DataRoom AM: OZ Minerals optimism

The prospect of a large block sale of OZ Minerals’ 20 per cent stake in Sandfire Resources appears bleak as the former proves to analysts that its cash drain isn’t as bad as feared. It won’t quell persistent rumours of a tie-up between the two, however, even if it remains a longshot.

Elsewhere, there’s plenty of optimism over the IPO market for 2014, Macquarie Group mulls a $2 billion buy, Bega Cheese receives backing on its go-slow approach over Warrnambool Cheese and Butter and Fortescue Metals Group continues to reduce its debt burden.

OZ Minerals, Sandfire Resources

The rumours of an imminent block trade of Sandfire Resources stock by its biggest shareholder, OZ Minerals, have been shot down.

In recent months, analysts have been increasingly confident OZ will offload its stake in Sandfire to curb the steady decline in its cash flow. The confidence was so high that Sandfire was concerned the rumours of OZ being an imminent seller represented a significant drain on its stock price. The up-and-coming copper miner even went so far as to offer OZ assistance should the group want to exit.

But a better-than-expected trading update from OZ yesterday, which showed cash burn wasn’t as serious as feared by analysts, has taken the prospect of a near-term block trade of its 19.9 per cent stake off the table.

“There has been a lot of speculation that we might be a distressed seller,” OZ Minerals’ chief executive Terry Burgess said on a conference call.

“This should get rid of that speculation.”

Plenty of short sellers were burnt by OZ Minerals yesterday as investors reacted positively to the latest news, sending the copper miner’s shares up 14 per cent.

Sandfire Resources, meanwhile, also saw its stock outgain the broader market’s 0.6 per cent updraft. The 2.3 per cent gain in its share price was a sign investors were at least partially convinced that OZ wouldn’t be selling out anytime soon.

Some analysts still wonder whether Sandfire Resources will turn from prey to predator by making a play for OZ itself, but that remains a longshot.

Earlier this month, Sandfire boss Karl Simich said his firm was focussed on organic growth and there were too many question marks about OZ to make it a suitable takeover candidate.

“At the moment you have an asset in the last period of time that has been significantly drawing on cash. The question going forward is: will it make money going forward? We need to know the value of Prominent Hill,” he told the Australian Financial Review.

The latest trading update does help shore up the value proposition of OZ, but it has also seen the value of OZ shoot back above that of Sandfire, which would make a successful bid difficult.

As a result, the long touted tie-up of the two, regardless of who initiates it, is not happening anytime soon.

Spotless Group, SG Fleet, IPO market

The IPO market remains in a state of flux after an odd finish to 2013.

At the moment, no big ticket floats have been confirmed, though there is hope new listings worth as much as $8 billion could be completed by the end of the financial year.

SG Fleet and 3P Learning are considered likely starters, while investment bankers are also optimistic that private equity-owned Spotless Group and Healthscope could return to the ASX. If they do, as much as $8 billion worth of floats could be completed by July, continuing a good run that started around October last year.

While no major IPOs have been publicly canvassed in the year-to-date, the co-head of Australian equity capital markets at Herbert Smith Freehills LLC has told Business Spectator’s DataRoom that there is plenty going on behind the scenes.

“Nothing I’m hearing has dampened enthusiasm for IPOs,” Michael Ziegelaar said.

“There was talk that some investors may have been jaded by the sheer volume of IPOs in the last quarter of 2013. But if there is evidence of a slow start in 2014, I’m not seeing it.”

March is seen as a big month for IPOs, provided there isn’t a correction on markets beforehand.

Investor sentiment took a minor hit in December with several big name floats opening below listing prices.

Macquarie Group, JP Morgan Chase

Macquarie Group is reportedly eyeing off a $2.2 billion play for parts of JPMorgan Chase’s commodities business.

Macquarie has been a more restrained buyer since the GFC as it takes a cautious approach to debt, but it is reportedly willing to open its purse strings for the right to a section of the US bank’s commodities operations.

According to CNBC, Macquarie will face competition from Blackstone Group and Castleton Commodities International during the bidding process.

Final offers are due next week, with all parties hoping to grab a bargain as JPMorgan is essentially a forced seller thanks to the potential for a US government clampdown on banks’ activities in the physical commodities space.

Bega Cheese, Warrnambool Cheese and Butter

Developments in the race for Warrnambool Cheese and Butter have been scarce this week, with potential kingmaker Bega Cheese remaining tight-lipped on its intentions for its 19 per cent stake.

Some analysts have been critical of Bega’s go-slow approach given an agreement to sell to Saputo could see it reap a $70 million profit on its stake. However, it has an ally in one of its major shareholders.

Ross Barker, managing director of both Australian Foundation Investment Company and Mirrabooka Investments, which are among Bega's top 20 investors, told The Australian he welcomed the approach Bega was taking as it held out in the prospect of receiving a higher price.

"We want to see how high the price goes," he told The Australian yesterday.

"In these situations, you really want to hang about until the final and best offer is available before any decisions are taken."

The Saputo offer expires next Wednesday and there will be no extension to the deadline if the Canadian group’s stake remains below 50 per cent.

Fortescue Metals Group

Fortescue Metals Group has continued its push to reduce its debt load by repaying $US1.6 billion ($A1.78 billion) of senior unsecured notes.

The move lifts total debt repayments since November 2013 to $US3.07 billion, with the group making a strong recovery since short sellers made it a heavy target in 2012 as the iron ore price came under severe selling pressure.

Since then, the company has been using a recovery in the price of iron ore to move its gearing back down toward 40 per cent.

The deal will save over $300 million a year in interest payments.

Queensland Motorways

The battle for Queensland Motorways, which was put up for auction by its owner Queensland Investment Corporation late last year, is nearing a crucial point.

With indicative bids due on February 7, the three consortia weighing a bid reportedly met with the takeover target’s management yesterday.

According to Business Spectator’s DataRoom, the make-up of one consortium may be set to change as Abertis Infraestructuras considers dumping Hastings Fund Management in preference for Australian infrastructure fund manager CP2.

The other bidders are believed to be a local joint venture between Transurban Group and AustralianSuper and a partnership between IFM Investors and Borealis Infrastructure.

Final bids are due in April for a toll roads business that is expected to attract bids of upwards of $5 billion.