MELBOURNE, Nov 24 (Reuters) - Japan's Mitsubishi Corp has agreed to buy partner Murchison Metals' stakes in an iron ore development and a port and rail project in Western Australia for $315 million, aiming to rescue the two multi-billion dollar projects.
Beleaguered Murchison's shares jumped more than 50 percent on relief that Managing Director Greg Martin had managed to get the company out of a hole despite tough global conditions.
The A$5.9 billion ($5.7 billion) Oakajee port and rail project and the A$3.7 billion Jack Hills iron ore expansion project have been hampered due to cost blowouts and the failure to line up companies to use the infrastructure.
"Right now, this is the best that we've been able to do in the current market circumstances with all of the uncertainties in global financial markets and questions about growth in China, and forward prices for iron ore," Martin told investors on a conference call.
The Oakajee project was designed to open a second major iron ore province in Australia to challenge the dominance of global giants Rio Tinto and BHP Billiton , who mine the Pilbara region.
Murchison is selling its 50 percent stakes in the Jack Hills project and Oakajee port and rail as it was having trouble raising its share of the funding for them, partly because the iron ore mine has lower value ore than in the Pilbara.
When Mitsubishi first bought into Jack Hills, it believed it held hematite ore. Subsequent studies have shown it is almost all magnetite, which has a more limited customer base, but that includes Chinese steel mills.
MITSUBISHI SEEKING PARTNERS
Murchison said the deal values its stakes at A$0.51 a share, an 85 percent premium to the stock's previous closing price. It closed up 53 percent at A$0.42 on Thursday.
Mitsubishi's shares ended down 2.9 percent at 1,491 yen.
"Martin seems to have done a good job monetising the asset to Mitsubishi," said Ric Ronge, a portfolio manager at Pengana Capital, which, like most other local funds, stayed out of Murchison's shares as its projects had failed to advance.
Mitsubishi said once it has 100 percent control it would seek to sell down the stakes it acquired to well-financed partners or investors, which it said would assist funding the projects and attracting customers to the port and rail project.
A Mitsubishi spokesman declined to comment on who the company may try to invite into the projects.
"They have said that they're flexible and open to who those parties are and have actually specifically nominated Chinese parties as those that they'd be prepared to engage with," Murchison's Martin told reporters on another conference call.
Murchison's biggest shareholder, South Korean steel maker POSCO, is considering buying stakes in the iron ore development and the port and rail project from Mitsubishi, among other options, a person with direct knowledge of the matter said.
"We will cooperate with Mitsubishi since we know each other very well....Mitsubishi needs us," said the source, who declined to be named as the talks were confidential.
POSCO said it will take a wait-and-see approach.
"POSCO plans to carefully watch the situation until the bilateral transaction is closed and to consider whether or not to invest depending on the results (of the transaction)," it said in a statement.
'ACT OR MISS OUT'
Martin said Murchison would continue to pursue talks with other parties, in case it can get a better offer.
"With this offer on the table, other interested parties are now on notice that they must act or miss out," Martin said.
An analyst said Murchison was unlikely to get a full takeover offer, given it has been talking to other parties for several months.
"But interest in the OPR infrastructure particularly, more so than the Jack Hills project, is the carrot for any outside parties," said the analyst, who declined to be named as he is not the lead analyst on the company.
The infrastructure is attractive as there are a number of projects, like Sinosteel's Midwest iron ore project and Gindalbie Metals' Karara iron ore project, backed by Angang Steel Co, that want to use Oakajee.
Murchison will pay a small break fee of A$3 million if it scraps the deal with Mitsubishi. ($1 = 1.0324 Australian dollars)