BREAKFAST DEALS: OZ Minerals retort

OZ Minerals defends its acquisitions strategy, while Fortescue eyes buyers for infrastructure and mine stakes.

OZ Minerals boss Terry Burgess would have been thrilled with the company’s latest production report, where it became apparent that his strategy of sitting on the miner’s warchest rather than covering a production gap from Prominent Hill was correct. Fortescue Metals Group is talking infrastructure stake sales, mine stake sales and even commodities outside iron ore. Where will the third force go? Meanwhile, Virgin Australia has a good argument to get its Tiger Australia deal past the ACCC and the world’s greatest takeover rejection form has been written.

OZ Minerals

OZ Minerals shares took a stumble yesterday despite a declaration from chief executive Terry Burgess that there will be no production gap from South Australia.

Burgess has been the subject of ongoing criticism for his apparent failure to deploy OZ’s $1 billion warchest on a big acquisition even with the looming shutdown of the company’s sole mine Prominent Hill in 2019/20 on the horizon.

His defence has been that OZ can continue producing from the festival state by extending the life of Prominent Hill and bringing forward the production start-up of its next prospect, Carrapateena.

Additionally, Burgess has emphasised how risky acquisitions are – think BHP Billiton’s shale gas play, Rio Tinto’s Alcan and Riversdale Mining tilts, as well as Newcrest Mining’s Lihir Gold purchase. He has a point.

The copper-gold miner’s share fell 6.3 per cent in yesterday’s session after OZ revealed in its December quarter production report that Prominent Hill copper output would likely fall by up to 10 per cent next year. The fact that the resource at the Ankata underground mine of Prominent Hill has been upgraded, work has begun on an extension to the Malu open pit and Carrapateena could be online by 2018… none of that really registered.

Forget the share price fall. Prominent Hill’s ‘long tail’ might be one of lower production, but it’s better than shelling out money on an asset just for the sake of it. It’s a point Burgess was keen to restate yesterday.

"We’ve been disciplined in the past, we would say that other companies haven’t been disciplined,” said Burgess. "We don’t want to follow their direction.”

Fortescue Metals Group, The Pilbara Infrastructure

Iron ore miner Fortescue Metals Group has flagged that a shortlist of bidders for a stake in its rail and port arm should be done within the next month or so, with a deal to be completed by the end of the quarter if all goes to plan.

Chief executive Nev Power made the comments yesterday during the miner’s December quarter production report. It’s expected that Chinese investors and big pension funds will be interested in the prized stake in The Pilbara Infrastructure.

Speaking of which, Business Spectator’s Christopher Mason, who’s based in Toronto, has a cracker article on the movements of those big Canadian pension funds on Australian infrastructure assets that well worth checking out.

Back to Fortescue, Power also alluded to a possible stake sale in a Fortescue mine as well as a potential diversification into other commodity groups.

Fortescue recently experimented with an entry into the shale gas market through a deal with Canning Basin operator Oil Basins. However, the deal was only ever in the memorandum of understanding zone and never closed.

The event did signal Fortescue’s logical instinct to diversify into energy, where it would be able to use those assets to reduce the cost of production for its main iron ore business.

Power indicated yesterday that energy is a natural area for Fortescue to look into, but it’s not the only option.

Founder Andrew Forrest was all about iron ore when he was throwing Fortescue together in the hope that it could one day mess with the big boys.

The expectation that Fortescue will reach its 155 million tonnes annual production this year is testament to Forrest’s vision. But now that iron ore is off its highs, Power appears to have been given the room to guide Fortescue into its next stage of maturity.

Virgin Australia, Tiger Australia

The consumer watchdog, already concerned about the levels of competition in the Australian aviation market, isn’t due to rule on the proposal by low-cost operator Virgin Australia to buy 60 per cent of bare essentials carrier Tiger Australia until February 7.

But a reasonable good argument for the Australian Competition and Consumer Commission to approve the deal emerged yesterday. As explained by Business Spectator’s Stephen Bartholomeusz, Tiger doesn’t make any money.

Tiger’s owner Singapore Airlines will also take up a 10 per cent stake in Virgin via a placement as part of the deal, in a sense to say thank you for taking control of the troublesome flying cat of its hands.

Tiger’s third quarter results included a $S13 million ($10 million) operating loss compared to an $S8.6 million operating loss in the previous corresponding period.

The Singaporean company blamed rising competition in Australia, which is being brought about by Virgin’s increasingly adept operations under chief executive John Borghetti and the subsequent focus of Qantas boss Alan Joyce on low-cost competitor Jetstar.

With so much focus on the lower end of the travel market as flyers become thriftier, there’s not as much room to move for Tiger in what is a comparably small market, internationally speaking. That, and of course Tiger is rubbish.

Wrapping up

Speaking of the consumer watchdog, the Australian Competition and Consumer Commission has given Brickworks the green light to take over Boral’s New South Wales masonry business after concluding the deal won’t lessen competition.

Boral is offloading assets as the housing markets in Australia and the US continue to frustrate and the concrete masonry business is a rough place to make a dollar at the moment.

And finally, regular readers of this column will know that often-heated takeover battles are fought with terribly passive aggressive language. The common phrases like "materially undervalues” and "unanimously rejects” are commonplace when defending someone’s hard-earned investment from a shameless opportunist.

Which is why Breakfast Deals was absolutely thrilled to read a story in The Australian about a streetwear company Globe International shareholder called Norman O’Bryan, who’s a Melbourne barrister.

O’Bryan received a takeover acceptance form as a Globe shareholder from corporate raider Mariner Corporation, which will not be able to secure a positive outcome (there’s another example of dull language) thanks to the majority shareholding of Globe’s founders. That and the offer price is… underwhelming.

But The Australian reports that O’Bryan emphasised the point by writing "F*** OFF YOU MORONS” on page one, followed by another "F*** OFF” on page two. O’Bryan would not be drawn on the story when asked.

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