Buyback Could Be The Alternative For All That Cash

Sydney Morning Herald

Tuesday July 22, 2008

Edited by JAMIE FREED. xchange@smh.com.au

That's the suggestion if OZ Minerals can't find a suitable acquisition for its money.

OZ MINERALS - the merged Oxiana/Zinifex - has long held big plans to leverage its war chest of $1 billion-plus cash to spend up to $4 billion on a copper and nickel acquisition spree. But could a share buyback be an even more rewarding possibility?

Coinciding with the appointment of PaperlinX chief financial officer David Lamont as OZ Minerals's new finance chief yesterday, Citigroup analyst Clarke Wilkins floated the idea of a buyback.

Oxiana shares are trading at two-year lows. Although the franking credit cupboard is pretty bare now, Wilkins said a buyback would be "highly accretive". A $1 billion buyback would increase earnings per share by 16 per cent next year, rising to 44 per cent if it bought back $2 billion of shares. But he noted management is likely to spend at least a year looking for appropriate acquisitions before seriously considering a buyback.

If OZ Minerals chooses to proceed with acquisitions as planned, Wilkins is betting Zambian copper miner Equinox Minerals, Laos copper-gold miner Pan Australian Resources and West Australian nickel miner Panoramic Resources (formerly Sally Malay) are among the top potential targets.

Both Oxiana and Zinifex have previously examined Equinox, which yesterday said its Lumwana project in Zambia should be producing its first concentrate in December, following recent damage to its transformer. The contractor, Ausenco, estimates the project - set to produce 170,000 tonnes of copper a year - will be complete in late October, but Equinox is taking a more conservative stance.

The biggest hurdle standing in the way of a potential acquisition of Equinox is Canadian miner First Quantum Minerals, which owns 17 per cent of the Zambian copper miner. Equinox's chief executive, Craig Williams, told Xchange First Quantum had given him no indications about its intentions for the strategic shareholding.

Seven war chest

Two weeks before Seven Network's annual results, the market continues to wonder about the fate of the broadcaster's $715 million in share investments and Kerry Stokes's plans for the rest of his war chest. How much has the recent market meltdown hurt Seven's stock portfolio and what is the billionaire's expansion strategy?

The speculation got fresh wind after Seven quietly built up a 4.8 per cent stake in Consolidated Media Holdings, part-owner of the Nine Network and coveted pay TV assets Foxtel and Fox Sports.

Merrill Lynch reckons Seven may have held on to CMH but got out of most of the other stock investments by now, with early paper gains likely to have been eroded by the sharemarket rout.

The broker's media analyst, Alice Bennett, said in a recent note that with about $1.6 billion left in cash and short-term investments, Stokes will now seek some bargains in the media, where shares have recently been sold down heavily.

A full bid for West Australian Newspapers, of which Seven already owns 19.4 per cent, "is still a possibility", Ms Bennett said, calculating that Seven could pay up to $11.75 a share for WAN and still increase its earnings per share. WAN's shares closed 44c higher at $8.64 yesterday.

At the same time, she said, "Seven would clearly love to have exposure to CMH's pay TV assets". While a takeover of CMH was unlikely, given regulatory hurdles and Stokes's "difficult" relationship with James Packer and News Corp, "Seven has dealt itself a seat at the table for any future ownership changes", the Merrill analyst said.

Three milk lovers

The bidding for local dairy producer Dairy Farmers has reached a critical juncture, with the three interested parties lodging final offers late last week and the competition regulator due to rule on two of them this week.

The Australian Consumer and Competition Commission is due to rule by this Thursday on applications by National Foods - owned by Japan's Kirin Holdings - and Italian food firm Parmalat. Canadian dairy products company, Saputo, is understood to be the other bidder.

Analysts have said the deal for the dairy producer, which makes Dairy Farmers milk, Coon cheese and Ski yoghurt, could be worth $800 million to $1 billion.

A Dairy Farmers spokesman said any vote by the 2000 farmer shareholders would happen towards the end of this year, after a board recommendation.

National Foods is bidding in partnership with Australia's Warrnambool Cheese and Butter. The company has already proposed to sell two milk processing plants and license out certain brands of milk to help win competition clearance.

The ACCC would not have to rule on any bid by Saputo because it does not have large operations in Australia, but it would need clearance from the Foreign Investment Review Board.

New Zealand dairy co-op Fonterra withdrew a solo bid for Dairy Farmers last month but has talked to National Foods about acquiring some businesses if National Foods is successful.

Monarch creditors

Monarch Gold shareholders will be hoping the company - now in voluntary administration - has a lot more than $43 million in assets.

After a meeting of creditors yesterday, Monarch administrator, Brian Hughes of Pitcher Partners, told Xchange the goldminer owes its creditors about $43 million - including $24 million to Territory Resources and $4 million to India Resources. Those two loaned Monarch money when all three were part of the mini-empire of Perth identity Michael Kiernan.

The $43 million of assets does not include Mt Magnet , since Monarch has yet to complete its purchase from Harmony Gold. Harmony was to take a large chunk of Monarch shares in return for selling Mt Magnet, but it seems unlikely the South African miner would want equity in a company in administration.

Hughes said Territory had "expressed discomfort" with his independence, given he had also served as the administrator of Croesus Mining when that failed goldminer was chaired by Kiernan. He said Pitcher would seek a court ruling on the issue.

He said there had been "strong expressions of interest" in Monarch's assets, but it was too early to determine whether shareholders would see any cash returned to them.

© 2008 Sydney Morning Herald

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