FLX - Felix Resources

[noirua]

Yanzhou Coal must be watching trading in Felix Resources very closely indeed. Whether a counter bid arrives or not they may well be thinking of increasing their offer. All it needs is for a few big holders of stock to hold out and the whole bid situation falls into disarray.

Present trading in Felix finished the week at $17.38 and this is 43c above the $16.95 offered by Yanzhou. [the extra 50c dividend is due anytime up to March 2010 and is not part of the bid paid for by Yanzhou]
Yanzhou may, or certainly should, consider raising their offer considerably and immediately to head off a counter bid that may come within days.

 

[Quillan]

My Email sent to GlobalCoal. It was acknowledged with the comment
"Interesting indeed !!"
We need to keep up the pressure and the contacts wherever possible.
Please feel free to quote this email to any Press outlets with whom you may be in contact.

"I believe a new bidder is accumulating stock in Felix. In the past 5 days almost all trades have been marked at the bid price, yet the price has not budged. Volume has averaged 1.27 milllion shares a day, yet the spread has been only 1 or 2 cents.
This can hardly be arbitrage buyers because the traded price is only about 6 cents below the Yanzhou bid price, and that assumes that the 50 cent special dividend to be paid if the deal goes through, has no tax deduction, and takes no account of dealing expenses if you are buying today.

There is a total of AUD17.45 to be paid, and 50cents of that, the special dividend needn't be paid until March, and could have tax deducted.
Present share price is $17.39.

Despite these figures over 1m shares of the free float of about 100m is changing hands daily, with no downward reaction in the price.
Smells to me of brokers for "X" being instructed to pick up any stock coming on the market.

Decision day is the 8th of December for Felix shareholders to vote on the Offer. I expect a counter bid shortly before that date, from an Australian Company, probably, because the conditions already imposed on Yanzhou by the FIRB are pretty onerous on any foreign bidder.

Mining analysts were speculating a month ago that the bid price should be around $24. Since then conditions in the market for coal have improved and Felix has signed 2 long term coking contracts in China.

If you read Felix CEO Flannery's AGM address last Friday, you would think he was defending the Company against a hostile bid, instead of having already accepted this undervalued Yanzhou offer!! However it was his last chance to legitimately open his mouth before the December vote, as he is in purdah from now on !!
So on Friday he was hanging out the assets and potential for all to see !!

 

[noirua]

A concise excellent post Quillan, though I was unclear about why it was sent to Global Coal?

Last weeks trading was about 6.6 million shares and Monday trading was light, and today trading is coming close to grinding to a halt. Maybe it's just a case that foreign holders with about 22 million shares are not bothering to sell with high fees and exchange rate charges. That leaves only 37 million shares left to change hands and the cash-in-brigade have mostly sold out.
Another reason could be, one or more people or companies deciding it's a no lose gamble on a bid in the next 3 weeks, or a company building up stock to bid - or at least that's what a lot of us hope.

Watch and wait now as there is nothing else to lose as Felix Resources shifts towards Chinese ownership.

 

[Quillan]

I sent it to GlobalCoal partly because that is where I check the weekly Newcastle coal prices, and also because it is my impression that they have their finger on the pulse of every piece of world news on coal trading. I judge that by the news items they carry daily, which included all details if the Yanzhou bid, and who knows, they might have speculated on my comments for others to see.
They have developed a platform for trading Spot coal, and the London Office always answers my emails promptly,and enthusiastically.
I don't have the connections that Australian Shareholders have with the media there, so I leave that to you !!

 

[noirua]

With just 32 days to go there now appears to be just BHP Billiton and Xstrata in the race for Felix resources. All we can do is sit and wait.

 

[noirua]

With just 32 days to go there now appears to be just BHP Billiton and Xstrata in the race for Felix resources. All we can do is sit and wait.

Down now to just 30 days to the 8th December 'The Scheme' Vote. They reckon only BHP Billiton and Xstrata are still left in the frame as possible bidders, though the Indian Companies led by Vale have seen a strong currency favour versus China and may still be in with a shout.

BHP know from publicity that many shareholders are looking for a share alternative and Xstrata may still offer an LSE share swap to those who want it.

Yanzhou (bidders for Felix through subsidiary Austar Coal mine), have been maimed by the FIRB restrictions and may not be interested in going all that much higher.
Xstrata may well have their partner at Ulan, Mitsubishi, ready to buy a chunk of Moolarben. The synergies gained give Xstrata an upper-hand now and it would be surprising if they pass this one over.
BHP Billiton must be umming and arring over this one and know they would need to price a bid right. Can afford to pass it over though, who knows?

 

[noirua]

Felix Resources have announced that the expected 50c per share second final dividend will be paid on 9th December to all shareholders on the register on 25th November 2009.

Felix shares rose 16c to $17.56 which is above the $17.45 ($16.95 + 50c present dividend declared) equivalent share price offer by Yanzhou Coal (through subsidiary Austar Coal Mine).

 

[Quillan]

So somebody is buying stock above the Yanzhou offer price, and presumably may have tax liabilities on the 50 cent fully franked 2nd Dividend?
Why should 3 of the Directors be financing this dividend to the tune of nearly $100m, on a 3 month interest free loan to Felix?
What's in it for them?
Any potential bidder presumably was doing his calculations assuming this 2nd dividend would not be paid by the company, except if the Yanzhou bid went through. Now it is available to all shareholders on the Register at 25 November.
This gratuitous offer from the Directors costing them quite a lot of money on interest lost, or interest paid to raise any of the money via loans, is baffling.
I don't see how it will help to ensure that the Yanzhou bid is accepted on December 8th, unless calculations have been done suggesting that obtaining 75% acceptancies is now by no means certain.
Any comments, anyone?
Vale an Indian company, Noirua? Brazilian as well as Indian?

 

[noirua]

There are thoughts that the Felix Directors realised that they had got things wrong. If Yanzhou takeover Felix on 23rd December then it would be Yanzhou's susidiary Felix paying the dividend by March 2010. As we would no longer be shareholders, and it would have to be paid by Yanzhou - probable legal problems doing that.
Also under takeover rules, Felix would not be allowed to pay more than 70% of profits in dividends.

A few think that Felix Resources directors want to get the second dividend out of the way - they say it no longer requires the bid to go-ahead for it to be paid; this is a bigish turn-a-round. From the 19th November any counter bid is now straight forward. (second dividend, Felix go XD on 19th November).

SCHEME vote is critical now on 8th December and the vote FOR, by former White Mining shareholders (excluding Felix directors) is by no means certain now.

Xstrata are in a position where they can bid on the basis of accepting Deloittes estimate of value, requiring no further estimate to be made.
Synergies give Xstrata Annual profit advantage of about AU$25 million per annum [will try to find the citing for this information back in August, if I can Google it]. From this it depends what return basis is worked on and 10% would seem fair, putting a value of $25m x 10 = $250 million ($1.30) (at 8% it would be $312.5 million ($1.60)).
Thus Xstrata can bid $18.25 - $18.55 against Yanzhou's bid of $16.95.

The above is the reason, even at this late stage. why I believe Xstrata are still interested.

 

[Quillan]

This from a Newsletter I subscribe to. Kind of looks like the rug has been pulled from under our feet, at a time when Felix is in the very best position to benefit from the upcoming investment interest in commodities and Companies, including Yanzhou !!

INVEST IN A MOUTNAIN OF INFLATION-FIGHTING HARD ASSETS. Hard assets ”” gold, oil, copper, coal, uranium, timber, potash, iron ore, cement, etc. ”” are one of the few asset classes that could thrive in the falling dollar trade war that I see coming. Also consider hard assets companies, such as China National Offshore Oil Corporation (NYSE: CEO), Yanzhou Coal (NYSE: YZC), Sino Gold (Australia: SGX), and BHP Billiton (NYSE: BHP).

 

[noirua]

Yanzhou Coal's - bidding for Felix Resources through subsidiary Austar coal Mine - stock price rose to US$18.04 to close Thursday at $17.98 (compares to low in last 12 months of US$4.00), on prospects of growth relating to the takeover of Felix Resources.

 

[noirua]

This view of Felix Resources at The Bull seems quite fair in its general assessment of the present situation: http://www.thebull.com.au/articles_detail.php?id=7200

 

[noirua]

Felix Resources meet an interesting point when the stock goes XD on Thursday 19th November. This would allow an interested party an opportunity without encumbrance, not to say that it is by any means certain as this is all a bit of a guessing game. Felix stock has risen above the $17.45 bid price this morning, and this may be more a case of interested parties seeing FLX as a reasonable gamble on a counter bid or raised bid terms by Yanzhou Coal.

 

[gfresh]

Went ex-div on the final div today, still trading slightly below the $16.95 final bidder price, at $16.83 on close with little depth. I will be interested to see if any large bidders step forward to take prices offered below $16.95. There seems little incentive to do so for other large players (unless they are keen on some last minute bid), and without the target bidding on market, it may drop quite a way below that. Up until today there has been some incentive to collect the divs + franking credits attached to enhance various tax strategies, but now that is gone...

Was interested reading the final supplement brochure, whereby it looks as if the directors have financed this final div out of their own pocket, a loan of sorts against future earnings. In a way (that I see it) it seems the directors have used this to force smaller shareholder's hands somewhat. If the takeover *does not* go ahead for whatever reason, then any future profits have to be used to pay back the directors, and hence no dividend for smaller holders for the next period, and maybe longer. Cunning?

In some ways I enjoy watching these takeovers, they always play out slightly differently don't they.

 

[Quillan]

What was notable today gfresh was the transaction of 1 million shares at about 1410 at $16.85, the highest price traded for the previous hour. On the One Minute chart provided by MarketWatch, this was shown as one trade, and the price did not move at all.
An arbitrage purchase to make 10 cents, less the brokerage on the purchase costs? I doubt it. The same applies to the 500,000 trade a bit earlier. making a total of more than 2 million traded today.
By disposing of your shares at 10cents below the price to be paid in a month's time, assuming no counter bid, means a loss of 0.59% on Yanzhou's offer price plus commission costs on the sale. I guess the 2 large sellers had need to invest the money elsewhere. Let's hope they will be kicking themselves sometime between now and the 8th of December !!t:banghead

 

[noirua]

The listed trades were as follows:
1,045,813 shares - $16.82 - 12 trades
199,114 shares - $16.80 - 1 trade
600,000 shares - $16.80 - 1 trade
149,525 shares - $16.88 - 1 trade
The last three trades may well have been off market.

 

[zamitabha]

The dividend is paid according to the record at 25th Nov. Does it mean you can sell the stock after 25th Nov and still be paid the 50cents per share according to your holdings at 25th?

 

[noirua]

The dividend is paid according to the record at 25th Nov. Does it mean you can sell the stock after 25th Nov and still be paid the 50cents per share according to your holdings at 25th?

As Felix Resources (FLX) went XD on 19th November you can sell now and collect the 50c dividend due on 9th December.

 

[noirua]

Since the Announcement of the bid and terms by Yanzhou Coal, the Yanzhou Coal share price has risen from US$15.57 to US$19.22.
Felix Resources stock price has fallen from A$17.32 to A$16.82.
This may well indicate that this bid advantages the Chinese coal company Yanzhou Coal greatly, and to the disadvantage of Felix Resources shareholders.
The Felix Resources directors have agreed to support the A$16.95 cash offer by Yanzhou (through subsidiary Austar Coal Mine) and have thus handcuffed themselves to this lower than expected cash offer.
It seems that Xstrata or BHP Billiton are among the few who could counter bid, but may not wish to anger China.

 

[noirua]

Just 15 days to go now to The SCEME MEETING and vote on 8th December, and it may well be taken right up to the close of business on 7th December until we know for sure whether a counter bidder is interested or not.

Felix cash in the bank was $274 million two weeks ago, after paying the final dividend on 30th October and tax due for the year ending 30th June.
Due to the maximum rule of 70% (dividend payment of net fully franked taxed income) it was necessary to borrow $97 million from directors to pay the extra 50c dividend. [ quite a turn-a-round as payment was due up to March 2010]

So Felix have $177 million left in the bank after allowing for the loan by directors.

Coal prices in US Dollars for thermal is around US$82 a tonne compared with Deloittes forward estimate beyond 2014 of just US$70 a tonne.

Even if we take the $82 per tonne present price it is US$12 per tonne above Deloitte's value factor for Felix.
Deloitte sees Felix coal production over 20mtpa from 2014 and seems, even after royalties etc., to raise the valuation of A$18.10 for Felix Resources stock to around A$25 per share.

If the price is US$100 a tonne for thermal coal beyond 2014 then the $25 stock price for FLX would equate to an even higher price. However, there are currency factors to be considered, coal sales and future developments of the Wilpeena and Athena areas.