Archive

Posts Tagged ‘Codelco’

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

Mining Week 29/’12: Chilean peace talks

July 15, 2012 Comments off

Top Stories of the Week:

  • Anglo American and Codelco extend talks about Sur
    • Anglo American and Codelco agreed to suspend legal action in the lawsuits filed by both parties in the conflict around ownership of the Anglo Sur projects in Chile until August 24 to have more time to try to settle the dispute out of court.
    • Chilean media reported that a potential solution to the dispute might involve minority shareholder Mitsubishi to give up a small stake to enable Mitsui to build up a stake. Anglo sold 49% of the project at a high valuation after Mitsui and Codelco made agreements about a deal based on Codelco’s option to buy into the project.
    • Sources: Financial Times; Wall Street Journal; Anglo American press release
  • Agnelli heads new mining consortium in Brazil
    • Vale’s former CEO Roger Agnelli will head a new mining venture set up by investment bank BTG. Initial capital of the new venture: B&A Mineração.
    • The new company inherits a stake in a potash project in Brazil and a copper project in Chile and will look into further opportunities in Latin America and Africa.
    • Sources: Wall Street Journal; Financial Times
  • Tinkler continues with Whitehaven bid
    • Whitehaven, one of Australia’s largest coal miners with mines in Queensland, received a buyout proposal by its largest shareholder: Nathan Tinkler.
    • Tinkler already owns 21.6% of the shares and proposes to buy the rest of the shares at a 50% premium to take the company off the stock exchange. Total bid amounts to approx. A$5.2 billion.
    • Sources: Financial Times; The Australian

Trends & Implications:

  • The peace talks between Anglo, Codelco, Mitsui and Mitsubishi underline a trend of the growing importance of alliances and multilateral networks in the industry. As mining projects more and more take place in relatively unstable areas of the world an important mining projects require investments so big that it can hardly be carried by a single company, companies need to build upon the strengths and contacts of other companies and find win-win agreements with governments to successfully develop their projects.
  • B&A Mineracao is the 2nd high-profile mining startup in recent years, after Nathan Rothschild started Vallar 2 years ago. The initial success and quick issues of Vallar’s tie-up with Bumi demonstrated three important lessons for these startups that plan to be big soon: Firstly a powerful financier that can chip in multi-billion investments is needed to gain any importance; secondly a combination with existing producers is the only way in which the growth can be quick; and finally effective ownership and governance arrangements around these alliances are crucial to make the new management successful.

©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

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 49/’11: Changes at the top

December 4, 2011 Comments off

Top Stories of the Week:

  • Vanselow quits as BHP CFO
    • After 5 years as CFO of the world’s largest miner Alex Vanselow (Brazilian national) announced he will step down and look for a CEO position in the industry. Mr. Vanselow managed to get BHP through the economic downturn in great financial shape (helped by high commodity prices). His recent experience in acquisitions of Chesapeake assets and Petrohawk and the failed acquisitions of Rio Tinto, Potashcorp, and the failed Pilbara JV with Rio Tinto, make him an interesting candidate for any resources company looking to grow by M&A.
    • Sources: BHP Billiton Press Release; Financial Times; Wall Street Journal
  • Codelco and Anglo continue their copper fight
    • In a legal fight over the rights to the Anglo American Sur project Anglo’s lawyers blame Codelco and the Chilean government to act unfairly. Codelco holds an option to buy 49% of the project, but it is unclear whether that is only of Anglo’s stake or of the total project.
    • Sources: Financial Times; Anglo American Press Release; Codelco Press Releases
  • BHP Billiton gets out of diamonds
    • BHP Billiton announced it will review its options around its only diamond project: Ekati diamond mine in arctic Canada. Rio Tinto, which owns the nearby Diavik diamond mine, is the most likely buyer because of the synergistic potential and the lack of funds and abundance of capital spending needs of other large diamond miners.
    • Sources: BHP Billiton Press Release; Financial Times; MiningMx

Trends & Implications:

  • Mr. Vanselow will be an interesting candidate for global companies looking for a change of CEO. As Brazil’s Vale recently changed CEO and Petrobras’ Gabrielli de Azevedo is widely recognized as a strong CEO with work to do he will most likely look to head up a foreign player. The ideal period for a CEO is typically seen as 6-8 years: after that a new point of view and a new alignment with the personality needed for the phase of a company is often helpful. Taking a look at the top positions of the world’s largest miners at this moment, several CEO position changes can be expected over the coming years.

©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

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: