No matter what BHP says, for now China continues to grease Australia’s deal pipeline with its insatiable desire for local iron ore. The latest benefactor is Gina Rinehart’s Hancock Prospecting, which has secured partners for its big, new project in the west, and Fortescue Metals Group, which is making new friends in Beijing at the expense of its mining peers at home and abroad. But things aren’t so rosy for Rio Tinto or Glencore, whose tie-ups are presenting tough sovereign challenges internationally. At home, Perpetual hoses down speculation about the sale of its corporate trust business, as the government shoots down an appeal by Qantas regarding Virgin’s planned ownership re-shuffle. Meanwhile, deal-makers will be examining leadership changes at Vodafone and Paperlinx, as Wesfarmers and Helmsman Capital tap investors for funds. And finally, JBWere looks to Switzerland to grow its private banking services.
Gina Rinehart's Hancock Prospecting has revealed a number of equity partners have formally committed to its $9 billion Roy Hill iron ore project, although the miner refuses to say who they are or how big their interests will be, according to The Australian.
Following POSCO’s 15 per cent investment, media speculation has centred on Japanese trading house Marubeni and Korean ship maintenance group STG Corporation, each said to be vying for a slice of the remaining 15 per cent of the project up for grabs. However, Hancock has made clear that it's flexible on its plan to keep 70 per cent. The miner, which has kicked off talks with financiers over debt funding for Roy Hill, has also confirmed it is hammering out the final details of construction and engineering contracts with Brookfield Multiplex, John Holland and WorleyParsons.
Glencore International, Xstrata
Glencore International may have popped the champagne after Viterra accepted the Swiss commodity trader's $6.2 billion buyout bid yesterday, but another of the resource giant's potential acquisitions could be held up by regulators in Europe. There, steel makers and other industry players have kicked up a stink about Glencore's proposed $90 billion merger with Xstrata, which would create a huge new entity that opponents fear would control too much of the world's zinc, nickel and coal markets.
Those concerns could keep officials in the EU — as well as Canada, China, South Africa and the US, where the deal must also be cleared — busy for up to three years, Sigurd Mareels, director of mining research for McKinsey & Company, told The Australian Financial Review. As Xstrata shareholders also push back on the deal, which would leave them with 2.8 Glencore shares for every one they own in Xstrata, it's no wonder both companies continue to weigh their options as they wait.
Rio Tinto, Ivanhoe Mines
Another resources heavyweight, Rio Tinto, faces headwinds in Mongolia, where its Oyu Tolgoi copper and gold mine is struggling to secure a power contract from neighbouring China.
Rio, which bought into Oyu Tolgoi through the project's majority owner, Ivanhoe Mines, will be biting its nails as it waits for Chinese and Mongolian authorities to agree to the terms of a four-year deal that would connect the mine site to a power grid on the Chinese side of the border. Ivanhoe warned yesterday that a deal was yet to be reached, raising doubts over its plan to begin commercial production by 2013, according to The Australian. The clock is ticking.
Meanwhile, Ivanhoe boss Robert Friedland is pressuring Rio Tinto to rethink its focus on iron ore. The mining entrepreneur and Forbes rich-lister, who is no friend of Rio after its protracted battle for control of Ivanhoe, told a mining conference it is "very, very important for Rio Tinto to expand its copper production", which has fallen even as prices remain strong. As speculation mounts that Rio will attempt to buy the rest of Ivanhoe, Friedland labelled Oyu Tolgoi "the growth portion of [Rio's] portfolio." Talking up his own stock perhaps?
Fortescue Metals Group
As Chinese steel mills battle Australian miners over iron ore pricing, Fortescue has cosied up to Beijing by backing its favoured trading platform. The move goes against BHP Billiton, Rio Tinto and other international miners, which are pushing a rival scheme based on a shorter-term spot market.
In fact, Fairfax understands that Fortescue is the sole non-Chinese subscriber to China's program, which counts Baosteel, China Minmetals, Sinosteel and Wuhan Iron and Steel as members. Could it be that chief executive Andrew Forrest is searching for new friends in the Middle Kingdom as he ramps up production?
Perpetual has poured cold water on rumours it had enlisted Ernst & Young to help sell its valuable corporate trust arm, labelling the talk "incorrect”. The speculation followed a strategic review of the business by Bain & Co, which will be examined by Perpetual’s new boss Geoff Lloyd.
Credit Suisse has estimated that the business could fetch up to $350 million, and lists State Street, Computershare, RBC-Dexia, BNP Paribas Securities and BONY-Mellon Bank as potential buyers, according to The Australian Financial Review. An earlier $1.75 billion bid by private equity group Kohlberg Kravis Roberts fell through after the two firms failed to agree to the terms.
Qantas Airways, Virgin Australia
Virgin Australia has chalked up a win against rival carrier Qantas Airways after the federal government rejected the flying kangaroo’s call for an enquiry into whether Virgin’s planned corporate split would break foreign ownership rules, according to Fairfax. Under the proposal, Virgin would transfer capacity on routes to Indonesia from its Australian holding company to the carrier’s new international arm.
The ruling is sure to raise some uncomfortable questions at Qantas, which has seen a number of international mergers fail due to strict foreign ownership restrictions under the Qantas Sales Act. As regulators back the carrier’s competitor, it will be fascinating to watch the bigger airline’s response.
Leadership changes at Paperlinx and Vodafone Hutchison will be noted by the companies’ potential suitors, but for different reasons. The telco’s new chief, Bill Morrow, is viewed as being committed to turning around the troubled carrier, which will likely kill speculation about the joint venture hitting the auction block. On the other hand, a shareholder vote on the leadership of Paperlinx could draw bidders out of the woodwork, as it will likely provide new certainty for buyers.
Two capital raisings are also worth noting this morning. Wesfarmers tapped bond investors for $500 million in Australian markets, selling seven-year unsecured notes at 165 basis points above the swap rate in an offer lead by the big four local banks, according to Dow Jones Newswires. And Helmsman Capital, a local private equity firm that targets distressed companies, wants to raise as much as $200 million for its Helmsman Capital III fund, which already holds seven investments, according to the AFR.
Finally, private wealth manager JBWere has unveiled a new partnership with Swiss private bank Lombard Odier, which will allow clients to trade global equities, managed funds, cash, fixed income, dual currency deposits and other structured products, according to the AFR.
BREAKFAST DEALS: Hancock handshakes
Mystery partners sign on to Gina Rinehart's new iron ore project, while Rio Tinto sweats on Chinese power in Mongolia.
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