PERTH (miningweekly.com) – ASX-listed Strike Resources has flagged an increased offering for fellow listed takeover target Warrego Energy, days after major Beach Energy withdrew from the acquisition race.

Strike in November confirmed a confidential, non-binding indicative all-script merger proposal to the Warrego board, offering 0.714 of its own shares for each Warrego share held.

Additionally, if Warrego’s Spanish assets were sold, and the sale completed within 12 months of Strike obtaining control of the junior company, Strike offered to pay Warrego shareholders an additional script consideration for these assets.

Strike on Monday announced its intention to make an off-market takeover bid for Warrego, offering one of its one shares for every Warrego share held, implying an offer price of 33.5c a share based on Strike’s last closing price.

Strike is competing against a 28c a share offer from Gina Rinehart’s Hancock Prospecting.

Strike, which already holds a 19.9% interest in Warrego, on Monday said that its offer represented a 19.6% premium to Hancock’s latest offer, and a 61.8% premium to Warrego’s undisturbed price.

In its statement on Monday, Strike argued that by accepting its share offer, Warrego shareholders would retain material ownership in the combined energy business, which would have a portfolio of assets in the Perth basin. Furthermore, Strike’s offer would also only be subject to a no prescribed occurrences clause, and did not include a minimum acceptance condition.

“Strike continues to believe a combination of Strike and Warrego will deliver significant value creation to both Strike and Warrego shareholders. This offer provides a pathway for Warrego shareholders to maximise value and continue to participate in the potential upside of a focused Perth basin business with impending cashflow,” said Strike MD and CEO Stuart Nicholls.

“Should Strike achieve operational control of Warrego, Strike expects that it can accelerate, maximise and optimise the gas production, cash flow and capital while reducing the carbon footprint of the Erregulla domestic gas project.

“We intend to put this offer directly to the shareholders of Warrego to give them the opportunity to participate in the clear value creation we can see from this transaction. It will also provide them with access to enhance equity market presence, greater liquidity and a stronger share register. Regardless of the recommendation of the Warrego board of directors, we trust the Warrego shareholders to recognise the inherent value of their existing interest in West Erregulla and the potential enhancements to that value arising out of a combination of the two companies,” said Nicholls.

Warrego has urged shareholders not to take any action, saying its board would consider the Strike offer against the Hancock proposal, and would determine which offer was superior. The company intends to issue a target statement before the end of December.

Meanwhile, Strike on Monday also announced that it had agreed a A$153-million financing package with Macquarie Bank to cover the pre-development and development costs of its Walyering and Erregulla domestic gas projects.

The facilities will provide Strike with the required capital required to get to first gas production at Walyering.

“This financing package provides an attractive pathway for Strike to accelerate into a material domestic gas producer in Western Australia at a time of rising prices and reducing supply. The lowering of the company’s cost of capital as it evolves is indicative of the increasing value of our underlying resource base and the excellent relationship between Strike and Macquarie,” said Nicholls.

The financing package is divided into three separate allocation. The first is the refinancing of existing A$33-million drawn and undrawn debt into a new term facility at a 6% coupon plus bank bill swap rate and a 2.5-year tenor with a period of capitalising interest.

The funding also includes a A$40-million facility to support the appraisal drilling of two wells into the South Erregulla gas field. This facility has a 24-month tenor, capitalising interests and an 11% coupon plus bank bill swap rate. The facility will be provided by way of two A$20-million tranches, with the first available for draw down on financing close of the refinanced facility.

A A$80-million Erregulla domestic gas development facility is also available, which is currently un-committed and remains subject to Macquarie approval. This facility would have a similar cost to the Walyering facility with a four-year tenor post project completion.

Strike on Monday said that as part of the establishment cost for the A$40-million South Erregulla drilling facility, the company will issue Macquarie with 82.8-million options exercisable at 36.3c each by the end of January next year.