Cashed up companies to exploit market uncertainty: Robert Gottliebsen

The speculative investment boom was always going to be vulnerable to higher interest rates. But the combination of the crypto debacle and Elon Musk – after hashing the Twitter takeover – declaring that he never wanted to be a long-term chief executive is further tightening the ability of smaller enterprises to raise cash.

The change in market sentiment provides the opportunity for cashed-up giants to buy smaller enterprises that require large amounts of capital to fulfil their dreams.

And so OZ Minerals appears to have taken the view that its shareholders are best served by exploring the possibility of maximising BHP’s takeover offer by putting a board recommendation on the table.

And Australia’s recent gold success story, the $1.9bn De Grey Mining, appears to have come under the eye of the global gold giant Barrick.

There will be more such deals put on the table.

Clearly there is no direct connection between the crypto debacle and the OZ Minerals and the De Grey Mining situations, but the flow-on from a disaster like FTX affects the entire capital-raising market.

The FTX collapse was not simply a crypto exchange going wrong. The FTX-Alameda empire included more than $US5bn in venture investments scattered across some 500 crypto companies and venture capital funds.

All the investments appear to have been funded via borrowings, so when lenders tried to extract their money, naturally the empire couldn’t raise the funds because the assets were illiquid.

A vast number of those that relied on FTX-Alameda for capital will now go to the wall and the losses in this section of the capital market will spread outside the crypto ambit.

In most speculative equity booms, there is a crazy deal that signals the top of the market.

My candidate for the top of the 2022 speculative peak is the Musk $US44 bid for Twitter. Musk clearly had no carefully prepared plan to make the changes he believed necessary at Twitter. And now in a court case a shareholder is suing Tesla over the large salary paid to Musk in 2018.

The shareholder claims the board was so dominated by Musk that they agreed to his request for the big payment. Part of the board’s defence is that they wanted to motivate Musk to hang around for a long time. Musk now says that he never wanted to be a long-term chief executive.

If the Twitter debacle triggers major losses by the banks, it will combine with FTX-Alameda to damage confidence in the high-risk end of the capital market.

In the case of OZ Minerals, its willingness to talk to BHP was accelerated when it was clear that the costs of developing its project had risen. If BHP gains control of OZ Minerals, it will be a dream come true for the company because it will then control a major copper-gold-uranium province in South Australia.

By incorporating and rationalising the development of both Olympic Dam and its associated deposits with the OZ Minerals projects, it will achieve considerable economies of scale.

In the case of De Grey Mining, the company was raising money to develop its exciting gold prospects in WA when sentiment in the capital-raising market turned.

At this stage, Barrick is only putting out speculative feelers but if it wants to move on De Grey, now is its chance.

But there are many other small mining companies that are finding major gold prospects in WA, often in areas that were explored in previous gold booms. They will also need to determine whether to go alone or be absorbed by a major.

The copper market is currently depressed by the contraction of activity in China but comments by Chinese President Xi Jinping at the G20 summit suggest he is now at least looking at a very different set of strategies which, if implemented, will boost Chinese demand for copper.