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Posts Tagged ‘Agnelli’

Mining Week 29/’12: Chilean peace talks

July 15, 2012 Comments off

Top Stories of the Week:

  • Anglo American and Codelco extend talks about Sur
    • Anglo American and Codelco agreed to suspend legal action in the lawsuits filed by both parties in the conflict around ownership of the Anglo Sur projects in Chile until August 24 to have more time to try to settle the dispute out of court.
    • Chilean media reported that a potential solution to the dispute might involve minority shareholder Mitsubishi to give up a small stake to enable Mitsui to build up a stake. Anglo sold 49% of the project at a high valuation after Mitsui and Codelco made agreements about a deal based on Codelco’s option to buy into the project.
    • Sources: Financial Times; Wall Street Journal; Anglo American press release
  • Agnelli heads new mining consortium in Brazil
    • Vale’s former CEO Roger Agnelli will head a new mining venture set up by investment bank BTG. Initial capital of the new venture: B&A Mineração.
    • The new company inherits a stake in a potash project in Brazil and a copper project in Chile and will look into further opportunities in Latin America and Africa.
    • Sources: Wall Street Journal; Financial Times
  • Tinkler continues with Whitehaven bid
    • Whitehaven, one of Australia’s largest coal miners with mines in Queensland, received a buyout proposal by its largest shareholder: Nathan Tinkler.
    • Tinkler already owns 21.6% of the shares and proposes to buy the rest of the shares at a 50% premium to take the company off the stock exchange. Total bid amounts to approx. A$5.2 billion.
    • Sources: Financial Times; The Australian

Trends & Implications:

  • The peace talks between Anglo, Codelco, Mitsui and Mitsubishi underline a trend of the growing importance of alliances and multilateral networks in the industry. As mining projects more and more take place in relatively unstable areas of the world an important mining projects require investments so big that it can hardly be carried by a single company, companies need to build upon the strengths and contacts of other companies and find win-win agreements with governments to successfully develop their projects.
  • B&A Mineracao is the 2nd high-profile mining startup in recent years, after Nathan Rothschild started Vallar 2 years ago. The initial success and quick issues of Vallar’s tie-up with Bumi demonstrated three important lessons for these startups that plan to be big soon: Firstly a powerful financier that can chip in multi-billion investments is needed to gain any importance; secondly a combination with existing producers is the only way in which the growth can be quick; and finally effective ownership and governance arrangements around these alliances are crucial to make the new management successful.

©2012 | Wilfred Visser | thebusinessofmining.com

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Exchange rates weigh on Rio Tinto profits

August 12, 2011 Comments off

“Rio Tinto’s iron-ore-driven profits set company records for the interim period but shares fell for a fourth day as investors’ flight from equities hits resources stocks hardest.

Tom Albanese, chief executive of the mining company, commented on the widening gap between miners’ rising earnings momentum and falling share prices. ‘There is a distorted set of economic drivers associated with the current uncertainties with respect to us and the European debt markets,’ he told the Financial Times. ‘You have an exaggerated diversion of ‘risk on’ to ‘risk off’ trades. It is difficult to come to any conclusions, but this is a backdrop that could persist for some time.’

… sector-wide pressures of rising costs and adverse exchange rates weighed on Rio’s profitability, contributing to earnings that missed consensus expectations. Higher costs for energy, materials and equipment lowered Rio’s underlying earnings by $479m, and exchange rates between the weak US dollar and strong Australian and Canadian dollars – currencies in which it incurs costs – reduced them by a further $810m in the first half.”

Source: Financial Times, August 4 2011

Observations:

  • Total increase of earnings because of price increases ($5bln) was offset by almost $3bln lower earnings because of volumes, costs and exchange rates.
  • Just as Anglo American, the company gives a detailed explanation of the rising costs, providing rare details on the waiting times for various types of equipment (see outlook – page 8). The outlook shows the average delivery time for equipment currently is approx. 6-9 months higher than average.
  • The impact of lost volumes because of weather impact (hurricanes & floods) in the first half of the year, often mentioned as important driver of prices, is only $245mln.

Implications:

  • Rio Tinto does not appear to be concerned with the current importance of iron ore as the driver of earnings. The company regards construction industry growth in China the most important metric for the economic outlook and mentions expansion of production capacity of Western Australian iron ore mines as key development priority. The company joins competitor Vale in this single-minded focus, while BHP Billiton appears to be more committed to diversify, as signalled by its acquisitions in the shale gas industry.
  • The presented $26bln capex package does not yet include projects in advanced feasibility stage such as Simandou (iron ore in Guinea). The relatively conservative dividend and buy-back program does leave room for very aggressive development spending and helps the company to keep a very low gearing. So far all major miners choose to keep the gearing low despite their positive commodities market forecasts.

©2011 | Wilfred Visser | thebusinessofmining.com

Vale: Roger Agnelli vs. Dilma Rousseff

March 28, 2011 Comments off

Sources: Barclays Bradespar Analyst Report Nov. 2010, Vale SEC Filing FY2010

Observations:

  • Dilma Rousseff appears to have won the battle to replace Vale’s CEO Roger Agnelli, as various Brazilian and international newspapers are reporting a more government-minded chief will be appointed instead of renewing mr. Agnelli’s contract.
  • As displayed above the government has strong control over the world’s largest iron ore miner. Valepar S.A., the controlling shareholder, is 49% owned by state pension funds and the government has large influence on two of the three other major shareholders: BNDES, the state development bank, and Bradespar, a daughter of Brazil’s second largest private bank.
  • Key reason for the Brazilian government to push for replacement of mr. Agnelli is the conflict of interests between the company’s shareholders and the Brazilian government. Vale focused on cost cutting in the crisis while the government would have liked the company to keep employment high; Vale had ore carriers build in Asia, while the government would have like to have domestic shipyards build the ships; Vale tries to minimize taxes and royalties paid, while the government tries to maximize revenues.

Implications:

  • As long as iron ore prices stay high the change of leadership is not likely to have a major impact on Vale’s international behavior. The company will likely get more closely involved in Brazilian steelmaking, potentially allying with Gerdau in development of domestic projects. If prices drop, expansion focus will be more centered on Brazil to please the government.

©2011 | Wilfred Visser | thebusinessofmining.com

Vale reports record full year financials

February 28, 2011 Comments off

“Vale, the world’s largest iron ore miner, reported record net profit for last year as demand remained strong in China and nickel volumes recovered. The company on Thursday said it earned net profit of $17.26bn in 2010, more than three times what it made a year earlier, as sales reached $46.48bn, nearly double the $23.94bn of revenue in 2009.

Asia accounted for more than 53 per cent of operating revenue, with China contributing more than 33 per cent and Japan 11 per cent.”

Source: Financial Times, February 25 2011

Observations:

  • Revenue for 2010 is 21% higher than the previous record of 2008. EBIT, EBITDA and Net Earnings are up over 30% since 2008 as the EBITDA margin increased by 6%, mainly driven by higher iron ore prices. Earnings per Share of $3.25 are on the top side of analyst expectations.
  • The company is working on iron ore expansion projects in Carajás (Northern Brazil) and the new Simandou deposit in Guinea. Apolo (Brazil’s Southeast system) and Carajás Serra Sul are further down the line of expanding production, planned to be delivered in 2014. Ferrous minerals accounted for 92% of adjusted EBIT over 2010, showing the company’s large dependence on iron ore prices.
  • Expansion for non-ferrous commodities mainly takes place outside Brazil: Mozambique’s Moatize coal project; Zambia’s Konkola North copper project; Argentina’s Rio Colorado fertilizer project; and Peru’s Bayovar fertilizer expansion signify the increasing international presence of the company.

Implications:

  • The improved gross margin of the company does not indicate it has costs under control, but mainly that prices were higher. Vale did not suffer from exchange rate fluctuations as much as its peers as most of its costs are incurred in currencies linked to the dollar, but it mentions cost pressures in the areas of depreciation (resulting from expansion of the equipment fleet) and in procurement.
  • Cash position of $10bln at the end of 2010 and the outlook to beat last year’s cash flow from operations of $20bln in 2011 gives Agnelli a lot of flexibility in expanding. Vale will have to use the pile of cash to build a sustainable position among the supermajors even if iron ore prices come down. As the senior management indicates no major acquisitions will be done, the company will focus on organic growth (33 projects to be delivered by 2015) to achieve this objective.
  • When presenting the results no mention was made of election of a new CEO for Vale. Reelection of Roger Agnelli when his current term ends in March is not fully certain as tensions with the government are mentioned. Henrique Meirelles, Brazil’s former central bank governor, and base metals chief Tito Botelho Martins would be potential candidates to succeed him. The decision will have to be made by the powers behind Vale: the Brazilian government, Pension fund Previ and Banco Bradesco, and Mitsui.

©2011 | Wilfred Visser | thebusinessofmining.com

Newcrest Earnings Surge as CEO Steps Down

February 11, 2011 Comments off

“Newcrest Mining Ltd. Chief Executive Ian Smith unexpectedly resigned from the world’s fifth-largest gold miner Friday, as the company said fiscal first-half net profit more than doubled to 437.8 million Australian dollars ($439.4 million) from a year earlier.

Mr. Smith, who took over as head of the company in July 2006, said he was leaving to ‘pursue other areas of personal interest’ and would be handing over to Greg Robinson, the company’s executive director of finance. His resignation surprised many in the market, who had expected to see Mr. Smith enjoy the fruits of his labors after turning the company around and completing the acquisition of smaller rival Lihir Gold Ltd. in September.”

Source: Wall Street Journal, February 10 2011

Observations:

  • Newcrest bought and quickly integrated Lihir last summer in an $8bln deal, almost doubling the production capacity of the company.
  • In the wake of the financial crisis and with the increase of the gold price over the past decade directors of gold miners seem to see a lot of worth in finding CEOs with a solid financial background. Barrick’s Aaron Regent, Newmont’s Richard O’Brien, GoldField’s Nicholas Holland, and Newcrest’s Greg Robinson all held CFO positions prior to being appointed CEO.

Implications:

  • Mr. Smith is mentioned to potentially take a top position at either BHP Billiton or Rio Tinto. However, he denies having any concrete plans for a future executive job at this moment. CEO positions at both Anglo American and Vale might become available in the near future: Anglo’s Cynthia Carroll has completed a successful turnaround of the company, while Vale’s Agnelli sees the term in which he turned the domestic champion into the world’s second largest miner end this May. Vale’s board is likely to either give Agnelli a new term or to appoint another Brazilian CEO to ensure good political ties with the government.
  • Expansion of the current group of diversified miners into gold mining should not be ruled out. As they currently hold minor positions in the precious metals market, this might be one of the fields where large deals are still approved by regulators. However, with current gold prices any deal would be based on very high valuation and closed at a high price.

©2011 | Wilfred Visser | thebusinessofmining.com

Top 10 Priorities of Vale’s CEO Roger Agnelli

September 2, 2010 2 comments

Roger Agnelli

What are the things the CEO of the world’s second largest mining company is worried about? What is Vale’s CEO Roger Agnelli doing to catch up with BHP Billiton? What is on top of his “To Do”-list?

An analysis of Vale’s latest annual and financial reports, investor presentations and the news about the company in the last months yields a list of 10 issues that are likely to be at the top of Agnelli’ list of priorities.

The list holds strategic, operational, financial and relational activities, each of which are scored in terms of importance and urgency. Priority 1 on the list is trying to prevent BHP’s acquisition of PotashCorp. Priority 10 is managing breakthrough innovation of copper processing in Carajás. Read on for the full list of priorities.

1. Assess opportunities to prevent BHP Billiton’s PotashCorp acquisition

BHP Billiton has made a hostile $39bln acquisition offer for PotashCorp, thus following Vale’s move of entering the potash business as a diversified miner. However, the potential changes to the market and to potash pricing (currently controlled by regional cartels) are likely to make Vale’s potash assets uncompetitive. Although the company has denied being in talks with PotashCorp to find alternatives, Agnelli will certainly devote a large portion of his time to finding a response to BHP’s offer.

2. Manage integration programs to reduce costs

Vale has grown rapidly partly because of a large number of acquisitions. Insiders comment that many of the acquired companies have never been integrated completely, creating operational inefficiencies and a lack of corporate culture. To sustain growth, Agnelli will be working hard on realizing the synergies from acquisitions by building global businesses. Part of this assignment is the carve-out of the aluminium business, which has been sold to Norsk Hydro this year.

3. Anticipate on Brazilian election results

Brazil will elect a new president, senate and governors on October 3rd 2010. Both economic policy and environmental policy on federal and state level could be impacted significantly by election results. Agnelli is certainly developing scenarios to react on post-election regulatory changes.

4. Study increase of gearing in order to accelerate growth

The company has traditionally grown by M&A, but is currently guarding its gearing carefully. However, in order to enable further acquisitions, Agnelli will be discussing increasing the gearing and accessing debt with the new CFO Cavalcanti, who took over from Fabio Barbosa at the end of June, and banking partners.

5. Compete for position in China

Compared to BHP Billiton and Rio Tinto, transportation distance poses a disadvantage to Vale in supplying iron ore to China. While Rio Tinto is creating strong ties with Chinese government via its partnerships with Chinalco, Vale will need to find alternative ways to improve relationships with clients and government in the country that is responsible for most of the growth in demand of its products.

6. Manage development of Guinean iron ore deposits

An important part of the growth of the iron ore production in the next decade should be coming from Guinea, where Vale will develop the Simandou South deposit. Vale will need to get infrastructure in place and start development soon in order to please the government, which recently took development rights away from Rio Tinto because the company was not proceeding fast enough.

7. Reduce iron dependence

Growing the copper business unit and building a fertilizer business are two of the ways in which Vale tries to reduce its dependence on iron ore. Although the iron ore business is a star business with solid growth perspectives, the volatility caused by the dependence on one single commodity will worry Agnelli. Diversification into other business units is crucial for the long-term stability of the company.

8. Gain access to coal in Latin America

Although a lot of iron ore is shipped to China, Brazil is booming too. In order to produce steel for the domestic market, Vale needs to develop coal capacity in Latin America, which will require strategic acquisitions and targeted exploration.

9. Manage employee relations after Vale Inco strike

The board will need to prevent repetition of strikes like they experienced at Vale Inco during the last two years in Canada. Reviewing and improving international employee relations is both crucial for the company’s productivity and to improve the image in labor market, where Vale still has difficulties to attract international management talent.

10. Manage technological processing innovation for copper in Carajás

The company is trying to scale hydrometallurgical copper processing technology to commercial level in the Carajás UHC plant. Success in this project would have significant profit impact and would position Vale with the current deposits in development as one of the most competitive copper producers globally.

Sources: Vale annual report 2009, Vale summary review 2009, Vale investor presentation February 2010

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