Archive

Posts Tagged ‘IPO’

Mining Week 08/’12: GlenStrata’s antitrust & an Indian giant

February 25, 2012 Comments off

Top Stories of the Week:

  • Glencore and Xstrata to seek merger approval in Brussels
    • Despite earlier statements that Xstrata and Glencore would not need to seek approval from the European Commission the parties have now decided to submit their case for approval in Brussels.
    • The companies argue that there is no significant increase in market domination because of the strong ties the companies already had prior to the merger.
    • The European Commission will now have to decide on the potential restrictions to the new company, such as the obligation to sell certain elements of the business. A market density index calculation is used to see whether or not the new company would have a too dominant position. The big uncertainty in this calculation is how the Commission will scope the market or markets the companies are active in.
    • Sources: Wall Street Journal; Financial Times; EU Merger Control Rules
  • Vedanta merges Indian assets to create Indian mining giant: Sesa Sterlite
    • Vedanta has decided to merge all its Indian assets, including Sesa, Sterlite, and Cairns India, into one big Indian company. This new Entity will be named Sesa Sterlite and will have a market capitalization of around $22bln. Vedanta will hold just under 60% of the shares.
    • Sources: Times of India; Economic Times; Vedanta presentation
  • Tavan Tolgoi plans to list in June
    • The Mongolian government plans to list a significant part of Tavan Tolgoi, a large coking coal project in the south of the country, in both London and Hong Kong this summer. Regulatory issues threaten to delay the HKEx listing.
    • The government plans to eventually hold 51% of the shares, give 20% to the population, sell some 10% to local business at a discount, and make the rest available to international investors. A significant part of the 20% given to the population might find its way to international investors.
    • Sources: Wall Street Journal; FOX Business

Trends & Implications:

  • The creation of Sesa Sterlite builds both a second diversified miner with a significant oil & gas business (next to BHP Billiton) and a second diversified miner with a significant interest in zinc (next to Glencore/Xstrata).
  • If Vedanta manages to both make the merger integration of the 7 or more individual companies a success and to manage its investments in other developing countries successfully, it creates the primary candidate to become the stable Indian mining giant. Growth of the Indian industry is phenomenal but faces many challenges. The mixture of a very strong Indian foothold with high growth assets in many other developing countries could prove to be a good basis for risk diversification.

©2012 | Wilfred Visser | thebusinessofmining.com

Mechel Mining Plans London IPO

July 26, 2011 Comments off

“Russian coal and steel group OAO Mechel’s mining division, Mechel Mining, plans to hold an initial public offering in London this year, two bankers familiar with the matter said. The deal may raise between $3 billion and $4 billion, the first banker said adding the placement will most likely take place in the fourth quarter.

Morgan Stanley will take the lead roles on the deal, the bankers said. ‘It’s one of half a dozen Russian deals due out of the blocks in the fall,’ the first banker said. A handful of Russian deals were withdrawn from marketing in London in the first half of the year, after investors pushed back on price and amid volatile markets.”

Source: Wall Street Journal, June 3 2011

Observations:

  • Mechel’s mining segment includes: Southern Kuzbass Coal Company, Yakutugol, Mechel Bluestone coal company (USA), and the Korshunov Mining Plant. In 2010 Mechel’s plants produced 21.6mln tonnes of coal and 4.2 mln tonnes of iron ore concentrate and 3.8mln tonnes of coke.
  • Mechel announced the intention to bring the Mining division to the stock exchange in November 2010, still doubting between London, New York, and Hong Kong. The company itself listed at the end of 2004 in New York.
  • Based on a new share offering of 25% of common shares the size of the IPO still will be in the range of $3.3-4.0bln, above earlier expectations.

Implications:

  • The proceeds of the IPO will help Mechel to expand production capacity by developing the Elgo coal deposit and to reduce its gearing. Like many Russian companies Mechel is facing high debt costs while and at the same time needs to invest heavily. This combination of issues drives many Russian companies to an IPO this year.

©2011 | Wilfred Visser | thebusinessofmining.com

Glencore to stop reporting quarterly results

July 21, 2011 Comments off

“Glencore has decided to stop reporting its results every quarter, in a move that is likely to soothe tensions with Xstrata, the mining company in which it owns a 34 per cent stake. The commodities trader, which raised $10bn in May in one of Europe’s largest ever initial public offerings, on Thursday offered to pay up to $2.4m to persuade bondholders to approve a change in the conditions of one of its bonds, which would allow it to drop the requirement for quarterly reporting.

Glencore was alone among major London-listed mining companies when it reported first-quarter results last month. BHP Billiton, Rio Tinto, Anglo American and Xstrata all report results only twice a year. ‘Information is not free,’ said Henri Alexaline, credit analyst at BNP Paribas. ‘If there’s one company that understands that, it’s Glencore. In Q1 they gave away free information relative to their peers.’”

Source: Financial Times, July 14 2011

Observations:

  • The major mining houses provide financial reports twice a year and quarterly production reports. BHP Billiton is running out of sync with the others with a fiscal year that ends in June instead of in December.
  • Analysts are using Glencore’s quarterly reports to analyze Xstrata’s quarterly performance, although Xstrata denies to have provided financial information to Glencore since its IPO. Glencore owns 33% of Xstrata’s shares.

Implications:

  • The targeted change of reporting structure would not only save Glencore costs, but could also be interpreted as a step to align with Xstrata’s procedures in order to make a merger of the two companies smoother.
  • The relatively low market valuation of Glencore since the IPO could speed up the merger process, as it would leave Xstrata’s potentially reluctant other shareholders with a larger part of the new company.

©2011 | Wilfred Visser | thebusinessofmining.com

Glencore denies acquisition after ENRC board meltdown

June 14, 2011 Comments off

“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

Observations:

  • 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.

Implications:

  • 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

Resourcehouse pulls IPO

June 6, 2011 Comments off

“Australian billionaire Clive Palmer shelved his fourth attempt in two years to take mining company Resourcehouse Ltd. public on Hong Kong’s stock exchange, saying in a statement that worsening global market conditions blocked its plan to raise as much as $3.6 billion.

The move disclosed Saturday marks a rare sour note in the hot Hong Kong IPO market. The Chinese city has been the world’s No. 1 market by money raised for the past two years and is poised for another strong performance this year amid China’s fast-growth and the market’s considerable liquidity.

Resourcehouse’s decision comes after concerns the debt problems in the euro zone and slower growth in China would take a toll on demand for commodities. But investors were also discouraged by the company’s weak financials, analysts said.”

Source: Wall Street Journal, June 5 2011

Observations:

  • Resourcehouse is trying to raise several billions of dollars to enable development of the China First Coal (Queensland) and China First Iron Ore (Western Australia) Projects, which should start production in 2014.
  • The company has partnered with various Chinese companies in offtake, logistics and development deals. Most important Chinese partners are Metallurgical Corporation of China Ltd. (MCC) and China Power International (CPI).

Overview of operations from corporate website

Implications:

  • The uncertain future of European government debts and the slowing growth of China are mentioned as the reasons to call of the IPO. Demand for the shares is insufficient to support the intended launch price. As the uncertainty about European government finances is expected to continue for several years and China is trying to stabilize growth at a rate lower than in the previous decade it is unlikely that Resourcehouse will be able to raise the $3bln it intended.
  • The company might partner in development with one of the other diversified miners active in Australia or with an additional Asian partner to raise the capital required.

©2011 | Wilfred Visser | thebusinessofmining.com

Glencore should scale back IPO hopes

May 5, 2011 Comments off

“For Glencore International, it is time for Plan C. Xstrata put the kibosh on Plan A when it refused to consider a merger with the commodities-trading giant that would have enabled Glencore partners to realize the full value of their 34.5% stake in the miner.

Investors now have ruined Plan B by refusing to accept Glencore’s ambitious $60 billion-plus valuation target, which might have allowed a quick post-IPO merger. Glencore has been forced to lower its target and must prepare for a long spell in the public markets.

Glencore’s advisers insist Mr. Glasenberg realizes the need for a realistic price that will allow it to trade healthily in the aftermarket. That would help rebuild investor confidence after the poor start to the IPO. So Glencore’s final IPO price will need to offer investors a generous discount. Mr. Glasenberg should brace himself for a price at the bottom of the range.”

Source: Wall Street Journal, May 5 2011

Observations:

  • The commentators from Wall Street Journal argue that the uncertainty of a potential merger with Xstrata and the politically sensitive nature of Glencore’s mining assets forces the company to offer the shares at a strong discount in the Initial Public Offering (IPO), raising less cash than previously hoped.
  • Glencore is going public to facilitate further growth ambitions. In its current private structure it can not raise sufficient money for further growth. Merging with Xstrata would be an other way to solve this problem, but this requires putting a value on Glencore to decide on the new ownership structure, something Xstrata’s management and shareholders clearly are not willing to do.

Implications:

  • Shares are typically sold at a discount in an IPO, encouraging investors to take a share of the company and realize a paper profit in the first days of trading. However, if shares indeed go up strongly in the first days of trading and market value of Glencore reflects intrinsic value correctly, the WSJ-commentators’ prediction of a difficult negotiation with Xstrata because of skewed valuation does not hold.
  • With current high commodity prices a large part of Glencore’s profit comes from its industrial assets, rather than from trading activities. Citi expects the industrial share to be as high as 60% in the next years. A relatively higher importance of production vs. trading in the company could make integration of Glencore with Xstrata and/or other mining companies smoother.

©2011 | Wilfred Visser | thebusinessofmining.com

Xstrata awaits Glencore overtures

April 14, 2011 Comments off

“Xstrata’s silence speaks volumes. The miner is just waiting for a proposal after Ivan Glasenberg, the head of Glencore, made clear that he is gunning for the London-listed multinational, in which the commodities trader owns a 34 per cent stake.

Breaking a decade-long silence, Mr Glasenberg says he sees value in combining Glencore with Xstrata. ‘Why has that not happened? It is a value debate. Xstrata … seems more comfortable for Glencore to go public and get a market price before they may or may not enter into discussions,’ he adds.

In February, Mick Davis, Xstrata chief executive, raised the prospect of a merger too, telling analysts that the prospect of an independently listed Xstrata and Glencore is ‘unsustainable in the long term’.”

Source: Financial Times, April 12 2011

Observations:

  • Glencore plans to float 20% of the company, worth some $12bln, in an IPO. Current management will retain majority shareholdership.
  • Glencore today announced the composition of its new board of directors, which will include former BP CEO Tony Hayward and former Xstrata CEO Peter Coates.

Implications:

  • The trend to stronger integration of mining firms and trading firms (the trader’s value chain), which is exemplified by the potential Glencore/Xstrata merger, can also be seen in Chinese Minmetals’ foray into mining by forming MMR earlier and planning to acquire Equinox this month.
  • Now that it appears Glencore will IPO prior to merging with Xstrata, its options to combine the two firms are to buy all other shares of the company, to try to get 50%+ of the shares to enable financial consolidation, or to pursue a real (share exchange) merger. With Xstrata’s current market value of $67bln (and Glencore holding 34% of the shares) gaining control will cost Glencore at least $12bln, with a full takeover costing over $45bln.
  • Glencore will be able to use the $12bln raised in the IPO, could leverage this by taking on more debt, and could issue additional shares in a later stage to raise more capital, but it will likely try to convince Xstrata shareholders to accept Glencore shares as a (partial) payment. In this way the combined company will retain significant firepower to do additional opportunistic acquisitions.

©2011 | Wilfred Visser | thebusinessofmining.com