary, Australian Strategic Materials Limited (ASM). The demerger is subject to the finalisation of outstanding regulatory matters and shareholder approval. The shareholder meeting is expected to be convened in early July 2020.

If approved, Alkane shareholders will own the same proportional ownership in both Alkane and ASM. Eligible shareholders will receive one ASM share for every five Alkane shares held.

Access the full ASX announcement here.

 

Manuka Resources seeking Australian IPO

On 22 May 2020, Australian gold producer Manuka Resources Ltd lodged its prospectus with ASIC to raise as much as A$7 million through an initial public offering of its ordinary shares on the ASX.
The company owns the Wonawinta silver project and Mt Boppy Resources, which holds the Mt Boppy gold project.

The offer is valid from 9 June to 23 June 2020. The indicative market capitalisation upon completion of the offer is A$49.87 million at maximum subscription.

Access the full prospectus here.

 

Alto Metals receives takeover offers from Habrok Mining and Goldsea Australia Mining

On 22 May 2020, ASX-listed Alto Metals Limited received a proposal from Habrok (Alto) Pty Limited for an off-market unconditional takeover offer for all of the shares in Alto for A$0.066 per share, following previous conditional on-market takeover offers by Goldsea Australia Mining Pty Ltd for A$0.065 per share.  

Access the full ASX announcement here.

In response, Goldsea announced in its second supplementary bidder’s statement on 28 May 2020 that it intends to raise the offer price for its takeover offer to A$0.075 per share. The Goldsea takeover offers remain conditional on, amongst other things, Goldsea receiving FIRB approval.

Access the full ASX announcement here and the second supplementary bidder’s statement here.

 

Market rumours and opportunities

 
Archer materials screening acquisitions including battery technology targets – CEO

On 8 May 2020, Mergermarket reported that according to its CEO Mohammad Choucair, ASX-listed Archer Materials Ltd is screening potential acquisition targets as often as on a monthly or even weekly basis.

Archer reportedly changed its name last year from Archer Exploration to reflect its new focus on materials technology. According to Mergermarket, it is now looking to sell or partially offload its mining projects to forward its materials business, including for potential acquisitions.

The Campoona graphite project in South Australia is reportedly the company’s most advanced project and the CEO stated that Archer is seeking a joint venture partner for, or sale of, Campoona.  
Archer has a broad portfolio of mining projects including copper, gold, cobalt, manganese, tin, tungsten, nickel, aluminium, and magnesium with most of the projects located in South Australia.

 

Cobalt Blue in M&A discussions, Broken Hill equity partner talks continue – CEO

On 8 May, Mergermarket reported that ASX-listed Cobalt Blue Holdings Ltd is currently in M&A discussions to pursue cobalt in sulphide opportunities.

According to the article, Cobalt has engaged with four potential partners to assess whether cobalt and copper from pyrite and cobaltite ores can be extracted throughout Australia using its proprietary processing technology. These minerals may be in resource or already “semi” processed in tailings dams, a significant portion of which may be compatible with Cobalt’s technology.  

In addition, the company is reportedly actively seeking equity partners with creditworthiness to add further resource to the Broken Hill Cobalt Project. In particular, Cobalt is said to be looking for not only partners who can provide sound credit backing for their own project commitments but also assist Cobalt in financing its share of equity. Scale and technical superiority are among other factors which will be assessed in engaging an equity partner, in light of the fact that the Broken Hill Cobalt Project will become a top 10 global cobalt producer.

 

ACS exploring significant divestitures - reported rumour

On 20 May 2020, The Australian Financial Review reported that Spain-based construction group Actividades de Construccion y Servicios (ACS) may be considering the divesture of its Australia-based division, Cimic (which may include its Cobra (engineering, concessions) and Cleece (services units), valued at EUR 4.5 billion as part of a larger divesture project.  

According to the report, ACS has reportedly commissioned its management team and banks to propose potential divestitures in light of the 164% increase in its debt load since the first quarter and its diminishing cash reserves.

ACS had reportedly been in contact with an unnamed China-based multinational in relation to the sale of Cimic in 2019 prior to COVID-19. However, diplomatic problems between China and Australia have since frozen the possible deal, the item notes.

ACS’ mandate to JP Morgan to sell Cimic’s mining unit valued at EUR 1.9 billion reportedly is also yet to advance.

 

Evolution Mining hires Treadstone Partners to sell Cracow underground mine

On 20 May 2020, The Australian reported that ASX-listed Evolution Mining Ltd hired Treadstone Partners to advise on the sale of its Cracow underground gold mine in Queensland. Evolution is also expected to sell its smaller Queensland assets – the Mount Carlton and Mount Rawdon mines.

According to an earlier article by The Australian, Cracow generates A$36 million per year and is considered non-core for Evolution. It could be worth at least A$100 million.

The divesture is speculated to be an effort to raise proceeds for the purchase of a new asset to reshape its business. The company had acquired the Red Lake mining complex in Canada for US$475 million only months ago.

 

Tianqi’s majority-owned Greenbushes lithium mine draws interest from Albemarle, Fortescue Metals, Rio Tinto and Wesfarmers  

According to various reports from this month, Tianqi Lithium Corporation has hired Grant Samuel to explore options for selling all or parts of its 51% stake in Talison Lithium, an Australian lithium producer and holding company of the Greenbushes lithium mine in Western Australia.

Tianqi Lithium is understood to be talking to banks about easing the terms of its debt. According to a local media report referred to in Mergermarket’s article on 11 May, Tianqi Lithium has up to CNY 30 billion of interest-bearing debts and more than CNY 40 billion shadow debts on which it provided repayment guarantee. Its two lithium hydroxide projects in Kwinana, Western Australia are reportedly yet to commence production and could face impairment losses. The company’s debt also includes a A$3.5 billion loan to buy a stake in Chilean miner SQM, the biggest rival of US-based Albemarle, Thompson Reuters reported on 29 May.

Albemarle, Fortescue Metals, Rio Tinto and Wesfarmers have reportedly expressed interest in buying a stake in the Greenbushes mine.

According to The Australian, a stake could cost a buyer between A$3 billion to A$5 billion.
The Australian also noted on 11 and 29 May that that some believe the company could opt for a refinancing instead of an asset sale in solving its debts.  

 

Oil and gas

Recent announcements

 
Merger of 88 Energy and XCD Energy to create Alaskan focused oil company

On 7 May 2020, Small Caps reported that ASX-listed companies 88 Energy Limited and XCD Energy Limited (formerly Entek Energy) announced that they have agreed to merge with the view of establishing an Alaskan focused oil and gas exploration company and have entered into a bid implementation agreement (BIA). Under the BIA, 88 Energy offered to acquire all fully paid ordinary shares and listed options on issue in XCD Energy through an off-market takeover offer for scrip consideration. According to a previous announcement, the proposed offer values the equity of XCD Energy at around $7.5 million.

The deal is subject to a limited number of conditions, including a 90% minimum acceptance condition. XCD Energy will use the merger to leverage off 88 Energy’s geological and operational expertise, specific to the North Slope of Alaska.  

Access the full article here and XCD Energy’s ASX announcement here.

 

Recently completed deals

 
Carnarvon’s increased equity and secured operatorship in Outtrim project

On 6 May 2020, ASX-listed Carnarvon Petroleum Ltd announced that it has increased its equity to 70% and secured operatorship of the WA-155-P permit (Outtrim project). The Belgravia, Belgravia East and Palmerston prospects (all Top Triassic Mungaroo gas targets) are within the permit area. Carnarvon contends that there is significant gas potential in the Southern Carnarvon Basin which is covered by the WA-155-P permit. The announcement also reports that the Belgravia prospect could be part of a much larger structure made up of two wells what have been proven already to contain gas.

Access the full ASX announcement here.

 

Market rumours and opportunities

 
APA’s potential acquisition of distressed assets in the US

On 8 May 2020, The Australian reported that ASX-listed Australia-based pipeline owner APA Group is considering the purchase of distressed assets in the US from companies who are under pressure of high debt burdens resulting from the oil market crash. The potential targets include pipeline operators, processing facilities, gas gathering systems and gas terminals.

The report further stated that APA Group is currently undertaking due diligence for a potential $2 billion to $4 billion deal to add a higher margin business to its regulated Australian earnings. APA has confirmed that it does not intend to raise capital during the current downturn, though it may raise equity if it does pursue an asset acquisition in the US.

 

Warburg Pincus contemplates sale of international oil and gas assets

On 7 May 2020, Thomas Reuters reported that US-based private equity firm Warburg Pincus is considering the divestiture of five of its eight global gas and oil investments due to the significant drop in demand for energy as a result of the COVID-19 crisis.

Sources reportedly informed Thomas Reuters that over the last decade, Warburg Pincus has invested nearly US$13 billion in energy assets, most of which are located in North America. Other investments have focused on assets in Eastern Europe, Asia and Africa, all of which are now viewed as non-critical assets. The assets in question include: a stake in Delonex Energy Ltd, an Africa-focused oil and gas explorer; ASX listed liquid storage firm, Zenith Energy Ltd; and three other investments including Egyptian firm Apex International Energy Management LLC, a Dutch company Sand Hill Petroleum B.V and CAGR, a company focused on natural gas distribution in China.

 

Caltex restarts sale process for petrol sites

On 6 May 2020, The Australian Financial Review reported that ASX-listed company Caltex Australia Limited and its adviser UBS Group AG are exploring the sale of a 49% stake in the portfolio of 250 petrol station sites and will soon commence approaching potential buyers, in an effort to substantiate genuine interest before commencing a formal auction process.

The report noted that Caltex Australia will retain a 51% stake in the properties and ASX-listed companies Charter Hall Group and APN Property Group are expected to express interest in the sites, given they did so last year when Caltex Australia initially launched its sale process.

 

Electricity and renewables

Recent announcements

 
Origin Energy enters into a strategic partnership with Octopus Energy

ASX-listed Origin Energy Ltd has agreed to acquire a 20% interest in Octopus Energy, a UK-based energy retailer for A$507 million. The strategic partnership between the two energy companies will enable Origin to migrate its 3.8 million electricity and gas customers onto Octopus Energy’s Kraken platform over the next 24 to 30 months.

The Kraken platform provides power customers with a “vastly simpler experience” as the platform has “the technology capable of integrating multiple services to a single bill, delivering agile tariffs and easy integration of smart meters, solar, storage and electric vehicles, accelerating demand-side management capability”.

Origin anticipates that the migration of its customers onto the Kraken platform will deliver savings in operating and capital costs of up to A$80 million in the 2021/2022 financial year and up to A$150 million in the 2023/2024 financial year. Origin expects to fund the transaction with cash and free cash flow, with A$134 million being payable on completion and the balance of A$373 million to be paid over four financial years.

Access the full media release here.

 

Recently completed deals

 
Pacific Energy acquires Hybrid Systems Australia

On 6 May 2020, Pacific Energy announced that it has completed its acquisition of Hybrid Systems Australia, a Perth-based renewable energy solution provider. According to Pacific Energy’s CEO Jamie Cullen, the acquisition is a major strategic step towards accelerating Pacific Energy’s growth which itself was acquired by global diversified alternatives investment manager QIC in November 2019. With the increased demand for distributed and clean energy, Pacific Energy expects greater opportunities to deploy Hybrid Systems’ solutions to remote towns and mine sites to maximise the use of renewable energy.  

Access the full press release here.

 

Market rumours and opportunities

 
AMP Capital acquires Swancor Renewable Energy

On 17 May, The Australian Financial Review reported that AMP Capital has advanced its process of acquiring Swancor Renewable Energy Co, a Taiwanese renewable energy business, by entering into a US$145 million loan agreement to fund the acquisition. The debt deal will also fund AMP’s planned construction of the 346-megawatt Formosa II wind farm, which will be one of Taiwan’s largest renewables projects. A contract is reportedly already in place to sell power from the Formosa II wind farm to the state-owned Taiwan Power Company for the next 20 years. The market anticipates that AMP will fund the deal through its infrastructure debt strategy, which raised US$6.2 billion in 2019, and will complete the acquisition in partnership with US investment manager Stonepeak Infrastructure Partners.

 

Hunter Energy to list on ASX and switch on the dormant Redbank Power Station

On 26 May 2020, The Australian Financial Review reported that Hunter Energy is believed to be preparing for an ASX listing. A pre-IPO funding round was reportedly launched in the week commencing 25 May 2020 with the aim of raising A$3 million to be followed by an approximately $20 million IPO later in the year.

Hunter Energy plans to use the pre-IPO funding to restart the Redbank Power Station in NSW which was formerly owned by Redbank Energy (and its predecessors Alinta Energy and Babcock & Brown Power). Hunter Energy has transformed the dormant coal fired power station into a green energy power plant that uses biomass for fuel and is believed to be aiming to operate the 151-megawatt power station by the end of the year. If the pre-IPO debt funding of Redbank’s restart is successful, the IPO proceeds raised subsequently will be used to develop other low emission power general projects in Australia.

 

Important notice

The information in this Australian Energy & Resources Market Update has been obtained from third party sources. Johnson Winter & Slattery has not independently verified any such information. The information stated is also summary information only. This information is of a general nature and does not purport to be complete, nor does it constitute an endorsement of, or express an opinion on, any of the matters stated.  Any reliance on information stated in this update is at the user’s sole risk.

 

Important Disclaimer: The material contained in this article is comment of a general nature only and is not and nor is it intended to be advice on any specific professional matter. In that the effectiveness or accuracy of any professional advice depends upon the particular circumstances of each case, neither the firm nor any individual author accepts any responsibility whatsoever for any acts or omissions resulting from reliance upon the content of any articles. Before acting on the basis of any material contained in this publication, we recommend that you consult your professional adviser. Liability limited by a scheme approved under Professional Standards Legislation (Australia-wide except in Tasmania).