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Posts Tagged ‘BMA’

Mining Week 15/’12: Coal in Mongolia, no coal in Australia.

April 9, 2012 Comments off

Top Stories of the Week:

  • Chalco bids for Mongolian coal miner
    • Chalco (holding company = Chinalco) made a tentative $930mln offer for 57.4% ownership of SouthGobi Resources, a Canadian listed company, currently owned by Ivanhoe resources.
    • Sources: Financial Times; Wall Street Journal
  • Coal production issues in Australia
    • BMA, the coal JV between Mitsubishi and BHP Billiton in Queensland, declared force majeure after a week long strike in some of its mines. The labor conflict has been going on for almost a year, with workers campaigning for better contract rights for contracted workers and to retain the union’s power in recruiting decisions.
    • Sources: Financial Times
  • Alcoa again cuts production
    • Alcoa, the largest aluminium producer in North America, announced it would cut alumina production by 2% to support prices.
    • At the start of the year Alcoa cut aluminum production, at that time by 12% and mainly in the USA. The 2% alumina cut is said to be aligned with this 12% ‘final product’ cut.
    • Sources: Wall Street Journal; Financial Times; Alcoa press release

Trends & Implications:

  • The potential Chalco – SouthGobi deal appears to be engineered by or via Rio Tinto. Chinalco owns a significant stake of Rio Tinto, which became the majority shareholder of Ivanhoe recently with the key objective of quickly developing the Oyu Tolgoi gold-copper mine (also in Mongolia).
  • Despite a general demand boom which has not passed aluminum many major aluminum producers are posting losses. Profit margins over the past 10 years average below 10%. The key reason for this situation is an overcapacity resulting in oversupply and high inventory levels. Aluminium is currently one of the very few mined natural resources that could be seen as a ‘demand-driven’ market rather than a ‘supply-driven’ market for price setting. However, as more and more producers cut investment, the demand growth fundamentals should invert this situation in the next couple of years.

Alcoa's long term demand outlook as presented end of 2011

©2012 | Wilfred Visser | thebusinessofmining.com

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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.
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.”

Source: Financial Times, August 21 2011

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

BHP faces more industrial action at coal mines

June 27, 2011 Comments off

“BHP Billiton Ltd. is facing a third round of industrial action in Australia this week at its coking coal mines, further disrupting output from the world’s largest exporter of the steelmaking material.

Workers at seven mining sites owned by BHP Billiton Mitsubishi Alliance in Queensland state’s Bowen Basin won’t do any “non-rostered” overtime on June 30 and July 1, Stephen Smyth, a division president at the Construction, Forestry, Mining and Energy Union in Queensland, said by telephone today.

Coal mine workers began their second round of strikes on June 24 and they’ll finish on June 29, said Smyth. BHP has been notified about the latest plan and further strikes are possible next week, he said.”

Source: Bloomberg, June 27 2011

Observations:

  • Over 3,000 workers at the BMA coal mines are campaigning for better contract rights for contracted workers and to retain the union’s power in recruiting decisions.
  • BMA is using a contract workforce to minimize loss of production caused by the strikes. Lost production could be up to 130Kt per day, or just over an average ship of export capacity.

Implications:

  • Negotiations are progressing slowly, and will continue to do so as long as production continues. If the unionized staff manages to convince the contract workers (roughly 50% of personnel) to lay down the work the pressure on BMA management would increase.
  • Various other miners in similar situations have shut down operations, fired the staff, and rehired the loyal staff members on own terms. BHP certainly will try to prevent this situation, as it would hurt the company’s reputation as a top employer.

©2011 | Wilfred Visser | thebusinessofmining.com

BHP Coal Workers Open Door to Strike

June 3, 2011 Comments off

“BHP Billiton Ltd. faces the possibility of strike by thousands of coal workers in Australia’s resource-rich Bowen Basin following a vote by members of three unions. In a ballot that took place in recent days and was counted Friday, roughly 90% of workers voted to give their unions the right to call a strike, Stephen Smyth, district president of one of the three, the Construction, Forestry, Mining and Energy Union, told Dow Jones Newswires. Samantha Stevens, a spokeswoman for Melbourne-based BHP, confirmed the ballot supported a possible strike.

The company continues to meet with the unions to complete negotiations on a new labor agreement, she added, and the two sides have scheduled meetings through the end of July. ‘We continue to make solid progress and as such, industrial action would be premature,’ Ms. Stevens told Dow Jones.”

Source: Wall Street Journal, June 3 2011

Observations:

  • BHP Billiton employs approximately 4,000 people in metallurgical coal operations and approximately 8000 in energy coal operations. In average across all of the companies operations the company has approximately as many contractors as own employees on-site.
  • This would not be the first time a strike at BHP’s coal operations takes place: in 2000 the employees at various mines stopped work. Prior to the changes that led to these strikes the company was perceived to be more friendly to unions than competitors.

Implications:

  • BHP BMA is trying to gain greater flexibility in setting contracts for contract workers separate from the collective agreement and is at the same time trying to limit the power of unions in recruiting decisions. While the potential financial benefit of the first issue could justify a couple of days of lost production, the short term benefit for the second issue will not be enough for the management to risk a strike. Thus the recruiting issue might be used as a tradeable by the negotiators.
  • An important underlying frustration in the negotiations is BHP Billiton’s push to introduce more stringent Fly-In-Fly-Out rosters. The struggle to find enough employees willing to either live in the outback or leave home for multiple nights each week is one of the major HR challenges of mining in Australia in the next decades.

©2011 | Wilfred Visser | thebusinessofmining.com