China Investments Lead Australia Higher

123jump.com Staff
04 Feb, 2008
New York City

Australian stocks eded higher as metal prices stayed at elevated levels. Chinalco and Alcoa 9% stake in Rio Tinto lifted stocks of other mining companies. Rio Tinto added 5%. Fortescue added 10% as talks of investment from China made rounds. Separrately BHP said that it has approved a plan to invest $1.2 billion in the Western Australian mining faciity. ASX 200 index gained 0.67% or 39.40 to close at 5,921.70. Mitsubishi facing difficult sales of a new model may shut its Australian plant down.

[R]3:00AM New York, 7:00PM Sydney- ASX 200 index rose 0.4% as big miners gained.[/R]

Market Sentiment

ASX 200 index gained 0.67% or 39.40 to close at 5,921.70.

The Preliminary market turnover was 1.85 billion shares worth $6.77 billion, with 699 shares moving up, 555 moving down and 322 unchanged.

Market Driver

Rio Tinto stock rose 4.8% after Aluminum Corporation of China, Chinalco and Alcoa Inc bought a 9% stake in the company.

The development has further heightened speculation that BHP Billiton would raise its $127 billion bid for Rio as the Chinese acquisition of a $14 billion stake in Rio has further complicated its bid. Investors have raised their hopes for a higher bid from BHP.

Chinalco and Alcoa purchased was at 24% premium to the BHP Billiton preliminary offer at three-for-one stock.

Chinalco has played down making a takeover bid for the company. Chinalco president Xioa Yaqing told reporters in Australia that the consortium made a voluntary application to the Foreign Investment Review Board and says it supports Rio''s management.

Gainers and Losers

Of the ASX 200 index shares, Arrow Energy Limited led the gainers with a rise of 23% followed by increases in Queensland Gas of 17.8%, in Sundance Resource of 13.7%, in Bradken of 13.4%, and in Fortescue Metals of 10.5%.

Of the ASX 200 index stocks, Allco Finance Group led the decliners with a fall of 10.3% followed by losses in Commonwealth Bank of Australia of 4.2%, in Ramsay Health of 4.1%, in APN/UKA European of 3.6% and in AGL Energy of 3.5%.

Mitsubishi Sales Troubles

Mitsubishi is reported to have revived plans to close its Australian factory due to weak sales for the company''s cars. An unnamed company official was quoted by Bloomberg attributing the decision to the fact that their models made at the Adelaide plant had weaker than expected sales.

Mitsubishi Australia however said it was working with its parent company in Japan and no decision has been made on the future of its factory.

Mitsubishi sales were up more than 20% in 2007 but sales of the 380 model fell nearly 12%. The 380 model, its first new locally built car in nine years failed to get traction in the market.


China Investment in Fortescue

Fortescue Metals Group Ltd''s share was buoyed by Chinese media reports that China might buy a stake in the company. Fortescue rose 10%.

The company which is building a $2.7 billion ($2.4 billion) iron ore project in Australia is likely to receive a minority investment from China.

According to the reports in Bloomberg and Reuters, which cited unnamed sources, China Investment Corporation and Shenhua Group Corporation may take 15.9% stake in Fortescue from Harbinger Capital Partners. Executive Director of Operations Graeme Rowley told journalists that Fortescue has been discussing with potential investors for a separate investment proposal.

BHP Approves $1.1 billion for Western Australia Iron Ore Project

BHP Billiton today announced that it had approved expenditures of just over $1.22 billion ($1 billion) to expand its lucrative Western Australian iron ore business as part of a plan to triple iron ore volumes to 300 million tons from the region over the next seven years.

The mining giant said the approval represented expenditure for its Rapid Growth Project 5 (RPG5), one of several expansion phases. RPG5 was set to boost its installed capacity to more than 200 million tons a year (Mtpa) by calendar 2011, with plans to mine 300 Mtpa of iron ore by 2015.

This pre-approval funding will be used to commence duplication of the railway track between the Yandi mine and Port Hedland and begin the expansion of the inner harbor at Port Hedland. Construction of this second railway is expected to begin in May 2008, subject to various government approvals. Approval of the balance of the required capital for RPG5 was expected during the second half of BHP''s financial year.

MFS completes Stella sale

Troubled investment funds manager MFS today announced that it would sell 65% of its Stella tourism arm to CVC Asia Pacific for $409 million in cash.

MFS chairman Andrew Peacock disclosed that MFS would retain a 35% interest in Stella after the deal is completed although it would no longer consolidate about $905 million of Stella debt.

He said proceeds from the deal would be used to repay maturing short-term debt and give it the flexibility to manage its debt commitments.

The shareholder would not need to approve the deal although it was subject to regulatory approvals in Australia and New Zealand. CVC said it expects to obtain regulatory approvals by the end of March.

BlueScope Acquires IMSA

Australia''s largest steelmaker BlueScope Steel has completed the takeover of American based steel maker, IMSA Steel Corp. BlueScope made the acquisition through its North American based subsidiary BlueScope Steel North America Corporation from Ternium SA for $850 million.

It has steel operations in Mexico, Venezuela and Argentina.

BlueScope said the combined businesses would represent approximately 25% of BlueScope Steel''s total revenue with the company expecting to realize synergies of approximately US$40 million per year in the next three years. BlueScope rose 3%.