MinRes’ takeover offer for gas play Norwest is now open. Will shareholders bite?
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Shareholders in Norwest Energy (ASX:NWE) have woken up to the first full day of an opportunity to convert their shareholdings in the company into penny packets of shares in one of Australia’s major resources companies.
Of course when said company looking to gobble up your plucky oil and gas play is Mineral Resources (ASX:MIN), you might be forgiven for ignoring the massive reduction in your shareholding from, say, 100,000 NWE shares to just 73.15 MIN shares under the one for 1,367 offer.
Yep, you read that right. That is thanks to each MinRes share being worth $77.20 on 20 December 2022 while each Norwest share is currently worth 5.6c.
As to whether the offer is worth it, the Chris Ellison-helmed MIN is dangling the fact that it has delivered the second highest Total Shareholder Return of any stock in the ASX200 as well as a history of dividend growth of 20% per annum since listing in 2006 to grow its existing 19.9% shareholding.
Norwest, whose minority stake in the Lockyer Deep gas project in the Perth Basin is behind MinRes’ takeover attempt, is still busy putting together a Target Statement for release in early to mid-January and has advised shareholders to take no action until then.
So just why is a diversified resources stock like MIN so keen to bring the bits of a gas field it doesn’t already own under its umbrella?
Well, MinRes itself explains that the gas within the project, which flowed an eye popping 117 million standard cubic feet of gas per with associated condensate during testing in March 2022, is an “important element of MinRes’ growth strategy and will play a critical role in its decarbonisation transition by displacing diesel and coal-fired energy generation”.
Securing those gas supplies will also offer the company opportunities to further develop downstream manufacturing like lithium hydroxide, pelletised magnetite, and the production of urea and ammonia.
Norwest managing director Iain Smith added that its partner stood to benefit – as an end-user – from securing full control against a “develop downstream manufacturing like lithium hydroxide, pelletised magnetite, and the production of urea and ammonia”.
All in all, not a bad plan to keep costs under control amidst ongoing push for energy security.
The question now of course is whether Norwest’s advisers will recommend the offer or not, which given the company’s awareness of just how valuable the gas supplies could be to MinRes, would mean taking a good, hard look.
Saying no will mean maintaining its independence but exposing shareholders to the risks associated with trying to raise funds for any future development of Lockyer Deep.
There is also the question of whether a competing offer might emerge given the three-way bidding war that broke out after Strike Energy’s (ASX:STX) takeover bid for Warrego Energy (ASX:WGO) drew the attention of Beach Energy (ASX:BPT) and Gina Rinehart’s Hancock Energy.
While Beach has since pulled out of the running, Strike has remained in the running – increasing its offer up from an initial 0.775 STX shares per WGO share up to 1 STX share per WGO share.
That this bidding war is still underway might provide Norwest with the confidence to hold out for a better offer for its gas.