Top Stories of the Week:
- ENRC settles Congo dispute with First Quantum
- ENRC agreed to pay $1.25bln to First Quantum to settle the dispute over the Kolwezi Tailings project, the Frontier and Lonshi mines and related exploration interests in DRC. First Quantum was stripped of the rights to these projects by the government, after which ENRC came in and agreed to buy the rights from the government in a move widely criticized in the industry.
- Sources: ENRC press release; Financial Times; First Quantum press release
- Coal India agrees to salary costs hike of 25%
- Coal India, by far the largest miner of energy coal in the country, has agree to a 25% permanent increase of wages. In august of last year the unions demanded a 100% increase to offset increased cost of living and reduce the increasing income gap between management and workers. Investment bankers at the time expected the company to agree to a 15-20% increase. The salary hike results in an increase of operating cost for the company by approx. 10%.
- Sources: Wall Street Journal; Economic Times
- Weather in Australia and Brazil drives iron ore price up
- The closure of the export facilities in Port Hedland because of cyclone Heidi and the cancellation of shipments from Brazil because of heavy rains results in supply pressure in the iron ore market. Heavy rains are expected to continue in the Pilbara region, which supplies close to 40% of seaborne iron ore in the world, in the short term.
- Sources: Financial Times; Supply Chain Review; Wall Street Journal; Vale Press Release
Trends & Implications:
- Extreme weather conditions have a big influence on bulk material supply chains in the short term, because stockpiling these materials in amounts large enough to last for several weeks is very costly and thus not a normal practice. Especially the steel industry is hit hard with both iron ore and metallurgical coal having to be shipped in from locations that are often hit by storms. Although the impact on spot prices in the short term can be large, the longer term impact on the miners is quite small. Most contracts allow for some flexibility in when exactly the ore is delivered. As long as the mining operations don’t have to stop, the ore will get to the steel manufacturers as some point.
- The wage increase expected for Coal India is a good example of the very high cost inflation of mining in developing countries. Whereas the cost increase of contracted services and equipment leasing can be seen as (at least partly) a temporary phenomenon caused by high commodity prices, the cost increase because of increased labor and consumable costs in developing countries causes a more permanent shift of the global cost curves.
©2012 | Wilfred Visser | thebusinessofmining.com
“An internal review at Eurasian Natural Resources Corp, launched after of a corporate governance debacle that saw two directors ousted at the mining company’s annual meeting, has left the management and board almost unchanged. Johannes Sittard, chairman and former chief executive, remains chairman. Felix Vulis, who resigned in February citing commitments in his family life, has been restored as permanent chief executive.
The three-month review of corporate governance at the embattled FTSE 100 company, which has lost almost half its stock market valuation in 2011, includes the board appointment of Terence Wilkinson, a former chief executive of Aim-quoted Ridge Mining and Lonrho. The review, which concluded on Wednesday night, focused on whether the board of ENRC, a company that is largely controlled by three central Asian entrepreneurs with no board seats, should remain fully independent of the three men or become a more actively family-controlled miner akin to Vedanta, Fresnillo, and Antofagasta.”
- One of ENRC’s founders, mr. Alexander Mashkevich, was rumoured to be interested to take over the presidency of the company. However, within days of the publication of this story the results of the review were announced.
- The review restored a majority of independent board members for the company, which was lost after various board members left or were not reelected earlier this year in a power struggle in the board.
- In the current situation about 70% of the shareholders are not represented in the board. This might lead to disagreement between board and shareholders in the case of a potential takeover bid. In June Glencore was said to be interested in buying ENRC, which has lost a lot of market value in the past year.
- The Kazakh government and Kazakhmys together hold close to 40% of the shares. Both parties will not be in favor of the 3 founders (the Troika) gaining more control over the company and will be happy mr. Mashkevich does not join the board.
©2011 | Wilfred Visser | thebusinessofmining.com
“Commodities trader Glencore (LSE:GLEN.L – News) is not considering a bid for embattled miner ENRC, its chief executive said, dismissing reports of a takeover after it disappointed the market with its maiden first-quarter results. Shares in the world’s largest diversified commodity trader dropped 2 percent as weaker-than-expected results from its metals and mining trading unit held back its operating profit.
Kazakh miner ENRC, with a free float of less than 20 percent, has long been seen as a potential target for Glencore. Industry sources say Glencore could be tempted by its undervalued assets and a heavy fall in the shares as a result of a boardroom spat over its leadership that has seen the departure of two independent directors.
‘Glencore monitors a wide range of opportunities in the sector and will continue to do so,’ Chief Executive Ivan Glasenberg told reporters following the company’s results. ‘However, we can confirm that although we talk to a lot of people in the sector, we are not actively considering a bid for ENRC,’ he added.”
Source: Reuters, June 14 2011
- Following a review of ENRC’s governance structure various independent directors and the general counsel have either left or have not been reelected by the majority shareholders. The leaving directors claim that the company is run authocratically and the owners are not willing to open up control.
- Glencore was rumoured to be interested in launching a takeover for ENRC, which suffers from a depressed shareprice. However, Mr. Glasenberg (Glencore CEO) said the company wasn’t holding any discussions to purchase ENRC when announcing Glencores 1st quarter results.
- A potential acquisition of ENRC by Glencore would only have chance of success if the founders are willing to sell their shares. The Kazakh government is unlikely to sell its stake in the company and the total share of ownership of the 18% free-float and the Kazakhmys share would not enable Glencore to excercise control.
- Many analysts are trying to figure out which large mining company will be Glencore’s major acquisition target. As long as not further equity is raised the company will be able to make an acquisition up to a value of some $30-40bln. The target should mainly be complementary to Xstrata’s global operations, as it is likely that management of the owned and controlled operations is centralized in the coming years.
©2011 | Wilfred Visser | thebusinessofmining.com