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Posts Tagged ‘Vallar’

Mining Week 4/’13: Caterpillar’s trouble & Bumi’s future

January 27, 2013 Comments off

Top Stories:

  • Caterpillar sees lower sales and fraud at Chinese acquisition
    • Caterpillar’s machinery sales declined 1% over the past 3 months, driven by poor results in AsiaPacific and North America.
    • The news of the mining slowdown hitting the top equipment manufacturer comes at the same time as the announcement of structural over reporting of profits at ERA Mining Machinery, the Chinese manufacturer bought for approx. $700m last year.
    • Sources: Caterpillar press release; Wall Street Journal; Financial Times
  • Bumi board favors Bakrie’s plans over Rothschild’s
    • The only two directors on Bumi’s board who Nathan Rothschild wanted to stay in function have sided with the rest of the board in the support for the plan to have the Bakrie family buy the Bumi Resources assets and separate from Bumi, which would be left with the Berau assets.
    • Rothschild and Bakrie have been in a dispute about the future of the London-listed miner with coal assets in Indonesia for several months. The company said this week that the decisions about the future structure of the group will not be impeded by the ongoing legal probe into financial practices at their assets.
    • Sources: Financial Times; Telegraph; Wall Street Journal

Trends & Implications:

  • The reduction of machinery sales at Caterpillar signals that the peak of new project development has passed. While miners raced to add capacity over the past years, many new projects are now put on hold or downsized. Although Caterpillar can expect to benefit from the forecasted rise increase of global resource requirements over the next decades, the fastest growth is over. Equipment manufacturers are a good indicator of overall growth outlook in the industry as their sales is directly linked to building of production capacity.
  • Bumi’s future appears to be that of an Asian-focused coal company without strong Indonesian shareholders. The tie-up of the Vallar cash shell with powerful Indonesian miners did create a significant player in the region, but the divergent views on corporate governance between the Indonesian and European-based owners has made it impossible to run the company effectively.

2013 | Wilfred Visser | thebusinessofmining.com

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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

Anglo American eyes Macarthur coal

August 23, 2011 Comments off

“Anglo American is considering a counterbid for Macarthur Coal in an attempt to gatecrash a A$4.7bn (US$4.9bn) bid for the Australian coal group from Peabody Energy and ArcelorMittal. Earlier this month, Macarthur said it was open to offers that valued its business at nearly A$5bn after formally rejecting an ‘opportunistic’ bid from Peabody Energy of the US and steelmaker ArcelorMittal.
People familiar with the bid process said there were a number of interested parties, one of which was Anglo American. The mining group is said to be working with its traditional advisers, which include Goldman Sachs.
It is not clear whether Anglo will proceed with any offer, and talks are expected to come to a head in the next week. A deal would be the largest by Anglo since 2007, with its recent blooming profits creating a degree of financial flexibility that the company has not enjoyed for several years.”

Source: Financial Times, August 21 2011

Observations:

  • Peabody and ArcelorMittal have made an offer to the shareholders of Macarthur after Macarthur’s board declined to agree to the offer and not search for higher bidders.
  • Anglo’s metallurgical coal operations are currently mainly located in Queensland, giving a good geographical match with Macarthur’s operations.

Implications:

  • The current stake of ArcelorMittal in Macarthur will be an important hinderance for other parties to make a counterbid. If their bid would succeed, they would still be left with ArcelorMittal as an important party in the board room.
  • Potential other parties interested in buying Macarthur could be Chinese steel makers and/or coal miners, other large coal producers in Australia (Rio Tinto, BMA), government backed Indian coal miners, or even Vallar/Bumi. Based on the proximity to existing operations Anglo would be able to justify a higher premium than new entrants in the Queensland coal industry.

©2011 | Wilfred Visser | thebusinessofmining.com

Indonesia’s Indika to Expand Coal-Mining Capacity

June 15, 2011 Comments off

“Coal miner PT Indika Energy will expand capacity at least 25% in the next three years to meet the growing demand for fuel in expanding Asian economies, the company’s chief executive said. Indika plans to boost the capacity of the mines it controls through PT Kideco Jaya Angung to 50 million metric tons in the next two to three years from 40 million tons, said Arsjad Rasjid, Indika’s CEO and president director. The company hopes to lift capacity at least in part through acquisition.

The Jakarta-based company, which had revenue of around $440 million last year, is seeking to keep up with rising demand for thermal coal to fuel the power plants of India, China and in Indonesia. Indika is Indonesia’s third-largest coal miner, behind PT Adaro Energy and PT Bumi Resources.”

Source: Wall Street Journal, June 14 2011

Observations:

  • Indonesia is located close to China and India, both of which depend on thermal coal imports. At the same time the economic development in Indonesia (with over 240 million inhabitants) is driving the domestic demand. As a result the coal mining sector in the country is recently getting strong international attention.
  • The Indonesian coal mining industry was strongly reshuffled last year after Vallar combined the assets of domestic champions Bakrie and Bumi. Part of the this deal, which results in a FTSE-listed Bumi plc., is executed this week by Vallar issuing convertible bonds to Bumi resources.
  • Coal India is also looking to invest in Indonesian coal mines, using part of the funds raised through last year’s IPO, which had the company enter the global mining top 10 in terms of market capitalization.

Implications:

  • Indonesian coal reserves are rather small compared to Chinese and Indian reserves. With the strong rise of domestic demand it is foreseen that Indonesian exports are not going to be much higher than current levels. However, as most of the reserves are located on the island Kalimantan and demand is mainly on Java and Sumatra export facilities will be built anyway, linking the Indonesian market to the global seaborne coal market.
  • Indonesian government is trying to find a balance in regulating production and exports, looking at the conflicting perspectives of energy requirements for own development and income from coal exports. High export tariffs and/or production caps could possibly hurt the international investors.

©2011 | Wilfred Visser | thebusinessofmining.com

Coal India in Talks to Buy Stake in Indonesian Mines

May 27, 2011 Comments off

“Coal India, the world’s largest coal producer, may submit a final bid by the end of June to buy a stake in Indonesia’s PT Golden Energy Mines, a person with direct knowledge of the matter said. The state-run coal monopoly is currently doing due diligence of Golden Energy, said the person who declined to be named. Coal India brought out its initial public offer last year. ‘It is not a controlling stake,’ the person said, and didn’t provide more details. He said Coal India is yet to decide on a valuation for the stake it plans to purchase as a proposal is yet to be placed before the company’s board. ‘There are various proposals in countries like Indonesia, Australia, U.S., which Coal India keeps on evaluating,’ the person said.

Coal India, which contributes to more than 80% of the country’s coal needs, faces several obstacles in augmenting its output such as delays in environment clearances. To meet rising demand from consumers, mainly in the power sector, the company has been scouting for mining assets overseas. More than half of India’s power-generation capacity of 174.36 gigawatts is based on thermal coal. The country aims to add 163 GW of capacity in the decade through March 2017 and a major portion of the new capacity would also be dependent on fossil fuel. India, the world’s second-fastest growing economy in the world, faces shortage of coal as environmental concerns have delayed approvals for local mining, hurting production. The country is facing a shortage of 142 million tons of coal for the current year. Local production of coal is expected to be 554 million tons against demand for 696 million tons, according to government estimates.”

Source: Wall Street Journal, May 26 2011

Observations:

  • The rumors about a potential acquisition by Coal India were spread around the time of announcement of quarterly results. The company posted net income for the quarter of over $900mln.
  • A small part of the company was sold in an IPO last year, providing several billions of dollars to be used in overseas acquisitions and domestic expansion to fuel Indian demand for thermal coal. The government projects a shortfall over the next year of approx. 140mln tons, roughly a third of the total Coal India production for the year.

Implications:

  • Stepping up mine production in India is mainly hindered by slow environmental permitting processes. Part of the problem lies with the government’s inefficiency in running the permitting process, the other part of the problem lies with Coal India and other miners in the country that have not yet adapted to the increasing stringency of regulation.
  • Indonesia is growing into an important coal supplier to both India and China. The acquisition of Vallar of a series of assets and participations to form Bumi plc is just one example of the rising importance of the country. However, just as in India the environmental and social regulations in Indonesia are being strengthened, which might slow down the development of coal production in the country.

©2011 | 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