THE DISTILLERY: Mining prospects

The commentariat mulls over the future of the resources boom, while one takes a look at Qantas growth prospects.

The dividing conclusions about the fate of the mining boom between federal ministers Martin Ferguson and Penny Wong have given BHP Billiton’s results a second wind. But it goes beyond that. Commentators have found ways to weave Australia’s largest company into their stories about David Jones and Qantas Airways.

Starting with the ministers, Business Spectator’s Stephen Bartholomeusz sums it up better than any other commentator this morning.

"‘We’ve got over half a trillion dollars and over half of that, over half of that is at the advanced stage,’ Senator Wong said. That’s true. There are projects involving investment of $260 billion to $270 billion that are committed and too far advanced to be pulled. It’s the remaining $300 billion or so – of which BHP’s two projects were a major chunk – that now has a question mark over it, along with Wong’s conviction that the boom still has ‘a long way to run’. The reality is that unless China reignites its growth rate most of the uncommitted investment is also going to be withdrawn from the investment pipeline and at this point the Chinese, despite using most of the policy options available to them, have yet to stabilise their growth rate.”

The Australian’s Barry Fitzgerald sides with Ferguson, but also urges readers to look further down the road at the next mining superstars that could come under pressure.

"Given the factors behind the BHP decision – the slump in prices, rising capital costs, the strong dollar and the slowdown in China – more deferrals of yet-to-be committed projects are on the cards. Why, even billionaires like Gina Rinehart and Clive Palmer with their respective iron ore/coal and coal development ambitions will have to ‘bend to the trend’, as Kloppers put BHP's response to the changed conditions. So while minister Ferguson is right to say the investment boom marches on boldly, it does so only to a point.”

Fairfax’s Eli Greenblat has a fantastic opening to his piece on the confidence of David Jones customers. Former DJs boss Mark McInnes frequently said that the department stores customers, who tend to be more affluent, are well aware of the ASX200’s movements and the balance of their super funds. Greenblat says if this relationship is as strong as McInnes claimed, the project deferrals by BHP Billiton will strike right at their customer base – very smart reporting and commentary.

The Australian Financial Review’s Michael Smith also seeks to link BHP’s news to another company. Smith points out that Qantas Airways is also trying to adapt to a more capital constrained environment.

"The question is, at what cost? Deferring about a third of its orders and options for the 787 Dreamliner aircraft is seen by many of the airline’s staff as another nail in the coffin for the long-haul international business. Deferring the Boeing orders means the ‘mainline’ international business will not receive any new aircraft over the next few years. It reinforces Joyce’s strategy not to invest in the division until it breaks even in 2015 and meets its cost of capital several years after that. However, it also raises concerns about the businesses’ medium-term growth prospects and reinforces the notion that Qantas is abandoning the operation in favour of rapidly-expanding Jetstar.”

The Australian’s Damon Kitney says much of Qantas’ yield growth was delivered through the leisure market, not the corporate business. Read on and you’ll find BHP’s fingerprints.

"Virgin will release its capacity growth plans for the current year with its annual results next week. But it would be mad to match Qantas. It surely won't. The problem for both carriers is that while the corporate travel market actually grew last year despite the two-speed economy, there is no guarantee it will in the year ahead. Thousands of jobs have been lost across corporate Australia in recent months. Travel budgets are being cut. While Qantas and Virgin have beefed up their operations in the mining sector over the past 18 months with acquisitions and alliances, decisions by mining giants such as BHP Billiton this week to cut back massive project expansions introduces a new level of uncertainty into a previously booming market.”

The other big corporate story from yesterday was of course Fairfax Media’s miserable results. The company’s very own Adele Ferguson explains how newspapers are not alone in watching traditional media advertising sources dry up, pointing to Australian television networks and the US for signs of the next stage.

"SevenWest revealed TV revenue was up 3 per cent, newspaper revenue was down 5 per cent and magazine revenue fell 6 per cent. Digital joint venture Yahoo!7 lifted revenue 27 per cent. In the US, which is a good indicator of things to come in Australia, figures show that internet protocol TV is rising at the expense of television. Recent figures out of the United States indicate that people are increasingly turning from TV to IPTV. Comcast showed a drop of nearly 400,000 TV subscribers in the past year, Time Warner Cable lost 169,000 residential video subscribers and DirecTV reported a loss of 52,000 subscribers in the second quarter. US cable TV is actually free-to-air as there is no FTA without a cable connection so to see cable connections being dropped in these numbers is more like people turning off FTA than people turning off cable. Internet customers are on the rise across provider. Time Warner Cable increased it broadband subscribers by 59,000.”

Still on the Fairfax numbers, The Australian’s Richard Gluyas gets knee deep in the numbers coming out of Fairfax’s digital metro assets, revealing the degree to which their growth is failing to keep up with the print revenue’s decline.

Back to the mining boom question, Fairfax’s Michael Pascoe has a real go at Opposition Leader Tony Abbott, adding that it’s Australia’s mining bubble that’s gone, not the boom. The Australian Financial Review’s economics editor Alan Mitchell says the drop in mining investment was always going to be sharp.

In other company news, The Australian’s Bryan Frith says the Brookfield Asset Management bid for listed property company Thakral Holdings has changed the way in which some takeovers might proceed down the track.

The Australian Financial Review’s Chanticleer columnist Tony Boyd previews the meeting between Commonwealth Bank of Australia boss Ian Narev and Citigroup chief executive Vikram Pandit.

Elsewhere, Fairfax’s Insider columnist Ian McIlwraith surveys the field of delisting warning recipients this year, three-quarters of which will probably end up being booted off the ASX going by last year’s numbers.

And finally, Giles Parkinson writes in The Australian that energy efficiency has always offered the safest investment for those looking for exposure.

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