Late flurry of deals to $4.16bn help sector shake doldrums

WA’s corporate finance sector is getting back to business as a late flurry of deals get the sector warmed up for better year.

Western Australia’s corporate finance sector is emerging from a sluggish six months with a late rush of deals to bring the quarterly completed transactions to around $4.16 billion, research by WA Business News has found.

The bulk of that, $2.86 billion, was in mergers and acquisitions, although total deals announced and completed for the three months ending March 31 were nearly $7 billion, including Friday’s confirmation of a three-party acquisition of a 30 per cent stake in Hancock Prospecting’s Roy Hill project for $3.53 billion.

By comparison, completed deals in the first quarter of calendar 2011 were $7.61 billion, including $1.45 billion from equity capital markets and $6.16 billion in M&A.

The biggest completed deal for the quarter (see Corporate Finance) was Minmetals Resources’ takeover of Perth-based Anvil Mining for $1.3 billion.

After that was the long-awaited $554 million sale of the Oswal family’s 65 per cent interest in Burrup Holdings, which controlled Burrup Fertilisers. Existing partner Yara International took 16 per cent and gas supplier Apache Corporation bought 49 per cent. 

The Oswals had been a high-flying Perth couple but fled back to India in late 2010 after Burrup Holdings was placed in receivership.

On the ECM front, the biggest deal of the quarter was a $68 million placement and share purchase plan for Rialto Energy lead by Euroz and RBC Capital.

Only three other deals were at or above $50 million: a $60 million entitlement offer by Emu Nickel run by Patersons; a $50 million placement and share purchase plan for Straits Resources led by Euroz; and Galaxy Resources’ $50 million capital raising to fund its more than $100 million purchase of Canada’s Lithium One. Galaxy was being advised by Azure Capital and Paradigm Capital.

Corporate advisers that discussed the recent quarter with WA Business News (see Tough markets offer some opportunity) said that the last two months of calendar 2011 had been difficult.

“It is certainly a better year,” GMP Australia managing director Karl Paganin said.

“We think in the first quarter the ASX has been as strong as it has been for five or six quarters.

“Offshore markets are stronger; our London and Canadian guys are very strong particularly on some of the general thematics, first it was African mining, then some of the unconventional stuff, mining services is pretty strong.”

Patersons Securities head of corporate finance Aaron Constantine said investors were becoming optimistic about government responses to the challenges of the GFC, except, perhaps, Australia’s.

“People have worked out that the sun rises and sets and people are doing things about it, in fact, the only government that seems to not be doing anything about it is our own,” Mr Constantine said.

The figures from WA Business News research, particularly in ECM, suggest that while advisers may have already been feeling the impact of a tightening market in their deal pipelines, what was completed in the period was far from a disaster.

Around $5.4 billion of M&A deals were completed during the last quarter of calendar 2011, about 13 per cent of the $40.53 billion in disclosed and completed transactions for the year.

And, more positively, about $3.42 billion in ECM deals were completed between October 1 and December 31, a nearly 40 per cent slice of the $8.91 billion in total 2011 completed deals which had their value disclosed.

The IPO market this quarter started similarly for the first two months, with just 14 companies Australia-wide listed on the ASX, down from 29 in the same period a year earlier.

The most buoyant periods for ASX listings and other IPOs last year were in April and May and, to a lesser extent, in August.

The lack of demand from investors for new stocks was highlighted in early March when two associated companies were forced to withdraw plans to list on the ASX.

Lugansk Gold and Melrose Gold Mines, both subsidiaries of Perth-based Korab Resources, advised the market they would no longer be seeking their planned admission to the bourse.

“Due to volatile domestic and global market conditions … the boards of both Melrose and Lugansk have independently determined they will not be able to obtain admission to the ASX,” Korab said in a statement.

“In 2011, IPO activity was at its lowest level since 2001, and there have been no signs of improvement to date in 2012.”

Views from Perth’s corporate advisers that suggest the past month came alive have also been given credence by a flourish of recent deals, some of which were announced this week, in the second quarter, showing the underlying demand has been building for a few weeks, at least.

This week, for instance, Aquila Resources announced it had sold its 50 per cent stake in the Isaac Plains coal mine in Queensland’s Bowen Basin to Japan’s Sumitomo Corporation for $430 million, giving it the cash it needs to progress with the development of its West Pilbara iron ore project.

Macquarie Capital is advising Sumitomo.

Furthermore, Ampella Mining shares bounced off two-year lows this week, after the Africa-focused gold miner, which is also being advised by Macquarie Capital, announced it had commenced a targeted sales process.

Also on the same day, Fortescue Metals Group founder Andrew Forrest said he would underwrite a $20 million capital raising to help fund development of Poseidon Nickel’s Windarra project near Laverton.

In another Tuesday announcement, Reed Resources revealed a fully underwritten $40 million capital raising to fund development of its Meekatharra gold project.

And, while not a WA-linked transaction, on the same day Chinese gold company Zijin Mining made a takeover offer for the 83 per cent of Norton Goldfields it does not already own, valuing the Brisbane-based miner at $229 million.

At the top end of the ECM space Euroz and Patersons took out the biggest deals, while the next level included a smattering of local players such as Azure, Hartleys and Argonaut and some operating outside the state such as North American-based Casimir Capital, UK-based Mirabaud Securities and Sydney-based Petra Capital.

In volume terms, Patersons clearly dominated the list of ECM transactions for the quarter of $5 million or above, followed by Azure.

Less detail was available for who could claim any titles as a leading M&A adviser for the quarter. Azure was named in connected with three deals but two were live and one did not complete.