Valuable Vale
Few firms have achieved so much with so little fanfare. But can Vale mine anything other than iron ore?
IT IS perhaps the biggest firm you have never heard of. The Boston Consulting Group says it has created more value than any other large firm in the world over the past decade. Yet few people know how to pronounce Vale’s name (it’s “vah-lay”).This giant Brazilian miner has stayed out of the spotlight even as ravenous demand from China has propelled it from insignificance ten years ago to a market capitalisation of $147 billion. It is now the world’s second-largest miner: smaller than BHP Billiton, but bigger than Rio Tinto and other better-known rivals.
That Vale has kept its success quiet is partly an accident of history. It is not the product of a headline-grabbing mega-merger. Rather, it was a staid state-owned firm until it was privatised in 1997. It hatched plans to build itself into a big, diversified mining company only in 2001.
However, it has not yet diversified much beyond iron ore or its home country. It is by far the world’s biggest producer of iron ore, digging up some 230m tonnes of the stuff in 2009 (a weight roughly equivalent to 1,000 of the statues of Christ the Redeemer overlooking Rio de Janeiro—every day). Rio Tinto, the number two iron-ore producer, extracts a mere 172m tonnes annually.
Vale relies on iron ore for 65% of its revenues. Other mining giants spread their risks across multiple commodities and a variety of safe and hazardous countries. Vale, by contrast, mines mainly in Brazil.
Its ambitions to broaden its interests beyond Brazilian iron ore face two obstacles. Does it have the ability? And does it have permission? According to Rene Kleyweg of UBS, a Swiss bank, Vale has yet to prove that it can operate as a diversified miner. And its relationship with Brazil’s government, which would prefer it to invest at home, is both tricky and unclear.
Iron ore is largely a logistics business. It is easy to extract, bulky and relatively cheap. The trick is to transport vast quantities around the globe quickly. At this, Vale excels. The firm owns about 10,000km (6,200 miles) of railways, nine ports and a huge fleet of ships.
Vale wants to expand its iron-ore business, a vast cash-generating machine, in Brazil and farther afield, in Guinea-Conakry. Rodolfo De Angele of JPMorgan Chase, a bank, predicts that in ten years’ time Vale will still be mainly an iron-ore firm. But despite that wonderful substance’s attractions, Vale aims to shuffle its assets to offer a greater variety of minerals to commodity-craving emerging markets.
In May it sold its aluminium business to Norway’s Norsk Hydro, for a mix of cash and equity. Aluminium requires lots of expensive electricity to produce. Also, there is no shortage of it in China, which tarnishes its allure. Vale has plans for organic expansion in nickel, copper, coal and potash. Demand for all of these minerals is likely to surge as poor countries get rich.
Critics carp that Vale’s ventures in copper and nickel have not been wholly successful. In 2007 it spent $19.4 billion on Inco, a Canadian nickel producer. Its Brazilian managers irritated its new Canadian employees. A year-long strike over pay and pensions by 3,000 workers ended only in July. A nickel investment under way at Goro in New Caledonia may show whether Vale has the skills to manage a big, technically demanding mining project.
If Vale’s foreign ventures go poorly, that may not worry Brazil’s government. Many in the industry claim that Vale’s shareholding structure gives Brazil’s president (currently Luiz Inácio Lula da Silva) the power to force Vale to invest and create jobs at home. But some of the pension funds and investment companies that hold big stakes in Vale will not like this at all. They care about returns, not economic nationalism. In theory it is shareholders who control Vale and the government owns only 5.4% of the shares.
However, Lula exerts pressure on the firm behind closed doors and through the media. A future president could do the same. The royalties Vale pays to the government for mining in Brazil are modest, but a new mining code under discussion will probably bump them up after the presidential election next month. The ultimate sanction—renationalisation—is extremely unlikely. That said, displeasure in Brasilia may have nudged Vale into ending negotiations to take over Xstrata, a Swiss mining firm, in 2008. But Vale rejects suggestions that a government “golden share” gives it the power to block deals.
Vale’s decision to sell its aluminium business and to order a fleet of enormous ships from China has annoyed the Brazilian government, which is trying to revive Brazil’s shipbuilding industry. The firm points out, not unreasonably, that it has to buy Chinese ships because Brazilian shipbuilders are incapable of making vessels that are big enough for its needs. It has half-acquiesced to Lula’s pleas that it invest in Brazilian steelmaking; it has put modest sums into joint ventures and other partnerships. But Vale denies that recent investments in Brazilian potash are motivated by anything but commercial good sense. Potash is set to boom, it insists.
After the election Vale will unveil new investment plans. Rumours suggest that these will involve capital spending of up to $100 billion over the next five years—most of it in Brazil. That should keep the government happy, while leaving Vale with ample sums to invest abroad. It may be that the price of iron ore will fall, hobbling Vale’s progress. But mining firms everywhere look at all the cars, pipes, bridges and steel-skeletoned skyscrapers that Chinese people seem to want, and doubt it.
Source: economist.com
Kenai Resources Starts Drilling at Hope Butte and Albisu Secures Key Gold Project in Brazil
Kenai Resources Ltd(CA:KAI 0.30, +0.01, +3.45%) ("Kenai") announces that drilling at its Hope Butte, Oregon gold project located just west of the Idaho border is scheduled to commence around the end of September. Kenai's immediate drilling program of approximately 3,000 metres is designed to replicate the results and the mining potential recorded at Hope Butte in the 1996 to 2000 period by Chevron Resources and its joint venturers, and to advance Hope Butte to NI 43-101 status. To this end, four initial holes are being drilled by twinning Chevron's prior results, including several very high grade intercepts. Assay results from the initial drilling at Hope Butte will be released as soon as available.
Kenai also advises that, following the completion of the initial drilling at Hope Butte, the rig will be remobilised for a planned 1,000 metre drilling program at the Albisu farm-in exploration project in northern Nevada. This program is currently anticipated to commence during November. The Albisu gold project was drilled by Chevron Resources in 1979 and 1981 and Western Energy Development Corp. ("WEDC") followed up with four core holes in 2008 to twin Chevron's AL-14 drill hole that reportedly intercepted 6.5 meters at 6.2 gram per tonne ("gpt"). The WEDC holes confirmed the gold zone by intercepting 1.6 meters of 12.46 gpt and 8 meters of 1.94 gpt. To date WEDC has drilled a total of 3,729 meters of core at Albisu in 2008 and 2009. That drill program defined a mineralized stockwork sulphide-quartz-calcite zone that is up to 73 m thick. Gold values range from 14.6 gpt over 1.8 meters to intervals between 3 and 32 meters of 0.2 to 0.5 gpt.
Kenai Entry to Brazil via Strategic Joint Venture with Gold Anomaly on its Sao Chico Gold Project
Kenai has executed an Option Agreement with Gold Anomaly Limited (ASX:GOA) for Kenai to acquire 50% of the Sao Chico gold project in Brazil, by funding project exploration ahead of a possible decision to acquire equity in the project, with key terms as under:
- Kenai has an 18 months option to acquire 50% of Sao Chico following an advance to GOA of A$1m and committing to provide A$2m project funding, these funds will be in the form of a loan from Kenai to GOA until exercise of the option. If Kenai does not exercise the option, the loan funds advanced will be repaid to Kenai by GOA.
- Kenai has a further option to acquire further 25% by payment to GOA of A$1m and committing to provide A$1m project funding.
- GOA has right to continuing participation at 25% level or can sell 25% to Kenai based on US$30/oz for attributable CIM Mineral Resources gold ounces plus US$60/oz for attributable CIM Mineral Reserves gold ounces at that time.
- Kenai to pay a 10% Net Profits Interest (NPI) for 5 years to GOA over Kenai's attributable interest, whether at 50% or 75%.
Kenai's objectives in this transaction are to undertake local and regional exploration and development, over the tenement area covering 1,416 hectares, initially targeting one million gold ounces in the 56 hectare core area, the site of extensive prior garimpeiro surface workings. Kenai's project funding is to generate the necessary data to accelerate a Mining Lease application.
Kenai will assume the role of project manager, utilizing existing GOA personnel as well as its own personnel. The focus is on fast tracking initial gold production and defining a NI 43-101 compliant mineral resource. GOA has been planning the commencement of production by the end of 2010 at the rate of 20,000 gold ounces per annum. Production is planned from an expected high grade gold deposit using a minimal capital cost, low operating cost gravity recovery operation. On exercise of the Option, Kenai's participation will be as an incorporated joint venture with GOA, covering GOA's rights under contract with the local garimpeiro landowner. This landowner has recently been granted a 12 month trial mining permit or GUIA, with a possible 12 month extension to the permit, during which time a feasibility study for a full scale project is planned to be completed. As Greg Starr, President of Kenai is also a Director of Gold Anomaly; the intended transaction may be determined by the TSX Exchange as a non-arms length acquisition.
Source: marketwatch.com
Beadell sells noncore assets to fund Brazil gold project
PERTH (miningweekly.com) – Gold developer Beadell Resources has agreed to sell the iron-ore royalties from its Amapá project, in Brazil, to Toronto- and London-listed Anglo Pacific Group for A$31,25-million.
“This is an outstanding result for both Anglo Pacific Group and Beadell,” said Beadell MDPeter Bowler.
“Our strategy of funding the construction of the carbon-in-leach gold plant at our Tucano project, in Brazil, early next year by way of selling noncore assets, supplemented with sensible levels of debt is becoming a reality.”
Bowler added that Beadell also planned to sell its earthmoving equipment to an experienced mining services group, which would subsequently be awarded a long-term contract for the mining of the openpit projects.
“These are crucial milestones, as we progress towards the resumption of large-scale gold mining at Tucano, while at the same time looking after the best interest of all shareholders and stakeholders,” added Bowler.
Mineral resources for the Tucano project are divided into openpit and underground resources based on detailed scoping level analysis of cost inputs to derive cut-off grades. The total resources for the project are 54,6-million tons at 1,65 g/t gold for 2,9-million ounces. This includes openpit resources totalling 26,3-million tons at 1,45 g/t gold for 1,2-million ounces.
The Tucano project contains significant deposits of hematite iron-ore hosted in a banded iron formation (BIF) that occurs throughout the greenstone belt.
Anglo American and Cliffs Natural Resources started an openpit mining operation and beneficiation plant in December 2007, and are ramping up to a projected 6,5-million tons a year of pellet and sinter feed production, which is anticipated to occur between 2011 and 2012.
The mining concession that makes up the Amapá iron-ore project is located immediately south-east of the Tucano gold deposits and is hosted in the same BIF.
Source: miningweekly.com
