THE DISTILLERY: The vultures commeth

The vultures are hovering around Leighton Holdings after its multi-million dollar writedowns and losses with the sound of their wings beating in the morning breeze; the sharp, aggressive sound of their feeding calls music to the ears of lawyers and others. If we didn't know any better, we would think the gathering of the carrion eaters was an act of nature. No, it's all about the movement of money from insurance companies (or their clients who are being sued) to lawyers and others in the system, with something leftover for those shareholders who hope to board a gravy train that doesn't exist.
 
Elizabeth Knight in the Fairfax papers has spotted the birds circling on high over Leighton: "In stockbroking firms around the country, teams of analysts are crunching the numbers on Leighton Holdings, trying to work out whether the bad news is over. A more historic forensic investigation is being carried out by another group of professionals – class-action lawyers and litigation funders. They are not interested in Leighton's financial potential but in its archaeology – what the company knew, whether it was disclosed to shareholders in an accurate and timely way and, if not, whether shareholders lost money because of it. The two largest class-action law firms, Maurice Blackburn and Slater & Gordon, are keeping a watching brief on Leighton, as is the country's biggest litigation funder IMF. Several experts in this field said yesterday that at a cursory level the Leighton situation appeared to tick all the boxes warranting further investigation."
 
And The Australian has also heard the beating of their wings: "Troubled construction group Leighton Holdings may have another headache on its hands as shareholders begin inquiries into a possible class action against the company. Perth-based litigation funder IMF is examining a shareholder suit against Leighton on the issue of its disclosure of writedowns in the past six months which last week culminated in almost $1 billion in impairments, a $427 million loss for the financial year and a $757 million raising."
 
Elsewhere, Fairfax's Malcolm Maiden examines the opposition to the bid for local biotech Cellestis: "The $341 million takeover bid for the Australian tuberculosis testing technology company Cellestis by European diagnostic technology group Qiagen ticks a lot of boxes. But there's one box missing, and it makes the bid intriguing: a shareholder group that claims to speak for just over 34 per cent of Cellestis's 99 million shares is adamant that the offer is not even close to being acceptable. The Cellestis Shareholders Action Group includes a block of about 20 per cent in the hands of clients and allies of the financial adviser Gavin Ross, and if the opposition holds, the 75 per cent ''yes'' vote scheme of arrangement takeovers need is a bridge too far."

The Australian Financial Review reports on its website that: "US Treasury secretary Timothy Geithner has said there was "no risk” that the United States would lose its AAA credit rating and that investors were still confident in government bonds." Well you would expect him to say that, wouldn't you. Wall Street recovered its nerve and put on a small rise after yesterday's kneejerk sell-off. Much of the local commentary reflected the time difference between here and the US.
 
And the Herald Sun's John Beveridge made a good point about the S&P move on the US and one on Rio Tinto, which many of our scribes missed when warbling on about the US move. He wrote this morning: "Anyway, at the same time that Standard & Poor's were warning there was a one in three chance of US Treasuries being downgraded from AAA, it was also upgrading the long-term corporate credit rating of Rio Tinto to A-. That is really a defacto recognition that the giant miner has truly emerged from its disastrous Alcan acquisition and is now well on the recovery path."
 
Michael Pascoe wrote on smh.com.au: "Standard & Poor's states the bleedin' obvious about the US deficit and political paralysis, Wall Street acts surprised for reasons best known to itself and our market opens with a tumble. No, it doesn't really make sense. But the ASX slavishly following Wall Street's mood hasn't made sense for quite a while now. The encouraging news is that there are signs that we are beginning to do so a little more selectively. Increasingly, the morning forecast that "the Dow dropped last night, so our stocks will fall today” doesn't necessarily hold true by four o'clock that afternoon. It's a slow process, winding back generations of unthinking faith in the almighty power of US economy in the first instance and the dominance of the New York Stock Exchange in the second – one exchange to rule them all."
 
The AFR's Chanticleer columnist writes: "Shareholders turning up to Woodside Petroleum's annual general meeting in Perth today can be sure of one thing: by next year the company will look quite different." Yesterday's March quarter production report from Woodside showed how the surging oil price had rescued the company from a nasty drop in output and sales, as The Australian (and other papers) reported this morning: "Woodside Petroleum's quarterly production fell to a five-year low in the first three months of this year as bad weather in Western Australia's Pilbara region exacerbated the effects of planned outages and declining fields. The company will also struggle to meet its timetable for producing the first liquefied natural gas from the already delayed $14 billion Pluto project in September, according to its first-quarter report released yesterday."
 
The Australian's economics editor, Michael Stutchbury, agrees with remarks by Treasurer Wayne Swan that the investment boom won't deliver a bonanza: "Wayne Swan is right that the post-crisis mining boom is generating less tax revenue than before. That is threatening his promised budget surplus and so putting more heat on him to cut harder. The question is whether a weak minority Labor government has the stomach for the unpopular budget price Australia now needs to pay for spending too much of our China fortune too soon. The mining boom's first stage showered Canberra with tax revenue as it buoyed all parts of the economy, consumers spent freely and the sharemarket delivered healthy capital gains. Even with its modest budget surpluses, the Howard-Costello government gave away too much of this bonanza in spending bribes and tax benefits."
 
Fairfax's Adele Ferguson wrote on smh.com.au yesterday: "Another broker has ceased trading with third party clearer Berndale Securities, increasing the systemic risk on the financial system. At the same time, concerns are rising that tough new rules that have been imposed on market participants by the ASX in its quest to improve market integrity are pushing some brokers under or into the world of non-broker brokers, which don't have the same level of regulation, compliance standards or liquidity requirements. The latest victim was Minc Financial Services, which was placed into voluntary administration last Friday. Another Sydney-based non-broker broker – which BusinessDay has chosen not to name on fears that adverse publicity may exacerbate its problems – is believed to be fighting to survive. The reports coming out of the industry are that it hasn't paid staff for weeks and is teetering on the brink of closure."
 
And The Australian's Nabila Ahmed wrote this morning: "As Sydney stockbroking firm Minc Financial Services languishes in the hands of its voluntary administrators, word is that about half a dozen senior figures from its Perth office are about to jump ship. The escapees are understood to be on the verge of inking a deal with Melbourne private client stockbroker E. L. & C. Baillieu following the appointment last Friday of Atle Crowe-Maxwell and Ken Whittingham from PKF as administrators to Minc Financial Services and its related broking company, Asanda. Creditors are believed to be owed as much as $8 million."
 
The AFR also reports: "The market continues to have doubts over whether Russian group ARMZ will eventually consummate its pared-back offer for uranium play Mantra Resources." And the paper also said that "Believers in Australia's emerging shale gas industry like to point to the scepticism that used to surround Queensland's coal seam gas sector not so long ago."
 
Business Spectator's Stephen Barthomeusz looked at Qantas' latest boost to its air fare surcharge: "Qantas' decision to lift fuel surcharges for the third time this year, along with a warning that there might be more to come, reflects the rapidly rising pressures on the group and the broader airline and travel sectors. The decision was in a sense inevitable – as will be those of its peers when they are forced to emulate it. Oil and jet fuel prices have been soaring. Oil prices are well over 50 per cent higher than they were six months ago, and jet fuel prices have climbed in tandem. The size of the increase – another $200 on return flights to the UK, Europe and North America and between $10 and $24 return on its domestic network – will inevitably impact already slowing demand."  
 
And The Australian's Tim Boreham examined the latest quarterly report from Newcrest: "In the long tradition of gold producers being unable to get their (golden) ducks in a row, Newcrest has been afflicted with too much water at one mine – and not enough at another. The country's biggest gold miner (by a golden mile) reported a 16 per cent decline in March quarter output and tweaked its full-year guidance, to just below the previous estimate of 2.85-2.95 million ounces. It's a pity really, given the bullion price has enjoyed another spurt on news that ratings house Standard & Poor's has put America's coveted AAA rating on credit watch, which means that moribund old-world economies such as France and Germany could be viewed as better risks than Uncle Sam. But that's the thing with gold miners: when the price looks favourable, there's always a glitch or two to sully the picture." Gold got over $US1,500 an ounce overnight. 
 
The Australian's Bryan Frith returned to the controversial Lynas rare earths deal with Forge Resources again this morning: "The proposed transaction has upset many Lynas shareholders. Some say the main beneficiary of the sale to Forge would be Nic Curtis, executive chairman of Lynas and non-executive chairman of Forge. Curtis has an interest in 24 million "performance" shares in Forge, granted by shareholders before the float. These shares vest on a one-for-one basis on Forge's existing projects, or a project acquired after listing with a JORC-compliant resource capable of supporting a capital raising of at least $15 million at a price of not less than 35 cents a share, and Forge completing the raising. That process is described as a milestone. The shares expire by the end of this year, and if the milestone is not achieved, they will automatically convert to one solitary share. However, if the transaction with Lynas proceeds the milestone will be achieved and the performance shares will convert into 24 million ordinary Forge shares. That would deliver more than $25 million to Curtis – more than the $20.7 million Lynas would receive."
 
And finally this morning a warning; Terry McCrann is angry again about carbon taxes, as he wrote in the Melbourne Herald Sun: "Reality is that Australia putting a price on carbon (dioxide), indeed even cutting our CO2 emissions all the way to zero, can make no impact on global warming. Zip. Zero. Nada. All it can 'tackle' – damage – is our prosperity and our civility. That's the reality without a binding global agreement to cut or even just cap the earth's CO2 emissions. To stress, for those who might be misled by people like Climate Change Minister Greg Combet, that's cut or cap actual emissions, not as he deliberately tries to mislead when he talks about China, cutting emissions intensity. This is the current reality and indeed the foreseeable reality. In the wake of Copenhagen and Cancun there is no agreement to cut global emissions."