Fortescue finds some friends. Laurie Oakes was spot on, again, in his column in Saturday’s Sydney Daily Telegraph when he reported there were some interesting but unknown foreign investment deals lobbed into the Foreign Investment Review Board last week. Oakes said the submissions caused Prime Minister Tony Abbott and Treasurer Joe Hockey to perform an about turn (with pike) on the idea of an inquiry into iron ore pricing. This morning’s Australian Financial Review identified Fortescue Metals Group as the target of these submissions, with talk of Chinese companies eyeing a stake in Twiggy Forrest’s company, and possibly buying some of Forrest’s 30% shareholding.
So what tack will the Twigster and his supporters say now about iron ore? That it is a wonderful investment opportunity? That BHP Billiton and Rio Tinto are fine, competitive peers and Aussie patriots to boot? The AFRnamed Baosteel, China’s biggest steel company, and CITIC, the country’s biggest conglomerate, as being involved in talks with Fortescue. CITIC has lost billions of dollars in its iron ore (using poorer-quality magnetite ore) joint venture with Clive Palmer, and in 2008 it lost US$2 billion speculating against the Aussie dollar out of Hong Kong, which forced a bailout of that operation by the Beijing parent company. Hong Kong’s regulators are taking legal action over those losses. The losses were associated with the Palmer iron ore project. If a deal happens with the Chinese companies, it will be because Fortescue’s financial position is under pressure and needs bolstering, and no one in Western financial markets will lend Forrest or Fortescue any more money. Twiggy’s moaning and groaning about the activities of BHP and Rio will look like what it has always been — hyperbole and just another lot of hot air. By the way, rising demand from Chinese steel mills led to spot iron ore prices jumping 2% overnight to US$61.18 — a rise of 7% in the past three trading days. And of course, the AFR story had the understandable impact of lifting Fortescue’s share price — from $2.17 to $2.50, a gain of around 17%, when trading resumed on the ASX this morning. — Glenn Dyer
The real deal. Don’t you just love Tony Abbott and Joe Hockey? There they were in federal Parliament yesterday, spruiking their small business tax cut and investment stimulus move, and telling us how wonderful it was and pleading with small business to get a-spending. Out in the real world, well over $3 billion of possible bids and deals were announced on the ASX. Skilled Group has seen the light and wants the $1.38 a share that Programmed Group trialled back in January — that’s a near $300 million deal and the creation of a much larger company (some $700 million). Then Independence Group revealed a $1.8 billion offer for the nickel and copper assets of Sirius Group. With Independence assets, that’s a $2.8 billion group created.
The rump of Sirius will collapse into a new company called S2 with a couple of hundred million dollars of assets and cash. And Evolution Mining has done its second big deal in a month (buying a gold mine in NSW from a Canadian giant in Barrick Gold) for more than $700 million. Evolution has spent over $1 billion after doing a deal last month for Australian mines owned by Egypt’s richest man who becomes Evolution’s biggest shareholder. All up, that’s more than $2 billion in deals in a month in the mining sector. Now the smarties will say that this is all sharemarket dealing, which it is, but all groups have new mine projects on their plate, which will lead to a rise in investment in about a year’s time. And the deals involve as much money as the federal government will spend trying to help small business in the next year — all without an incentive from a desperate federal government, and a desperate leadership. This sort of sharemarket activity is what happens after the booms we have seen in the past five to six years as the excesses get cleaned out, taken over and then revamped. — Glenn Dyer
China keeps flogging the horse. Like an ageing jockey, or perhaps a hamster on a treadmill, the Chinese government continues to try to prevent the flagging economy from coming to a halt and dragging the Communist Party with it — from ordering banks to support dud local government projects, and in turn promoting new types of funding deals for the same dodgy assets, to bringing forward tens of billions of infrastructure projects, and now assembling more than 1000 projects that will be subject to a new directive from State Council (the country’s cabinet) aimed at promoting public-private partnerships (PPP) in public services. As part of this move, China’s National Development & Reform Commission said it was seeking private funding for US$322 billion of projects — 1043 so-called public-private partnership (PPP) projects are listed on the commission’s website. — Glenn Dyer