Markets
Rio snaps up Turquoise Hill and BHP drags the index down: What we learned this week
Migrants to rescue Aussie business from the tight labour market, US jobless claims fall again and Australian's are still spending.
Rio to acquire Turquoise Hill
In an announcement on Friday, Rio Tinto (ASX:RIO) specified that the miner had reached an agreement to acquire full ownership of Turquoise Hill in a $4.84 billion deal. Rio will be paying $C43 per share in cash for the 49% of issued and outstanding common shares. This is a 67% premium to Turquoise Hill’s closing price of $C25.69per share on 11 March, the day before Rio Tinto initial public non-binding proposal to acquire the company. The offer is a 12% discount to Morningstar’s current fair value for Turquoise Hill of USD$37.21, as of 2nd September.
It was only earlier this year that Rio attempted to buyout Turquoise Hill for $C34 per share which was rejected as the deal did not “fully and fairly reflect the fundamental and long-term strategic value of the Company’s majority ownership of the Oyu Tolgoi project.” The buyout offers Rio Tinto a way to secure the copper mine owned by Mongolian company Oyu Tolgoi which was majority owned by Turquoise Hill.
Both Rio Tinto and competing giant BHP (ASX:BHP) have been trying to increase the value of their copper assets to reposition themselves as ESG friendly miners amid the growing demand for energy transition, with BHP putting in a $8.3 billion bid for Oz Minerals last month. Since the start of the year, Rio Tinto’s share price has slumped 9.5%, falling a further 3.5% just before Thursday’s close. Shares ended the week down 8.6%, swapping hands at $90.19.
BHP shoots share market in the foot
The ASX200 shed 1.8% on Thursday after heavyweight BHP’s share price tumbled over 7% giving investors a nasty stock. The dip in price comes as BHP’s shares began trading ex-dividend This means those who bought shares on Thursday or who plan to buy shares between now and the dividend payment date will not be entitled to the US$1.75 dividend per share. Theoretically, since new shareholders are not entitled to the upcoming dividend, the share price falls by the amount that will be paid. BHP is at the top spot of the ASX by market capitalisation, accounting for almost 10% of the ASX200. The 7.3% fall was enough to shake the overall index.
Migrants, the solution to Australia’s labour shortage?
The Labor Party’s two day, jobs and skills summit kicked off on Thursday this week to discuss current issues regarding the Australian economy and the workforce. On Friday, the Federal government confirmed Australia will be lifting its permanent migration cap from 160,000 to 195,000 for 2022/23. Home Affairs Minister Clare O’Neil addressed the change at the summit explaining that Australia has put too much of a focus on the temporary workers, leaving countries like Canada, Germany and the UK to snap up the “best and brightest”.
“One of the big problems is that we've created one where it is very easy to come as a temporary worker probably in a pretty low-skilled job but virtually impossible to come here permanently as a high-skilled worker,” she said.
The 35,000 increase in migrants could result in thousands more nurses and engineers permanently living in Australia said O’Neil. She further explained the detrimental impact Covid-19 and border closures on Australia’s labour market and the supply of migrants looking for work. O’Neil acknowledged that even though the government’s focus is Australian jobs first, there is a need for migrants. Australia’s unemployment rate is current at 3.4%, and according to economists is expected to fall even further despite many firms being unable to fill positions.
Australian Retail Trade data highlights
On Monday, the ABS released monthly and quarterly estimates for turnover and volumes for retail businesses, proving that Australian consumers are still increasing consumption despite rising interest rates and soaring inflation. All industries besides housing goods and retail experienced sales growth in July, with department stores increasing turnover by 3.8% since June. Clothing, footwear and personal accessory retailing roses 3.3% over the month of July, and total retailing sales increased 1.3%. When comparing total turnover in July this year to last year, there was a jump of 16.5%. Retail sales grew the most in the states of Victoria and the Australian Capital Territory, increasing 1.8% in both states.
US unemployment could trigger another big hike
US unemployment data will be front of mind for Fed officials as they go into their September policy meeting, the outcome could be the deciding factor when it comes to the Fed’s next move. Current forecasts are suggesting that US unemployment could hold steady at 3.5% next week according to August payrolls. On Friday, the US department of labour released data regarding jobless claims which fell for the third consecutive week. The data suggests that despite rising inflation and growing interest rates, Americans are maintaining their jobs.
What we are watching:
- Monday: ANZ job adverts data August
- Tuesday: RBA board meeting – interest rate decision
- Wednesday: Australian GDP growth rate Q2
- Thursday: RBA Governor Lowe speech