Mining

Fortescue buys some breathing space – at a price

18 Sep 2012

The Australian miner has refinanced $4.5 bln of debt with a five-year secured loan. That avoids breached covenants or a dilutive share issue, allowing it to benefit from past spending. Other creditors won’t like being pushed down the pecking order, but the alternative was worse.

Escalating platinum strife needs political fix

12 Sep 2012

Spreading labour unrest has forced Anglo American to halt platinum production at big mines in South Africa. Angry unions’ wage demands cannot be met without cutting jobs or closing duff digs. But that’ll inflame tensions. Miners need government help to break the impasse.

Calculator: Market skeptical on Glencore-Xstrata

11 Sep 2012

Glencore’s new offer for Xstrata is recommendable, yet the companies’ shares are pricing in only a 60 pct chance of deal success. Uncertainty about the Qataris and anti-trust issues are big factors. But the chaotic course of the deal may have raised merger arbs’ risk aversion.

Xstrata should accept revised Glencore pitch

10 Sep 2012

The merger is now a $35.5 bln takeover at a modest premium. The tie-up is riskier since Xstrata CEO Mick Davis would exit after six months, although Chairman John Bond would stay. Xstrata investors will want more. But it’s hard to see a realistic alternative offering better value.

Glencore-Xstrata mess makes bankers look powerless

7 Sep 2012

The deal’s basic set-up proved surprisingly vulnerable. Pay squabbles wasted weeks. A rejig has now come at a comically late stage. The tie-up’s many banks may be giving duff advice; more likely, they are bit players in Ivan Glasenberg and Mick Davis’s CEO-led production.

Glenstrata drama is no way to do M&A

7 Sep 2012

Ivan Glasenberg’s curveball on Glencore-Xstrata shows bad form in deal making. Halting a shareholder vote after markets opened makes Glencore’s boss look more trader than statesman CEO. A solid deal may be imminent. But the messiness of it all should give investors pause.

Iron ore crash reveals flawed boom-time economics

4 Sep 2012

The steel ingredient’s sharp fall from $150 to $90 a tonne defies cold economic logic. But then again, a market that had been preternaturally hot wasn’t likely to behave rationally. For Australia’s Fortescue and other highly leveraged miners, the lesson is painful.

Calculator: Glencore-Xstrata from first principles

31 Aug 2012

Commodity prices have dipped and the two miners have posted results since announcing the merger back in February. With Xstrata shareholders readying for a Sept. 7 vote, this calculator looks at how the deal stacks up based on estimates of each company’s fair value.

Glenstrata deal gap is harder than ever to bridge

29 Aug 2012

Xstrata investors are digging in. Yet Glencore has less scope to up its offer after the miners’ interims. Without the retention bonus row, the obstacles may not have got so big. Xstrata’s hold-outs need to believe in its standalone value: that’s probably all they’ll be left with.

South African mine unrest reflects stuck economy

24 Aug 2012

The poor have gained little in 18 years of democracy. The gulf with the rich is huge, growth isn’t what it could be, and newly wealthy leaders are complacent. It’s no surprise that as, say, in pre-1917 Russia, militant opposition is rising. The ruling ANC has its work cut out.

Dropped Aussie coal bid calls end of go-go days

24 Aug 2012

The timing of Nathan Tinkler’s abandoned bid for Whitehaven Coal is apt. A day earlier, Australia’s mining minister caused a ruckus by declaring the resource boom “over”. Mining isn’t finished. But the debt-fuelled approach favoured by this Australian magnate may be.

Anglo finds satisfactory end to Chilean quarrel

23 Aug 2012

The London-listed miner has buried the hatchet with Codelco, selling Chile’s copper producer 25 pct of a disputed mine for $1.9 bln. Anglo American’s other problems will be harder to solve, but here CEO Cynthia Carroll can reasonably claim she’s protected shareholder value.

Lonmin needs to go big, or go away

23 Aug 2012

The platinum miner was stretched, financially and operationally, before last week’s deadly violence. Investment, perhaps funded by a big rights issue, is needed. It could improve conditions for workers, reduce costs, and secure a future for the company that, at present, is bleak.

Spending still needed despite mine capex cull

22 Aug 2012

BHP Billiton’s decision to shelve a $20 bln Australian copper and uranium dig shows reassuring discipline. As lower returns challenge more marginal projects, investors may ask miners to shovel even more cash in their direction. The biggest miners can afford to think longer term.

Glencore’s stiffening resolve leaves bid on skids

21 Aug 2012

Resistance to improving the terms of the $30 bln merger with Xstrata appears to be hardening at Glencore HQ. A last-minute sweetener can’t be ruled out, but a decent half-year performance by the commodity trader makes it less likely.

S.Africa mining bloodshed has global implications

17 Aug 2012

The deadly union turf war at a Lonmin platinum mine is a sovereign challenge and a global concern. South Africa has most of the world’s platinum, an essential industrial metal. It’s up to the government to restore order. The mining groups are stuck and have no easy options.

Xstrata figures sustain hope for sweetened merger

7 Aug 2012

The miner’s first-half results were worse than last year, but better than expected thanks to cost cutting. The resilience may harden Xstrata shareholders’ expectations of improved merger terms from Glencore. But it is still far from a done deal.

‘Peak’ resource nationalism could get messy

6 Aug 2012

Miners see a silver lining in the fading super-cycle: it lets them be pickier about working with grabby governments. But existing projects will always be vulnerable to expropriation. And populist pandering doesn’t necessarily wax and wane in lock-step with commodity prices.

Shale writedown tarnishes BHP’s street cred

3 Aug 2012

The miner isn’t the only company to overpay for U.S. shale. But a $2.8 bln writedown on acreage it bought for $4.75 bln last year is embarrassing for a group that trades on its canny reputation. Gas may pay off for BHP eventually, but Marius Kloppers is right to waive his bonus.

Miners’ journey back to normal will be a hard slog

27 Jul 2012

The sector’s software-like margins were due a reality check. Results from Vale and Anglo American confirm it has entered a period of more challenged returns. Stubborn costs will take time to ease. After a decade-long boom, reversion to the mean will be painful.