In today’s business news, several major developments have taken place across different sectors, ranging from mining closures and fashion industry struggles to shifting aviation strategies and ambitious government energy plans. These are the top stories making business news headlines in Australia.
Mineral Resources Shuts Down Yilgarn Mines, Redeploys Workers
Mineral Resources (MinRes) is closing its high-cost iron ore mines in the Yilgarn region of Western Australia, affecting around 1,000 workers. The company cited financial unviability as the key reason for the shutdown, which is set to occur by the end of 2024. Factors influencing the decision include the limited lifespan of the mines and the significant costs and lead times required to develop new resources.
Worker Redeployment and Future Plans
MinRes plans to redeploy as many employees as possible to its other operations. Additionally, the company has nearly 800 job vacancies and is ramping up its $3 billion Onslow Iron project in the Pilbara, prioritising displaced workers for new roles and retraining opportunities. MinRes may sell the Yilgarn mines but could face significant rehabilitation costs.
MinRes expects to ship about 4 million tonnes of iron ore from Yilgarn over the next six months before placing the mines into care and maintenance in early 2025. The company’s March quarter results indicated production costs of $107 per tonne at the Yilgarn operation, with realised iron ore prices down 18% from the previous quarter.
Now focused on the Onslow Iron project in collaboration with Baowu, AMCI Group, and POSCO, MinRes aims to ramp up production to 35 million tonnes per year by June 2025, eventually targeting 50 million tonnes annually.
City Chic Faces 30% Decline in Sales Amidst Financial Struggles
City Chic, a women’s fashion retailer, is poised to report a staggering 30% drop in sales, pushing its financials into the red. Consequently, trading of City Chic shares on the ASX has been suspended while the company seeks a $27.5 million emergency equity injection. Additionally, City Chic is selling its North American brand, Avenue, to FullBeauty Brands for $14.5 million.
Financial Rescue and Sales Decline
The emergency funds primarily aim to repay a loan from National Australia Bank, with the remainder allocated as working capital. Sales are projected to fall significantly in both domestic and international markets. Australian and New Zealand sales could drop by up to 32%, while sales in the Americas might decline to approximately $90 million.
Profitability Challenges
Despite efforts to return to profitability through new products and cost-cutting measures, City Chic now expects an adjusted loss of $9.3 million from continuing operations. The company has been aggressively cutting costs by reducing headcount, improving store rostering, and renegotiating warehouse terms to manage excess inventory and a slowing market.
Investor Reactions
Investors have been disappointed, especially since the equity raising is at a significant discount. City Chic shares have plummeted from $6.70 in October 2021 to 30¢, drastically reducing its market cap. Major shareholders, including billionaire Brett Blundy and various asset management firms, have taken note of these developments.
Virgin Australia Faces Uncertain Future Post-Hrdlicka
With Jayne Hrdlicka stepping down, Virgin Australia’s future remains uncertain. Positioned between Qantas and its budget counterpart, Jetstar, Virgin's simplified model focusing on short-haul international and domestic routes lacks the allure to attract top international talent.
Pricing and Market Position
Virgin competes by pricing tickets modestly lower than Qantas, which isn’t sufficient to attract customers dissatisfied with Qantas’ service. Despite strides under Hrdlicka, Virgin still faces a dominant competitor in Qantas.
Potential Sale
Speculations are rife that Bain Capital, which owns Virgin, might opt for a trade sale over an IPO. Industry experts suggest a strategic buyer could be in the picture, potentially with a new CEO announcement. Possible buyers include Singapore Airlines, Alaska Airlines, United Airlines, or Qatar Airways.
A trade sale, backed by a strategic buyer with deep pockets, might bolster competition against Qantas, benefiting both Bain Capital and the Australian flying public.
APRA Warns Super Funds on Asset Valuation Practices
The Australian Prudential Regulation Authority (APRA) has issued a stern warning to superannuation funds for not revaluing their assets often enough, which could result in unfair retirement savings for customers. APRA’s recent survey of 46 super funds highlighted significant room for improvement in valuation processes, particularly for private equity, property, and infrastructure assets.
Valuation Practices and Risks
APRA highlighted that even funds reassessing valuations regularly often fall short of optimal frequency, posing risks to customer balances. Issues of inflated valuations could affect returns, especially amid market volatility. The need for strong oversight and governance in valuation practices is critical, stressed APRA’s deputy chairwoman, Margaret Cole.
Impact on Customers
Inaccurate valuations can lead to unfair benefits for retiring members at the expense of younger customers. The Financial Reporting and Audit Authority (FRAA) has also warned about the implications of incorrect valuations on Australians' retirement savings, enforcing the need for super funds to enhance valuation practices.
Shoppers Save Big at Aldi: 25% Cheaper on Essentials
New research from consumer group Choice reveals that shopping at Aldi can save Australians around 25% on household staples compared to Coles and Woolworths. Secret shoppers compared prices at 81 supermarkets nationwide, finding that Aldi's basket of 14 typical grocery items costs $51.51, while Woolworths and Coles charge significantly more.
Regional Price Breakdown
Consumers in capital cities face higher grocery prices than those in regional areas, primarily due to the absence of Aldi in Tasmania and the Northern Territory. Here's a breakdown of prices across different regions:
- NSW: Aldi - $50.82, Woolworths - $69.04, Coles - $69.80
- Victoria: Aldi - $51.52, Woolworths - $68.66, Coles - $68.36
- Queensland: Aldi - $51.52, Woolworths - $68.23, Coles - $68.70
Federal Labor’s $1.1 million funding ensures ongoing quarterly price comparisons, aiming to boost competition in the supermarket sector. Choice's quarterly supermarket price comparisons will continue for the next three years, keeping up the pressure on grocery giants to deliver better value for Australians.
Campana Group Eyes $400 Million Reverse Takeover via ASX Listing
Singapore-based Campana Group, backed by Japan’s Mitsui, is planning a major $400 million reverse takeover to list on the ASX. This backdoor listing will leverage its partnership with Australian cloud services provider, Nexion Group.
Details of the Reverse Takeover
Campana plans to execute this listing with assistance from CLSA Australia. Nexion, which suspended trading in April, offers a range of cloud computing services across multiple regions. The challenge lies in convincing existing shareholders to meet the ASX’s 20% free float requirement.
Investor roadshows and formal investor engagement are slated to begin later in the year. Founded by aerospace engineer Myint Ohn, Campana provides crucial connectivity and cloud services in Southeast Asia.
Guzman y Gomez IPO Sparks Market Debate
The $2.2 billion float of Mexican fast-food group Guzman y Gomez, set for Thursday, has ignited intense market reactions. As the ASX sees fewer floats and more takeovers, this IPO stands out.
IPO Controversy
This IPO, led by TDM Growth Partners, has led to polarising opinions. Key points of divisiveness include the significance of the IPO, private equity influence, and the small $335.1 million capital raising, which has intensified demand among institutional investors.
Valuation and Growth Ambitions
The valuation of Guzman y Gomez is pegged at 32.5 times pro forma EBITDA, with ambitious plans to grow its 183-store network significantly over the next two decades. The company’s drive-thru model and secured new sites bolster investor confidence, although meeting these growth targets will be critical to sustaining its valuation.
UBS Expands Wealth Management in Australia
Michael Marr, leading UBS' local wealth management after its takeover of Credit Suisse, believes the merger will boost their edge in the battle for high-net-worth clients. His team is set to move into UBS’ Sydney offices by December.
Strategic Shifts and Wealth Landscape
With Wall Street giants intensifying competition for experienced advisors, UBS aims to capture the growing wealth of affluent Australians. The combined wealth of Australia’s 200 richest individuals surged to $555 billion by the end of 2022, driving banks to strengthen their wealth management teams.
Future Outlook
According to UBS, Australians are increasingly focused on legacy and philanthropy, presenting a significant opportunity for impact investments. Marr highlighted the Australian market’s need for a global investment perspective, particularly in sectors like technology, healthcare, and impact.
Peter Dutton’s Plan for Nuclear Power Stations by 2050
Peter Dutton has announced an ambitious plan to build seven government-owned nuclear power stations by 2050, with the construction to occur in two phases. Phase one targets having two small modular reactors (SMR) operational by 2035, while phase two aims for conventional reactors by 2037, pending viability comparisons.
Proposed Locations and Cost Projections
The proposed nuclear power stations would leverage the sites of old coal plants in regions like NSW, Victoria, Queensland, South Australia, and Western Australia. Estimated costs approximate $8.5 billion per plant, and the government will own and operate these sites.
Morwell Ready for Nuclear Energy?
In light of Peter Dutton’s nuclear energy proposal, Morwell and neighbouring Latrobe Valley towns have become the epicentre of Australia’s nuclear debate. Local business owners like Peter Ceeney of Plastic Fabrications have expressed cautious optimism, seeing nuclear energy as a potential means to reduce exorbitant gas bills and create jobs.
Latrobe City Council Mayor Darren Howe views nuclear as a serious option, while some residents and protesters raise concerns about safety and feasibility. Dutton's plan, which includes large-scale power plants and smaller SMRs, has sparked a critical discussion on the future of Morwell’s energy landscape.
