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John Mulcahy...just contemplating his future.

CBD

Mulcahy misses all his marks 

Lets hope the former Suncorp Metway chief executive John Mulcahy got better restaurant reviews than analyst reviews.

Credit Suisse's chief insurance analyst, Arjan van Veen, and his team pulled no punches yesterday when they issued a "scorecard" on the relationship between Mulcahy's pay packet and performance at the limping bank and insurance group.

"We highlight [a] lack of alignment between Mulcahy's remuneration and the group's performance, noting double-digit increase in his total remuneration where group earnings growth was negative in 2008," the note said.

It said Mulcahy "did not deliver on any performance criteria originally set out in 2003" when he started at Suncorp. Credit Suisse also gave an unflattering scorecard to the soon-to-depart interim chief executive, Chris Skilton. Mulcahy declined to provide any feedback on his "scorecard".

"That's all very interesting, but I'd rather make no comment," said the former chief executive, who collected a $2.1 million severance cheque on top of his $1.3 million pay packet last financial year.

Mulcahy was coy on whether he would return to the corporate sector. "At the moment I'm just spending time with the family and looking to see what I'll do in future, thanks very much," he confided to CBD.

Mulcahy, however, has ruled out a return to the restaurant sector. He used to own and manage the Rocks Push restaurant and jazz venue on George Street during the 1970s that is now the site of the swanky Neil Perry eatery Rockpool. Mulcahy's jazz joint was named after the brutal street gang that used to occupy the area in the 1800s, the Push.

It opened in 1969, just when the sexually liberated and alcohol-fuelled movement in Sydney by the same name was in full swing.


Corruption drawcard

It probably does not come as a surprise that today's NSW Corruption Prevention Network annual workshop has sold out.

"I don't think the sell-out has anything to do with recent events," the network's vice chairman, Stephen Horne, assured CBD. He said the event sold out in February. "It has just been a healthy year for corruption," said Horne, who is also the managing director of the NSW Government's Internal Audit Bureau. This year's workshop is titled: "Heroes and Champions: The Good News on Corruption Prevention."

Exit speeds

The secrets of high finance at Commonwealth Bank are fiercely protected when it comes to putting staff on gardening leave before they join a rival institution.

Tim Gunning, the head of Commonwealth Financial Planning and an executive committee member of Colonial First State, announced his resignation on Monday.

Yesterday it was announced he would be joining Ord Minnett as chief executive on October 1. That is, in a little more than three weeks, he will be covering private wealth, portfolio services, funds management and corporate finance for a rival firm.

It's a far cry from the former St George chief Gail Kelly, who cooled her heels for five months before she took over at Westpac. Obviously the knowledge gained from the inner workings of the Commonwealth Bank just aren't that interesting.

Ramelius plugs on

You cannot knock the gold explorer Ramelius Resources for not having chutzpah.

Yesterday the Adelaide company again blurted it would press ahead with its planned scrip "$92 million" takeover bid for Dioro Exploration. This is despite its takeover target already being 45 per cent owned by another suitor, Avoca Resources, which also secured three of the company's eight board seats yesterday.
 
"We're still going full steam ahead. We still believe we can get a substantial interest in the company," explained Ramelius's executive director, Ian Gordon. "Dioro have a good asset and when we launch our bid we are intending to get as much of it as possible," reasoned Gordon.

Mind you, Ramelius is legally required to proceed with its takeover bid after already declaring its intentions in late July when it attempted to derail Avoca's bid. Ramelius announced its planned bid a day after Avoca's hostile bid turned friendly – after lifting its bid to get a few stubborn Dioro shareholders over the line. Ramelius said it plans to offer Dioro shareholders two of its shares for each one of theirs.

Going by Ramelius's share price yesterday, that would translate to a $64 million takeover bid. Dioro's chairman, Ted Grobicki, put on his best corporate governance hat yesterday. "The Ramelius offer is still under consideration," he told CBD.

But it appears one of Dioro's new directors, Avoca's chief executive, Rohan Williams, will not need the help of any independent expert's report. "I don't think it's in the best interests of Dioro shareholders," he said.

Williams said he had concerns about the "operational and financial veracity" of Ramelius's Wattle Dam goldmine, which he said was yet to provide a statement on its reserves.

Too much moonshine

Apologies to Steve Earle fans, including Cudeco's boss, Wayne McCrae. This column wrongly titled the Steve Earle tune Copperhead Road yesterday as just Copper Road. CBD regrets any trauma caused to the alternative country music community and Cudeco shareholders.

Round they go
 
An update on the musical chairs in investment banking and analysis.

The ex-head of Sydney sales from JPMorgan, the appropriately named Glenn Morgan, has been signed up by Deutsche Bank. Morgan will be roughing it with his five kids on what he terms his "Uluru safari" (aka desert leave) before taking up his new job in November.

"It's a bit like the Griswold's vacation," he informed CBD yesterday. It seems Morgan and his clan are still getting used to living in tents. No word yet if he will be joined by any other JPMorganers.

When he quit as CommSec's head of institutional sales in 2003 he was followed by several CommSec operatives, including the plane-spotting analyst, Matt Crowe. Crowe was "busy in meetings" yesterday when CBD put in a few calls.

But there were no hints from his colleagues that anything could be afoot. Credit Suisse's property analyst Andrew Rosivach, meanwhile, cut a lonely figure yesterday, one week after jetting into Sydney to stop his team defecting to the financial institution without an umbrella, Citigroup. Rosivach put out a lone earnings update on Goodman Group.

Got a tip? email srochfort@smh.com.au

Business Focus

Edited by Eric Johnston


Toll road hits back

Toll road operator ConnectEast came out fighting yesterday against the legal challenge launched by a major shareholder – construction giant Leighton Holdings – declaring the dispute would not result in a material payout. In a claim filed with the Victorian Supreme Court this week, Leighton subsidiary Thiess John Holland argued it was misled over traffic numbers, which have fallen short of expectations since the road opened in June last year.

The traffic forecasts underpinned Thiess John Holland's claim for a bonus payment for early completion of the $2.5 billion project. ConnectEast, which operates the 39-kilometre EastLink toll road in Melbourne, has already set aside a provision of $40.5 million to cover a payment due to Thiess John Holland for the early completion. "ConnectEast will vigorously defend [Thiess John Holland's] claims," the group said. "ConnectEast's assessment continues to be that the claims will not result in [a] material liability."

Downer contract wins

Engineering company Downer EDI has secured contracts on mining projects worth more than $500 million. Among those, Downer's mining division has signed a five-year contract with Ensham Resources to provide blasting services at the western Bowen Basin open-cut coal operation in Queensland.

Rio man seeks bail

One of three Chinese employees of Rio Tinto detained in China along with an Australian in July on suspicion of spying and bribery has applied for bail, state media reported. Shanghai authorities could decide whether to release Wang Yong later last night, the China Daily newspaper reported.

Atlas in Warwick link

Atlas Iron plans to merge with explorer Warwick Resources to boost exports, reduce costs and create a new iron ore mining force in the Pilbara.

Xchange

Edited by Jamie Freed 

Soaring share price raises doubts over Lynas deal

Deals between Australian miners and Chinese groups that do not proceed – such as Chinalco's proposed $US19.5 billion investment alliance with Rio Tinto – get a lot more attention than those that do.

So while few eyebrows were raised over the three separate Australian-Chinese deals unveiled in the iron ore and uranium sectors yesterday, the market is taking a much closer look at the rare earths miner Lynas Corp's $500 million deal with China Non-Ferrous Metal Mining (CNMC).

The Foreign Investment Review Board has already delayed a final decision on that agreement – which would give CNMC a 51 per cent stake in Lynas, although not a casting vote at the board level – on three occasions since it was announced in May. And while China has made clear it is clamping down on rare earths exports, even though it already controls 97 per cent or so of the production of those materials key to things like hybrid cars, renewable energy and advanced weaponry, international investors have taken a cue from recent media reports and invested in Lynas.

Lynas's shares have risen 81 per cent to 79.5c in the last month. And so the deal for CNMC to subscribe for 700 million shares at just 36c a share is now seriously out of the money. That deal requires the approval of Lynas shareholders, and at that price, it may not be easy to obtain. It remains to be seen whether CNMC is willing to revise the deal or if it will go the way of the Chinalco transaction.

In addition to price, other changes such as a less-than-majority stake or restrictions on the sale of rare earths to China may be needed to appease potential FIRB concerns. The FIRB is set to rule on the deal early next month, and any further delays would force Lynas to seek some interim funding. If the deal fell over, Lynas would still need to find other funding sources.

A combination of an equity raising and some debt would not be out of the question, although some banks are unwilling to lend based on a project in a metal that does not trade transparently.

Lingering debts

Asciano may have raised $2.35 billion in June, but unlike most companies that have recapitalised in recent months, it still has some lingering debt issues to sort out.

After applying the proceeds of its equity raising to paying down some of its debt, it will have $600 million or so due for repayment next May, plus another $2.25 billion due in 2012.

With help from its advisers at RBS, Asciano is attempting to refinance the May facility by the end of this year. Xchange has heard suggestions one option being examined is a "forward start" facility that would extend the debt as long as a higher interest rate kicks in immediately, of a size as high as $1 billion.

As for the remainder of its debt, Asciano will keep its 2012 facility in place, but it will also look to start tapping the bond market to extend the profile of its debt. It is now seeking a credit rating, and Macquarie Equities said a BBB or BBB+ rating would appear to be a reasonable target.

By comparison, Leighton Holdings, which has a BBB rating, recently raised $230 million in the Australian market with a 9.5 per cent coupon over a five-year term. Other options for Asciano could include off-balance sheet debt, as in theory, its trains are not too dissimilar from Qantas and Virgin Blue planes and could present an opportunity for leasing companies.

Macquarie said a combination of bond raisings and sale-and-leaseback arrangements would help it bring forward growth opportunities in coal before arch-rival Queensland Rail is privatised. It would also help avoid the prospect of another equity raising in the near term.

Bullion story

Based on the feedback from Lihir Gold's recent analyst briefing, it appears the suggestion it was running the ruler over gold assets in West Africa was right on the money.

Now the market is beginning to factor a takeover premium into certain players in that region – notably Perseus Mining, which yesterday said it had no knowledge of why its share price had run so hard this week.

Perseus's management team may not have a clue, but brokers like RBS have pegged it as the most likely company on Lihir's shopping list among West African goldminers listed in Australia, London and Toronto. Lihir is said to be targeting deals of $US200 million to $US700 million, which would give it a production boost of at least 200,000 ounces.

Mineral Deposits, which Xchange has previously mentioned in connection with Lihir, has an attractive gold deposit, but RBS notes a buyer would also have to pay full value for its mineral sands project, which could be hard to offload. Then there are some less advanced options.

Lihir owns just under 5 per cent of Adamus Resources, which it picked up via its 2007 takeover of Equigold. Adamus plans to produce 100,000 ounces a year from its Southern Ashanti project in Ghana from late next year and some Lihir employees are said to be visiting the project site this week.

Lihir is also believed to be keeping in contact with the folks at Gryphon Minerals, which owns the earlier-stage Banfora gold project in Burkina Faso.

Newmont Mining yesterday sold its 4 per cent stake in Gryphon for $2.7 million to the specialist gold fund Baker Steel Capital Managers with help from Southern Cross Equities. Newmont's exit from the register could open the door for other miners to take a closer look.

Halt but no standstill

Firestone Energy remained in a trading halt yesterday as it sought to raise $25 million from institutions at 4c a share with help from BBY. It had last traded at 4.7c a share. Most of the funds will be put towards a bankable feasibility study on its thermal coal project in South Africa.

Meanwhile, the cashed-up New Hope Coal will spend $8.2 million on a 19.9 per cent stake in the geothermal hopeful Planet Gas. New Hope, incidentally, is a major shareholder in Arrow Energy, in which a line of 5 million shares worth $21.7 million traded in a special sale last night.


xchange@smh.com.au