Weekly review: Woodside purchase of BHP Petroleum turbocharges market

A big thumbs up for Woodside Petroleum’s (ASX: WPL) planned purchase of BHP’s (ASX: BHP) global oil and gas assets helped to turbocharge the Australian market as the first big barrier to the buy was successfully cleared.

An independent report by accountancy firm KPMG judged that the deal was fair and reasonable to the oil and gas heavyweight’s shareholders, as they get ready to vote on the deal in May.

It also estimated that the deal will vault Woodside’s market capitalisation to about $63 billion, propelling it to become one of Australia’s 10 biggest companies.

The report released on Friday, concluded that a Woodside share would have an underlying value of between $23.09 and $26.42 if the merger did not proceed, and between $25.25 and $29.81 if it did.

Shareholders vote on the deal on 19 May

Woodside’s shareholders will now vote on the deal at the company’s annual general meeting on 19 May.

If the deal goes ahead, they will hold 52% of the merged entity while BHP shareholders will have new scrip for 48% of Woodside shares.

KPMG’s report found that the 52/48 split was broadly consistent with the value Woodside’s assets brought to the deal.

Both BHP and Woodside were foundation shareholders in Australia’s first LNG project: the North West Shelf in WA.

The report was commissioned by Woodside and does not say whether the transaction is in the best interests of BHP shareholders – however, they do not get to vote on the deal so that is not a limitation to the deal proceeding as BHP tries to decarbonise and become a green materials company.

Woodside expects to save about $400 million a year from merger synergies, including cutting exploration spending by $150 million a year.

Ukraine invasion, global warming and pandemic complicate valuation

The KPMG report noted that oil and price volatility made a value assessment difficult, with the Russia-Ukraine war, the continuing effect of the COVID-19 pandemic and concerns about the effect of fossil fuels on the climate all adding uncertainty to valuations.

However, it found that: “It is clear that oil and gas companies with strong cash flow generation supported by well-balanced asset portfolios and a robust financial position will be best placed to navigate the energy market transition.”

“In our view, the proposed transaction strengthens Woodside’s position in each of these areas,” the report concluded.

The report helped to bump up the BHP share price by 1.7% to $51.94 while Woodside shares fell 1.5% to $32.40.

Market still down for the week but regains 0.5%

Overall, the Australian market was stronger after a three-day losing streak, with the ASX 200 up 0.5% or 25.1 points to 7478 points as mining stocks rebounded strongly.

Still, that wasn’t enough to achieve a positive week with the threat of imminent interest rate rises in the US enough to cast a pall over global markets.

Worries about a recession in the US in the next couple of years due to an inverted yield curve were also prevalent, although it is less clear that this will hurt Australian stocks which are surfing on a rise in commodity prices.

Indeed, the rise in commodity prices has led to predictions the Australian dollar could go as high as US80c in the medium term.

Platinum Asset Management loses its lustre

It certainly wasn’t all good news on the market though, with shares in Platinum Asset Management (ASX: PTM) down a hefty 15% to $1.90 after it revealed its funds under management had fallen by $1.5 billion as some investors took their money and left.

The share price also soured because Platinum Asset Management also reported negative returns across almost all of its funds for the year.

Uranium boost helps Paladin

It was a different story for uranium miner Paladin Energy (ASX: PDN), with shares up 13% to $0.90 after the UK Government unveiled plans for a significant boost to its nuclear power generation.

The general rise in commodities of all types was also great news for shareholders in Graincorp (ASX: GNC) which revealed another earnings upgrade due to stronger global demand for Australian grain, and good conditions for the upcoming winter crop thanks to plentiful rain.

John McGrath stages a comeback

In other company specific news, real estate agent John McGrath has been reappointed to the chief executive role at McGrath Ltd (ASX: MEA), with shares down 4% to $0.47 on the news.

The real estate agency listed in 2015 at $2.10 a share with Mr McGrath at the helm but he stepped down from the role in August 2016.

Mr McGrath said he was “enthusiastic” to return to head the company, which he claimed would continue “our path towards being the best residential real estate company in the country.”

Mr McGrath said he planned to expand the agency’s footprint along the east coast of Australia.

Small cap stock action

The Small Ords index fell 0.94% to close the week on 3315.6 points.

Small cap companies making headlines this week were:

Alderan Resources (ASX: AL8)

High-grade oxide gold mineralisation has been confirmed at Alderan Resources’ historic Drum gold mine in the US.

Alderan managing director Scott Caithness said the thick zone of high-grade gold was hit only 62m below surface, with another wide and high-grade zone uncovered below the Tatow unit, which was the primary source of ore during historical mining of the East Pit.

Notable assays from the 10-hole program were 7.8m at 1.70g/t gold from 88m, including 6.6m at 2.5g/t gold from 99.2m, and 3.2m at 3.5g/t gold from 101m.

Legacy Iron Ore (ASX: LCY) and Hawthorn Resources (ASX: HAW)

Legacy Iron Ore and Hawthorn Resources revealed this week that a wholly-owned subsidiary of mining magnate Gina Rinehart’s Hancock Prospecting, Hancock Magnetite Holdings, had earned its 30% stake in the Mt Bevan iron ore project in WA’s Central Yilgarn.

Hancock has paid $4.8 million to Legacy and $3.2 million to Hawthorn, and will spend a further $1 million on working capital for the joint venture.

Legacy now owns 42% of the project, while Hawthorn’s stake has dipped to 28%.

Hancock can earn a further 21% interest in Mt Bevan by sold funding the completion of a pre-feasibility study.

The news sent both Legacy and Hawthorn’s share prices skyrocketing on Thursday.

92 Energy (ASX: 92E)

The highest radioactivity levels to-date have been intercepted during 92 Energy’s latest drilling program at its Gemini Mineralised Zone (GMZ) uranium discovery within its Gemini project in Canada.

A handheld scintillometer confirmed elevated radioactivity in 11 out of the 12 holes drilled at GMZ, with best results of 22m of continuous elevated radioactivity with a peak 3,030 CPS, 25.5m with 7,860 CPS, and 12m with 5,760 CPS.

Assays are pending to confirm the uranium content and the company will follow up the results with a summer drilling program planned to begin in June.

Agrimin (ASX: AMN)

Aspiring sulphate of potash producer Agrimin has secured its third long-term offtake deal to supply SOP from its Mackay project in WA’s Kimberley.

Under the binding agreement, US-based Gavilon Fertilizer LL will purchase SOP from the project for seven years, with initial offtake to amount to 30,000tpa SOP and expand to 50,000tpa when steady-state production is achieved.

Gavilon is a leading wholesaler of fertilisers in the US with one of the country’s largest distribution systems.

Wide Open Agriculture (ASX: WOA)

Woolworths stores Australia-wide are now selling Wide Open Agriculture’s Dirty Clean Food-branded Original Oat Milk after the company announced it has shipped its first order, with products already on shelves in the chilled sections at many stores.

The regeneratively farmed and carbon neutral oat milk will be available at the majority of locations in the next three weeks, with more than 650 Woolworths stores across the country to stock the product.

By the end of April, Wide Open expects its oat milk will be sold in more than 1,000 locations globally, which is ahead of schedule.

The week ahead

The Easter break will shorten trading opportunities on the Australian markets, which will be closed on Good Friday (15 April) and Easter Monday (18 April).

There are a few economic releases to look forward to, with household spending, consumer confidence, employment and inflation expectations, jobless figures and household spending.

Internationally, US inflation expectation figures are the biggest event, with some estimates that they could hit a record 6.1% for March, while actual CPI in March is expected to hit 1.2% or an annualised 8.4%.

Other US figures will include chain store sales, mortgage applications, jobless claims, and manufacturing.

In China, inflation, international trade and new home prices are expected.

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