Harvey Norman hits bargain basement after sales update

Sydney Morning Herald

Wednesday July 22, 2009

Edited by Jamie Freed

THE share price dive after Harvey Norman's quarterly sales update disappointed the market yesterday may have been bad news for most investors, but it proved positive for a select few.Harvey Norman shares closed 21c, or 6 per cent, lower at $3.26 after trading as low as $3.17.Before yesterday's scheduled trading update the retailer had been one of the most shorted stocks on the Australian Securities Exchange on Monday, 38 per cent out of the 3.2 million shares changing hands in short transactions.ASX statistics show the proportion of trades in Harvey Norman involving short sales rose each day in the week before the announcement, from 3.5 per cent last Tuesday to 26 per cent by Friday and 38 per cent on Monday.An ASX spokeswoman said the ASX regularly reviewed all trading before price sensitive announcements such as the Harvey Norman sales update.The identity of the shorters remains unknown, although Bloomberg said UBS and JPMorgan were the most active traders in Harvey Norman stock on Monday, and the ASX said UBS controlled 44 per cent of all trades but it was still unclear whether they were buy or sell orders.Macquarie Equities and JPMorgan had both published negative notes on the retaileron Monday.Glittering prizeAvoca Resources celebrated a small victory in its long-running battle for control of the West Australian gold miner Dioro Exploration when it gained acceptances from an additional 1.9 per cent of the register, taking its control to 19.03 per cent.But the success of the hostile scrip bid remains far from assured, particularly after Dioro on Monday evening revealed it was working on an alternative, friendly deal with Northgate Minerals of Canada.Credit Suisse has expressed puzzlement over Northgate's interest in Dioro, since its closest mining operations are in Victoria. It said Northgate's scrip would be unappealing to Dioro holders, although a recent presentation said Northgate had a cash war chest of $US88.4 million ($108 million), compared with Dioro's market value of $48 million.It will be interesting to see whether Lihir Gold's decision yesterday to place its troubled Ballarat operations on the market could lead Northgate to shift its focus away from Dioro. Northgate owns the Stawell gold mine 120 kilometres north-west of Ballarat and the Fosterville gold mine in Bendigo.Deutsche Bank has valued Lihir's Ballarat mine at $US50 million, despite its revised book value of $US100 million to $US200 million, while Citi values it at just $US18 million and Goldman Sachs JBWere at negative $39 million.Damp squibAn annual speech to investors by the Orica boss Graeme Liebelt on Monday night failed to pump up the explosive maker's share price. Orica shares closed 67c, or 3 per cent, lower at $20.56."Clearly someone was served a bad piece of smoked salmon," Goldman Sachs JBWere's dealing desk quipped.The cautious tone of the remarks, released to the ASX yesterday, would not have sparked in enthusiasm from the stock, but an earnings downgrade by Merrill Lynch is a likelier culprit for the poor trading performance.Liebelt said ammonium nitrate volumes were still expected to fall about 2 to 3 per cent in the second half compared with the same period last year, but he maintained guidance for full-year earnings to rise from last year's levels, excluding one-offs.But Merrill Lynch's warning that the North American ammonium nitrate market where Orica is the second-largest supplier was oversupplied and could remain so for years without capacity closures appears to have rattled investors.A weak market for coal in North America is also bad news for the mining services and Minova divisions, contributing to a 4 per cent reduction in Merrill Lynch's profit forecast for this year and 7 per cent for next year.Good as goldOceanaGold yesterday launched a $24 million capital-raising with help from Macquarie Capital Advisers, with the New Zealand gold miner understood to be offering the new equity to institutional and sophisticated investors at about $1 a share through a bookbuild.That would represent a 16.7 per cent discount to its last trading price of $1.20, and the funds would be used for more exploration in New Zealand and a revised study of a Philippines copper-gold project.David Baker, of Oceana's largest shareholder, Baker Steel Capital Management, told Xchange he backed the reasons for the raising and planned to take part.Oceana's chief financial officer and interim chief executive, Marcus Engelbrecht, attended investor presentations in the absence of his predecessor, Stephen Orr.Oceana, which produced 156,411 ounces at an average operating cost of $US347 an ounce in the first half, is still hunting for a new boss, despite last month advising the market it had a short list..Oceana yesterday reiterated its production guidance of 280,000 to 300,000 ounces for the full year.Rising starElsewhere in the mining sector, investors in the nickel digger Mincor Resources were pleasantly surprised by its strong quarterly production and cost results, which boosted its cash balance by $15.2 million over the period and beat its full-year production forecast.Shares in the debt-free Kambalda miner, headed by the industry veteran David Moore, closed 31c, or 20 per cent, higher at $1.90 yesterday, the highest since last September.xchange@smh.com.au

© 2009 Sydney Morning Herald

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