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Posts Tagged ‘Davis’
Mining Week 46/’12: Lonmin vs. Xstrata & the CEO-carousel
November 10, 2012
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Top Stories of the Week:
- Lonmin raises equity to stay independent
- Lonmin announced a $800m rights offering, in that way fending of the proposal by Xstrata to increase its stake in the troubled platinum miner to a majority share.
- The strikes in South Africa, which escalated at Lonmin’s operations, have caused significant lost production and urgent financial issues for Lonmin.
- Sources: Lonmin press release; Financial Times; Wall Street Journal
- BHP starts search for new CEO
- BHP Billiton has started the search for the successor of CEO Marius Kloppers. Apparently the company will not necessarily promote an insider to the top position.
- With Mick Davis leaving Xstrata if/when the merger with Glencore is approved and Cynthia Carroll leaving AngloAmerican next year, 3 of the top CEOs in the mining industry will change.
- Sources: Financial Times 1; The Economist; Financial Times 2
- India limits export of iron ore
- Iron ore exports from the Indian state of Orissa will be limited strongly by new production quota for mines without processing facilities.
- The government is trying to attract processing investment to prevent iron ore is only exported without significant benefit for the country. High export duties (raised to 30% early this year) and production quota are used to discourage exports from the world’s 3rd largest iron ore exporter.
- Sources: Wall Street Journal; Commodity Online; Steel Orbis
Trends & Implications:
- Orissa’s attempts to curb exports don’t do much to stimulate local investment in processing capacity. India’s government announced a year ago that it would make it more attractive for companies to invest by setting up mining right and process plant permitting packages. With the current uncertainty about both global demand and India’s local demand outlook it is unlikely that large investments in additional processing capacity will be made in Orissa in the near future. As a result the will mainly slow down the local economy.
- Almost a year ago, after the announcement of Ferreira as new CEO of Vale, this blog conducted a poll among its readers to find out which top company CEO was mostly to be replaced first. The results showed most trust in the future of Kloppers at BHP. A year later 3 out of 4 are on their way out, while most CFOs have been replaced over the past 2 years too. The high level of activity in replacing top executives indicates a change of mindset in the boards of these companies: shifting from a focus on growth and investment to a focus on operational excellence and payout. The new group of top executives will mainly need to show a track record of cost-control and willingness to make tough decisions on closure of mines.
Results of Dec-2011 Poll on thebusinessofmining.com
2012 | Wilfred Visser | thebusinessofmining.com
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Categories: Mining Week
Anglo American, BHP Billiton, business, Carroll, CEO, Davis, Glencore, India, iron ore, Kloppers, Lonmin, mining, mining business, Orissa, rights issue, Rio Tinto, strike, Vale, Xstrata
Mining Week 28/’12: GlenStrata in doubt
July 7, 2012
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Top Story of the Week:
- Xstrata vote on merger with Glencore delayed
- The vote by Xstrata shareholders on the proposed merger between Xstrata and Glencore, originally scheduled for July 12th, has been delayed to a yet to be announced date.
- Several large shareholders, including Qatar Holding, which holds approx. 11% of the shares, have threatened to try to vote against the deal if the exchange ratio of 2.8 shares of Glencore per Xstrata share is not sweetened. Xstrata’s shareholders have a very strong voice in the deal because Glencore can’t use its 35% of the voting rights. As a result a small group of only some 15% of the shareholders could block the deal.
- Under pressure of shareholders the proposal of cash retention bonuses for Xstrata executives was adjusted to stock only payments. The planned retention measures were made part of the vote on the merger and threatened to become an obstacle to the approval of the deal
- The Australian antitrust authorities approved the proposed deal last week, judging that the combination would not be big enough to distort market efficiency. European Union, Chinese, and South African regulators still have to give their judgement.
- Sources: Xstrata press releases; Financial Times; Wall Street Journal
GlenStrata timeline
©2012 | Wilfred Visser | thebusinessofmining.com
Categories: Mining Week
acquisition, business, Davis, exchange ratio, Glencore, GlenStrata, merger, mining, mining business, Qatar Holding, share, shareholders, Xstrata
Mining Week 05/’12: Glencore and Xstrata move towards merger
February 5, 2012
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What is happening with Glencore and Xstrata?
- For several years Xstrata and Glencore, with over 30% its largest shareholder, have been linked in rumors of mergers. This week both companies released statements to announce that Glencore has now officially started the merger procedure. As a result Glencore is required to come up with an official proposal by early March. However, analysts expect an agreement to be reached much faster.
- Glencore is the world’s largest commodity trader and also owns operating assets for several commodities, most notably copper, zinc, and coal.
- Xstrata is the world’s 4th-largest diversified miner, grown rapidly in the past decade by a series of acquisitions.
- Last year Glencore became a public company, putting an official market value on the company. This step was seen as a requirement to convince Xstrata’s other shareholders to discuss a merger.
Why does a merger make sense?
- Although the mining industry only very slowly moves in this direction it makes sense to combine raw material production and marketing and processed goods production and marketing in one company. The vertical control over the value chain provides flexibility to react to sudden opportunities in the global marketplace. The 3 pictures below illustrate Glencore’s view of these arbitrage opportunities: geographical, product, and timing arbitrage. The larger the company is and the more overlap between marketing and production, the larger the rationale for merging. Estimated synergies of the Glencore-Xstrata merger are close to $1bln annually, mainly due to increased revenues (whereas most mining related M&A is driven by cost reducing synergies).
What could go wrong?
Two important things could make the merger fail. The first could even prevent it from happening at all:
- 1. Antitrust – Glencore is the absolute market leader in trading of various commodities. Any increase of power in these areas would trigger action by antitrust regulators around the world. To get approved, the deal will have to be structured in a way that ensures both supply substitution and demand substitution; i.e. all market parties should be able to get around Glencore-Xstrata as customer or as supplier.
- 2. Corporate culture – Glencore is a company built on the two-thousand marketeers & traders, while Xstrata is run like a typical conservative mining company. Traders are typically very smart, aggressive, impatient, rational, office-workers. Miners are ‘roll up your sleeves’, ‘move the dirt’, operational guys with only very few of the highly schooled trading-types among them. To make these two groups of people not only work together smoothly, but to integrate the companies so that departmental interests and emotions are fully aligned with the larger companies objectives is going to be a major challenge, in which many employees from both sides might choose to leave the company to find a place where they are more comfortable.
©2012 | Wilfred Visser | thebusinessofmining.com
Categories: Mining Week
business, copper, corporate culture, culture, Davis, demand substitution, Glasenberg, Glencore, merger, mining, mining business, supply substitution, trader, trading, Xstrata, Zug
Mining Week 49/’11: Changes at the top
December 4, 2011
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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
Categories: Mining Week
Anglo American, BHP Billiton, business, Carroll, CEO, CFO, Codelco, copper, Davis, diamonds, Diavik, Ekati, mining, mining business, Rio Tinto, Vanselow
Top Miner’s M&A History
Gold Miner’s M&A History
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