Mining Week 36/’12: Anglo and Codelco compromise; Glenstrata in doubt
August 31, 2012
Top Stories of the Week:
- Anglo American and Codelco reach a deal on the Sur Complex
- Anglo agreed to sell a minority stake of its Chilean Sur Projects to Codelco at a significant discount, but the company receives over $2bn more than Codelco would have to pay according to its disputed buy-in option.
- Codelco partners with Mitsui in a JV that receives a 24.5% stake of the project.
- Codelco’s union representative voted against the new deal, announcing action to improve the terms for the Chilean company.
- Sources: Financial Times 1; Wall Street Journal; Financial Times 2; Financial Times 3
- Norwegian fund joins Qatar in opposition of Glenstrata merger
- Analysts speculate about a potential compromise on the price paid for Xstrata by Glencore: Glencore offers 2.8 shares per share of Xstrata, but Qatar’s sovereign wealth fund earlier indicated it would require a 3.25 ratio. In a new statement in which the fund says it will vote against the proposed deal the 3.25x ratio was not reiterated.
- Norges Bank Investment Management has also build up a significant stake in Xstrata. The Qatari fund could be able to block the merger alone (depending on its current ownership level) or with the help of a few other investors.
- Sources: Financial Times 1; Wall Street Journal; Financial Times 2
- Australian politicians struggle with mining ‘boom’ approach
- Iron benchmark ore prices continue to decrease, loosing more than 50% vs. the peak around $200/wmt early in 2011 and 36% year to date. The profits of the iron ore dependent miners has followed this trend.
- Royalties and income taxes on mining firms are an important pillar of the Australian budget, built for a large part around the newly introduced Mineral Resource Rent Tax. Several Australian politicians have expressed their concern with the perspective of a significant reduction of tax income. The MRRT alone was planned to bring in over $6bn of government income, but because of the progressive nature of the tax the income will be very small at current price levels.
- Sources: Wall Street Journal; Financial Times; text
Trends & Implications:
- Xstrata’s shareholder vote on the proposed merger with Glencore is anything but a done deal. Several large shareholders want Glencore to sweeten the offer of 2.8 shares of Glencore per share of Xstrata. However, the actual share ratio has been hovering around 2.65-2.70 since mid May, indicating that a significant share of the market expects the ratio to drop if the deal does not go on. Xstrata has higher value for Glencore than for current shareholders, but it is unlikely the company will want to pay more than the proposed 2.8x ratio and give all of that additional value to Xstrata’s current shareholders.
2012 | Wilfred Visser | thebusinessofmining.com