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Posts Tagged ‘Rio Tinto’
M&A Share Attractiveness Ranking – February 2013
February 17, 2013
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The latest update of the M&A share attractiveness ranking for the world’s 40 largest mining companies demonstrates the current slump of gold (and to lesser extent copper) mining stocks. Discounting Ivanhoe, which has been taken out by Rio Tinto, ENRC tops the list of companies that might become the target of an acquisition. The company’s stock moved higher over the past weeks on acquisition rumors, reducing its attractiveness ranking, but analysts still see approximately 50% upside in the stock. Behind ENRC the ranking is dominated by gold and copper miners, with Anglo American the only non gold or copper miner in the top 10. Low gold and copper prices and the emergence of gold ETFs has depressed the share price of the miners over the past year, but most analysts still expect better times for this group of miners.
The thebusinessofmining.com M&A share attractiveness ranking is a combination of analyst expectations and current share level compared to the annual high, normalized against BHP’s share performance. The ranking provides a market perspective of how ‘cheap’ a stock is for potential acquirers.
Categories: Mergers & Acquisitions
analyst, Anglo American, BHP Billiton, copper, ENRC, gold, Ivanhoe, M&A, mining, ranking, Rio Tinto, share attractiveness, share price
Mining Week 3′/13: New CEOs for Anglo American and Rio Tinto
January 19, 2013
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Top Stories:
- Mark Cutifani is Anglo’s new CEO
- Anglo announced the appointment of Mark Cutifani, CEO or AngloGold, as the new CEO, replacing Cynthia Carroll in April. The departure of Mrs. Carroll had been announced some time ago.
- Mr. Cutifani has been heading AngloGold since 2007, working as COO of Inco before that. He is an Australian nation, but has extensive experience in South Africa, which should help Anglo to both manage the important government relations in South Africa and become less dependent on the country.
- Sources: Anglo press release; Financial Times Videos; Wall Street Journal
- Walsh replaces Albanese as CEO of Rio Tinto
- Rio Tinto announced the sudden replacement of CEO Tom Albanese by Sam Walsh, who had been heading the company’s iron ore group since 2004. Albanese and Doug Ritchie, the head of the coal group, stepped down because of write-downs of $14bn on acquisitions, including $10-11bn on the acquisition of Alcan in 2008, and $3bn on recent coal acquisitions in Mozambique.
- Sources: Rio Tinto press release; Reuters Videos; Wall Street Journal
Trends & Implications:
- With the departure of Albanese as CEO of Rio Tinto, each of the top 5 diversified miners has a replacement of CEO in a timeframe of 2 years. Only BHP Billiton has not yet announced who the new CEO will be. The previous group of CEOs started their jobs during the high-growth period in which the size of their companies grew exponentially, and then had to lead the same companies through the global financial crisis and debt crisis. The new chief executives will have to manage the performance of their companies in a period of lower growth and potentially more stability in terms of asset base and outlook.
2013 | Wilfred Visser | thebusinessofmining.com
Categories: Mining Week
Anglo American, business, Cynthia Carroll, Mark Cutifani, mining, mining business, Rio Tinto, Sam Walsh, Tom Albanese
Mining Week 47/’12: BHP sells diamonds; Anglo pays for iron ore
November 18, 2012
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Top Stories of the Week:
- Harry Winston buys BHP’s diamond business for $500m
- Diamond retailer Harry Winston has decided to buy BHP Billiton’s diamond business for $500m cash. The business consists of 80% of the EKATI diamond mine in Northern Canada and sorting and marketing units.
- Both BHP Billiton and Rio Tinto put their diamond businesses up for sale this year. Rio Tinto might be reconsidering that decision as it couldn’t secure a good price for its Diavik mine and its Indian holdings have come back with good exploration results.
- Sources: BHP Billiton press release; Harry Winston press release; Financial Times
- Anglo’s Minas Rio iron ore project delayed and more expensive
- Anglo American announced that Minas Rio, its 26.5Mtpa iron ore project in Brazil, will not start producing before the second half of 2014. The delay is caused by license issues around construction of power transmission lines.
- Anglo also announced that the total capital cost for the project is “unlikely to be less that $8.0bn”, making this the first major iron ore project which costs more than $300 per millions tonnes capacity.
- Sources: Anglo American press release; Reuters; mining.com
- Qatar’s support appears to seal GlenStrata deal
- The Qatar Sovereign wealth fund has announced it will support Glencore’s offer of 3.2 shares per share for Xstrata, making it very likely that the largest mining deal of the past years will become reality. Xstrata’s shareholders get to vote on Tuesday.
- Qatar, Xstrata’s 2nd largest shareholder after Glencore, also announced it will abstain from voting on the retention incentive package for Xstrata top management, making it very likely that this >$200m retention package will not become reality.
- Sources: Qatar holding; Financial Times 1; Financial Times 2
Trends & Implications:
- Anglo’s issues in Brazil demonstrate the enormous importance of getting power issues for large projects sorted out early. Last month Rio Tinto’s enormous Oyu Tolgoi project in Mongolia was only hinging on a power supply agreement with the Mongolian and Chinese governments. Many projects in developing countries either need to secure power supply from other countries or have to build their own power plants, forcing them to go through tremendous licensing issues and import natural resources to get their operations powered up.
- When the Xstrata retention package is voted down, a big group of top-level executives at Xstrata can be expected to start looking for new jobs quickly, opening up a great pool of talent for other companies. The corporate cultures at Xstrata and Glencore are so different that many miners will have to adjust to the more aggressive, top-down culture of the trading house. Many of the top managers will prefer to find a good job in another mining house instead.
2012 | Wilfred Visser | thebusinessofmining.com
Categories: Mining Week
acquisition, Anglo American, BHP Billiton, Brazil, business, Canada, diamond, Ekati, Glencore, GlenStrata, Harry Winston, iron ore, license, Minas-Rio, mining, mining business, power, Rio Tinto, Xstrata
Mining Week 46/’12: Lonmin vs. Xstrata & the CEO-carousel
November 10, 2012
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Top Stories of the Week:
- Lonmin raises equity to stay independent
- Lonmin announced a $800m rights offering, in that way fending of the proposal by Xstrata to increase its stake in the troubled platinum miner to a majority share.
- The strikes in South Africa, which escalated at Lonmin’s operations, have caused significant lost production and urgent financial issues for Lonmin.
- Sources: Lonmin press release; Financial Times; Wall Street Journal
- BHP starts search for new CEO
- BHP Billiton has started the search for the successor of CEO Marius Kloppers. Apparently the company will not necessarily promote an insider to the top position.
- With Mick Davis leaving Xstrata if/when the merger with Glencore is approved and Cynthia Carroll leaving AngloAmerican next year, 3 of the top CEOs in the mining industry will change.
- Sources: Financial Times 1; The Economist; Financial Times 2
- India limits export of iron ore
- Iron ore exports from the Indian state of Orissa will be limited strongly by new production quota for mines without processing facilities.
- The government is trying to attract processing investment to prevent iron ore is only exported without significant benefit for the country. High export duties (raised to 30% early this year) and production quota are used to discourage exports from the world’s 3rd largest iron ore exporter.
- Sources: Wall Street Journal; Commodity Online; Steel Orbis
Trends & Implications:
- Orissa’s attempts to curb exports don’t do much to stimulate local investment in processing capacity. India’s government announced a year ago that it would make it more attractive for companies to invest by setting up mining right and process plant permitting packages. With the current uncertainty about both global demand and India’s local demand outlook it is unlikely that large investments in additional processing capacity will be made in Orissa in the near future. As a result the will mainly slow down the local economy.
- Almost a year ago, after the announcement of Ferreira as new CEO of Vale, this blog conducted a poll among its readers to find out which top company CEO was mostly to be replaced first. The results showed most trust in the future of Kloppers at BHP. A year later 3 out of 4 are on their way out, while most CFOs have been replaced over the past 2 years too. The high level of activity in replacing top executives indicates a change of mindset in the boards of these companies: shifting from a focus on growth and investment to a focus on operational excellence and payout. The new group of top executives will mainly need to show a track record of cost-control and willingness to make tough decisions on closure of mines.
Results of Dec-2011 Poll on thebusinessofmining.com
2012 | Wilfred Visser | thebusinessofmining.com
Categories: Mining Week
Anglo American, BHP Billiton, business, Carroll, CEO, Davis, Glencore, India, iron ore, Kloppers, Lonmin, mining, mining business, Orissa, rights issue, Rio Tinto, strike, Vale, Xstrata
Mining Week 39/’12: Fortescue moves on; GlenStrata almost there
September 22, 2012
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Top Stories of the Week:
- Xstrata’s board votes October 1st on Glencore offer
- The decision by Xstrata’s board on whether or not to endorse Glencore’s new bid for the company is delayed by a week to October 1st. The endorsement might help to convince a majority of shareholders to accept the offer for 3.05 shares of Glencore per share of Xstrata.
- The debate around generous retention packages for Xstrata’s key managers started again as several large shareholders voiced their discontent. Glencore stressed nothing will change to those packages unless Xstrata’s board wants to adjust them. Finding a compromise to satisfy the key shareholders might be the final step for the board to make the deal happen.
- Sources: Wall Street Journal; Financial Times 1; Financial Times 2
- Fortescue solves debt problems by refinancing $4.5b debt
- Fortescue announced refinancing of $4.5bn debt with Credit Suisse and JP Morgan as underwriters. Debt maturity of the new deal is 5 years. The company was facing liquidity problems as low iron ore prices and aggressive investment schedules were undermining its ability to repay debt.
- Sources: Wall Street Journal; Fortescue announcement
Fortescue’s debt profile prior to refinancing
- Oyu Tolgoi waiting for power
- Rio Tinto’s Oyu Tolgoi mine is 97% complete, but negotiations with Mongolian and Chinese governments on power supply delay startup. Oyu Tolgoi built 220Kvolt power line to connect to the Chinese grid, but can’t sign a offtake agreement without consent of the Mongolian government
- Sources: Financial Times; The Australian; Project website
Trends & Implications:
- Oyu Tolgoi’s trouble to get powered is just one example of the challenges many large operations face to secure affordable power supply. The power requirements of a large operation require a significant change and development of power grids of many developing nations. Generation capacity is typically not readily available and the large offtake trigger discussions about long term price agreements.
- After meeting with Glencore’s board this week, Xstrata’s board appears to be working hard to make the merger/acquisition go ahead. It is hard to imagine another outcome in which Xstrata’s shareholders get more value for their company, making it likely they will accept the offer. If the deal is approved by Xstrata’s shareholders, the changes in holdings various large investors will likely make will give an interesting insight into the clientele effect the integration of a mining house and a commodity trader could have.
2012 | Wilfred Visser | thebusinessofmining.com
Categories: Mining Week
acquisition, board, business, China, clientele, debt, Fortescue, Glencore, grid, iron ore, merger, mining, mining business, Mongolia, power, refinancing, Rio Tinto, shareholders, Xstrata
Mining Week 33/’12: Coal, copper, iron ore profit drops
August 13, 2012
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Top Stories of the Week:
- Harry Winston chooses between BHP’s and Rio’s diamond business
- Harry Winston, the diamond retailer that holds a 40% stake in Rio Tinto’s Diavik mine in Northern Canada, is in talks with BHP Billiton to buy the Ekati operation, also in the north of Canada. Both Rio Tinto and BHP are trying to get out of the diamond business as they can’t realize the scale in the industry to make it a core business.
- Titan, part of the Tata group, is rumoured to be interested in an acquisition of Harry Winston and might emerge as a competitor in the consolidation movement in the diamond business with strong financial backing.
- Sources: Wall Street Journal; Financial Times
- Xstrata’s profit drops on prices and volumes
- Xstrata’s operating profit for the first half year dropped by 42%. Approx. half of the drop is attributed to lower commodity prices, the other half mainly to inflation and lower volumes.
- An important message communicated in Xstrata’s earnings presentation is the potential of the company to continue stand-alone in case the share acquisition by Glencore (supported by Xstrata management) fails. Xstrata’s shareholders get to vote on the deal on September 7th.
- Sources: Financial Times 1; Financial Times 1; Xstrata presentation
- Rio Tinto profits down on lower coal and iron ore prices
- Rio Tinto’s operating profit for the first half year dropped by 22%, mainly driven by lower iron ore prices and higher costs caused by lower grades and higher stripping ratios.
- Sources: Wall Street Journal; Rio Tinto presentation; Financial Times
Trends & Implications:
- Xstrata is among the few companies that manages to communicate (or achieve) a unit cost reduction in its earnings presentation, probably the largest driver of positive reception of the quarterly numbers by the investment community. By breaking out the ‘uncontrollable’ inflation part the company communicates it has success in cost cutting, even though nominal costs increased year on year.
- Most large miners are stressing the discipline of their capital investments in the latest presentations they are giving, promising only to invest if a good return can be achieved. The most prominent example of a potential cutback on capital expenditure is BHP’s announcement that it is reviewing the expansion of the outer harbour in Western Australia required to lift iron ore export capacity to the planned level. While trying hard to show the investments are responsible, the companies also try to communicate that ‘the industry fundamentals’ are still solid, mainly using the projected long-term growth of China as explanation. However, Rio Tinto’s updated demand forecast graphs are among the first that show a negative Chinese trend after 2030 (in line with the model presented on this site). Knowing that a large part of current big projects in iron ore and coal are planned to build capacity for more than 20 years these long-term prospects slowly start to make their way into investment decision-making.
©2012 | Wilfred Visser | thebusinessofmining.com
Categories: Mining Week
BHP Billiton, business, Canada, commodity prices, controllable, diamonds, Diavik, Ekati, Harry Winston, mining, mining business, production volume, profit, Rio Tinto, Xstrata
Mining week 26/’12: Resource nationalism & slowdown worries
June 24, 2012
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Top Stories of the Week:
- Glencore mine in Bolivia nationalized
- Bolivia nationalizes the Colquiri zinc and tin mine, one of 5 of Glencore’s assets in the country. The government promises to give a ‘fair compensation for equipment.
- The nationalization comes after several weeks of labor conflicts between Colquiri’s workers and Glencore’s local subsidiary
- Sources: Wall Street Journal; Glencore press release; La Prensa Bolivia
- Rio Tinto invests $4bln more in Pilbara region
- Rio Tinto has decided to spend an additional $3.7bln in the Pilbara region as part of its long-term investment plan.
- $2.0bln of the funds will be used for infrastructure enhancements to allow the company to meet its output targets. The other $1.7bln will be used to extend the life of one of the largest mines in the area.
- Sources: Rio Tinto press release; Financial Times; Fox Business
- Media stress commodity price uncertainty
- The disparity between performance of global mining stocks and metal prices is triggering debate in banking world and media about the potential impact of a further slowdown of the global economy.
- Sources: Mining Weekly; Financial Times
Trends & Implications:
- The uncertainty about short-term economic developments in both OECD countries and developing economies, most notably China, is causing share prices across the mining industry to lag the current performance of both metal prices. The uncertainty for short-term prospects apparently also affects the long-term outlook for the industry, making investors believe price and profit levels can’t be sustained. As a result, Price/Earnings (PE) ratios are dropping, causing market capitalization to go down despite good company performance.
©2012 | Wilfred Visser | thebusinessofmining.com
Categories: Mining Week
Barclays, Bolivia, business, Colquiri, Glencore, growth, infrastructure, iron ore, mining, mining business, nationalization, Pilbara, Rio Tinto, share price, tin, uncertainty, zinc
Mining Week 23/’12: Investment dilemmas for BHP and Fortescue
June 3, 2012
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Top Stories of the Week:
- Rumour around retention plan for Xstrata executives
- Several major shareholders have voiced discontent with the approx. $370mln retention bonuses for the top 72 executives of Xstrata that has been made part of the vote on the Glencore-Xstrata merger.
- Sources: Financial Times 1; Financial Times 2; Wall Street Journal
- Australian state governments fight for BHP investment
- BHP Billiton received environmental clearance for the expansion of Port Hedland’s iron ore harbour. The project could cost around $20bln up to 2022 to increase export capacity to 350Mtpa.
- The government of Southern Australia is pressuring BHP to start the expansion of its Olympic Dam copper/uranium project before the end of the year, threatening not to extend the permits. The Olympic Dam expansion is one of the key projects that might be cancelled or delayed as BHP tries to limit investment and return money to shareholders.
- Sources: Bloomberg; Business Spectator; Financial Times
- Fortesque worries about debt servicing
- Fortescue, Australia’s third largest iron ore miner, is close to completion of an expansion that will enable it to export 155Mtpa iron ore.
- The CEO of the company has indicated that it will focus on repayment of debt before undertaking further expansion. The company has received negative feedback from investors because of its high gearing. Its Debt/Equity ratio stands at approx. 45%, versus 26% for Vale and Rio Tinto and 15% for BHP Billiton.
- Sources: Fortescue media release on expansion progress; Wall Street Journal; 9News
Trends & Implications:
- If BHP decided to press on with the Port Hedland expansion at the expense of large development projects in other business units that would be a next sign that the supermajors are preferring the relatively predictable iron ore market over further diversification. Both Rio Tinto and BHP Billiton are considering sale of their iron ore business, BHP is in the process of reviewing the options for its Australian manganese operations, and Vale reached a deal last week to dispose its coal operations.
- The proposed retention bonuses for the top 72 managers of Xstrata add up to around $370mln, an average of some $5mln per person, 4% of last year’s profit, roughly 1-2 annual executive salaries per person, about $0.8 per share, or some 0.1% of share price. The bonuses are set up to keep the managers with the company for at least another 3 years. Even though we are talking about a lot of money that could trigger ethical debate about the executive pay in the industry, the shareholders hardly have any ground to protest the plan from a business perspective. Retention of the top managers after the merger should certainly enable the company to get a quick payback on the $370mln.
©2012 | Wilfred Visser | thebusinessofmining.com
Categories: Mining Week
BHP Billiton, bonus, business, copper, debt, Fortescue, gearing, Glencore, harbour, iron ore, manganese, mining, mining business, Olympic Dam, Port Hedland, retention, Rio Tinto, uranium, Vale, Xstrata
Mining Week 20/’12: Commodity outlook and potential US coal takeover
May 13, 2012
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Top Stories of the Week:
- Glencore and Rio Tinto fuel commodities outlook discussion
- Glencore’s Ivan Glasenberg joined his collegue at Noble group and Rio Tinto’s CEO Tom Albanese in stressing that there are no clear signs of a slowdown of Chinese commodities demand.
- Glasenberg stressed that inventory levels for many commodities are relatively low at the moment, contrary to the belief that increasing inventories should cause a drop of commodity prices somewhere in the next year.
- Sources: Financial Times; FT Video on Noble outlook; The Australian
- BHP Billiton rumoured to prepare bid for coal miner
- BHP Billiton is rumoured to prepare a bid for Walter Energy, a metallurgical coal producer with operations in the USA and Canada, and a project in Wales.
- Current market capitalization of Walter (WLT) is around $3.8bln, down roughly 50% from a year ago.
- Sources: The Telegraph; Wikipedia profile of Walter Energy; Bloomberg’s January analysis of potential takeover
- ArcelorMittal – Macarthur
Trends & Implications:
- A potential new takeover by BHP Billiton might be a good moment for BHP to announce writedowns on its acquisitions in the natural gas space. The acquisition of Petrohawk from Chesapeake last year is said to require a significant writedow as gas prices don’t seem to recover. Timing the market and combining the ‘exciting’ news of a takeover in the coal industry might partly overshadow the news of the writedown on the gas assets.
- The decrease of annual growth of the Chinese economy to single digit numbers is expected to impact construction and manufacturing activity in the short term, but the underlying outlook for the longer term continues to be a shortage of supply. Experts struggle to relate the overall economic growth numbers to short-term growth of construction sector, which drives most of the commodities demand.
©2012 | Wilfred Visser | thebusinessofmining.com
Categories: Mining Week
BHP Billiton, business, Chesapeake, commodity, Glencore, inventory, mining, mining business, Petrohawk, Rio Tinto, takeover, Walter, Walter Energy, WLT, writedown
