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Posts Tagged ‘platinum’

Mining Week 6/’13: Government actions in South Africa and Argentina

February 10, 2013 Comments off

Top Stories:

  • Anglo and government clash in South Africa
    • Anglo announces mine closures resulting in thousands of job losses in its South African operations. In response the president threatened to review Anglo’s mining licenses, trying to force the company to keep the mines open. Mark Cutifani, Anglo’s new CEO, reacted with fierce criticism of the government’s attitude.
    • Mining companies in South Africa see a shift of union membership from the moderate NUM to the more radical Amcu, leading up to further wage negotiations this year.
    • Sources: Financial Times; Reuters; Financial Times 2
  • Vale and government clash in Argentina
    • Vale’s $6bln Rio Colorado potash project in the Mendoza project of Argentina is rumored to be delayed by up to 3 years, mainly driven by large rail investments. Vale announced it is reviewing the project economics and has therefore extended the holiday of the workers, but the company denies the project has been suspended.
    • The governor of the province told media that Vale has asked for delay of a sales tax implementation from construction to extraction phase, and argues that this would imply a tax break of $1.5-2.0bln. He also stressed that the government will make sure the project moves forward irrespective of Vale’s plans.
    • Sources: Vale press release; Financial Times; Mineweb

Trends & Implications:

  • The business environment for mining in South Africa remains very unstable. Not only the government’s ambition to get as much revenue out of mining as possible, resulting in top decile effective taxes, but also the radical approach of unions fighting to increase membership levels, create a situation in which long-term planning for any mining company in the country is almost impossible.
  • The business environment in Argentina has deteriorated quickly and appears to move into the direction of nationalization of business quickly. The government tries to get projects going in an attempt to stimulate the economy, but at the same time makes it impossible for companies to repatriate profits from those projects in an attempt to limit inflation. As a result there is no incentive for any foreign company to invest in the country for any short to mid-term gains. In the Rio Colorado case: A delay of the effect of sales tax to the extraction phase is unlikely to reduce tax paid by Vale by $1.5bln, as the company only starts selling its product in large quantities in that extraction phase.

2013 | Wilfred Visser | thebusinessofmining.com

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Mining Week 42/’12: South Africa strikes; Glenstrate voting scheme

October 8, 2012 Comments off

Top Stories of the Week:

  • South African strikes spread; workers fired
    • Illegal (wildcat) strikes in South Africa have spread to more or less all major miners in the country. Anglo American’s Kumba iron ore and platinum operations are faced with production disruptions, as are Xstrata, GoldFields, Anglogold, and most other major mining houses in the country.
    • South African strikes escalated when police shot down Lonmin strikers. After Lonmin agreed to a 22% wage increase workers in other companies demanded similar increases, bypassing the traditional unions. Several companies are trying to set up structured wage discussions to come to a collective agreement.
    • AngloAmerican’s Amplats decided to fire 12 thousand striking workers, which is a fifth of its total workforce.
    • Sources: Anglo American press releases1 2; Financial Times 2; wall Street Journal
  • Xstrata board recommends Glenstrata deal and complicates voting
    • Xstrata’s board of directors issues advice for the company shareholders to accept the merger proposal to form Glenstrata. The voting structure has been set up to assess support for a deal both with and without an extensive retention package for Xstrata’s top management.
    • Shareholders will vote first on the merger proposal both including and excluding the retention package, requiring a 75% majority excluding Glencore’s votes. Then the vote on the retention package will be done separately, requiring only a 50% majority of votes.
    • Sources: BusinessWeek; Financial Times

Trends & Implications:

  • The voting scheme is set up by Xstrata’s board to have a safety net for the deal in case the shareholders don’t accept the management retention package. The Qatari sovereign wealth fund is the largest shareholder that can vote on the merger deal; it has not voiced its opinion on the improved Glencore offer and on the management incentives, but insiders indicate the group considers retention of Xstrata’s officers a key priority. Key unknown in the voting mechanism is whether or not the results of the first two questions (on the merger) are made public before the 3rd vote on the retention scheme.
  • The unrest in South Africa is much wider than the mining industry, and as such requires solutions that are much broader than the industry. In the short term a large part of the workers might return to work with a significant increase in wages as demonstrated in the Lonmin case. However, as long as this increase does not span across the industry the workers that have not been given a raise will turn to strikes to stress their demands. The mining houses will have to work nationwide to find a sustainable solution for the industry, which is hard because South African miners operate on the high end of the global cost structure for many commodities. The task is even harder when taking in account that social unrest will continue as long as the issues in related and supplying industries continue.

2012 | Wilfred Visser | thebusinessofmining.com

Mining Week 34/’12: Lonmin labor dispute turns deadly

August 18, 2012 Comments off

Top Stories of the Week:

  • Fights between police and striking Lonmin workers results in over 40 deaths
    • Over 40 miners and several police officers were killed in clashes with the police at Lonmin’s Marikana mine in South Africa, where workers had been on strike for about a week demanding wage increases.
    • Competing trade unions trying to ‘control’ the workforce are mentioned as part of the reason the conflicts turned into strikes and violence.
    • On August 16th, in the midst of the developments around the violence in South Africa, Lonmin’s CEO was diagnosed with serious illness and is temporarily replaced by the chairman of the board.
    • Sources: Lonmin press release; Mining Weekly; Wall Street Journal
  • Anglo American finalizes acquisition of 40% stake in De Beers
    • Anglo American paid $5.1bln for the 40% stake of De Beers previously owned by the Oppenheimer family. The company now owns 85% of the major diamond producer.
    • The deal was announced announced in November of last year; diamond prices have dropped significantly since that announcement.
    • Sources: Anglo press release; Financial Times

Trends & Implications:

  • The global platinum market is facing significant oversupply, keeping prices low and pushing platinum miners into the red. Lonmin is the highest cost producer among the major producers, putting it in a position in which is can’t keep workers satisfied without pay raises while it can not raise wages without making big losses. Anglo Platinum currently controls approx. 40% of global production in mines in South Africa and Zimbabwe. Various other miners have called on Anglo to cut production to make prices rise.
  • The social and political situation in South Africa is causing most international mining companies without strong ties to the country to think twice before investing in the country: high tax rates, active and unpredictable unions, political leaders calling for mine nationalization, and the startup of a ‘national mining company’ result in a very high country risk level.

©2012 | Wilfred Visser | thebusinessofmining.com

Mining Week 18/’12: Vale’s profits down; Asteroid mining up

April 28, 2012 Comments off

Top Stories of the Week:

  • Vale profits down on
    • Vale presented quarterly net earnings of $3.8bln, a 45% drop to last years 1st quarter. Revenues were down by approx. $2bln driven by both price and volume decreases. Slightly increased overall costs combined with lower volumes show an significant increase of unit costs.
    • An iron ore price of around $120/t is the current market floor, according to Vale. Many low grade mining operations in China operate at costs around this price, making them go out of business and supply to drop significantly if prices would go below this point.
    • Sources: Vale press release; Financial Times 1; Financial Times 2
  • Gemcom acquired by Dassault
    • Gemcom, one of the premier makers of mine planning software, is bought by Dassault Systems from a group of private equity parties. Dassault pays $360mln, while the private equity parties paid $180mln 4 years ago.
    • Dassault has recently set up GEOVIA; a brand ‘to model and simulate our planet’. It is considering adding more packages to the brand.
    • Sources: Dassault press release; Gemcom 2008 press release; Financial Times
  • Planetary Resources unveils plans to mine asteroids
    • Planetary resources, a startup company backed by an impressive list of investors including Larry Page, unveiled its plans to start exploration of asteroids with the objective of mining platinum, iron, nickel, water, and rare platinum group metals.
    • An exploration station should be active by 2020. Timeline to bring metals back to earth was not given. Estimates of total investment to start producing start at $2.6bln, similar to the development cost of a large mining project.
    • Sources: Wikipedia company info; Planetary Resources company website; Financial Times; Wall Street Journal

Trends & Implications:

  • The innovative plans by Planetary Resources underline a growing drive to find alternative methods to obtain raw materials or to find substitutes for the raw materials we often take for granted. If bringing resources from space to the earth would succeed, this could fundamentally change the supply/demand dynamics of our conservative industry. And why would this not succeed? Especially for those materials where global demand is relatively small (e.g. platinum), this initiative should not be deemed impossible. However, futuristic it certainly is.
  • Dassault’s move to set up a software branch specialized in the natural resources area is riding the trend of increasing importance of standardization and implementation of software tools to manage the portfolio of remote and often interlinked operations of mining companies. Software can help to produce production per employee, an important driver with the current shortage of qualified miners. At the same time the proper integration of operations and managing large parts of the design and operational work for operations from remote locations drives a need for software innovation.

©2012 | Wilfred Visser | thebusinessofmining.com

Anglo American lifted by commodities boom

July 29, 2011 Comments off

“Anglo American has taken advantage of booming commodities prices to boost its interim pre-tax profits by more than two-thirds. A flight to safety among nervous investors has driven up prices for precious metals and diamonds, buoying first-half revenues by more than a fifth at the FTSE 100 miner and prompting Anglo to increase its dividend by 12 per cent.

Strong demand in China has also pushed up prices for iron ore and copper, helping Anglo shrug off the weak US dollar and harsh weather conditions in South Africa and Australia, which included the extensive flooding in Queensland earlier this year.

Anglo has an investment pipeline of $66bn to develop its iron ore and copper mines in South America and coal projects in Australia in order to reap the rewards of booming commodity prices.”

Source: Fincial Times, July 29 2011

Observations:

  • Good financial performance was offset by very poor safety performance: the group recorder 10 fatalities in the last 6 months (8 in the platinum business).
  • $450mln of the revenues (11%) are achieved in De Beers’ diamond business. Iron ore & Manganese (26%) and Platinum (23%) account for the largest share of Anglo’s revenues. Iron ore & Manganese (29%) and Copper (28%) bring in the largest part of the earnings, driven by particularly high commodity prices.

Implications:

  • Focus of Anglo American’s presentation was on expanding production (capex of $2.3bln for 2011H1 with pipeline of $66bln) and on cost control. The company’s operating profit compared to the same period last year suffered from $500mln higher cash costs. Input cost pressures were explained in detail in the investor presentation (see below) For each product the management presented initiatives for cost reduction.
  • Iron ore volumes (-12%) and metallurgical coal volumes (-19%) were down compared to the same period in the previous year, caused by weather disruptions that put BHP Billiton and Rio Tinto in the same position. It will be interesting to see the method of reporting the volumes next year if production can go on without interruptions. Higher volumes will then most likely be presented as significant achievements, without any mention of the disruptions of this year.

©2011 | Wilfred Visser | thebusinessofmining.com

Lonmin to invest $2bln to boost production

May 10, 2011 Comments off

“Lonmin, one of three South African companies that mine most of the world’s platinum, plans to invest $2bn to restore its production to historic levels of about 1m ounces a year by 2015. In the six months to March, the London-listed miner raised earnings from a low base. Pre-tax profit doubled to $159m despite bigger pay packages for workers, rising electricity costs and the stronger rand which has been eating away at many South African miners’ profits.

Lonmin’s output has declined steadily over recent years, with the miner selling 706,000 ounces of platinum in its year to September compared to over 900,000 ounces in 2004 and 2005.”

Source: Financial Times, May 10 2011

Observations:

  • Lonmin currently depends on the Marikana mine for its entire production. The production increase to 2015 should come from this mine. The Limpopo mine currently is under care and maintenance, while the most company’s most promising growth opportunity is the Akanani deposit with just over 10 Moz platinum reserves. Global platinum production is concentrated in South Africa’s Bushveld complex and Russia’s Norilsk region, while demand mainly comes from car manufacturers in Asia and North America.
  • Lonmin is suffering from quickly increasing employment costs (8% increase over the year) and electricity costs (24% increase). Furthermore the appreciation of the South African rand makes costs increase while revenues (in dollars) are not equally increasing.

Implications:

  • Foreign exchange cost pressures are hurting miners with operations in both developing countries and developed countries in which currencies are not linked to the dollar when the dollar is weakening. With an increasing portion of production shifting to developing countries with high inflation rates exchange rates are becoming more and more important for business evaluation.
  • Several large diversified miners are hesitant to take a stronger position in platinum because of safety issues. Most existing projects have poor safety track records, making acquisition of producing assets a CSR-risk, while development of new projects would require significant capital expenditure and result in long lead times.

©2011 | Wilfred Visser | thebusinessofmining.com

Anglo American eyes $70bln Growth Pipeline

April 27, 2011 Comments off

“Anglo American PLC currently has in the pipeline about $70 billion worth of projects that it plans to use to drive organic growth in the years ahead, senior company executives said Thursday. Cynthia Carroll, the mining company’s chief executive, said at the company’s annual general meeting here that the growth ahead is strong with ‘a new mining operation [starting] every six to nine months for the next several years.’

The company plans to increase volume output 35% by 2013 and increase 50% by 2015. It is looking to double output by 2020 based on a growth pipeline of about $70 billion of approved and unapproved projects, senior company executives said during the meeting. The company is currently developing $17 billion in projects and is looking to approve another $16 billion in the near term. A remaining $50 billion worth of projects are still waiting to be approved.”

Source: Wall Street Journal, April 21 2011

Observations:

  • Anglo American currently has 4 major growth projects nearing production: the los Bronces copper expansion project in Chile; the Barro Alto nickel project in Brazil; the Minas-Rio iron ore project in Brazil; and Kolomela iron ore project in South Africa. Furthermore the company is investing heavily in Jwaneng diamond mine in Botswana. These five projects account for $13.5bln of the approved CapEx.
  • Other approved projects are mainly in platinum, with 7 projects in Southern Africa summing up to over $3bln investment. Key unapproved projects are Quellaveco and Michiquillay copper projects in Peru; Sishen iron ore expansion in South Africa; and South African New Largo and Colombian Cerrejon thermal coal projects

Implications:

  • Anglo American currently leans heavily on its copper business (29% of profits in 2010) and iron ore business (38% of profits in 2010), mainly due to high prices. Expansion plans will mainly increase the exposure to platinum, nickel and coal, ensuring strong diversification of the company’s revenue sources.
  • Anglo American’s approved CapEx of $18bln compares to Rio Tinto’s $22bln and Xstrata’s $14bln (at time of publishing 2010 annual report). Only BHP Billiton plans to invest much more in organic growth in the coming years. However, boosted by high cash reserves growth by acquisitions would again be an option for Anglo American. With the frontier of development projects shifting to Africa, the company clearly has a favorable position to make good deals with its experience in operating projects in the continent.

©2011 | Wilfred Visser | thebusinessofmining.com

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