It's A Fair Copper ... But Better Watch Its Back

Sydney Morning Herald

Wednesday April 16, 2008

Edited by Matt O'Sullivan

CopperCo's pitch for Minsec looks an all-round steal of a deal.

EVERYONE'S taking a hit in this market.

Looking at KPMG's independent expert valuation of takeover target Mineral Securities, you'd think the friendly suitor, CopperCo, was stealing the company right from under the nose of its high-profile chairman, Robert Champion de Crespigny.

CopperCo's 2.2-for-1 share offer was worth about $1.06 yesterday, compared with KPMG's valuation of MinSec of between $2.05 and $3.01. Not surprisingly, the deal was deemed "fair and reasonable" to CopperCo shareholders.

But an equally big steal might be CopperCo shares, which have been severely punished during the recent market downturn despite a strong operational performance at its Lady Annie mine and a buoyant copper price.

A Citigroup analyst, Jonathan Battershill, a fan of the MinSec deal, recently "strongly" reiterated his buy call on the miner with a $1.20 target price.

The company has raised $30 million to fund an expansion that will see Lady Annie producing 30,000 tonnes a year, up from 19,000 tonnes a year.

CopperCo shares closed 1c higher at 48.5c yesterday, having lost about 65 per cent of their value in the recent market rout.

CopperCo's managing director, Brian Rear, said the weak market environment had reinforced his company's view about the importance of buying MinSec, since the enlarged company would have a bigger presence in the equity market.

"Fundamentally CopperCo is probably worth around $1 to $1.30 and MinSec around $2 to $3."

CopperCo is particularly keen on MinSec's 18 per cent stake in South African platinum play Platmin. Rear said CopperCo would like to add to the position. And despite the low value of CopperCo's offer compared with the KPMG valuation, MinSec's managing director, Keith Liddell - also CopperCo chairman - is happy with the deal.

"We've got a big disconnect between asset values and market values," he said. "The whole market has. We are happy with the ratio. It is really that ratio that is the important thing. The benefits that accrue to MinSec shareholders are as strong as they were a few months ago."

De Crespigny, the respected founder of Normandy Mines, is set to chair the combined CopperCo/MinSec after the completion of the deal.

The not-so-good oil

The boss of Caltex, Des King, just isn't having a good year.

After suffering unplanned disruptions at its Kurnell refinery earlier this year, Caltex said yesterday that urgent maintenance at a major diesel processing plant at its Lytton refinery near Brisbane was causing a fuel shortage in south-east Queensland.

The problems are forcing the country's largest petrol company to truck and ship diesel from NSW and overseas to meet Queensland's demand. It doesn't expect diesel supplies to return to normal until the end of the month.

Investors have warmed to the stock a little in recent weeks, but Caltex's latest woes will give them some indigestion less than two months after the company slashed its dividend.

It also warned in February that as much as $50 million would be shaved from its pre-tax earnings this year due to unexpected disruptions at its Sydney and Brisbane refineries.

The oil company also changed its tune when it talked of increased uncertainty about refiner margins, largely because of a slowdown in the US economy.

Shares in Caltex fell 4 per cent, or 55c, to $13.25 yesterday - less than half their value 10 months ago.

Crown of thorns

The James Packer-backed Crown's recent investments in the US look to have come just before a downturn in the industry in Las Vegas.

On the famed strip, gaming revenues fell more than 3 per cent in February, and the future doesn't look too bright, what with high petrol prices, airline gridlock and the economic downturn.

The US-based Deutsche Bank gambling analyst, Andrew Zarnett, predicted visitor numbers and spending would be down in Las Vegas, and that if revenues in gambling and hotel spending fell by 10 per cent, earnings would slump by 20 per cent.

Crown bought three Vegas casinos in December, including the Cannery Hotel and Casino, Rampart Casino and Nevada Palace Casino - all downmarket leagues-style clubs for local players. It also recently bought a 4.9 per cent stake in Las Vegas's Station Casinos.

Zarnett said casino management would respond to the downturn by cutting staff hours and costs. Crown shares closed down 23c at $10.25 yesterday.

All is fare ...

Qantas has just been given the excuse it needs to raise ticket prices. That is, thanks to the woes of its arch-rival in the domestic market, Virgin Blue, which plans to raise one-way fares by up to $12 in May if fuel prices remain above $US135 a barrel until the end of the month.

Macquarie Equities believes Virgin's plans for ticket price rises could result in other airlines raising their fares.

Meanwhile, brokers have continued to downgrade their estimates for Toll Holdings and Virgin Blue (in which the freight company has a controlling stake of 62.7 per cent).

Toll was downgraded by major brokers including ABN Amro, Merrill Lynch and JP Morgan yesterday while Virgin incurred the wrath of Merrills and UBS.

Shares in Toll slumped 24c, or 3 per cent, to $7.81 in its sixth consecutive day of losses, while Virgin rose 2c to 89c.

Showing it's not immune from a sudden change in investor sentiment for airlines around the world, Qantas shares sank 3 per cent, or 11c, to $3.51.

But the national carrier is less exposed to the tougher competition in the domestic market than Virgin because of its large overseas business as well as Jetstar's lower cost base.xchange@smh.com.au

© 2008 Sydney Morning Herald

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