Mining's Biggest Want To Get Bigger

Sydney Morning Herald

Tuesday February 21, 2006

Edited by Michael Evans xchange@smh.com.au

Flared pants come and go, as do bouts of consolidation in the commodity sector.

CONSOLIDATION rumours are in full swing among global commodity companies.

Buyers went crazy for Xstrata shares last week after reports that BHP Billiton might be interested in taking over the Anglo-Swiss upstart.

But a growing number of whispers are pointing to $US27 billion ($37 billion) aluminium company Alcoa as the most likely takeover target for the likes of BHP or Rio Tinto.

Punters say Canada's Alcan is running a distant second.

In the event of a takeover, BHP or Rio would probably sell Alcoa's downstream operations and might also have to sell parts of the upstream business because of competition concerns.

A slimmer Alcoa would then make a nice addition to either miner's portfolio.

Aside from the BHP or Rio angle, a bid for Alcoa could have even bigger local ramifications by putting Melbourne's $8.3 billion Alumina in play.

Alumina's only asset is its 40 per cent stake in the Alcoa World Alumina and Chemicals business, a joint venture with Alcoa.

So far that has made Alumina an unattractive takeover candidate for any company but Alcoa. In fact, Alumina was split from Western Mining in the hope Alcoa would make a bid.

Instead, BHP bought the WMC Resources arm of the demerged company and Alumina remains independent.

But if Alcoa is taken out, an acquirer would certainly make savings if it mopped up Alumina as well.

Iluka's sharp shock

Companies don't often issue profit warnings the day before results.

But Iluka Resources yesterday called for a trading halt, warning one-off charges would exceed the $US60 million announced earlier.

Those charges were associated with the closure of some of its US operations.

Apparently the audit committee heard the bad news on Friday and the whole board was told at a meeting yesterday.

Worried the news could leak out, Iluka called for a halt until the results are released this morning.

If the shares drop it will be bad news for some prominent investors.

The Kolsen syndicate - consisting of Ron Walker, Robert de Crespigny and others (and once the late Kerry Packer) - is still in the money, having bought their shares at an average of $6.50 last year.

But the $6.99 close on Friday was a far cry from the all-time high of $8.96 the shares hit in September.

Fresh Flight Centre fright

Flight Centre's argument that it has "turned the corner" could be tested by Qantas's continuing push to cut its cost of sales.

The travel agent's shares have risen nearly 30 per cent in a fortnight after the company announced it had stemmed its profit slide.

Although Qantas has been cutting commissions to travel agents and more passengers are booking online, Flight Centre's executive chairman, Graham Turner, has blamed the retailer's problems on costs.

But Qantas's announcement on Thursday that it wants to raise its online bookings from 44 per cent of its sales to 60 per cent could pose a fresh challenge to Flight Centre. Qantas aims to slash $80 million from its cost of sales in the next year.

Wotif builds its team

With a sharemarket float pencilled in for some time before June 30, wotif.com has stacked its bench with some public company talent.

And who better to poach from than one of the Sunshine State's most successful companies - UNiTAB.

Yesterday, wotif announced that UNiTAB's soon-to-depart chief executive, Dick McIlwain, would become its new chairman.

It's not the first time the accommodation website has borrowed talent from the Queensland gaming and wagering operator.

Just before Christmas it poached Robbie Cooke, the frontrunner to replace McIlwain at UNiTAB.

McIlwain and Cooke are widely regarded as the two most responsible for taking UNiTAB from a $2 float in 1999 to a company valued at more than $13 per share.

Clearly wotif's management hopes some of the magic will rub off. Not that the company needs much luck - or funds.

In the year to June 30 last year wotif.com showed a $12 million profit after tax on net revenues of around $32 million.

It also reported net operating cash flows of $20 million for the year and paid a $7 million dividend.

The company's value is estimated at around $400 million but all will be revealed when the prospectus is released, perhaps in April. Current estimates put the capital raising at $200 million.

ABN Amro Morgans and Macquarie Equity Capital Markets are the lead managers of the float.

Aust Energy sparks up

So did CSFB do a good job of marketing energy retailer Australian Energy late last year when it put itself on the block?

A few in the market think not, overbidding the agreed $1.95 takeover offer drummed up from Queensland's Ergon Energy.

Since the agreed bid was announced just before Christmas, there has been steady turnover in the stock, mostly around $1.92, with UBS popping up with a handy 8 per cent stake earlier this month.

But late last week buyers paid up to $1.98 a share, topping the offer price, in apparent hope that a higher offer is on the way. That buying, too, is believed to have been done through UBS.

CSFB did the rounds of the electricity industry late last year, seeking buyers of Australian Energy, finally stitching up the deal with Ergon.

Is there another buyer? Clearly someone thinks so and has paid up.

The takeover is via a scheme of arrangement. Documentation is due in the next few days and may flush out another interested buyer.

© 2006 Sydney Morning Herald

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