Mining, takeovers lead major deals

The late Lang Hancock was usually described as a mining magnate but the great frustration in his life was that he never developed his own mine.

His daughter Gina Rinehart looks to have changed that, after her company Hancock Prospecting secured a deal with Rio Tinto to jointly develop the giant Hope Downs iron ore deposit in the Pilbara.

The Rio deal, announced in July, was the culmination of an epic saga that involved disputes with previous joint venture partners and negotiations with other prospective partners, including Japanese company Mitsubishi and Consolidated Minerals.

The final deal, which takes advantage of Rio’s existing infra-structure and operational expertise, provides a high degree of confidence that the $2 billion Hope Downs development will finally proceed.

Construction is scheduled to begin early this year with the first shipment expected in early 2008.

The Hope Downs project also opens up potential for other nearby ore bodies to be developed at a later time.

KPMG, which advised Hancock Prospecting over the past three years, said the sale process was highly complex and attracted interest from numerous mining and banking groups.

“It was a transaction that attracted global attention,” KPMG Corporate Finance director Peter Dawson said.

“We had banks from right around the world coming to Perth to look at this transaction.”

The standout takeover deal of 2005 was the break-up of Foodland Associated, which ended up being one of the most complex deals ever completed in Australia.

The long-running takeover battle started in December 2004 when Metcash announced a highly conditional bid. The saga actually started before then, when Foodland commenced putting together its own plans to bid for Metcash.

Rather than succumbing to Metcash’s initial proposal, Foodland held out for a better deal, which arrived in the form of Woolworths’ bid for its New Zealand assets and selected Australian stores.

ABN Amro corporate adviser Simon Perrett is credited with playing a key role in the final $3.3 billion deal, which was put together despite frosty relations between the companies involved.

The complexity of the final deal discourages most people from passing judgement.

Former Foodland chairman Len Bleasel, in his departing statement last November, summed up the outcome this way: “The board is pleased that at the end of a long and complex process, shareholders have been provided with an increase in the value of their shares of more than 50 per cent compared to when the first takeover offer was announced”.

Another landmark takeover in 2005 was US company Cleveland-Cliffs’ acquisition of mid-tier iron ore miner Portman.

Cleveland-Cliffs launched its bid last January and immediately secured the backing of Portman’s board, which said shareholders should accept the $3.40 per share offer.

Portman chairman George Jones later changed his recommendation, after last year’s massive 70 per cent hike in iron ore prices, but Cleveland-Cliffs was still able to win control after lifting its bid price to $3.85 per share, well below the current price of $4.80.

Cleveland-Cliffs failed to reach the 90 per cent shareholding level, which would have triggered compulsory acquisition of minority shareholders.

Normally this would be seen as a failure but in the Portman case it was a mixed blessing.

While Cleveland-Cliffs is stuck with minority shareholders, it avoided an estimated $36 million stamp duty bill under the state government’s new rules for ‘land rich’ companies.

Another notable transaction in the iron ore sector was Cazaly Resources’ snaring of the Shovelanna deposit after Rio Tinto, Hancock Prospecting and Wright Prospecting let their exploration licence lapse.

Cazaly has been smart enough to follow its initial move by getting some serious backers to help it make the most of this opportunity; investment bank Argonaut and law firm Hunt & Humphrey are providing advice, Echelon Resources has agreed to fund initial exploration, a letter of intent has been signed with Investec for project financing, and a sales agreement with BHP Billiton has been negotiated.

The whole venture may come to nought, if State Development Minister Alan Carpenter refuses Cazaly’s licence application, but the local firm deserves plaudits for having a go.

Bob Browning’s Alinta has featured in every Deal of the Year report and 2005 is no exception.

Its main transaction in 2005 was the $925 million spin-out of Alinta Infrastructure Holdings.

In constructing this deal, Alinta put into practice a lot of the lessons it would have learnt from its long-time corporate adviser, Macquarie Bank. The deal featured a lot of the savvy financial engineering that is the hallmark of many Macquarie transactions.

Alinta obtained a big capital gain from the sale of its Duke Energy assets while still retaining the right to manage the assets now owned by the spin-off company.

Investors in Alinta Infrastructure are currently sitting on a small capital loss but can still look forward to the steady yield on which the stock was promoted.

A much smaller IPO this year was Little World Beverages, which raised $21.5 million to support the development of its Little Creatures brewing business.

The IPO attracted top backing, with Macquarie Bank and Azure Capital acting as joint managers.

With backing from anchor shareholder Lion Nathan, the IPO was a success and the shares are trading at a healthy 25 per cent premium.

More fundamentally, the float highlighted the value created by Howard Cearns (who holds five million shares worth $6.25 million), Phil Sexton, Nic Trimboli and their partners, who started Little Creatures from scratch in 2000.

Nickel didn’t generate the same excitement last year as a raft of other commodities, such as iron ore, uranium, and oil.

That makes Heron Resources’ deal with Canadian nickel giant Inco, to back its Kalgoorlie nickel project, all the more impressive.

Heron boss Ian Buckhorn spent many years putting together his nickel prospects and watched other laterite nickel producers, including Anaconda Nickel (now Minara Resources) and Preston Resources, run into major technical and financial problems.

His patience and diligence paid off when Inco came to the party, investing in Heron and agreeing to spend $90 million on feasibility studies to earn a 60 per cent interest in the $1.4 billion project.

In the property sector, there has been long-running speculation about where Perth’s next big office tower would be developed.

Despite all this talk, Ralph Sarich’s Cape Bouvard proceeded with the $15 million Allendale II office development and was rewarded this year by getting Alinta to sign a long-term lease for the whole building.

It was a gutsy move and rates as one of the smarter property plays of recent years (see page 9).

In terms of trade sales, a standout deal last year was the sale of Guildford-based Allied Equipment.

Allied is a business that most people would never have heard of, yet it was sold last July for a very tidy $127.5 million.

Established in 1987, Allied is a major supplier of heavy earthmoving equipment to mining companies, contract miners and civil contractors.

The vendors, David Edwards and Peter Kirkham, had increased annual revenue to $60 million, from equipment hire and sales of second-hand equipment.

The purchaser, Coates Hire, saw the acquisition as a good way of diversifying its business and lifting its exposure to the fast growing mining industry.

A review of 2005 would not be complete without mention of Michael Kiernan, who moved the value of shares more than most people could ever dream of doing.

Highly regarded for reviving Consolidated Minerals, he plans to leave the company after institutions objected to a new pay package put forward by the board.

The controversy led to the value of ConsMins being slashed by more than $200 million

Mr Kiernan’s plan to leave ConsMins, after it finds a new chief executive, put a rocket under the share price of small explorer Monarch Resources, where he is chairman.

Monarch’s share price has doubled since October to more than 40 cents, helped by Mr Kiernan’s intention to take a more active role and its current merger with Andrew Forrest’s Siberia Mining Corporation.