BREAKFAST DEALS: Pilbara wedding bells

FerrAus and Brockman may tie the knot as the iron ore juniors look to carve out a bigger piece of the pie in the Pilbara and the market still reckons that Rio could face a challenger for Riversdale. Meanwhile, Don Argus resists calls to front a Senate inquiry on the mining tax while the Singapore Exchange lines up the funding for its tilt on the ASX. Elsewhere, more pain ahead for Downer EDI shareholders, online auction house GraysOnline sells stake to Caledonia Investments and Google's Eric Schmidt gets a nice parting gift.

FerrAus, Brockman Resources, Rio Tinto , Riversdale Mining

The friendly takeover underway at BC Iron seems to have stirred other iron ore juniors in the Pilbara with FerrAus and Brockman Resources in talks to tie the knot. The merger talks were revealed by FerrAus executive director Bryan Oliver after an extraordinary general meeting in Perth which saw the miners approve a capital raising of up to $35 million. A merger between the two makes a lot of sense especially if they are hoping to have a bigger slice of the action in the Pilbara, both are sitting on healthy projects but have so far been stymied by the lack of infrastructure options to get their ore to the ports and the recent move by BC Iron's Hong Kong-based shareholder Regent Pacific Group to gain control of the miner highlights that iron ore juniors in the Pilbara are increasingly becoming more attractive. FerrAus and Brockman have first hand experience of this after another Hong Kong-based group Wah Nam Holdings lobbed a takeover bid for both miners last year. A tie-up will not only provide greater protection against unwanted suitors but should also help in negotiations with the bigger players when it comes to securing haulage deals. However, Oliver added that there are a few kinks that will need to be ironed out before a merger sees the light of day, especially when it comes to the valuation of the miners' respective projects. Meanwhile, takeover target Riversdale Mining's board has now unanimously thrown its support behind the $3.9 billion bid lobbed by Rio Tinto with NK Misra, a Tata Steel appointee to Riversdale's board backing Rio's offer. However, Riversdale was quick to point out that Misra's nod did not reflect Tata Steel's position and the market is still hoping that the Indian steel giant may have a trick up its sleeve. There is also the possibility that the consortium of five Indian public sector companies, International Coal Ventures Limited (ICVL) could lob a rival bid after its meeting on Thursday. If that does eventuate Rio has the right to respond in kind and the ensuing tussle provides plenty of time for other parties to get their offers in order. A full fledged bidding war will mean a lengthy wait for Riversdale's shareholders but let's just keep in mind that for now there are no other bids on the table. Riversdale shares are finished yesterday's session at $16.50 higher than the $16 a share offer from Rio.

Don Argus faces a MRRT headache

The federal government's minerals resource rent tax (MRRT) looks set to provide a headache for former BHP Billiton chairman Don Argus who is now reportedly facing calls to front a Senate inquiry examining the $7.4 billion tax. Argus was appointed by the Gillard government to lead the policy transition group assigned to consult with the mining industry to finalise the design of the MRRT. That group handed down its findings before Christmas and from the looks of things that's pretty much where Argus wants to keep things. However, The Australian reports that Argus has now been called to appear before the Senate inquiry into the tax a move that he is vehemently resisting. Argus has told the paper that he is seeking legal advice to fend off the request saying that his obligation to participate in the whole affair ended once the group delivered its report to Treasurer Wayne Swan. The Senate hearing has been scheduled for February 7 in Melbourne.

SGX, ASX, CHI X

The Singapore Exchange (SGX) has lined up long-term funding for its $8.4 billion bid for local exchange operator ASX. The suitor has secured close to $3.8 billion in funding from a consortium of six banks – ANZ Banking Group, Bank of Tokyo-Mitsubishi UFJ, DBS Group, Oversea-Chinese Banking Corporation, United Overseas Bank and National Australia Bank . The term loans will be co-ordinated by ANZ. The move is another sign of intent from SGX which has started 2011 full of confidence with regards to where its ASX bid is headed. Meanwhile, the exchange's dark-pool joint venture with ASX's rival Chi X has reportedly taken another step forward. According to Reuters, the joint venture, Chi-East, has completed the roll-out of its trading platform for securities listed in Hong Kong, Japan and Singapore. Dark pools are trading platforms that match large "buy" and "sell" stock orders by institutions that are not visible to regular investors.

Downer EDI

Downer EDI is in a trading halt as the Australian contractor's woes with its troubled Waratah Rail contract continues. Downer has told the market that it will make an announcement to spell out the future of its contract to build a fleet of trains for the NSW government. Unfortunately for Downer's shareholders its more bad news with further delays expected in the presentation of the first train set to NSW's Railcorp for practical completion, further production delays due to asbestos contamination at a factory, and possible changes to "manufacturing production schedule and project costs". All of this adds up to another hefty hit to Downer's books and another round of red faces for the company's management team. Downer is already running nine months behind the delivery schedule and there's a good chance that it will now miss its revised April deadline. The contractor has already set aside $190 million to cover for the delays but that figure is destined to rise. Downer stock went into a trading halt yesterday at $4.52 a share, and given the fact that the last time it delivered grim news on the Waratah contract the stock slumped close to 27 per cent one can expect another bloodbath once the stock resumes trading on Thursday. The contractor is set to make further announcement on Thursday and recently appointed CEO Grant Fenn will face a tough task in convincing the market that the train contract could well be terminal.

GraysOnline, Caledonia Investments

With internet retailers in vogue at the moment online retail and auction company GraysOnline has reportedly sold a quarter of its business to fund manager Caledonia Investments. According to The Australian Financial Review, Gray's shareholders – a group of 38 employees who bought into the private company – have sold 25 per cent of their shares to Caledonia in a deal worth close to $35 million. The deal will see Caledonia's joint chief investment officer Will Vicars join Gray's board. While Grays is not subject to the tax concessions enjoyed buy the overseas online retailers that have attracted the ire of local retail supremos Gerry Harvey and Solomon Lew the fact that Caledonia was one of 20 buyers looking to grab the stake in Grays highlights just how much traction online retailers are getting in the market. Buying stuff on the cheap over the internet is not a new phenomenon but a stronger Australian, greater internet access and most importantly an increasingly value conscious consumer has made the threat all that more real for the traditional retailers. Grays, best known for selling wines, reported sales of $310 million in fiscal 2010 and posted a profit of $11.6 million.

Cougar Energy, Eneabba Gas

The apparent bust up between underground coal gasification (UCG) outfit Cougar Energy and its joint venture partner Eneabba Gas looks destined to get ugly with Cougar now seeking legal advice. The two companies signed an agreement in June last year to jointly develop the Sargon coal tenements in Western Australia but Eneabba told the market late last week that the deal was over. According to Eneabba, Cougar had repudiated the terms sheet for the deal, an allegation strongly denied by Cougar's management. Cougar hit the headlines in July last year after it was at the heart of a water contamination scare in Queensland. The problem pertained to the company's Kingaroy UCG facility where bore sites showed traces of carcinogen benzene and the toxic chemical toluene. The state government is expected to make a decision on the continued future of the project on January 28th.

Wrapping up

Rare earths specialist Arafura Resources has agreed to sell a gold exploration project to resources junior Global Mineral Resources. Arafura has signed a sale agreement with Global Mineral to sell its Mt Porter-Frances Creek gold project. Under the deal Arafura will receive $1.5 million in cash, 7.5 million fully paid shares in Global and 7.5 million options in the company, exercisable at 25 cents each. In other news, Carrick Gold has enhanced its management team with the appointment of veteran mining executive, John McKinstry, to the role of chief executive officer. McKinstry has previously worked for the likes of Newmont Mining, MIM Holdings and North Queensland Metals. Altera Resources has signed a joint venture with Tanzoz Resources to explore for coal in Tanzania. Tanzoz, which has been active in Tanzania since 2007, currently holds interests in Tanzania for uranium, gold and coal. Under the terms of the JV, Altera will earn a 50 per cent interest in an existing exploration project in the country. Sandfire Resources' non-executive chairman Derek La Ferla has joined unlisted iron ore minnow Cashmere Iron as its chairman. The move comes as Cashmere looks to attract a cornerstone investor before raising equity in the second quarter of 2011. The miner has hired Morgan Stanley as its advisor. Elsewhere, Ceramic Fuel Cells has signed an agreement with Adelaide-based Hills Holdings for Hills to sell and service Ceramic Fuel Cells' BlueGen gas-to-electricity units. In overseas news, it looks like Google's former chief executive Eric Schmidt is set to win a $US100 million equity award as he hands over the reins to co-founder Larry Page. According to Bloomberg, Schmidt's award will include stock units and options. In banking news, Standard Chartered has agreed to buy GE Money Private Limited, an auto and personal loan company in Singapore, for an undisclosed sum. GE Money is a subsidiary of GE Capital and is part of the consumer finance arm of General Electric. Meanwhile, there's change in the air for UK banking outfit Lloyds with reports that its incoming chief executive is looking to speed up the sales of underperforming assets. According to UK's Times, Antonio Horta-Osorio, who joined the bank last week, has launched an informal strategic review to mull all possible options. Elsewhere, coffee and meat company Sara Lee has reportedly managed to attract the interest of various private equity players with the company now set to weigh a $US13 billion offer. According to Reuters, the mammoth bid has been tabled by a consortium comprised of Apollo Global Management, Bain Capital and TPG Capital.

Breakfast Deals wishes readers a happy Australia Day and will return on Thursday.