AWE: an unexpected union

The AWE Board has unanimously recommended a revised bid by Mineral Resources (“MinRes”). The offer terms are A$0.415 in cash and between 0.0198 and 0.0277 MinRes shares per AWE share. The exchange ratio will depend on the VWAP for the 10 days prior to the scheme vote. The previous offer was a full scrip offer at A$0.81.

This values the offer at an implied price of c.A$0.83 per AWE share and will be implemented by a Scheme of Arrangement, which will require 75% shareholder approval with the shareholder meeting to be held in mid-April 2018. Shareholders will have the option to receive 100% cash or 100% scrip subject to scale back to ensure total transaction consideration is 50% cash and 50% scrip.

After four years of “tug-of-war” between AWE and various bidders (Senex in 2013, Lone Star in 2016, CERCG in 2017 and various others which have not been made public), it looks like the AWE Board have finally selected a suitor. Although AWE could have gone down the “do it alone” route, the uncertainty on timing of new production from Waitsia and/or Ande Ande Lumut cast a shadow over the company’s story and its future with a declining production profile.

MinRes immediately answers the question of future gas offtake: Min Res has a requirement for c.30TJ/d of gas based on current plans to convert all of its internal power generation to gas fired plant and to use as the primary fuel source for its Lithium/Graphite related downstream processing plants. This gas requirement is expected to grow with the likely conversion of 26 mine sites (growing to 40) to gas as well as potential for more downstream projects. The rationale for MinRes acquiring AWE is so that it can lock in its gas costs for the next 20–30 years. Min Res also plans to provide gas to its mining clients under long-term gas supply contracts.

AWE shareholders will buy into a new story of a miner/mining service provider with its own growth story. The variable cash and scrip components will likely promote higher acceptances and will provide a way for AWE shareholders to fully realize their investment if they choose not to go into MinRes.

MinRes offer is c.14% above the previous all cash A$0.73 bid from CERCG – MinRes would have the right of response to match any competing offer if CERCG or another party came back with a superior proposal. The deal is subject to a break fee of A$5.2 million.