CIMIC Group Signs Agreement with Elliott Advisors
As of the 29th of July, CIMIC Group (ASX: CIM) is entering exclusive negotiations with UK funds advisor, Elliott Advisors Limited in an agreement to negotiate a 50 per cent investment into share capital for their subsidiary Thiess. This development takes place in the context of a favourable environment surrounding mining. With the rate of Thiess' growth supported by new capital, CIM is in a fortified financial position. In the coming weeks, more details of the negotiations will be finalised with all customary and regulatory approvals awaiting.
Elliott Advisors is an activist hedge fund that targeted BHP in a 'Fixing BHP' campaign, using their position as the third-largest shareholder as a platform for social responsibility. They suggested a demerger from US petroleum assets and led to BHP clarifying their stance on shale. Elliott Advisors has an AUD1 billion stake in Twitter and in the past made attempts to change board room members.
The macroeconomic environment since this time has been influenced by the COVID-19 pandemic; halting the sale of Thiess and influenced the price of metals and coal. In FY19, Thiess was CIMIC's best-performing subsidiary with AUD603 million in profit. This news positioned the company to mitigated the net profit after tax of a negative AUD1 billion, with the loss of BIC Contracting which operates in the Middle East region. This loss came at a 1.8-billion-dollar cost, clearing CIM's 45 per cent interest in BIC. Despite this, the company still paid a dividend and maintained a financial position strong enough to leave debt undrawn.
Thiess continues to support CIMIC with an awarded five-year extension by Jellinbah Group for mining services at Lake Vermont Coal Mine in Queensland. Expectations rest upon the generation of AUD2.5 billion from here and provide an attractive proposition for Elliott Advisors. More recently, the price of gold has reached past the expectations of 1800-mark and continued upwards. Likewise, iron ore has seen a strong upward trend over several months. OPEC meeting has somewhat stabilised oil prices, and as such, the mining sector is an attractive place for investors.
Taking a broader look at CIMIC over the last several months, there have been exciting developments within other subsidiaries. UGL has recently secured multiple contracts which will generate AUD180 million. The deals span across different industrial projects which include gas and oil and bolster the already impressive position CIMIC has that led to a Moody's upgrading their credit rating from a Baa3 to a Baa2, which is the 9th highest rating available.
The deal with Elliott Advisors will continue to progress over the course of the next few weeks. Yet, in the near term, all eyes will be on CIMIC when it releases its half-year results on the 30th of July, with expectations for full-year net profits ranging between AUD810 and AUD850 million.