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Posts Tagged ‘reserves’

BHP to Acquire Petrohawk Energy in $12 Billion Deal

July 20, 2011 Comments off

“BHP Billiton Ltd. said Thursday it plans to acquire Petrohawk Energy Corp. for more than $12 billion in cash, giving the Anglo-Australian mining company access to large shale assets in Texas and Louisiana in one of the largest deals of the year. BHP will pay $38.75 per share, a 65% premium to Petrohawk’s closing price on Thursday of $23.49 a share.

The deal marks an important strategic step for BHP, which last year was rebuffed in a highly politicized $38.6 billion bid for Canada’s Potash Corp. of Saskatchewan Inc. One of the largest global mining companies, BHP has been eager to spend its war chest to diversify from minerals and mining into oil and gas. The Petrohawk deal will double BHP’s resource base in oil and gas, allowing the company to increase its production by about 10% for the rest of the decade, the company said.”

Source: Wall Street Journal, July 15 2011

Observations:

  • Key synergies targeted in the deal are in financing new projects: Petrohawk has the reserves, and BHP brings the funds to develop them. The premium of 65% reflects this increased investment, as it values the company on 7.5x PE rather than 4-5x PE.
  • Last February BHP bought a set of shale gas assets from Chesapeake Energy for close to $5bln.
  • In a poll on this blog in February 57% of respondents thought BHP should expand further in the oil & gas arena.

Implications:

  • The $12bln tender offer is all-cash, largely solving BHP’s ‘problem’ of a huge cash pile that some people rather had seen returned to shareholders. With current high iron ore prices the company is generating cash much faster than it is able to invest in organic growth.
  • The acquisition increases the weight of the petroleum business in BHP’s portfolio and makes BHP enter in the top 10 of largest petroleum companies in the USA. This development follows the entry of various large petroleum companies in the mining area through oil sand projects. Still it is unclear if more miners will position themselves as ‘large scale commodity producers’ active in both mining and petroleum businesses.

©2011 | Wilfred Visser | thebusinessofmining.com

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Gerdau denies Usiminas acquisition plans

March 24, 2011 Comments off

“Gerdau SA, Latin America’s biggest steelmaker by output, Wednesday strongly denied rumors that it will use funds from its new share sale to buy stakes in fellow Brazilian steelmaker Usinas Siderurgicas de Minas Gerais SA, or Usiminas. At the same time, Brazilian industrial group Votorantim denied it is seeking to sell its 13% stake in Usiminas’s controlling shareholders’ group.

Funds raised in Gerdau’s new share sale, the prospectus for which was published Wednesday, will be directed at Gerdau’s current investment program, Gerdau said. This foresees spending of 10.8 billion Brazilian reais ($6.51 billion) in 2011-15, 75% of it in Brazil, to meet growing domestic demand for steel and maintain the company’s export levels, Gerdau said earlier this month. The planned investment will expand steelmaking, rolling-mill and iron-ore mining capacity.”

Source: Fox Business, March 23 2011

Observations:

  • Gerdau owns rights to four iron ore deposits in Brazil’s state of Minas Gerais. Total reserves were revised up from 1.9bln to 2.8bln tons last month.
  • In comparison, Vale, Brazil’s and even the world’s largest iron ore miner, holds proven reserves of approx. 10bln tons at production over 300mln tons of ore per year.

Implications:

  • Some analysts expect Gerdau to search for options to expand by acquiring one of the smaller steelmakers in Brazil. Acquiring a flat steel maker would complement Gerdau’s strength of producing long steel.
  • Other analysts expect Gerdau to team up with an experienced mining house in order to step up production in its mining assets. Current low margins in steel making caused by high iron ore, coal and electricity prices lead many steelmakers to analyze options to move upstream.

©2011 | Wilfred Visser | thebusinessofmining.com

AEMFC: South Africa’s state owned miner

March 2, 2011 Comments off

“South African President Jacob Zuma launched the new ‘competitive’ State mining company, which will produce 800 000 t/y of energy coal at its first mine and synthetic crude oil from another in 2013. President Zuma turned the first sod at the new R130-million ($18.7mln) 120-employee Vlakfontein coal mine, which is situated 100 km east of Johannesburg and 10 km northwest of the town of Ogies, the first venture of the State-owned African Exploration Mining & Finance Corporation (AEMFC), which envisages being a top-five coal producer by 2020.”

AEMFC CEO Sizwe Madondo tells Mining Weekly Online that discussions with State electricity utility Eskom indicate that the Vlakfontein coal, which will be produced at an initial rate of 800 000 t/y, will be competitively priced. Eskom, which will be the buyer of the Vlakfontein coal, currently burns 115-million tons of coal a year, and expects to be burning 250-million tons a year by 2018.”

Source: Mining Weekly, February 26 2011

Observations:

  • Original launch of the state-owned company at Vlakfontein mine was planned for October 2010, but was postponed for several months. Apart from operating the coal mine the government aims to combine its minority participation in mining companies around the country in AEMFC.
  • The company appears to be mainly focused on Energy minerals (coal, synthetic oil from coal, and uranium). The ambition to be a top-five coal producer by 2020 therefore most likely is based on energy coal production.
  • According to BP’s energy statistical review South Africa accounts for 3.7% of world coal reserves and 4.1% of global production, which makes it the world’s 6th-largest coal producer (behind China, USA, Australia, India, and Indonesia)

Implications:

  • Fears of the ANC government nationalizing mines to benefit from the high profits in the industry have been tempered by the mining minister recently when he rejected a proposal by ANC’s youth organization to start nationalization. However, the existence of a state owned mining company makes the step to nationalize assets easier in case a future governments has a different opinion.
  • The investment climate for developing reserves and obtaining licenses for foreign companies will only become more challenging now that a local state-owned player is competing for the same opportunities. It will be hard for the South African government to prevent corruption and avoid an image of an unlevel playing field.

©2011 | Wilfred Visser | thebusinessofmining.com

BHP to Buy Chesapeake Shale Assets

February 23, 2011 Comments off

“BHP Billiton Ltd. said Monday it is acquiring Chesapeake Energy Corp.’s Fayetteville shale gas holdings in Arkansas and some pipeline assets in a deal totaling about $4.75 billion in cash.

Earlier this month, Chesapeake announced plans to sell about 487,000 acres of its Fayetteville shale holdings as part of a plan to reduce its debt by 25% in two years. The deal would increase BHP’s gas reserves and resources by 45%.

This acquisition would mark BHP’s first shale gas asset. The company, primarily a miner, gets about 20% of its profits from oil and gas. Most of its assets are in Australia, the Gulf of Mexico, Algeria and Pakistan. The Arkansas asset would likely supply natural gas mostly to utility companies.”

Source: Wall Street Journal, February 22 2011

Observations:

  • ExxonMobil started a run to acquire shale gas assets in December 2009 by paying $41bln for XTO Energy (incl. taking on $10bln debt). The deal was made contingent on the senate investigation into hydraulic fracturing; the method used to enhance production of gas from shale.
  • BHP pays $1.77/Mcf of proved gas reserves, about 30% below the price paid by ExxonMobil for XTO, but in line with recent other acquisitions in the industry.

Implications:

  • BHP can still expand in the oil and gas industry without triggering the regulatory roadblocks it faces when trying to expand its position in many mined commodities. It would therefore not be unlikely if it makes more acquisitions in the industry. Some analysts critique the diversification of the company, arguing that shareholders have little benefit from the combination of mining and oil/gas in one firm.
  • The natural hedge created by combining mining & oil/gas (benefiting from higher oil/gas prices on the sales side while being hurt at the same time in fuel and electricity prices) does enable the company to promise a steady cash flow to investors.

©2011 | Wilfred Visser | thebusinessofmining.com