Archive
Posts Tagged ‘Vale’
Mining Week 6/’13: Government actions in South Africa and Argentina
February 10, 2013
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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
Categories: Mining Week
Anglo American, Aquarius, Argentina, business, mining, mining business, platinum, potash, Rio Colorado, South Africa, Vale
Mining Week 46/’12: Lonmin vs. Xstrata & the CEO-carousel
November 10, 2012
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Top Stories of the Week:
- Lonmin raises equity to stay independent
- Lonmin announced a $800m rights offering, in that way fending of the proposal by Xstrata to increase its stake in the troubled platinum miner to a majority share.
- The strikes in South Africa, which escalated at Lonmin’s operations, have caused significant lost production and urgent financial issues for Lonmin.
- Sources: Lonmin press release; Financial Times; Wall Street Journal
- BHP starts search for new CEO
- BHP Billiton has started the search for the successor of CEO Marius Kloppers. Apparently the company will not necessarily promote an insider to the top position.
- With Mick Davis leaving Xstrata if/when the merger with Glencore is approved and Cynthia Carroll leaving AngloAmerican next year, 3 of the top CEOs in the mining industry will change.
- Sources: Financial Times 1; The Economist; Financial Times 2
- India limits export of iron ore
- Iron ore exports from the Indian state of Orissa will be limited strongly by new production quota for mines without processing facilities.
- The government is trying to attract processing investment to prevent iron ore is only exported without significant benefit for the country. High export duties (raised to 30% early this year) and production quota are used to discourage exports from the world’s 3rd largest iron ore exporter.
- Sources: Wall Street Journal; Commodity Online; Steel Orbis
Trends & Implications:
- Orissa’s attempts to curb exports don’t do much to stimulate local investment in processing capacity. India’s government announced a year ago that it would make it more attractive for companies to invest by setting up mining right and process plant permitting packages. With the current uncertainty about both global demand and India’s local demand outlook it is unlikely that large investments in additional processing capacity will be made in Orissa in the near future. As a result the will mainly slow down the local economy.
- Almost a year ago, after the announcement of Ferreira as new CEO of Vale, this blog conducted a poll among its readers to find out which top company CEO was mostly to be replaced first. The results showed most trust in the future of Kloppers at BHP. A year later 3 out of 4 are on their way out, while most CFOs have been replaced over the past 2 years too. The high level of activity in replacing top executives indicates a change of mindset in the boards of these companies: shifting from a focus on growth and investment to a focus on operational excellence and payout. The new group of top executives will mainly need to show a track record of cost-control and willingness to make tough decisions on closure of mines.
Results of Dec-2011 Poll on thebusinessofmining.com
2012 | Wilfred Visser | thebusinessofmining.com
Categories: Mining Week
Anglo American, BHP Billiton, business, Carroll, CEO, Davis, Glencore, India, iron ore, Kloppers, Lonmin, mining, mining business, Orissa, rights issue, Rio Tinto, strike, Vale, Xstrata
Mining Week 31/’12: Falling prices, falling profits
July 29, 2012
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Top Stories of the Week:
- Vale’s profits down on lower prices
- Vale reported profits below analyst estimates and 60% down versus the same quarter last year. The benchmark price of iron ore has dropped to $120/wmt, at part with the price floor identified by the company last quarter.
- After the first quarter Vale reported a 45% drop in year on year profits, driven by both volumes and prices
- Sources: Vale press release; Financial Times
- Anglo, Teck, Gold miners down on lower prices
- Lower commodity prices and rising costs resulted in earnings drops of 55%, 65%, and 35% for Anglo, Teck, and Barrick.
- Anglo announced delay of its flagship development iron ore project in Brazil, Barrick announced large cost overruns for its Pascua Lama project in Argentina, and Teck recently tuned back on a large copper expansion project in Chile. They are all reviewing the balance between project investments and shareholder returns.
- Sources: FT on Anglo; FT on Teck; WSJ on Barrick
- Anglo pays $0.6bn for controlling stake in Mozambique coking coal project
- In a rare move amidst cancellation of development projects across the industry Anglo made the move to buy 59% of the 1.4Bt Revuboe coal project in Mozambique. The project is a JV with Nippon and Posco and is planning to start production of 6-9Mtpa by September 2013.
- Sources: Financial Times; Anglo press release
Trends & Implications:
- Dropping prices + increasing costs = review of development. Most non-agricultural commodity price indices have dropped 20-40% over the past year. Where a year ago the focus of most miners was to bring new projects online as fast as possible, attention has shifted to cost containment and ‘disciplined capital investment’. The focus on building projects is stretching capacity of contractors, making capital and operating costs increase rapidly. As a result the projected returns of projects deteriorate, forcing companies to reconsider their portfolio of development plans.
©2012 | Wilfred Visser | thebusinessofmining.com
Categories: Mining Week
Anglo, Anglo American, Barrick, business, coal, iron ore, mining, mining business, Posco, price, profit, Revuboe, Teck, Vale
Mining Week 23/’12: Investment dilemmas for BHP and Fortescue
June 3, 2012
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Top Stories of the Week:
- Rumour around retention plan for Xstrata executives
- Several major shareholders have voiced discontent with the approx. $370mln retention bonuses for the top 72 executives of Xstrata that has been made part of the vote on the Glencore-Xstrata merger.
- Sources: Financial Times 1; Financial Times 2; Wall Street Journal
- Australian state governments fight for BHP investment
- BHP Billiton received environmental clearance for the expansion of Port Hedland’s iron ore harbour. The project could cost around $20bln up to 2022 to increase export capacity to 350Mtpa.
- The government of Southern Australia is pressuring BHP to start the expansion of its Olympic Dam copper/uranium project before the end of the year, threatening not to extend the permits. The Olympic Dam expansion is one of the key projects that might be cancelled or delayed as BHP tries to limit investment and return money to shareholders.
- Sources: Bloomberg; Business Spectator; Financial Times
- Fortesque worries about debt servicing
- Fortescue, Australia’s third largest iron ore miner, is close to completion of an expansion that will enable it to export 155Mtpa iron ore.
- The CEO of the company has indicated that it will focus on repayment of debt before undertaking further expansion. The company has received negative feedback from investors because of its high gearing. Its Debt/Equity ratio stands at approx. 45%, versus 26% for Vale and Rio Tinto and 15% for BHP Billiton.
- Sources: Fortescue media release on expansion progress; Wall Street Journal; 9News
Trends & Implications:
- If BHP decided to press on with the Port Hedland expansion at the expense of large development projects in other business units that would be a next sign that the supermajors are preferring the relatively predictable iron ore market over further diversification. Both Rio Tinto and BHP Billiton are considering sale of their iron ore business, BHP is in the process of reviewing the options for its Australian manganese operations, and Vale reached a deal last week to dispose its coal operations.
- The proposed retention bonuses for the top 72 managers of Xstrata add up to around $370mln, an average of some $5mln per person, 4% of last year’s profit, roughly 1-2 annual executive salaries per person, about $0.8 per share, or some 0.1% of share price. The bonuses are set up to keep the managers with the company for at least another 3 years. Even though we are talking about a lot of money that could trigger ethical debate about the executive pay in the industry, the shareholders hardly have any ground to protest the plan from a business perspective. Retention of the top managers after the merger should certainly enable the company to get a quick payback on the $370mln.
©2012 | Wilfred Visser | thebusinessofmining.com
Categories: Mining Week
BHP Billiton, bonus, business, copper, debt, Fortescue, gearing, Glencore, harbour, iron ore, manganese, mining, mining business, Olympic Dam, Port Hedland, retention, Rio Tinto, uranium, Vale, Xstrata
Mining Week 18/’12: Vale’s profits down; Asteroid mining up
April 28, 2012
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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
Categories: Mining Week
asteroids, business, Dassault, Gemcom, Geovia, investors, iron ore, Larry Page, mining, mining business, Planetary Resources, planning, platinum, software, Vale
Mining Week 17/’12: The sense and nonsense of stock prices
April 22, 2012
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April is traditionally the month in which the major diversified miners present their annual results. BHP Billiton closes its fiscal year in the mid of the calender year, but joins its main competitors in giving an update of its performance in an investor meeting in this month. One of the key objectives of the executives presenting their numbers to an audience that will listen to each of the presentations in the course of a couple of weeks is to make the company look good, or at least better than competitors.
Managing the expectations of investors serves a twofold purpose: in the first place the goal is to make sure the investors know what they are investing in and what the perspectives for the company are – as a result the stock price should reflect the true performance and potential of the company; in the second place the goal is to keep the shareprice high or make it go higher – often referred to ironically as ‘reflecting the true value of the company’.
Why care about stock prices?
- Market value matters in the first place from a financial point of view. The higher the market price, the easier and cheaper it is to raise debt, giving flexibility to invest.
- The second important reason to care about the share price is the mergers and acquisitions arena. An undervalued company is an acquisition target, and having a strong share price makes doing paper acquisitions (pay with shares instead of cash) attractive.
Why not care about stock prices?
- Market value does not matter because an executive should not be driven by short term stock price fluctuations, which are typically mainly the result of market conditions and events the executives do not have a hand or a say in. In the long term good management will lead to a distinct outperformance of competitors, but short term movements are too erratic to say much about management performance.
- An executive should not be driven by the market price (i.e. the shareholders interest) alone, but should take the interests of other stakeholders (employees, society), which are often not directly or fully included in the share price, in account too.
©2012 | Wilfred Visser | thebusinessofmining.com
Categories: Mining Week
Anglo American, BHP Billiton, business, employees, executive, market value, mining, mining business, Rio Tinto, share price, shareholder, stock price, Vale, Xstrata
Mining Week 04/’12: First test for Vale’s CEO vs. Brazilian government
January 29, 2012
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Top Stories of the Week:
- Vale starts to fight back against tax rulings
- Vale announced its plans to appeal to the governments intent to charge $5.6bln worth of taxes on foreign earnings. The clash with the government promises to be the first real test for the new CEO Murilo Ferreira.
- Mr. Ferreira took over the leadership of the company from Roger Agnelli, who was not reelected partly based on a disagreement with the government (which is control Vale via state-controlled shareholders) over $2bln taxation.
- Sources: Vale press release; Financial Times; Bloomberg
- Rio Tinto assumes full control of Oyu Tolgoi
- Rio Tinto increased its ownership of Ivanhoe from 49% to 51%, giving it full control over the flagship Oyu Tolgoi copper project in Mongolia, the world’s premier copper development project.
- Sources: Rio Tinto press release; Wall Street Journal; Financial Times
Trends & Implications:
- Vale estimates the impact of a review of the tax code on the company’s earnings to be approx. 4-5% of earnings. Taxation regimes around the world for specifically iron ore and copper mining are reviewed to make the countries benefit more from ‘extreme’ profits, which could be seen as a temporary phenomenon. However, the key issue in Vale is facing now is a debate about double taxation; paying taxes over profits after taxes realized in countries where the company is operating.
- Rio Tinto’s control over Ivanhoe will help the company to put in place its management structure and have the project managed by some of its top project developers. Gaining full control of the project in this stage will help Rio Tinto to build the project according to the company’s standards, preventing costly and above all time-consuming future transitions in the operating structure. The global standards that enable effective project management more and more set the world’s largest miners apart from the ‘small’ mining firms with only a few operating assets. Very much like GE has become known as a great ‘project management company’, the world’s largest miners are more and more developing into ‘mine development’ companies in which development speed is the key success factor and navigating politics in developing countries is a key skill.
©2012 | Wilfred Visser | thebusinessofmining.com
Categories: Mining Week
Brazil, business, copper, development, double taxation, Ivanhoe, mining, mining business, Mongolia, Murilo Ferreira, Oyu Tolgoi, project, Rio Tinto, tax, Vale
Mining Week 03/’12: Record setting iron ore miners & dividend increase
January 22, 2012
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Top Stories of the Week:
- BHP Billiton and Rio Tinto deliver record production in Pilbara
This was another record-breaking year in the Pilbara with both quarterly and full year iron ore production. Record global iron ore shipments of 239 million tonnes in 2011 were below production due to extreme weather conditions experienced in the first half of the year. Despite this, Rio Tinto’s Pilbara ports operated at above annualised capacity rates and shipped record volumes of 61 million tonnes in the fourth quarter and 225 million tonnes for the full year.
While scheduled maintenance, tie-in activities and the wet season in the Pilbara are expected to affect Western Australia Iron Ore production in the second half of the 2012 financial year, full year production is now forecast to marginally exceed prior guidance of 159 million tonnes per annum.
- Sources: Rio Tinto press release; BHP Billiton press release; Financial Times
- Vale proposed a minimum dividend of $6bln for the year, an increase of over 50% versus the previous year’s minimum payment and in line with the actual dividend payment over 2011.
- Sources: Vale press release; Wall Street Journal; Financial Times
Trends & Implications:
- Rio Tinto and BHP Billiton continue to build capacity in the Pibara iron ore district. With relatively low mining costs and close proximity to the Asian/Chinese market this iron ore region is the most competitive (and largest) producer in the world. As the output in Pilbara is exceeding expectations and Chinese growth is slowing, exporters in other regions face an uncertain future. The global iron ore market is slowly evolving to a scenario where Brazil and Western Africa supply ore for the European market and the Latin American growth market, and Australia supplies iron ore for Asia.
- Vale’s increase of dividends fits in the trend of recent dividend increases in the industry and is a clear sign of uncertainty in the boardrooms of many companies: organic investment opportunities and development capacity are limited, share buybacks and cash takeovers would increase leverage and vulnerability, and with the uncertainty about future economic developments many companies decide to give the cash to shareholders in an attempt to keep share price high.
©2012 | Wilfred Visser | thebusinessofmining.com
Categories: Mining Week
BHP Billiton, business, buyback, cash, dividend, iron ore, mining, mining business, Pilbara, Rio Tinto, share, Vale, weather
Mining Week 48/’11: Change in Brazil & Tax in Australia
November 27, 2011
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Top Stories of the Week:
- Australia’s Mineral Resource Rent Tax approved by lower house
- The new 30% tax on profits above A$75mln for coal and iron ore projects has been approved by the lower house and is now only to be approved by the senate. The tax has been debated for approx. 2 years. Initially proposed by Kevin Rudd, the former premier, the regime has been tuned down and now includes arrangements to stimulate and protect investments.
- Sources: Wall Street Journal; Financial Times; Australian Treasury MRRT explanation
- Vale appoints new CFO: Tito Martins
- Tito Martins, Vale’s head of base metals, has been appointed as the new CFO of the company. Several executive management positions changed in the first major move of the new CEO to strengthen control. Mr. Martins was involved in the acquisition of Inco, which turned into Vale’s base metals division which was led by Mr. Ferreira.
- The change of top management of Vale was started by appointing Murilo Ferreira CEO in the place of Roger Agnelli after the presidential elections in Brazil. One of the reasons of conflict between government and Vale was the building of a fleet of iron ore carriers in Asia rather than domestically. This fleet was in the news this week as Chinese ports are refusing to host them, trying to protect the interest of incumbent shipping lines.
- Sources: Vale’s press release; Financial Times
- Rio Tinto bids for uranium explorer
- Rio Tinto convinced the board of Hathor Exploration, a Canadian uranium explorer, with a C$654mln bid. The bid is approx. 5% higher than rival Cameco’s bid. Hathor owns rights to various uranium deposits in the Athabasca basin.
- Sources: Financial Times; Rio Tinto press release; Hathor Exploration board recommendation
Trends & Implications:
- The changes at Vale should prepare the company for further changes to the business environment for the major iron ore producers. The introduction of the MRRT mainly hits Rio Tinto and BHP Billiton, but all three majors are figuring out how to react to increasing uncertainty about demand. Asian steel producers are pushing for adaptations to the recently changed pricing mechanisms, moving the pricing system to shorter term contracts. At the same time various Asian players are starting to buy iron ore assets in the price range of hundreds of millions to several billions of dollars; threatening the dominance of incumbents.
- Rio Tinto is trying to buy into uranium at a moment where industry shares are depressed because of the nuclear disaster in Japan last year. The bid for Hathor signals Rio’s management still believes in the potential of the industry. The company says it accounts for 16% of the world’s uranium production from mines in Australia and Namibia.
©2011 | Wilfred Visser | thebusinessofmining.com
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