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Posts Tagged ‘infrastructure’

Mining week 26/’12: Resource nationalism & slowdown worries

June 24, 2012 Comments off

Top Stories of the Week:

  • Glencore mine in Bolivia nationalized
    • Bolivia nationalizes the Colquiri zinc and tin mine, one of 5 of Glencore’s assets in the country. The government promises to give a ‘fair compensation for equipment.
    • The nationalization comes after several weeks of labor conflicts between Colquiri’s workers and Glencore’s local subsidiary
    • Sources: Wall Street Journal; Glencore press release; La Prensa Bolivia
  • Rio Tinto invests $4bln more in Pilbara region
    • Rio Tinto has decided to spend an additional $3.7bln in the Pilbara region as part of its long-term investment plan.
    • $2.0bln of the funds will be used for infrastructure enhancements to allow the company to meet its output targets. The other $1.7bln will be used to extend the life of one of the largest mines in the area.
    • Sources: Rio Tinto press release; Financial Times; Fox Business
  • Media stress commodity price uncertainty

    • The disparity between performance of global mining stocks and metal prices is triggering debate in banking world and media about the potential impact of a further slowdown of the global economy.
    • Sources: Mining Weekly; Financial Times

    Trends & Implications:

    • The uncertainty about short-term economic developments in both OECD countries and developing economies, most notably China, is causing share prices across the mining industry to lag the current performance of both metal prices. The uncertainty for short-term prospects apparently also affects the long-term outlook for the industry, making investors believe price and profit levels can’t be sustained. As a result, Price/Earnings (PE) ratios are dropping, causing market capitalization to go down despite good company performance.

    ©2012 | Wilfred Visser | thebusinessofmining.com

GVK Acquires Majority Stake in Hancock

September 19, 2011 Comments off

“The GVK group said Friday it has acquired a majority stake in the Hancock coal project in Queensland, Australia, for $1.26 billion to secure thermal coal supplies for its planned power plants in India. It has acquired a 79% stake in the two Alpha mines, 100% of the Kevin’s Corner mine, as well as full ownership of ongoing rail and port projects connecting the Hancock coal projects.

The Hancock group, led by billionaire Australian businesswoman Gina Rinehart, said in a separate statement that GVK will pay $500 million up-front and the rest in phases. It will pay $200 million one year after the deal closes, and $560 million on the financial close of the coal project, anticipated to be in 2012. The GVK group owns and operates power, airport and other infrastructure projects in India, most of them through its listed entity, GVK Power & Infrastructure Ltd.”

Source: Wall Street Journal, September 19 2011

Observations:

  • GVK secures long term access to at least 20mln tons of coal a year, approx. a quarter of the total planned production of Hancock coal.
  • GVK has coal power projects in India in Punjbab and Goindwal Sahib, and owns 2 small coal mining projects in the state of Jharkhand (Tokisud and Seregarha).

Implications:

  • Indian companies are increasingly looking abroad to secure coal access. Both thermal coal and metallurgical coal are in demand, as coal mining capacity does not keep up with high economic growth.
  • For Hancock the sale of the coal projects frees up cash to develop the current project further and to pursue other opportunities more aggressively. Next to Hancock coal the group is involved in the Hope Downs iron ore project and the Jacaranda Alliance Joint Venture.

©2011 | Wilfred Visser | thebusinessofmining.com

Vale woos Guinea with social projects

July 11, 2011 Comments off

“Vale’s finance chief said the Brazilian miner would invest in development programmes in Guinea in an attempt to safeguard a $2.5bn mining concession and avoid making a large pay-out to the African country’s new government. In spite of still being vulnerable to a review of mining licenses in Guinea, Guilherme Cavalcanti said that Vale could win the government’s approval for its Simandou iron ore project that it shares with rival Rio Tinto by paying for education and agriculture in the communities where it mines.

‘Our approach to Africa in Guinea is not to become only a mining extraction [company] but bring country co-operation,’ he said. ‘So, as we do in Mozambique, we can help people in agriculture, we can help in education, we can train local people … So it’s more an approach to communities as well, not only mining extraction.’

Rio Tinto only gained clear tenure in Guinea in April after promising the government $700m in cash as well as rights to take up to a 35 per cent stake in Simandou. Simandou, one of the highest-quality untapped iron ore resources in the world, has attracted the two largest iron ore miners to Guinea despite the country’s history of volatile dictatorship, weak rule of law, and recurring threats of licence renegotiations.”

Source: Financial Times, July 6 2011

Observations:

  • The Simandou deposit is divided into 4 blocks: Vale controls blocks 1 and 2 with the Benny Steinmetz Group (BSG) as minority shareholder; Rio Tinto controls blocks 3 and 4 of the Simandou deposit, working together with Chalco. In an earlier stage Rio Tinto held title to the full deposit, but the Guinean government cancelled this deal.
  • In a review of mining licenses announced in March the Guinean government requires a minimum of 33% of ownership of strategic mining projects in the country to increase government control.
  • Rio Tinto struck a deal on the redistribution of ownership at the end of April, setting up a long term phased process of acquisition of ownership by the government. Furthermore the company agreed to a conditional one time $700mln payment to the government and promised to develop a railway to export the ore via a Guinean port.

Implications:

  • The social projects promised by Vale are a mere hygiene factor in the negotiations about transfer of ownership. The government will clearly expect any operating partner to take an active role in community development. However, Vale’s experience with large scale operations in developing areas in Brazil and Mozambique might help to gain trust.
  • Most likely Vale will agree on a conditional and phased deal similar to Rio Tinto’s agreement with the government. The agreement will be designed to make any payments or ownership deals conditional on crucial milestones and actions by the government. Vale will still need to decide on a way to export the ore, either negotiating to use the railway build by Rio Tinto, or setting up the infrastructure to export via Liberia.

©2011 | Wilfred Visser | thebusinessofmining.com

Guinea to review mining licenses

March 7, 2011 Comments off

“Guinea is planning a comprehensive review of its mining licences that could disrupt a $1.35bn iron ore agreement between China’s Chinalco and Rio Tinto, a $2.5bn iron ore acquisition by Brazil’s Vale, and a slew of smaller mining deals in the mineral-rich west African state.

All mining companies in Guinea will have to submit to higher standards of transparency in order to invest, as will the countries from which they originate, according to a joint statement from Alpha Conde, Guinea’s new president, and George Soros, the billionaire philanthropist who advised him.

‘All contracts will be reviewed and reworked by the beginning of the second half of this year,’ said a senior official from Guinea’s ministry of mines at a conference in Paris on Thursday. ‘The government will become a minority shareholder in all mining contracts.'”

Source: Financial Times, March 7 2011

Observations:

  • According to the new licensing structure all foreign investors and their host countries will need to subscribe to the WorldBank’s EITI (Extractive Industries Transparency Initiative). Furthermore the government will request minority ownership of all projects.
  • The most important mining project in the country is the iron ore complex around Simandou and Kalia. Rio Tinto and Chinalco, Vale, and Bellzone and CIF hold licenses to various blocks of the complex, from which production should start within 2 years.

Implications:

  • China and Chinese companies, as brought in by Bellzone and Bellzone, don’t subscribe to the EITI yet. This could lead to significant development delays and/or break-up of consortia. It is unlikely that the government will push the large foreign investors out of the projects, as they need the foreign money to get the projects going.
  • In the Economist’s country operational risk benchmark, Guinea ranks 149th out of 149 countries, tied with Iraq. The 10 risk categories included in the benchmark are: security; political stability; government effectiveness; legal and regulatory; macroeconomic; foreign trade and payments; financial; tax policy; labour market; and infrastructure. Next to the changing regulatory environment the infrastructure risk is important for Simandou’s projects, as Guinea and Liberia are fighting over the port to be used for shipping the ore and the way the ore should be transported to the port.

©2011 | Wilfred Visser | thebusinessofmining.com

Chinalco and Rio sign $1.35bn Guinea deal

July 30, 2010 Comments off

“Aluminum Corp of China and Rio Tinto signed a $1.35bn deal on Thursday that allows the Chinese state-owned miner to buy in to a rich iron ore project in Guinea, in a move that places both mining companies at the centre of multi-billion-dollar scramble for west Africa’s iron ore.

Rio and Chinalco – the common name of the Chinese miner – revealed few changes to the earlier agreement they signed in March over Simandou, the Guinean deposit. Chinalco will pay Rio $1.35bn that will fund project development. In return, Chinalco buys its way up to a 47 per cent stake in the Rio-Chinalco joint venture.”

Source: Financial Times, July 29, 2010

Observations:

  • Rio will mainly use the $1.35bln to finance infrastructure development, including a railway and port. Chinalco gains the access to the iron ore rights.
  • Rio Tinto and Chinalco are hoping the Guinean government will exercise options to get 20% of the project shares. In this way Rio Tinto would be the lead partner and no other international firms will gain from the project.

Implications:

  • Rio Tinto manages to improve the relationship with state-backed Chinalco after the setback of the unsuccessful increase of Chinalco’s share in the company in 2008. This relationship is especially important as China is the largest customer for Rio’s main profit pool: Australian iron ore. Although the size of this specific deal may be rather small, the political significance is ar stretching.
  • Although access to the iron ore is important for Chinalco, the ore will be significantly more expensive than Australian ore, partly because of the larger shipping distance.

©2010 | Wilfred Visser | thebusinessofmining.com

Australia and China sign over A$10bn of deals

June 23, 2010 Comments off

“Canberra and Beijing signed 10 commercial deals worth more than A$10bn (US$8.8bn) on Monday as the two nations strengthened trade links during a state visit to Australia by Xi Jinping, the Chinese vice-president, who is expected to become the country’s next president.

The agreements, mainly in the resource and energy sectors, are small compared with a number of recent deals, including PetroChina’s decision last year to buy up to A$50bn worth of liquefied natural gas from Western Australia’s Gorgon project.”

Source: Financial Times, June 22 2010

Observations:

  • As part of the investment package China Development Bank, which recently was involved in an infrastructure deal in West-Africa, will invest over $1 bln in infrastructure for the new Western Australian iron ore operations in Karara.
  • The investment package, signed by Kevin Rudd and Xi Jinping, the Chinese trade minister, further includes an initial agreement on funding for a $8 bln coal mine, railway and coal-loading terminal in Queensland and funding for projects of Aquila Resources, including its $3.45 bln West Pilbara iron ore project.

Implications:

  • Mr. Rudd tries to show the Australian mining industry he is still committed to development of the sector, although a large part of the miners are currently fighting his proposed mining tax increase. The investments to be done by the Chinese will both help companies with Chinese stakeholders and miners that have a strong demand in China in terms of infrastructure investments.
  • Both Australian government and mining companies are struggling to improve relations with Chinese government and companies. China accounts for most of the growth and an increasing portion of the total revenue of the companies and is Australia’s primary trading partner. Building long term relationships with the customers is vital for the sustainability of the mining sector in Australia.

©2010 – thebusinessofmining.com

Bellzone Mining confirms MOU with China International Fund (CIF)

May 26, 2010 Comments off

“Shares in Bellzone Mining surged 60 percent yesterday morning on London’s AIM market, following the announcement of a 50/50 joint venture with CIF for the 2.4 billion ton JORC magnetite Kalia Iron Project in Guinea, West Africa.

CIF will fund the entire infrastructure required for the project, which will include the rail system, bulk storage facilities, port, port loading facilities, port services and power development required to produce and transport a minimum of 50 million tons per annum of iron ore.

Nik Zuks, Managing Director of Bellzone Mining, commented: ‘I am delighted to announce this binding MOU with China International Fund Limited. Under the terms of the Binding MOU, CIF will fund and construct the 286km rail and port facilities for our Kalia Iron Project in return for the right to purchase 100 percent of the off take from Kalia.'”

Source: African Business Review, May 25 2010
Related Financial Times article: CIF to fund Guinea iron ore venture

Observations:

  • CIF earlier designed the oil-for-infrastructure deal in Angola. Promising the poor governments of resource-rich countries proves to be an effective way of securing access to the resources.
  • Production from the Kalia deposit is expected to start in 2014, setting a clear deadline for the execution of the infrastructure projects.
  • Kalia is the only project Bellzone is running, share price has therefore increased sharply after the announcement of the agreement with CIF.

Implications:

  • As Vale and Rio Tinto and Chinalco will start producing in the Simandou area, close to Kalia, these companies will be interested in exploring cooperative agreements with CIF. Huge synergies could be achieved by avoiding competing infrastructure projects to be run to bring the ore to the coast.
  • Transportation of ore via Liberia, as Vale is planning to do, is certainly not in the best interest of the Guinean government. Vale will therefore have to find ways to please the government in order to secure fruitful cooperation.
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