April Australian Energy & Resources Market Update

Articles Written by Tom Barrett (Senior Associate), Candy Cheung (Associate), Isabel McElhinney (Associate), Conor Hughes (Associate), Luke Paganin (Law Graduate)
Two desktop monitors.

Our update covers mining, oil and gas, electricity and renewable energy.

Mining

RECENTLY COMPLETED DEALS

Evolution Mining completes acquisition of Ernest Henry mine

Further to our December 2021 Australian Energy & Resources Market Update, ASX-listed Evolution Mining Limited announced on 6 January 2022 that it had completed the acquisition of LSE-listed Glencore plc’s 100% interest in Ernest Henry Mining Pty Ltd, which owns the Ernest Henry copper-gold mine located in Queensland.

Andromeda Metals completes acquisition of Minotaur Exploration

Further to our December 2021 Australian Energy & Resources Market Update, on 25 February 2022, ASX-listed Andromeda Metals Limited announced that it had a relevant interest in 91.22% of the shares of ASX-listed Minotaur Exploration Limited on issue and intended to compulsorily acquire any Minotaur Exploration shares that were not accepted in its takeover offer. On 30 March 2022, Andromeda Metals announced that it had completed the compulsory acquisition of the remaining Minotaur Exploration shares on issue.

RECENT ANNOUNCEMENTS

IGO delays acquisition of Western Areas

Further to our October 2021 Australian Energy & Resources Market Update, on 14 March 2022, ASX-listed IGO Limited announced that, due to recent significant nickel price volatility, there would be delay to IGO’s proposed acquisition of ASX-listed Western Areas Limited by way of scheme of arrangement.

IGO and Western Areas announced on 16 December 2021 that they had entered into a Scheme Implementation Deed under which a wholly-owned subsidiary of IGO will acquire 100% of the share capital of Western Areas by way of a scheme of arrangement. Under the scheme of arrangement, IGO is to pay cash consideration to Western Areas shareholders of $3.36 per share.

IGO’s March 2022 announcement indicated that the delay to its proposed acquisition of Western Areas was a result of Western Areas and its Independent Expert needing to consider the implications, if any, of the recent nickel price volatility on the nickel market fundamentals and expectations for the medium to long-term nickel prices.

QGold’s takeover offer for Carawine Resources

On 22 February 2022, ASX-listed Carawine Resources Limited announced that Australian-based QGold Pty Ltd had made an unsolicited, unconditional on-market takeover offer to acquire all of the ordinary shares in Carawine Resources that were not already held by QGold and its associates. The offer remains open (unless extended or withdrawn) until 22 April 2022.

QGold’s Bidder’s Statement indicated that Christopher Wallin, the founder and managing director of Bowen Basin coal miner QCoal Pty Ltd, is QGold’s sole director.

Carawine Resources holds the Tropicana North gold project in Western Australia’s north-eastern goldfields, the Fraser Range nickel-copper project in Western Australia and the Jamieson gold-copper-zinc project in Victoria. It also has minority stakes in various other projects in Western Australia.

On 8 March 2022, Carawine Resources released its Target’s Statement in response to QGold’s takeover offer and recommended that its shareholders reject QGold’s takeover offer. In recommending shareholders reject QGold’s offer, Carawine Resources’ Target’s Statement noted that QGold’s offer price failed to recognise the full underlying potential of the company’s projects and represented only a modest premium to the company’s share price.

Vimy Resources agrees to merger with Deep Yellow

On 31 March 2022, ASX-listed entities Vimy Resources Limited and Deep Yellow Limited jointly announced they have agreed to a merger by a recommended court-approved scheme of arrangement, under which Deep Yellow will acquire 100% of the Vimy Resources shares on issue. 

Each Vimy Resources shareholder will receive 0.294 Deep Yellow shares for every Vimy Resources share held on the scheme record date. This implies a consideration of AU$0.285 per Vimy Resources share, representing an 18.8% premium to the closing Vimy Resources share price of AU$0.28.5 per share on 25 March 2022. The merger is subject to shareholder approvals.

Upon completion of the merger, Deep Yellow shareholders will hold 53% of the merged company, with Vimy Resources shareholders holding 47%. 

Vimy Resources wholly owns the Mulga Rock uranium project, east of Kalgoorlie in Western Australia, and the Alligator River uranium project in Arnhem Land, Northern Territory. Deep Yellow wholly owns the Reptile uranium project, and owns a majority interest in both the Nova and Yellow Dune joint ventures, each of which is in Namibia.

Perseus Mining enters into agreement to acquire Orca Gold

On 28 February 2022, ASX-listed Perseus Mining Limited announced it had entered into a definitive agreement to acquire all of the shares of TSX-listed Orca Gold Inc. not already held by Perseus. The announcement noted that Perseus held approximately 15% of the shares of Orca Gold at the time of the announcement.

The announcement stated that the total consideration to be paid by Perseus to acquire 100% of Orca Gold is CA$215 million, comprising the CA$17 million in cash paid by Perseus to acquire its initial 15% interest in Orca Gold and CA$185 million in Perseus shares to acquire the remaining 85% interest in Orca Gold.

The announcement indicated that the acquisition of Orca Gold would allow Perseus to acquire Orca Gold’s 70% interest in the Block 14 Gold Project located in Sudan and would give Perseus an indirect interest in the undeveloped Koné Gold Project located in northern Cote d’Ivoire, which was in proximity to Perseus’s operating Sissingué Gold Mine located in Cote d’Ivoire.     

MARKET RUMOURS AND OPPORTUNITIES

BHP willing to exceed new debt target for the right deal

On 15 February 2022, the Australian Financial Review reported that ASX-listed BHP Group Limited is willing to exceed its new debt target for the ‘right acquisition’.

Following the demerger of its petroleum business earlier this year, BHP lowered its debt target to a maximum of US$15 billion on the expectation that the company will become smaller, with less growth opportunities. It is anticipated that BHP will require a major acquisition in the coming years, according to the article.

As of 31 December 2021, BHP’s net debt stood at just US$6.1 billion, according to the report, indicating that the company has a significant amount of financial backing to support its pursuit for growth opportunities within the new debt target range. BHP’s CEO David Lamont was reported to say the target range would not be rigidly enforced.

The report suggested that BHP is eager on nickel and copper assets in Eastern Canada, with speculation the company is looking to acquire Brazilian miner Vale S.A.’s assets in the region. However, the report noted that on the back of a bidding war with Andrew Forrest over TSX-listed Noront Resources, BHP’s chief executive, Mike Henry, said the company would practice discipline in looking for growth opportunities. He was quoted as saying the company will only “pursue the right opportunities at the right time and the right price”.

Kestrel Coal could seek consolidation opportunities

On 11 February 2022, Mergermarket reported that Kestrel Coal Resources, an Australian metallurgical coal miner, could look for consolidation opportunities around the Bowen Basin in Queensland, according to Jason Chang, the CEO and Managing Director of EMR Capital, one of Kestrel Coal’s owners.

Kestrel Coal is a joint venture between private equity manager EMR Capital (52% interest) and Indonesian coal miner PT Adaro Energy Tbk (48% interest). In March 2018, ASX-listed Rio Tinto Limited sold its 80% interest in the Kestrel underground coal mine in Queensland for US$2.25 billion to EMR Capital and PT Adaro Energy Tbk. The remaining 20% interest in the mine is held by TYO-listed Mitsui & Co., Ltd.

The Bowen Basin region has recently seen several announced deals, including ASX-listed Bowen Coking Coal Limited’s acquisition of New Lenton Coal from ASX-listed New Hope Corporation Limited for AU$77.5 million and ASX-listed Stanmore Resources Limited’s acquisition of ASX-listed BHP Group Limited’s 80% stake in BHP Mitsui Coal for US$1.35 billion.

According to the report, the Kestrel coal mine is expecting to soon become one of the largest metallurgical coal mines in the world, which quoted EMR Capital’s CEO as stating that the mine is anticipated to produce seven million tons of high-grade metallurgical coal in 2022. 

The report also suggested that EMR Capital would assess opportunities to create synergies for the mine, however the report did not elaborate further.

South32 looking to acquire new base metals assets

On 17 February 2022, The Australian reported that ASX-listed South32 Limited’s CEO, Graham Kerr, had stated the company is looking for new base metals assets to round out the company’s portfolio, as rising commodity prices lift its bottom line. The article quoted South32’s CEO as stating that the company  “can probably do with one more operating asset, and one more project, both in the base metals space.

The article also discussed the sale of South32’s 50% stake in the Eagle Downs metallurgical coal project in Queensland, which was discussed in our October 2021 Australian Energy & Resources Market Update. The article noted that, despite the soaring metallurgical coal prices, the company was still looking to sell its stake in that project and was not going to return the project as a development option.

Idemitsu Australia undertaking a business transition

On 17 March 2022, Mergermarket reported that the CEO of Idemitsu Australia, a subsidiary of the Japanese diversified multinational and TYO-listed Idemitsu Kosan Co. Ltd, had stated that Idemitsu Australia is reviewing its options to rationalise its coal assets to achieve its target of being in a carbon neutral position by 2050.

The item noted that Idemitsu Australia’s coal portfolio includes an 80% interest in the Boggabri open-cut coal mine in the Gunnedah Basin in New South Wales, a 100% interest in Muswellbrook Coal Company’s multi-seam coal mine in New South Wales, and an 85% interest in Ensham Resources, which has an open-cut coal mining pit and an underground mine near Emerald, Queensland.

The item also reported that Idemitsu Australia is in discussions for potential investment opportunities in lithium assets across Australia, with its initial focus being in Western Australia and the Northern Territory, and quoted its CEO as stating that it was looking at opportunities at all stages of the development cycle, including exploration projects.

New Hope open to investments

On 22 March 2022, the Australian Financial Review reported that ASX-listed New Hope Corporation Limited’s CEO, Rob Bishop, had stated that the company would continue to invest in coal and is bullish on the commodity. The article also quoted New Hope’s CEO as stating that the company is open to other opportunities in the renewables space or other bulk commodities, provided the opportunities have good shareholder returns.

Nico Resources seeking JV partners for nickel assets

On 25 February 2022, Mergermarket reported that, according to its Managing Director Roderick Corps, ASX-listed NiCo Resources Limited is looking for joint venture partners to help fund drilling and production at the company’s Central Musgrave nickel project located on tenements in Western Australia, South Australia and the Northern Territory. The article indicated that the Central Musgrave project holds approximately 2,000,000 million tonnes of nickel and 154,000 tonnes of cobalt and is Australia’s largest undeveloped nickel-cobalt project.

The article noted that the company was interested in discussing joint venture opportunities with entities with larger balance sheets that could fund development of the Central Musgrave project and reported that NiCo Resources’ CEO had cited South Korea’s Samsung C&T, POSCO and LG Electronics, China’s Jinchuan Group International Limited and CITIC Limited, NASDAQ-listed Telsa Inc, and ASX-listed Fortescue Metals Group Ltd as potential investors.

Piedmont Lithium may be seeking a buyer

On 16 March 2022, The Australian reported that there is mounting speculation that ASX-listed Piedmont Lithium Inc. may be in search of a buyer. While Piedmont is listed on the ASX, its flagship Piedmont Lithium Project is located in the Carolina Tin Spodumene belt in North Carolina, USA. The article reported that Piedmont is targeting production of 160,000 tonnes of spodumene annually that will convert to 22,700 tonnes of battery-grade lithium hydroxide. However, Mergermarket reported on 18 March 2022 that Piedmont’s President and CEO, Keith Phillips, had stated that Piedmont is not pursuing a corporate sale and currently has no M&A plans. 

Possible merger between Ramelius Resources and St Barbara

On 7 March 2022, the Australian Financial Review reported that ASX-listed gold miner St Barbara Limited could attract a takeover. The article noted that St Barbara’s key attraction is its Leonora Operations in Western Australia, more specifically its Gwalia underground mine and associated 1.4Mtpa processing plant, that has already produced more than 2.5 million ounces of gold. The item named ASX-listed gold miner Ramelius Resources Limited as a potential party that may be interested in the Gwalia underground mine.

On 13 March 2022, The Australian reported that it was understood that Ramelius Resources and St Barbara have held takeover talks. The article noted that the market values of Ramelius Resources and St Barbara at the time were A$1.38 billion and A$1.12 billion, respectively, which made the companies obvious merger candidates.

Aurelia Metals could attract takeover

On 15 March 2022, The Australian reported that ASX-listed Aurelia Metals Limited could attract takeover interest. Aurelia Metals owns and operates three underground mines and processing facilities in New South Wales. Those mines are the Peak Mine, which produces gold, lead, zinc, copper and silver, the Dargues Mine, which produces gold, and the Hera Mine, which produces gold, lead, zinc and silver.

The article noted that the takeover interest in Aurelia Metals could arise as a result of it mining copper in the same region as LSE-listed Glencore plc’s CSA Mine in Cobar, New South Wales. On 17 March 2022, the Australian Financial Review reported that Glencore and NYSE-listed Metals Acquisition Corp. had signed a binding agreement for the acquisition by Metals Acquisition Corp. of the CSA Mine for US$1.1 billion, plus an ongoing royalty.

Oil & Gas

RECENT ANNOUNCEMENTS

FAR rejects Samuel Terry takeover offer, offer closes

On 31 January 2022, ASX-listed FAR Limited announced that it had received an off-market, conditional takeover offer from Samuel Terry Asset Management Pty Ltd to acquire all of the issued fully-paid ordinary shares of FAR for $0.45 cash per share. FAR is an oil and gas exploration company with assets in West Africa and Australia.

On 4 February 2022, FAR announced that one of its major shareholders, Meridian Capital Investment Fund, had rejected the takeover offer made by Samuel Terry Asset Management. On 23 February 2022, FAR announced that it rejected the takeover offer on the basis that the offer price was substantially lower than the price at which FAR shares were trading on the ASX and the offer undervalued the company.

The takeover offer closed on 15 March 2022 due to the conditions of the offer not being satisfied or waived.

MARKET RUMOURS AND OPPORTUNITIES

Santos targeting asset sales worth US$2bn to US$3bn to optimise portfolio

On 16 February 2022, The Sydney Morning Herald reported that ASX-listed Santos Limited is planning to sell assets worth US$2 billion to US$3 billion. Santos, an Australia-based oil and gas producer, merged with former ASX-listed company Oil Search Ltd last year. Santos revealed it wished to sell-down its assets to optimise its portfolio of oil and gas assets following the merger. Santos did not reveal which assets it plans to sell.

On 25 February 2022, the Australian Financial Review reported that Santos had hired Moelis & Co to sell its Pikka Project located in the North Slope region of Alaska. The item also noted that UBS analysts are tipping the sale of a 20% to 30% interest in the Dorado discovery located in the Bedout Sub-basin offshore of Western Australia.

Seven Group Holdings launches sale process for 15% Crux stake

Further to our December 2021 Australian Energy & Resources Market Update, on 2 March 2022, The Australian reported that the sale process for ASX-listed Seven Group Holdings Limited’s 15% stake in the Crux gas field located in the Browse Basin offshore of Western Australia had been launched by Macquarie Capital. According to the article, international parties are considered the most likely buyers for the stake, which could be worth at least AU$250 million.

Alinta Energy assets could interest APA

On 20 February 2022, The Australian reported that Alinta Energy was believed to be considering options for a sale of part or all of its business. Alinta Energy, a privately owned Australian electricity generating and gas retailing provider, controls 85% of Western Australia’s retail energy market, according to the article. The article reported that the ASX-listed energy infrastructure company APA Group could be attracted to Alinta Energy’s assets. Alinta Energy was purchased by Hong Kong’s Chow Tai Fook five years ago for AU$4 billion.

Karoon Energy looking for value accretive acquisitions

On 23 February 2022, ASX-listed Karoon Energy Ltd announced in its half-year results that it was looking for value accretive acquisitions. Karoon Energy is a global oil and gas exploration and production company with its headquarters in Melbourne. On 23 February 2022, the Australian Financial Review reported that Karoon Energy’s CEO, Julia Fowles, had told the paper that the acquisitions would most likely be in Brazil, where the company operates the offshore Bauna site, but that there were opportunities in Australia on the company’s radar. 

Electricity & Renewables

RECENT ANNOUNCEMENTS

YTL Power sells ElectraNet stake to Australian Utilities Trust

On 8 February 2022, Malaysia-based YTL Power announced that it has entered into an agreement to sell its 33.5% interest in ElectraNet to Australian Utilities Trust for AU$1.02 billion. ElectraNet is a South Australian-based electricity transmission network owner and operator. On 8 February 2022, the Australian Financial Review reported that Macquarie Infrastructure and Real Assets, Morrison & Co and Sunsuper have invested in the buying consortium which has pre-emptive rights as an existing shareholder in ElectraNet. Following completion of the transaction, the Australian Utilities Trust will hold a 53.4% stake in ElectraNet, and China’s State Grid will hold the remaining 46.6% interest.

Shell acquires a stake in WestWind Energy Development

On 1 March 2022, Shell Australia announced that it has entered into an agreement to acquire a 49% interest in WestWind Energy Development Pty Ltd which has 2GW of wind farm projects in production, and 3GW of projects in the pipeline, across Victoria, New South Wales and Queensland. The transaction is subject to regulatory approvals and is expected to complete in 2022. Shell Australia has not disclosed the financial details of the transaction.  

AGL Energy board rejects unsolicited bid from Brookfield and Grok Ventures

On 7 March 2022, ASX-listed AGL Energy Limited announced that its board rejected a revised unsolicited and non-binding indication of interest from a consortium led by TSX-listed Brookfield Asset Management Inc. and Grok Ventures to acquire 100% of the shares in AGL Energy for $8.25 per share by way of a scheme of arrangement. Grok Ventures is the private investment company of Australian billionaire and Atlassian co-founder Mike Cannon-Brooks. The AGL Energy announcement states that the proposal is well below the fair value of the company and the expected value of the demerger.

Further to our previous summary on the proposed demerger of AGL Energy in our May 2021 Australian Energy & Resources Market Update, additional information released by AGL Energy states that the demerger will involve the creation of a new entity named Accel Energy which will operate AGL Energy’s coal-fired energy business while AGL Energy’s remaining multi-product energy retailing business will be operated by a renamed AGL Australia. Implementation of the demerger is scheduled to be put to AGL Energy shareholders for approval in June 2022.

MARKET RUMOURS AND OPPORTUNITIES

Star of the South attracts offshore wind project investors

On 21 March 2022, The Australian reported that the Star of the South project, a 2200MW offshore wind farm project proposed to be located off the coast of Gippsland, Victoria, is believed to have attracted interest from international investors Orsted, TotalEnergies, Iberdrola, RWE, BP and Shell. The article noted that Copenhagen Infrastructure Partners holds a 55% interest in the AU$10 billion project and that informal discussions have been held with the named groups about acquiring an equity interest in the project.  

EnergyAustralia considering a partial sale

On 28 February 2022, The Australian reported that Australian electricity and gas company EnergyAustralia is rumoured to be exploring options for a partial sale. The article reported that the options include establishing a 50-50 joint venture with another party and a sale of a small stake to a new partner. The article notes that EnergyAustralia could be worth AU$4 billion. The sale rumour follows an announcement by EnergyAustralia’s parent, Hong Kong-based CLP, in March 2022 that EnergyAustralia made a AU$15 million loss in 2021.

Riverina Energy Storage Project auction enters final round

On 20 March 2022, the Australian Financial Review reported that the auction for Australian-based Edify Energy’s 150MW Riverina lithium-ion battery project in New South Wales has entered the final round and is due to close at the end of March 2022. The article noted that it is believed the project is valued at US$200 million and that Federation Asset ManagementMacquarie Infrastructure and Real Assets and Palisade Investment Partners are interested in the project. The project’s capacity has been fully contracted out under battery storage service agreements to Shell Energy and two other unnamed parties, according to the article.  

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).

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