Global meltdown starting to bite

THE roll call of Western Australian businesses directly affected by the global credit crunch grew suddenly during the past week, with several listed companies changing their plans in response to the meltdown on Wall Street.

Listed companies in two key sectors, financial services and mining, have been directly and heavily affected by the financial crisis.

The problems arise as private businesses report they are being very cautious as they wait to see how the dramas emanating from New York play out across the world stage.

Among the listed miners Territory Resources Ltd, Poseidon Nickel Ltd and Newland Resources Ltd all made announcements last week that revealed the credit crunch and related market falls had impacted heavily on their strategies.

Newland scrapped plans to buy stakes in two companies that hold iron ore and petroleum projects.

Perth-based Newland said that, after consideration of the commitment to the projects and the current market turmoil, it decided not to proceed with the 50 per cent purchase of shares in Zeus Petroleum Ltd and a 26 per cent interest in South American Ferro Metals Ltd.

"The board wishes to make clear that it considers both these assets to be very worthy assets with plenty of future potential, but feel they carry with them commitments more than the board feels comfortable with at this time and in the current market climate,'' the company said in a statement.

The global financial turmoil forced the Andrew Forrest-chaired Poseidon Nickel Ltd to suspend mining activities at its Mt Windarra underground mine in the Goldfields.

The company said it believed the suspension is the "most sensible" course of action and would ensure the optimum use of its cash reserve with development studies to continue at the project.

In reporting a full-year net loss of $48.5 million, iron ore miner Territory Resources said more than $40 million of that was attributed to asset impairments and investments in collapsed Monarch Gold Mining Company Ltd and Matilda Minerals Ltd.

Much of that had occurred over the course of 2008, as the current credit crunch gathered steam, according to Territory chairman Andrew Simpson.

"It is the result of a divestment strategy that, for a number of reasons, was not successful and therefore the company's strategic stakes have been affected - as have all other share investors - by a significantly weakened share market since the beginning of the year," Mr Simpson said in a statement.

Companies such as Anvil Mining Ltd, Strike Resources Ltd, and Moly Mines Ltd have all reported problems with raising capital for their projects, while base metal miners have been affected by lower metals prices.

Perth-based Perilya Ltd slashed 440 jobs at its Broken Hill operations earlier this year and Oz Minerals has downgraded zinc production at its Golden Grove mine in WA.

On the new listings front, Aluminex Resources Ltd and Base Iron Ltd have both lowered their fund raising targets due to challenging financial conditions.

In financial services, the biggest speculation surrounds BankWest, whose UK parent HBOS was one of the earliest victims of the crisis. HBOS was to have been bought by UK giant Lloyds TSB but there are questions about that deal proceeding.

Commonwealth Bank announced this week that it was in exclusive negotiations with HBOS to acquire BankWest, which could lead to job losses in WA.

At a much smaller level, Homeloans Ltd revealed it was discussing the future financing of its $600 million RMT warehouse asset.

Homeloans interim managing director Tim Holmes said the worse case scenario was the potential loss of future income streams from that business, about 10 per cent of its total loans under management.

"...in relation to the future maturity of the facility, however, a high level of uncertainty still remains in the current market", the company said in its annual report.

Export businesses were wary of the global troubles but most that discussed the issue with WA Business News said it was yet to affect them directly.

Margaret River Premium Meat Exports director John McLeod said the US had only recently become a new export destination for his Waygu beef, making it difficult to gauge precisely what impact the credit crisis was having on business.

"While we haven't seen a drop-off in sales or demand yet I'm being very, very cautious and seeing how it goes," Mr McLeod said.

"One of the other things we're doing is exporting our product to the US and this is our high-value cuts again, ranging from $40-70/kilo, and we've done those contracts in US dollars so we got a big gain on that side of it.