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Posts Tagged ‘politics’

Mining sector feels heat as Peru turns left

June 8, 2011 Comments off

“Shares in mining companies operating in Peru fell sharply on Monday after a leftwing former coup leader won a narrow victory in the country’s presidential election. Grupo Mexico, a metals mining company with operations in Peru, fell 8 per cent in New York trading. Hochschild, a silver miner, and Southern Copper Corp, tumbled 5 per cent and 11.3 per cent respectively. Shares in Xstrata, which is building one of Peru’s biggest mines, were off 0.86 per cent, while Volcan Compañía Minera, in which Glencore has a stake, fell 8 per cent.

Ollanta Humala’s victory has provoked widespread fears he would lead a wave of nationalisations and higher taxes on foreign companies. Mr Humala has suggested Peru could impose a windfall tax of up to 40 per cent on mining companies, and also raise the 30 per cent rate that miners currently pay. Trading was suspended after Peru’s stock market plunged more than 12 per cent. The precipitous fall dragged down other markets from Chile to Mexico. BHP Billiton, Rio Tinto and Anglo American, none of which have Peruvian operations, escaped the sell-off.”

Source: Wall Street Journal, June 7 2011

Observations:

  • Current corporate tax rate for miners in Peru is 30% + 3% royalties/duties + 4.1% on dividends, which is below international benchmarks (see PWC Global mining tax comparison for details)
  • The most active international mining companies in Peru are Xstrata, Newmont, Freeport-McMoran, and First Quantum. The effect of the election results on the stock price of Newmont is displayed below, showing a sudden 2% loss vs. other gold miners.

Implications:

  • The average stock price decrease of around 10% of Peruvian companies reflects the risk of a tax increase. As the market value is the market’s expectations of future profits, the 10% increase corresponds well with a high likelihood of an approximate 10% tax increase (i.e. 10% after-tax profit reduction) plus the additional risk of increased government control.
  • Besides the risk of tax increase and increased government control, foreign companies face the risk of rapid employment cost increases as the new government will quickly try to make a mark in supporting wage increases.

©2011 | Wilfred Visser | thebusinessofmining.com

The Most Influential People in Mining 2010

December 30, 2010 4 comments

2010 has been an exciting year for the mining industry. The Australian Super Profits Tax debate came to a climax; the iron ore pricing mechanisms was changed to a system related to the spot market after 40 years of benchmark pricing; the Western Australian Iron Ore Joint Venture between Rio Tinto and BHP Billiton was cancelled; BHP attempted to acquire PotashCorp; 33 Chilean miners were at the center point of global media attention when they were rescued after 68 days underground. Who have been the world’s most influential people in the mining industry this year?

The Business of Mining.com gives a top 25. Based on a combination of metrics on ‘Opinion Impact’ (both public opinion and boardroom opinion) and ‘Decision Impact’ (both for 2010 and for the future). The list features a combination of industry leaders, politicians, journalists, advisors and regulators. 24 men; 1 woman. 5 Australians; 4 South Africans; 3 Chinese, 3 Americans; 2 Indians; 2 Canadians; 2 Brits; 1 Guinean; 1 Kazakh; 1 Mongolian; 1 Brazilian. The figure below gives an overview of the 25 most influential people in mining in 2010.

(Blue dots: industry leaders; green dots: journalists; orange dots: advisors; red dots: politicians; black dots: regulators)

1. Marius Kloppers – CEO BHP Billiton

Heads the world’s largest mining company. Tried to add potash to the portfolio of the company by (unsuccessfully) offering $39bln for PotashCorp of Saskatchewan. Earlier in the year not only played an active role in the debate about the Australian super profits tax, but also in the attempt to form a Joint Venture for iron ore export from Western Australia. Is furthermore seen as one of the key drivers behind the change of the iron ore pricing scheme.

2. Tom Albanese – CEO Rio Tinto

Heads the world’s third largest mining company. Worked with Kloppers on the Pilbara iron ore JV, the new pricing mechanism for iron ore, and the lobbying against the super profits tax as proposed by Kevin Rudd. Used 2010 to restructure the capital structure of his company and to strengthen the ties with Chinese industry and government via various deals with Chinalco.

3. Roger Agnelli – CEO Vale

Heads the world’s second largest mining company and largest iron ore producer. Less well-known in the west than Kloppers and Albanese, but certainly a powerful leader in the mining industry. Secured development opportunities in Guinea and in potash production expansions while carefully building relationships with the Brazilian government and the new president: Dilma Rousseff.

4. Tony Clement – Industry Minister Canada

The man that killed BHP Billiton’s hopes of acquiring PotashCorp by imposing unacceptable conditions in order to secure the deal’s ‘benefit for Canada’.

5. Cynthia Carroll – CEO Anglo American

The only women in the list, heading the fourth largest diversified miner in the world. Led the company back to profits after a dramatic 2009. Was appointed chairman of related Anglo Platinum this year and holds directorships of De Beers and BP. Furthermore plays a role in the debates about the future of the industry at the World Economic Forum.

6. Graeme Samuel – Chairman of the Australian Competition and Consumer Commission

Head of the regulating body that was the key obstacle for the Joint Venture between BHP Billiton and Anglo American to export iron ore from Western Australia as the JV would have given the two companies a position that would threaten global competition.

7. Michael (Mick) Davis – CEO Xstrata

Heads the world’s fifth largest diversified mining company, build rapidly by acquisitions under the helm of Davis. Proposed a merger with Anglo American in 2009, and continues to look for expansion options. Plays an important role in the debate around a potential merger of Xstrata with trading house Glencore, the company’s largest stakeholder.

8. Kevin Rudd – Former Prime Minister Australia

The brain behind the Australian super profits tax, designed to skim the ‘excessive profits’ of mining firms. The public debate around the tax was one of the reasons Rudd was not re-elected. Although not in the office anymore, the idea of the super profits tax was implemented by the new government in an adjusted form.

9. Julia Gillard – Prime Minister Australia

Benefited from the drop in popularity of Kevin Rudd to take over the position of Prime Minister of Australia. Did involve the miners in redesigning the law into the Minerals Resource Rent Tax (MRRT), eliminating its major shortcomings. However, the new law, which will become active in 2011, will drastically increase profits for the mining operations in Australia, forcing many mining firms to re-evaluate investments.

10. Jacques Nasser – Chairman of BHP Billiton

The man behind the scenes at BHP Billiton. Worked with Kloppers on all major events this year, including the super profits tax, the Pilbara JV, and the PotashCorp offer. Appointed former British Minister Shriti Vadera on the company’s board and prepared the decision to restart high dividend payments to shareholders.

11. Xiong Weiping – President Chinalco

12. Anil Agarwal – Executive Chairman Vedanta Resources

13. Partha Bhattacharyya – Chairman Coal India

14. Ivan Glasenberg – CEO Glencore

15. Mahmoud Thiam – Minister of Mines and Geology Guinea

16. Sukhbaatar Batbold – Prime Minister Mongolia

17. Brad Wall – Prime Minister Saskatchewan

18. Xi Jinping – Trade Minister China

19. Vladimir Kim – Chairman Kazakhmys

20. Duncan Sloan – Global Mining Lead Accenture

21. Mike Elliott – Global Mining & Metals Lead Ernst & Young

22. William MacNamara – Mining Analyst Financial Times

23. Robert Friedland – Founder Ivanhoe Mines

24. John Chadwick – Editor International Mining

25. Chen Yan – Governor China Development Bank

 

©2010 | Wilfred Visser | thebusinessofmining.com

BHP Billiton Board Appointment

December 14, 2010 Comments off

“BHP Billiton Chairman Jac Nasser today announced the appointment of a new Non-executive Director, Baroness Shriti Vadera, to the BHP Billiton Board, effective 1 January 2011. Shriti Vadera brings wide-ranging expertise in finance, economics, and public policy to the BHP Billiton Board as well as extensive experience in emerging markets. She has held a number of advisory and Ministerial roles in the British Government, most recently serving as Minister for Africa and Minister for Economic Competitiveness & Enterprise.

Baroness Vadera has also held a number of international positions, including advising the Republic of Korea on its term as Chair of the G20, Temasek Holdings on strategy and the Government of Dubai on the restructuring of Dubai World. Prior to her time in the British Government, she spent 14 years in investment banking at UBS Warburg where she specialised in advisory work in emerging markets.”

Source: BHP Billiton, December 13 2010

Observations:

  • BHP appoints former British minister Shrit Vadera as board member. The appointment brings the size of the board to 12 persons: 10 men and 2 women.
  • The majority of the company’s board members have a financial background, including 3 MBAs, 2 Investment bankers, 2 Chartered accountants, 1 Bachelor degree in business, and 1 Bachelor degree in economics. Only 3 board members have extensive industry in the mining industry and another 3 in the oil & gas industry.

Implications:

  • The company increases the strength of the board in financial expertise and knowledge of the African and Asian way of doing business by appointing mrs. Vadera. Other mining firms will be trying to do exactly the same after the importance of financial management has been highlighted in the crisis and as the African and Asian footprint of the mining industry increases.
  • Global political connections and economic insight become more and more important for the board of international mining firms. It will be hard for many companies to balance this requirement with maintaining a high level of understanding of the technological and operational challenges in the mining industry in the board.

©2010 | Wilfred Visser | thebusinessofmining.com

Equinox Bids for Citadel Shares

October 26, 2010 Comments off

“Zambia-focused copper producer Equinox Minerals Ltd. plans to leap into the top 20 of global copper producers with a 1.25 billion Australian dollars (US$1.24 billion) bid for explorer Citadel Resource Group Ltd.

On Monday Equinox, whose Lumwana mine produced nearly 44,000 metric tons of copper in the three months to Sep. 30, launched a recommended cash-and-share bid for Citadel, which is focused on the Jabal Sayid copper-gold project in Saudi Arabia. Equinox aims to produce 260,000 tons a year by 2014, of which 60,000 tons would come from Jabal Sayid.”

Source: Wall Street Journal, October 25 2010

Observations:

  • Global annual copper output in 2009 was 16Mt, growing at a modest annual rate of 3-5%. The 260,000 tons per year by 2014 would therefore correspond with approx. 1.3% of global copper production.
  • The share price of both companies increased after the cash & stock offer, signaling investors expect the merger to create value.

Implications:

  • The acquisition offer is part of a renewed interest in acquisitions in the mining industry, as companies that have survived the crisis with cash reserves are trying to grow by mergers.
  • The exact source of synergies for the merger is unclear. The bid holds a premium of approx. 20%, which appears to be much more than what management and trading synergies could achieve.
  • Many recent acquisition attempts in the mining industry appear to be more driven by management politics than by financial rationale. Highest synergies in the mining industry are typically achieved in the logistical area (as attempted by the Australian BHP-Rio Joint Venture). The Equinox-Citadel combination, operating in Zambia and Saudi Arabia, is not expected to realize any savings in this area.

©2010 | Wilfred Visser | thebusinessofmining.com