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ASX 200 rises on Christmas Eve

ASX 200
Credit: Cimexus

The S&P/ASX 200 Index (ASX: XJO) went up by around 0.3% to 6,665 points.

Here are some of the highlights from the shortened trading day on the ASX:

A2 Milk Company Ltd (ASX: A2M)

A2 Milk confirmed that, as previously contemplated, it has decided to enter into binding agreements relating to the acquisition of a 75% interest in Mataura Valley Milk (MVM), which is a dairy nutrition business in New Zealand.

The company said that the proposed acquisition will provide the opportunity for A2 Milk to participate in nutritional products manufacturing, provides supplier and geographic diversification and strengthens its relationship with key Chinese partners.

A2 Milk will spend NZ$268.5 million to buy 75% of MVM, based on an enterprise value of NZ$385 million. It will be funded from A2 Milk’s existing cash.

One of the main reasons for the acquisition is that it will establish dual supply arrangements alongside existing relationships with Synlait Milk Ltd (ASX: SM1) and Fonterra Shareholders’ Fund (ASX: FSF).

The manufacturing facility that MVM owns has been recently constructed and it’s operational. A2 Milk described it as world class.

A2 Milk also said that MVM is well located for access to a growing productive milk pool supported by favourable climactic conditions and water availability. A2 Milk thinks the deal would give the opportunity to produce additional infant nutrition products for China and other markets. Finally, A2 Milk is excited by the ability to capture manufacturing margin.

Geoff Babidge, the CEO of A2 Milk, said: “MVM provides a unique opportunity to acquire a new world-class nutritional products manufacturing capability in New Zealand, alongside a highly respected China state owned enterprise in China Animal Husbandry Group. We have worked closely with CAHG and MVM over recent months and have developed relationships with both teams that we are confident will provide a strong foundation for the business going forward. We continue to be impressed by the MVM facility and the management team.”

A2 Milk expects that during a transitional period, between FY22 and FY24, it will be approximately break even at the earnings before interest, tax, depreciation and amortisation (EBITDA) level, with positive EBITDA generation from FY25 when significant nutritional volumes will be manufactured at the site.

There will be transaction costs of approximately NZ$10 million which will be treated as a one-off expense.

The A2 Milk share price went up more than 1% today in response to this news.

BHP Group Ltd (ASX: BHP)

BHP gave a Samarco update today. Samarco is the Brazilian business that BHP owns half of. Samarco had a dam failure a few years ago.

The miner said that Samarco has met the licensing requirements to restart operations at its Germano complex and Ubu complex. It has commenced iron ore pellet production.

Samarco’s operations were suspended following the failure of the dam on 5 November 2015.

BHP said that Samarco’s gradual restart of operations incorporates concentrator 3 at the Germano complex and pelletising plant 4 at Ubu, as well as a new system of tailings disposal combining a confined put and tailings filtering system for dry stacking.

Independent tests have been carried out on Samarco’s preparations for a safe restart of operations. Samarco expects initially to produce approximately eight million tonnes of iron ore pellets each year.

The work by the Renova Foundation to remediate and compensate for the damages of the failure of the dam continues. BHP’s Brazilian subsidiary continues to support Renova in its work. By November, Renova had spent US$2.1 billion on its remediation and compensation programs, with US$620 million spent on indemnities and emergency financial aid to approximately 325,000 people.

The BHP share price went up more than 1% in reaction to this news.

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Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended A2 Milk. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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