Add a few diamonds to the friendship ring

Robert Gannicott, the chief executive of Harry Winston Diamond, Rio's 40 per cent partner at the Diavik diamond mine in Canada, has confirmed to analysts that a merger with BHP's nearby Ekati operation was being examined as a means to cut costs. But the "investigative work for this", he said "has not yet started".

Gannicott said everything was on the table in the talks, but noted obvious places to start included connecting the two power plants and the administration units. He also left open the possibility of a common processing plant, as Xchange foreshadowed last month.

The diamond market, which has been depressed by the global financial crisis, is showing some signs of a rebound, and Rio is expected to resume work on its Argyle expansion in Western Australia next year.

As for joint ventures, iron ore remains the first priority for BHP and Rio because it is a much more important contributor to earnings than diamonds. But diamonds are not likely to be the last of their joint venture talks beyond iron ore  mineral sands and coal are expected to be on the list, too.

BHP's push for these alliances is a further demonstration that there aren't many obvious buys in the mining sector for the Big Australian other than Rio.

Last month BHP bemoaned the lack of top-tier mining assets on the market, and Morgan Stanley wonders if it should not start lowering its standards for copper acquisitions in light of its lack of near-term growth options in that metal.

However, BHP's decision to pass on OZ Minerals' Prominent Hill mine when it was for sale at the bottom of the market indicates it is not ready to drop its high standards just yet.

For now, the most obvious acquisition opportunities for BHP are more likely to be in oil and gas than in mining.

Drunk to excess

It appears lending in the NSW pubs industry has left the big four banks with a rotten hangover.

The big lenders are understood to have appointed the property advice teams at PricewaterhouseCoopers, Ernst & Young and Korda Mentha to look into the huge write-downs of the past year.

The banks lent the NSW hotel industry about $7 billion in an aggressive investment push into the industry over the last five years.

But about 30 per cent of the total, or $2 billion, is now said to be hard to recover because of the plunging value of hotels.

The advisory firms have been asked to look at how the slump in prices has come about; how they can claw back their loans; and how banks can better avoid getting caught out next time.

OZ spends a few coins

OZ Minerals has finally started to dip into its $1 billion pile of cash, at least in a small way.

The copper miner has allocated nearly $20 million towards maintaining its 49.9 per cent stake in the uranium hopeful Toro Energy.

Toro entered a trading halt last week as it sought $15 million from institutions just one day after Paladin Energy raised $419 million.

But after receiving bids from institutions for nearly four times as much as it was seeking, Toro increased the size of its raising to $40 million. OZ decided to chip in to maintain its stake as part of the 15c-a-share raising conducted by Helmsec Global Capital.

The full details are to be announced today, but there is word Toro may also offer a share purchase plan to allow retail investors some participation.

Toro owns the $170 million Wiluna project in Western Australia, which is on track to be one of the first uranium mines in that state. It has a production target of 2012.

The new funds will allow it to complete its bankable feasibility study by the end of next year and to progress a new joint venture with Cameco. It also means Toro will not have to activate a $20 million back-up facility with YA Global that was set up last month.

Resource Capital Research also seems to think some acquisitions could be on the cards. Once Wiluna is in operation, it could prove an attractive hub for developing other smaller uranium deposits in the region, including those held by U308, Liberty Resources, Norilsk and Encounter Resources.

Changes in the forest

There could be some significant changes to the tight Forest Enterprises Australia share register following the trading halt called by the company yesterday in order to raise capital.

Elders owns 31 per cent of it, and Gunns owns 18 per cent.

FEA's recent accounts listed $208 million of debt as a current liability because it had breached its banking covenants. The covenants are expected to be reset, but it would not be surprising if the banks hinted that they would be more comfortable about tweaking the covenants if FEA raised some cash.

FEA also has $107 million of investment properties and loans that are slated for sale as part of its plans to repay debt.

It is interesting to note FEA shares traded on high volumes on Friday compared with the rest of the week, although they only fell 1c to 18c.

But Xchange hears Elders and Gunns were taken by surprise by yesterday's raising.

It appears Elders is unlikely to tip any funds into it after raising at least $475 million itself in a deeply discounted issue this month to stave off the threat of administration. In the longer term, Elders is not likely to want to maintain a minority stake in FEA, and the dilution caused by the new equity issue could

make the stake easier to offload in the future.

Gunns, which recently raised $45 million beyond the $100 million needed to buy timber assets from Elders, would appear to be more likely to take part. Gunns picked up its stake in July, indicating a much more recent interest in FEA than Elders.

xchange@smh.com.au