Newmont's fission expedition

PORTFOLIO POINT: Newmont’s takeover of a fellow Canadian gold miner could see its 6.7% stake in Paladin shopped around to the usual suspects.

Paladin Energy (PDN): The uranium price has been running hard for some time now so it was only a matter of time before we saw some M&A activity on the local market. A small Canadian gold miner called Fronteer Gold had barely finished hocking the last of its uranium assets to Paladin in exchange for 52 million shares, or 6.7% stake in the Australian miner before it was it was swallowed by the global gold giant Newmont Mining for $2.3 billion. The question on everyone’s lips now is 'What will Newmont do with Paladin?’

Uranium prices have recovered strongly following the slump in 2008 and are now around US$73 a pound thanks to a lack of investment and because Japan and a number of emerging nations are keen to secure uranium supplies to use in their planned fourth generation nuclear reactors over the next 20 years. However, I don’t think Newmont wants to make a bid for the whole company. What you now have is an overhang of 6.7% which invites anyone who has ever considered taking it out to run the numbers again. There are a number of companies who would probably be interested in Paladin at the $3.5 billion mark, and I’d be looking at Canada’s Cameco which is valued at around $20 billion.

Just to be clear, I don’t think Paladin, with its comparatively small market cap of $3.74 billion, is big enough to tempt BHP because CEO Marius Kloppers is looking at acquisitions of around the $20-50 billion level, but its possibility worth considering. Kloppers is under pressure to do a deal within the next six months or return capital to shareholders, so developing Olympic Dam while expanding uranium production in Australia through an acquisition may help. BHP also has a 70% stake in an exploratory joint venture with Paladin in Queensland, called Tributary Creek.

On the other hand, Paladin has a long standing relationship with Cameco. Cameco doesn’t produce any uranium in Australia so ties with a fully fledged local producer with assets in a number of states could be an opportunities too good to refuse if a large chunk of Paladin came onto the market. There are too many variables around this company right now which is why you are seeing so much volatility in the share price but it’s definitely one to keep your eye on.

Atlas Iron (AGO): Buying into a confirmed bid isn’t the only way to play an offer, and this is the case with Atlas Iron. Atlas is a company that’s been built from nothing over the last 10 years. It’s got a very high quality resource which gives it a licence to print money by digging up iron ore at $22 a tonne at some sites and selling it at over $150 a tonne, and it’s just wrapping up the friendly takeover of neighbour Giralia Resources. And yet up until the end of January, after announcing the Giralia deal in mid-December, the Atlas share price barely moved from the $3-$3.40 range.

This is because the deal with Giralia is a scrip bid, worth either 1.5 Atlas shares, or 1.33 Atlas shares plus 50c cash for each Giralia share, and hedge funds will have been shorting Atlas. Since Wednesday, Atlas shares have shot up to around $3.80, almost touching its 2008 high. So when this deal is complete you can expect another bounce in Atlas’s share price. Add this to the ongoing rumours that Fortescue Metals Group might like to buy it and there’s potential for some very good upside out of this company.

Nine Entertainment: Things are looking decidedly uncertain for the float of Channel Nine after its private equity owner CVC said it was putting off the IPO from March until June or July so that earnings from the magazine division could be improved. The word is that they’ve taken some quiet soundings from the IPO market – the banks and the brokers – and found that the price they’ll get isn’t that flash, and in fact they may even make a loss on the deal, hence the stalling.

It’s no secret CVC massively overpaid for Nine and that’s why James Packer sold out. The prospectus values it at 10 times earnings because that is what Ten trades at, and as I’ve said before Nine and Seven are both going to be judged against Ten, even though Nine has extra magazine and online divisions. Of course you should never pre-judge an IPO, as its success depends on how it is priced, but I’d be looking closely at where the growth is and in my opinion Nine is probably ex-growth. If Nine floated at seven times earnings it’d be too cheap and CVC would definitely make a loss, though I’d buy at that value, but if they tried for 12 times it’d be too expensive and it wouldn’t get up.

Kresta Holdings (KRS): There’s a battle going on between the Kresta chairman Ian Trahar and Hunter Hall for control of the company. Kresta makes and sells blinds, and the fund manager wants Trahar out after he refused to back its candidate for the board, while the chairman – who has a reputation for making low-ball takeover offers for companies he is on the board of – has lobbed a $46.9 million bid via his shell company Wildweb Enterprises.

Hunter Hall owns 19.7%, Trahar owns 19.6%. Hunter Hall apparently has 30% extra support to roll Trahar and replace him with their man Peter Hatfull, while Trahar’s bid is conditional on the vote not gaining 40% acceptance. It’s a messy situation and while it looks like Hunter Hall wants to control Kresta (for all its protestations that it doesn’t), they may be using this liquidity event as a way to get out.

Kresta’s share price is at 31.5 cents, but it was up at 40 cents before the end of September. Hunter Hall may think the company is worth more than 40 cents so is pressuring Trahar to raise the offer from its current 32.5 cents a share, but just as likely it could be frustrating the bid to satisfy its longer term ambitions for Kresta. This is not a bid I’d get involved with because while there is a chance the fund manager might be playing hard-ball for a higher price, if you’re in it for the three-month takeover and it doesn’t go through the share price is going to nosedive.

Whitehaven Coal (WHC): It seems Whitehaven’s sale process is finally being moved forward, but because this is because there are three Chinese companies with indicative bids on the table, it’s going to slow down again. This is because Yanzhou Coal, Shenhua and China Coal now have to go back to the Chinese regulator and put the case for their respective bids. This is interesting because there are lots of theories about whether Chinese companies are allowed to bid against each other.

I’ve seen this before, and often, because the government tends to own a stake in these entities, one company receives the go ahead to make an offer so they don’t compete among themselves and force the price higher. We don’t know if this is the case, because it’s not a transparent process, but even so I think Whitehaven will get a good price because there are three bids and potentially others from South Korea. Mind you, it’s taken a very long time to get this far. If the company’s assets are of such great quality, and with coal prices surging to over $US127 a tonne following the Queensland floods, the fact that they can’t seem to close this deal is not a good sign.

Northern Energy (NEC): After saying last week that there had been a breakthrough in the battle between New Hope Coal and Northern Energy, the companies are back at a standstill. Last week New Hope had upped its bid from $1.50 a share to $1.75, a slight premium to where the stock had been trading around $1.70, but nowhere near the $2-plus the board was trying to extract. Now Northern Energy is flashing around an independent report that values it between $2.70 and $3.99. New Hope isn’t going to lift its bid by that amount and I don’t know if Northern will find a buyer who will pay that, but the board is sticking to its recommendation.

What could happen here is that New Hope could make the bid unconditional at $1.75 and take any shares that come available, as once past 50% it’ll have the power to tip the board out. But if they only get, say, 35% they’ll have a significant say but not full control. The funding for that position is much more expensive because they wouldn’t have control of Northern’s cash flow and assets, which they’d use to help pay for the bid. So depending on how much risk you’re prepared to take on, you could buy into this when the share price is around $1.70 and hope something happens, but as Northern is trading now at $1.75 there’s not much point.

Tom Elliott, the managing director of MM&E Capital, may have interests in any of the stocks mentioned.

-Takeover Action, January 31-February 4, 2011
Date	Target	ASX	Bidder	(%)	Notes
20-Dec	Anchor Resources	AHR	China Shandong Jinshunda Group	0.00
23-Nov	Argent Minerals	ARD	US Nickel	27.40
31-Jan	Austereo Group	AEO	Southern Cross Media Group	0.00
11-Nov	Brockman Resources	BRM	Wah Nam International Holdings	21.11
12-Nov	Copper Strike	CSE	Kagara	17.22	Rejected.
20-Dec	Crane Group	CRG	Fletcher Building	0.00
3-Feb	Essa Australia	ESS	FLSmidth & Co	85.52
11-Nov	FerrAus	FRS	Wah Nam International Holdings	19.90
22-Dec	Frankland River Olive Company	FLR	Toscana (WA)	19.36	Recap bid by related company.
1-Feb	Giralia Resources	GIR	Atlas Iron	38.32
28-Jan	Impress Energy	ITC	Beach Energy	70.85
31-Jan	Indigo Properties Australia	IPA	DK Northern Investments	85.16
1-Feb	Kresta Holdings	KRS	Wildweb Enterprises	0.00
20-Jan	Laguna Resources	LRC	Kingsgate Consolidated	66.69	Recommended off-market offer announced
22-Oct	Northern Energy	NEC	New Hope Energy	4.94	Offer rejected.
23-Dec	Riversdale Mining	RIV	Rio Tinto	14.97
27-Jan	Ross Human Directions	RHD	Chandler Macleod Group	72.32
27-Jan	Sphere Minerals	SPH	Xstrata	75.55	Unconditional.
Schemes of Arrangement
25-Oct	ASX	ASX	Singapore Exchange	0.00	Parties announce agreement. Vote Mar 2011.
3-Feb	Avoca Resources	AVO	Anatolia Minerals Development	0.00	Approved.
18-Nov	AXA Asia Pacific	AXA	AMP	0.00	Vote end Mar.
21-Jan	BC Iron	BCI	Regent Pacific Group	19.90	Vote April.
17-Jan	CPI Group	CPI	PagePack (AU)	0.00	Vote April.
2-Feb	Dominion Mining	DOM	Kingsgate Consolidated	0.00	Approved.
24-Dec	ING Industrial Fund	IIF	Goodman Group consortium	0.00	Vote mid-March.
15-Dec	Mantra Resources	MRU	ARMZ Uranium Holding Co	0.00	Vote April.
12-Jan	RP Data	RPX	CoreLogic	40.20	Vote April.
6-Jul	Sylvastate	SYL	Whitefield	0.00	Common CEO.
29-Dec	Tower Australia	TAL	The Dai-ichi Life Insurance Company	29.00	Vote Q2 2011.
Foreshadowed Offers
21-Jan	Amadeus Energy	AMU	Unnamed party.	0.00	Unsolicited proposal.
30-Dec	Berkeley Resources	BKY	OAO Severstal	0.00	Talks continue.
10-Dec	Bravura Solutions	BVA	Unnamed parties	0.00	Indicative scheme approaches.
12-Nov	Caledon Resources	CCD	Guangdong Rising Asset Management	0.00	Possible scheme. FIRB-approved.
6-Jan	Indophil Resources	IRN	San Miguel Corporation	10.10	Extends exclusivity to Feb 10.
18-Jan	ING Real Estate Healthcare Fund	IHF	Northwest Value Partners	0.00	Drops proposal.
18-Jan	ING Real Estate Healthcare Fund	IHF	Reit Management & Research	0.00	Unsolicited proposal.
22-Oct	Redflex Holdings	RDF	Unnamed third parties	0.00	Discussions progressing.
28-Jan	Tassal Group	TGR	Unnamed parties	0.00	Indicative proposals.

Source: News Bites