BREAKFAST DEALS: Linc's energy bounce

Linc Energy forges ahead with its exploration plans, while Discovery Metals loses the upper hand.

Linc Energy is back in vogue with two strong reports relating to its exploration permits in South Australia, its search for a financing partner and a coal asset spin-off. Discovery Metals wasn’t so lucky yesterday, with the significance of problems at its flagship asset weighing on investors trading the Cathay Fortune takeover play. Meanwhile, Ruralco is apparently thinking about shifting gears with its Elders proposal and Queensland Premier Campbell Newman isn’t so keen on asset sales to solve the state’s debt problems.

Linc Energy

Linc Energy shares closed at their highest level in 16 months yesterday after the company revealed gangbuster estimations for the Arckaringa Basin and its search for a financing partner.

Fairfax reports that Linc chief executive Peter Bond also flagged the potential spin-off of the company’s coal interests, a nice bullet point for a stock that’s up from less than 60 cents to $2.16 in just two months.

Independent reports from Gustavson Associates and DeGolyer and MacNaughton put the basin, located in South Australia at between 233 billion and 103 billion barrels of oil equivalent, respectively. It’s quite a disparity, but the point stands that there’s a lot of stuff down there and Linc’s permits sit right about it.

Now the company has to find someone with the cash to fund exploration to make those estimations into something real, from which point appraisals can be drawn up.

Linc stock finished the session up almost 10 per cent after announcing the numbers and revealing that it has hired Barclays Bank to find a joint venture partner with some experience in the shale gas industry to fund the project.

The Australian shale gas sector is in its absolute infancy. The only player with the experience and cash to fund such a venture is BHP Billiton and given its cost cutting instincts as chief Marius Kloppers comes to the end of his tenure, Linc is likely to be looking for an international player.

Discovery Metals, Cathay Fortune

By contrast, Discovery Metals had a bad day on the market yesterday as power shifted away from its flagship Boseto project in Botswana and into the arms of Chinese private equity suitor Cathay Fortune.

The African-focused miner revealed to the market that cash costs at the site were higher than the current copper price.

While Discovery added that the project is still in commissioning phase and costs should fall significantly by the second half of 2013, it also admitted there appears to be less sulphide ore in the Zeta open pit than thought during the feasibility study.

The stock slipped 7.3 per cent to $1.41, well below the $1.70 a share that Cathay Fortune, in conjunction with China Africa Development Fund, are offering.

Discovery has rejected the pair, bidding under the joint venture title CF Investments, but a reconfirmation of that rejection wasn’t forthcoming in yesterday’s statement. As a matter of fact, Discovery’s language was much more circumspect.

"The board of DML believes the ongoing conditionality of the offer, over three months after it was originally announced, is creating significant uncertainty for shareholders and negatively impacting the current share price,” Discovery said in its second supplementary targets statement.

"Discovery has sought to engage with the bidder on the status of the remaining conditions of the offer in order to minimise the present uncertainty.”

Contrast that with the first supplementary target’s statement, where the company said quite simply that the board unanimously recommends shareholders reject the offer.

Discovery’s market cap now sits at $683.5 million compared to the $830 million that CF has on the table. It’s clear by the state of the copper miner’s share price that it no longer has the upper hand in this play and if a deal is to be made the target will need to reach out.

But first, Cathay has to mull over the material and see if it's still keen at $1.70 a share.

Ruralco, Elders

Listed rural services provider Ruralco is reportedly tweaking its takeover bid for the rural services arm of the once great Elders.

The Australian Financial Review understands that the information memorandum from Elders has at long last been sent out to prospective buyers as the company tries to raise enough cash to pay off its bank debt and hybrids.

After that, there doesn’t appear to be a great chance that shareholders will have much left.

Ruralco previously tried to engage Elders in merger discussions and the assumption now is that it’s gunning for the rural services business, its primary target to begin with.

While an acquisition for Ruralco makes a lot of sense, agribusiness assets are particularly attractive at the moment and there’s a sporting chance that a large global investor, probably from China, will throw what amounts to spare change and blow Ruralco out of the water.

Queensland privatisations

Perhaps to the disappointment of investment bankers everywhere, Queensland Premier Campbell Newman has reportedly put some distance between himself and a report, which hasn’t even been released yet, recommending the state privatise a string of assets.

The Australian Financial Review reports that Newman believes the state may be able to balance its budget and regain its AAA credit rating without further asset sales.

The manoeuvring comes as the Costello Commission is preparing to hand down its final report on the Queensland budget deficit and debt situation, which is set to recommend a series of asset sales as the best way out.

Newman says in a wide-ranging interview not only that asset sales mightn’t be required – which is probably a bit of a stretch – but also the people of Queensland weren’t tested on this matter at the last election.

"But how much political capital do we have to burn?” asked Premier Newman. "That’s the issue. I think the people of Queensland have said they don’t like asset sales. They were very suspicious of it because they have been promised stuff before.”

While the big investment banks hoping for a consulting fee will be crying into their coffee this morning at the thought, it’s commendable to see a political leader with unparallelled control over a state legislature talking about what the people actually voted on.

Wrapping up

Ten Network’s $230 million capital raising was fully underwritten by Citigroup, which is a good thing because the retail component came in a little light.

The retail component was supposed to raise $55 million, but only managed to pick up $39 million.

Speaking of which, Leighton Holdings’ stake in Macmahon Holdings has come back down from 24.2 per cent to 19.6 per cent with the company’s capital raising coming to an end.

In property, Lend Lease’s twin tower hotel at the company’s $1.5 billion Darling Harbour site is reportedly being stalked by a number of international hotel investors.

According to The Australian, the asset is tipped to be worth $300 million at least, with a source indicating that buyers from the US and the Middle East have shown some interest.

And finally, Kingsgate Consolidated has signed a binding memorandum of agreement (not one of those hypothetical ones that are inked all too often) with Caravel Minerals for the sale of its exploration assets in Western Australian and Queensland.

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