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Posts Tagged ‘Pilbara’

ACCC decision on Rio-BHP JV due July 22

June 22, 2010 Comments off

“Australia’s competition watchdog has set a July 22 deadline to review a proposed $US116 billion ($A132.8 billion) iron ore joint venture between BHP Billiton Ltd and Rio Tinto Ltd.

The Australian Competition and Consumer Commission, which began its probe in December, had been due to rule on the joint venture on May 27 but postponed its decision to seek more information from the miners without giving a timeframe for a ruling.

The commission’s website said on Monday that July 22 was now a ‘proposed date’ for an announcement on its findings.”

Source: Business Spectator, June 20 2010

Observations:

  • The Joint Venture is planned to achieve $10 bln in synergies (NPV, thus spread over a long period), a large part of which is achieved by combining transportation infrastructure from the remote Pilbara mines to the iron ore port.
  • Although the Australian watchdog will come with a decision this summer, the European Commission will take much more time to decide on the effects of the JV for the European market.
  • The most likely result from the negotiations of the miners with the government will be an approval of the JV with the condition of a royalty increase.

Implications:

  • Both of the miners are strongly committed to getting the joint venture operational quickly, as they need the additional capacity from the mines in order to retain their market share in the coming years. The proposed increase in resource tax has further increased the necessity of reducing fixed costs in a joint venture agreement.
  • The joint venture between Rio Tinto and BHP Billiton would further increase the risk of implicit pricing arrangements in the iron ore industry. In order to please the regulators, the miners have decided on individually marketing the iron ore. However, organizational ties among the oligopolic producers reduce the transparency of the market. This might be a reason for the European watchdog to impose stricter constraints on the deal.

©2010 – thebusinessofmining.com

Top 10 Priorities of BHP Billiton’s CEO Marius Kloppers

May 28, 2010 Comments off

Marius Kloppers

What are the things the CEO of the world’s largest mining company is doing? What keeps BHP Billiton’s CEO Marius Kloppers awake at night? What are the categories of his “To Do”-list?

An analysis of BHP Billiton’s latest annual & financial reports, investor presentations and the news about the company in the last months yields a list of 10 issues that are likely to be at the top of Kloppers’ list of priorities. The list holds strategic, operational, financial and relational activities, each of which are scored in terms of importance and urgency. Priority 1 on the list is the lobby on the new Australian mining tax. Priority 10 is improvement of the safety record of the company. Read on for the full list of priorities.

Priority 1 – Lobby against Australian mining tax

The campaign against the super profits tax proposed by the Australian government is currently on top of the list of the CEO. Corporate profits are projected to decrease by over 15% if the proposal is implemented without changes.

Priority 2 – Screen potential acquisition targets

With BHPB’s strong balance sheet and the failed take-over of Rio Tinto in the back of the mind the company will be looking for acquisition targets. Growth by acquisitions should help the company to meet achieve positive growth again in 2010. There are rumours that the company is on the verge of announcing acquisitions in the petroleum business.

Priority 3 – Complete cost cutting projects to restore margin

The margin has taken a major hit in the past two years. Kloppers will need to show the shareholders he is able to restore the margin by cutting costs. Especially the aluminum and stainless steel metals business units will need to cut costs significantly.

Priority 4 – Manage Pilbara Iron ore investment

The iron ore project in Western Australia is by far the largest capital project of the company at this moment. The structure of a JV with Rio Tinto makes additional executive attention is required in order to align the operations and to ramp up production quickly.

Priority 5 – Refinance debt while retaining credit rating

A significant part of BHP Billiton’s debt needs to be refinanced in the coming years. The companies strong balance sheet has helped it to achieve an “A” credit rating. Kloppers will be working hard with the Alex Vanselow, the CFO, to retain this favourable position.

Priority 6 – Get new petroleum projects on steam

Fuel costs are the most important driver of costs in the mining industry. Having a strong petroleum business unit helps to hedge against the likely price increases of oil. BHP has six capital petroleum project in the execution phase (Turrum, Pyrenees and NWS North Rankin B being the largest). The CEO will keep a close watch on the development of these projects.

Priority 7 – Reduce portfolio dependency on steel making

The percentage of BHP Billiton’s sales related to steel making has increased in the past 5 years from approx. 50% to approx. 70%. Although this means the company is well positioned to benefit from China’s growth, it does pose a great risk of volatility. Kloppers will be looking for opportunities to strengthen the aluminium, base metals and diamond business to cover this risk.

Priority 8 – Align with Jack Nasser, the new chairman

Don Argus has retired as chairman and Jac Nasser has started in this position. As the position of any CEO is subject of continuous questions, Kloppers will make sure he is aligning with the new chairman.

Priority 9 – Position for Chinese and Indian growth

BHP expects India to follow the growth trajectory of China. However, the current infrastructure of the company is not yet aligned with the large part of consumption of its goods in Asia. Kloppers will be working on strengthening the focus of both the supply chain and the marketing departments.

Priority 10 – Improve safety record

In 2009 the company had 7 fatalities in its operations. Kloppers will be concerned about getting the safety at all operations at par. Public and legal opinion pressure the executives to undertake additional action.

Link to this article: http://www.thebusinessofmining.com/2010/05/28/BHPBPriorities

Sources: BHP Billiton annual report 2009, BHP Billiton summary review 2009, BHP Billiton investor presentation February 2010

Vale acquires Simandou iron ore assets

May 1, 2010 Comments off

“Vale announces it has acquired from BSG Resources Ltd. (BSGR), a 51% interest on BSG Resources (Guinea) Ltd., which indirectly holds iron ore concession rights in Guinea, in Simandou South (Zogota), and iron ore exploration permits in Simandou North and Blocks 1 & 2. In an all-cash transaction, Vale will pay US$ 2.5 billion, of which US$ 500 million is payable immediately and the remaining US$ 2.0 billion on a phased basis upon achievement of specific milestones.”

Source: Vale press release, April 30 2010

Observations:

  • Vale completes a $2.5bn cash transaction, continuing the trend to grow through small acquisitions that are easily integrated in the company.
  • The Debt to Equity ratio after this transition still is the most favorable of the giant players at approx. 0.83 (vs. 0.86 for BHP Billiton, 1.16 for Anglo American and 1.22 for Rio Tinto).
  • Cash available is reduced significantly (although $2.0bn of the deal is not to be paid immediately).

Implications:

  • Vale continues to grow by small acquisitions and to enlarge its take of the global iron ore market. It could be a matter of time before the companies takes the number 1 position in global mining revenues.
  • Vale seems not to be hoarding cash for a potential Rio Tinto acquisition, while BHP might reconsider buying Rio Tinto in case the Australian competition regulator decides against the proposed Pilbara joint venture.