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Posts Tagged ‘China’

Mining Week 8/’13: BHP names new CEO

February 24, 2013 Comments off

Top Stories:

  • Oil man Andrew Mackenzie named BHP Billiton CEO
    • BHP Billiton announced this week that CEO Marius Kloppers will step down in May and will be succeeded by Andrew Mackenzie, the current head of the company’s non-ferrous division, who worked for BP for 22 years and who worked for Rio Tinto prior to joining BHP Billiton.
    • Sources: BHP Billiton press release; ABC interview; Youtube Reutersvideo
  • Iron ore prices at 16-month high
    • Benchmark iron ore prices rose to a 16-month high at approx. $160/t this week. A cyclone is nearing the Australian coast, potentially causing supply disruptions in the coming week.
    • Sources: CNBC; Indian Express

Trends & Implications:

  • BHPB’s appointment of a chief executive with extensive experience in the oil and gas business signals a further shift of focus from mining to natural resource extraction in general. Given the importance of cost control in the coming years, and considering the company’s asset base in oil and gas and the limited understanding of the oil and gas industry by most miners, appointing an insider with good knowledge of the full range of assets is a logical choice.
  • The increase of iron ore prices is expected to be a relatively short-term development driven by weather expectations and the annual cyclical demand of Chinese importers. which peaks in Q4 and Q1. Long-term price expectations are still much below the current level as additional production capacity is being added at a high pace.

2013 | Wilfred Visser | thebusinessofmining.com

Mining Week 4/’13: Caterpillar’s trouble & Bumi’s future

January 27, 2013 Comments off

Top Stories:

  • Caterpillar sees lower sales and fraud at Chinese acquisition
    • Caterpillar’s machinery sales declined 1% over the past 3 months, driven by poor results in AsiaPacific and North America.
    • The news of the mining slowdown hitting the top equipment manufacturer comes at the same time as the announcement of structural over reporting of profits at ERA Mining Machinery, the Chinese manufacturer bought for approx. $700m last year.
    • Sources: Caterpillar press release; Wall Street Journal; Financial Times
  • Bumi board favors Bakrie’s plans over Rothschild’s
    • The only two directors on Bumi’s board who Nathan Rothschild wanted to stay in function have sided with the rest of the board in the support for the plan to have the Bakrie family buy the Bumi Resources assets and separate from Bumi, which would be left with the Berau assets.
    • Rothschild and Bakrie have been in a dispute about the future of the London-listed miner with coal assets in Indonesia for several months. The company said this week that the decisions about the future structure of the group will not be impeded by the ongoing legal probe into financial practices at their assets.
    • Sources: Financial Times; Telegraph; Wall Street Journal

Trends & Implications:

  • The reduction of machinery sales at Caterpillar signals that the peak of new project development has passed. While miners raced to add capacity over the past years, many new projects are now put on hold or downsized. Although Caterpillar can expect to benefit from the forecasted rise increase of global resource requirements over the next decades, the fastest growth is over. Equipment manufacturers are a good indicator of overall growth outlook in the industry as their sales is directly linked to building of production capacity.
  • Bumi’s future appears to be that of an Asian-focused coal company without strong Indonesian shareholders. The tie-up of the Vallar cash shell with powerful Indonesian miners did create a significant player in the region, but the divergent views on corporate governance between the Indonesian and European-based owners has made it impossible to run the company effectively.

2013 | Wilfred Visser | thebusinessofmining.com

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 | thebusinessofmining.com

Mining Week 52/’11: Chinese investment welcome in Australia

December 31, 2011 1 comment

Top Stories of the Week:

  • Australia solicits Chinese infrastructure investment
    • The government of Western Australia is trying to speed up the development of port and rail facilities of the Mid West region’s Oakajee port by stripping the Mitsubishi/Murchison combination of exclusive development rights and inviting Chinese parties to step in. 8 of the 14 projects in development in the region have Chinese investors.
    • Sources: Wall Street Journal; Government statement; Murchison Metals statement
  • Yanzhou teams up with Gloucester coal
  • Anglo and Codelco fight for Minas Sur stake
    • Anglo American launched a range of claims in Chilean court trying to prevent Codelco from being awarded the right to buy a full 49% of the Minas Sur assets. The scope of the option for Codelco to buy 49% has been unclear since Anglo sold a 24.5% stake to Mitsubishi. In response to Anglo’s claims Codelco restated its intention to acquire 49% of the full project.
    • Sources: Financial Times 1; Financial Times 2; Anglo American press release

Trends & Implications:

  • As expected Chinese investments have proven to be a key driver of M&A activity in the mining industry in 2011. It is noteworthy that many Chinese firms are using a foreign based subsidiary or team up with a Western firm to do foreign investments. This structure holds 2 main benefits for the Chinese investors: they obtain an experienced western staff with knowledge of the way of doing business in the target countries; and they are viewed much more favorably by regulators when trying to execute deals.
  • The fight of Anglo American and Codelco over Minas Sur appears to become a long term court fight. The longer this court fight stretches, the more inclined Anglo American will be to find a compromising deal, as the uncertainty about the ownership structure will delay all investment decisions for the company in the mining region.

©2011 | Wilfred Visser | thebusinessofmining.com

Mining Week 46/’11: Hard times for emerging market multinationals

November 13, 2011 Comments off

Top Stories of the Week:

  • Vedanta reports disappointing results
    • Earnings of the industrial metals miner with many operations in India dropped despite revenue increase of 43% for the half year. Reduced earnings were caused by losses in the aluminium group and by a weak rupee (with 45% of revenue in India).
    • Sources: Vedanta results presentation; Financial Times; Wall Street Journal
  • Anglo and Codelco battle over Sur
    • Only days after Anglo agreed to pay $5.1bln for a 40% stake of De Beers, it decided to sell a stake of its Chilean Sur copper project to Mitsubishi for $5.4bln. The sale has led to disagreement with Codelco, which claims to hold an option on 49% of the total project, not just on Anglo’s share.
    • Sources: Anglo American press release; Financial Times; Wall Street Journal
  • Caterpillar chooses to produce in USA and Indonesia, buys into China

    Trends & Implications:

    • Though the results for Vedanta were not met with enthusiasm on the markets, they were in line with the strategy set out by the management in May: growth, long term value, and sustainability. Vedanta currently chooses to increase its market share instead of generating high profits, in the awareness that the current development will for a large part determine which companies will be the emerging market multinationals of the future.
    • The fight between Anglo and Codelco over the ownership stakes in the Chilean copper assets is flanked by a fight by Japanese co-investors and traders. Codelco sided with Mitsui to build its 49% stake at a low valuation, but Anglo found a way to get a higher price by selling part of the asset to rivaling keiretsu Mitsubishi.

    M&A overview update

    The M&A overview of the Business of Mining has been updated with Anglo’s 40% acquisition of De Beers.

    ©2011 | Wilfred Visser | thebusinessofmining.com

Mining Week 45/’11: Anglo takes control of De Beers

November 6, 2011 Comments off

Top Stories of the Week:

  • Anglo American adds 40% to its 45% stake of De Beers to gain control
    • Anglo American agreed to pay $5.1bln to the Oppenheimer family to gain control of diamond miner De Beers. The other 15% are owned by the government of Botswana. De Beers changed CEO in May of this year and tried to strengthen partnerships and simplify the ownership structure.
    • Sources: Anglo American press release; Wall Street Journal
  • China: 8 die, 45 rescued in coal mine disaster
    • A blast in a state-owned underground coal mine killed eight miners. 45 miners that were initially trapped underground were rescued within two days via a rapidly excavated tunnel.
    • Sources: AFP; Wall Street Journal

Trends & Implications:

  • Diamonds already accounted for 11% of Anglo American’s revenues, and will get close to 20% now. The simplified ownership structure will help De Beers to undertake the large investments in both new project development and modernization of current operations required to retain its leadership position in the global diamond business. Additionally, Anglo Americans global footprint will help De Beers to diversify its production footprint, which is still heavily skewed towards Botswana.
  • Safety in Chinese mines is still far below Western standards, but under pressure of federal regulation the situation is improving rapidly. Unsafe mines are often forced to close temporarily, and rescue teams are becoming better equipped to safe the lives of trapped miners. Official numbers show a 2/3 decrease of fatalities in the past 10 years. However,the surge of coal demand in the country is putting the safety improvements under pressure, as mine management is willing to go a long way to increase output.

©2011 | Wilfred Visser | thebusinessofmining.com

Minmetals in C$1.3bln bid for Canada’s Anvil

October 4, 2011 Comments off

“China’s Minmetals Resources has launched a C$1.3bn (US$1.25bn) takeover offer for Anvil Mining, a Toronto-listed copper producer, in a move that underscores the rising international profile of Chinese mining companies.
Chinese miners have been slowly but steadily advancing their overseas presence, as China’s consumption of key commodities such as copper, gold and coal continues to grow.

Minmetals announced Friday it would offer C$8 per share for Anvil in a friendly deal that has the approval of Anvil’s board and major shareholder, Trafigura Beheer. The price is a 30 per cent premium to Anvil’s 20-day trade-weighted average.”

Source: Financial Times, September 30 2011

Observations:

  • Minmetal’s made a bid for Equinox in April, but withdrew this offer after Barrick offered a higher price.
  • Minmetals acquired many assets of OZ minerals in Australia in 2009. Its mining division MMG is mainly managed by western managers and operates mines in Australia and Laos.
  • Anvil’s most important asset is the Kinsevere copper project in Congo, which is expanding to a 60,000tpa capacity and has proven and probable reserves of approx. 750 thousand tons contained copper.

Implications:

  • Anvil’s board informally put the company up for sale last month although it is in the process of a fully financed expansion program. Analysts expect the move to be driven by the large shareholders that want to cash in on their investment.
  • Minmetals will continue to look for $1-7bln copper investments in Southern Africa, trying to expand its portfolio and potentially build on the experience of Anvil’s management. According to the Economist stability in the Katanga copper region is uncertain as the strong governor of the province has decided to leave the office next year. Congo’s copper assets will certainly be in the center point of attention in the coming year.

©2011 | Wilfred Visser | thebusinessofmining.com

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