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Mining Week 45/’12: PotashCorp and Rothschild on the offensive

November 4, 2012 Comments off

Top Stories of the Week:

  • PotashCorp in talks to acquire ICL for $14bn
    • PotashCorp, the Canadian phosphate miner that was subject of a $39bn takeover attempt by BHP Billiton in 2010, is in talks with the Israeli government to acquire Israel Chemicals (ICL) and merge it with its own operations. PotashCorp already holds a 14% stake of ICL. The remaining share is worth roughly $14bn.
    • In an initial reaction the Israeli government, which holds a golden share in ICL’s mother company, indicated that the sale of ICL to PotashCorp would not be in the best interest of the country. In a later statement the government did indicate it would be open to a formal bid.
    • Sources: Wall Street Journal; BusinessWeek; Fox Business
  • Rothschild aims to increase Berau interest
    • In response to Bakrie’s proposal to buy out Bumi plc, Nathan Rothschild, the company’s founder, is said to look for partners to make a counterbid for Berau’s Indonesian coal assets.
    • Bumi Resources and Berau are the two key asset groups of Bumi plc, the result of a deal between Vallar plc and Bumi. Following falling call prices minority shareholder Bakrie has proposed a deal in which it would buy Bumi plc’s assets and thus separate Rothschilds and Bakrie’s interests.
    • Sources: Wall Street Journal; Financial Times; Bloomberg

Trends & Implications:

  • The Israeli response that selling ICL would not be in the country’s interest might be preliminary. Although 60% of ICL’s mining activity takes place in Israel, centered around the Dead See, it is unlikely that PotashCorp would want to tune down those activities. Only a very small part of ICL’s production is actually sold in Israel, and those products could be seen as global commodities, making it hard for the government to justify a case in which a sale would be rejected based on national security. The issue that PotashCorp and Israel will need to figure out is how much overhead jobs to leave in the country and/or how to compensate for the potential loss of jobs in office activity (similar to the negotiations undertaken by BHP Billiton with the Canadian government when trying to acquire PotashCorp).
  • Rothschild’s attempt to find new partners to continue his Indonesian activities with Berau does not seem te be a step that is in the interest of shareholders. Entering in a bidding contest with Bakrie for the assets it already controls is not going to improve the financial position of a company plagued by dropping commodity prices. If Bakrie actually manages to secure the funds required to execute the buy-out proposal it is likely that Rothschild will be able to find other, less politically sensitive, cheaper assets to work with. Whatever the result of this power struggle, it appears that Bakrie and Rothschild will not continue to own stakes of the same company.

2012 | Wilfred Visser | thebusinessofmining.com

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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

Mining Week 07/’12: Results time and the Bumi story

February 19, 2012 Comments off

Top Stories of the Week:

  • Friction between Bumi board and Rothschild
    • Conflict arose in the board of Bumi, the Indonesian coal miner with the investor Nathan Rothschild as a large investor after a reverse takeover of the Vallar investment vehicle. After initial conflicts the Indonesian board members planned to remove mr. Rothschild from the board, but he now only appears to have to give up his co-chairmanship. Share price of the company dropped significantly after the news of the conflict.
    • Sources: Financial Times; Wall Street Journal; Bumi’s overview of board members
  • Annual results published without major surprises
    • (Higher prices + higher costs) x lower volumes = lower profits. That was the story of the results releases of the world’s largest miners this week. The impairment taken by Rio Tinto on the Alcan acquisition costs probably was the most significant item, together with the relatively positive outlook given after the negative and uncertain signals given about global demand in the past months.
    • Sources: Rio Tinto results presentation; text; Wall Street Journal on Anglo
  • BHP (58%) and Rio (30%) expand Escondida at $4.5bln cost
    • BHP Billiton and Rio Tinto announced investments of $4.5bln to replace the plant at Escondida, the world’s largest copper mine in output, increasing capacity and enabling mining restricted by the current facilities.
    • Sources: BHP Billiton news release; Rio Tinto media release; Reuters

Trends & Implications:

  • February is the month in which most of the world’s largest diversified miners present their annual results (only BHP Billiton runs a different fiscal year). The investor presentations provide interesting reading and give a good idea of the vision for the future of the industry. Below a peak preview with the most insightful slides from the presentations:

©2012 | Wilfred Visser | thebusinessofmining.com

Vallar poised to raise Bumi Resources stake

April 7, 2011 Comments off

“Vallar is moving ahead with plans to expand its stake in Indonesia’s biggest coal company, as its metamorphosis into a sizeable miner gathers momentum. The London-listed cash shell founded by financier Nat Rothschild stands to gain an indirect controlling stake in Kaltim Prima Coal mine – the world’s largest thermal coal mine – by increasing its shareholding in Bumi Resources, which operates the mine, to 51 per cent later next month.

Bumi Resources, the coal miner owned by Indonesia’s Bakrie family, has a majority stake in KPC, according to the company’s website, while India’s Tata holds 30 per cent. Andrew Beckham, chief financial officer of both Bumi Resources and Vallar, said he expected the Bakries to approve a plan to increase Vallar’s 25 per cent stake in Bumi Resources via a share swap expected in May. However, in an e-mail, he hinted at uncertainty as to how the transaction would occur.”

Source: Financial Times, April 6 2011

Observations:

  • The proposed share swap between Bumi and Vallar will give the Bakrie family a majority share of Vallar, but the family will not have the majority of voting rights. In return Vallar, by owning 51% of Bumi, will gain control over the assets of the group, which will then be renamed Bumi plc.
  • Vallar was created last year and listed on the London Stock Exchange in July. After the transactions in Indonesia, which will be completed with the share swap discussed above, the company aims to expand the portfolio with other areas of the world. In January the group was reported to be in the market for $1bln coal assets in America or Australia, but this deal did not yet materialize.

Implications:

  • In order to grow further into a FTSE100 coal player the company needs to find assets that can be managed in clear synergy with the Indonesian assets. Total acquisition value the founders were looking for was up to $7.5 bln, of which less than half has been spent so far. Cheap debt helps the company to achieve high gearing in acquisitions.

©2011 | Wilfred Visser | thebusinessofmining.com

Vallar eyes acquisitions to follow Asian deal

January 5, 2011 Comments off

“Vallar, the London-listed cash shell founded by financier Nat Rothschild, is looking at acquisitions of coal assets in North America and Australia worth up to $1bn (£646m) as it seeks to bolster its aspirations to join the FTSE 100. Vallar is set to be transformed this month under a complex deal that will see it become a vehicle for Indonesia’s powerful Bakrie and Roeslani families in order to list their interests in London.

Vallar is currently looking at a coal mine in Mongolia as well as coal assets in Australia and North America, although the latter two regions are seen as more probable targets. ‘[Vallar] is in the market for a $1bn business in a western economy so Australia and America is more likely [than Mongolia],’ said the person.”

Source: Financial Times, January 3 2011

Observations:

  • Shortly after setting up Vallar Rothschild and Campbell, a former Anglo American coal executive, managed to combine the forces of two major Indonesian coal mining companies into Bumi plc, in which Vallar holds a 32% share.
  • The North American coal market is experiencing a wave of consolidation, with small and medium sized miners either merging or being acquired by larger firms that hope to realize synergies in management, transportation, and taxes.

Implications:

  • Vallar arises as the key challenger of Xstrata as the world’s primary western coal miner. Its founders manage to manoeuver the international financial and political arena smartly, aligning the interests of Chinese financiers, producers with Vallar’s ambitions. However, success of the venture will depend on the ability of the team to improve the performance of the Indonesian assets enough to justify the price paid.

©2011 | Wilfred Visser | thebusinessofmining.com

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