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Mining Week 42/’12: Bakrie vs. Bumi

October 13, 2012 Comments off

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

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

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Canadian province casts doubt on BHP move

October 20, 2010 Comments off

“The Canadian province of Saskatchewan is at odds with BHP Billiton over the Australian miner’s $39bn hostile offer for PotashCorp, raising the prospect that the deal might be rejected by the federal government.

A person familiar with the deal said on Tuesday that BHP had offered extra elements valued at about C$370m (US$359m) to demonstrate that the deal would be of “net benefit” to Canada, as required under the Investment Canada Act.

However, the province is holding out for more, specifically a one-off levy to go some way to make up for lost tax revenues that would result from the deal.”

Source: Financial Times, October 20 2010

Observations:

  • Although the province does not have the power to veto the acquisition, the opinion of the local government will influence the national regulator and government when they decide about the deal’s ‘net benefit to Canada’.
  • BHP has announced it is willing to locate the global headquarters for potash in Canada; a logical move, as the acquired assets would be much larger than anything BHP already owns in the business.

Implications:

  • Losses to the Canadian government are reduced tax revenues and the potential loss of managerial jobs (which is covered by BHP’s intent to establish a potash HQ). Benefit to the country would be higher stability of operational jobs and increasing investment power in the national potash industry, which could increase tax revenues in the long term.
  • It is unlikely that the national government will support Saskatchewan’s opinion, as the tax loss on which the opinion is based is only a relatively small and one-off temporary loss. The national government might decide to compensate the province for the reduced tax income.

©2010 | Wilfred Visser | thebusinessofmining.com

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