Investors gave Murchison Metals the thumbs down yesterday after the company defended its decision not to inform shareholders about a $1 billion blowout in the estimated capital cost of its joint venture Oakajee Port and Rail development in Western Australia’s mid-west.
The iron ore miner told the ASX yesterday it did not breach market disclosure rules by waiting until last Wednesday to inform investors of the latest capital cost estimate of $5.239 billion.
Investors noted the remarks and sold the shares down.
They closed off 4c at $1.005, a fall of 3.8% on a day when the wider market was up half a per cent.
The shares touched a year low of 98.5c in trading yesterday, a sign the market didn’t accept the explanation.
Murchison said it had known about the estimate since last November, when budget and engineering studies for OPR were completed.
But the company claimed it was not required to disclose the news earlier because the estimate is "premature and entirely speculative" and therefore is "not material" to the price of Murchison securities.
"The indicative capital cost estimate provided in the Technical Study remains preliminary and subject to ongoing review, optimisation and value engineering to identify potential cost refinements and savings prior to final sign-off by the JVP’s," Murchison said in the letter replying to a query from the ASX.
Murchison said shareholders should not rely on any capital cost estimate until a bankable feasibility study was completed.
The iron ore miner owns 50% of the Oakajee Port and Rail with joint venture partner Mitsubishi Development.
Murchison has repeatedly rejected reports that Mitsubishi wants to pull out of building the iron ore port.
But the slide in the company’s shares since early this year tells us there has been growing speculation that it faced problems at Oakajee with costs and the participation of Mitsubishi.
The shares have slumped by more than a third from around $1.62 in early February, to the 52 week low in trading yesterday.
That’s far more than the small fall in the wider market in the same time.
