Posts Tagged ‘board’

Mining Week 39/’12: Fortescue moves on; GlenStrata almost there

September 22, 2012 Comments off

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 |

Mining Week 07/’12: Results time and the Bumi story

February 19, 2012 Comments off

Top Stories of the Week:

  • Friction between Bumi board and Rothschild
    • Conflict arose in the board of Bumi, the Indonesian coal miner with the investor Nathan Rothschild as a large investor after a reverse takeover of the Vallar investment vehicle. After initial conflicts the Indonesian board members planned to remove mr. Rothschild from the board, but he now only appears to have to give up his co-chairmanship. Share price of the company dropped significantly after the news of the conflict.
    • Sources: Financial Times; Wall Street Journal; Bumi’s overview of board members
  • Annual results published without major surprises
    • (Higher prices + higher costs) x lower volumes = lower profits. That was the story of the results releases of the world’s largest miners this week. The impairment taken by Rio Tinto on the Alcan acquisition costs probably was the most significant item, together with the relatively positive outlook given after the negative and uncertain signals given about global demand in the past months.
    • Sources: Rio Tinto results presentation; text; Wall Street Journal on Anglo
  • BHP (58%) and Rio (30%) expand Escondida at $4.5bln cost
    • BHP Billiton and Rio Tinto announced investments of $4.5bln to replace the plant at Escondida, the world’s largest copper mine in output, increasing capacity and enabling mining restricted by the current facilities.
    • Sources: BHP Billiton news release; Rio Tinto media release; Reuters

Trends & Implications:

  • February is the month in which most of the world’s largest diversified miners present their annual results (only BHP Billiton runs a different fiscal year). The investor presentations provide interesting reading and give a good idea of the vision for the future of the industry. Below a peak preview with the most insightful slides from the presentations:

©2012 | Wilfred Visser |

Little change for ENRC board

October 3, 2011 Comments off

“An internal review at Eurasian Natural Resources Corp, launched after of a corporate governance debacle that saw two directors ousted at the mining company’s annual meeting, has left the management and board almost unchanged. Johannes Sittard, chairman and former chief executive, remains chairman. Felix Vulis, who resigned in February citing commitments in his family life, has been restored as permanent chief executive.

The three-month review of corporate governance at the embattled FTSE 100 company, which has lost almost half its stock market valuation in 2011, includes the board appointment of Terence Wilkinson, a former chief executive of Aim-quoted Ridge Mining and Lonrho. The review, which concluded on Wednesday night, focused on whether the board of ENRC, a company that is largely controlled by three central Asian entrepreneurs with no board seats, should remain fully independent of the three men or become a more actively family-controlled miner akin to Vedanta, Fresnillo, and Antofagasta.”

Source: Financial Times, September 29 2011


  • One of ENRC’s founders, mr. Alexander Mashkevich, was rumoured to be interested to take over the presidency of the company. However, within days of the publication of this story the results of the review were announced.
  • The review restored a majority of independent board members for the company, which was lost after various board members left or were not reelected earlier this year in a power struggle in the board.


  • In the current situation about 70% of the shareholders are not represented in the board. This might lead to disagreement between board and shareholders in the case of a potential takeover bid. In June Glencore was said to be interested in buying ENRC, which has lost a lot of market value in the past year.
  • The Kazakh government and Kazakhmys together hold close to 40% of the shares. Both parties will not be in favor of the 3 founders (the Troika) gaining more control over the company and will be happy mr. Mashkevich does not join the board.

©2011 | Wilfred Visser |

Glencore denies acquisition after ENRC board meltdown

June 14, 2011 Comments off

“Commodities trader Glencore (LSE:GLEN.L – News) is not considering a bid for embattled miner ENRC, its chief executive said, dismissing reports of a takeover after it disappointed the market with its maiden first-quarter results. Shares in the world’s largest diversified commodity trader dropped 2 percent as weaker-than-expected results from its metals and mining trading unit held back its operating profit.
Kazakh miner ENRC, with a free float of less than 20 percent, has long been seen as a potential target for Glencore. Industry sources say Glencore could be tempted by its undervalued assets and a heavy fall in the shares as a result of a boardroom spat over its leadership that has seen the departure of two independent directors.
‘Glencore monitors a wide range of opportunities in the sector and will continue to do so,’ Chief Executive Ivan Glasenberg told reporters following the company’s results. ‘However, we can confirm that although we talk to a lot of people in the sector, we are not actively considering a bid for ENRC,’ he added.”

Source: Reuters, June 14 2011


  • Following a review of ENRC’s governance structure various independent directors and the general counsel have either left or have not been reelected by the majority shareholders. The leaving directors claim that the company is run authocratically and the owners are not willing to open up control.
  • Glencore was rumoured to be interested in launching a takeover for ENRC, which suffers from a depressed shareprice. However, Mr. Glasenberg (Glencore CEO) said the company wasn’t holding any discussions to purchase ENRC when announcing Glencores 1st quarter results.


  • A potential acquisition of ENRC by Glencore would only have chance of success if the founders are willing to sell their shares. The Kazakh government is unlikely to sell its stake in the company and the total share of ownership of the 18% free-float and the Kazakhmys share would not enable Glencore to excercise control.
  • Many analysts are trying to figure out which large mining company will be Glencore’s major acquisition target. As long as not further equity is raised the company will be able to make an acquisition up to a value of some $30-40bln. The target should mainly be complementary to Xstrata’s global operations, as it is likely that management of the owned and controlled operations is centralized in the coming years.

©2011 | Wilfred Visser |

ENRC tensions grow as two directors dismissed

June 9, 2011 Comments off

“Private feuding within Eurasian Natural Resources Corporation, the Kazakh miner, spilled out into the open on Wednesday as investors in the tightly held company overwhelmingly voted against the re-election of Sir Richard Sykes, the senior independent director, and fellow board member Ken Olisa.

The public dismissal of the two directors highlights the deepening tensions within the FTSE 100 miner. It has been dogged by corporate governance concerns since it floated in 2007. Speculation about boardroom battles has intensified since the group announced controversial acquisitions in central Africa last year, most notably the purchase of mining assets in the Democratic Republic of Congo that the Congo government had recently expropriated from a Canadian mining company.

In particular it will focus attention on the position of foreign companies that list in London and rely on City grandees to give comfort to shareholders. The presence of boardroom heavy-hitters was especially valuable to ENRC during last year’s controversy over acquisitions in Africa, most notably the purchase of mining assets in the Democratic Republic of Congo that the government had recently expropriated from a Canadian mining company.”

Source: Financial Times, June 8 2011


  • ENRC was formed in 2006 by consolidation of assets privatized in the mid ’90s. The founders are Alexander Mashkevitch, Alijan Ibragimov, and Patokh Chodiev; each still holding 14.6% of the shares, with the Kazakh government holding 11.7% and Kazakhmys 26%. Because Kazakmys abstained from voting the founders and government held at least 75% of the voting shares.
  • Current CEO Felix Vulis announced his departure in February, and the founders are rumored to want to replace several other executives and board members. The dismissal of the directors has tipped the weight of the board to the founder’s side, giving them significant power.


  • Unless the dismissal of the independent directors came as a surprise to the persons in question the fact that they did not make a quiet move out of the board should be understood as a means to draw the attention to the governance issues of the miner. It appears that the founders and the Kazakh government want to strengthen their control over the company, even though it has mainly been expanding internationally in the past years.
  • The debates in the board about the acquisition of the projects in Congo including the Kolwezi asset, formerly owned by First Quantum, indicates a cultural difference between the Kazakh hardliners and the more western independent directors with more eye for corporate social responsibility. With various other Eastern companies listing on western stock markets this will be an issue that will surface more often in the future as many development projects are undertaken in politically unstable areas.

©2011 | Wilfred Visser |

Xstrata board and the Glencore merger

March 8, 2011 1 comment

“Mick Davis, Xstrata chief executive, told analysts that for both Glencore and his company to be independently listed was ‘unsustainable in the longer term’. The comments were made in early February at a meeting after Xstrata’s results but came to light on Monday in a research note by Andrew Keen, mining analyst at HSBC, looking at the appointment of Sir John Bond as chairman.”

Glencore, the world’s largest commodity trader, posted a 40 per cent jump in full-year profit yesterday, strengthening its hand for a possible stock market listing that could value it at about $60 billion (£37bn).”

Sources & references:


  • Mr. Willy Strothotte, current chairman of both Glencore and Xstrata, will step down from the Xstrata position in May and will be succeeded by Sir John Bond, current chairman of Vodafone.
  • Glencore’s EBITDA for 2010 was $6.2bln, with Net Income 2010 at $3.8bln on revenues of $145bln. Margin is slightly above expectations after Q3 2010.


  • The appointment of Sir Bond, aged 70, will mainly be intended to have an experienced director of major listed companies oversee the dynamics of a potential merger of Xstrata and Glencore. Analysts expect mr. Bond to demand strong guarantees for Xstrata in a potential merger. This will potentially force Glencore to perform an IPO prior to merging with Xstrata so that a market value is set.
  • A potential merger of Glencore and Xstrata could produce synergies in 4 ways: financial synergies by combining balance sheets, reducing taxes paid and increasing cash slack; reduction of overhead costs by consolidating corporate departments; increased trading profits by improving production and contract flexibility; and operational efficiencies by combining the project portfolios of the companies.
  • Xstrata is mainly strong in base metal and coal operations. Glencore owns majority stakes in Columbia Falls, Windalco and Alpart aluminium companies in North America; Prodeco and Carbones de Jagua coal in Colombia; various zinc, lead and tin assets in Peru, Bolivia and Argentina; Zinc and aluminium plants in Europe; Kazzinc in Kazakhstan; and several base metal projects in Asia and Australia. Combining these assets would create the most diversified player in base metals and a potential world force in coal mining.

©2011 | Wilfred Visser |

Riversdale Directors Back Rio Tinto Offer

January 24, 2011 Comments off

“Rio Tinto PLC’s 3.9 billion Australia dollar ($3.8 billion) takeover of Riversdale Mining Ltd. received a boost Monday when the last holdout on the coking coal miner’s board recommended the deal along with its other directors.

NK Misra, a Tata Steel Ltd. appointee to Riversdale’s board thanks to the Indian company’s 24.2% stake in the miner, backed Rio’s offer signalling that the steel producer may not seek to block Rio’s buyout with its own bid to take control of the miner, according to a statement.”

Source: Wall Street Journal, January 24 2011


  • Rio Tinto’s bid was unconditionally approved by the Australian Treasurer last Friday, enabling it to quickly close the deal. To convince the shareholders the opinion of Riversdale’s board was crucial.
  • ICVL is reported to meet with a consortium of Indian coal producers on Thursday to discuss a counterbid. This gives the Indians 3 weeks before the closure of Rio Tinto’s bid to convince the shareholders they can offer a higher price.


  • ICVL’s chairman has started the verbal bidding war already, by announcing in an interview that the consortium will offer a higher price than offered by Rio Tinto. However, it is hard to find more synergies with the Indian companies than with Rio Tinto. A high Indian offer for Riversdale would purely be a strategic move in order to gain production market share, which could lead to further opportunities in the future.
  • The role of Tata in the acquisition is not fully clear. The company holds 24% of Riversdale’s shares and says it is not opposed to the acquisition. However, the advice by the board member appointed by Tata is explicitly said not to be Tata’s opinion. Tata could surprise Rio Tinto by siding with the Indian consortium, thus gaining goodwill from the Indian government.

©2011 | Wilfred Visser |

BHP Billiton Board Appointment

December 14, 2010 Comments off

“BHP Billiton Chairman Jac Nasser today announced the appointment of a new Non-executive Director, Baroness Shriti Vadera, to the BHP Billiton Board, effective 1 January 2011. Shriti Vadera brings wide-ranging expertise in finance, economics, and public policy to the BHP Billiton Board as well as extensive experience in emerging markets. She has held a number of advisory and Ministerial roles in the British Government, most recently serving as Minister for Africa and Minister for Economic Competitiveness & Enterprise.

Baroness Vadera has also held a number of international positions, including advising the Republic of Korea on its term as Chair of the G20, Temasek Holdings on strategy and the Government of Dubai on the restructuring of Dubai World. Prior to her time in the British Government, she spent 14 years in investment banking at UBS Warburg where she specialised in advisory work in emerging markets.”

Source: BHP Billiton, December 13 2010


  • BHP appoints former British minister Shrit Vadera as board member. The appointment brings the size of the board to 12 persons: 10 men and 2 women.
  • The majority of the company’s board members have a financial background, including 3 MBAs, 2 Investment bankers, 2 Chartered accountants, 1 Bachelor degree in business, and 1 Bachelor degree in economics. Only 3 board members have extensive industry in the mining industry and another 3 in the oil & gas industry.


  • The company increases the strength of the board in financial expertise and knowledge of the African and Asian way of doing business by appointing mrs. Vadera. Other mining firms will be trying to do exactly the same after the importance of financial management has been highlighted in the crisis and as the African and Asian footprint of the mining industry increases.
  • Global political connections and economic insight become more and more important for the board of international mining firms. It will be hard for many companies to balance this requirement with maintaining a high level of understanding of the technological and operational challenges in the mining industry in the board.

©2010 | Wilfred Visser |