THE DISTILLERY: Barrick knockout

Five days off, buns and choccies galore, a bit of wet weather in some places, sun elsewhere and what do we get from our covey of scribblers this morning? Little news, except for that wedding? No, a takeover battle that ended before it really started, a high reading for consumer inflation that the Reserve Bank has already said it will ignore and a bit of house keeping on other bids and deals. The Fed started an important meeting overnight and we get a slew of March figures from Japan that will create headlines. But the lack of any chance of RBA rate rise action at next week's May board meeting has forced some of the "Rate Rise Looms" mob a bit further out along the prediction curve.
 
The Australian Financial Review hints at a possible rate rise looms situation with today's consumer inflation figures: "Businesses are likely to have passed on higher prices to consumers in the first quarter, putting the inflation rate near the danger zone for policymakers." They should re-read the minutes for the April RBA board meeting where the central bank said it would look through "these fluctuations".
 
The Herald Sun in Melbourne reports: "In a paper released today, Deloitte Access Economics partner Chris Richardson says that accelerating wages and prices are likely to compel the Reserve Bank board to lift interest rates, even before the end of the year, in a bid to stifle runaway inflation. While an interest rate rise is unlikely "in the next few months", Mr Richardson forecasts one will be on its way soon after. Separately, JPMorgan chief economist Stephen Walter said interest rates needed to rise at least 25 basis points in August and the same again in November." Well, quite a few other economists have one or two rate rises in their predictions for later this year, so this is not 'new' news.
 
And the AFR also said: "The US Federal Reserve kicked off a two-day meeting on Tuesday that is expected to conclude with a signal that it is in no hurry to scale back its massive support for the economic recovery." 
 
Meanwhile, the AFR reported (as did other papers): "China's Minmetals Resources has withdrawn its proposed takeover offer for copper miner Equinox Minerals after Canada's Barrick Gold made a superior ($C7.3 billion) $7.1 billion all-cash bid for the Australian company."
 
Fairfax's Malcolm Maiden says Goldman Sachs is a winner from the Equinox deal: "Goldman Sachs had taken a a 45 per cent stake in the venerable JBWere broking firm by the time it was hired as a strategic adviser to the emerging copper miner Equinox Minerals about four years ago. It kept the mandate as Equinox constructed an idiosyncratic corporate profile – it is listed here and in Canada, but its best asset, the Lumwana copper mine, is located in Zambia – and the relationship extended beyond advice. For example, this year Goldman's parent teamed up with Credit Suisse to provide a $US3.2 billion bridging facility for Equinox's bid for the Canadian miner Lundin. China's Minmetals group foreshadowed a $6 billion-plus bid for Equinox early this month. Goldman confirmed its plan to buy the remaining 55 per cent of the former JBWere a few days later. Equinox's situation has crystallised first, with Minmetals yesterday withdrawing its takeover plan in the face of a $C7.3 billion ($7.2 billion) counter-offer for Equinox from Barrick Gold. The deal keeps Goldman at the top of the takeover league table in this country, as it is finally bringing its full force to bear. That's an ominous sign for Goldman's competitors."
 
The Herald Sun's Terry McCrann attempted to explain the quick end to the bid: "Canada's 'pure' gold miner Barrick would not be bidding for (almost) 'pure' copper group Equinox but for China. And arguably, Ben Bernanke. It also wouldn't be paying such a hefty price for Equinox but for China. And again, Ben. All this applies on two levels. The obvious one is that it had to top Minmetals. It did that decisively, putting an extra billion dollars – Canadian, American, Australian, whatever – on the table. Minmetals had to then decide not simply by how much it would have to top the Barrick price, but presumably the inevitable second counter-offer from that company. It very promptly decided that would be too much."
 
The Australian's Bryan Frith wrote this morning that Barrick won: "By pitching so far above the MMR bid Barrick was aiming for a knockout blow – and it succeeded. MMR conceded defeat yesterday, saying it did not intend to pursue its bid for Equinox and that the Barrick offer price was above its "most optimistic assessment of value". MMR may also have been deterred by the hefty $C250 million break fee, which Equinox has agreed to pay Barrick in "certain circumstances, including if Equinox accepted a superior proposal." Game over. 
 
Business Spectator's Stephen Bartholmeusz points out that: "It says something about the perceived outlook for copper that the world's largest gold miner, Barrick Gold, is not only prepared to risk its gold premium by mounting a $7.1 billion takeover bid for Equinox but is also prepared to gatecrash what had been China's most ambitious base metals play. Earlier this month the state-owned Minmetals Resources launched a $6.3 billion bid for Equinox, with cheap funding from a number of China's state-owned banks and equity from other state-owned institutions. Copper is regarded as the metal with the biggest imbalance of supply and demand and therefore for the Chinese there are issues both in terms of access to the metal and its pricing."
 
The Australian's Tim Boreham looks at a cash flood in the market: "According to Australian Securities Exchange data, listed companies raised $3.51 billion in secondary raisings in March (including Origin Energy's $1.13 billion institutional offer), well up on $1.4 billion in February and $75 million in January. But almost all of this activity was in the resources/mining services sector, with industrial minnows – at least those outside of the white-hot biotech sector – struggling for a hearing among investors." Mining the market, perhaps?
 
The Fairfax finance pages say: "A Senate inquiry into banking competition will urge the government to resist calls for stricter regulation of the big lenders, and instead focus its efforts on boosting funding for smaller rivals. BusinessDay understands the inquiry's report, still being finalised, will suggest accelerated tax breaks for foreign banks as one possible measure to increase pressure on the big four, which sharply increased their market share during the global financial crisis. The report, which is due to be handed down next week, will also examine overseas schemes that could assist small banks and credit unions by revitalising the ailing residential mortgage-backed securities market." Motherhood stuff.
 
The AFR claimed this morning: "The resources sector has been very active in terms of mergers and acquisitions activity but general insurers are primed to step up to the plate." Hmm, someone is fee hunting and urging, there are not that many general insurers listed on the market to be involved in bidding and dealing.
 
And the paper's Chanticleer columnist said this morning: "As the PM jets out of Beijing, she will hope to declare "mission accomplished” in rebooting Australia's relationship with our largest trading partner." Well, Gillard did say something like that, after the AFR's edition had closed for the night.
 
Fairfax has also found another sneaky, cheap buyback like RHG: "Everest Financial Group, a fund manager formerly aligned with Babcock & Brown, is expected to lodge a notice of meeting this week where it will outline a planned buyback of its shares at 12.5 cents each, or about one-third of their net tangible asset backing. Everest, which is chaired by Greg Martin, first outlined the proposal early this month, where it said it would buy back up to 40 per cent of its shares for $1.25 million. The company, which is still sitting on about $9 million of cash and at the end of 2010 had a net tangible asset backing of 42 cents a share (minus the recent capital return), indicated its three main shareholders would not partake in the buyback." And Wilson Asset Management, which is embroiled in the RHG case, is opposed to this deal as well.
 
The Australian reminds us that: "Macquarie Group is expected to deliver a 2011 full-year profit down at least 10 per cent, but forecast that improved market conditions will boost its future earnings as the investment bank kick-starts the bank reporting season. The bank's chief executive, Nicholas Moore, will release the bank's earnings on Friday, with the market's consensus set for a net profit of at least $945 million. It is expected the second-half profit will reach $542 million, which would be 5 per cent down on the same time last year, but up 35 per cent on the first half of the bank's current financial year." 
 
In Melbourne, The Age's Leonie Wood explains the current court case against eight directors and officers of the collapsed shopping mall group, Centro: "It is, perhaps, the most elementary aspect of financial analysis. Faced with a company balance sheet, the line item examined before all others is current liabilities: short-term debt, or what must be paid in the next 12 months. So it is a little difficult to understand how Centro directors in September 2007, applying their full faculties, overlooked this line when examining the group's final accounts. The blunder became apparent later in 2007 when Centro faced a catastrophic loss of investor confidence after being forced to reveal it was struggling to refinance its loans. Eight Centro directors and officers are now defending allegations by the corporate regulator that they were negligent. That the directors did overlook the item is not in dispute in the Federal Court. What is disputed is the extent to which directors are required to probe the company's accounts or go behind what management and auditors tell them." The case is back in court next Monday. 
 
On Anzac Day, the Fairfax business pages reported that "Lynas Corporation's contentious sale of a rich rare earths and metals deposit to a related party, Forge Resources, has attracted the corporate regulator's attention, and a key shareholder vote will be delayed because of concerns over disclosure. The executive chairman of Lynas, Nicholas Curtis, is also a director and 15 per cent shareholder of Forge. He stands to vest 24 million performance shares in Forge – worth close to $30 million at current share prices – if the deal succeeds. This will boost his stake in Forge, and ownership of the Crown ore body, to close to 40 per cent. He owns less than 1 per cent of Lynas. It is understood the Australian Securities and Investments Commission is taking particular interest in the deal, given Mr Curtis's prominence and the shareholder concern the deal has generated. Forge Resources had hoped for its shareholders to vote on key resolutions relating to the deal at an extraordinary general meeting on May 18, the same date Lynas shareholders will have their say. "
 
And yesterday Bryan Frith in The Australian broke his break to report: "Forge Resources appears to have suffered an unexplained delay in calling a meeting of shareholders to approve controversial resolutions that would enable the company to sublease potentially highly valuable rare metals and phosphate deposits from the rare-earths company Lynas Corporation. The proposal needs the approval of both the Lynas and Forge shareholders. Lynas has already called a meeting and claimed that Forge had convened a meeting for May 18 and a copy of the notice of meeting was available from the ASX. However, there has as yet been no disclosure by the ASX of the notice of meeting. What has happened is that Forge lodged the notice and explanatory memorandum with the corporate regulator ASIC on April 15 but is yet to lodge it with the ASX and dispatch it to shareholders. That suggests ASIC may have raised some issues with Forge, perhaps relating to the adequacy of disclosure in the documentation."