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Posts Tagged ‘Chile’

Mining Week 36/’12: Anglo and Codelco compromise; Glenstrata in doubt

August 31, 2012 Comments off

Top Stories of the Week:

  • Anglo American and Codelco reach a deal on the Sur Complex
    • Anglo agreed to sell a minority stake of its Chilean Sur Projects to Codelco at a significant discount, but the company receives over $2bn more than Codelco would have to pay according to its disputed buy-in option.
    • Codelco partners with Mitsui in a JV that receives a 24.5% stake of the project.
    • Codelco’s union representative voted against the new deal, announcing action to improve the terms for the Chilean company.
    • Sources: Financial Times 1; Wall Street Journal; Financial Times 2; Financial Times 3
  • Norwegian fund joins Qatar in opposition of Glenstrata merger
    • Analysts speculate about a potential compromise on the price paid for Xstrata by Glencore: Glencore offers 2.8 shares per share of Xstrata, but Qatar’s sovereign wealth fund earlier indicated it would require a 3.25 ratio. In a new statement in which the fund says it will vote against the proposed deal the 3.25x ratio was not reiterated.
    • Norges Bank Investment Management has also build up a significant stake in Xstrata. The Qatari fund could be able to block the merger alone (depending on its current ownership level) or with the help of a few other investors.
    • Sources: Financial Times 1; Wall Street Journal; Financial Times 2
  • Australian politicians struggle with mining ‘boom’ approach
    • Iron benchmark ore prices continue to decrease, loosing more than 50% vs. the peak around $200/wmt early in 2011 and 36% year to date. The profits of the iron ore dependent miners has followed this trend.
    • Royalties and income taxes on mining firms are an important pillar of the Australian budget, built for a large part around the newly introduced Mineral Resource Rent Tax. Several Australian politicians have expressed their concern with the perspective of a significant reduction of tax income. The MRRT alone was planned to bring in over $6bn of government income, but because of the progressive nature of the tax the income will be very small at current price levels.
    • Sources: Wall Street Journal; Financial Times; text

Trends & Implications:

  • Xstrata’s shareholder vote on the proposed merger with Glencore is anything but a done deal. Several large shareholders want Glencore to sweeten the offer of 2.8 shares of Glencore per share of Xstrata. However, the actual share ratio has been hovering around 2.65-2.70 since mid May, indicating that a significant share of the market expects the ratio to drop if the deal does not go on. Xstrata has higher value for Glencore than for current shareholders, but it is unlikely the company will want to pay more than the proposed 2.8x ratio and give all of that additional value to Xstrata’s current shareholders.

2012 | Wilfred Visser | thebusinessofmining.com

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Antofagasta Raises Dividend

August 24, 2011 Comments off

“Chilean miner Antofagasta PLC on Tuesday doubled its interim dividend after reporting a 54% rise in first-half net profit due to higher average commodity prices and volumes. Chief Executive Marcelo Awad said the miner remains well positioned to deal with commodity-price volatility and relatively strong cost pressures given its low average net-cost position. …

Antofagasta expects global copper output to fall 500,000 tons short of demand this year and forecasts prices to average more than $4.20 a pound in the second half. This compares with $4 a pound in mid-August and a record average $4.26 a pound for a calendar half-year in the first half. Antofagasta reported an 84% rise in first-half earnings before interest, taxes, depreciation and amortization, or Ebitda, to $1.95 billion. Net profit rose 54% from a year earlier to $696.2 million, while the declared interim dividend rose to $0.08 a share from $0.04 a share in the same period a year ago.”

Source: Wall Street Journal, August 23 2011

Observations:

  • Antofagasta mainly operates in Chile. The key growth project is the ‘Esperanza’ project close to the operating ‘El Tesoro’ mine. Exploration in Peru, USA, Australia and Pakistan signals the ambition to expand internationally.
  • The company is controlled by the Luksic family, which holds approx. 65% of the shares.

Implications:

  • Antofagasta appears not to be affected by the strikes that stopped production in other mines in the region, signalling a good relationship of the management with the unions.
  • The payout ratio of 11% of profits is above expectations, but below the 35% benchmark the company adheres to. The management is either hoarding cash for a significant investment or is planning to announce a special dividend at the end of the year. Last year a special dividend of 100% was turned out at year end.

©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

Chile miners’ strike turns cost of copper red hot

November 11, 2010 Comments off

“A strike at one of the world’s biggest copper mines in Chile is threatening to send prices of the metal, widely used in industry, to an all-time high. …

That combative stance could set the tone for a new season of collective bargaining in the industry, where bosses and unions at Radomiro Tomic and El Teniente, which belong to state-owned Codelco, and Los Pelambres, controlled by Antofagasta, are due to begin talks in the coming months.”

Source: Financial Times, November 9 2010

Observations:

  • The miners from the 21 mining unions organized in the mining federation produce 70% of the country’s copper, which is approx. 35% of the global copper output.
  • Chilean mining unions have shifted their primary focus from improving working conditions, triggered by the world-famous rescue operation of trapped miners, back to negotiating salary & benefit packages.

Implications:

  • Codelco is largely state-controlled and will thus be pressured to find common ground with the unions quickly. Antofagasta plc, a public company owned for 65% by the Luksic family, will have a harder time meeting the requests for salary increases in its Los Pelambres and Michilla mines to reflect increase in commodity prices.
  • Spillover effects of strikes from one company to another are unlikely, limiting the power of the mining federation. However, the risk of Codelco workers in various mines striking at the same time is enough to make copper consumers nervous.

©2010 | Wilfred Visser | thebusinessofmining.com

Reviving Codelco

October 25, 2010 Comments off

“During last year’s election campaign, Sebastián Piñera, who became Chile’s president in March, often criticised Codelco, the country’s state-owned copper company, for its inefficiency, griping over its stagnant output and climbing costs. Yet it was engineers from Codelco who stood beside him this month as the 33 miners trapped since August 5th in the privately owned San José copper and gold mine in northern Chile were hoisted to safety. … Other big mining companies helped with advice and equipment. But Mr Piñera looked to Codelco, which runs the world’s biggest underground copper mine in El Teniente, to lead the rescue operation.

Today, Codelco still mines over a tenth of the world’s copper, but it has seen its share of Chile’s output dwindle from 75% in 1990 to 32% last year. … For the past decade, its production has been stuck at around 1.6m tonnes (although it reached 1.8m tonnes last year), while more expensive inputs and overstaffing have pushed up costs. Its stagnation is largely the fault of past governments that, eager for tax revenues, short-changed the company’s investment budget.”

Source: The Economist, October 21 2010

Observations:

  • Codelco hired Diego Hernandez, BHP Billiton’s former base metals head, as CEO in 2008 to return the company back to growth.
  • The company is planning a $12bln capital investment offensive in Chile in order to ramp-up production. However, issuing equity is not an option due to Chilean legislation.
  • Analysts expect Codelco to increase its debt by up to $7bln and use cash generated from operations for the rest of the investment plans.

Implications:

  • Codelco still has ample investment opportunities in Chile in its core copper business. The company is unlikely to diversify in products or geographies, as the Chilean government has an important voice in the investment decisions.
  • Codelco would be a logical partner for Vale to strengthen its copper business. The geographical proximity would help to create strong synergies and a merger, partnership or Joint Venture would help Codelco to secure the funds needed for expansion.

©2010 | Wilfred Visser | thebusinessofmining.com

Miners’ rescue turns into celebration

October 18, 2010 Comments off

“…The century-old mine, located off a dirt track in the bare hills of the Atacama Desert in northern Chile, was worked the old-fashioned way. Miners blasted chunks of gold-laden rock with explosives, collected the rubble in trucks and sent it up to the surface to be processed at a plant in nearby Copiapó. …

“The mine was in precarious conditions and they always told the bosses, but the only thing they cared about was production,” said Ms Ramírez. The mine owners have apologised for the accident, but said the decision to reopen the mine in May 2008 after a worker died in an accident in 2007 was taken after safety checks by the authorities.”

Source: Financial Times, October 11 2010

Observations:

  • The San José mine, which has been the center point of the mining world’s attention for the last 2 months, faced several significant accidents over the past decade.
  • Chilean mining regulators have been fined after the latest accident because of lack of control. The cost of the mining operation will likely cause the mine to cease operations.

Implications:

  • Many mines in the region are improving safety precautions to ensure regulatory compliance. Still very few mines around the world use advanced cost-benefit analysis that includes the potential cost of accidents. Typically the safety design uses rock mechanical software that calculates a safety margin without taking the cost of reinforcements and potential cost of accidents in account.
  • Some probabilistic techniques attach a value to the risk of fatal accidents, based on the age and salary of the workers and the likelihood of miners hit by falling rock or being trapped. Although this technique is certainly not advisable for deciding whether or not to rescue trapped miners, it would help to include the type of use of drifts in performing cost-benefit analysis for mine design.

©2010 | Wilfred Visser | thebusinessofmining.com

Chile miners alive but long rescue ahead

August 24, 2010 2 comments

“Specialist drilling equipment arrived on Monday at a small gold and copper mine in Chile to begin digging out 33 miners trapped nearly half a mile underground for 18 days – a Herculean task that could last until Christmas.

Thirty-three miners trapped deep underground for 17 days after a cave-in at a small private gold and copper mine in northern Chile are alive and well, but still face months underground until they can be hauled out.

The men tied a note reading ‘the 33 of us in the shelter are well’ to a drill that finally reached them on Sunday just as hopes of finding them alive were fading following the August 5 accident in the mine in Chile, the world’s top copper producing nation.”

Source: Financial Times, August 23, 2010

Observations:

  • Compañía Minera San Esteban Primera, the owner of the mine, is likely to go bankrupt due to the lost production and the cost of the rescue operation. Other parties in Chile have ensured the funding of the rescue operation.
  • Drilling 700 meter at a 66cm diameter would normally not take more than a couple of weeks. However, no conventional methods can be used because of the risk of collapse or flooding of the shelter.

Implications:

  • The safety regulations for underground mining in Chile will become stronger. Chile is an important mining country, but regulation has mainly focussed on the large mining corporations. Smaller companies will have to increase safety to similar levels, which will reduce the competitiveness of some of the mines.
  • The major mining houses, working together in the ICMM, might consider setting up a global mine rescue team for situations like these. Having a team standby with the best equipment possible to assist in any mine disaster would shorten the time required to rescue miners and increase the likelihood of survival.

©2010 | Wilfred Visser | thebusinessofmining.com

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