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Posts Tagged ‘iron ore’
Mining Week 1/’13: Anglo and Mittal sell iron ore assets
January 6, 2013
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Top Stories:
- Anglo and Cliffs sell 5Mtpa Brazilian iron ore mine
- Anglo American and Cliffs Natural Resources sell their 70% and 30% stakes in the Northern Brazilian Amapa iron ore mine to private miner Zamin Ferrous for approx. $400m. A year after buying their 70% share 4 years ago, Anglo took a $1.5bn writedown on the asset.
- Sources: Anglo American; Financial Times; Reuters
- Bumi looses $422m in derivatives trading
- Bumi Resources, partly owned by Bumi plc and part of the dispute between the Bakri family and Nath Rotschild about the future of Bumi, posted a loss over the first 9 months of 2012 driven by low coal prices and a loss of over $400m on derivatives.
- The loss on derivatives value was driven by a re-calculation of early payment rights, changing the discount rate of the value of that option from 5.25% to 17.2%.
- Sources: Bumi Resources results; Financial Times; Wall Street Journal
- ArcelorMittal sells 15% stake of Labrador Trough for $1.1bn
- Cash-hungry steel maker and miner ArcelorMittal decided to sell a 15% stake of its Labrador Trough iron ore project in Canada to Chinese steel maker Posco and Taiwanese steel maker China Steel, also signing long-term offtake agreements.
- Sources: ArcelorMittal press release; Financial Times; The Hindu
Trends & Implications:
- The sale of iron ore mines or stakes by ArcelorMittal and AngloAmerican signal 2 different trends in the industry:
- The large miners are actively divesting non-core assets, trying to focus management attention and funding on the large operations and development projects.
- Many companies are having trouble securing the funds required to execute the enormous development projects that are currently in execution phase in the iron ore industry. Forming partnerships and selling minority stakes is often the cheapest way to obtain funding.
- The loss reported by Bumi Resouces is not a sign of mismanagement, but rather a sign of cleaning up the books and trying to make sure the assets listed are actually worth what they are listed for. Valuation of options is a highly subjective art, and the management of Bumi Resources apparently chose to take the revaluation hit at a moment when low coal prices were forces the results into the red anyway.
2013 | Wilfred Visser | thebusinessofmining.com
Categories: Mining Week
Anglo American, ArcelorMittal, Brazil, Bumi, business, China Steel, derivatives, iron ore, Labrador Trough, mining, mining business, Posco, steel, Zamin
Mining Week 47/’12: BHP sells diamonds; Anglo pays for iron ore
November 18, 2012
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Top Stories of the Week:
- Harry Winston buys BHP’s diamond business for $500m
- Diamond retailer Harry Winston has decided to buy BHP Billiton’s diamond business for $500m cash. The business consists of 80% of the EKATI diamond mine in Northern Canada and sorting and marketing units.
- Both BHP Billiton and Rio Tinto put their diamond businesses up for sale this year. Rio Tinto might be reconsidering that decision as it couldn’t secure a good price for its Diavik mine and its Indian holdings have come back with good exploration results.
- Sources: BHP Billiton press release; Harry Winston press release; Financial Times
- Anglo’s Minas Rio iron ore project delayed and more expensive
- Anglo American announced that Minas Rio, its 26.5Mtpa iron ore project in Brazil, will not start producing before the second half of 2014. The delay is caused by license issues around construction of power transmission lines.
- Anglo also announced that the total capital cost for the project is “unlikely to be less that $8.0bn”, making this the first major iron ore project which costs more than $300 per millions tonnes capacity.
- Sources: Anglo American press release; Reuters; mining.com
- Qatar’s support appears to seal GlenStrata deal
- The Qatar Sovereign wealth fund has announced it will support Glencore’s offer of 3.2 shares per share for Xstrata, making it very likely that the largest mining deal of the past years will become reality. Xstrata’s shareholders get to vote on Tuesday.
- Qatar, Xstrata’s 2nd largest shareholder after Glencore, also announced it will abstain from voting on the retention incentive package for Xstrata top management, making it very likely that this >$200m retention package will not become reality.
- Sources: Qatar holding; Financial Times 1; Financial Times 2
Trends & Implications:
- Anglo’s issues in Brazil demonstrate the enormous importance of getting power issues for large projects sorted out early. Last month Rio Tinto’s enormous Oyu Tolgoi project in Mongolia was only hinging on a power supply agreement with the Mongolian and Chinese governments. Many projects in developing countries either need to secure power supply from other countries or have to build their own power plants, forcing them to go through tremendous licensing issues and import natural resources to get their operations powered up.
- When the Xstrata retention package is voted down, a big group of top-level executives at Xstrata can be expected to start looking for new jobs quickly, opening up a great pool of talent for other companies. The corporate cultures at Xstrata and Glencore are so different that many miners will have to adjust to the more aggressive, top-down culture of the trading house. Many of the top managers will prefer to find a good job in another mining house instead.
2012 | Wilfred Visser | thebusinessofmining.com
Categories: Mining Week
acquisition, Anglo American, BHP Billiton, Brazil, business, Canada, diamond, Ekati, Glencore, GlenStrata, Harry Winston, iron ore, license, Minas-Rio, mining, mining business, power, Rio Tinto, Xstrata
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
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 42/’12: Bakrie vs. Bumi
October 13, 2012
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Top Stories of the Week:
- Bakrie proposed to buy Bumi’s assets
- The Bakrie Group, which owns approx. 24% of Bumi Plc, has an offer to buy Bumi plc’s assets (Berau and Bumi Resources) and leave the London listed miner active in Indonesia behind as a cash shell. The group previously held 48%, but sold 24% to Borneo Lumbung to ease debt issues.
- Bumi’s share price has dropped 80% versus the high in July 2011 on the back of low coal prices and governance issues.
- Sources: Financial Times 1; Financial Times 2; Wall Street Journal
Bumi plc structure: London listed miner owns a stake in Berau coal and Bumi resources.
- BHP Billiton seeks to cut costs
- BHP Billiton announced it would cut jobs in an attempt to cut costs in its iron ore division, attempting to preserve margins at low iron ore prices.
- The company also recently initiated cost reduction measures in its base metal operations and announced a freeze of executive compensation.
- Sources: BHP Billiton Base Metals briefing; International Resource Journal; Wall Street Journal
Trends & Implications:
- Bakrie’s move to leave Bumi plc could imply the end of the Indonesian coal ambitions of Rothschild’s venture. If Bakrie finds the money to execute the deal, it offers other shareholders an opportunity to limit their losses. Bumi could try to reinvent itself and buy assets in other regions with the cash received for Bumi resources and Berau, but it would start with significantly less cash to acquire companies than in its attempt in 2011.
- The updated M&A share attractiveness tracker shows a relative leveling of the playing field in terms of mega M&A over the past month. South African listed companies clearly took a major hit, but as the outlook for these companies deteriorated at the same time the shares have not gained much attractiveness from an acquisition standpoint. Fortescue managed to fend of urgent debt issues and saw its share price rise, but it remains one of the more attractive acquisition targets. BHP Billiton lost its position as the best positioned acquirer as outlook for the company deteriorates with the expectation of slowing global demand.(
2012 | Wilfred Visser | thebusinessofmining.com
Categories: Mining Week
acquisition, Bakrie, base metals, Berau, BHP, Bumi, business, coal, cost cutting, Fortescue, Indonesia, iron ore, job, jobs, merger, mining, mining business, Rothschild, share
Mining Week 39/’12: Fortescue moves on; GlenStrata almost there
September 22, 2012
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Top Stories of the Week:
- Xstrata’s board votes October 1st on Glencore offer
- The decision by Xstrata’s board on whether or not to endorse Glencore’s new bid for the company is delayed by a week to October 1st. The endorsement might help to convince a majority of shareholders to accept the offer for 3.05 shares of Glencore per share of Xstrata.
- The debate around generous retention packages for Xstrata’s key managers started again as several large shareholders voiced their discontent. Glencore stressed nothing will change to those packages unless Xstrata’s board wants to adjust them. Finding a compromise to satisfy the key shareholders might be the final step for the board to make the deal happen.
- Sources: Wall Street Journal; Financial Times 1; Financial Times 2
- Fortescue solves debt problems by refinancing $4.5b debt
- Fortescue announced refinancing of $4.5bn debt with Credit Suisse and JP Morgan as underwriters. Debt maturity of the new deal is 5 years. The company was facing liquidity problems as low iron ore prices and aggressive investment schedules were undermining its ability to repay debt.
- Sources: Wall Street Journal; Fortescue announcement
Fortescue’s debt profile prior to refinancing
- Oyu Tolgoi waiting for power
- Rio Tinto’s Oyu Tolgoi mine is 97% complete, but negotiations with Mongolian and Chinese governments on power supply delay startup. Oyu Tolgoi built 220Kvolt power line to connect to the Chinese grid, but can’t sign a offtake agreement without consent of the Mongolian government
- Sources: Financial Times; The Australian; Project website
Trends & Implications:
- Oyu Tolgoi’s trouble to get powered is just one example of the challenges many large operations face to secure affordable power supply. The power requirements of a large operation require a significant change and development of power grids of many developing nations. Generation capacity is typically not readily available and the large offtake trigger discussions about long term price agreements.
- After meeting with Glencore’s board this week, Xstrata’s board appears to be working hard to make the merger/acquisition go ahead. It is hard to imagine another outcome in which Xstrata’s shareholders get more value for their company, making it likely they will accept the offer. If the deal is approved by Xstrata’s shareholders, the changes in holdings various large investors will likely make will give an interesting insight into the clientele effect the integration of a mining house and a commodity trader could have.
2012 | Wilfred Visser | thebusinessofmining.com
Categories: Mining Week
acquisition, board, business, China, clientele, debt, Fortescue, Glencore, grid, iron ore, merger, mining, mining business, Mongolia, power, refinancing, Rio Tinto, shareholders, Xstrata
Mining Week 36/’12: Anglo and Codelco compromise; Glenstrata in doubt
August 31, 2012
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Top Stories of the Week:
- Anglo American and Codelco reach a deal on the Sur Complex
- Anglo agreed to sell a minority stake of its Chilean Sur Projects to Codelco at a significant discount, but the company receives over $2bn more than Codelco would have to pay according to its disputed buy-in option.
- Codelco partners with Mitsui in a JV that receives a 24.5% stake of the project.
- Codelco’s union representative voted against the new deal, announcing action to improve the terms for the Chilean company.
- Sources: Financial Times 1; Wall Street Journal; Financial Times 2; Financial Times 3
- Norwegian fund joins Qatar in opposition of Glenstrata merger
- Analysts speculate about a potential compromise on the price paid for Xstrata by Glencore: Glencore offers 2.8 shares per share of Xstrata, but Qatar’s sovereign wealth fund earlier indicated it would require a 3.25 ratio. In a new statement in which the fund says it will vote against the proposed deal the 3.25x ratio was not reiterated.
- Norges Bank Investment Management has also build up a significant stake in Xstrata. The Qatari fund could be able to block the merger alone (depending on its current ownership level) or with the help of a few other investors.
- Sources: Financial Times 1; Wall Street Journal; Financial Times 2
- Australian politicians struggle with mining ‘boom’ approach
- Iron benchmark ore prices continue to decrease, loosing more than 50% vs. the peak around $200/wmt early in 2011 and 36% year to date. The profits of the iron ore dependent miners has followed this trend.
- Royalties and income taxes on mining firms are an important pillar of the Australian budget, built for a large part around the newly introduced Mineral Resource Rent Tax. Several Australian politicians have expressed their concern with the perspective of a significant reduction of tax income. The MRRT alone was planned to bring in over $6bn of government income, but because of the progressive nature of the tax the income will be very small at current price levels.
- Sources: Wall Street Journal; Financial Times; text
Trends & Implications:
- Xstrata’s shareholder vote on the proposed merger with Glencore is anything but a done deal. Several large shareholders want Glencore to sweeten the offer of 2.8 shares of Glencore per share of Xstrata. However, the actual share ratio has been hovering around 2.65-2.70 since mid May, indicating that a significant share of the market expects the ratio to drop if the deal does not go on. Xstrata has higher value for Glencore than for current shareholders, but it is unlikely the company will want to pay more than the proposed 2.8x ratio and give all of that additional value to Xstrata’s current shareholders.
2012 | Wilfred Visser | thebusinessofmining.com
Categories: Mining Week
acquisition, Anglo American, Australia, business, Chile, Codelco, deficit, exchange ratio, Glencore, GlenStrata, iron ore, merger, mining, mining business, Mitsui, MRRT, Sur, tax income, Xstrata
Mining Week 31/’12: Falling prices, falling profits
July 29, 2012
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Top Stories of the Week:
- Vale’s profits down on lower prices
- Vale reported profits below analyst estimates and 60% down versus the same quarter last year. The benchmark price of iron ore has dropped to $120/wmt, at part with the price floor identified by the company last quarter.
- After the first quarter Vale reported a 45% drop in year on year profits, driven by both volumes and prices
- Sources: Vale press release; Financial Times
- Anglo, Teck, Gold miners down on lower prices
- Lower commodity prices and rising costs resulted in earnings drops of 55%, 65%, and 35% for Anglo, Teck, and Barrick.
- Anglo announced delay of its flagship development iron ore project in Brazil, Barrick announced large cost overruns for its Pascua Lama project in Argentina, and Teck recently tuned back on a large copper expansion project in Chile. They are all reviewing the balance between project investments and shareholder returns.
- Sources: FT on Anglo; FT on Teck; WSJ on Barrick
- Anglo pays $0.6bn for controlling stake in Mozambique coking coal project
- In a rare move amidst cancellation of development projects across the industry Anglo made the move to buy 59% of the 1.4Bt Revuboe coal project in Mozambique. The project is a JV with Nippon and Posco and is planning to start production of 6-9Mtpa by September 2013.
- Sources: Financial Times; Anglo press release
Trends & Implications:
- Dropping prices + increasing costs = review of development. Most non-agricultural commodity price indices have dropped 20-40% over the past year. Where a year ago the focus of most miners was to bring new projects online as fast as possible, attention has shifted to cost containment and ‘disciplined capital investment’. The focus on building projects is stretching capacity of contractors, making capital and operating costs increase rapidly. As a result the projected returns of projects deteriorate, forcing companies to reconsider their portfolio of development plans.
©2012 | Wilfred Visser | thebusinessofmining.com
Categories: Mining Week
Anglo, Anglo American, Barrick, business, coal, iron ore, mining, mining business, Posco, price, profit, Revuboe, Teck, Vale
Mining week 26/’12: Resource nationalism & slowdown worries
June 24, 2012
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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
Categories: Mining Week
Barclays, Bolivia, business, Colquiri, Glencore, growth, infrastructure, iron ore, mining, mining business, nationalization, Pilbara, Rio Tinto, share price, tin, uncertainty, zinc
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