Rinehart stands tall as year’s top deal maker

‘Everyone makes money in a boom’ and ‘every deal is a winner’ are statements that ought to be consigned to that list of other great lies, such as the ‘cheque is in the mail’ – a point that close observers of the deals of 2005 will have noted.

Among the notable dealings in the search for the best deal of the year are several bloopers of monumental proportions that simply cannot be ignored, even though the people involved are trying desperately to forget them.

So, before we get to the awards section for a job well done, let’s indulge in a few observations about the deals that did least for profits and reputations.

The clear winner in the dud deals section goes to the Multiplex construction group and its infamous Wembley stadium contract where losses have ballooned, may continue to do so, have forced five profit downgrades on the once proud builder, and decimated its share price.

Giving Multiplex a run for its money in the wooden spoon division is the Evans & Tate wine business, which expanded when everyone else was shrinking and is paying a fierce price for going against the trend.

A third place trophy for poor investment decisions goes to the board of WA Newspapers, which bought a half-share in the Hoyts cinema chain and is now wondering why.

There are other disappointing deals that deserve a mention; pSivida and Clinical Cell Culture being two favourites, but they are best left in the pending tray to see whether they can be turned around.

The point about listing the worst first is not simply to be nasty. There is a deeper message that all investors would do well to remember. Booms are a time when an awful lot of money can be lost, as well as made. These are times when people pay too much for assets, underbid for contracts, run out of time to complete their due diligence investigations, and get caught out when normality returns.

But that’s enough of the gloom; what about the winners?

There is one person who stands head and shoulders above the crowd, as long as the deal signed during 2005 is completed as planned – Gina Rinehart. For too long Ms Rinehart has been known simply as the daughter of Lang Hancock. Repeated efforts to find a business partner to help develop her best asset, the Hope Downs iron ore mine, failed until she overcame a deep-seated dislike of Rio Tinto and signed a joint venture, which crystallises (for the first time) the latent value in her iron ore assets, and sets her on track to one day claim the title of Australia’s richest person.

BHP Billiton gets second spot on the best deals list for the coldly calculated way it allowed Xstrata to make all the running in the takeover battle for WMC, and then struck with an offer that was too good to refuse and confirmed BHP Billiton’s status as the world’s premier mining company.

Third is Cleveland Cliffs, the American iron ore miner which quit Australia after playing a leading role in the early stages of the development of the Pilbara, and then returned to snatch control of Portman at what now looks to be a ridiculously cheap price.

Kerry Packer gets a posthumous award for his leading role in the Kolsen syndicate, which snuck up on the titanium and zircon miner, Iluka, securing a 7.25 per cent beachhead on the share register, setting the scene for a future takeover. It is now up to the remaining members of Kolsen, including the comeback kid, Rob de Crespigny, and James Packer to decide whether to proceed with a bid, or take the estimated $25 million profit already on the table and retire gracefully.

Next comes Tony Poli at South Perth-based Aquila Resources for landing the big Brazilian and world’s biggest iron ore miner, CVRD, as a partner in a coal exploration project in Queensland. If all goes to plan, Mr Poli and his fellow shareholders in Aquila stand to either walk away with a big pile of cash, or a huge pile of cash.

Sixth is the someone at Cazaly Resources who lobbed a mining application on the Shovelanna iron ore tenement after Rio Tinto’s paperwork was left in a courier’s van for 10 days and missed a renewal date. The jury is out on whether Cazaly will win the deal because the ‘fat lady’, in the shape of State Development Minister Alan Carpenter, is yet to sing.

Seventh is Heron Resources, for securing Canadian nickel giant, Inco, as a prospective partner in the $1.8 billion Kalgoorlie nickel project – a week after BHP Billiton bought a 16 per cent stake in Heron, effectively setting the scene for excellent valuation appreciation if Heron successfully plays Inco off against BHP.

Oxiana Resources is in eighth place for its $265 million purchase of the Golden Grove base and precious metals mine. This deal cemented the mighty Ox as a multi-mine and multi-metal producer with upside potential from expanded exploration and production, and the temptation for a mining major like Xstrata to make a takeover bid.

In ninth place is Rio Tinto, for convincing the Western Australian government that it would allow the Argyle diamond mine to close unless it got a royalty concession. At a time when all commodity prices are sky high, and Rio Tinto is making obscene profits from everything it produces, the Argyle bluff was a brilliant move that would have won a world series poker game.

Alinta rounds out the top 10 for successfully floating off the $2 billion Alinta Infrastructure business to an eager market. The deal enabled Alinta to book a fat capital profit, keep management rights to the assets, and to be able to peel off a series of fees for managing the same assets it used to own. A brilliant deal for Alinta but one that has Alinta Infrastructure investors wondering what happened.

Of the winning deals two final points must be made. First, most are in the resources sector, which is hardly surprising as the resources boom rumbles on. Second, the Alinta deal is one that should serve as a warning about asset values. While good for Alinta shareholders it is yet to be proven good for shareholders in Alinta Infrastructure, the ultimate irony, of course, being that they are probably the same people; a marvellous example of giving with the left hand and taking with the right.