Nagging doubts as LionGold stalks its quarry

Will Castlemaine Goldfields have a bar of the LionGold offer?SHAREHOLDERS in Castlemaine Goldfields have more than 16 million reasons to proceed with caution as they ponder a takeover offer from their Singaporean suitor, LionGold.
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LionGold has been collecting gold assets around the world over the past year, and in early April offered two LionGold shares for every nine Castlemaine Goldfields shares in an all-scrip deal.

LionGold has promised to use its financial might to unlock extra value in struggling Castlemaine’s assets, which include the historic Victorian goldfields, scene of the Eureka Stockade in 1854.

But yesterday’s release of the Bidder’s Statement has raised doubts about LionGold’s financial strength, with a significant portion of the company’s finances tied up in overdue payments from an opaque private company based in the Marshall Islands.

LionGold confirmed that a private company, Enchante, had repaid barely 15 per cent of the more than $19 million it owes LionGold.

LionGold blamed delays in getting money for Enchante’s failure to pay the outstanding $16.39 million, and LionGold conceded in the Bidder’s Statement that there was some risk of Enchante defaulting on the debt.

Earlier this year when bidding for another ASX-listed goldminer, Signature Metals, LionGold conceded that Enchante had no accounts or financial statements that were publicly available for inspection. The outstanding $16.39 million is triple the $5.48 million of cash that LionGold has on hand, and comprises about half the $32.6 million that LionGold expects to have on hand by the end of 2012.

But LionGold’s chief operating officer, Errol Smart, told BusinessDay yesterday the company had dealt closely with Enchante in the past and had ”strong comfort that that money will be forthcoming” before the end of the year.

Mr Smart said LionGold had easily completed a recent convertible bond raising for $US23 million, demonstrating its ability to get finance when needed.

”We are not concerned at all about access to finance,” he said.

”We do have other avenues of financing as and when required.”

Castlemaine’s non-executive chairman, Gary Scanlan, also pointed to that raising as proof that LionGold could get funds, despite the difficult economic conditions.

He said the takeover offer was a case of ”relative risk assessment” for Castlemaine shareholders, and he stood by his recommendation that shareholders accept the offer.

Investors did not appear to be deterred by the state of LionGold’s finances, with Castlemaine shares closing half a cent higher at 15.5¢. The stock was fetching closer to 9¢ before the takeover offer was launched in April.

Aside from Castlemaine and Signature, LionGold has tried to get the private Australian gold explorer Brimstone Resources, which holds leases in Western Australia and Victoria. Other acquisitions have been for assets in Mali, Ghana and might soon include Bolivia.

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Greiner denies buy conspiracy

FORMER New South Wales premier Nick Greiner has denied allegations of bid-rigging brought against him by an investment company controlled by a Russian oligarch.
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Pala Investments, registered in the Swiss canton of Zug but ultimately controlled by Russian billionaire Vladimir Iorich, is suing Mr Greiner in a lawsuit also targeting the mining services company he chairs, Bradken, and the company’s chief executive, Brian Hodges.

In a lawsuit filed in May, the Swiss group alleges Bradken, Mr Greiner and Mr Hodges conspired with US private equity group Castle Harlan to buy cheaply an Australian subsidiary, Norcast Wear Solutions (NWS), which competed with Bradken.

However, in a response filed with the court on Tuesday, Bradken, Mr Greiner and Mr Hodges denied their ”commercial dealings” with Castle Harlan broke Australian competition law.

In addition to his role at Bradken, Mr Greiner sits on the board of Castle Harlan’s Australian affiliate, CHAMP.

While Castle Harlan is not a target of the Federal Court lawsuit, Pala last week filed a similar claim against it in the Supreme Court of New York.

In the Federal Court, Pala alleges Bradken and Castle Harlan reached an understanding that Castle Harlan would buy NWS, which makes liners for grinding mills, and then on-sell it to Bradken. Castle Harlan bought NWS in July last year for $190 million and that day flipped it to Bradken in a deal that earned it $US25 million.

Mr Greiner and Mr Hodges told the court Bradken learnt from Goldman Sachs that NWS was for sale in February 2011 but believed that it was excluded from the sale process because it was a direct competitor.

Bradken informed Castle Harlan about its interest in NWS and gave Castle Harlan a deposit towards the purchase of NWS on the same day the private equity group agreed to buy the company, they said.

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Creditors uneasy over transfer of Reed contract

CREDITORS owed up to $80 million by the embattled Reed Construction group are concerned that a contract Reed holds on the Law Courts project has been transferred to another company owned by Reed founder Geoff Reed.
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The transfer this week heightened concerns that Reed is on the brink of seeking voluntary administration.

Law Courts Limited said yesterday it had agreed to a proposal by Reed Construction Australia to novate the construction management contract Reed held for works at the courts to RBG Holdings Group Pty Ltd, the holding company for the Reed Group. It stressed that the overall $300 million project was with firm LCL, not Reed.

It said the measure would ensure continued employment of Reed Constructions project staff, ”retaining significant experience and knowledge of the project in its final stages”, and would also put in place a mechanism that retained all existing employment entitlements for the Reed workforce.

Law Courts said it provided ”the most certainty for the project to continue uninterrupted and avoids lost time and additional costs given the current circumstances surrounding Reed Construction Australia. Law Courts Limited intends to complete the project using the existing resources and contractors on site.”

The novation of the contract comes at a tense time for the company and its subcontractors and suppliers, many of which have not been paid for six months. Reed faces a wind-up application in the New South Wales Supreme Court next week from three creditors.

Reed’s future was under new pressure last week as the NSW Department of Education said it did not owe it money under Building the Education Revolution. Reed claimed substantial sums were owed under BER, and from road projects. Reed said last week it was still negotiating its BER claims.

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India’s boom now gloom

A chastised government is promising shelter from India’s economic storm.THE ”India rising” story was supposed to be one of uninterrupted growth, an irrepressible economic tide that would turn the world’s largest democracy into one of the 21st century’s economic powers.
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A rupee that has lost nearly a quarter of its value in 12 months, a soaring budget deficit, tanking sharemarket and savagely curtailed growth were never part of the plan. But this is India’s economic reality.

India’s economy has staggered to its worst position since the global financial crisis of 2008-09.

Inflation remains above 7 per cent, and, despite promises to cut subsidies, India’s budget deficit was 5.9 per cent in the financial year ended March, and will stay above 5 per cent this year.

The rupee is hovering at record lows, near to, and even briefly above, 56 to the US dollar, and has lost 24.8 per cent of its value since this time last year. Analysts predict it might fall as low as 58.50 in coming months if the European financial dilemma deteriorates.

India’s growth last quarter, 5.3 per cent, was the worst result in eight years. The manufacturing sector shrank 0.3 per cent in the quarter compared with a year earlier, while the farm sector grew by only 1.7 per cent.

India was once the darling of international investors, but foreign firms are now steering clear of the country. Several global telcos have quit India over corruption and uncertainty in licensing.

Gross capital formation – a measurement of fresh investments by companies – grew by 5.3 per cent last financial year, down sharply from 11.1 per cent the year before. As a proportion of GDP it has fallen below 30 per cent.

Worse numbers after bad have prompted Standard & Poor’s to cut India’s credit outlook from stable to negative, imperilling its BBB-minus investment grade status.

Finance Minister Pranab Mukherjee says India’s economic malaise is worse now than during the global financial crisis because this time the cupboard is bare.

He says the government does not have the money to repeat the huge stimulus program launched four years ago. ”The second round of global uncertainty and the slowdown has come rather quickly on the heels of the previous one, with practically no headroom for running a proactive fiscal policy.”

But, to the frustration of businesses and despair of India’s 400 million poor, finding an excuse to do nothing has become this government’s modus operandi.

Almost all of the Indian government’s major economic efforts – to allow foreign investment in multi-brand retail (supermarkets); to curb food inflation; to reform taxation and bring in a GST; or to stop the country’s rampant corruption (much of it within the government) – have failed.

A report from Standard and Poor’s this week, titled Will India be the first BRIC fallen angel? – said Prime Minister Manmohan Singh had no authority in the government. “The cabinet is appointed largely by Sonia Gandhi,” it said. ”Hence, the Prime Minister often appears to have limited ability to influence his cabinet colleagues and proceed with the liberalisation policies he favours.”

Dr Kanhaiya Singh, senior fellow at the National Council of Applied Economic Research, told BusinessDay in Delhi: “The government is in a precarious position, a position it has itself created. No one can give this government good marks. The management of inflation and interest rates, and of the economy generally, has not been good for the past few years.”

He said inaction had gripped the government, and time-sensitive decisions were deferred or abandoned because of political difficulties.

”And the major reason behind this indecisiveness is the eruption of a volcano of corruption. That has jeopardised the entire bureaucracy and the political system. No one will make a decision, everyone is too scared.”

Stung by months of criticism, the Prime Minister has committed his government to 10,000 kilometres of new roads, and 18,000 megawatts of additional power generation this financial year, as well as beginning work on 42 port projects and three new airports. ”In these difficult times, we must do everything possible to revive business and investor sentiment,” he said.

India’s unwillingness to use the good times of previous years to prepare for the bad – running up deficits even while growth was in double digits – encourage comparisons with the European economies now staring down imminent collapse. But analysts say that unlike Europe and its structural problems, India’s economic fundamentals are sound and the country can recover.

‘The fundamental ingredients of the Indian economy are intact,” said Kanhaiya Singh, from the National Council of Applied Economic Research. ”They are not jeopardised, so, once these upheavals are taken care of, and the international economic environment comes back to normal, India will quickly pick up.”

”The current problems facing the economy aren’t insurmountable,” Prashant Jain, chief investment officer at HDFC Asset Management in Mumbai told Bloomberg.

”With a few difficult steps, it should be possible to put it back on the rails fairly quickly.”

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Separating claims would cost $1bn in benefits

Aboriginal groups at odds over the James Price Point site marked for a $35 billion gas hub have withdrawn a bid to splinter native title claims after the West Australian Government and the project’s operator Woodside Petroleum threatened to suspend more than $1 billion in benefits.
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It is understood that there are long standing differences of opinion over the cultural significance of the claim site, which includes James Price Point, between the Goolarabooloo and the Jabirr Jabirr people of the Kimberley region.

The two groups have remained on the one native title claim since the 1990s, until last week where an application was filed to withdraw the claim which would have allowed two separate claims to be registered in time for the next round of land acquisition talks.

The move was understood to have seen both groups entitled to participate separately in future negotiations over the Browse liquefied natural gas hub proposal.

However, moments before going to court today, those behind the decision to splinter buckled under pressure from the WA government and Woodside to withdraw the application, leaving the conflicted groups to remain as the one negotiating body.

The hub at James Price Point is an option for processing gas from the Browse basin off the West Australian coast, but a final investment decision is not expected from Woodside until early next year.

Representing the joint claim lawyer, Vance Hughston told the Federal Court in Perth both sides had received letters from Woodside and the government shortly after the application to end the claim was lodged last week.

The groups were served with default notices in relation to the previous Browse Precinct Agreement, estimated to be worth about $1.5 billion, as well as notices to suspend their benefits under the agreement leading up to today’s hearing.

“The applicants are no longer prepared to push ahead with this discontinuance,” Mr Hughston said by videolink.

“The applicants find themselves in an impossible situation where the stakes are so high that they’re not prepared to take this matter any further without taking instructions from the broader group.”

Kimberly Land Council chief executive Nolan Hunter said the “extreme pressure from the State Government and Woodside has taken its toll on the Named Applicants,” in a statement after court.

“As a result, they instructed the KLC to withdraw the Discontinuance Application and hold an entire Goolarabooloo Jabirr Jabirr native title claim group meeting to decide whether the group should split and lodge individual native title claims, or if it should remain together as one group.

“Native title is important to the Goolarabooloo and Jabirr Jabirr people and needs to be determined to provide certainty to the group and resolve any internal issues.”

The validity of any state agreements signed by the group is expected to be challenged in the coming weeks.

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