As 2012 winds to a close, several announcements surprised the mining industry. No, it wasn’t another executive deciding to pursue a new career path. Although this year might be remembered as the year of the revolving door for mining CEOs. In the last month three deals were announced that were somewhat unforeseen and each of them included an unexpected turn of events.
The first was the Glencore Xstrata merger (See Leading Developments, p. 4). For much of the year, questions surrounded whether shareholders would approve the transaction. Ultimately they did, but they did not approve the proposed management compensation plan for Xstrata CEO Mick Davis and his team, which built the company from modest means over the course of 10 years. Now, Davis will shepherd the transition for six months until he hands the reins to Glencore CEO Ivan Glasenberg. The compensation plan was a means to retain 70 or so of the top Xstrata managers during an era where mining intellect is in high demand. Shareholders took a gamble and only time will tell if it was a wise choice.
The second announcement came from Gold Fields, one of the leading gold mining companies based in South Africa (See Leading Developments, p. 5). The company has decided to “unbundle” its South African operations. It spun off two of its mines (the KDC and Beatrix gold mines), which are deep and depend heavily on manual labor, and formed Sibanye Gold; Sibanye means “we are one.” The stock market reacted favorably to Gold Fields’ decision. While Sibanye Gold now controls its destiny, many South Africans remain skeptical. Gold Fields hasn’t abandoned gold mining in South Africa completely. It kept the South Deep project, which is also a deep gold mine, but it will use mechanized means to extract gold ore. So what the industry will eventually see is a classic John Henry situation of manual labor vs. mechanized means. Everyone pulls for the underdog; let’s hope the story ends differently for Sibanye Gold.
As this edition was going to press, Cloud Peak Energy (CPE) and Ambre Energy announced they had reached an agreement that would allow them to settle their differences over the Decker coal mine, located in Montana, near Sheridan, Wyoming (Readers can find the full story at www.e-mj.com). Up until this point, it seemed that the operation would layoff miners while the two companies fought a court battle. Instead, CPE sold its interest in Decker to Ambre. In addition to getting a fair price for its share of the mine and saving several hundred mining jobs, CPE will gain access to a portion of Ambre’s export capacity at the proposed Millennium Bulk Terminal facility, which is currently in the permitting phase. Located in Longview, Washington, the facility, which would be one of the first U.S. exporting facilities in the Northwest, is owned 62% by Ambre Energy and 38% by Arch Coal. CPE currently exports Powder River Basin coal through Vancouver and it will now be able to increase exports, assuming the terminal facility is permitted.
All three of these deals are examples of creative thinking with a bit of risk that either allowed a deal to take place or a company to improve its business model, or in some cases both, while settling differences. Stalemates were converted into win-win situations on paper. In all of these cases, whether it’s the middle managers at Xstrata or the miners at KDC, Beatrix or Decker, it would also be wise to remember the cliché, “Remember who brought you to the dance.”