Midwest Corporation (MIS) announced today that its directors had unanimously recommended shareholders reject Murchison Metals' $1 billion plus scrip takeover bid, saying it significantly undervalued Midwest's potential as a stand-alone iron ore producer.
"The offer is opportunistically timed and significantly undervalues Midwest's relative contribution to a combined group,'' said CEO of Midwest, Bryan Oliver.
Murchison is offering one Murchison share for every 1.08 Midwest shares held, valuing its fellow emerging iron ore producer at about 850.8 million Australian dollars.
Mining consultant AMC said it estimates that the total potential mineral resource at Murchison's Jack Hills project in Western Australia is 128 million tonnes compared with Murchison's stated production target of 25 million tonnes per year for 15 years or a total of 375 million tonnes.
Midwest's Weld Range Project, in the same area as Jack Hills, has a potential mineral resource of between 176-252 million tonnes.
"Through recognising qualifications made regarding access information, AMC is of the opinion that Murchison's Jack Hills project bears a higher resource risk than Midwest's Weld Range project," the company said in its Target's Statement.
AMC was also of the opinion that Midwest's Weld range had significantly higher upside potential than Jack Hills.
"Based on AMC's estimated resource potential of each of Midwest and Murchison, Midwest shareholders would contribute 63% of the combined group's mineral resource but own only 31% of the combined group."
Midwest has strongly urged shareholders to reject Murchison's offer and disregard all documents they receive from Murchison.
"Midwest's directors have significant concerns regarding the achievability of Murchison's stated target resources," said Mr Oliver.
The rejection comes after Midwest spent much of this month deliberating with its top 20 shareholders over the offer.
Mr Oliver also said that based on AMC's estimated resource potential of both companies, Midwest shareholders would contribute 63 percent of the combined group's mineral resource but own only 31 percent of the combined group.
"Murchison's offer attempts to buy-out Midwest;s future potential before the real value of both companies' resources are properly confirmed."
Murchison has about 97 million tonnes of known reserves and resources, while Midwest has about 114 million tonnes of reserves and resources.
Midwest rose by 1.4% at one point today, before falling to close down by one cent at $4.87.
