Rex Surges
It's not just Qantas which is doing well among our airlines.
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MND Profit To Double
Engineering group, Monadelphous Group (MND) says it is looking at an 80 per cent rise in revenue for the 2007 financial year and a doubling in profit; news which sent the company's shares jumping 84c to $13.44.
Read MoreCampbell’s Boom
A year ago we pointed out the impact the mining boom was having on Brisbane-based group, Campbell Brothers, when earnings jumped to more than $34 million.
Read MoreColes In Disgrace
Oh the ignominy of it all: a struggling corporate so bad that not even two of the most aggressive private equity groups in the world, KKR and CVC, want it.
Read MoreQantas Down, Just
Qantas's glittering run came to an end yesterday with the shares suffering their first fall in the seven days of trading since APA pulled its offer once and for all and the airline's board lost chairman, Margaret Jackson and director, James Packer.
Read MoreHealth Changes Continue
So what will Sigma Pharmaceuticals do now? Healthscope has confirmed its bid for Symbion. Theball's in Sigma'scourt if it wants to be a player in the healthcare sector rationalisation now underway?
Read MoreColes’ Bidding Team Shatters
Coles Group shareholders are facing the collapse of the$20 billion auction for their company after US private equity group, KKR joined another group, CVC, in the exit lounge.
Read MoreLIM’s Nickel Shortfall
Takeover target LionOre Mining International has downgraded its nickel production forecast for calendar year 2007, only a fortnight after reaffirming the target of 44,300 tonnes.
Read MoreABB Bitten By Drought
As expected, ABB Grain was hit by the drought in the first half of its 2007 financial year with the performance of its wheat and barley grains businesses hurt.
Read MoreQCH Takeover Battle Continues
Staying with rural business, the takeover battle for Queensland Cotton stepped up a gear yesterday with a counter bid from Singapore-based Olam International which topped last week's higher offer from Louis Dreyfus.
Read MoreQantas-APN
You have to be more than a bit cynical about the rush to lift valuations of Qantas by broking and investment bank analysts who six months ago thought (bar probably one) that the airline was an ‘underperform’, a ‘sell’, or at best a ‘neutral hold’.
Read MoreMarket Correction Ahead?
Share markets could be at risk of a correction in the short term.
Read MoreGreenback’s Strength Surprises
The US dollar hits a six week high against the euro and a three month high against the yen and key US interest rates bounced to their highest level since January.
Read MoreOil Prices Out Of Kilter
Don’t be confused by world oil prices and petrol prices at the moment.
Read MoreAt Last, The Real Qantas Story
At last some straight talking from Qantas management, shorn of most of the hyperbole of the past three years about threats and dangers to the company’s future.
Gone were the chicken little ‘the sky is falling’ alarms about costs, oil prices, foreign airlines, terrorism, SARS and you name it.
In their place we have what appears to have been the basis of a fairly rational, level-headed assessment of where the airline stood after the APA bid debacle and the now derisory $5.45 a share offer.
Instead of meeting the predictions of a rattled chairman in Margaret Jackson, who as late as this week was wondering when the share price would fall, the shares hit record levels.
After withstanding the sale of hundreds of millions of shares by hedge funds and other speculators (more than 750 million in almost three weeks), the QAN share price broke free this week, rising gently and then accelerating yesterday to its highest level ever on the back of the briefing by the airline’s management to major shareholders.
The shares jumped past the $5.45 of the APA offer to climb to $5.54 and close at $5.46, up 4 on 114 million shares.
That’s $5.54 price is actually higher than the first offer price of $5.60 from APA which was made before the final 15c a share dividend was struck.
APA took that dividend away (which could have cost them the bid) and cut the price to $5.45. The effective price yesterday based on yesterday’s close was $5.69.
That’s a firm rejection of the APA offer and the board and management’s active support of it.
It confirmed the opposition to the bid from the likes of Balanced Equity Management and the now departed head of UBS Asset Management. Their investors in Qantas are all a little richer now for the opposition, as is the Qantas management group, although not as rich as the pot of gold promised to them by the APA offer.
Yesterday’s briefing backed up the comments from CEO, Geoff Dixon this week to staff about the airline being in a ‘sweet spot’.
A 17 page presentation formed the basis of the ‘making up’ briefing with big shareholders in Sydney, many of whom had sold early and were now buying back in, forced to by the bid failure and their slow realisation that the airline’s share price was going to rise.
It was a rare burst of unvarnished commentary from the CEO which clearly confirmed the healthy state Qantas now finds itself in, and how close it came to being ‘stolen’ by the APA offer of $5.45 a share.
Think of the briefing yesterday in another way: think of it as the first major update from management for the members of the new APA dominated board, had that New York hedge fund not botched its acceptance of the offer.
That management group included CEO Dixon, his number two the airline’s Chief Financial Officer, Peter Gregg and other senior managers.
Think of Mr Dixon using the same briefing notes and presentation, as released yesterday, to tell APA just what a bargain they managed to snare and how much comfort the news would be to the banks which financed it.
In fact shareholders would be entitled to ask why wasn’t this document, or something like it, included in the Target statement in the APA bid?
As you will see below for instance the presentation reveals a review of the Frequent Flyer program has been going on since last year. That wasn’t highlighted in the statement and now it seems to be a big part of the revamp.
Of course minority shareholders who had held out against the offer, would not have been involved or probably informed of the detail in this update, had APA won.
Yesterday Dixon used the word “favourable,” rather than the phrase, ‘sweet spot’ to describe where the airline finds itself at the moment and into the immediate future.
“We think we can handle most of what’s coming at us,” he was quoted as telling analysts and investors in Sydney yesterday.
He said the airline is benefiting from rising ticket sales and a “strong” domestic and global economy and “these favourable conditions should last for the next 12 to 18 months”.
Analysts at UBS, Macquarie Bank, JP Morgan, Goldman Sachs JBWere and other leading firms have this week upgraded their ratings on Qantas shares to “buy” from “hold,” or are about to release new recommendations, probably later today after they assess yesterday’s briefing.
There was no mention of a new profit upgrade yesterday. Qantas has already increased its earnings forecast twice after the board endorsed the buyout, saying pre-tax profit may almost double to $1.23 billion in 2008, from $671 million earned in 2006.
Analysts said Dixon told the meeting Qantas didn’t see the need to upgrade its forecast for the current financial year to June.
Among the points made in the briefing were:
The Qantas board will consider returning capital to shareholders through a special dividend payment, a share buy-back or splitting the company (demerger was used in the graphic).
Analysts said there was no elaboration of what was probably the most important part of the meeting: more details of possible options after that long board meeting last Thursday which saw Ms Jackson announce her departure and that of Mr James Packer as a director. These will happen at the annual meeting in November. The briefing again emphasised that the APA plans for Qantas would be followed.
APA had planned to increase Qantas’ debt to return $4 billion to shareholders within a year of taking control; Mr Dixon was reported as using a figure of $3.5 billion earlier this week and Merrill Lynch says it could be $2.2 billion.
Demerger could mean splitting off the freight business, Jetstar or selling the frequent flyer program, all of which were mentioned in the briefing presentation notes.
Qantas said it was “reviewing” the ownership of the 4.9 member loyalty program.
That could actually be revamped and returned
Coles Bid Steps Up
Well, Wesfarmers and its number crunching private equity partners go into the data room at Coles Myer today to begin due diligence on the floundering retail giant that will produce a bid well above $17.25 a share.
Read MoreSP AusNet’s Alinta Interest
It’s not only AGL Energy that is sniffing around the possible break up of Alinta by either Babcock and Brown or Macquarie Bank.
SP AusNet says the Alinta assets its majority owner, Singapore Power, is interested in would be a good fit with SP AusNet’s business profile.
Singapore Power has previously said it is interested in regulated or contracted assets. It is in a bid with Babcock and Brown for Alinta that may or may not succeed, such is the complexity and at times confusion surrounding the deal.
SP AusNet managing director Nino Ficca said yesterday, “That is consistent with the sort of profile that SP AusNet has”.
He told a corporatefile Open Briefing on the ASX:
“We’ve established a Board committee to oversee an independent review process for the assessment of this opportunity. The process includes the appointment of independent advisors to assist in the review.
“The assets that may be acquired by Singapore Power and subsequently offered to us are consistent with our existing portfolio of energy transmission and distribution assets. As with any acquisition, we’ll assess the assets in terms of their capacity to increase value for our security holders.
“The opportunity to expand our operations outside the geographic boundaries of Victoria, as well as into gas transmission, is one we’ve been working on for some time.
“The assets are considered to be of the same high quality as our existing assets and are predominantly regulated.
“Should Singapore Power be successful in the bid, and we choose to acquire some or all of the assets, our funding requirements will be assessed at the appropriate time.”
AGL Energy said earlier this month that it will buy the remaining 67 per cent of the AlintaAGL retail business from Macquarie Bank Limited for a net consideration of $345 million, should Macquarie successfully acquire Alinta.
Under the agreement, AGL Sales, a wholly owned subsidiary company of AGL, will buy the remaining interest in AlintaAGL’s retail business, and will procure that AGL will sell its 33 per cent interest in AlintaAGL’s co-generation assets to Macquarie.
AGL is currently the beneficial owner of 33 per cent of AlintaAGL’s retail business, which comprises 566,000 gas customers and 1, 600 electricity customers.
AlintaAGL owns the Western Australian retail business formerly owned by Alinta as well as cogeneration assets at Alcoa’s Pinjarra and Wagerup alumina refining plants.
AlintaAGL was set up following the Alinta AGL merger and subsequent demerger six months ago. AGL Energy is also in talks with Babcock over the AlintaAGL venture. Under an agreement reached between Alinta and AGL in 2006, any change of control at Alinta allows AGL to trigger an option to move to 100 percent ownership of AlintaAGL.
SP AusNet last year missed out on Queensland gas distributor Allgas. It is still interested in the Bass Strait power link which has been put up for sale by its owner, National Grid.
SP AusNet said it earned an “attributable net profit” of $178.297 million for the year to 31 March, down from $367.555 million in the prior year. (These figures were reached after one-off items)
But the company said a more accurate net profit from continuing operations was $161.246 million, up 18 per cent.
SP AusNet listed on the ASX at the end of 2005, said that profit from continuing operations result beat its prospectus forecast by 3.2 per cent.
The bottom line result included $17.1 million of profits and income tax adjustments for the 2005-06 year.
The company is 51 per cent owned by Singapore Power.
It declared a final distribution to security holders of 5.635 cents, taking the total payout for the year to 11.27 per cent, representing a yield of 7.7 per cent.
Revenue for the year was $1.019 billion, up 38 per cent and 2.2 per cent above forecast, while earnings before interest and tax (EBIT) was in line with its forecast at $424.7 million.
That gives an EBIT margin of around 42c in the dollar. It’s no wonder they load the balance sheets of utility companies up with debt for big deals and major asset buys with gross margins like this.
It gives you a hint of the attraction Macquarie Bank and B&B see in Alinta.
SPN shares edged half a cent higher to $1.47.5, near the all time high since listing 18 months ago of $1.50.
Behind The Big Nickel Bidding War
No wonder Norilsk Nickel and Xstrata are fighting over LionOre Mining International; according to the international investment bank, Credit Suisse, world nickel prices could continue to rally and even reach $US65,000 a tonne this year.
World nickel prices have jumped 155 per cent over the past 12 months as stocks have fallen 75 per cent to equal around two days of global consumption.
There are 11 nickel mining projects being built around the world but only three including BHP Billiton’s late and over budget Ravensthorpe project in Western Australia, will start production before 2010.
The world price, which is essentially the LME price, closed Thursday at $US46,800 a tonne for three months metal, while the cash price ended at $US50,300, with stocks of the metal down to perhaps two days supply and not much more.
Nickel for immediate delivery rose to a record $US54,050 a metric ton in London on May 15.
That makes the price drop around 8 to 9 per cent on fears of de-stocking by stainless steel producers. But that’s not deterring the rival bidders for LionOre.
Norilsk Nickel raised its bid for LionOre Wednesday night to $C27.50 ($A30.76) per share, valuing the Canadian miner at around $C6.8 billion ($A7.6 billion).
The Russian company’s revised bid is 10 per cent above a revised second offer from Xstrata, which last week made a bid of $C25.00 per share, valuing LionOre at $C6.2 billion.
According to reports Jeremy Gray, head of mining research that Credit Suisse in London, believes the recent sharp downturn in the price of the metal (from more than $US50,000 a tonne for three months metal on Monday of this week to Wednesday’s close) was an over reaction.
He believes the market seems to anticipating a severe correction in the nickel price, because of fears that stainless steel producers will cut the amount of nickel used in their steel products and sell surplus stocks to take advantage of the near record prices.
OST-SSX-BSL Merger Deal Delayed
The complex merger and split up of Smorgon Steel between OneSteel and BlueScope remains alive, but just how alive is the key question after the ACCC delayed its decision on the deal yesterday.
Read MoreAWB Earnings Down
As expected AWB, the country’s largest wheat exporter, was battered by the drought and the impact of its dealings with the former Iraq regime of Saddam Hussein.
Read MoreSigma’s Slow Start
Australia’s biggest pharmaceuticals group, Sigma, has struck some first quarter earnings problems.
Read MoreFletcher’s Big World Play
Two days after its chief executive was in Australia talking about how it was interested in big acquisitions, but not necessarily in Australia because of thin margins, NZ’s biggest construction company, Fletcher Building, has given itself world scale by buying US-based Formica Corporation for almost $NZ1 billion.
Read MoreWhat About A Statement, QAN?
It hasn’t taken long but the Qantas board and management are up to their old tricks again, telling people other than the shareholders things about the airline when they should be trying to be as transparent as possible.
Read MoreWarrants OK Again For Super Funds
The Federal Government has acted on a promise last year to remove any uncertainty over the use of installment warrants by superannuation funds.
Read MoreSituations: ABS, Steel Deal
Despite the continuing strong performance by the broader stockmarket, ABC Learning Centres, a darling for much of the past two years, has had a pretty miserable 2007.
Read MoreQCH Says ‘Yes’
Did the good rains last week and a slight improvement in weather conditions produce a higher counter offer for Queensland Cotton from Louis Dreyfus, the world’s largest cotton trader?
Read MoreRelax, China Isn’t Going To Crash
So far this year the Chinese economy and share market have continued to roar ahead.
Read MoreGold’s Good First Quarter
Gold prices are within $US60 to $US70 an ounce of the 27 year high of $US730 an ounce reached just over a year ago.
Read MoreThumbs Down For APN Buyout
Barring unforeseen circumstances the $2.98 billion privatisation of APN News and Media is a dead duck after Perpetual confirmed it would be voting against the proposal at Friday’s shareholders meeting.
Read MoreMarket Likes OST Deals
A strong day for steel group and emerging iron ore exporter, OneSteel, with the shares jumping 23c in a strong market to reach yet another all time high of $6.51.
Read MoreChina Tries Again To Cool Economy
China has further moved to try and rein in the overheating economy we highlighted last week with another interest rate, another increase in reserve ratios for banks and a widening of the float band for its currency.
Read MoreChina’s Private Equity Coup
Last week China revealed plans to allow more money to be invested in overseas markets, starting with Hong Kong.
Read MoreQantas Board Again Misses The Mark
It’s disappointing that after a board meeting which spanned two days, the Qantas board couldn’t make a statement about how the airline’s profits were going.
Read MorePetrol Prices Up
US petrol prices reached a seventh straight record on Saturday as prices across the country converged on or moved past $US3 a gallon.
Read MoreLion Nathan-FGL-David Jones
Unlike its larger rival Fosters, brewer Lion Nathan managed to eke out higher earnings from its basic business, beer in Australia.
Read MoreCopper, Gold Turning?
There’s a whiff of nervousness about the copper market.
Read MoreBye Bye APA, Qantas To Fly?
Qantas chairman, Margaret Jackson, has bowed to rising pressure and will retire at the annual meeting later this year, making her the first casualty of the failed $11.1 billion bid for the airline.
Read MoreColes Sales Bad, Bring On Sale
For the moment we can add the sale of Coles Group to the list of life’s certainties: death and taxes.
Read MoreWhy The Mining Boom Will Last -2
But while exploration spending is at record levels, it has to find or prove up resources capable of being exploited in projects developed at existing operations or in new locations.
And that is the most impressive thing about the ABARE report.
The sheer health of the industry can be seen from the following two paragraphs.
“There are 43 projects (both advanced and less advanced) that are new to ABARE’s list since October 2006,” ABARE said..
“In the two year period from the end of April 2005 to the end of April 2007, over 166 projects have been added to ABARE’s project list.
“The number of newly listed projects in this timespan is unprecedented and is another indication of the current high level of investment interest in the mineral resources sector.
“Of the 43 projects added to the list, nine are either committed or already under construction.”
ABARE remarked that In line with previous project listings, the current investment intentions in the Australian mineral resources sector, as reflected in the large number and record value of minerals and energy projects committed to or under construction, “continue to bode well for the sector’s growth over the next few years.
“The 91 advanced projects as at April 2007 indicate continued expansion across most of the minerals and energy industry spectrum. Of the record 279 projects in ABARE’s April 2007 projects list, 67 per cent (188 projects) remain uncommitted.
“However, most of the projects that will ultimately proceed to development in the medium term are included in ABARE’s current list of 188 less advanced projects.”
The spending levels are at times mind boggling in their growth.
In 2004-05 around $10 billion was spent on new capital projects according to the Australian Bureau of Statistics and ABARE.
That jumped 80 per cent in 2005-06 to $18.6 billion, which according to the report was “more than double the average annual expenditure in real terms (2006-07 dollars) for the past 25 years.
“Surveys of industry intentions indicate the possibility of further increases to almost $23 billion in 2006-07 and over $30 billion in 2007-08.”
According to ABARE, if the capital expenditure in 2006-07 and 2007-08 is realised, this would represent increases of 22 per cent and 61 per cent respectively from the record expenditure in 2005-06.
“The expected continued high level of capital expenditure in the mining industry in the near future is consistent with the development trends shown in the full list of major mineral and energy projects.”
The metals industry is the only one to show a slowing in spending.
“Capital expenditure in the metals products sector, which includes the minerals processing activities covered in ABARE’s projects list, was $4.8 billion in 2005-06, 41 per cent above expenditure in 2004- 05.
“Paralleling the result in mining, real expenditure in the metal products sector in 2005-06 is the highest on record and more than double the 25 year annual average of $2.5 billion (in 2006-07 dollars).
“However, surveyed industry intentions suggest that metal products expenditure could fall in 2006-07 to about $4.1 billion and $3.2 billion in 2007-08.
“The possible decreases in metal products capital expenditure reflect the imminent completion of some large projects and the lack of commitment to any large metal processing projects in the past twelve months.”
Looking at the six months since the last report in October 2006, ABARE said that 23 major minerals and energy projects, with a total capital expenditure of $3.36 billion, were completed.
“The completion of these projects will result in increased production and export capacity for a range of commodities, including coal, natural gas, bauxite, base metals, gold, iron ore, mineral sands and nickel.
“The total number of projects completed in the six months ended April 2007 was one less than for the six months ended October 2006 and just below the record number (27) completed in the six months to April 2006.
“However, the total capital cost was significantly less than in the six months ended April 2006 and October 2006.
“The average value of projects completed in the six month period to April 2007 was $144 million, down from the historical nominal average over the past nine years of around $234 million.”
Looking ahead, ABARE’s list of projects suggests that the rate of project completions is likely to increase in the short term, with over 45 advanced projects scheduled for completion in the second half of 2007.
“However, there is the possibility that some of these projects will not meet announced scheduled completion dates or cost budgets, reflecting strong industry-wide competition for skilled labour and equipment.
“In addition, progress on a number of projects has been hampered by unfavourable weather conditions, particularly in Western Australia.”
At the end of April 2007, there were 91 projects at advanced stages of development included in ABARE’s projects list – these projects are either committed or under construction.
This was three fewer than the number of advanced projects included in the October 2006 list.
Despite the slight reduction in the number of advanced projects in the April 2007 list, there were still around 18 projects either newly committed or entered the list at an advanced stage in that six month period.
The announced capital expenditure of the 91 advanced projects at the end of April 2007 sums to $43.4 billion.
However, ABARE said it should be noted that even projects that have reached the committed stage may be deferred, modified or even cancelled if economic or competitive circumstances change sufficiently.
Among the more notable large scale projects in ABARE’s April 2007 list that are still undergoing feasibility studies are seven proposed LNG developments that, collectively, co
Why The Mining Boom Will Last -1
Any fears the resources boom might not last or might quickly vanish have been answered by the results of the latest survey of investment and spending from the Federal Government’s main resources adviser.
Prepared by the Australian Bureau of Agricultural and Resource Economics (ABARE), the report looks at spending on mining developments, past, now and planned, as well as the amount spent on exploration.
In all cases, bar the metal industry, spending is at record or near record levels and based on the conservative estimates contained in the report, the boom could last for quite a while yet, thanks to the China boom.
That fits in with the thinking in a recent paper from the Reserve Bank on the boom and its sources and differences with past resources booms.
ABARE says that mining companies are planning a record $43.4 billion of new projects, thanks to higher demand and rising prices.
In a report published on its website yesterday ABARE said the value of advanced projects to build mines and oil and gas fields has risen 24 per cent from the $34.9 billion reported last October in the previous survey.
The bulk of the increased spending came from the approval of three new iron ore projects valued at $7 billion, according to the bureau.
ABARE said there was a record 279 major projects planned, with 91 considered to be ‘advanced’. A further 188 projects were at less advanced stages or undergoing feasibility studies, the Bureau said.
A feature of the report was the sharp rise in exploration spending that has happened, despite industry fears money was not being spent.
ABARE said exploration spending on minerals in Australia is estimated to total over $4 billion in 2006-07, an increase of over 56 per cent on exploration expenditure in 2005-06. In real terms (2006-07 dollars).
It said the spending in the 2007 financial year on exploration “will be the highest on record and around 72 per cent higher than the average annual expenditure on exploration over the past 25 years.
“While exploration expenditure has increased recently, it cannot be determined from ABS data what proportion of the increased expenditure is related to increased exploration activity or attributable to higher costs of inputs, such as labour and equipment.
In the first half of this decade, exploration expenditure in Australia, in real terms, was well below the annual average of the past 25 years.
“Brownfields exploration around known deposits – has made up an increased proportion of total exploration expenditure.
“This can be partly explained by the current trend of developing projects with larger production capacities, which generally require larger resource delineation programs.
“In addition, mining companies are reassessing reserves at current and depleted mining areas, with the view of extracting additional reserves that are now considered to be economic at current high commodity prices.
“Mining at or around existing deposits is attractive for companies because projects can be started sooner and generally have a lower capital expenditure because often there is existing infrastructure in place.
“In 2006-07, exploration expenditure is expected to increase across all major commodities.
“Petroleum exploration is estimated to increase to $2.14 billion, an increase of 64 per cent from 2005-06. Petroleum exploration expenditure in 2006-07 is likely to be the highest (in real terms) since 1982-83 and 74 per cent higher than the annual average over the past 25 years.
“Increased petroleum exploration has been encouraged by historically high global oil prices. With world oil prices forecast to remain relatively high in the short term, exploration expenditure can be expected to remain historically high.
“Iron ore exploration expenditure in 2006-07 is estimated to almost double to $320 million.
“A number of successive annual contract price rises and the prospect of continued strong Chinese demand for iron over the medium term are important drivers behind the significant increase in expenditure.
“Since 2003-04, gold exploration expenditure in real terms has remained relatively stable at around $400 million a year.
“In 2006-07, however, gold exploration expenditure is estimated to increase by 25 per cent to $515 million.
“The increase in gold exploration activity is attributable to the increase in Australian dollar gold prices, which in 2006 averaged $800 an ounce, an increase of 37 per cent from 2005.
“Base metals exploration expenditure in 2006-07 is estimated to total $560 million, an increase of 52 per cent from 2005-06.
“This increase is mainly attributable to strong rises in expenditure on copper, nickel and silver-lead-zinc exploration, reflecting substantial rises in global prices for these commodities.
“For example, in 2006, copper prices increased by over 80 per cent, while nickel prices rose by more than 65 per cent.
“In real terms, exploration expenditure on base metals in 2006-07 is expected to be more than double the 25 year average ($260 million) and the highest on record.”
