Mining giants hover

CASHED-UP international resource giants are circling WA’s vulnerable resource sector.

Declining commodity prices and this year’s fervour have reduced the stock prices of resource companies.

The low value of the Australian dollar has contributed to the appeal of local companies and demand for resources will continue to increase as Asian economies recover from the region’s money market crash.

UK mining conglomerate Rio Tinto is poised to take over North Limited in a $3.5 billion deal, having fended off rival South African bidder Anglo American.

De Beers’ $522 million hostile takeover bid for Ashton Mining Limited has not only come at an opportune time for the South African predator, but also sounds another ‘wake up call’ for the gemstone mining industry in Australia.

According to industrial sources, mining predators are looking for well-established money-spinners.

Ashton’s 38.2 per cent share in the Argyle Diamond mine fits this criteria very well.

Ashton Mining has been in a cozy relationship with mining giant Rio Tinto (56.8 per cent) in the Argyle operation, where mining reserves have increased to 22.1 million tonnes at an average grade of 2.9 carats per tonne. At current mining and processing rates this has extended the mine life to 2006.

Argyle has launched a program to deepen the open pit, with a very good expansion program in place to access ‘significant’ resources.

The evaluation of this prize can be measured against recent sales.

In October 1997, Argyle Diamonds reported record prices per carat for a parcel of 59 stones totalling 58.64 carats of fancy intense purplish-red and pink diamonds sold by tender at different viewings, from Hong Kong to Sydney and Geneva.

The value of De Beer’s diamond sighting has improved some 44 per cent, with forecast sales upgraded by analysts to US$5.6 billion.

For De Beers, the bid will also solve the problem of Argyle selling a huge volume of diamonds outside the De Beers-controlled Central Selling Organisation and will discourage other miscreants.

Another advantage to De Beers is Rio Tinto being embroiled in its own takeover of North Limited, which it looks to have won after upping the offer to $4.75 per share.

Consider the ramifications of De Beers holding 35.4 per cent of Anglo American and the latter holding 32.3 per cent of De Beers.

Additionally, the 19.9 per cent stake De Beers picked up from Malaysian Mining comes at a time when the Asian company was looking to off load its Australian diamond assets to move into other Asian business.

Analysts believe the bid is a major change in strategy for De Beers.

This year diamond sales by De Beers will exceed $5.7 billion.

Ashton has rejected the takeover bid and launched its own defence through Sydney-based stockbrokers, who remain tight-lipped about their defence program.

n See also Briefcase, page 36

Rise a cruel blow for small business

SEVERAL small businesses face devastation following the Reserve Bank’s official cash rate rise of 0.25 per cent last week.

The industry has been rocked by the latest rise and the likelihood of another increase next month.

Combined Small Business Associations of WA president Oliver Moon said the rate rise would be particularly hard for micro-businesses.

“Many micro-business operators have mortgaged their homes to finance their businesses,” Mr Moon said.

The latest interest rate rise is another setback for the building industry, suffering from a post-GST slump.

This also affects small business because the majority of sub-contractors employed in the building industry are small traders.

In the past nine months Australia’s official interest rate has risen 1.25 per cent.

Another rate rise is expected in September with the GST tipped to push inflation up to 6.5 per cent. Banks have also raised interest rates to cover their GST costs.

Since the interest rate started rising in November, small businesses have faced considerable outlays to deal with Y2K and the GST.

Small Business Development Corporation managing director George Etrelezis said the timing of rate rise was “confusing”.

“I thought the Reserve Bank could have let this one go through to the keeper and had another look in September,” Mr Etrelezis said.

“The Reserve Bank has had no thought for small business at all.”

Chamber of Commerce and Industry economist Nicky Cusworth said the Reserve Bank’s attempt to stop inflation could also kill economic growth.

The Reserve Bank’s rationale for the rate rise was an increase in the underlying rate of inflation.

It cited rising wages, business costs and consumer credit as other factors that contributed to the increase.

The costs are supposed to be exclusive of GST effects and fuel cost rises.

“The problem is the GST and fuel price have affected business so much that it is hard to pick whether the underlying inflation rises are real or not,” Ms Cusworth said.

“We recognise the need for monetary policy. We just don’t like the way it is being managed.”

Mr Etrelezis said small businesses were going to be hit with a “cash crunch”.

“July has been very quiet,” he said.

“Small businesses have to deal with the GST effects on the marketplace and they are already one month behind in turnover.”

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