Nickel Prices Have Gone South, And So Has Minara

Sydney Morning Herald

Friday October 10, 2008

Edited by MATT O'SULLIVAN xchange@smh.com.au

It's tight now and the miner needs cash.

MINARA Resources - which was trading at $6 a share in May - plunged below $1 yesterday after the nickel laterite miner predicted it would earn between $20 million and $40 million this year.

Lower nickel and higher sulphur prices have placed severe pressure on the miner, which earned $272 million last year at a time of record nickel prices.

Minara produced 7656 tonnes of nickel during the September quarter.

More worrying, despite recently halting all major development projects, the company needs more cash to help alleviate the cost pressures. It has yet to decide on whether to raise debt or equity, but Deutsche Bank recently said it would have an $80 million funding shortfall in the present half.

The volatile state of the debt markets means Deustche analyst Paul Young thinks a rights issue - which could be fully underwritten by Minara's majority shareholder, Swiss commodities trader Glencore, is the most likely option. However, that could place further pressure on Minara's share price.

Murdoch sceptics The bad week continued for shareholders of Rupert Murdoch's News Corp. First, the revelation that the media mogul's latest European investment, a EUR350 million ($696 million) play in Germany's main pay TV provider Premiere, is quickly going up in smoke - the Munich company overstated its subscriber numbers and is forecasting a loss for this year.

Then a spate of downgrades for News stock amid fears the global downturn will chip away at the media empire's profit growth. Two months ago Murdoch reported a record profit of $US5.4 billion ($7.9 billion) for 2007-08 and said the company would still increase operating earnings by 4 to 6 per cent this year despite the "recessionary environment".

But the market is getting increasingly sceptical.

This week Deutsche Bank withdrew its "buy" rating for the stock and tipped earnings would fall 5 per cent as the US advertising market slips into recession.

Another US analyst, Merrill Lynch's Jessica Reif Cohen, reckons News Corp will reach 2 per cent profit growth, missing its forecast. Murdoch could also cut back on anticipated share buybacks, she argued.

News Corp's stock in Australia rose 24c to $14.75 yesterday.

True to the causeTelstra's mouthpiece, Phil Burgess, might have returned to the US, but his boss and close friend, Sol Trujillo, isn't ceasing attacks on the local regulatory regime.

Trujillo described Australia this week as having a "bureaucratic tangle of muddled thinking, backward-looking regulation".

But could this be at odds with a changing world-view?

After all, in just a matter of weeks views on regulation from many quarters have changed radically since the implosion in financial markets in the US and Europe.

And the Prime Minister, Kevin Rudd, certainly thinks the latest Gordon Gekko era is over.

All of which has implications for Telstra when it comes to bidding for $4.7 billion in taxpayers' money to build a national broadband network.

That's because it seems the Labor Government has a clear mandate - if it so chooses - to regulate a broadband network in a manner that won't suit Telstra one iota.

And what about the implications of a rise in the cost of credit, you ask?

Analysts believe the ability of Telstra or the Terria consortium (SingTel in another guise) to raise the billions of dollars needed to build a network providing minimum speeds of 12 megabits per second to 98 per cent of the population is not severely threatened by the global credit crisis. That's largely because of the Government's willingness to plough up to $4.7 billion into the project.

No doubt, increases in borrowing costs will give the winning bidder extra leverage to demand a greater rate of return from its investment in a broadband network.

Transmitted painMacquarie Airports is beginning to feel the airlines' pain. In downgrading MAp this week from "buy" to "neutral", Merrill Lynch has pointed to a deteriorating outlook for traffic at Sydney, Brussels and Copenhagen airports.

Merrill has halved traffic growth forecasts for MAp's crown jewel, Sydney Airport, next year to 2 per cent for international travel and 4.5 per cent for domestic because of weaker Australian and global economies.

Worryingly, international growth is the airport's main driver: each of those passengers generate about $75 in revenue for the airport, compared with the $25 for domestic passengers.

"This has flow-on impacts for retail spending and car parking at the airport," the analysts said.

A major reason for the subdued growth outlook is an expectation that Qantas will increase passenger capacity. The three-month deferral of the launch of Virgin Blue's long-haul carrier, V Australia, doesn't help either.

MAp suffered its fourth day of losses yesterday, closing 6 per cent, or 16c, down at $2.50.

Still a gasDespite the weak equity markets, it appears coal-seam gas remains a hot commodity.

Molopo Australia yesterday appointed Lazard Carnegie Wylie to evaluate a range of commercial options covering its 30 per cent, non-operating interest in Gloucester Basin coal-seam gas tenements.

Options could include a sale. There is an estimated 1.6 trillion cubic feet of gas at Gloucester Basin, a venture with AJ Lucas.

Last week AJ Lucas hired Goldman Sachs JBWere for a strategic review of its own, covering its 15 per cent interest in a permit operated by Queensland Gas. It is possible AJ Lucas could use the proceeds from that sale to consolidate its ownership of the Gloucester project.

© 2008 Sydney Morning Herald

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