News Wrap

IN THIS morning’s wrap: miners tighten up on costs; activist investor opposes Glencore-Xstrata merger; and Whitehaven Coal downgraded by analysts.
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Underground at Narrabri North. Image courtesy Whitehaven.

Lou Caruana

Miners tighten up on costs

Mining companies are taking action to reduce costs as metals prices fall and they come under increasing scrutiny from investors, according to the Australian Financial Review.

Cost-cutting initiatives include cutting back spending on contractors, exploration, travel and office rent as miners look to keep margins as high as possible.

A BHP Billiton spokesman said the company continued to focus on reducing overheads, operating costs and non-essential expenditure against a backdrop of “increasing costs and falling commodity prices”

Major miners are also reviewing spending on future growth projects at a time of high construction costs.

Activist investor opposes Glencore-Xstrata merger

Activist investor Knight Vinke has backed the surprise demands of Qatar Holding, insisting commodities house Glencore raise its offer for mining giant Xstrata, according to the Australian Financial Review.

There have been reports that the asset manager, which has a 0.7% stake in Xstrata, said the offer at present did not represent “fair value” and should be raised to a “more appropriate” 3.25 shares for every Xstrata share, instead of the current offer that Glencore has made of 2.8 shares.

“We intend to vote against the current proposals,” Knight Vinke said in a statement. “We have informed the board of Xstrata that we view the proposed transaction as an attempt to change control before the true value of the organic growth pipeline is realised.”

Some shareholders have called for Xstrata boss Mick Davis to stand down if the so-called merger of equals goes ahead. They have been angered by the enormous retention packages announced to secure executives at Xstrata.

Takeover target Whitehaven Coal downgraded by analysts

Takeover target Whitehaven Coal has been downgraded by analysts because of weakening coal prices and volatile market conditions, as Nathan Tinkler's camp remains tight-lipped on its bid for the miner, according to The Australian.

Citi has lowered its target price for the stock from $7 to $5.50 because of lower coal prices, but analyst Craig Sainsbury said he still saw long-term value in the stock and maintained his buy rating.

"While the coal markets are challenging at present, and we expect some difficulties in ramping up production, especially from Narrabri, we see enough long-term value in Whitehaven to maintain our buy," he said.

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