The potential £50 billion (US$82 billion) merger-of-equals between Swiss commodities and mining neighbours Glencore International Plc (“Glencore”) and Xstrata Plc (“Xstrata”) is quite literally yesterday’s news now that early market indications have thrown mining multinational Anglo American (“Anglo”) into the mix.

Rumours abound on whether Anglo may prove to be a future takeover target should the “Glenstrata” merger unfold. Anglo shares hit their highest closing level in eight months on the Johannesburg Stock Exchange (“JSE”), Thursday, at 340.63 rand up 3.7 per cent. Anglo also climbed 3.6 per cent to a six-month high of 2,830.5 pence in London, Thursday.

A “Glenstrata” takeover of Anglo, one of the most leanly priced major miners and currently worth about $59 billion, would see the combined company (Glencore-Xstrata merger depending) rocket up the global super-major mining polls. Bloomberg data released Friday shows that if such transactions take place, a conglomerate of all three multinationals would outgrow Rio Tinto Plc (“Rio”) and stand alongside the world’s largest revenue generating miner, BHP Billiton (“BHP”).

Anglo’s stock is favourably priced and sells for 6.4 times its earnings, data reveals, noting that it is cheaper than its peers apart from iron ore-focused Brazilian group VALE S.A. Furthermore, with operations in every bracket from diamonds to platinum and coal on practically every continent, it may present a highly diverse opportunity; well matched given Xstrata’s diversification into Asian and African coal, nickel and copper, since its formation upon the spinout of Glencore’s Australian and African coal portfolio a decade ago. In October 2009, Xstrata’s interest in Anglo was clear when it proposed a merger worth $47.4 billion. This was subsequently dropped and no formal bid lodged days before the deadline to do so.

Currently, Glencore holds 34 per cent of Xstrata and would need to reclaim approximately 17 per cent to gain control of the company. Data released Thursday revealed that Xstrata’s outstanding company value not currently held by Glencore is worth an estimated $35 billion. Combined, “Glenstrata” would house a workforce of over 120,000 employees and generate annual revenues of approximately $175.5 billion. Adding Anglo would create a landmark M&A chain.

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Don’t bank on it, says Venezuelan President Hugo Chavez, who took to the national television networks to once again lambaste multinational energy players for supposedly taking advantage of his country.

Chavez says that Exxon Mobil’s (“Exxon”) circa US$12 billion sought during World Bank international arbitration proceedings over assets previously seized is “crazy.” Multinational energy giants have been bleeding Venezuela’s natural resources dry for long enough, he says, yesterday stating that any decision offered up by the World Bank International Center for Settlement of Investment Disputes (ICSID) will not be recognised by his cabinet.

It’s a reasonably predictable development as the Washington-based ICSID mulls over Exxon’s plight; one of approximately 20 lawsuits against the Venezuelan government currently littering in-trays. And despite playing into our 2012 predictions (see IRJ November 2011) it’s not easy to watch Exxon—the world’s largest oil group by market value—come head-to-head with OPEC member reserve-estimate-topping Venezuela. Again.

Eastern Venezuela’s now infamous Orinoco heavy crude belt has long been entangled in these pricey squabbles. Exxon wasted no time in ducking out of the Orinoco back in 2007 as Chavez moved to squeeze oil giants into restrictive bit-part joint ventures with state oil vehicle Petroleos de Venezuela SA (“PDVSA”), and now the multibillion dollar battle over its nationalised Cerro Negro project rages on.

Exxon isn’t the only Orinoco casualty seeking monetary retribution either—U.S. Houston-headquartered energy major ConocoPhillips is also embroiled in arbitration with the country having refused to shoe-horn into a state-monopolised project accord—and furthermore, the ICSID isn’t the only international body fighting for what’s right at Cerro Negro.

Last week, Exxon was awarded $908 million by the New York-based International Chamber of Commerce in another case. Chavez says that Venezuela will stump up the cash for that one, but not the ICSID case; PDVSA notes that Exxon actually downsized its claim for this suit from $12 billion to $7 billion in 2010.

“They are trying the impossible: to get us to pay them,” Chavez said yesterday.
“We are not going to pay them anything.”

Noguera expelled from U.S.

Exxon’s aren’t the only headlines on a breakdown in U.S.-Venezuelan relations, as ties have been further strained by the expulsion of Venezuela’s consul general in Miami, Livia Acosta Noguera. The U.S. says that Noguera talked about potential stateside cyber attacks and actively looked for intelligence on nuclear power station servers during her tenure as a diplomat in the Venezuelan embassy in Mexico. Taking to the television screens again, Chavez stated that the U.S. is “using a lie as an excuse to attack us.

“We must be on our guard,” he rebuffed.

Noguera’s actions, revealed in a documentary aired by Spanish-language network Univision, in December, mean that she has been declared “persona non grata” by her host nation and has until Tuesday to leave.

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Fresh from our blog hiatus and a mag and web redesign later, IRJ editor Nuala Gallagher writes on whether 2012 will be a better year, with or without the death knell for gold’s bull run.

London does gloomy well at the best of times, but as the city begrudgingly returns to its radar screens, the January blues are aided by apocalyptic headlines treating commuters to an early dose of damning market tidings and columns packed with doomsayers.

If our early-rising print pack is to be believed, we’re in for a 60 per cent chance that one or more nations will flee the embattled Eurozone this year (according to the Centre for Economics and Business Research).
Iran has successfully (albeit ambiguously) carried out “mock” shutdowns on the Strait of Hormuz.
Shaky times resulting in the mass market sell-off in the second half of 2011 continue to turn up mixed views on what investors will be open to in the coming months and whether we’ll see more fund manager money hitting the markets.
Furthermore, with thanks to some dramatic parlance from analysts, gold’s seemingly insatiable long-term bull market may fear the bell toll following the cropping up of the recent death cross.

The fracas heated up around December 30-31, delivering a storming end to gold’s floundering on December charts juxtaposed with yellow metal ending 2011 up 10 per cent: A good result soured given it is the smallest yearly rise in three, and hit its first quarterly loss since Q3 2008 in the tail-end three months of the year.
Quite how strongly gold has performed of late is up for discussion, and the appearance of the death cross may mark the end or the next plot twist, as we enter 2012. Regardless, today one morning news source brought a touch of much-needed repose to the hoopla.

London financial daily CityAM brings journalistic balance back to the table as features writer Philip Salter breaks down what this “theatrical” term means in actuality: the breakaway of a security’s long-term moving average from its short-term, and its usage as a technical indicator. He reflects duly on its appearance ahead of the S&P 500 fall-off period of plus-15 per cent last August, while fairly weighing up the impacts of central bank activity and intrinsic pitfalls of moving averages, and convening one commentator whose recommendation of bolstering the indicator by using trend strength tools such as an Average Directional Indicator (ADI) has often been missing from recent discussion.

Without question, it’s an indicator worthy of investor attention. But is it the end of the long-term surge for this psychological metal? I wouldn’t bank on it.

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The tragic news of a second explosion at Pike River Coal’s New Zealand mine, now likely claiming the lives of 29 men, has shocked the world and serves as a grave reminder that not all mining disasters deliver so happy an outcome as we have seen in Chile this year.

Today is a day of mourning in New Zealand and the nation continues to investigate this terrible accident.

“The government is absolutely committed to running a commission of inquiry that will leave no stone unturned to ensure that they get the answers to why the miners don’t come home,” the nation’s Prime Minister, John Key, said.

“I think for the family, they have now accepted that their loved ones have gone, but they want answers.”

It has also now emerged that it may be months before recovery of the miners underground can take place due to the potential hazardous toxic levels inside. Pike River Coal has pledged just shy of US$400,000 to the families and friends left behind.

Today is a dark day for the industry, and IRJ offers its deepst sympathies to all grieving the loss.

It’s been quite some time since I last blogged over the goings on in the resource sectors. That’s why today, I attempt to make it up to you by looking at a few key announcements which, lest you spot the clues, may offer a thinly veiled nod to what is coming up in our September issue next week.

Firstly, to BP’s Macondo Oil Spill. Have they plugged the leak? Yes? No? Yes again? Well, apparently not permanently just yet. The operation to beat the leak once and for all over at the Deepwater Horizon rig has succumbed to a few setbacks. It seems that equipment needs to be replaced before BP can pump cement into the well for the finale. Whilst the slick has been staved since July 15, it looks like we will have to wait until some point in September to see this story closed shut. That gives certain activists in the U.K. at least another fortnight to douse people with molasses.

On a happier note, just the other week Australia’s third largest iron ore miner and all-round pioneer Fortescue Metals Group announced that it has signed a six-year long provision of mining services deal with Downer EDI for $3 billion. The week before, Downer struck a $2 billion deal with BHP/Mitsubishi for a project in Queensland’s Bowen Basin. It’s uplifting to see such exciting deals and development potential coming about amidst the whirling uncertainty over Australia’s federal election and, irritatingly, the potential for the MRRT to stick around, taking place right now. If comments made at Diggers and Dealers over in Kalgoorlie are anything to go by, these next few hours could prove absolutely crucial for the nation’s mining industry. IRJ wishes all the best to our friends over in AUS as they approach the voting booths.

Over here in London, there are words of enthusiasm from our friends at RenewableUK following announcements on the Deputy Prime Minister’s plans for a Green Deal. The deal, in essence, will try to make the most of business and employment potential spurred in unison with the U.K.’s increasing commitment to a renewable/clean energy future.

The other breaking stories we’re watching closely this coming week include that astounding International Power/GDF Suez deal, Vedanta’s pursuit of Cairn Energy India, the flurry of solar companies suddenly offering free panels, Rio’s continued efforts to rebuild its jolted relationship with China —you get the idea.

Have a great weekend all,
Nuala Gallagher
Editor

Perhaps it’s because I’m not close to the situation, but I just can’t fathom why anyone would want to buy BP—thinking from a brand fall-out perspective. This rumoured move by Exxon Mobil has sent BP shares upwards last week—but I’ve got an inkling that possible purchases won’t do much for the purchasers.

This week, Apache Corp. declined to comment on a public report that it might buy $12 billion of BP PLC’s assets, which seems much the safer move. But Exxon Mobil also refused to say whether or not it would bid for BP. Analysts have said the timing isn’t the greatest, and it might be in the companies best interest to wait until the storm is officially over (notwithstanding the long-term affects of the spill). Agreed.

For the time being, for the sake of the companies brands, perhaps they should keep their pocketbooks closed—with all the buzz about BP’s clean-up efforts, while oil caps to stop the flow have busted, been replaced, and now may not potentially work—things could get much worse before they get better.

(Here’s an excerpt from an article in the Financial Times, Telegraph, MSN, you can see the full piece at http://theweek.com/article/index/204609/should-exxon-buy-bp)

“Should Exxon Mobil buy fellow oil-spill villain BP, now that BP’s stock is so low? BP’s shares rose Wednesday on that rumor, started by JP Morgan oil analyst Fred Lucas, who figures that BP is about 62 percent undervalued right now, and thus ripe for a pickoff. The other company that could handle such a big merger is Shell, Lucas says, but only Exxon knows “how to price potential clean up costs and associated civil claims.” Still, would Exxon really want the hassle of cleaning up another sullied brand? Would BP let it try?”

It’s a given, we all enjoy Fridays,  but over in Australia this one is really something special. The nation’s new Prime Minister, Julia Gillard, has come in, cleaned up and thrown out that dastardly 40 per cent Resource Super Profits Tax (RSPT) we have all endured sleepless nights over between May 2, 2010 and today. It’s hard to believe it’s really gone already, isn’t it? Of course, as those waves of relief and thankfulness continue to well over us, it’s important to rake over our alternative tax with a very fine-toothed comb.

We’re now staring down the barrel at the iron ore/coal 30 per cent tax on the top 300 super-profit miners working in these commodities. The tax applies to mining houses which exceed a 12 per cent rate of return; not six per cent like Rudd previously issued. A project has to make more than A$50 million per annum profit to be tax-eligible and, most vitally of all, this tax is NOT retrospective; essentially meaning that unlike Rudd’s tax which stood to rob the miners of previous profit without any consultation, warning or vaguest input, Gillard’s revised tax targets only a very specific and more calculated portion of the industry.

Now let’s not sugar coat anything; it is still a tax, still part of Australia’s much-needed wider taxation system reform and some companies will still incur previously unaccounted charges. And, appeasing the industry whilst retaining some form of tax does look good for Gillard as she continues on in this election build-up.

As Australia’s Deputy Prime Minister, Wayne Swan, said yesterday when rumours of a deal broke there’s still “a long way to go.” This latest announcement is truly terrific news; no question. But let’s see how it all pans out in application before we start the whooping, cheering and Rudd-directed jeering.

Today the President of Iran, Mahmoud Ahmadinejad, has announced that the nation will postpone talks with western countries as a direct counterattack for the new UN sanctions imposed on the country, aimed at preventing its uranium enrichment nuclear programme activities.

Speaking from Tehran, he stated that this latest measure is, “a punishment to teach them a lesson to know how to have a dialogue with nations,” and alluded that there is more behind the western world’s attempts to halt this programme.

Ahmadinejad recently told press that these sanctions, which are the latest in four rounds that have taken place in December 2006, March 2007, March 2008 and June 2010, reflected western and United States attempts at “putting the brakes on Iran’s progress in nuclear technology,” and also, “to keep Iran from becoming an economic and industrial power.”

The Iranian government highlights that any uranium enrichment activity has been orchestrated within the rulings of the Atomic Energy Agency, and various news reports note that in order to reach the power required for the worst of some western fears, such as a nuclear bomb, the nation would have to do a lot more. The real question is what might Iran be working to achieve, and what might “the western and US” at large predict this to be?

Russia’s president, Dmitry Medvedev, has expressed fears of his own and notes that “the international community does not recognise the Iranian nuclear programme as transparent,” when he spoke to press at the recent G20 Summit.

Calls from the US senate last week, as pressure for the latest round of sanctions mounted, were for blocking Iran from international markets and, essentially, starving the country’s economy out. The United Arab Emirates Central Bank has reportedly requested the freezing of 11 Iran-related accounts, also. It is unclear exactly why the nuclear activity within Iran is continually so secret. It is unclear exactly what is troubling “the west and US” the most in this equation, but if no progress has been made since December 2006, this situation shows no signs of a successful outcome. Could this be our next big energy headline?  Watch this space…

Today Australia’s now notorious Prime Minister, Kevin Rudd, stood and spoke, choking back tears, at his final press conference as Prime Minister at Parliament House.

Amongst the remarks made, Rudd managed to say he was “proud of the fact that we kept Australia out of the global financial crisis,” and “did my best to give Australia a fair go.”

He has handed over the reins of power to Julia Gillard, the new Labour leader who said she is “throwing open the government’s door to the mining industry.”

Without putting too fine a point on things, this is the best news Australia’s miners have had since the dreaded Resource Super Tax news of May 2, 2010, hit the press. In fact, Rudd has subsequently provided many an astonishing headline, provoking extremely outspoken opinion and upset  from some of the world’s mining industry figureheads, and I think it’s fair to say that the last month-and-a-bit has been no short of a disaster.

In our latest issue, released just last night, we tackle the tax head on and little news could be more welcome than this notice of Rudd’s timely departure today. The ends have not justified the means in his tax reform plan. Yes, he is/was working to fix Australia’s taxation system and yes, something still needs to be done. But messing with mining; the nation’s backbone? I think not.

I wish Gillard all the luck in the world with cleaning up this mess and bringing real tax reform to Australia. It is important to look upon this as an opportunity for great improvement, not a mud-slinging contest as Rudd backs away. The nation excels in many industries, especially mining, so let’s focus on what the strengths are. Perhaps this is the beginning of the end to the super tax debacle? One can only hope….

As the news buzz worldwide is filled with the sound of vuvuzela’s and everyone turns their attentions to the World Cup in South Africa, the George Media team have thrown our hats into the ring and despite yours truly drawing Algeria in the office sweepstakes —seriously conflicting any sense of support for my native England ahead of tonight’s game—everyone is having a ball.

In order to tie in the tournament to all-things IRJ now is a good time to look beyond what is happening on the pitches and enjoy the dramatic backdrop for tonight’s game at Cape Town’s Green Point Stadium: Rustenburg’s  Magaliesberg mountains. They are some of the oldest in the world and span 120 kilometres from Pretoria’s Bronkhorstspruit Dam in the east, over to Rustenburg. They also play host to platinum mining which provides employment and industry to the locality.

The Magaliesberg mountains are a perfect example of the country behind the football frenzy, and the concerns regarding vital energy, industry and infrastructural investments which will still be around once the teams have picked up their kits and gone home. To date, R17.5 billion has been spent on the five stadiums built and five others renovated to house this mass sporting event. When you consider that this is the same nation who just borrowed US$3.7 billion from the World Bank to build a new much-needed power plant, you can’t help but question the financials. Did no one think that this money could have gone to the national electricity provider, Eskom? Now we see reports that industrial action —in which two thirds of Eskom’s 32,000 staff may walk out— could threaten power cuts for the World Cup.

This sporting event has brought a promise of tourism and global focus to many, but at what cost today? It doesn’t make for popularity to highlight the real needs behind the beautiful game, but between Dutch beer companies storming seats with beautiful women and players touting mega sponsorship deals, it seems like madness that this hasn’t been given more coverage. By all means enjoy the match, but learning about the host country and appreciating it won’t hurt.