On June 30, 2007, the share price of MMX Mineraçao e Metalicos, a mining company created by entrepreneur Eike Batista reached a little higher than US$500 in the Novo Mercado of the Sao Paulo Stock Exchange. In reais, the increase in MMX share value in the first six months of 2007 reached 123%. Not bad for a stock that made its debut in the market only just a year before in June 2006.
The explosive increase in MMX stock value is directly related to the purchase, the month before, of 49% of Empresas Minas Rio, MMX subsidiary, by giant Anglo American for US$1.15 billion. But the interest of investors in MMX also reflects the attraction that mining companies are having in the market. By the way, Anglo American started talks in early 2008 to purchase the remainder stok of MMX for US$5.5 billion.
Mining has been a hot industry in 2007, and will continue to be in 2008. With the high prices of metals on the international market and strong global demand, companies have shown excellent results in the first months of this year.
But it’s not all a party. All companies are suffering the pressure of rising costs and the weak dollar, which has aggressively eaten away part of profits. Brazil’s Vale, for example, managed to increase its iron sales price by an average of 9.5% in 2007, but production costs at the company’s ferrous metals division rose 10-11%.
The following are the 10 companies that have most stood out in the mining sector in 2007, and that will make headlines in 2008:
This London based mining company continues to bet with its Latin American chips. In addition to the purchase of 49% of Minas Rio in Brazil, it announced a US$700 million investment to expand production capacity at the Los Bronces mine, which lies close to Chilean capital Santiago
The Toronto headquartered company is the world’s largest gold producer and in 2008 should start construction on the Pascua-Lama gold and silver project on the Chile-Argentina border, while in the Dominican Republic it is getting ready to start building the Pueblo Viejo project, for which it has partnered Canada’s Goldcorp. The estimated investment for each of these projects is more than US$2 billion.
CIA. DE MINAS BUENAVENTURA
The medium-sized Peruvian mining company has made itself one of the largest gold producers with Latin American capital, and it is preparing to try out foreign markets. In late 2007, the company opened an office in Argentina and reported that it has possible prospects under study in the province of San Juan, in the Argentine Andes.
The eyes of the industry are on Chile’s state mining company, whose position as the largest copper producer in the world is threatened by the expansion of other companies, such as BHP, main shareholder of Escondida, the largest copper mine in the world. Codelco’s increased costs are cause for concern, and Chile’s government is debating new ways to improve the company’s corporate governance, giving its board of directors a more professional and less political nature
The Brazilian firm, which changed its name from CVRD to Vale in late 2007, has made a strong entrance into the big leagues of international mining companies. After buying Australian coal producer AMCI Holdings for US$695 million and Canadian company Inco in 2007, Vale moved into 2008 preparing an offer for Switzerland’s Xstrata, one of the largest mining companies in the world. Vale will make headlines in 2008.
With the purchase of Phelps Dodge at the beginning of 2007, this US mining company deployed throughout South America. In the second quarter, it tripled production of the Cerro Verde copper mine in southern Peru, where the company indicates that there is potential for further expansion, and it is studying the expansion of El Abra, a copper mine that it operates in partnership with Codelco in northern Chile.
Thanks to an acquisitions strategy that has targeted important operations in Latin America, such as Bajo de la Alumbrera in Argentina, this Canadian company has shot up in recent years to put itself among the largest in the mining world. Now it is working on the largest mining project under construction in Mexico, Peñasquito, a gold, silver, lead and zinc mine in Zacatecas state, in which Goldcorp is investing US$1.5 billion.
In January 2008, Anglo American initiated conversations to purchase MMX, controlled by Brazilian entrepreneur Eike Batista (see page 42), a company that launched the Amapa iron ore complex in the state of Minas Gerais in December 2007, one of the two large operations with which it plans on becoming a first level player in this industry. MMX, therefore, is continuing forward with the construction of another project, Minas-Rio.
Thanks to timely acquisitions and ambitious investment plans, Xstrata is another mining company that recently arrived in the big leagues. Chile accounts for half of its copper division’s US$10 billion project portfolio, with which Xstrata aims to sustain 10% annual average production increases through 2015.
The only Chilean mining company with real global vocation is also one of the most efficient in the world. According to a study by PricewaterhouseCoopers, of the 40 largest mining companies in the world that provide public information, Antofagasta posted the largest EBITDA margin in 2006 and also 2005 (74% and 66%, respectively).