Archive
Posts Tagged ‘takeover’
Mining Weekly 52/’12: Copper Wars continued, South African taxes
December 24, 2012
Comments off
Top Stories:
- Copper Wars: First Quantum raises takeover bid for Inmet
- Almost 2 years after the consolidation in the copper mining industry was accelerated by the proposed merger of Lundin and Inmet, First Quantum is trying to take over Inmet to form a major copper producer. Inmet’s board rejected two earlier, lower bids, and is now facing a $5.1bn takover offer.
- The proposed Lundin-Inmet (Symterra) merger did not materialize because Equinox made a takeover bid for Lundin, after which Equinox was acquired by Barrick, which ‘won’ a bidding war with Minmetals.
- In attempts to get the Cobre Panama project funded Inmet earlier this year sold a stream with most of the planned precious metals production to royalty company Franco Nevada for an investment of approx. $1bn.
- Sources: Wall Street Journal; Financial Times; Newsday
- ANC will not nationalize South African mines, but wants to increase taxes
- The ruling ANC party has turned down a plan to nationalize the mining sector in the country. At the same time the party leaders do call for increased taxes to keep a larger part of the benefits from natural resource extraction in the country. No details on the tax increases have been given yet.
- Sources: The Globe and Mail; Wall Street Journal; Financial Times
Trends & Implications:
- The copper industry is in a phase of consolidation because many large development projects are in the hands of relatively small miners who don’t have the funds to develop the large projects on their own. With project pipelines being scrutinized in the light of slowing demand growth, large miners are searching for and buying those projects that are actually going to make it, and small miners with and without good development projects try to team up to combine operating assets with strong development projects.
- South Africa is already one of the countries with the highest effective tax rates to mining companies in the world, combining a 28% income tax rate with a 10% secondary tax, and adding mining royalties depending on the mineral mined. Further tax increases will make it very unlikely that foreign companies try to enter into the South African mining landscape, but will also make it more attractive for the large South African players to try to expand abroad.
2012 | Wilfred Visser | thebusinessofmining.com
Categories: Mining Week
acquisition, ANC, Barrick, business, Cobre Panama, copper, Equinox, First Quantum, Franco Nevada, Inmet, Lundin, mining, mining business, mining tax, Minmetals, South Africa, takeover
Mining Week 37/’12: Glencore increases bid to take over Xstrata
September 8, 2012
Comments off
Top Story of the Week: Glencore takes Xstrata bid hostile
- Hours before Xstrata’s shareholders were to vote on the proposed merger of equals, Glencore announced it would make a higher bid on different terms . If the vote would have gone on the Qatari sovereign wealth fund would most likely have blocked a deal.
- The new bid offers 3.05 shares of Glencore for each share of Xstrata, 9% up from the previous bid at 2.80x. In response to the bid Xstrata’s share price went up 8.6% on Friday, with Glencore’s share price dropping 2.9%.
- Key changes to the previous bid are:
- The ‘merger of equals’ will likely change to a plain takeover. As a Xstrata’s shareholders can simply tender their shares and Glencore gains control as soon as it gains a majority of shares (up from the current 35%). Under the former proposed deal approx. two-thirds of Xstrata’s shareholders excluding Glencore would have to vote in favor of a deal.
- The initially proposed governance structure with Xstrata’s CEO Mick Davis as the new CEO of the combined company is scrapped and Glencore’s CEO Ivan Glasenberg will take the helm of the new company.
- The exact details of the new structure are not yet known, as Glencore is yet to submit the new bid. The implications for the position and potential retention packages for Xstrata’s current top managers and the name of the new company will become clear when the new bid is published.
- Sources: Financial Times 1 2 3; Wall Street Journal 1 2 3; Reuters; BusinessWeek
Official reaction by Xstrata’s independent directors
Trends & Implications:
- Facing the likely rejection of the merger bid Glencore had little to lose in changing the terms for the offer. The likelihood of a takeover offer being accepted is much higher than the stakes the merger was going to happen on the proposed terms. Xstrata’s shareholders know that their changes of getting an even better deal than what is offered now are very slim and that they face an immediate drop in Xstrata’s share price if Glencore doesn’t gain control.
- The offer values Xstrata roughly $4bn higher, but as the company holds 35% of Xstrata already it would cost Glencore approx. $2-3bn extra. If the deal was canceled Xstrata’s share price was likely to lose the roughly 10% in value resulting from Glencore’s bid, amounting to a loss of $1-2bn for Glencore.
- The sudden governance change to try to make Ivan Glasenberg CEO of the new company is hard to understand. The merger setup was criticized earlier because of the strong focus on keeping Xstrata’s executives on board with generous retention bonuses. Either Glencore’s leadership never really believed they will not be able to achieve the same results as Xstrata’s leadership or they will keep most of the retention controls in place in the new offer.
2012 | Wilfred Visser | thebusinessofmining.com
Categories: Mining Week
business, CEO, directors, Glasenberg, Glencore, GlenStrata, merger, Mick Davis, mining, mining business, offer, share ratio, shareholders, takeover, Xstrata
Mining Week 25/’12: Whitehaven buyout options; Mine 2012
June 17, 2012
Comments off
Top Stories of the Week:
- Whitehaven rejects initial offer from largest shareholder
- Tinkler, largest shareholder of Whitehaven with over 20% of shares, is trying to arrange financing to buy the full group. An initial approach was rejected by Whitehaven as financing of the bid was not deemed solid.
- Whitehaven became Australia’s largest listed coal group last year after taking over Ashton. Share price dropped approx. 30% over the past 2 months, making the company an attractive buyout target
- Sources: Wall Street Journal; Financial Times; Reuters
- PWC launches ‘Mine 2012′
- Consultancy PWC recently published its annual study on the key industry trends in the mining industry, focusing on the 40 largest mining companies. This year’s report is titled ‘the growing disconnect’, zooming in on the paradox between the need to build new projects to increase supply and the reluctance by shareholders to have their companies commit funds to investment.
Record historical results, high commodity prices, and a bullish outlook shared by many miners continues to underline the industry’s strong fundamentals. But investors’ reluctance to emerge and support growth plans points to a growing disconnect between the market and the mining industry.
Source: PWC
Trends & Implications:
- PWC identifies the following key trends in their report:
- Increased volatility is here to stay
- Long-term demand fundamentals remain robust …
- … but supply will be the industry’s real challenge going forward
- Structural changes to the cost base
- Changing fiscal regimes and resource nationalism
- Capital expenditure requirements
- Can’t bring it on fast enough
- The report presents the numbers around investment and use of cash for the Top 40 mining companies: $98 billion was invested in capital projects in 2011 and plan for a further $140 billion for 2012. At the same time share prices have decreased across the line. PWC argues 2011 marks the start of the growing disconnect.
©2012 | Wilfred Visser | thebusinessofmining.com
Categories: Mining Week
business, coal, growing disconnect, investment, Mine 2012, mining, mining business, PWC, shareholders, supply, takeover, Tinkler, trends, Whitehaven
Mining Week 20/’12: Commodity outlook and potential US coal takeover
May 13, 2012
Comments off
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
Mining Week 19/’12: Week of the Investors
May 6, 2012
Comments off
Top Stories of the Week:
- Xstrata’s investors voice GlenStrata concern
- In the re-election of Xstrata’s directors the vote against re-election of Ivan Glasenberg, the head of Glencore, increased from 3.6% last year to 13.6% this week.
- When voting on Glencore’s takeover offer for Xstrata a group of approx. 17% of shareholders could block the deal as 75% of shareholders excluding Glencore’s 33% needs to support the deal.
- Mr. Glasenberg indicated most of the debate on the merger currently is about the share ratio, which Glencore currently offering 2.8 shares per share of Xstrata.
- Sources: Financial Times 1; Financial Times 2; Xstrata shareholder meeting results; Xstrata notice on Quatar shareholding
- BHP Billiton and Rio Tinto return cash rather than invest more
- Both BHP Billiton and Rio Tinto stressed their commitment to dividend and buyback policies this week.
- Though reiterating the sustained belief in the long-term growth fundamentals of the commodities markets, the focus of the messages in investor presentations is shifting towards limiting and phasing investment, rather than growing as fast as possible.
- Sources: Financial Times; BHP Billiton Macquarie presentation; Rio Tinto Asian investors presentation
Trends & Implications:
- Miners currently focus on returning cash to shareholders because of the combination of short-term cost pressures that make margins shrink and longer term uncertainty about the pace of growth of global demand and the direction of metal prices. Citigroup’s forecast of a falling overall capex (see below in FT’s picture) shows uncertainty about how many of the projects in the current pipeline are really going to make it. Investments in star projects are still done, but the projects that could turn out to be marginal or lossgiving are on hold.
- Mr. Glasenberg’s comments about the share ratio discussion appear to indicate that Glencore’s bid for Xstrata might be sweetened if the deal runs the risk of not being accepted in Xstrata’s shareholder meeting early July.
©2012 | Wilfred Visser | thebusinessofmining.com
Categories: Mining Week
BHP Billiton, business, buyback, capex, Citigroup, cost pressure, dividend, Glasenberg, GlenStrata, investment, macquarie, merger, mining, Rio Tinto, shareholders, takeover, vote, Xstrata
Mining Week 10/’12: Xstrata buys coal, Molycorp goes downstream
March 11, 2012
Comments off
Top Stories of the Week:
- Xstrata buys more Canadian coking coal
- Xstrata buys the Sukunka coking coal deposit from Talisman Energy for $500mln in cash. The deposit holds 236 million tonnes measured and indicated resource. The non-producing asset is located in the same region as two other assets bought by Xstrata last year.
- Sources: Xstrata press release; Talisman press release; Financial Times
- Glencore/Xstrata merger debates
- While the merger antitrust investigations for the GlenStrata merger are getting started, the executives of both companies are going on a tour to Xstrata’s major shareholders to get buy-in. Several large shareholders (Standard Life, Schroders) have indicated they will vote against the deal at the current 2.8 shares of Glencore per share of Xstrata valuation.
- Sources: Financial Times; Bloomberg
- Molycorp integrates downstream with $1.3bln takeover
- Molycorp, the largest non-Chinese miner of rare earth minerals, made a takeover bid for Canadian processing company Neo Material Technologies, for $1.2bln. The deal will be paid roughly in roughly 2/3 cash and 1/3 shares. The strategic objective of Molycorp is to become a strong player in processing rare earths into semi-finished goods and to gain a strong foothold in exports to China.
- Sources: Molycorp press release; Wall Street Journal; Financial Times
Trends & Implications:
- The continued investment in iron ore and coal assets by both the major diversified miners and many smaller players is based on a belief that the long term demand for construction materials will increase for several decades driven by two main trends: global population growth (more persons), and resource intensity growth (more material per person). Rio Tinto’s latest iron ore presentation summarizes these two points in the pictures below:
- The large mining companies reiterate these points every in every single investor presentation. Because many investors want to see more cash returned to the shareholdes in relatively uncertain times, the companies have to stress continuously that long term fundamentals look good and that large investments are needed.
©2012 | Wilfred Visser | thebusinessofmining.com
Categories: Mining Week
business, Canada, coal, coking coal, GlenStrata, intensity, mining, mining business, Molycorp, Neo Material Technologies, population, Schroders, shareholders, Standard Life, Sukunka, takeover, Talisman, Xstrata
Anglo American eyes Macarthur coal
August 23, 2011
Comments off
“Anglo American is considering a counterbid for Macarthur Coal in an attempt to gatecrash a A$4.7bn (US$4.9bn) bid for the Australian coal group from Peabody Energy and ArcelorMittal. Earlier this month, Macarthur said it was open to offers that valued its business at nearly A$5bn after formally rejecting an ‘opportunistic’ bid from Peabody Energy of the US and steelmaker ArcelorMittal. Source: Financial Times, August 21 2011
People familiar with the bid process said there were a number of interested parties, one of which was Anglo American. The mining group is said to be working with its traditional advisers, which include Goldman Sachs.
It is not clear whether Anglo will proceed with any offer, and talks are expected to come to a head in the next week. A deal would be the largest by Anglo since 2007, with its recent blooming profits creating a degree of financial flexibility that the company has not enjoyed for several years.”
Observations:
- Peabody and ArcelorMittal have made an offer to the shareholders of Macarthur after Macarthur’s board declined to agree to the offer and not search for higher bidders.
- Anglo’s metallurgical coal operations are currently mainly located in Queensland, giving a good geographical match with Macarthur’s operations.
Implications:
- The current stake of ArcelorMittal in Macarthur will be an important hinderance for other parties to make a counterbid. If their bid would succeed, they would still be left with ArcelorMittal as an important party in the board room.
- Potential other parties interested in buying Macarthur could be Chinese steel makers and/or coal miners, other large coal producers in Australia (Rio Tinto, BMA), government backed Indian coal miners, or even Vallar/Bumi. Based on the proximity to existing operations Anglo would be able to justify a higher premium than new entrants in the Queensland coal industry.
©2011 | Wilfred Visser | thebusinessofmining.com
Categories: Mergers & Acquisitions
acquisition, Anglo American, ArcelorMittal, BMA, Bumi, business, Citic, coal, Macarthur, mining, mining business, Peabody, Rio Tinto, steel, takeover, Vallar
BHP to Acquire Petrohawk Energy in $12 Billion Deal
July 20, 2011
Comments off
“BHP Billiton Ltd. said Thursday it plans to acquire Petrohawk Energy Corp. for more than $12 billion in cash, giving the Anglo-Australian mining company access to large shale assets in Texas and Louisiana in one of the largest deals of the year. BHP will pay $38.75 per share, a 65% premium to Petrohawk’s closing price on Thursday of $23.49 a share. The deal marks an important strategic step for BHP, which last year was rebuffed in a highly politicized $38.6 billion bid for Canada’s Potash Corp. of Saskatchewan Inc. One of the largest global mining companies, BHP has been eager to spend its war chest to diversify from minerals and mining into oil and gas. The Petrohawk deal will double BHP’s resource base in oil and gas, allowing the company to increase its production by about 10% for the rest of the decade, the company said.”
Observations:
- Key synergies targeted in the deal are in financing new projects: Petrohawk has the reserves, and BHP brings the funds to develop them. The premium of 65% reflects this increased investment, as it values the company on 7.5x PE rather than 4-5x PE.
- Last February BHP bought a set of shale gas assets from Chesapeake Energy for close to $5bln.
- In a poll on this blog in February 57% of respondents thought BHP should expand further in the oil & gas arena.
Implications:
- The $12bln tender offer is all-cash, largely solving BHP’s ‘problem’ of a huge cash pile that some people rather had seen returned to shareholders. With current high iron ore prices the company is generating cash much faster than it is able to invest in organic growth.
- The acquisition increases the weight of the petroleum business in BHP’s portfolio and makes BHP enter in the top 10 of largest petroleum companies in the USA. This development follows the entry of various large petroleum companies in the mining area through oil sand projects. Still it is unclear if more miners will position themselves as ‘large scale commodity producers’ active in both mining and petroleum businesses.
©2011 | Wilfred Visser | thebusinessofmining.com
Categories: Mergers & Acquisitions
acquisition, BHP Billiton, business, fracking, gas, hydraulic fracturing, Kloppers, mining, mining business, Petrohawk, petroleum, premium, reserves, shale gas, takeover
Copper wars: Lundin deciding on sale
May 13, 2011
Comments off
“Lundin Mining Corp. expects to say by the end of May whether it can reach a deal for the sale of the company as a whole or for the sale of individual assets. ‘We should be in a position…to give some indication (by the end of this month) in terms…of whether a transaction is likely to arise or not,’ Chief Executive Phil Wright said on a conference call Wednesday, following the release late Tuesday of the copper miner’s first-quarter results. Source: Wall Street Journal, May 11 2011
Lundin reported higher year-over-year earnings, but they still fell short of expectations as sales suffered from shipping disruptions. Toronto-based Lundin effectively put itself up for sale at the end of March, after a bid by Equinox Minerals Ltd. scotched plans for a merger with Inmet. Barrick Gold Corp. then agreed to buy Equinox, but Lundin executives said at the time they would continue to seek a buyer. Lundin is open to proposals to either sell the company outright or to sell off its assets piecemeal. But a sale or breakup of Lundin is ‘not a certainty,’ Mr. Wright said Wednesday.”
Observations:
- Lundin management is considering options to sell the company after they did not succeed in merging with Inmet and they decided not to cooperate with a sale to Equinox.
- The company’s most valuable asset is a 25% stake in the world-class Tenke Fungurume project in Congo. Freeport-McMoran holds the majority stake in this project and has the first right to buy Lundin’s stake if Lundin decides to sell.
Implications:
- The difference in taxation of an asset sale compared to a share sale will be an important consideration for Lundin, although the $100mln taxation hit of a total asset sale corresponds to only some 2% of the company value. Most likely it is easier to get a good price for individual assets (especially Tenke Fungurume) and in that way maximize total value for Lundin’s shareholders.
- The actions by Lundin’s management to put the company up for sale seem to indicate mr. Lundin, the founder and chairman of the company, has given up the hope to keep his company independent or to merge it with another small party to create a larger player.
©2011 | Wilfred Visser | thebusinessofmining.com
Categories: Financial reports, Market change
asset sale, business, Congo, copper, DRC, Freeport-McMoran, Inmet, Lundin, mining, mining business, takeover, taxation, Tenke Fugurume
