BREAKFAST DEALS: Rio reward

Rio Tinto is on the verge of a majority stake in Ivanhoe Mines, while Hancock Prospecting finds a second Korean suitor.

Partnerships can work brilliantly, but once a disagreement sets in things can degenerate pretty quickly until, usually, the stronger partner prevails. That’s pretty much the case with the sometimes tumultuous relationship between Rio Tinto and Canada’s Ivanhoe Mines. Overnight, Ivanhoe finally conceded that it wouldn’t – because it effectively can’t – use its 'poison pill' to discourage Rio from taking majority ownership, which the Australian miner says it intends to do. Rio, the floor is yours. Meanwhile, while Gina Rinehart has secured POSCO as a stakeholder in the Roy Hill iron ore mine there’s reportedly another South Korean player on the hook. Elsewhere, Billabong International’s savage decline has got whispers going about private equity, OZ Minerals says it won’t be rushed into making an acquisition and it looks like today’s the day for Nexus Energy to join hands with Royal Dutch Shell.

Rio Tinto

Rio Tinto has more or less received the official green light to grab majority control of Canada’s Ivanhoe Mines, its partner on the giant Oyu Tolgoi copper-gold project in Mongolia. The Vancouver-based miner announced overnight that it will not activate the shareholders rights plan until the May 11 company meeting, where directors will recommend shareholders vote to cancel it.

This is a bit of a formality. Ivanhoe created this 'poison pill', aimed to heavily dilute Rio’s stake, in 2010 to discourage Rio from taking its ownership above 49 per cent. However, an arbitrator later ruled in favour of Rio’s anti-dilution rights as a shareholder, rendering the rights plan useless. Rio has already stated that it intends to take majority ownership, but so far has made no signal that a full takeover offer is on the cards.

Now the two companies must look to building a more cooperative future. In a statement overnight, Ivanhoe said it has borrowed an extra $1.8 billion in bridge financing for the development of the $US10 billion Oyu Tolgoi project, on top of the same amount in interim funding from Rio. Oyu Tolgoi is thought to be one of the largest untapped resources in the world.

Hancock Prospecting, Roy Hill Holdings, POSCO, STX Corp

No sooner had South Korea’s POSCO announced that it would give Gina Rinehart’s Roy Hills project a valuation of $10 billion with a 15 per cent stake purchase, another Korean player is mulling whether to buy in. Yesterday, South Korea’s POSCO said it had acquired a 15 per cent stake in Roy Hill Holdings, the company controlled by Rinehart that oversees the iron ore venture of the same name south of Port Hedland. POSCO paid 1.78 trillion won ($1.49 billion), which gives the entire iron ore project a value of $10 billion.

However, according to The West Australian, fellow South Korean player STX Corp is set to hold a board meeting to decide whether it too will buy into Roy Hill. Reports indicate that neither Rinehart, nor her company Hancock Prospecting, was commenting on the matter.

Billabong International

The rapid deterioration of Billabong International shares has prompted many onlookers to predict a full blown wipeout in the form of a takeover, possibly from private equity, is highly likely. But no word has come from within the iconic Australian clothing company, until now. The Australian Financial Review understands that Billabong has taken a number of calls from interested parties. While none of them have been firm bids, the paper says private equity is circling the beleaguered company. Over the last 24 months Billabong shares have lost 85 per cent of their value.

OZ Minerals

OZ Minerals boss Terry Burgess has forcibly defended his decision to not use the company’s $750 million warchest so far, although something could be on the horizon in 2012. In a call with analysts, the copper-gold miner’s chief executive said production targets for 2011 had been met, but the conversation got a little more tense when Burgess was accused of dragging his feet on M&A.

The most immediate opportunity for OZ would be Sandfire Resources, in which it already owns 19.9 per cent. However, Burgess says he’s focused on two things: using that warchest for a definitively value-building purpose and copper prices. Thanks to the slide in copper prices, many assets that OZ wouldn’t have dreamed about acquiring at the beginning of 2011 have come into its calculations at the end of the year.

Nexus Energy, Royal Dutch Shell

It seems today is the day for Nexus Energy to bed down an agreement with Royal Dutch Shell over the Crux project in the Timor Sea, while putting past plans of a Chinese partner to sleep. Nexus shares went into a trading halt yesterday and an announcement on a deal is expected some time today. Shell owns the rights to the Crux gas and Nexus had been planning to construct a liquids stripping operation, which chairman Michael Fowler said was the "base case for the commercialisation of Crux” in November last year. Those plans are set to change under the Shell deal.

KiwiBank, Gareth Morgan Investments

One of the forgotten aspects of the Trans-Tasman rivalry is that Australian companies dominate in the banking sector. The big four banks all have sizable chunks of the New Zealand retail banking sector, far more sizable than the $NZ14 billion ($10.8 billion) in assets that Kiwibank has at its disposal. But the local champion is fighting back. Kiwibank has just picked up Gareth Morgan Investments, named after its economist founder, for an undisclosed amount. The Wellington-based state-owned bank says the purchase will bring more high net-worth individuals onto the books and improve its margins.

Wrapping up

Africa-focused iron ore miner Sundance Resources is in no mood to entertain Chinese suitors for a lower price. A recent round of speculation has pointed to Hanlong Mining, which currently has a conditional 57 cents a share offer, lowering its sights to the original 50 cents offer. That doesn’t sit well with target chairman George Jones at all. According to The Australian Financial Review, Jones says that if Hanlong wants to drop its offer, Sundance will walk away from discussions.

Moving from metals to metal recycling, Sims Metal Management has made its first proper move into the Chinese market, by picking up a 20 per cent stake in Chiho-Tiande Group for $US137 million ($132 million). Sims is grabbing an 18 per cent stake in the Hong Kong company, plus an option over an additional 2 per cent of its capital.

And finally, The Australian reports that Commonwealth Bank has kicked off the marketing process for $450 million in hotels from the unlisted Commonwealth Property Hotel Fund.