BREAKFAST DEALS: Fortescue flip

Fortescue Metals' rapid turnaround on its refinancing could end up being the deal of the year, but Mt Gibson hasn't been doing so well.

Two iron ore deals are in focus this morning – one good, one not so good. Fortescue Metal Group’s refinancing deal has changed the mood around the place so rapidly that it might just end up being the deal of the year (admittedly, it’s a quiet year, but we’ll get to that later. The other is Mount Gibson Iron is again at odds with Chinese customer Rizhao over an agreement it must be wishing was behind it by now. No need to tell anyone today, but Nine Entertainment is in the limelight and its deal with Cricket Australia could be a cause for concern, while Ten Network isn’t giving anything away in regards to EYE Corp. Finally, Australian online currency conversion player OzForex is going truly global.

Fortescue Metals Group

The fruits of Fortescue Metal Group’s refinancing deal, which was increased to $US5 billion ($4.9 billion) from $US4.5 billion, have to some extent already ripened. But founder Andrew ‘Twiggy’ Forrest might have something sweet to report when the iron ore miner’s AGM rolls around in less than a month.

Fortescue’s share price is almost 25 per cent higher than the depths reached during the spot price slump last month when speculation was rife about its funding position. The miner’s 155 million tonne production target and $1.1 billion Kings project were axed.

As Business Spectator’s Stephen Bartholomeusz points out, the iron ore price’s bounce back towards $US120 a tonne has lent some weight back to the notion that the marginal cost of China’s iron ore producers represents a floor price of sorts that Fortescue can deal with. This is lending support to the Fortescue price.

But as yesterday’s announcement from the company demonstrated, the tone of vulnerability and curbed ambition has been quickly erased with the refinancing agreement, led by Credit Suisse and JP Morgan.

"The potential for an early restart of the 40 million tonnes a year Kings mine in December 2012 using a staged approach that reflects prevailing conditions in the iron ore market is a valuable option for the company,” Fortescue chief executive Neville Power said in a statement to the market confirming the extra refinancing firepower.

"Our commitment to ultimately expand to 155 million tonnes a year and deliver the low-cost production from the Solomon mining hub remains unchanged.”

The Australian Financial Review reports that Fortescue has come up with a plan to move workers from a part of its Solomon operation called Firetail to its Kings mine to spark the project once again.

The newspaper also understands that Fortescue may consider giving approval to the plan when it meets on November 13, the day before the AGM.

The latest trade and money supply figures from China that came out over the weekend provide real hope that the country has in fact bottomed from its slowdown.

If Fortescue can spot a few more bits and pieces of data like this, as well as its own anecdotal evidence, before the next board meeting the company’s Kings ambitions could easily be reclaimed for something well short of a king’s random.

As Bartholomeusz and Fairfax’s Peter Ker have pointed out, the bond issue for BHP Billiton at 4 per cent compares very favourably with the rate that Fortescue is paying on its refinancing of 5.25 per cent.

But given the radical change in Fortescue’s apparent destiny – and we’ll have to wait until the AGM to pass full judgement – the relatively simple refinancing agreement could prove to be one of the deals of the year.

Mount Gibson Iron, Rizhao

Speaking of iron ore, Mount Gibson Iron hasn’t had the month of its larger cousin Fortescue, with its share price down 24 per cent since mid-September.

Mt Gibson is feuding again with Chinese customer Rizhao, with the steelmaker claiming that the Australian iron ore miner has failed to meet its obligations pertaining to an export agreement for the Koolan Island project.

This dispute runs deep and we need to revisit some history between the two.

In 2010, Rizhao was ordered to pay Mt Gibson $US114 million ($112 million), plus interest and arbitration costs following its decision to cancel iron ore contracts. This came after a length legal dispute.

These funds were never received. By October last year, the two had reached an agreement where Rizhao would buy some mineralised waste from Mt Gibson’s Koolan Island operation, which would have been useless to the Australians, plus 15 per cent annual production of its Extension Hill operation, at a premium, over five years.

Rizhao now claims that Mt Gibson failed to meet the shipping schedule that was part of the October agreement.

The Australian understands that the first shipment from Koolan Island was supposed to depart this week, but the two companies will now enter arbitration…again.

Nine Entertainment, Cricket Australia

All sport reveals something about the character of the players and they say cricket provides one of the greatest glimpses.

If today’s players had carried on in the same manner than the Nine Entertainment lenders have thus far, many more column inches would have been devoted to an encounter that could hardly be described as gentlemanly.

As readers would no doubt be aware, today is a big day for Nine – so many in recent weeks have been.

Yesterday’s "deadline” appears to have been a little more flexible than the word usually implies, which speaks to the notion of a source that spoke to The Australian a few weeks ago that this column has really enjoyed – negotiations like this take all the time allocated, plus a little more.

Now media reports point to another conference call this morning with frustrated wicket keepers Peter Bush and David Gyngell, Nine’s chairman and chief executive respectively, preparing to put the company into administration if the lenders can’t come to some sort of agreement.

The Australian Financial Review reports that PPB Advisory, the administrator handling the collapsed timber company Gunns, will be tapped for its services if a deal can’t be done.

Fair enough, but why the tortured cricket metaphor?

Nine remains in exclusive talks with Cricket Australia to renew its exclusive broadcasting agreement that’s been a staple of the formerly Packer-owned network for decades.

But Fairfax brings word from sources that are concerns Nine’s sports budget could be cut if the administrators are called in. While the network has first and last rights on the contract, a smaller budget is a smaller budget.

Rival network Seven Network is reportedly interested in securing the cricket rights as sports broadcasting deals grow in importance. Once you factor in the desire of Seven Network billionaire Kerry Stokes to lure Gyngell to Nine’s rival, and the talented executive’s apparent hesitation to stay on if administrators are called, the contract could easily slip away.

Fairfax reports that a "senior Nine official” is confident that they can hold onto the red ball regardless of what happens with its lenders.

And finally, while we’re still talking TV, Ten Network told the market that discussions remain "remain ongoing” with CHAMP Private Equity over the sale of outdoor advertising business EYE Corp.

The Network wouldn’t be drawn on a report from the AFR that CHAMP is feeling a little uneasy about the headline sale price, merely saying that it will update the market when it’s got something to report.

Australia’s M&A Scoreboard

As we all know, the Australian M&A sector has been rubbish in 2012 and eyes are firmly fixed on 2013 for greener pastures.

But as The Australian’s Michael Bennet reports this morning, hopes are somewhat muted.

Bennet has got his hands on the latest Capital Confidence Barometer survey from Ernst & Young, which indicates that just 20 per cent of companies in Australia and New Zealand have acquisition plans in the next year.

In April that figure was 32 per cent and 12 months ago it was 41 per cent.

Happy New Year!

Wrapping up

OzForex, the online foreign exchange service, has formed a joint venture with global player Travelex that will allow account-to-account international transfers.

Speaking to The Australian, chief executive Neil Helm said the company would expand its global footprint before looking at an Australian IPO.

The company was founded in 1998 and is backed by some big names – Macquarie Group, Carlyle Group and Accel Partners.

Elsewhere, Queensland coal seam gas company WestSide Corporation says Liquefied Natural Gas Limited is continuing due diligence, which the target’s chairman Angus Karoll says has been "a lengthier process than the board initially envisaged”.

Meanwhile, packaging giant Amcor picked up $22 million for offloading three of its flexible packaging plants in Australasia to Integrated Packaging.

The sale, which is yet to be approved by the Australian Competition and Consumer Commission (ACCC), is part of the acquisition of Aperio.

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