RBA Holds Rates; Macarthur Talks Merger

123jump.com Staff
17 Jun, 2008
New York City

The Australian Reserve Bank board today left its key cash rate unchanged at 7.25%. The board members noted that most economic indicators in the past month continued to suggest moderation in the growth of domestic demand. The board anticipats economic growth to slow in months to come. Allco Group surged after it arranged a sale of its wind power subsidiary in California. Macarthur Coal and ArcelorMittal continue their merger talks.

[R]3:00AM New York, 7:00PM Sydney – The ASX 200 index increased 0.1% led by energy and coal miners. Allco Finance surged on sale of its wind power subsidiary.

Market Sentiments

ASX 200 index gained 0.1% or 51 to close at 5,422.70. The preliminary market turnover was 1.88 billion, worth $6.66 billion, with 590 stocks up, 642 stocks down and 369 unchanged. The most traded stock was Empire Oil & Gas with 82.1 million shares worth $2.1 million.

Market Driver

Allco Finance Group and a consortium comprising the US-based ArcLight Capital Partners and Terra-Gen Power today agreed to the sale of Allco''s and its co-investors'' US wind energy interests for a total sale price of US$325 million.

Allco said in a statement that the interests being sold comprise a circa 3100MW wind development project in Tehachapi, California, one of the largest wind development projects in the world.

Allco said it would in conjunction with its co-investment partners realise significant liquidity and profitability from the sale which was part of a previously announced asset sales program.

Allco''s after tax share of sale proceeds is expected to be approximately $165 million, which it will use to further pay down its senior debt facilities with its banking syndicate. In addition, on closing of the sale, Allco will be released from certain letter of credit obligations of $65 million.

Allco''s corporate senior debt and contingent commitments are expected to be reduced by approximately $230 million in total as a result of the sale, based on current exchange rates.

Allco, which is facing a June 30 debt deadline, said its current drawn borrowings and contingent commitments under its senior debt facilities was $935 million and as result of the Tehachapi sale and other asset sales, it would be targeting a senior debt level of $675 million by 31 July 2008.

The Tehachapi wind development project is the largest single wind development in the US under one entity. Allco share rose 86.2%.

Gainers and losers

Of the ASX 200 index stocks, Allco Finance led the gainers with a rise of 86.2% followed by increases in Babcock & Brown of 16.4%, in Felix Resources of 13.6%, in Babcock & Brown of 13% and in St Barbara Ltd of 10.5%.

Of the ASX 200 index stocks, Asciano Group led the decliners with a fall of 6.7% followed by losses in Centro Properties of 6.6%, in Energy Res Australia of 5.8%, in Platinum Asset of 5.7% and in Minara Resources of 5.4%.

Australia''s Reserve Bank to leave rates unchanged

The Australian Reserve Bank board today left its key cash rate unchanged at 7.25%. The board members noted that most economic indicators in the past month continued to suggest moderation in the growth of domestic demand.

These included flat retail sales, declining household and commercial loan approvals, lower growth in housing and business credit, and subdued business and consumer confidence. Asset markets were also less buoyant than previously. Labour market conditions, on the other hand, had remained strong to date. This could be explained by lags, in which case a moderation in employment growth could be expected soon.

Members agreed that economic slow-down trend to continue. In discussing the outlook, they noted that there remained considerable uncertainty in the forecasts for demand and inflation, as there were strongly opposing forces operating on the economy.

While financial conditions were working to moderate demand, the rise in Australia''s terms of trade would work in the opposite direction, and would add substantially to national income and ability to spend.

The members of the interest rate review committee noted, “There was also a high degree of uncertainty about the international economic outlook, in particular the extent of the slowdown that was occurring in the developed economies. Conditions in international financial markets, though gradually improving, also remained difficult.”

The committee anticipates a moderation in economic activity and said, ""On balance, the Board''s assessment continued to be that, on current policy settings, the necessary moderation in demand growth was likely to occur.

They concluded that it was therefore appropriate to maintain the current setting of monetary policy for the time being.

The decision helped boost the performance of financial stocks. ANZ added 1.8%, National Australia Bank gained 1.5%, Westpac was up 0.3% and Commonwealth Bank shed 1.3%.

Orica approves $586 million investment in Indonesia

Explosives, chemicals and paint maker, Orica Limited today indicated that it has approved the establishment of a 300,000 tons per annum ammonium nitrate plant in Bontang, East Kalimantan, Indonesia.

The company said in a statement the estimated capital cost of the investment was likely to be approximately $585.85 million. ""The establishment of the plant complements Orica''s existing strong market position as well as enabling Orica to participate in, and support the further growth of, the Indonesian mining industry,"" Orica said.

Orica would undertake the project through its joint venture company, PT Kaltim Nitrate Indonesia. A spokesman for the company said it had already done much of the pre-engineering work.

Orica share rose 0.7%.

Macarthur Coal –ArcelorMittal talks continuing

The supplier of more than a third of the world''s pulverised coal, Macarthur Coal today advised that the discussions with steel maker, ArcelorMittal were continuing. ArcelorMittal recently acquired a 14.9% stake in the company.

ArcelorMittal last month followed up the acquisition when it approached Macarthur in respect of another potential transaction. Macarthur Coal was responding to an article in today''s ''Street Talk'' in the Australian Financial Review that it said incorrectly states that CITIC holds 19.9% stake in Macarthur Coal.

""The correct percentage holding of CITIC is 17.7%. The board continues to advise shareholders that they should have no regard to media speculation or any other uninformed comment,"" the company said.

Macarthur shares rose 3%.

CBH to engage in major restructuring

Australian zinc miner CBH Resources Ltd said on Tuesday it is undertaking major corporate and operational restructuring to insulate the company against the recent decline in metals prices.
The company said the initiatives included the completion of a major capital investment program at Endeavor and Rasp mines in New South Wales and significant workforce reductions.

""The restructuring program is unrelated to the proposed merger with Perilya Limited and we expect to update shareholders shortly on progress with the merger arrangements,"" the company said.


The company said extensive capital works program undertaken at Endeavor over the past 12 months were nearing completion and that over $90 million had been spent on projects during 2007/08.

The company also announced that it would be offloading 220 employees, or 37% of the workforce, at is Endeavor lode in eastern Australia where it has spent more than $90 million on improvements.

Production at Endeavour is expected to increase in the next year to 1.3 million tonnes from 1.05 million this year, the company said. CBH shares rose 12% and Perilya gained 7.7%.

Qantas announces additional capacity and network changes

Qantas Group today announced additional capacity and network changes, focusing on QantasLink''s regional operations in New South Wales and Victoria.

Chief Executive Officer Geoff Dixon said the changes included the accelerated retirement of QantasLink''s six remaining Dash 8-100 36-seat aircraft by August 2008, the closure of QantasLink''s Mildura maintenance base on 15 August 2008 and the suspension of loss-making Melbourne-Wollongong route from 18 July 2008.

In addition the company was planning a permanent withdrawal from previously suspended QantasLink services between Newcastle and both Melbourne and Sydney. Mr Dixon said the retirement of the older Dash 8-100 series aircraft would result in the closure of the maintenance base in Mildura.

""We will work closely with the affected staff in Mildura to minimise redundancies by offering alternative job opportunities at other QantasLink locations,"" he said.

Mr Dixon said the Melbourne-Wollongong services had been underperforming for some time, and record fuel prices now made it difficult for QantasLink to continue to operate the older Dash 8 aircraft on the route.

In the case of Newcastle, the Group said it would remain the largest operator through Jetstar''s 56 services a week to and from Melbourne, Brisbane and the Gold Coast. QantasLink''s affiliate partner, Aeropelican, also currently offers up to eight services a day between Sydney and Newcastle.

Meanwhile the Australian Workers Union has fired a broadside at Qantas accusing the airline of using rising oil prices as an excuse to cut regional jobs and services.

Qantas shares shed 3% and Virgin Blue was up 0.9%.

Record coal prices prop up trade in coal mining companies'' shares

Record coal prices pushed up trade in shares of coal companies on the exchange today with Felix resource leading the other coal miners.

The price of thermal coal used in power stations, at Australia''s Newcastle port rose 1.1 percent to $160.23 a metric ton last week. The company''s shares rose by 14% propelling it to poll position ahead of the exchange''s top performers. Centennial Coal Company also weighed in with a good performance when its share rose by 9.4%.

Centennial today expressed confidence that high coal prices would hold and scale higher as it works to complete coal-export contracts for 2009.

Antam-Zhongjin raises bid for Herald Resource

The rival Chinese and Indonesian consortium Antam-Zhongjin today announced an improved bid for Herald Resource to match Bumi''s $2.80 per share offer. Its two-tiered $2.60-$2.65 a share offer was due to close Tuesday but has been extended for a month.

Herald''s board is yet to respond to the new offer. It has recommended Bumi''s $2.80 per share offer. Antam-Zhongjin already holds a 19.29% stake in the target while Bumi holds a 19.86% interest.

Bumi was forced to revise its offer two occasions and extended it seven times since December 12 when it launched its original $2.25 per share offer.

Both rivals are seeking to gain control of Herald''s key asset, the $233.92 million Dairi zinc-lead project in north Sumatra, which is 20% owned by Antam-Zhongjin.

Herald share rose 1%.