Rio Tinto shares took a tumble on London reports that the $US19.5 billion deal with Chinalco might not go ahead.
There’s talk, first reported in London papers of a 5 billion pound ($A13 billion) share sale.
It was yet another story about Rio (and they used to include BHP Billiton when it was looking at Rio). They seem to pop out regularly from the British capital.
The shares ended down 4.7%, at $65.25 yesterday, a fall of $3.23. BHP shares rose 12c to $34.43.
The shares declined 4.7% to A$65.27 at 12:08 p.m. Sydney time on the Australian stock exchange. That was its biggest slump since April 21. Rio’s London stock fell 6.9% yesterday.
The London telegraph reported that Rio "which has faced stiff opposition to its $19.5bn (£12.8bn) cash injection deal with Chinalco, is said to have already drawn up contingency plans to raise around £5bn in a rights issue underwritten by JP Morgan Cazenove and Credit Suisse.
"There has been talk that Australia’s Foreign Investment Review Board is set to block the Chinalco deal. So, Rio may decide to scrap the cash injection from the Chinese and move earlier than expected to tap existing investors for extra cash.
"Rio’s shares have also risen above the strike price for the convertible bond to be issued to Chinalco, prompting analysts and investors to question whether a deal with the Chinese is the most sensible idea."
The strike price for the first part of the convertible bond was $A45 for Rio shares, so it’s logical that that will have to be renegotiated to make it more acceptable to shareholders, should Rio persist with the Chinalco deal.
Meanwhile, struggling mining contractor Macmahon Holdings is one of the latest companies looking to raise capital after it sought a trading halt on its shares.
The group, 17.5% owned by Leighton Holdings, is raising the money two weeks after slashing its full-year profit forecast, which saw the shares down 41%.
Macmahon’s shares closed Tuesday at 40c, valuing the group at $218 million. The shares were suspended to allow the capital raising to occur.
Leighton declined to comment on whether it was going to participate in the capital raising until details were released.
Macmahon cut its full year profit forecast in half to a range of $15 million to $20 million last month, as miners such as BHP Billiton and Mitsubishi’s Queensland coal business cancelled contracts and slowed projects, and heavy rain hampered operations.
It said then that monthly revenues were 30% to 40% lower than in the first half. In response it had frozen salaries across the company and was cutting 360 jobs, adding to 420 job cuts earlier, to save $10 million.
And Sydney-based infrastructure and engineering firm AJ Lucas Group has slashed annual earnings guidance because of "a poorly executed internal restructure", difficult market conditions and one-off costs.
The company said it was forecasting earnings before interest, tax, depreciation and amortisation (EBITDA) in the range of $50 million to $54 million for the year to June 30, down from the previously forecast estimate in the range of $70 million to $72 million.
Its shares fell 10% in morning trading, and then a bit further in the afternoon to end down 10.4% at $2.33.
AJ Lucas said there had been "significant missteps and setbacks" in the last six months.
"In particular, the scheduled restructuring initiative, while necessary, will not deliver the cost benefits and productivity improvements expected this year. Choices made during this process have proved to be incompatible with our business strategy and operating premise.
"The company structure has been adjusted to remove unnecessary management layers and a downsizing of the workforce is underway."
It said the company’s scheduled restructuring initiative, while necessary, would not deliver the cost benefits and productivity improvements expected this year.
"Choices made during this process have proved to be incompatible with our business strategy and operating premise," it said in a statement on Wednesday.
The company said to address this, chief executive Allan Campbell had resumed direct control of all business operations.
The changes were expected to have a substantial positive impact on the next financial year’s results, it said.
The company said it had also been impacted by difficult business conditions in the last eight months.
In its construction and infrastructure business, it said building construction has contracted severely in line with the property market.
"Several major infrastructure projects have been delayed for three to six months.
"The recession has affected several clients, which has delayed payments on their projects."
In its drilling services unit it said it had seen a reduction in rig utilisation and competitive pressure on margins.
"All this flows from a generally lower demand for coal," it said.
"Coal seam gas remains robust, but many of the opportunities await completion of planning for the large export projects that have been announced."
“Its drilling services unit had also been affected by extreme weather in Queensland and an incident on a rig, which led to a loss of drilling days, it said.
“Over $5 million has been committed by Lucas to upgrade systems and procedures, increased training (particularly in safety and environment) and information and communications technology.
