Australian Market Report -Market Sheds Over 8%
Friday, 10 October - Plunging global markets pushed the Australian share market down Friday for a third consecutive day as panic selling continued amid a worsening financial crisis.
The All Ordinaries fell 351.8 points (8.20%) to 3,939.5 while the S&P/ASX 200 weakened 360.2 points (8.34%) to 3,960.7.
OZ Minerals (OZL) Chief Executive Andrew Michelmore said he remains optimistic about the outlook for commodities demand despite the impact of the current market turmoil. Michelmore said the financial crisis will have an impact on the global economy and the world is in for "tough times". "However, I think the impact is going to be felt more keenly by OECD countries and so our view on demand for commodities for the mid-to-longer term remains optimistic," he said. Michelmore said OZ Minerals has seen no drop off in demand for its products and he is confident the zinc price is going to recover, pointing to a drop in treatment charges for zinc as a signal that the demand was there. China would feel the impact of a global slowdown, Michelmore said, but is still expected to post strong growth of about 9% in 2009. OZL fell 21 cents (17.14%) to $1.02.
OZ Minerals Chief Executive Andrew Michelmore also said OZ Minerals still has a small team of people looking at possible deals but that, with credit markets tightening, its $1.2bn in cash will also be valuable in funding its development projects. "You see a lot of other companies who are really stretched or if they have projects they are not able to finance them - that is where this cash is worth a fortune to us," he said. At the time of the merger the combined market capitalisations of Oxiana and Zinifex was $12bn, but falling commodity prices have seen the shares of the merged entity savaged and its current market cap is $3.2bn. Michelmore said the sell off made OZ Minerals a takeover target, but added that for the moment any predators would likely be preoccupied and have trouble raising funds. The pressure on OZ Minerals' shares has been in part due to the falling zinc price, but Michelmore pointed out that more than 50% of the company's earnings will be coming from copper once its Prominent Hill development in South Australia comes online, with first production from the mine still on schedule for the end of the year.
AWB (AWB) said it renegotiated a $280m tranche of a syndicated working capital loan until October 2009 on broadly similar terms. In addition, the maturity of a Rural Trade Receivables Trust has been extended for six months until April. This is a $280m committed securitisation program of the Landmark unit receivables, the company reported in a statement. AWB weakened 43 cents (16.04%) to $2.25.
Henderson Group (HGI) reported that in August 2008, the Group set out a financial goal to meet or beat a profit figure before tax and non-recurring items for 2008 of approximately GBP$90m, based upon a set of assumptions. Since then, global market conditions have deteriorated significantly. Hence, a number of the assumptions that underpin the Group's stated goal, and which are beyond management's control, are no longer valid, resulting in pressure on assets under management and fee income. For these reasons, Henderson Group expects that Group profit before tax and non-recurring items this year will be less than GBP$90m. In light of the prevailing market environment Henderson Group is taking actions to protect its business and profitability. HGI slid 60 cents (26.67%) to $1.65.
Crane Group (CRG) said its first half net profit before significant items is expected to be about 12% below the same period last year. The company said market conditions in New Zealand in the first quarter of fiscal 2009 were more challenging than expected and there are also signs the Australian building market is beginning to soften. Crane said it has acquired a further 20% interest in Mitchell Water Australia Pty Ltd, boosting its holding to 40% and Managing Director Greg Sedgwick said this is expected to strengthen its full year result. "Assuming no further deterioration in market conditions, full year net profit after tax before significant items is anticipated to be in line with last year's result," he said in a statement. "Crane Group's focus on operational efficiencies and cost reduction will ensure it is well positioned when market conditions improve." CRG dropped 89 cents (8.73%) to $9.30.
Gloucester Coal (GCL) said it plans to make an on-market buyback for up to 7.5% of the company's issued capital. "The buyback program is intended to be completed within 12 months and has been established to enable the company to repurchase shares on an opportunistic basis and to take advantage of current volatile market conditions," the company said in a statement. Gloucester Coal said it will fund the buyback from operational cashflows surplus to capital expenditure and dividend payments. "The buyback is expected to add value to the remaining shares on issue and does not impact on the growth plans the company intends to pursue," Gloucester said. Based on the closing price Wednesday, the planned buyback would have cost about $28m. GCL fell 48 cents (11.27%) to $3.78.
Challenger Infrastructure Fund (CIF) said that it has fully repaid outstanding debt under a $260m senior facility. The global infrastructure investment fund managed by Challenger Financial Services Group (CGF), which holds a 33% stake, said that it now has a proportional weighted average debt maturity profile of 14 years, with asset level debt substantially hedged against increased funding costs. CIF remained unchanged at $2.50.
Queensland Gas Company (QGC) has cleared the 50% minimum acceptance level for its proposed friendly takeover of Sunshine Gas. QGC said in a statement it now holds 51.8% of Sunshine and intends to declare the bid unconditional upon receiving satisfactory clearance from the Australian Competition and Consumer Commission, with a ruling expected by Oct 16. QGC declined 58 cents (19.8%) to $2.35 and SHG shed 12 cents (5.22%) to $2.18.
Linc Energy (LNC) is expected to commence demonstration production at its Chinchilla gas-to-liquids project in Queensland state early next weak, a person close to the situation said. Linc shares were placed in a trading halt pending an announcement by the company no later than the commencement of trade on Tuesday. "The halt is expected to be lifted Tuesday ahead of first production of liquids from the demonstration plant," the person said. On Monday, Linc said production had been "slightly" delayed due to minor mechanical issues and was expected to begin this coming weekend. LNC remained unchanged at $3.20.
Kingsgate Consolidated (KCN) reported the Interim Ore Reserves and Mineral Resources Statement for the Chatree gold mine in central Thailand have been updated as at 30 June 2008. As at 30 June 2008, Interim Mineral Resources are 81Mt @ 1.2g/t Au for 3.2Moz Au including Ore Reserves of 34Mt @ 1.2g/t Au for 1.4Moz at a cut off grade of 0.5g/t Au and a US$650/oz gold price for Chatree North. KCN dropped 38 cents (8.8%) to $3.94.
Perilya (PEM) asked its shareholders to take no action on an unsolicited takeover bid by CBH Resources Ltd. that would bring together the pair's troubled zinc operations in Australia. CBH, in a second attempt to take over its rival, is offering two different considerations. They value the target between $40.2m and $60.2m. Both companies have had to scale back zinc output, responding to plunging zinc prices. "Perilya's board is intimately aware of CBH's business and their challenges due to the failed scheme of arrangement proposed earlier this year when it explored the potential for synergies between the companies' respective interests at Broken Hill," Perilya said in a statement. The company said it was in a good position to weather low metal prices and is "substantially" debt-free, leaving it able to rapidly ramp up production at its Broken Hill mine once prices recover, it said. PEM weakened 2 cents (6.82%) to $0.21.
ABC Learning Centres (ABS) said the Australian Competition & Consumer Commission will review its plans to buy childcare recruitment business 123 Careers. "ABC will not complete this transaction until approval has been received from the ACCC," it said in a statement. ABC announced last month it planned to buy the group, which has operations in Australia and New Zealand, for $70m, to help reduce the annual costs of sourcing relief and permanent staff. The ACCC is expected to release its findings Oct 28. Shares in ABC remain suspended pending the release of its audited accounts for the year to June 30 2008, which is expected this month. ABS remained suspended and was last quoted at $0.54.
Australian Prime Minister Kevin Rudd said Australian banks are in good working order amid growing pressure to follow the US and Europe and guarantee customer deposits. Rudd said Australia hasn't experienced the significant collapse of financial institutions which has brought about the guarantees from other countries. "We don't have that problem, our banks are in first class working order," Rudd said. He said there are already measures in place to assure customer confidence in the banking sector and the Reserve Bank of Australia has been injecting liquidity into the system for the past year. There is also an existing "depositors first" system in Australia, which guarantees depositors first call in the event a bank got into trouble, he said. Rudd said the government is adding to this with the planned financial claims scheme, which was drafted in the wake of an inquiry into the collapse of insurer HIH in 2001.
Australian Finance Minister Lindsay Tanner said the nation's economy is well positioned to weather the current storm on global credit and equity markets. Tanner told reporters that Australia has a strong budget surplus, well-capitalised and secured banks, strong regulators and "reasonable economic growth" at more than 2% a year. "These are very difficult circumstances for the Australian economy," Tanner said. "They're posing significant threats but we're far better positioned than almost all other developed nations to cope with the turbulence and can continue to grow," he said. The Australian financial system is sound and secure, Tanner said. "We have the world's best regulators. We have strong regulatory arrangements. The economy is growing. Unemployment remains low so we are in a good position, good shape as an economy, and can weather what is a very serious financial storm internationally." Australia isn't immune from the global crisis and economic forecasts have been downgraded, Tanner said. However, Australia didn't have the "toxic mortgage problems" or failing banks that have plagued the US, he said. "We're suffering indirect consequences from those events overseas but we don't have the same direct problems." "It is important that people are reminded of these fundamentals at a time when people will be nervous and may choose to reduce their economic activity or reduce their investments," Tanner said. An overreaction wouldn't be good for the Australian economy and investors should take a balanced view and remain cautious when buying or investing, he said. He noted the government has for months been considering introducing a deposit insurance plan to protect depositors and ensure daily banking transactions in the event of "the highly unlikely prospect (of) a financial institution getting into trouble." Australia and New Zealand were the only two developed economies that have no protection for depositors, Tanner said.
The NZSX50 dropped 139.08 points (4.72%) to 2,805.31 while the Nikkei shed 881.06 points (9.62%) to 8,276.43 and the Hang Seng lost 1,282.04 points (8.04%) to 14,661.20.
The Australian dollar was last quoted at US$0.6613.
Overseas Market Report -
