Minorco eyes Brazil minerals giant
Parent Anglo may have to come to the party to fund a 45% stake in CVRD, writes JULIE WALKER
The Companhia Vale do Rio Doce is to be partially privatised on April 29 when 45% of the voting shares will be sold off for not less than US$2.83-billion (about R12.4 billion). No single party can hold more than 45% of that block.
Presenting annual results from London this week, Minorco chief executive Hank Slack said his group had not had an opportunity to study the Brazilian government's privatisation document. But should Minorco bid for CVRD, it would go for the maximum stake. "Our bid might well be in partnership with Anglo American. In terms of financing, it is easily do-able," said Slack. "It is a big enough project for us to look for partners and it makes sense to us if Anglo is interested, for all the obvious reasons."
Anglo is nothing if not cash-flush. Both it and Minorco are chaired by Julian Ogilvie Thompson, who describes Minorco's focus as growth through the successful development of major mining projects.
Slack recognised the concerns of Minorco shareholders that the short-term dilution in earnings could be punitive. "Our team in Brazil is completing its valuation work and a decision will be made based on your concerns."
A Reuter report from Rio de Janeiro this week said two major groups had taken shape in the run-up to the CVRD bid. There was a split last week between Brazilian contenders Votorantim and Companhia Siderurgica Nacionale (CSN). Votorantim is a metals, cement and pulp group and CSN the largest steelmaker.
The report says Votorantim's president, Ermirio de Moraes, has spoken to the media of plans to join Japanese investors and another foreign group "believed to be Anglo American Corporation". Meanwhile, CSN is said to be at an advanced stage of talks with Bradesco, Brazil's largest retail bank, and Gencor, which made a successful internationalisation move three years ago through the purchase of mining and metals group Billiton.
Slack reminded investors of his earlier warning that Minorco would have a difficult 1996, and its results were better than he expected. Operating earnings increased on acquisitions and higher volumes in spite of lower commodity prices. Minorco achieved record net earnings of $396-million or $1.77 a share before exceptional items, against $365-million in 1995. After exceptional items, net earnings were $336-million or $1.50 a share. The dividend was maintained at US63c - Slack said this was not a departure from the policy of increasing dividends, but reflected this year's heavy capital expenditure programme.
Capex is likely to be heavy for several years if Minorco's projects get going as planned. Construction commenced at the Collahuasi copper project in Chile's Andes in the third quarter of 1996 and should be completed by the third quarter of next year. Project financing of $1-billion has been arranged and total cost is $1.75-billion.
The $230-million Cerro Vanguardia gold project in Argentina was finalised in December and construction is under way. Environmental clearance and tax clarification is awaited for the $430-million Loma de Níquel project in Venezuela which could start in the second quarter of this year, and Slack says that after a very long run-up, Minorco seems to be on the final straight in Ireland. Final permits are imminent and financing close to completion at the $230-million Lisheen zinc project in Tipperary.
Last year, Minorco's agribusiness Terra again earned the lion's share of operating earnings with $312-million, although this was less than 1995's $387-million mainly because the selling price of methanol retreated and the cost of the input material natural gas climbed. Slack says methanol has picked up, and Terra is hedged against a high gas price.
Minorco's industrial minerals division chipped in $136-million, paper and packaging businesses $84-million, base metals $39-million and gold $34-million.
Looking ahead, Slack outlined three positive factors: good prospects for zinc, copper and US agriculture, and three negatives: weak gold and paper prices and low construction activity. But on balance, he feels positive about Minorco's prospects for 1997 and beyond. The share price added 125c to R106.50 after the results - 16 times historic earnings and a 2.6% dividend yield. It was at a low of R91 in December, and R119 a year ago.