Wednesday, December 31, 2014

Tungsten vitality goes missing for shareholders

There has probably been more lost in metals mining ventures in the Cairns hinterland over recent times than has ever been returned to shareholders. Never mind, Nick Dalton has found a screaming bargain: $1b tungsten mine proposed near Cairns in “perfect” economic storm
The $178 million construction phase is expected to start late next year, employing up to 250 workers at its peak over 20 months while 150 staff would be needed to run the operation. The 2.5 million tonnes per annum 10-year project is estimated to earn $526 million from revenue of $1.08 billion.
Unfortunately, the market response for Vital Metals on ASX has not been so positive in recent years:

The managing director of Vital Metals as reported by Nick Dalton in the Cairns Post is a Mr Mark Strizek. I can only presume this is the same Mark Strizek reported here by the ABC on Four Corners in 2010:
MARK STRIZEK, MINERALOGY GEOLIGIST (in helicopter, Pilbara): I mean we've got a truly world class, a huge iron ore deposit located right on the coast. We’re close to, it’s the first deepwater port that’s going to be built in the state for about 30 years or so.
SARAH FERGUSON: Mark Strizek is Clive Palmer’s chief geologist.
MARK STRIZEK: I think there's potential here between 50 to 100 years worth of iron ore product.
SARAH FERGUSON: Palmer’s first project here is being developed by Chinese owned Citic Pacific. They’re spending $US 5 billion to develop infrastructure, including a new port.
SARAH FERGUSON (to Mark Strizek): So that’s going to be Port Palmer?
MARK STRIZEK: That’s exactly right, yes, Port Palmer.
SARAH FERGUSON (to Mark Strizek): If we come back in five years there’ll be ships loaded on their way to China?
MARK STRIZEK: Absolutely, I think we’re going to see that at the end of this year or early next year, yes, definately.
SARAH FERGUSON (to Mark Strizek): So long as the boom keeps rolling in China you’ll be producing from here?
MARK STRIZEK: Absolutely. That’s right.
SARAH FERGUSON: The investment for this development was secured before the super profits tax was announced. But what about the project that Palmer said he had canned?
MARK STRIZEK: All approvals are done and we've also submitted the environmental approvals for the other, other three or four projects there.

There is no mention of the previous association with Professor Clive listed in Strizek's CV on the VML website. With more than 300 million shares on issue at less than 3c, a market cap of just $9 million and limited financial resources raising the substantial capital required to fund their 70% share of the project may be a dilution issue for existing shareholders.

Wednesday, December 24, 2014

Dreaming of a white-shoe Christmas

Who said it was a slow news time of year? Amidst a rush of news overwhelmed by human tragedy there was a story perhaps lost in the last week that proves God does indeed have a sense of humour. What else to make of the Queensland Police defending Professor Clive Palmer as an "innocent victim"?

It was this: Clive Palmer’s adviser Andrew Crook held in police raids; Kidnap accused released on bail; Kidnap accused released on bail

To cut to the quick the high profile media adviser to Professor Clive was bailed with passport removed on charges that he was involved in a kidnap conspiracy.

The allegation is that a trio of Crook, Tony Smith, and a dubious Gold Coast PI, who was previously removed from the Qld police service, lured a NAB banker to Indonesia for a job interview. The position was the financial controller for the global empire of Clive Palmer. They then attempted to coerce him to change his evidence in a previous civil action.

Bail conditions exclude going anywhere near the Southport NAB branch. This is the related episode: Tony Smith sues NAB for his lost fortune

Tony Smith had previously sold the tourism accommodation group Breakfree to MFS before the GFS hit. Tony then embarked on building the biggest home on the Gold Coast. This all came unstuck when the shit hit the fan and we found out who was swimming naked.

Tony Smith doesn't seem to have been directly related to the murky circumstances around the subsequent collapse of MFS. He had mostly removed himself as an independent investor and sought to employ the funds to build his white-shoe emblem.

There is a local white-shoe connection here in Cairns in that Crook Media have also been doing the work for Aquis. Crook split early in the year with Andrew Crook looking solely after Professor Clive while the remaining partners took the other clients. Ben Ready now looks after Aquis at the new firm with a new name.

Crook Media also acted previously for the now failed MFS / Octaviar. Michael King who was most implicit in the MFS quagmire subsequently turned up at Aquis: King gets back on the horse; Former MFS boss Aquis project manager; Fungs back Aquis project manager; Crook Media and Aquis. King has also been recently reported to have been bidding on behalf of HK interests for the mortgagee horsey assets of notorious boganaire Nathan Tinkler in the Gold Coast hinterland.

Michael King has now been moved on from any association with Aquis,  apparently on the basis that his involvement was limited to the Reef Casino gambit and not Yorkeys, which is different from what was previously reported. King is facing charges from ASIC on misappropriation of funds including allegations of fabrication of documents related to the collapse of MFS. Can't work out why that could be a probity question? Consultant moves on after Reef Casino bid fails

I'm dreaming of a white-shoe Christmas .......

...... just like the ones we used to know 

I can't wait for 2015.

Profiles: Andrew Crook, Tony Smith and Mick Featherstone

Update: Conspiracy allegations against Clive Palmer’s adviser detailed in court documents

Saturday, December 20, 2014

Bob gives good headworks

Cairns Post, July 26: Approval sought for $200m seven-tower project on Spence St Cairns
The first stage, a high rise on Spence St behind the police station, is set to be completed in 2016.
Aspial bought the site in February this year for $18.9 million and plans to start building on it by the end of this year.

ABC, November 12: Green light for first stage of $200m Spence St tower development
Mayor Bob Manning said he hoped construction of the first high-rise could begin before the end of the year.
"I understand from the Aspial people that there is an urgency to get this work underway, so I'm hoping that we might start to see some activity down on the land even before Christmas, although it may be after but one would hope to see that things are starting to move down there very, very quickly."

Cairns Regional Council, December 17: New incentives round to boost development
To be eligible for the discount, construction must start before 1 July 2015, with a completion date of no later than 30 June 2017.
The projects must have a construction value in excess of $15 million, with at least 80 per cent of the workforce sourced from the local area.
"Council considers that the value of the incentive scheme – that is, the money that Council is forgoing to bring these projects on - will be recovered in additional rates income from these developments inside five years of the completion of projects," Cr Manning said.
The previous round of the incentives program ended on 30 November. Nine projects with a combined value of $63.4 million were completed.

Cairns Post, December 18: Singaporean developer commits to new $120m towers in Cairns; Aspial sees city on rise
Meanwhile Aspial has been waiting for some sign or incentive to get the first $120m stage off the ground.
As soon as the Cairns Regional Council decides on a new round of infrastructure rebates to spark investors to get some projects moving, Aspial acts, with a headworks discount of about $1 million being all it takes for its chief Koh Wee Seng to give the first stage of two towers the green light with the aim of a July 1 start.

Perhaps I have missed some nuance but trying to figure out how a $1 million infrastructure incentive to start a project in the same timeframe that had already been intended can be anything other than a direct subsidy transfer from ratepayers onto the bottom line of a foreign developer for no return. I would like some of the Council numbers and assumptions on that payback period as it would seem to me to be infinite in these circumstances?

As previously posted Aspial may have already been recipient of an unintended subsidy via mis-valuation of the subject land for rates and land taxes, unless corrected: Land valuation weirdnesses revisited.

Friday, December 19, 2014

No change to flight path at Airport

Cairns Airport numbers for November are pretty much in line with recent trends:

The international recovery suggested last month was again hampered by schedule changes in November, with Auckland becoming seasonal to recommence in April, while traffic continues to grow on routes comparable with last year. Seasonal direct flights from China have now recommenced in December. The Chinese lunar new year falls late in 2015 on February 19.

Domestic passenger growth maintains a consistent trend above the national average. Meanwhile Flight Centre issued a profit warning yesterday which it attributed to a flat domestic leisure market:
"While several countries, including the large United Kingdom and United States businesses, are on track to achieve record results during the year to June 30, 2015, trading conditions in Australia remain challenging following the leisure travel spending slowdown late in 2013/14. This slowdown has led to lower than normal leisure sales growth in Australia during the five months to November 30, 2014 and slightly lower margins, as FLT's sales people have reduced commissions to lower overall ticket prices and stimulate demand."
"When we set our full year growth targets in August, we expected the uncertainty surrounding Australia's Federal Budget would have abated as the first half drew to a close and consumer confidence and spending would have started to rebound. Unfortunately, we are yet to see tangible signs of a full recovery and the overall leisure travel market in Australia continues to be flat year-on-year."
Note: Domestic passengers at the Airport will also include international travellers flying on domestic routes.

Thursday, December 18, 2014

Preliminary: employment & population

A quick preliminary post on todays regional unemployment data until the Conus Trend is available. The volatile raw monthly unemployment rate fell to 6.7% while employment did not change much. The bigger story may be that the participation rate also fell to an all time low for the series at 59.4%. The decline apparent here even on these raw numbers remains a concern:

Not unusually the Cairns unemployment rate this month comes with a warning flag on sample variability too high for most practical purposes.

The ABS also released updated national and state population stats today which will require a closer look before posting with particular interest in the interstate migration numbers.

Tuesday, December 16, 2014

Reef Casino treads water

Following the recent collapse in dubious circumstances of the Aquis takeover bid Reef Casino Trust (RCT) has today updated with its estimated distributable profit and distribution for the period ending December 31.
Our current estimate of the distributable profit* for the full year 2014 is approximately $12.1 million. This estimate is after deducting project costs of the lapsed Aquis transaction of about $600K. The premium play win in 2014 is expected to be lower than 2013 which had an ‘above theoretical’ win rate.

Adjusting for the Aquis costs and also the $250k high roller bad debt incurred in the first half would lift the 2014 result close to $13 million. That would still be well below last years result at $13.9 million. Results for the last 5 years adjusted for the extraordinary items in 2014:

Reef Casino reports results on a calendar full year with the second half (2H) typically stronger than the first (1H). Longer term comparisons are complicated by a pokie tax hike in 2009. Closure of the upper floor for renovations in 2012 had some impact that year also. Looking through all that the recovery from the Post-GFC hit doesn't seem to now be going anywhere much.

The extent of how much the above theoretical premium win rate in 2013 influenced results isn't clear. Have to wait for the full results in February but I would call this a slightly disappointing result. The 2013 profit result included EBITDA of $19 million. This was the number adopted by the 'independent expert' in the takeover documentation for the assessment of a fair value range on an EBITDA multiple.

Media reports subsequent to the infamous Junket to Macau included indications from Fung Snr of $20 million EBITDA. Difficult to see how it would not fall short this year on these latest numbers but will wait and see.

Meanwhile trading in RCT has recovered with reasonable liquidity in historical terms following the deep collapse after the Fung Fiasco. RCT have maintained the 2H distribution at last years 17.25c which is above the distributable profit and topped up from reserves.

RCT 2 year Chart

Friday, December 12, 2014

G20 eclipses Zumba

Queensland Economy Watch has employed Google Trends to assess that G20 had only minor impact on Brisbane’s profile worldwide.

I have replicated this for the Cairns G20 finance event with the trend for a search on "Cairns". This is the result for the last 90 days. The output here is daily and relative to the peak for the period which was the first spike in September at the start of the G20 weekend. This was just ahead of the second spike there in October which was when the nurse was admitted to Cairns Hospital with the suspected ebola false alarm.

However when we take a longer term perspective over the past year with a weekly trend the G20 (A) is not so prominent. The relative peak here back in April was Cyclone Ita. The other flagged news events with a label are mostly irrelevant or sport related.

Without any expertise on the nuances of Google Trends another perspective is to add a second search term "G20" shown in red. The relative peak here is the Brisbane leaders summit with the minor bump at label 'C" being the Cairns event.

In recent years it has been Cyclone Yasi in 2011 which has dominated the trend relativities which is similar to the Brisbane result where it was the floods at that time also. So to take a longer term perspective this is the available trend on a monthly basis from 2004.

The impact of G20 here would appear to have had minimal impact on the profile of Cairns based on Google Trends. The G20 month is only modestly above the Zumba world record attempt in February 2012.

Previous post back in 2011 on the trend for search terms 'Cairns Australia' and 'Great Barrier Reef': Google Trends & Insights

Tuesday, December 9, 2014

A comment in which I demonstrate some frustration on the insurance debate

I'm blocked by the Cairns Post on FB so this as my quick response to todays latest insurance beat up and subsequent comments presumably designed as a smoke screen for last weeks adverse finding from the Australian Government Actuary. When rationality fails, derp works:

The ignorance and misunderstanding which continues to be actively promoted by Warren Entsch and Cairns Post continues to astound. The Cairns Post can't even get a basic primary school percentage calculation right in this one!

1) No, despite the current storms down south NQ actually is higher risk based any empirical study that has ever been done. 2) No, requiring a regulated market to impose red tape on where and what insurers should cover is not a workable solution. 3) No, a state insurance office won't make the difference people think it will as Darwin actually is lower risk, and it wont happen anyway.

There are many criticisms that can be made of the insurance situation in FNQ but none of them have ever been addressed by either the Cairns Post, where innumeracy is apparently required for employment, or Warren Entsch who leaves no doubt every time he opens his mouth on anything financial why CEC went down the gurgler with him on the board as chairman!


I'm thinking of joining a quiet monastery somewhere ........

Friday, December 5, 2014

A Dalton too far?

Facebook post from a smiling Member for Cairns and Assistant Tourism Minister:

I can't yet find this posted online so let me attempt an accurate transcription:
"The tropical north has beaten the Gold Coast for the first time as the most popular destination in Queensland for international holiday makers"
"According to international visitor survey figures for the year ended September 30 this year, 665,000 international holiday-makers visited the region, 23,000 more than the Gold Coast and 155,000 more than Brisbane."
The International Visitor Survey breaks visitors down into categories such as holiday, business, education etc. This information is available at the DestinationQ website where it can be interactively graphed and downloaded. There were indeed 665,000 visitors to TNQ in the holiday category. This was 23,000 more than Gold Coast for the year to September 30 2014.
I have downloaded and graphed the Queensland regional data for the holiday category to enable comparison and analytical interpretation:
Yes, here we can clearly see that TNQ has surpassed the Gold Coast in this holiday visitor category for the first time ever! Oh, wait?

Accurate commentary on this recent International Visitor Survey can be found at Conus: International Tourism numbers continue to climb but TNQ still underperforming

Tuesday, December 2, 2014

Doing the sums for Crisafulli

The numbers in the video currently promoting cyclone preparedness come from Risk Frontiers a research unit at Macquarie University. I never did get around to another insurance post following the recent distressing experience of listening to Warren Entsch for an hour on the topic. Relevant to this disaster scenario, Wazza expressed that Cyclone Yasi shouldn't impact on Cairns premiums because there wasn't much damage in Cairns. Homer Simpson for Leichhardt  o_O

Among other risk delusions are that the insurers are ripping us off by exaggerating cyclone risk relative to event such as storms in SEQ and bushfires. This is a common misconception frequently also heard on talkback radio. It also popped up this week from Local Government Minister Crisafulli down in Townsville: NQ insurance rip off must stop
“I’m not asking insurers to charge people in other parts of the state any more but I am asking them to stop unfairly targeting the north,” he said. “This storm proves there is no greater risk in North Queensland, which has been the reason used by some insurers to jack up premiums.
“Whether it is bushfires in Vic, hail storms in Sydney or Brisbane or floods in central Queensland, we all live with a level of risk. “North Queenslanders are happy to pay our fair share for coverage but we just don’t want to be the whipping boys because of an unfair ­perception that there is a greater risk in our part of the country.”
Crisafulli is just plain wrong and is also directly contradicting the findings of the Australian Government Actuary. It also reminded me of a blog post discovered a while ago written by John Devaney at local FNQ insurance broker Joe Vella. This was I think written a couple of year ago and John has done a very simple back-of-the-drink-coaster analysis. It doesn't pretend to be anything sophisticated with some loose assumptions but is certainly superior to the public-bar-windbag anecdotal derp of Entsch and Crisafulli. This is an extract:

Written by John Devaney.

There are some parts of Warren Entsch's Opinion piece [Time to find answers on North's insurance crisis Cairns Post Oct 20] that correctly challenges the Insurance Council of Australia [ICA] to be more frank with consumers. Clearly there is an issue with the massive hikes in certain classes of property insurance.

That said I have a fundamental problem with the Entsch article. He focusses on what he sees as the inequitable price of insurance compared to other regions of Australia. It's good politics that score emotive points and much of that is understandable but it's inaccurate none the less. And it distracts from how we must face and attempt solve the problem.
Yes it's true that house and other property insurance in Brisbane, Sydney, Melbourne or even Darwin might be cheaper than Far North Queensland but Darwin has had one Cyclone in fifty years. Our region has had several major Cyclones in thirty years, two of those in the last six years.
The brutal reality is the mathematical imperatives that are in play. The following is pretty crude but it illustrates my point. The cost of claims is sourced from the ICA website.
The population figures are courtesy of Mr Google.
Table 1: Cyclone Yasi Cost per North QLD "Dwelling"
  • Total Cyclone Yasi Insurance Claims Cost $1,412,239,000
  • Population of Cairns 150,920 + Townsville 190,000 + Mackay 121,000 = 461,920
  • Divide Population by say, 4 persons representing 1 Family Unit = 115,480 "Dwellings"
  • Spread of Claims Cost across each Dwelling or Family Unit: $12,229
Now let's look at the Brisbane Floods
Table 2: SE QLD Flood Event Cost per South East QLD "Dwelling"
  • Total SE QLD Flood Event Claims Cost $2,387,624,000
  • Population Brisbane in a 200 KM radius from the Brisbane Post Office: 3,005,000
  • Divide Population by say, 4 persons representing 1 Family Unit = 751,250 "Dwellings"
  • Spread of claims Cost across each Dwelling or Family Unit: $3,178
This is the harsh, stark reality. The Flood event was almost double the cost of Yasi yet spread across the respective population bases Yasi cost Far North "dwellings" 4 times that of the Flood Event's cost to an equivalent "dwelling." Sure, the above figures include commercial losses in North QLD but they include commercial losses in South East QLD as well. The numbers would still crunch the same way.

Warren Entsch suggested we compare ourselves with Darwin. Fair enough.
Table 3: Cyclone Tracy amortised over 38 years (there have been no other major weather events)
  • Cyclone Tracy Claims Cost $ 200,000,000
  • Population of Darwin 120,000 divided by our 4 family average = 30,000 "Dwellings"
  • Spread of Claims across each Dwelling or Family Unit = $6,666
  • Amortised over 38 years = $175
Compare that to our region
Table 4: FNQ Cyclones & Weather Events amortised over 38 years
  • Winifred ($40 M) + Aivu ($26M) + Rona ($4M) + Steve ($11M) + Tessi ($15M) Larry $540 + NQ Deluge 2009
  • ($19M) + Yasi ($1,412,239,000) = $2,067,239,000
  • Spread of Claims cost across each dwelling or Family Unit = $17,901
  • Amortised over 38 years = $471
We have two fundamental problems we have to solve. We don't have the spread of numbers to sustain ever increasing losses from more frequent weather events.

So what happens now?

In my almost forty years in the industry there has only been three occasions that I can recall where the insurance market corrected itself, sometimes known as a 'hard market.' They were the 1990's recession, the 2001 post HIH crash and September 11 tragedy and in 2012 the floods, and Cyclone Yasi. In between those 3 corrections the market has been relatively defined as 'soft' in short, too under-priced.

Some insurance industry commentators suggest that the market will start to soften in the next two years. This time, I'm not so sure. There is far more accurate technology than ever before. In my view we have entered the age of computerised actuarial discipline – certainly when it comes to commoditised insurance products like house and motor vehicle policies. Insurers used to think – "let's dominate the market by cutting the price." The other classic rationale was "Jeez those chaps in North QLD are caning our profits. Thank goodness the Brisbane, Sydney, Melbourne markets can prop up the figures." That thinking is redundant. Now the market mantra is "Each region must be self-sustaining."

I think the Brisbane storm is currently up to about $200 million but it will go nowhere close to a big cyclone hitting a regional city relative to the written insurance premiums in each area based on historical experience and wont shift the analysis much. I have plenty of issues with the recent insurance situation in Tropical Queensland but sticking our heads in the sand and deluding ourselves on the relative risks avoids the core issues and understanding. It is simply seeking a subsidy from the rest of Australia.

Crisafulli is in fact asking other people to pay more even when he says he isn't. It can't be otherwise on any analysis of the numbers. Perhaps Crisafulli should instead take on the issue of state insurance stamp duty in cabinet which as posted here previously is a fiscal transfer from his constituents to Brisbane.

Update: Allianz has been selected as preferred buyer of TIO:

Sunday, November 30, 2014

Terry Ryder cuts loose on Aquis; retains buy on Cairns

Just over a year ago I posted an opinion from well know real estate commentator Terry Ryder on Cairns and Aquis: Reasons to invest in Cairns?
There are many reasons to consider buying in Cairns. But a grandiose plan for a $4.2 billion resort complex should not be one of them.

Ryder came out again this week with a positive opinion on the Cairns property market and a spray at Aquis: Not all doom and gloom for Cairns, despite $8 billion resort falling through
The most predictable thing to happen in Australian real estate this year is the decision not to proceed with an $8 billion resort in Cairns. 
The alleged Hong Kong billionaire who was allegedly planning to spend billions building an extravaganza in North Queensland has reportedly decided to spit the dummy because he can’t get what he wants. 
Terry's comments on recent  property performance in Cairns are more exuberant than I currently think is justified given the so far modest recovery in median values more broadly across the city has been patchy but regardless:

Here’s the question every investor must ask when they get excited about a location on the basis of one major proposed event: If this major event does not go ahead, is this still a good place to invest?
If the answer is no, don’t buy there.
Fortunately, the answer in the case of Cairns is yes. For the past two years, I have been recommending Cairns a good place to consider for property investment. The Fung furphy was never part of the equation that led me to that recommendation. When I first put Cairns in my hotspots reports, the grandiose resort had not been announced.
Cairns stacks up for other reasons...........

The City Leaders are having nothing of any "Fung furphy" and cheered on by the Cairns Post have journey'd off to Hong Kong bearing gifts of frankincense, gold and myrrh: Cairns Mayor Bob Manning leads delegation to show support to Fungs over Aquis casino resort plan

I wasn't previously aware or missed that Fung had also donated $10,000 to the LNP sometime last year*. Maybe that's why he was so annoyed when probity wasn't simply waived through? Always uncomfortable with such a close alignment of politics, business and media in what can be an insular provincial culture. There was a good lesson of where things can go badly wrong in those circumstances a few decades ago: With a nod and a WA Inc


Thursday, November 27, 2014

What price a second bid for Reef Casino?

There is today an Open Letter to the Cairns Community from Tony Fung. I expect media response will be typically sycophantic but there is nothing here which placates my concerns related to matters on the Reef Casino (RCT) takeover bid.
While we have been able to develop an alternative to full ownership of the Reef Hotel and Casino the failure of the offer will nevertheless require a comprehensive review of our strategy for AQUIS and may require some difficult decisions about the project.
The other factor which comes into play for the events around the RCT bid failure and the Canberra gambit is the role and strategy of Casinos Austria (CA). When the initial transaction was announced I thought it was pretty clear that the Canberra Casino would have been thrown in as CA wouldn't want to be left with that dog alone in Australia so insisted it go as part of any Reef transaction. Now Aquis proposes to acquire the Canberra property at a further reduced price from the initial arrangement while I suspect deliberately gaming for the Reef offer to lapse.

CA have taken $6 million for Canberra down from $8.8 million in the previous agreement. The independent experts report had some difficulty with a valuation of Canberra given its almost unique situation of a loss making casino. I think that valuation on an already written down asset basis may even be below the initial licence fee with scope for recovery and a floor under the value?

So Casinos Austria definitely wanted out of that problem but still leaves them with a 47% stake in Reef Casino which is far bigger by multiples than Canberra. Aquis have also said they may reconsider a bid again next year for RCT after a strategic review. There are some rules around this. Section 621(3) says:  
The consideration offered for securities in the bid class under a takeover bid must equal or exceed the maximum consideration that the bidder or an associate provided, or agreed to provide, for a security in the bid class under any purchase or agreement during the 4 months before the date of the bid.
So Aquis can't bid again below the expired offer price of $4.354 until after March 28th 2015. The independent experts report in the target statement assessed the fair value of Reef at between $3.23 to $3.99. That leaves plenty of scope for another bid well below the previous offer. The upcoming 2H2014 trading update from Reef will be of interest.

Meanwhile the thinking and strategy of Casinos Austria may be of as much interest as the ongoing oriental opacity around Aquis. There is almost no potential for any subsequent successful bid for Reef Casino without support from Casinos Austria.

Update: "I thought it was curious an investor would want to invest $8 billion in Cairns"

Wednesday, November 26, 2014

A brief weather interlude

The Bureau of Meteorology have after some months updated the data at Lake Morris as dam level drops closer to water restrictions.  I have no idea why this had not been updated since June. Anyway, may we hope it continues to be upgraded on a more regular timeframe! Tinaroo updates at least weekly.

Tuesday, November 25, 2014

I'm no lawyer but .......

Takeover Implementation Agreement between Reef Casino Trust and Aquis Casino Acquisitions Pty Ltd, dated 24 February 2014:

3.6 Conditions
(a) Each of the parties must, to the extent within its power, use its best endeavours to ensure that:
(i) the Conditions are satisfied as soon as practicable after the date of this agreement; and
(ii) none of the Conditions are breached or not satisfied.
(b) Target and Bidder agree not to do, or omit to do, anything which will, or is likely to, result in any of the Conditions being breached or not being satisfied.
(c) If any event occurs or becomes apparent which would cause any of the Conditions to be breached or become (either immediately or at some future point in time) incapable of satisfaction, or which would cause satisfaction of a Condition to be unreasonably delayed, Target and Bidder must, to the extent that they are aware of such information, immediately notify the other party of that event.

Statement from Office of Liquor and Gaming Regulation, 24/11/2014:
The nature of probity investigations is complex and intrusive and the length of any investigation is critically dependant on the availability of information and the cooperativeness of the applicant. To date important information remains outstanding from ...Aquis.

The Cairns Post, 22/11/2014:

In a letter obtained by The Weekend Post, Liquor and Gaming Commissioner David Ford has told the Hong Kong billionaire that Justice and Attorney-General department executive director Michael Sarquis had written to Aquis setting out “in considerable detail the outstanding matters of which the Office of Liquor and Gaming Regulation is presently aware and the information which is required to resolve them”. “Moreover, it stresses the importance of the three outstanding interviews that have recently been deferred at the request of Aquis.

Just saying?

Monday, November 24, 2014

Aquis circus caravan keeps rolling along ......

Clowns to the left, jokers to the right, and .......

Statements on Aquis from the Office of Liquor and Gaming Regulation, Michael Trout MP and Gavin King MP:

The nature of probity investigations is complex and intrusive and the length of any investigation is critically dependant on the availability of information and the cooperativeness of the applicant.
To date important information remains outstanding from ...Aquis.
While legislation governing investigations of this nature is different in both states, it should be noted the OLGR is conducting the investigation jointly with the ACT regulator.
On finalisation of the investigation each jurisdiction will form its own conclusions having regard to its statutory requirements.
It is also important to note that the proposed interstate purchase is for $6 million compared to the proposed Queensland purchase price of around $260 million. The monetary value is of significance to the OLGR given the investigation must consider the financial viability of the applicant.
The probity investigation is in its final stages and Aquis has been made aware of the outstanding matters to bring the investigation to a conclusion.
The Aquis investigation is being conducted in accordance with well established and internationally recognised principles. Its proper completion is critical in underpinning the strength and reputation of the casino regulatory environment in Queensland. This has been a key requirement in the Queensland casino legislation since the Casino Control Act was passed in 1982. The Queensland Government will not compromise the integrity of the probity process.
It is not appropriate at this point of the investigation to comment about findings.

We want development to happen and we welcome new investment opportunities, but we also want Cairns to be a safe environment to raise a family.
We will not apologise for having a very strict and stringent probity process on any new casino operator.
I welcome the news that the Fung family is committed to the Aquis project at Yorkey’s Knob.

We support the Aquis project, but not at any cost. Due process must be followed and we stand by the rigorous probity requirements.
If Aquis had extended its offer for the Reef Casino for another month it is my belief that the probity process would have been completed by Christmas, the same timeframe as indicated by the ACT Government.
Aquis has requested that the government continues the probity process, however there is still outstanding information from Aquis and answers being sought by OLGR and I urge Aquis to provide them as soon as possible.

Reef Casino: Ratf***ed by Fung*

Latest media this morning on the Aquis fiasco around Reef Casino:

Cairns Post: Aquis set back as Cairns Reef Hotel Casino takeover looks to fail after 13 out of 15 conditions ‘not fulfilled’

Courier Mail: Newman Government red tape holding up Cairns’ next big tourist attraction

Some overblown completely misleading hyperbole there in the C-M, particularly that Cairns property prices have "soared". Both these journalists were guests of Aquis on the Junket to Macau but apparently we are past the use-by date for disclosure on this by journalists?

This is the complete statement subsequently released this morning by Aquis:

 24 November 2014


RCT Takeover Offer

Aquis Casino Acquisitions Pty Ltd (Aquis) refers to the notice of status of conditions it lodged on 21 November 2014 in relation to its takeover offer (Offer) for Reef Casino Trust (RCT). The effect of this notice is Aquis cannot now further extend the Offer.

The Offer remains subject to Queensland gaming regulatory approvals. The Queensland Office of Liquor and Gaming Regulation (OLGR) have advised that, in their view, it is logistically not possible for the approvals to be granted by 28 November. Aquis has not been advised of a date by which they can be granted.

Accordingly, the Offer will close at 7:00pm (Sydney time) Friday 28 November 2014. All acceptances of the Offer will likely lapse at that time and RCT unitholders who have accepted the Offer will continue to own their units and will not receive the cash consideration offered.

Aquis’ plans for Far North Queensland

Aquis remains committed to being a major investor in Cairns and in Far North Queensland and is continuing its work towards progressing its proposed Integrated Resort Development at Yorkeys Knob.

Aquis will seek to continue to work with OLGR to progress its probity enquiries of the Aquis Group with a view to completing such enquiries as soon as possible

However, completing the RCT Takeover Offer in 2014 was always important to Aquis’ overall financial and investment plans. In this respect, Aquis will be undertaking a strategic review of its plans and development timetable over the coming months. Subject to such review and should OLGR be able to complete its current probity reviews in the short term, Aquis may be prepared to reconsider an acquisition of RCT in 2015. A new transaction would need to be negotiated with RCT, Casinos Austria and Accor. Therefore, there is no certainty any such transaction would eventuate.

Acquisition of Casino Canberra

The Aquis Group had previously agreed with Casinos Austria to purchase Casino Canberra, conditional on, among other things, obtaining ACT gaming regulatory approvals and the RCT takeover offer becoming unconditional.

The ACT Gambling and Racing Commission has indicated to Aquis that it may be possible to grant the ACT gaming regulatory approvals in 2014. Therefore, in light of the position of OLGR that it is logistically impossible to grant approvals by 28 November, Casinos Austria and Aquis have agreed that the acquisition of Casino Canberra is no longer conditional on the RCT Offer. Casinos Austria and Aquis have also agreed to reduce the purchase price to $6 million and completion will take place prior to Christmas (subject to receipt of regulatory approvals).

The reference there of the ACT takeover proceeding is extraordinary. As far as I am aware, and has been reported, the contentious probity investigation is being conducted jointly and the ACT has indicated only that it "may be possible". The logic linking that with a "therefore" to the November 28 deadline is simply not rational.

There are three possible interpretations that I can think of which all raise questions on strategy and integrity:

1) A deliberate attempt to politically blackmail the probity process.
2) Deliberately don't co-operate with probity to ensure conditions are not satisfied and the offer lapses as a way out.
3) They bid too much the first time and maybe can get RCT cheaper.

This is the RCT chart for the last two years to close of trade last Friday 21st. RCT this morning is now down below $2.75 and in the pre-offer trading range.

* Apologies for the post headline but can't think of a more apt description currently. 

Friday, November 21, 2014

Aquis Statement: tick tock stop the clock?

Aquis statement on status of conditions released late today (Friday). This is required at least 7 days before offer expires which is 7pm Sydney time, next Friday 28th. There is no waiver of outstanding conditions and no extension of offer period. Aquis previously indicated they were not minded to extend the offer if the conditions were not met by the 21st.

Will confirm but my understanding is that the offer now can't be extended within the last 7 days so would be dependant on the conditions, including the probity and regulatory issues, being satisfied within the next week else the offer will lapse?

The relevant section on any extension is at 6.5 in the target statement from Reef available at the ASX website:

6.5 Extension of the Offer Period
Aquis may extend the Offer Period at any time before giving the Notice of Status of Conditions (referred to in section 6.3 in this Target’s Statement) while the Offer is subject to Conditions. However, if the Offer is Unconditional (that is, all the Conditions are fulfilled or freed), Aquis may extend the Offer Period at any time before the end of the Offer Period.
In addition, there will be an automatic extension of the Offer Period if, within the last 7 days of the Offer Period:
Aquis improves the consideration offered under the Offer; or
Aquis’ Voting Power in RCT increases to more than 50%.
If either of these two events occurs, the Offer Period is automatically extended so that it ends 14 days after the relevant event occurs.
An Introduction to Australian takeovers publication from lawyers Minter Ellison provides useful reference information.  
Today's amazing update: Gaming regulator blames Fungs for Reef Hotel Casino Cairns probity hold ups

Thursday, November 20, 2014

Lazy plagiarising journalist maligns workers in Cairns as lazy?

Rare excursions into the Cairns Post fish'n'chip wrapper edition threw up an interesting yarn this week on a Cairns Chamber 'report' in the Wednesday business edition, thankfully not posted online.
The two organisations have developed a 10 percent Productivity Action Plan to tackle poor productivity with lazy staff costing Cairns businesses $178 million last year.
Oh dear. Staff bludgers. In the private sector now? The relevant section in the Cairns Chamber 'report' actually says:
Cairns lost $178,200,000 of productivity in 2013 through disengaged employees alone. That equates to $2740 forgone profit for every employee every year*
This is a joint 'report' between the Cairns Chamber and a local company, together currently selling a weekend retreat at some cost to enthusiastic participants. The asterix is noted. There are several in the report. These don't particularly reference anything meaningful that can be used to clarify any of the numbers in the 'report'. Notably such as this:
The average productivity value for an employee in Cairns is $96,000 (Cairns Regional Council Data). A small 10% improvement in the productivity of the 65,000 employees across Cairns would deliver an additional $1.198 billion* in sales to our region every year.

However yes, the Cairns Post variation from "disengaged" to "lazy" is from old mate Nick Dalton. Business editor at the Cairns Post. I wonder what kind of CV is actually required to be business editor at the Post? Let me reparaphrase an interpretation at least or more valid from a brief perusal of this so called 'report':

The two organisations have developed a plan based on unconfirmed proprietrary data to tackle a vaguely defined productivity problem in Cairns of inadequate management disengaging employees. We will charge fees for this.
Never mind. I would have thought a Cut & Paste copy from another source was itself also the definition of lazy journalism? Perhaps Nick could justify such lazy plagiarism as a productivity boost for News Ltd?

* Apparently the Cairns Chamber was too lazy to even bother to appropriately footnote the data in their 'report'. 

International numbers turning around at Airport

Cairns Airport stats for October:

While the international numbers were still negative on the previous year this has been coming back from the steep falls following Jetstar changes to the Cairns-Darwin-Singapore route and shows signs of turning around. Comment from the airport is also positive:

The international jet flights which operated in both October 2013 and October 2014 were between Cairns and Auckland, Guam, Hong Kong, Osaka, Tokyo and Fukuoka. Passengers who flew on these international jet routes increased 2,100 (6%). Papua New Guinea passenger numbers were stable.

12 month moving average

Domestic growth remains consistent although slower than in recent years and more in line while still ahead of domestic growth at other major airports. Sydney Airport has also released October numbers with domestic growth at 1.4% for YTD 2014. Sydney also noted improved fundamentals for the domestic airlines: "Load factors improved with a 2.1 percentage point increase on domestic routes, reaching the highest levels seen in three years."
The Sydney report also has an interesting table on international traffic growth by nationality for October:

Rank Nationality Sep-14 YTD-14 Rank Nationality Sep-14 YTD-14
1 Australia +0.8% +1.4% 6 Japan -6.0% +1.5%
2 N.Z. +5.4% +0.9% 7 Korea -1.8% +2.7%
3 China +24.2% +15.4% 8 India +5.0% +13.0%
4 UK -1.8% -1.5% 9 Malaysia +17.1% +14.0%
5 USA +9.0% +5.0% 10 Germany -2.2% +1.1%

Wednesday, November 19, 2014

Queensland regional jobs weakness continues

Following on from recent weak employment data the Department of Employment have updated their internet job vacancies for October. Deep blue highlights the decline in advertised job vacancies over the past year across regional Queensland:


I was surprised to see the NT shaded light blue however a quick look at the detail indicates that this represents the relatively small NT ex Darwin labour market. I'm not sure if Darwin has been left off the map or one needs a magnifying glass to find it? When Darwin is included the NT turns a deep blue also.

Regional boundaries here make it difficult to draw more detailed conclusions specific to Cairns as FNQ also includes Townsville. The boundary here seems to be more or less the Far North from the previous ABS labour force survey plus Townsville SA4. Anyway this is the more detailed numbers for the Queensland regions:

Regional IVI – October 2014
Index (May '10 = 100)
% change
Number of vacancies

Central Queensland
Far North Queensland
Gold Coast
Outback Queensland
Sunshine Coast
Toowoomba & South West QLD

Further commentary at Macrobusiness; also a recent post at Queensland Economy Watch on the regional employment data.