Archive

Posts Tagged ‘Goldcorp’

Xstrata retains leadership in Dow Jones Sustainability Index

September 20, 2011 Comments off

“The main sustainability issue facing the mining industry is that of declining ore grades, which implies that over time, more mineral ore needs to be extracted and processed in order to produce the same amount of metal. This is likely to exacerbate many of the environmental and social issues facing the mining & metals industry going forward. Some of the prominent environmental issues include mineral waste management, as well as the management of key inputs such as energy and water. Social issues are mainly centered around the health & safety of workers and general labor conditions. Issues such as land rights, population relocations, the use of private security forces to protect mining assets, and mine closure also remain very controversial. As with other extractive industries, the mining space is particularly susceptible to corruption, bribery and other breaches of the Codes of Conduct”

Source: Dow Jones Sustainability Index Review 2011, September 2011

Observations:

  • Xstrata tops the Dow Jones Sustainability Index for the basic resources sector for the second year in a row.
  • Most important changes of the index for the mining industry are the inclusion of Newcrest and Kinross, and the removal from the index of ArcelorMittal and Goldcorp.
  • Assessment criteria include economic, environmental, and social topics. Full list of criteria can be found here.

Implications:

  • Inclusion in the DJSI is mainly a marketing issue; it does not have direct operational or financial consequences. Many countries do require foreign investors to adhere to global reporting initiatives to ensure a certain level of sustainability, but DSJI requires a much broader set of policies.
  • Xstrata especially scores higher than industry average in terms of climate strategy, mineral waste management, human capital development, and standards for suppliers. The benchmark report will certainly be used by some companies to prioritize areas for improvement.

©2011 | Wilfred Visser | thebusinessofmining.com

Advertisements

Newmont to Buy Gold Miner in $2.32 Billion Deal

February 4, 2011 Comments off

“Newmont Mining Corp. said Thursday it is using a war chest swelled by the rise in gold prices to expand in Nevada through the acquisition of Fronteer Gold Inc. Newmont Mining, the world’s second-largest gold producer after Barrick Gold Corp., will pay 2.3 billion Canadian dollars (US$2.32 billion) in cash for the shares of Fronteer Gold, a Vancouver explorer with three projects in Nevada, including the Long Canyon project that holds a key position on a newly discovered gold deposit.

Newmont Mining will pay $14 a share for Fronteer, a 37% premium to a share’s value before the deal was announced. Fronteer’s board supports the deal, and its shareholders will vote on it in April. If approved, Newmont Mining expects the deal to close that month. If Fronteer shareholders reject the deal for a higher competing offer, the company will pay an C$85 million termination fee.”

Source: Wall Street Journal, February 3 2011

Observations:

  • The termination fee arranged by the Newmont negotiators protects the company from the risk of losses resulting from financial arrangements and deal work in case the deal is not closed. BHP Billiton is reported to have lost over half a billion in its attempt to acquire PotashCorp because of the financial arrangements it had to make to enable the offer.
  • The cash offer does include a special construction in which the Peruvian, Turkish and some Nevada exploration activities are combined in a new company: Pilot Gold. Pilot Gold will be 80% owned by current Fronteer shareholders and will be run by current Fronteer management, basically ensuring a continuation of the exploration company.

Implications:

  • A recent poll on this blog revealed expectations of high activity in M&A in coal mining (38% of respondents) and gold mining (25% or respondents). High coal and gold prices both give the miners in these sectors large war chests and increase the pay-off of synergies and expansion projects.
  • Barrick is not expected to come with a counterbid, and GoldCorp or other gold miners are unlikely to be able to offer a higher cash price.

©2011 | Wilfred Visser | thebusinessofmining.com

Is BHP Billiton too big to grow?

November 5, 2010 1 comment

The (provisional) refusal of the Canadian government to let BHP Billiton acquire PotashCorp of Saskatchewan is the third regulatory limitation to growth the company faces in a short period. As regulators around the world are afraid the company gains a dominant position in mineral markets, what options does the CEO, Marius Kloppers, have left to grow the company?

Observations:

  • In February 2008, shortly after mr. Kloppers took over as CEO, BHP did a hostile takeover bid for its largest rival: Rio Tinto. The offer, worth approx. $165bln, was withdrawn in November 2008 after regulators indicated the deal would not gain anti-trust approval and the access to debt dried up in the capital markets.
  • After the failed acquisition, the two companies agreed to try to realize a significant part of the synergies the merger would have created by setting up a Joint Venture to develop the Pilbara iron ore deposit in Western Australia. However, after both Australian and European regulators indicated this would create an iron ore player that would be too dominant, the plans were cancelled last month.
  • The $39bln offer for PotashCorp appears to be a move in which BHP Billiton does not build up a dominant position in any market. If BHP manages to break the cartel-based pricing system for potash the deal might actually benefit the world economy. Still the Canadian government seems to be inclined to let the deal stall to protect the domestic industry and tax revenues.

Implications:

  • BHP Billiton has approx. $12bln cash on the balance sheet and is earning more cash rapidly due to the high iron ore price. Typically mining companies need approx. 2-3% of asset value in operating cash, leaving BHP with some $10bln excess cash. The low leverage and the high credit rating of the company enable it to raise at least $30bln additional cash by increasing debt. However, it is hard to select acquisition targets that might actually lead to a combination that will be approved by regulators.
  • The company will either need to focus on acquiring large players in markets where it does not have a strong presence yet, or focus on acquiring many smaller players or individual assets. As the company is trying to reduce the portfolio complexity, expansion into completely new markets is unlikely. Potential acquisition targets might be Newmont, Goldcorp, Freeport-McMoran or Eldorado in the gold market and Eramet, Inmet Mining and Outokumpo in the base metal market. Expansion into the industrial minerals sector would also be an option.
  • The best way for mr. Kloppers to make a name for himself would be to make BHP Billiton the first major western mining company to build up a strong operating presence in China and/or India. Creating a Joint Venture with a local player might be the best option to achieve this.

©2010 | Wilfred Visser | thebusinessofmining.com

Minesourcing: How could crowdsourcing be used in mining?

October 12, 2010 Comments off

Crowdsourcing is a trend in many consumer goods companies. The wisdom of the crowds is tapped by asking the general public to solve a business problem, design a logo, design new products, etc.. The Internet helps tremendously in structuring these requests and reaching a large public.

Crowdsourcing has also been applied in the normally conservative mining industry. Two examples have made it to the standard list of ‘minesourcing’ examples:

  • Goldcorp of Canada was facing declining production in 1999 and was running out of reserves. The company decided to put geological survey data online and offered a total of $575k in prizes to the persons who could identify likely areas for exploration. The contest triggered an enormous response from students, consultant, prospectors and a range of other people. Goldcorp says the contest produced 110 targets that yielded $3bln in gold. Furthermore, the company hired some of the people that came up with the most innovative solutions.
  • In 2007 Barrick Gold started the “Unlock the Value“-program. It challenged the scientific community to come up with an economically viable method to significantly increase silver recovery from the type of ore found at Veladero mine in Argentina. $10mln was promised to the scientists that would come up with a viable method and furthermore the company promised to pay $25k to the teams that made it to the concept testing phase. The company entered this phase in November 2008, testing 9 promising concepts.

If these two companies manage to create value by crowdsourcing operational and scientific challenges, probably more mining companies could do the same. Innovation in the industry could be accelerated if a succesful way is found to apply ‘minesourcing’. Why don’t we see more of these challenges? What is holding the companies back? Would it help to have an independent mediating platform between industry and scientists?

©2010 | Wilfred Visser | thebusinessofmining.com

Eldorado Withdraws Bid for Andean

September 8, 2010 Comments off

“Eldorado Gold Corp. Tuesday withdrew its bid for Andean Resources Ltd., saying it wouldn’t top Goldcorp Inc.’s offer of 3.6 billion Canadian dollars (US$3.48 billion), which Andean accepted last week. Eldorado’s decision dashed hopes among some investors who were looking for a sweetened offer for Andean.

After Vancouver-based Eldorado pulled its bid, shares of Andean Resources, based in Sandy, Utah, declined Tuesday. Andean shares fell 8.5% to close at C$6.39 on the Toronto Stock Exchange. Andean is listed in Toronto and Australia. Eldorado shares rose 1.5% to C$20.18.

Andean shares had surged Friday to C$6.98, above the prices offered by Goldcorp and Eldorado, both based in Vancouver, in anticipation of a possible bidding war. Both suitors were lured by Andean Resources’ promising Cerro Negro gold mine in Argentina, which Andean said in July could produce as much as 285,000 ounces of gold a year at low cost, starting in 2012, with the potential for exploration to nearly double that output.”

Source: Wall Street Journal, September 7, 2010

Observations:

  • Eldorado was the first to make a bid for Andean. However, the Goldcorp placed a slightly higher bid which was recommended by Andean’s board after the same board rejected Eldorado’s offer.
  • The deal between Goldcorp and Andean has not yet been closed. In case a better bid is done by another player the board will evaluate the fit between companies and the height of the bid to make a recommendation to shareholders.

Implications:

  • Although Eldorado’s withdrawal is not good news for the Andean shareholders who hoped for a higher bid, it is good news for investors in gold. Goldcorp has the financial resources to quickly develop the Cerro Negro deposit, which will increase supply. However, the acquisition makes Goldcorp the second largest gold miner (after Barrick), increasing consolidation in the industry and moving towards a more oligopolistic structure, which will result in higher prices. Therefore, gold futures rose to $1257/ounce.
  • A higher cash offer than Goldcorp’s offer is unlikely. In case another company bids for Andean, the bid is likely to be part cash, part share-based or all shares.

©2010 | Wilfred Visser | thebusinessofmining.com

Andean Subject of Gold Major Bidding War

September 3, 2010 Comments off

“One of the world’s most prospective gold companies, Andean Resources Ltd., has become the subject of a bidding war between two Vancouver-based global gold majors. Andean, based in Australia, has rocketed to international industry prominence in the past two years through the rapid development of its high-grade, low-cost Cerro Negro gold project in Argentina.

Goldcorp Inc. and Andean said Friday they had reached an agreement for Goldcorp to acquire all Andean shares through a combination of shares or cash that values Andean at 3.6 billion Canadian dollars (US$3.4 billion). Under this arrangement, each common share of Andean will be exchanged for either 0.14 shares of Goldcorp or a cash payment of C$6.50/share, subject to an aggregate maximum cash consideration of C$1 billion. “

Source: Wall Street Journal, September 3, 2010

Observations:

  • Cerro Negro contains 2.1 million ounces of gold and 20.6 million ounces of silver in probable reserves. At capacity of 285 thousand ounces this will result in a mine life of only 7 years.
  • Average cost of production is projected to be $60 per ounce, resulting in a production margin of over 90%.
  • Goldcorp currently offers $3.4bln, while Eldorado’s offer priced about 2% lower was rejected 2 weeks ago. Eldorado has made a new offer today.

Implications:

  • Goldcorps shares dropped slightly less than Eldorado shares upon the offers, indicating investors believe Goldcorp to be able to achieve more synergies. Although Eldorado is growing fast and building a strong portfolio of assets, the geographic and operational variance between the projects hinders the realization of synergies.
  • The gold business is experiencing a boom and a strong increase in M&A activity due to the high price levels. Exploration costs for gold deposits account for nearly half of the total global exploration costs.

©2010 | Wilfred Visser | thebusinessofmining.com

%d bloggers like this: