top take-over target say analysts, page-4

by: Gillian Tan
From: The Wall Street Journal
January 14, 2013 5:05PM

IN the three years since 2009 J.P. Morgan?s specialist sales and sales trading desk has picked 20 stocks that have received takeover approaches, including Discovery Metals, Flinders Mines and GrainCorp.

The Australian team, led by Sujit Dey, has put together its top M&A picks for 2013. Here are its thoughts:

PanAust is our highest conviction takeover target because it’s a standout target for OZ Minerals. It’s expected to produce around 68,000 tonnes of copper this year, its mines are porphyry-style deposits and the average mine life of each asset is above ten years, all factors OZ Minerals is looking for. PanAust is one of the largest remaining listed copper pure-plays left with an open register and we believe it will only be a matter of time before it gets acquired. We also believe Sandfire Resources is a likely target for OZ Minerals, but wouldn’t expect a takeover until resources are more defined.
Digital Pass $1 for first 28 Days

We do not believe Arrow Energy and Bow Energy marks the end of Royal Dutch Shell’s strategy on the east coast of Australia. Bow provided Shell with enough gas to expand its proposed two-train LNG project–but Shell would like to have a four-train project eventually, according to its Environmental Impact Statement submission. Acquiring Santos makes sense for Shell. Our view is that Shell is waiting for the company’s projects to get de-risked further. As the market prices in the challenges around the east coast projects, Santos’s valuation should become cheaper. Shell could also look at Senex Energy since its Cooper Basin and Surat Basin assets are in a prime location to feed the Queensland LNG projects.

We believe there could be corporate interest in emerging oil and shale gas play Buru Energy, given Mitsubishi ConocoPhillips and Hess have all entered the Canning Basin where Buru is the largest player with permits over 17 million acres. We believe North West Shelf LNG joint venture partners like Woodside Petroleum, BHP Billiton, BP, Royal Dutch Shell, Mitsui, Mitsubishi and Chevron could also have a look at Buru. The North West Shelf is short gas from 2020 and Buru’s large acreage could be seen as a potential solution to extend the life of the project. Separately, Woodside would also benefit due to it being short gas for its Pluto-2 project.

Drillsearch’s relationship with BG reminds us of Queensland Gas’s relationship with BG in 2008, given BG had a stake at an asset level and in the stock. We wouldn’t be surprised if BG ac Drillsearch once its unconventional assets show a higher probability that they can be commercially developed.

Gold consolidation will continue in 2013 and our picks are Regis Resources, Perseus Mining and Medusa Mining. Perseus’s scale and ability to produce more than 500,000 ounces a year once its Tengrela project is developed could be attractive to global gold majors comfortable with sovereign risk associated with operations in Ghana and Cote D’Ivoire.

We wouldn’t be surprised if Western Areas and Mirabela Nickel were acquired by one of the majors. Western Areas has one of the highest grades globally while Mirabela has one of the longest-life mines. We think Western Areas is superior on all metrics, including low cash cost and large annual production, except its mine life. One of Western Area’s offtake agreements, with China’s Jinchuan, expires in March and that could be a catalyst for an end-user to make a move on the company.

We believe Paladin Energy is the most attractive target in the uranium space globally now that Extract Resources and Hathor Exploration have been taken over. Since the Fukushima incident, uranium transactions have continued at healthy multiples of up to $US19 a pound, including future capital expenditure requirements. Paladin trades at $US3 a pound, is ex-capex, producing and has high grades. We believe Cameco, ARMZ Uranium and China Guangdong Nuclear Power could be interested.

In real estate Centro Retail Australia, Mirvac Group and Commonwealth Property Office Fund are our picks. Mirvac’s attractive portfolio of fully let, long-lease term assets would be attractive to pension funds while Dexus Property Group and GPT Group could consider buying Commonwealth Property Office Fund since its responsible entity Commonwealth Bank of Australia might be a willing seller due to higher capital needs under Basel III.

We still think Echo Entertainment Group will receive an offer from Crown. That’s because the competitive threat will intensify if it remains on its own. Assuming its plans are approved by the New South Wales state government, Crown’s Barangaroo casino will be competing against an established casino just 2.6 kilometers away. We think Crown will bid for Echo to ensure it has a monopoly in Sydney like it has in Melbourne and Perth. The Crown-Echo scrip ratio is at all-time highs, which should assist Crown in funding the transaction.

Duet Group is our top infrastructure pick, it has a controlling interest in its simple domestic assets, an internalized structure and a market value of just A$2.45 billion.

AMP or a major bank like Australia & New Zealand Banking Group could round out the consolidation in wealth management by snapping up IOOF Holdings. It would be interesting to see if the Australian Competition & Consumer Commission had concerns around a bank buying IOOF but given ANZ is considered sub-scale in wealth management, it is unlikely to face the same issues that National Australia Bank faced with AXA.