Search

Takeover speculation pushes market

US share markets have been surprisingly strong recently, ignoring terrorist threats and general international uncertainty. The recent run of the Dow Jones Industrial Index from below 8500 points after Septmeber 11 to a recent close of 9347 points has been generally surprising.

The markets finished the week on a lacklustre note, however, with low volumes and a lack of any firm direction leaving main indices unchanged. The recent fears of chemical terrorism have added to investor caution, giving rise to fears consumers will further curtail expenditure.

The $A has maintained a strong rally recently, reaching US51.57c as takeover activity regarding WMC and a softer $US combined to add an optimistic tone to the Aussie dollar.

Takeover speculation has centred on WMC Limited, with a bid expected from Alcoa in the US for the 40 per cent of the company that it does not already own. This takeover rumour has been in the market for four months, and seems to have gathered momentum recently. The 40 per cent share of AWAC (Alcoa Joint Venture) is valued at approximately $5.4 billion, with the remaining assets worth approximately $4.6 billion.

The share price that this equates to is around $9.50 per share, a lot less than was mooted four months ago. At that time, share price speculation was around $12.50 per share.

The current speculation is that, after Alcoa bids for the share that it doesn’t own, the remaining nickel, copper/uranium and fertiliser operations would be available to the highest bidder. BHP Billiton is the rumoured suitor of Olympic Dam in South Australia, which has achieved record production in the past quarter. It also has significant exploration upside, where further diamond drilling has uncovered several important intersections outside the current ore zones.

Rio Tinto is also rumoured to be running a ruler over the mineral assets that would be left after Alcoa has secured the AWAC joint venture. A bid is expected sooner rather than later, with the federal election a complication for any takeover offer.

Tawana Resources

A small diamond hopeful that is attracting attention is Tawana Resources, a company with strong links to De Beers. Tawana has done some preliminary work on a prospective diamond field on Flinders Island in South Australia and recovered diamonds from some soil sampling. Over the next two months, Tawana Resources will explore for kimberlite bodies on Flinders Island with an extensive drilling program.

At present, Tawana Resources is trading at 85 cents per share and its options are 38 cents per share. This is a very good return from the IPO, where shares were offered at 50 cents with a one for two free option exercisable at 50 cents per share. This represents a return of over 100 per cent from the float price since April this year.

De Beers has a direct interest in Tawana Resources through a shareholding, and also has an option to buy into the Flinders Island prospect. It can exercise an option to buy a 51 per cent interest for approximately $A26 million, which De Beers will have to finance Tawana’s share of future Capex.

If the inground deposit is less than $A1,000,000,000, then 100 per cent of the prospect will stay with Tawana Resources.



Peter Hayes

Investment Manager

Authorised Representative

ABN AMRO Morgans Limited

Phone: 9261 0836; Fax: 9261 0889

US share markets have been surprisingly strong recently, ignoring terrorist threats and general international uncertainty. The recent run of the Dow Jones Industrial Index from below 8500 points after Septmeber 11 to a recent close of 9347 points has been generally surprising.

The markets finished the week on a lacklustre note, however, with low volumes and a lack of any firm direction leaving main indices unchanged. The recent fears of chemical terrorism have added to investor caution, giving rise to fears consumers will further curtail expenditure.

The $A has maintained a strong rally recently, reaching US51.57c as takeover activity regarding WMC and a softer $US combined to add an optimistic tone to the Aussie dollar.

Takeover speculation has centred on WMC Limited, with a bid expected from Alcoa in the US for the 40 per cent of the company that it does not already own. This takeover rumour has been in the market for four months, and seems to have gathered momentum recently. The 40 per cent share of AWAC (Alcoa Joint Venture) is valued at approximately $5.4 billion, with the remaining assets worth approximately $4.6 billion.

The share price that this equates to is around $9.50 per share, a lot less than was mooted four months ago. At that time, share price speculation was around $12.50 per share.

The current speculation is that, after Alcoa bids for the share that it doesn’t own, the remaining nickel, copper/uranium and fertiliser operations would be available to the highest bidder. BHP Billiton is the rumoured suitor of Olympic Dam in South Australia, which has achieved record production in the past quarter. It also has significant exploration upside, where further diamond drilling has uncovered several important intersections outside the current ore zones.

Rio Tinto is also rumoured to be running a ruler over the mineral assets that would be left after Alcoa has secured the AWAC joint venture. A bid is expected sooner rather than later, with the federal election a complication for any takeover offer.

Tawana Resources

A small diamond hopeful that is attracting attention is Tawana Resources, a company with strong links to De Beers. Tawana has done some preliminary work on a prospective diamond field on Flinders Island in South Australia and recovered diamonds from some soil sampling. Over the next two months, Tawana Resources will explore for kimberlite bodies on Flinders Island with an extensive drilling program.

At present, Tawana Resources is trading at 85 cents per share and its options are 38 cents per share. This is a very good return from the IPO, where shares were offered at 50 cents with a one for two free option exercisable at 50 cents per share. This represents a return of over 100 per cent from the float price since April this year.

De Beers has a direct interest in Tawana Resources through a shareholding, and also has an option to buy into the Flinders Island prospect. It can exercise an option to buy a 51 per cent interest for approximately $A26 million, which De Beers will have to finance Tawana’s share of future Capex.

If the inground deposit is less than $A1,000,000,000, then 100 per cent of the prospect will stay with Tawana Resources.



Peter Hayes

Investment Manager

Authorised Representative

ABN AMRO Morgans Limited

Phone: 9261 0836; Fax: 9261 0889

Add your comment

BNIQ sponsored byECU School of Business and Law

Students

6th-Australian Institute of Management WA20,000
7th-Murdoch University16,584
8th-South Regional TAFE10,549
9th-Central Regional TAFE10,000
10th-The University of Notre Dame Australia6,708
47 tertiary education & training providers ranked by total number of students in WA

Number of Employees

BNiQ Disclaimer