There are a number of workable corporate structures for the Goongarie Hub. Each will have its set of pros and cons.
There is also the distinction between owning ARL shares and owning the divested company's shares.
Per Giovanni's model in the immediately above post, ARL will therefore receive funds firstly from issuing ARL shares to the JC and again from divesting 49% of the Hub to the JC. Might feel a bit complicated for the JC. Why have direct and indirect ownership in the Hub?
Also, does ARL really want to set up a situation whereby the JC themselves can do a Gina Reinhart? Holding two blocking stakes (and board seats?) in ARL might not be ideal if BHP wants to do a lucrative arrangement with AR, whatever that arrangement might be. Control, control, control...
On a different matter...
When one logically follows the money trail (in a good way), it doesn't really matter whether the Hub is retained directly within ARL's existing asset holding or spun out as a divestment. The true valuation of the Hub will still flow on to increase the value of ARL shs' portfolio, either directly or indirectly.
If the Hub is not divested, then ARL's sp goes up directly in response to the market capitalisation re-rating. Subsequent to any shares issued to the JC, the sp goes down proportionately. There will be a net gain in portfolio value.
It follows the formula: Market Cap as a constant = variable SP x variable SOI.
If the Hub is divested, then ARL's current market cap reduces in proportion to the current "non-true" valuation of the Hub. The true valuation of the Hub will go into the market cap of the divested company. As ARL shs will own both companies' shares, the shs' portfolio value also shows a net increase.
It follows the formula: ARL sp (pre-rerating) - est. ARL sp value contained in the Hub + value in the divested company.
For LT shs holding lots and lots of shares, what's more relevant is the tax implication.
Irrespective of retention or divestment of the Hub, as LT sh, it is to my personal tax advantage not to receive in-specie distribution.
What might be logical and intuitive to me tax-wise might not be the same lines of reasoning taken by the ATO. The ATO is not my tax planner. Its role is to maximise revenue for the govt. so that its political masters can use the money wisely or squander it as they see fit. This reality implies that the ATO will do what it does within its legislative authority.
There is the risk that the ATO might rule that a large % of the distribution is in-specie dividend rather than capital return. This means that the greater-than-12-months-holding to qualify for the 50% cap gain exemption is unavailable for that component of sp deemed as in-specie dividend. The tax payable goes up tremendously then.
I mentioned in an earlier post that it'll be interesting to see how the ATO would treat the scenario of ARL shares being bought at 5c, now resulting in shs receiving in-specie share distribution valued at $1.00. I suspect the interpretational tax risk lies herein.
Regarding the capital return component, yes, the 50% cap gain exemption will continue to apply.
For the recent converts to ARL shs, it doesn't apply to them because they haven't held the shares for more than 12 months.
Returning to the initial matter under discussion...
The scenario of BHP (or any other deep-pocketed entity) involvement would likely be focussed on Kalpini, not Goongarie.
SMM and MC are big players, much like BHP. They have already marked their turf and would want a big enough % ownership of the Hub to make it worth their while. BHP coming this party would just cramp their style, and the JC would probably in annoyance ask ARL what could BHP offer that they are not already offering? Japanese honour and face must not be disrespected. They know that BHP is into NiS not laterite Ni.
Furthermore, does BHP want its own style cramped by SMM and MC? Giant players, giant egos.
ARL would also want a worthwhile % ownership. Otherwise, might as well just sell off the Hub and get the money instead.
That leaves the ARL LT shs to consider their positions. Are they prepared to miss out on their share of significant portfolio capital gain after patiently waiting years and years? If not, then what is their expected return and in what form?
Will the strategies in ARL's finalised and signed-off partnership agreement for the Hub definitely meet that expectation?
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