DISTILLERY: Chevron chase

Scribes say a Chevron-Beach deal will release pressure on gas prices, with one noting increased supply should soften the need to tinker with output.

Resources are a hot topic this morning, as Chevron backs Beach Energy's Australian shale gas ambitions and Rio Tinto and BHP Billiton throw their weight behind copper. Elsewhere, one scribe mourns the death of the takeover premium, while another is hardly surprised to be waving goodbye to the bosses of Ten Network and APN News and Media.

But first, The Australian's John Durie weighs in on the Beach-Chevron tie-up, praising the local gas player for securing "a well-credentialed and well-capitalised major" to back its shale gas expansion in the Cooper Basin.

"Better still," says Durie, "at a time when the loony-tunes are still thumping the table, demanding a set proportion of gas be reserved for the local market, the Beach deal shows that the trick is to encourage supply rather than manage output. The laws of economics work such that when supply exceeds demand, prices will fall. That’s what has happened in the US and, all things being equal, should happen in Australia. The big proviso being, of course, that governments don’t intervene to impede supply."

It echoes comments from Business Spectator's Stephen Bartholomeusz, who notes the surging interest in unconventional gases tends to validate arguments that domestic gas should neither be 'reserved' for domestic use or face price caps.

"It will be rising domestic gas prices that will initially attract investment (it already is) and lead to development and then rapidly increasing production that will create a better balance of supply and demand and, as we’ve seen in the US, discipline prices or even force them down," Bartholomeusz writes.

In deals news of another kind, The Australian Financial Review's Chanticleer columnist, Tony Boyd, wonders what's happened to takeover premiums in the financial services sector. Two recent bidders, SFG (targeting WHK Group) and Equity Trustees (chasing The Trust Company), have tossed out Boyd's important rule of thumb: "No board of directors need take a bid seriously unless it hits the table with a premium of at least 30 per cent."

"Shareholders in target companies are being treated with disdain as predators try to grab companies on the cheap," he concludes.

Meanwhile, in metals markets, The Australian's Barry Fitzgerald is mining for hints about price movements in comments from BHP's outgoing chief Marius Kloppers. In particular, he notes Kloppers' outlook for copper is underpinned by declining grades at operations around the world, as well as a scarcity of advanced, high-end development opportunities – hence, copper exploration in the Andes is just about BHP's only exploration focus these days.

"So Kloppers believes that if demand for new copper capacity is to be met, the copper price in the "medium to long term will need to be supported at a level high enough to induce these lower-grade, higher-cost supplies". Rio pretty much agrees. It reckons that the "slight surplus" in the copper market is likely to continue over the next 12 months, thanks to new mine supply volumes coming online. Further out, Rio expects "significant supply challenges to return, with copper miners continuing to face declining grades, stakeholder pressures and production delays".

When miners with this much skin in the game make predictions, Fitzgerald concludes, it's worth listening.

Fitzgerald's colleague Robin Bromby also picks up on a worrying new report that much metal is now caught up in financing deals, only about 15 per cent of stocks at the London Metal Exchange are actually available.

"What this could portend is a serious dislocation in the metals sector: consumers of those metals will have to pay increasingly high prices to get their hands on it to keep their factories running. Great for metal prices, you think. Not so brilliant for an already bruised global economy where the last thing fragile consumer sentiment needs is soaring raw materials (and therefore retail) prices. And those banks, if pressed on other fronts, could at any time turn round and dump metals, sending prices plunging."

In company news, Fairfax's Elizabeth Knight is unsurprised that Ten Network's James Warburton and APN's Brett Chenoweth lost their jobs in recent weeks.

"When times are tough cracks are exposed. Both companies' results have been disappointing and their prospects for improvement are equally uncertain. Both are the runts of the litter in their respective mediums. The swift way they were dealt with had everything to do with the fact both are controlled by a small number of major shareholders with their own agendas."

And finally, Fairfax's Adele Ferguson examines Asahi's claims that allegedly misleading behaviour by two private equity players resulted in the Japanese brewer overpaying for Independent Liquor. She says the case has "opened up a can of worms," with allegations including channel stuffing, a failure to properly record expenses by reversing audit fees, sick leave payments, bonus payments and excise payments, and inflating earnings forecasts ahead of the deal's completion date.

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