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Posts Tagged ‘Berau’

Mining Week 4/’13: Caterpillar’s trouble & Bumi’s future

January 27, 2013 Comments off

Top Stories:

  • Caterpillar sees lower sales and fraud at Chinese acquisition
    • Caterpillar’s machinery sales declined 1% over the past 3 months, driven by poor results in AsiaPacific and North America.
    • The news of the mining slowdown hitting the top equipment manufacturer comes at the same time as the announcement of structural over reporting of profits at ERA Mining Machinery, the Chinese manufacturer bought for approx. $700m last year.
    • Sources: Caterpillar press release; Wall Street Journal; Financial Times
  • Bumi board favors Bakrie’s plans over Rothschild’s
    • The only two directors on Bumi’s board who Nathan Rothschild wanted to stay in function have sided with the rest of the board in the support for the plan to have the Bakrie family buy the Bumi Resources assets and separate from Bumi, which would be left with the Berau assets.
    • Rothschild and Bakrie have been in a dispute about the future of the London-listed miner with coal assets in Indonesia for several months. The company said this week that the decisions about the future structure of the group will not be impeded by the ongoing legal probe into financial practices at their assets.
    • Sources: Financial Times; Telegraph; Wall Street Journal

Trends & Implications:

  • The reduction of machinery sales at Caterpillar signals that the peak of new project development has passed. While miners raced to add capacity over the past years, many new projects are now put on hold or downsized. Although Caterpillar can expect to benefit from the forecasted rise increase of global resource requirements over the next decades, the fastest growth is over. Equipment manufacturers are a good indicator of overall growth outlook in the industry as their sales is directly linked to building of production capacity.
  • Bumi’s future appears to be that of an Asian-focused coal company without strong Indonesian shareholders. The tie-up of the Vallar cash shell with powerful Indonesian miners did create a significant player in the region, but the divergent views on corporate governance between the Indonesian and European-based owners has made it impossible to run the company effectively.

2013 | Wilfred Visser | thebusinessofmining.com

Mining Week 45/’12: PotashCorp and Rothschild on the offensive

November 4, 2012 Comments off

Top Stories of the Week:

  • PotashCorp in talks to acquire ICL for $14bn
    • PotashCorp, the Canadian phosphate miner that was subject of a $39bn takeover attempt by BHP Billiton in 2010, is in talks with the Israeli government to acquire Israel Chemicals (ICL) and merge it with its own operations. PotashCorp already holds a 14% stake of ICL. The remaining share is worth roughly $14bn.
    • In an initial reaction the Israeli government, which holds a golden share in ICL’s mother company, indicated that the sale of ICL to PotashCorp would not be in the best interest of the country. In a later statement the government did indicate it would be open to a formal bid.
    • Sources: Wall Street Journal; BusinessWeek; Fox Business
  • Rothschild aims to increase Berau interest
    • In response to Bakrie’s proposal to buy out Bumi plc, Nathan Rothschild, the company’s founder, is said to look for partners to make a counterbid for Berau’s Indonesian coal assets.
    • Bumi Resources and Berau are the two key asset groups of Bumi plc, the result of a deal between Vallar plc and Bumi. Following falling call prices minority shareholder Bakrie has proposed a deal in which it would buy Bumi plc’s assets and thus separate Rothschilds and Bakrie’s interests.
    • Sources: Wall Street Journal; Financial Times; Bloomberg

Trends & Implications:

  • The Israeli response that selling ICL would not be in the country’s interest might be preliminary. Although 60% of ICL’s mining activity takes place in Israel, centered around the Dead See, it is unlikely that PotashCorp would want to tune down those activities. Only a very small part of ICL’s production is actually sold in Israel, and those products could be seen as global commodities, making it hard for the government to justify a case in which a sale would be rejected based on national security. The issue that PotashCorp and Israel will need to figure out is how much overhead jobs to leave in the country and/or how to compensate for the potential loss of jobs in office activity (similar to the negotiations undertaken by BHP Billiton with the Canadian government when trying to acquire PotashCorp).
  • Rothschild’s attempt to find new partners to continue his Indonesian activities with Berau does not seem te be a step that is in the interest of shareholders. Entering in a bidding contest with Bakrie for the assets it already controls is not going to improve the financial position of a company plagued by dropping commodity prices. If Bakrie actually manages to secure the funds required to execute the buy-out proposal it is likely that Rothschild will be able to find other, less politically sensitive, cheaper assets to work with. Whatever the result of this power struggle, it appears that Bakrie and Rothschild will not continue to own stakes of the same company.

2012 | Wilfred Visser | thebusinessofmining.com

Mining Week 42/’12: Bakrie vs. Bumi

October 13, 2012 Comments off

Top Stories of the Week:

  • Bakrie proposed to buy Bumi’s assets
    • The Bakrie Group, which owns approx. 24% of Bumi Plc, has an offer to buy Bumi plc’s assets (Berau and Bumi Resources) and leave the London listed miner active in Indonesia behind as a cash shell. The group previously held 48%, but sold 24% to Borneo Lumbung to ease debt issues.
    • Bumi’s share price has dropped 80% versus the high in July 2011 on the back of low coal prices and governance issues.
    • Sources: Financial Times 1; Financial Times 2; Wall Street Journal

    Bumi plc structure: London listed miner owns a stake in Berau coal and Bumi resources.

  • BHP Billiton seeks to cut costs

Trends & Implications:

  • Bakrie’s move to leave Bumi plc could imply the end of the Indonesian coal ambitions of Rothschild’s venture. If Bakrie finds the money to execute the deal, it offers other shareholders an opportunity to limit their losses. Bumi could try to reinvent itself and buy assets in other regions with the cash received for Bumi resources and Berau, but it would start with significantly less cash to acquire companies than in its attempt in 2011.
  • The updated M&A share attractiveness tracker shows a relative leveling of the playing field in terms of mega M&A over the past month. South African listed companies clearly took a major hit, but as the outlook for these companies deteriorated at the same time the shares have not gained much attractiveness from an acquisition standpoint. Fortescue managed to fend of urgent debt issues and saw its share price rise, but it remains one of the more attractive acquisition targets. BHP Billiton lost its position as the best positioned acquirer as outlook for the company deteriorates with the expectation of slowing global demand.(

2012 | Wilfred Visser | thebusinessofmining.com

Consolidation in coal mining as steel industry heats up

November 22, 2010 1 comment

“Vallar, the cash shell founded by financier Nat Rothschild, is paying $3bn to create a mining company that will see Indonesia’s powerful Bakrie family debut with a London listing for their interests.

A new company bundling together the assets of two Indonesian groups and the shares of Vallar will be listed in London as Bumi Plc. Shares in Vallar, which raised £700m ($1.1bn) in a public flotation in July, will be suspended.”

Source: Financial Times, November 16 2010

“Walter Energy Inc. is in talks to buy Canadian rival Western Coal Corp. for $3.24 billion to form a steelmaking-coal giant, the latest in a string of deals in the commodity sector as mining companies race to corner reserves ahead of rivals.

If the deal goes through, the combined company would have more than 20 million tons of annual coal-production capacity by the end of 2013 and would be the world’s largest publicly traded ‘pure-play’ metallurgical coal producer…

Massey Energy Co. is exploring a takeover offer from Alpha Natural Resources Inc., the biggest U.S. metallurgical coal producer. Global steelmaker ArcelorMittal is also interested in Massey.”

Source: Wall Street Journal, November 19 2010

Observations:

  • Vallar, a new mining company listed on the London Stock Exchange in June, will combine the coal mining assets of Bumi and Berau, the largest and fifth-largest coal miners of Indonesia, to create the largest exporter of coking coal to China.
  • North American coking (or metallurgical) coal producers are exploring mergers or partnerships to create a player that can export both to the east and the west.

Implications:

  • So far coal is one of the resource businesses that is least consolidated. Very few players are able of supplying coal around the world. The moves in North America and Indonesia indicate a trend to create larger suppliers in order to have a better negotiation position for contracts with steel makers.
  • Vallar is planning to use the Indonesian operations as a platform for further expansion in Indonesia and abroad. When listed the company mentioned it would be able to focus principally on regions and commodities where it could leverage the extensive network and strong prior operating and investment experience. As James Campbell, one of the founders, is a former executive of Anglo Coal, the move into coal mining does not come as a surprise.

©2010 | Wilfred Visser | thebusinessofmining.com

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