Archive

Posts Tagged ‘bonus’

Mining Week 42/’12: South Africa strikes; Glenstrate voting scheme

October 8, 2012 Comments off

Top Stories of the Week:

  • South African strikes spread; workers fired
    • Illegal (wildcat) strikes in South Africa have spread to more or less all major miners in the country. Anglo American’s Kumba iron ore and platinum operations are faced with production disruptions, as are Xstrata, GoldFields, Anglogold, and most other major mining houses in the country.
    • South African strikes escalated when police shot down Lonmin strikers. After Lonmin agreed to a 22% wage increase workers in other companies demanded similar increases, bypassing the traditional unions. Several companies are trying to set up structured wage discussions to come to a collective agreement.
    • AngloAmerican’s Amplats decided to fire 12 thousand striking workers, which is a fifth of its total workforce.
    • Sources: Anglo American press releases1 2; Financial Times 2; wall Street Journal
  • Xstrata board recommends Glenstrata deal and complicates voting
    • Xstrata’s board of directors issues advice for the company shareholders to accept the merger proposal to form Glenstrata. The voting structure has been set up to assess support for a deal both with and without an extensive retention package for Xstrata’s top management.
    • Shareholders will vote first on the merger proposal both including and excluding the retention package, requiring a 75% majority excluding Glencore’s votes. Then the vote on the retention package will be done separately, requiring only a 50% majority of votes.
    • Sources: BusinessWeek; Financial Times

Trends & Implications:

  • The voting scheme is set up by Xstrata’s board to have a safety net for the deal in case the shareholders don’t accept the management retention package. The Qatari sovereign wealth fund is the largest shareholder that can vote on the merger deal; it has not voiced its opinion on the improved Glencore offer and on the management incentives, but insiders indicate the group considers retention of Xstrata’s officers a key priority. Key unknown in the voting mechanism is whether or not the results of the first two questions (on the merger) are made public before the 3rd vote on the retention scheme.
  • The unrest in South Africa is much wider than the mining industry, and as such requires solutions that are much broader than the industry. In the short term a large part of the workers might return to work with a significant increase in wages as demonstrated in the Lonmin case. However, as long as this increase does not span across the industry the workers that have not been given a raise will turn to strikes to stress their demands. The mining houses will have to work nationwide to find a sustainable solution for the industry, which is hard because South African miners operate on the high end of the global cost structure for many commodities. The task is even harder when taking in account that social unrest will continue as long as the issues in related and supplying industries continue.

2012 | Wilfred Visser | thebusinessofmining.com

Advertisements

Mining Week 23/’12: Investment dilemmas for BHP and Fortescue

June 3, 2012 Comments off

Top Stories of the Week:

  • Rumour around retention plan for Xstrata executives
    • Several major shareholders have voiced discontent with the approx. $370mln retention bonuses for the top 72 executives of Xstrata that has been made part of the vote on the Glencore-Xstrata merger.
    • Sources: Financial Times 1; Financial Times 2; Wall Street Journal
  • Australian state governments fight for BHP investment
    • BHP Billiton received environmental clearance for the expansion of Port Hedland’s iron ore harbour. The project could cost around $20bln up to 2022 to increase export capacity to 350Mtpa.
    • The government of Southern Australia is pressuring BHP to start the expansion of its Olympic Dam copper/uranium project before the end of the year, threatening not to extend the permits. The Olympic Dam expansion is one of the key projects that might be cancelled or delayed as BHP tries to limit investment and return money to shareholders.
    • Sources: Bloomberg; Business Spectator; Financial Times
  • Fortesque worries about debt servicing
    • Fortescue, Australia’s third largest iron ore miner, is close to completion of an expansion that will enable it to export 155Mtpa iron ore.
    • The CEO of the company has indicated that it will focus on repayment of debt before undertaking further expansion. The company has received negative feedback from investors because of its high gearing. Its Debt/Equity ratio stands at approx. 45%, versus 26% for Vale and Rio Tinto and 15% for BHP Billiton.
    • Sources: Fortescue media release on expansion progress; Wall Street Journal; 9News

Trends & Implications:

  • If BHP decided to press on with the Port Hedland expansion at the expense of large development projects in other business units that would be a next sign that the supermajors are preferring the relatively predictable iron ore market over further diversification. Both Rio Tinto and BHP Billiton are considering sale of their iron ore business, BHP is in the process of reviewing the options for its Australian manganese operations, and Vale reached a deal last week to dispose its coal operations.
  • The proposed retention bonuses for the top 72 managers of Xstrata add up to around $370mln, an average of some $5mln per person, 4% of last year’s profit, roughly 1-2 annual executive salaries per person, about $0.8 per share, or some 0.1% of share price. The bonuses are set up to keep the managers with the company for at least another 3 years. Even though we are talking about a lot of money that could trigger ethical debate about the executive pay in the industry, the shareholders hardly have any ground to protest the plan from a business perspective. Retention of the top managers after the merger should certainly enable the company to get a quick payback on the $370mln.

©2012 | Wilfred Visser | thebusinessofmining.com

Mining News 22/’12: Codelco CEO change; Australia recruits overseas

May 28, 2012 Comments off

Top Stories of the Week:

  • Codelco’s CEO quits
    • Diego Hernandez, Codelco’s CEO, decided to quit prior to the end of his terms for personal reasons. Conflicts around the level of interference by the board in management of the government-controlled company are mentioned as the reason. CFO Thomas Keller will take over as CEO.
    • The change of CEO comes in a critical period for Codelco as it is in a legal battle with Anglo American about the ‘Sur’ project, in which Codelco claims to have the option to buy a larger part than Anglo wants to sell.
    • Sources: Financial Times; Wall Street Journal; Reuters
  • Australia implements law to make hiring immigrant workers easier
    • Australia’s new Enterprise Migration Agreement (EMA) makes it possible to bring in foreign workers on fixed term contracts for projects with an investment of $2bln or higher and a peak workforce of over 1500 employees.
    • The EMA takes a project-wide labor agreement approach, making it possible to have subcontractors bring in people via the overarching project agreement.
    • Sources: Australian government; Wall Street Journal; Financial Times
  • GlenStrata focuses on retention of Xstrata executives
    • As part of the merger deal with Glencore the Xstrata shareholders will get to vote on a $78mln bonus for Mick Davis to stay on for another 3 years. Other executive directors will be offered retention bonuses too.
    • Sources: Financial Times; Reuters;

Trends & Implications:

  • Australia’s EMA will mainly be used for low skilled construction workers. The shortage of highly skilled planning and engineering employees is unlikely to be resolved as those contracts are typically not fixed-term and not project-specific. The Australian government expects it needs to add 89 thousand short-term workers in the next years. Still the unions, which are very powerful in Australia’s resources sector, are complaining about the Agreement, saying that bringing in workers for overseas will hurt the domestic labor market. A key issue in the flexibility of this market is that many workers are available in the East coast region, but most of the work is available in the remote areas on the West coast.
  • As ‘deal-friendly’ investors have built up a share ownership that makes it likely that Xstrata’s shareholders will vote in favor of the merger with Glencore in the currently proposed 2.8x share proportion, the focus of management activity shifts back to regulatory issues and planning for post-merger activities. A key issue in th successful integration of the companies will be to join the corporate cultures of the trader and the miner. The retention efforts will likely go further than just executive leadership, targeting several hundreds of top management. At the same time the company will have to work on retaining the top traders and top management from Glencore’s side.

©2012 | Wilfred Visser | thebusinessofmining.com

Vale Reaches Pact With Mine Workers

September 30, 2011 Comments off

“Brazilian mining company Vale SA said Thursday it struck a two-year collective labor accord with all of the country’s mining workers’ unions. The accord will give Vale employees an 8.6% pay rise effective November and a further 8% pay increase in November 2012, Vale said in a statement. In addition, the employees will get a bonus each year of 1,400 Brazilian reais ($744.68), the company said.

Also, employees who stay in their posts during the next two years will gain a special one-off bonus equivalent to 1.7 times their monthly salary under the agreement. This is designed to keep employees from leaving Vale to join rival iron-ore producers in Brazil, which is suffering from a shortage of skilled manpower in the mining and metals industry.”

Source: Wall Street Journal, September 22 2011

Observations:

  • Out of 71 thousand of Vale’s employees (Dec 31 2010) approx. 60 thousand work in Brazil.
  • The agreement holds the middle between Vale’s initial 7.5%/y offer and the union’s ‘15%/y plus bonuses’ demands. In previous years Vale gave a 7% increase annually. Inflation rate in Brazil has been around 5-6% over the past years.

Implications:

  • Creative bonus systems will become a more important part of the mining remuneration policies because skilled resources and talent are becoming increasingly scarce in the mining industry.
  • Brazil’s National Mining Plan foresees growth of the domestic iron ore production of 58% from 2011 to 2015. Current high ore prices will help to finance aggressive expansion, but the legislative processes around development and the shortage of workers form two important obstacles to realize this objective.

©2011 | Wilfred Visser | thebusinessofmining.com

Chilean Copper-Mine Strike Continues

July 28, 2011 Comments off

“Escondida, the world’s largest copper mine, declined the Chilean government’s offer of mediation in its labor conflict, Valor Futuro reported Tuesday, citing a company document. The sole union at the mine, representing 2,375 workers, went on strike late Thursday to protest what it says are unmet labor-contract terms.

‘We’ve received an invitation from the government to talk, and in this context we’ve given them our reasons for declining to participate at a negotiations table with union leaders while the illegal strike continues,’ reads the Escondida document as reported by Valor Futuro.”

Source: Wall Street Journal, July 26 2011

Observations:

  • Escondida (translated: ‘hidden’) is majority owned and operated by BHP Billiton. Unions demand higher bonuses, unmet housing benefits, the elimination of shifts lasting more than 12 hours, and protection for sick workers.
  • Daily lost output could add up to 3,000 tons. The company plays tough by refusing to continue negotiations as long as the strikes continue.

Implications:

  • The wave of new labor contracts reached for various copper mines in Chile through collective bargaining has gone relatively smooth so far. Leaders of Codelco have expressed fear that the conflict at Escondida could spread to other companies.
  • High commodity prices and increased resource nationalism have led to a surge in mine operation strikes in the last months: BHP’s Australian coal operations, South African coal mines, and Escondida being the most well-known. Companies try to maximize output and make record profits while prices are high, and in turn workers demand a larger part of this profit then originally agreed upon.

©2011 | Wilfred Visser | thebusinessofmining.com

%d bloggers like this: