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http://www.theaustralian.com.au/business/opinion/coffey-injects-life-into-mind-numbing-results/story-e6frg9lo-1226050099094

Coffey injects life into mind-numbing results

* Tim Boreham, Criterion
* From: The Australian
* May 05, 2011 12:00AM

AMID another sea of mind-numbing bank result stats, we can thank Westpac numbers man Phil Coffey for this succinct antidote to ANZ chief Mike Smith's gloomy musings on Tuesday.

Westpac (WBC) $24.34

"The Australian economy and banking environment is still a really healthy place," Coffey says.

"Having unemployment around 5 per cent and forecast to go lower, that's a good place to be doing banking."

Westpac is doing most things right, and chief executive Gail Kelly crows that yesterday's interim numbers marked the first time "core" earnings rose across all divisions.

In essence, the 7 per cent boost in "cash" earnings to $3.17 billion was spurred by the bank's bad-debt expense falling by 47 per cent ($416m). Otherwise, cash earnings would have fallen 5 per cent.

There's some concern about an uptick in consumer arrears, but Kelly cooes the trend was all part of the expected post-GFC cycle.

Westpac shares tumbled 2.5 per cent yesterday amid a wider banking meltdown. We don't think the red saveloy deserved such a damp response and maintain Westpac as a long-term buy. It's also worth topping up on fellow domestic exposure Commonwealth Bank (CBA, $52.67) ahead of a third-quarter update next week.

WPG Resources (WPG) 86c

IT'S too late for the spurned Chinese buyers of OZ Minerals' Prominent Hill mine, but the federal government's more flexible stance on the Woomera area is manna from the scrubs for a few junior resource plays.

A report prepared by former defence supremo Allan Hawke proposes divvying up the Woomera prohibited area, which is the size of Britain, into colour-coded zones. The small red zone remains off limits to miners and spies. Green is fine and so is amber, although the brass can bump them off the land from time to time. But Select Equities' Mike Ryan says the determination removes the defence department's influence in determining leases: "It's now clearer what you can do and where you can do things."

WPG Resources has two iron ore projects in the green zone: Peculiar Knob and Hawk's Nest. In September last year, WPG raised $85 million (at 68c a share) to develop Peculiar Knob, while there's another $US120m ($110m) through a funding package with Deutsche Bank.

White Energy (WEC, $2.56) has Lake Phillipson, a 600mt thermal resource. The restrictions to date have impeded exploration on the lease. The access issue is less material for the company, which holds briquetting technology and coal interests elsewhere.

The well-funded WPG is a spec buy. At the risk of oversimplifying things, Hawk's Nest is about digging the stuff up and trucking it to the nearby railway line to Port Pirie. We'll avoid White Energy because of its grab-bag of interests, although it can be argued asset diversity makes for less risk.

Alumina (AWC) $2.26

IF Rio Tinto is mulling a $20bn-plus bid for Alcoa of the US, the Hellfire Club is an apt negotiating venue: the board would be gluttons for punishment to ponder another monster aluminium foray given its $38bn purchase of Alcan in 2008 went so swimmingly.

Such a move would also stray from Rio's stated remit of finding bolt-on purchases, exemplified by its successful $3.7bn tilt at Riversdale Mining. Then there's the regulatory obstacles to conjoining North America's No 1 and No 2 aluminium players.

Still, the rumour again highlights the clumsy structure of Alumina, passive 40 per cent partner in the Alcoa World Alumina and Chemicals.

Some punters were willing to bet on Alumina yesterday -- a legacy of the 2001 demerger of Western Mining -- being subject to some kind of knock-on takeout offer. Alumina shares retracted after being 9c (4 per cent higher) at one stage, but it's reasonable to ponder that the entity, which has little capital to support its share of AWAC's growth activities, will be tidied up in the near future.

Criterion maintains Alumina as a long-term buy on the grounds that the aluminium market (finally) is improving. The LME spot price is up 13 per cent so far this year, while "it" metal copper is off 3.4 per cent.

And if only because it's Compost Awareness Week, we give a nod to the recycling efforts of MHM Metals (MHM, $1.28), which yesterday announced commissioning of a salt-slag processing operation near Geelong.

MHM handles the local output of Aloca, which runs the Point Henry refinery.

Speculative buy.