resources life span to be cut short

  1. 1,035 Posts.
    By Yvonne Ball
    PERTH, Nov 22 AAP - The life of WMC Resources Ltd, one of the
    two company's to be created from WMC Ltd's proposed demerger, may
    be shortlived with analysts suggesting a predator will pounce on
    the group ahead of an expected increase in commodity prices in
    2003.
    WMC shareholders will meet on Friday to vote on the company's
    controversial proposal to split in two, a move which will cost the
    group $127 million.
    Despite opposition to the creation of two smaller companies at
    time when resource companies were aspiring to get bigger, the
    recent climb in the WMC's share price suggests the proposal will
    get over the line.
    "I think the current share price is indicating the market feels
    it will go through," Auzeq Securities analyst Umit Safak said.
    The break-up of WMC into WMC Resources Ltd and Alumina Ltd was
    flagged by chief executive Hugh Morgan a year ago after WMC spurned
    a a $10.20 per share takeover approach from Alcoa Inc, a price he
    dismissed as opportunistic.
    Mr Morgan has no doubt Alcoa, WMC's partners in Alcoa World
    Alumina and Chemicals (AWAC), will strike again and has attempted
    to sell the proposed demerger as a defence mechanism.
    But while analysts agree Alcoa is the logical buyer of Alumina
    Ltd, there is growing speculation BHP Billiton, Rio Tinto or Anglo
    American will move on WMC's mineral assets before Alcoa snaps up
    the alumina interests.
    Confirmation last week that MIM Holdings Ltd has held talks with
    Swiss giant Xstrata plc adds weight to the argument that now is a
    good time to buy.
    "Obviously the market thinks potential predators will move
    faster rather than slower because of the prevailing unfavourable
    commodity prices," Mr Safak said.
    Daiwa Securities resources analyst Mark Pervan agrees,
    suggesting a predator may bid for WMC Resources within a few months
    of listing on the Australian Stock Exchange on December 4.
    "If there is going to be a takeover you would expect it to be in
    the next month or two before the commodity price cycle starts to
    kick in," he said.
    The market is expecting commodity prices to rise in the second
    half of 2003 however a US recovery could see markets rebound
    sooner.
    A growing belief that WMC Resources' life will be cut short has
    helped push WMC's share price from below $7.00 in early October to
    Friday's close of $8.55 as a takeover premium is built into the
    stock.
    The shares were trading five cents lower at $8.50 at 1520 AEDT
    today.
    Mr Pervan regards Rio Tinto as the most likely buyer, possibly
    to add nickel to its portfolio of assets.
    "I think Rio would like to get in early. I think they would be
    keen to get their hands on Olympic Dam and they don't have a nickel
    division so maybe that appeals, maybe it doesn't."
    Anglo American's desire to increase its exposure outside of
    Africa could encourage it to make an offer, although it is also
    regarded as a possible rival bidder for MIM.
    There are mixed opinions as to when Alcoa will move on Alumina
    Ltd and consolidate the ownership of AWAC.
    Mr Pervan said Alcoa, while wary of the commodity price cycle,
    would be in no rush.
    "There are benefits to consolidate the ownership structure and
    I'm sure at at some stage they will do that but the urgency will
    probably be on WMC Resources."
    AAP yb/sh

 
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