Rio Doubles Ore Prices, BHP Raises Reserves

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

Australian stocks edged higher after Rio Tinto and Chinese and Japanese steel companies agreed to a price hike of 100% for iron ore shipments. Separately, BHP increased its estimate of mineral reserves in Western Australia. Perilya rejects merger proposal with CBH after the company revised its estimate at Broken Hill mine and lack of support from note holders.

[R]3:00AM New York, 7:00PM Sydney – BHP increases estimate of its mineral reserves in Western Australia. Chinese and Japanese steel companies agree to nearly 100% price increase with Rio Tinto.

Market Sentiments

ASX 200 index gained 0.1% or 4.6 to close at 5,283.70. The preliminary market turnover was 1.90 billion shares worth $6.41 billion, with 491 stocks rising, 813 falling and 389 unchanged. The most traded stock was Empire Oil & Gas, with 61.32 million shares worth $1.36 million.

Market Driver

BHP Billiton has approved stage one development of the Maruwai metallurgical coal basin in Indonesia for a capital investment of approximately $100 million.

In a statement today, the mining giant said the initial development project is the Haju open cut mine, along with an associated river port, with construction expected to start immediately, with first production expected in mid-2009.

The Haju mine that is 100% owned by BHP, is a small coal deposit within the Maruwai basin that will initially produce approximately 1 million tons per annum of metallurgical coal, with expansion potential to approximately 2 mtpa.

BHP also announced increases in mineral resources and ore reserves at its different mines with Western Australia iron ore recording a 46% increase in the mineral resource and a 23% increase in the ore reserves.

Mineral resource at Samarco Mineracao was up 11% and ore reserve rose to 30%. Mineral resource at Samancor Manganese was up 82%.

BHP share closed up 2.9% and Rio Tinto closed higher 3% after concluding an agreement with Baosteel for price increase up to 96.50% for iron ore shipment. Rio Tinto hopes to increase iron ore production between 320 million and 420 million tons per annum from its current 220 million tons per annum.

Gainers and losers

Of the ASX 200 index stocks, Papaerlinx Ltd led the gainers with a rise of 10.6% followed by increases in Fortescue Metals of 9.1%, in Brambles Ltd of 9%, in Paladin Energy L of 8.8% and in Sundance Resource of 7.5%.

Of the ASX 200 index stocks, Allco Finance Group led the decliners with a fall of 10.3% followed by losses in Transurban Group of 9%, in Valad Property of 8.9%, in Connecteast Group of 8.4% and in Babcock & Brown of 8.3%.

BG engages Origin shareholders

British gas company BG Group has taken its $13.8 billion bid for Australia''s Origin Energy Ltd directly to shareholders after Origin management rejected its offer a month ago. The Group''s bid values Origin Energy Limited at A$15.50 cash per share and the offer price represents a 48% premium to Origin''s closing price of $10.47 on 29 April 2008.

BG Group Chief Executive Frank Chapman said: ""Origin has good retail, power generation and exploration and production businesses. BG Group has performed a thorough and balanced assessment of Origin''s prospects and is offering an all-cash 72% premium to the 90-day VWAP to the date immediately prior to the announcement of our initial proposal.""

The board rejected BG''s bid of $15.50 on May 30, citing the increased value of its reserves after rival Santos struck a deal with Malaysia based Petronas that valued the CSG gas reserve at as much as 100% higher the valuation offered by BG.

BG is seeking to gain access to Origin''s gas resources in eastern Australia, which may feed a proposed liquefied natural gas project supplying utilities in northern Asia.

Origin share was up 5.8%.

Perilya''s board rejects merger with CBH

The Perilya Board today rejected its $207 million merger with CBH as inadequate due to a number of material changes to the parties'' respective operations and to market conditions since the announcement of the impending merger on March 26.

These included recently announced major changes to CBH''s Endeavor mine and Rasp project. Perilya said it had limited opportunity to properly evaluate the changes and form a view as to the value impact or associated risks of the planned changes.

In addition Perilya said it was also concerned by the erosion of the anticipated short term merger benefits as a result of further technical evaluation of the Rasp project, the decline in commodity prices, and anticipated delays to CBH''s Rasp project approvals.

Perilya also indicated the lack of support from some CBH noteholders seeking improved terms and delays to CBH''s independent experts report and further delays anticipated to major changes to CBH''s operations.

Perilya said its latest exploration results from Mount Oxide copper project and new resources in the Pinnacles region, together with the sustained improvement in operating performance of the Broken Hill mine, has enhanced the value of its assets.

""Lead and zinc prices have fallen 36% and 19% in AUD terms respectively changing the relative valuations of both company''s NSW operations, particularly with respect to the approximately $80 million in the money market position of Perilya''s hedge book, which means it is better placed to weather a low commodity price cycle than CBH, which is relatively unhedged,"" Perilya said.

The proposed merger announced on 26 March 2008 of one Perilya share for every three CBH shares plus options, and one Perilya note for every CBH note, is required to be completed by 25 August 2008. Perilya said it does not intend to extend the timetable for the merger offer.

Perilya''s share fell 2.8%.

Macarthur Coal concludes discussion with ArcelorMittal

Macarthur Coal today announcement that it has concluded its discussions with ArcelorMittal even though there is no formal offer from the steel giant.

Macarthur Coal Chairman, Keith De Lacy said, ""It remains an exciting time for the coal industry globally, with a strong positive outlook. We welcome ArcelorMittal as a substantial shareholder and look forward to continuing our long-term relationship with them as a major customer.”

ArcelorMittal already holds a 14.9% stake, which it acquired on May 21 for $631 million from Macarthur''s largest shareholder and board member Ken Talbot who has since resigned from the board.

Asian Markets Review

In Tokyo Nikkei 225 Index closed lower 7.91 or 0.06% to 13,849.56, in Hong Kong Hang Seng index decreased 258.94 or 1.14% closed to 22,456.02. In Australia ASX 200 index higher 6.30 or 0.12% to close 5,290.00. In Malaysia KL Composite index increased 4.87 or 0.41% closed to 1,200.28.

In South Korea Kospi Index decreased 4.75 or 0.28% to close at 1,710.84, in Thailand SET index closed lower 5.15 or 0.67% to 763.75 and Indonesia JSE Index edged increased 2.63 or 0.11% to 2,365.38. Sensex index in India decreased 186.74 or 1.31% to 14,106.58.