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Posts Tagged ‘capex’

Mining Week 19/’12: Week of the Investors

May 6, 2012 Comments off

Top Stories of the Week:

  • Xstrata’s investors voice GlenStrata concern
    • In the re-election of Xstrata’s directors the vote against re-election of Ivan Glasenberg, the head of Glencore, increased from 3.6% last year to 13.6% this week.
    • When voting on Glencore’s takeover offer for Xstrata a group of approx. 17% of shareholders could block the deal as 75% of shareholders excluding Glencore’s 33% needs to support the deal.
    • Mr. Glasenberg indicated most of the debate on the merger currently is about the share ratio, which Glencore currently offering 2.8 shares per share of Xstrata.
    • Sources: Financial Times 1; Financial Times 2; Xstrata shareholder meeting results; Xstrata notice on Quatar shareholding
  • BHP Billiton and Rio Tinto return cash rather than invest more
    • Both BHP Billiton and Rio Tinto stressed their commitment to dividend and buyback policies this week.
    • Though reiterating the sustained belief in the long-term growth fundamentals of the commodities markets, the focus of the messages in investor presentations is shifting towards limiting and phasing investment, rather than growing as fast as possible.
    • Sources: Financial Times; BHP Billiton Macquarie presentation; Rio Tinto Asian investors presentation

Trends & Implications:

  • Miners currently focus on returning cash to shareholders because of the combination of short-term cost pressures that make margins shrink and longer term uncertainty about the pace of growth of global demand and the direction of metal prices. Citigroup’s forecast of a falling overall capex (see below in FT’s picture) shows uncertainty about how many of the projects in the current pipeline are really going to make it. Investments in star projects are still done, but the projects that could turn out to be marginal or lossgiving are on hold.

  • Mr. Glasenberg’s comments about the share ratio discussion appear to indicate that Glencore’s bid for Xstrata might be sweetened if the deal runs the risk of not being accepted in Xstrata’s shareholder meeting early July.

©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

Anglo American eyes $70bln Growth Pipeline

April 27, 2011 Comments off

“Anglo American PLC currently has in the pipeline about $70 billion worth of projects that it plans to use to drive organic growth in the years ahead, senior company executives said Thursday. Cynthia Carroll, the mining company’s chief executive, said at the company’s annual general meeting here that the growth ahead is strong with ‘a new mining operation [starting] every six to nine months for the next several years.’

The company plans to increase volume output 35% by 2013 and increase 50% by 2015. It is looking to double output by 2020 based on a growth pipeline of about $70 billion of approved and unapproved projects, senior company executives said during the meeting. The company is currently developing $17 billion in projects and is looking to approve another $16 billion in the near term. A remaining $50 billion worth of projects are still waiting to be approved.”

Source: Wall Street Journal, April 21 2011

Observations:

  • Anglo American currently has 4 major growth projects nearing production: the los Bronces copper expansion project in Chile; the Barro Alto nickel project in Brazil; the Minas-Rio iron ore project in Brazil; and Kolomela iron ore project in South Africa. Furthermore the company is investing heavily in Jwaneng diamond mine in Botswana. These five projects account for $13.5bln of the approved CapEx.
  • Other approved projects are mainly in platinum, with 7 projects in Southern Africa summing up to over $3bln investment. Key unapproved projects are Quellaveco and Michiquillay copper projects in Peru; Sishen iron ore expansion in South Africa; and South African New Largo and Colombian Cerrejon thermal coal projects

Implications:

  • Anglo American currently leans heavily on its copper business (29% of profits in 2010) and iron ore business (38% of profits in 2010), mainly due to high prices. Expansion plans will mainly increase the exposure to platinum, nickel and coal, ensuring strong diversification of the company’s revenue sources.
  • Anglo American’s approved CapEx of $18bln compares to Rio Tinto’s $22bln and Xstrata’s $14bln (at time of publishing 2010 annual report). Only BHP Billiton plans to invest much more in organic growth in the coming years. However, boosted by high cash reserves growth by acquisitions would again be an option for Anglo American. With the frontier of development projects shifting to Africa, the company clearly has a favorable position to make good deals with its experience in operating projects in the continent.

©2011 | Wilfred Visser | thebusinessofmining.com

Anglo American: Restructured and competitive again

February 21, 2011 Comments off

“Anglo American performed strongly in 2010, both operationally and financially, and we have continued to deliver on our clear strategic objectives. In addition to benefiting from higher commodity prices, our focused commodity businesses are driving superior operating performances, through major productivity improvements, disciplined cost management and the benefits of our asset optimisation and global supply chain programmes. We completed a number of sales of non-core businesses during 2010 and into 2011 and our divestment programme is now well advanced. Anglo American’s EBITDA of $12.0 billion, operating profit of $9.8 billion and underlying earnings of $5.0 billion, reflects delivery on all fronts.

We have transformed our Platinum business, moving it down the cost curve, with 23% productivity gains and cash operating costs controlled below inflation, and further safety improvements, while exceeding our refined platinum production target of 2.5 million ounces. Our Kumba Iron Ore, Metallurgical Coal and Nickel businesses also delivered productivity gains, while the benefits of the restructuring of De Beers are clear to see, with the business reaping the rewards of the much improved environment for diamonds.”

Source: Anglo American press release, February 18 2011

Observations:

  • Anglo American’s revenue, EBITDA and Earnings per Share outperformed analyst’s average expectations. Contrary to BHP Billiton and Rio Tinto the company managed to keep controllable costs stable while increasing output.
  • Capex for the next 3 years is planned at $16bln, below planned investments for the main competitors. However, the company has a strong exploration portfolio, especially in thermal coal, copper and platinum.

Implications:

  • The company did announce dividends, but is not yet planning to buy back shares. As the company now holds over $6bln in cash it might be aiming for targeted acquisitions in the near future.
  • The high commodity prices of last year have helped all major diversified miners to reduce gearing to low levels (Anglo American now at 16%). The low gearing and the high cash flow from operations will enable the miners to undertake large projects, both in organic growth and M&A.

©2011 | Wilfred Visser | thebusinessofmining.com

Xstrata steps up spending plans

December 8, 2010 Comments off

“Xstrata, the acquisition-built mining company, is once again stepping up spending on its internal portfolio, budgeting $23bn for new mines, smelters and other expansionary projects between 2011 and 2016. Expansionary capital expenditure – or spending exclusively on new projects, rather than the maintenance of old ones – for 2011 and 2012 is forecast at $6.8bn. That compares with expansionary capex of $4.5bn in 2010.

According to Xstrata, high spending in the two years to 2012 will put it over the hump in terms of funding construction of the projects expected to enter service this decade.”

Source: Financial Times, December 7 2010

Observations:

  • The $22.8bln CapEx to 2016 is the result of an increase of the 2011-2012 budget by $1.3bln to $13.6bln and investment plans of $5.0bln for 2013; $1.8bln for 2014; $1.5bln for 2015 and $0.9bln for 2016.
  • Projects expected to be approved in the near term are: Rolleston expansion; Oaky Creek expansion; Cerrejon expansion; Tweefontein; Fraser Morgan; Kabanga; Mt Isa Zinc expansion; and the MRM expansion. The bulk of the investments are in coal (36%) and copper (35%).

Implications:

  • Xstrata earmarks large amounts of cash of development projects, but preserves the flexiblity for further growth by acquisitions. Although the company has not benefited as much from high iron ore prices as major competitors due to lower exposure to the iron ore price, the gearing of 19% gives the company the flexibility to make significant acquisitions.
  • Just like for Rio Tinto the importance of good ties to the Chinese market becomes ever greater. As China is rising in importance as a copper and coal producer, Xstrata will be looking for access to the local market by partnering with Chinese players. Zijin might be a logical partner, although collaboration in the Tampakan deposit in Indonesia has not taken off.

©2010 | Wilfred Visser | thebusinessofmining.com

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