Mystery buyer in Fortescue seen as Noble
Speculation before Christmas had it that RBS was buying for a "trading company". Sources earlier today were speculating the buyer was either Glencore, Noble or Trafigura.
One source close to RBS told BusinessDay the buyer is Noble. Strategically, this would make sense as the iron ore market is the last commodity that remains dominated by a handful of major producers – BHP, Rio and Vale – while the trading companies have little presence.
However, a spokesman representing Noble this afternoon denied the group was behind the buying.
There was also strong buying today in Fortescue $5.50 February call options, consistent with speculation of corporate interest in the iron ore producer, which is moving towards 150mtpa of production in coming years.
Eoin Treacy's view M&A activity in Australia's resources sector has been brisk over the last
year, particularly in the coal mining sector. (Also see Comment of the Day on
January
4th). It remains to be seen whether the Australian government is as quiescent
with regard to iron-ore acquisitions as it appears to be with coal.
Fortescue
Mining represents an attractive takeover candidate for a larger company
seeking an entry to the tightly knit iron-ore sector. However Andrew Forest
still has a 31.5% shareholding and Hunan Valin Iron & Steel, in which Arcelor
Mittal has a significant interest, holds 15.05% The share pulled back rather
sharply in the first three quarters of 2011 but stabilised above A$4 and broke
out of its four-month base today. A sustained move below A$4.85 would be required
to begin to question medium-term scope for additional upside.
The
iron-ore sector generally exhibits a high degree of commonality. They have all
found at least near-term support and are increasingly pushing back above their
respective 200-day MAs which are turning upwards. BHP
Billiton and Rio Tinto have rallied
impressively over the last month and the upside can continue to be given the
benefit of the doubt provided they hold more than half that advance on the next
setback. VALE has lagged somewhat but
looks more likely than not to sustain a breakout from its five-month base.
Cliffs
Natural Resources, Ferrexpo, MMX
Mineracao e Metalicos and Atlas Iron
share similar chart patterns with BHP Billiton and Rio Tinto above. Anglo American
holds 65% of the sector leader, Kumba Iron
Ore. Privately held Fevamotinico SARL owns 51% of Ferreexpo. Brazil billionaire,
Eike Batista, owns 33% of MMX Mineracao e Metalicos. Neither, US listed, Cliffs
Natural Resources nor, Australian listed, Atlas Iron appears to have a majority
shareholder that could act to block a takeover attempt.
Sesa
Goa, India's largest iron-ore producer, is 46.2% owned by Vedanta which
is in turn controlled by the Agarwal family. It has been a serial underperformer
within the sector. From late December the share posted its largest rally since
early 2010, broke the two-year downtrend and closed the oversold condition relative
to the 200-day MA. It will need to find support above the December lows near
R150 on the next pullback to suggest demand is returning to dominance beyond
the short term.