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Mining Week 42/’12: Bakrie vs. Bumi

October 13, 2012 Comments off

Top Stories of the Week:

  • Bakrie proposed to buy Bumi’s assets
    • The Bakrie Group, which owns approx. 24% of Bumi Plc, has an offer to buy Bumi plc’s assets (Berau and Bumi Resources) and leave the London listed miner active in Indonesia behind as a cash shell. The group previously held 48%, but sold 24% to Borneo Lumbung to ease debt issues.
    • Bumi’s share price has dropped 80% versus the high in July 2011 on the back of low coal prices and governance issues.
    • Sources: Financial Times 1; Financial Times 2; Wall Street Journal

    Bumi plc structure: London listed miner owns a stake in Berau coal and Bumi resources.

  • BHP Billiton seeks to cut costs

Trends & Implications:

  • Bakrie’s move to leave Bumi plc could imply the end of the Indonesian coal ambitions of Rothschild’s venture. If Bakrie finds the money to execute the deal, it offers other shareholders an opportunity to limit their losses. Bumi could try to reinvent itself and buy assets in other regions with the cash received for Bumi resources and Berau, but it would start with significantly less cash to acquire companies than in its attempt in 2011.
  • The updated M&A share attractiveness tracker shows a relative leveling of the playing field in terms of mega M&A over the past month. South African listed companies clearly took a major hit, but as the outlook for these companies deteriorated at the same time the shares have not gained much attractiveness from an acquisition standpoint. Fortescue managed to fend of urgent debt issues and saw its share price rise, but it remains one of the more attractive acquisition targets. BHP Billiton lost its position as the best positioned acquirer as outlook for the company deteriorates with the expectation of slowing global demand.(

2012 | Wilfred Visser | thebusinessofmining.com

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Norilsk Nickel back on to solid ground

May 24, 2010 Comments off

“When former KGB officer and state tourism chief Vladimir Strzhalkovsky was appointed chief executive of Norilsk Nickel more than a year ago, investors worried about his lack of experience in the mining industry.

But the tough cost- cutting he has embarked on is highlighting the potential advantages of his former career, as the world’s biggest nickel miner emerged from the crisis with a big lift in net profits that reached $2.65bn last year, far above forecasts.”

Source: Financial Times, May 24 2010

Observations:

  • Administrative & labor cost at Norilsk Nickel went down 36% in 2009.
  • Strzhalkovsky deems a merger with Rusal to add little value to Norilsk’s shareholders.
  • Norilsk will try to sell its majority stake in the American palladium & platinum miner Stillwater Mining.

Implications:

  • Rigorous cost cutting has reestablished Norilsk as a low cost producer. Nickel prices fell in 2007 and have only partly recovered last year. As revenues have decreased, the only option for the company to keep a health margin was to cut costs. With a positive outlook for nickel prices in the future, this is a lasting competitive advantage.
  • Few companies will be interested in buying the stake of Stillwater Mining. The company was making a loss last year and it is very hard to achieve operational synergies for most integrated miners as they don’t have a strong presence in the area of Montana.
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