Sydney Declines 1.4%, RBA Hikes Inflation

123jump.com Staff
12 Nov, 2007
New York City

ASX 200 index declined 1.4% to close at 6,455.30. BHP Billiton today announced that it will consider returning $33 billion to shareholders through a share buyback if its proposed merger with Rio Tinto goes ahead. Coal prices at Australia''s Newcastle port rose to a record because port and rail facilities limit shipments. The Reserve Bank of Australia raised its inflation forecasts as economy''s expansion shows considerable momentum. Australian dollar declined.

[R]6:00PM Sydney, - 2:00AM New York - The Australia index declined 1.4% weighed down by loses in mining and energy stocks.[/R]

ASX 200 index fell 1.4% or 90.4 to close at 6,455.30. Woodside Petroleum Ltd declined 5.9%, Newcrest Mining Ltd was lower at 4.7%, and Rio Tinto put on 6.7%.

BHP Billiton announced today that it was considering returning $33 billion to shareholders through a share buyback if its proposed merger with Rio Tinto goes ahead.

The company said a combined group would have the financial flexibility to return significant capital to its shareholders.

The company flagged an initial share buyback, or other appropriate mechanism, of about A$30 billion after completion of the proposed merger.

BHP Billiton said the cash distribution would allow ""the combined group to have an efficient balance sheet while maintaining flexibility for future investment''''. The miner said it ""continues to seek to engage in discussions with Rio Tinto'''' about a potential merger, which would create the world''s largest producer of coking coal, thermal coal, copper and aluminium.

""To date Rio Tinto has not agreed to these discussions,'''' BHP Billiton said in a statement. BHP Billiton said a merger was the ``most logical and compelling consolidation opportunity for both companies'''' and could create synergies and cost savings in the order of $3.7 billion.

The company said its iron ore operations in the Pilbara region of Western Australia and coal operations in NSW and Queensland were key areas for synergies and savings. BHP Billiton said it would cost about $650 million over two years to implement the synergies, with the full cost savings to be achieved seven years after a merger.

Media reports in London suggest BHP Billiton is considering selling its $30 billion petroleum division to help fund the transaction.

A delay in shipments due to limitations in port and rail facilities has pushed coal prices at Australia''s Newcastle port to a record. Annual contract prices are set to gain as a result.
Power station coal for delivery for the next three months climbed for a third week, by $1.43 to $83.51 a metric ton in the week ended November 9.

Ships intending to load were experiencing a delay of 14 days on average during the past week compared to 1.2 days for general cargoes.

According to Newcastle Port Corp''s website, at least forty-two vessels were reported to be queuing off the port in the week ended this morning, two more than the previous week. In June the queue reached a record 79 after storms disrupted operations and hasn''t been less than 37 this year.

A total of 1.5 million tons of coal was loaded, less than the 1.9 million tons a week earlier. Total of 7.3 million tons are targeted for shipment through the New South Wales port this month.

China, the fastest growing economy in the world, became a net importer of coal for the first time this year, worsening a shortage of the fuel in Asia. Coal consumption, spurred by global economic growth, has outpaced exports from Australia, Indonesia and South Africa.

The Reserve Bank of Australia (RBA) today ramped up its inflation forecasts, saying it is now likely to exceed the bank''s target band of between 2% and 3%.

The RBA said in its latest monetary policy statement that both underlying and CPI inflation would remain close to 3% throughout 2008 and 2009, putting further upward pressure on interest rates.

""The most recent data indicate that the economy had more momentum than expected through the middle of 2007,'''' the RBA said. This prompted economists to speculate that the RBA could follow up with another interest rate rise next month, while others see a move in the first quarter next year.

The RBA expects inflation will leave the central bank no leeway for error.

""Somewhat lower outcomes could eventuate if global economic conditions prove to be weaker than expected, which might occur if there were further significant disturbances in global financial markets,"" the RBA said in its quarterly monetary policy statement.

The RBA lifted the official cash rate by one quarter of a percentage point to 6.75% last week.
It was the tenth time rates have climbed since 2002 and now at their highest level since July 1996 – four months after the Howard Government first came to power.

Of the ASX 200 index shares, Rio Tinto led the gainers with a rise of 6.7% followed by increases in Resmed Inc by 4.8%, in Computershare Limited by 4.1%, in Wesfarmers Limited by 3.2%, and in Sigma Pharmaceutical by 3%.

Of the ASX 200 index stocks Sino Gold Mining led the decliners with a fall of 6.8% followed by losses in Mount Gibson Iron of 7.4%, Flight Centre by 8,3%, in Lynas Coporation Limited by 9.9%, and in AED Oil Limited of 14%.

In the other stocks the banking counters all lost, Westpac Banking declined 2.2%, Commonwealth Banking slid 0.1%, National Australia Bank was down 0.5% and ANZ was lower at 2%.

In energy sector Santos fell by 5.2%. In the gold sector Lihir was down 5.9%. The retailers were mixed, Woolworths put on 0.9 %, Harvey Norman was lower at 1% and David Jones lost 3.1%.

Media stocks were mixed with News Corp putting on 2.6%, Fairfax losing 1% and PBL declining 0.8%.

In the news, telecom giant Telstra was four cents cheaper at $4.64 after it agreed to an out of court settlement of up to $5 million to settle a class action against the telco, it was announced today in the Federal Court of Australia.

Flight Centre hit heavy turbulence after it announced it had agreed to buy one of North America''s biggest travel agents, Liberty Travel, for $135 million (A$149.22 million). Flight Centre shares dipped 8.3% to $24.99.