Mineral Resources has firmly established its fourth pillar as it seeks to win full ownership of the large Lockyer gas field in onshore Western Australia. The off-market all-scrip takeover offer for the shares it does not already own implies a value to Lockyer in excess of $2 billion.
MIN is offering 1 MIN share for every 1,367 NWE shares to acquire the remaining ~80% shares it does not already own. The offer values NWE shares at approximately 6cps. NWE’s primary asset is a non-operating interest in the two permits (EP368 and EP246) that MIN is the operator and owner of the balance.
The Lockyer gas field is an early stage asset. MIN will fast-track a four-well appraisal program to establish a Contingent Resource in 2023/24, subject to rig availability. First production is being targeted for FY25 subject to approvals. MIN could use the early production for its own consumption as well as for sales to domestic customers. Further production and sales could be aimed at export or a downstream project (ammonia, urea etc). At a minimum, development of Lockyer will give MIN a very low cost gas supply providing multiple options for its eventual application.
Investment View
MIN is known for its iron ore and lithium businesses together with its substantial mining services business. Energy has been mooted as a fourth pillar, so the development of the Lockyer gas field now brings the Energy pillar fully into view.
The Lockyer project is currently undeveloped which raises the risk profile until the resource definition work is completed. And yet with virtually its first swing of the bat, MIN has entered the WA domestic gas market as a significant player. The AEMO has just released an updated 10-year outlook of the WA gas market showing a slight excess of supply through to 2030 before the market is forecast to move into deficit as planned coal-fired power generation capacity is replaced by gas.
There are multiple options available to MIN for the use of Lockyer gas, so the question becomes what is the most optimal timing and application? A domestic application such as a 2Mtpa urea plant, for example, could consume ~120Tj/day of gas. Under WA’s domestic gas policy, that would open the possibility of allowing for an export licence which could add to the economics of the project.
There are now several catalysts for MIN’s share price, each with attractive features. The lithium business could potentially partially demerge and list in the US where multiples for such high quality businesses would significantly enhance value to MIN shareholders. This is speculative, but the underlying business is set to report record results on the back of surging commodity prices.
