CIMIC surges as Thiess mining services sale talks finally close
Shares in contracting giant CIMIC jumped after it finally closed long-running negotiations over the sale of half of its Thiess mining services business.
Shares in contracting giant CIMIC jumped after the company said it had finally closed long-running negotiations over the sale of half of its Thiess mining services business to Elliott Advisers, the British arm of hedge fund Elliott Management.
CIMIC shares closed up $1.72, or 8.2 per cent, at $22.59, making the company the biggest mover on the S&P ASX 200.
The sale, worth $1.7bn to $1.9bn in cash proceeds, according to CIMIC, will relieve some of the strain on the company’s balance sheet exposed by its need to unwind controversial supply chain financing arrangements that have previously caused concerns about the true state of its financial position.
Elliott and Thiess have been locked in discussions for some time over the sale, which has been delayed by the impact of the coronavirus, and the deal will see the hedge fund, founded by US billionaire Paul Singer, become an equal partner in the business with the Spanish-controlled contracting giant.
Thiess runs mining operations across 25 projects in Australia, Africa, Asia and the Americas, with annual revenue of about $4.1bn. The deal excludes engineering group Sedgman, bought by CIMIC for $256m after a hostile takeover tilt, and now generating about $400m a year in annual revenues for CIMIC.
CIMIC was carrying $1.67bn in net debt at the end of September, but said it would be in a net cash position if its exposure to its struggling Middle East division, its share buybacks and the reduction of factoring arrangements were excluded.
Its use of reverse-factoring arrangements was down $705m to $146m, compared to the end of 2019, the company said, with factoring arrangements down $134m to $1.83bn. The company’s mining services division, dominated by Thiess, was CIMIC’s best performer in the first half of 2020, delivering pre-tax profits of $262m on revenue of $1.96bn, with profit up 11.3 per cent on the first half of 2019 even thorough revenue was down 4.6 per cent.
CIMIC executive chairman Marcelino Fernandez Verdes said Thiess remained a core part of CIMIC’s business, despite the sale of the half-stake.
“It capitalises on the robust outlook for the mining sector and, together with Elliott, we will pursue market opportunities in line with Thiess’s growth and diversification strategy,” he said.
The two companies will jointly control Thiess under an agreement spelling out governance arrangements, and Elliott retains an option to sell its share back to CIMIC at the end of three years — for the lower of the purchase price or its market value at the time.
The agreement could also see the pair spin Thiess out into a separately listed company, CIMIC said.
CIMIC said it expected the sale would generate a pre-tax gain of about $2.2bn, including the reduction of its factoring balance of $700m and lease liabilities of $500m.
In an amusing turn of events, Elliott’s 50 per cent stake in Thiess means it will be working for BHP at the company’s Mt Arthur coal mine in NSW — the centre of a pitched battle between Elliott Management and BHP in 2017, when the hedge fund pushed the mining major to sell the asset as it saw the thermal coal mine as one of the major barriers to reunifying BHP’s dual-listed structure. BHP chief executive Mike Henry recently put Mt Arthur on the market.
Thiess also recently won a 12-month contract mining extension at BHP’s Caval Ridge coking coal operation in Queensland.
