Will Mozambique emulate Nigeria or Norway when its gas flows?
See the original post: Will Mozambique end up like Nigeria or Norway?
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Will Mozambique emulate Nigeria or Norway when its gas flows?
See the original post: Will Mozambique end up like Nigeria or Norway?
Chief executive steps down after two decades with mining giant as value of company assets lost rises to $14bn
Tom Albanese, ousted from Rio Tinto on Thursday after a series of disastrous acquisitions, pocketed almost £22m in cash and share options during his stint leading the mining company, which ended abruptly in the wake of a further $14bn (£8.8bn) writedown.
The company said Albanese, who will not receive his contractual entitlement of an £8m payoff when he leaves the company in July, will be immediately replaced by Sam Walsh, the 63-year-old head of its iron ore division which is Rio’s largest and most profitable business. Doug Ritchie, who led Rio’s acquisition of its Mozambique coal business, also stepped down by “mutual agreement”.
The changes came after the company admitted that the value of its aluminium assets had slumped once again – this time by up to $11bn following an $8.9bn writedown last year. The total rose to $14bn after the company added that its coal assets in Mozambique, which it paid $4bn for in 2011, were now worth just $1bn. It is also expecting smaller writedowns in other businesses totalling around $500m.
Rio’s chairman Jan du Plessis said: “The Rio Tinto board fully acknowledges that a writedown of this scale in relation to the relatively recent Mozambique acquisition is unacceptable. We are also deeply disappointed to have to take a further substantial writedown in our aluminium businesses, albeit in an industry that continues to experience significant adverse changes globally.”
The company said a “further deterioration in aluminium market conditions … together with strong currencies in certain regions and high energy and raw material costs” had caused the latest revaluation of its aluminium operations, while in Mozambique it misjudged the ease with which it would gain approval to transport coal by barge on the Zambezi river.
Rio paid $38bn in cash to buy Canada-based aluminium group Alcan in June 2007, shortly before the worst of the global financial crisis hit in 2008 and shortly after Albanese became chief executive. The deal, which left Rio with large debts, led to a $15.2bn rights issue, while the first writedown also prompted Albanese to forgo his 2011 bonus.
One major Rio shareholder, who pressed Albanese to abort the Alcan deal, said: “This is a big writedown. For that to come on the back of the first and wipe out such a large chunk of value is shocking. Hopefully this will be a reminder to the mining industry not to get carried away when the going is good with regards to takeovers and capital expenditure. The industry is littered with examples of deals being done at the top of the market when chief executives’ blood is flowing.”
While Du Plessis paid tribute to the decades-long service of both Albanese and Ritchie, he was keen to point out that the pair would be receiving “no lump sum payment, no annual short-term performance bonus for 2012 or 2013 [and] no long-term share award for 2013″. He added: “Quite frankly the world has changed and I believe very strongly that large corporations are going to have to be more sensitive about societal expectations.”
Albanese and Ritchie will both receive base pay, benefits and pension contributions until they leave in the summer. In total Albanese had already earned almost £11m in salary since being promoted to chief executive in May 2007, while his unexercised share options from the 2003-09 period are his to keep – and are also worth almost £11m.
Furthermore, he leaves with a pension that, at the end of 2011, was calculated to pay out a yearly sum of £476,000, which would cost around £8.5m to buy in the open market.
Shares in Rio lost 18.5p to £34.40 although market watchers said that most investors had already written-down Rio’s assets in their own calculations.
Nic Stanojevic, an analyst at stockbrokers Brewin Dolphin, said: “We think the more important driver for the shares has been the iron ore price which was down 5% overnight.”
A writedown, or impairment charge, is an accounting term that means a company no longer believes that the value of certain assets on its balance sheet can be justified. As a result, it will take a hit to its annual profits – though this may not be accompanied by much of a change in the company’s cashflows. Companies often invite investors not to dwell on these “non-cash”, one-off charges, and to focus on “underlying” profit performance.
Writedowns are designed to draw a line under discrete issues facing a business, allowing it to move on. However, they are not always final, and contain a good deal of guesswork. The company may later be forced to make further writedowns; the original writedown can also turn out to have been overly pessimistic.
On one level, writedowns are an accounting technicality. However, they are a clear indication that a company has made poor investment decisions.
Tom Albanese has two degrees in mineral economics from the University of Alaska and is a huge Sudoku fan.
Yet he never quite mastered the puzzle of handling mining investors during almost six years running Rio Tinto.
Albanese was promoted to chief executive just before the Rio’s acquisition of Alcan in 2007 – having joined Rio after it acquired his previous employer, NERCO, in 1993. But while he was not entirely to blame for what turned out to be a total disaster, shareholders recall how their protests to the new boss at the time were waved away.
From there, the company descended into crisis under Albanese and, in a desperate attempt to repair the balance sheet, he went begging to China with the proposal of a $20bn (£12bn) injection from the state-owned Chinalco. Chairman-designate Jim Leng was unimpressed and quit. The shareholders eventually insisted on recapitalising Rio themselves via a $15bn rights issue.
A bounce-back in commodity prices helped restore Albanese’s reputation in the City for a while but the first write-down in the value of Alcan prompted him to waive his 2011 bonus at the beginning of last year.
FTSE 100 finished upbeat week on a down note as Wall Street takes the shine off shares
A day after Google suffered the biggest share price drop in history, there was little respite for the search engine’s investors.
Some £15bn was wiped off Google’s value on Thursday after the accidental release of its third quarter results ahead of time. Google – which had recently overtaken Microsoft to become the second largest US technology company after Apple – blamed financial printing firm R.R. Donnelley for the mistake.
More to the point, the figures showed a 20% fall in quarterly net income to $2.18bn and missed analysts’ expectations. Part of the problem is that Google has been struggling to turn around loss-making mobile phone group Motorola Mobility which it bought for $12.5bn.
In early trading on Friday, the company’s shares had lost another 2% to $681.
Google was one of a number of major US companies to report disappointing results, with others including Microsoft, General Electric and Intel. So Wall Street celebrated the 25th anniversary of the October 1987 crash with an early decline of more than 130 points, as the corporate news outweighed earlier positive US economic data such as retail sales and industrial production.
Leading shares in London followed Wall Street’s lead, with the FTSE 100 finishing 20.90 points lower at 5896.15. But over the week it added 103 points and touched a seven month high on Thursday. Investors had been cautiously optimistic in the run-up to the latest two day EU summit which ended on Friday afternoon, encouraged by news that Moody’s had decided not to cut its credit rating on Spain. But despite late night meetings, the summit failed to produce any real breakthroughs.
Banks came under pressure following one EU agreement, a compromise deal on banking supervision. More immediately, investors in the sector were nervous about increases in the compensation bill for mis-selling payment protection insurance, after Barclays raised its provision by another £700m to £2bn on Thursday. The total cost could now reach £15bn, said analysts.
Barclays shares had been buoyed recently after strong performances from US investment banks. It said despite the increase in the PPI bill it still expected to meet market expectations for third quarter profits, but analysts said merely meeting forecasts would be seen as disappointing. Nomura, which has a reduce rating on the bank, said:
Looking at the strength of the results at US peers, meeting what we think of as semi-stale consensus is as good as a miss. The results are bound to underwhelm the market which would have expected some relative strength.
Barclays fell 6.85p to 233.85p, Lloyds Banking Group lost 1.38p to 40.49p after its Bank of Scotland division was fined £4.2m for holding inaccurate mortgage records, while Royal Bank of Scotland dipped 6p to 281p.
Elsewhere Burberry was 8p better at £11.88 after Investec lifted its recommendation from hold to buy. Analyst Bethany Hocking said:
We return to our bullish stance, after a brief period at hold post the profit warning. The first half pre-close reported two key pieces of news in our view -”a modest improvement” at the period end and a continued elevation in the ‘luxury’ nature of product sales. We have tweaked some assumptions, with the net effect of marginal increases in 2013 to 2015 pretax profit estimates. The Burberry brand is far from broken, operational leverage should come through, and, whilst volatility will remain, we see long-term value here.
Property group Hammerson moved 7.3p higher to 483.4p after paying £254m for four retail parks, including the Thurrock shopping park and Bristol’s Imperial retail park.
Among the mid-caps Redrow crumbled 6.1p to 156.4p after an attempt to buy the housebuilder by its founder collapsed after the market closed on Thursday.
Steve Morgan and a consortium including Redrow’s second largest shareholder Toscafund had offered 152p a share for the business, valuing it at £562m. Other investors believed the price was two low, and there was talk a new offer of between 165p and 170p was being considered. But after the takeover panel extended the original bid deadline twice, no agreement could be reached and the discussions were terminated.
Traders had been looking for the next industrial group to warn on earnings after downbeat statements from the likes of Cookson and Morgan Crucible.
Spectris, the testing and controls equipment group, was expected to join the club, but instead it issued an upbeat statement and its shares soared nearly 12% to £17.79. It said sales had increased by 12% during the last quarter, including a contribution from recent acquisitions which was offset by a negative currency effect. At constant currency rates sales were up 2%, albeit this was a slowdown on the first half. It said:
Spectris remains well positioned to deliver on its expectations for the year as it realises both the benefits of its recent acquisitions, especially Omega, and the increase in the proportion of resilient revenues generated in the business.
Andy Douglas at Jefferies said:
This is a resilient performance and better than many will have feared, with slower growth versus the first half of 2012, reflecting the macro-economic environment – this has been anticipated by the market. The outlook statement is ‘in-line’ for the full year, and whilst the top-end of consensus may be trimmed, we firmly reiterate our buy recommendation.
But Drax, the coal-fired power station company, dropped 17.5p to 532.5p after HSBC downgraded its recommendation from overweight to neutral and cut its target price from 600p to 580p. The bank said:
We are comfortable about biomass feedstock availability for the first phase of the company’s coal-to-biomass transition plans. The CO2 price floor may boost the profitability of biomass but as it stands will lead to electricity demand destruction.
Man continued its recent poor run, falling 2.4p to 81p. The hedge fund manager admitted on Thursday more client cash had been withdrawn than came in for the fifth quarter in a row, and warned there were few signs of improvement. Numis issued a sell note, saying:
Whilst there are some tentative signs that investor sentiment and flows have improved in the asset management industry generally (especially in Europe), Man does not seem to be benefiting from this. We continue to consider Man uninvestable, unless the share price were to fall below its liquidation value (all else equal), which we estimate as being worth 50p to 75p a share.
Finally Pathfinder Minerals put on 14% to 1.875p after the mining company won a UK high court judgement confirming it was the rightful owner of its Mozambique subsidiary, CMDN, which holds two titanium licences. Pathfinder discovered last December that its mining licences had been transferred to an unaffiliated company in Mozambique called Pathfinder Mozambique, belonging to its former local partner, General Veloso. The company now has to have the UK ruling enforced in Mozambique.
Oil company looks to take prime position in east African gas reserve market in face of competition from Asian firms
Shell has edged ahead of Asian competition in the scramble for east Africa’s gas reserves by making a recommended £1.1bn bid for Cove Energy.
The Anglo-Dutch group received the backing of Cove’s directors after matching a bid from PTT Exploration, the Thai-state controlled oil firm. Shell and PTT have been drawn to the company’s 8.5% stake in a natural gas block off the coast of Mozambique that may contain 30tn cubic feet of reserves – which can then be shipped across the Indian Ocean to the gas-hungry Asian market.
Shell acknowledged that other bidders could still announce “competing offers for Cove”, with Gail India and Oil & Natural Gas Corporation – both from the sub-continent – thought to be possible joint bidders. PTT said it was “considering its options” as analysts speculated that the company could return with a higher bid.
One analyst, however, said the Mozambique government was likely to back Shell as the bidder that offered the most expertise in extracting gas from the Rovuma Offshore Area 1 gas-block. The deal is conditional on government approval. Andrew Matharu, analyst at Westhouse Securities, said: “A key component of this is how the Mozambique authorities want to develop their resources and a project of this scale needs an oil major with the financial resources and the expertise of bringing world class scale projects to fruition so you need someone like Shell.”
Michael Blaha, Cove’s executive chairman, said he expected state backing. “I am confident, following our discussions with the government of Mozambique, that timely consent for Shell’s offer will be forthcoming.” Cove’s directors own 4.38% of the business, with the transaction valuing their stake at £42.5m. Analysts at Investec noted an increased in Cove’s share price in the wake of the Shell announcement and said PTT could return with a higher bid. “Competing offers can still be made and the shares will now likely trade to a slight premium on the hope that PTT will trump Shell,” said Investec analysts in a note to investors. Shell’s 220p a share offer represents a 13% increase on an initial offer of 195p a share, lodged in February.
Shell is seeking to reduce its dependence on oil in favour of gas and east Africa has emerged as a target area for energy majors with similar ambitions. Anadarko Petroleum, a US firm, owns a third of the Rovuma field, followed by Mitsui of Japan with 20%, with two Indian oil groups owning 10% each. Mozambique’s state oil company owns a 15% stake in Rovuma. Elsewhere, Italy’s Eni, Norway’s Statoil and the UK’s BG Group have also discovered gas off Mozambique and Tanzania, although Shell has not been successful so far.
Shell will increase spending on oil and gas exploration this year by 35% to $5bn and has a strong presence in the gas market as the world’s largest manager of ships for transporting liquefied natural gas (LNG) and supplied 30% of global LNG volumes last year. East Africa is tipped to become a major gas producing region in the wake of the Rovuma discovery, with China and India among the field’s likely Asian customers.
Shell and Cove did not comment on the capital gains tax issue that is clouding the sale process. Cove said last month that it will be subject to a tax rate of 12.8% on the capital gains from selling its Mozambique assets. Cove also owns assets in Kenya.
Madagascar, Mozambique and South Africa feel impact of tropical storm that has killed at least 77 people.
Royal Dutch Shell’s offer values Cove Energy at £992m
The bosses of London-listed oil and gas explorer Cove Energy are in line for a £38m payday after Royal Dutch Shell put in a near-£1bn takeover bid.
John Craven, Cove’s chief executive and veteran geologist, is line for a £18m payout less than three years after he created the African-focus explorer. Michael Blaha, Cove’s chairman and Shell’s former head of Alergia, holds shares and options worth £13.5m under the 195p-a-share cash offer Shell. The company’s finance director, Michael Nolan, is in line for £7.1m.
The offer, which values Cove at £992m, comes a month after Cove reported one of the world’s largest gas discoveries off the coast of Mozambique. Cove owns a 8.5% stake in Mozambique’s Rovum Offshore Area 1, which operator Anadarko reckons could hold more than 30tn cubic feet of recoverable natural gas.
That discovery and similar finds by Italy’s Eni suggest the area could contain up to 60m cubic feet of natural gas, which would be enough to support a liquefied natural gas (LNG) project to supply fast-growing Asian markets.
“East Africa is a major prospective hydrocarbon province, which has seen a significant increase in exploration activity in recent years,” Shell said in its offer document.
“Shell already has interests in Tanzania, and the acquisition of Cove would mark Shell’s entry into exciting new hydrocarbon provinces in Kenya and Mozambique, with significant potential for new LNG from recent gas discoveries offshore Mozambique, and further complementary exploration positions in East Africa.”
Shell’s offer represents a 70% premium to Cove’s share price before it put itself up for sale in January, and a 29% premium to Cove’s average share price over the last five days. Cove’s shares jumped by 25% to 193½p on Wednesday.
Stuart Joyner, an analyst at Investec, said the offer was a “much better price than the market anticipated” and said it was unlikely any higher bids would trump it.
Irene Himona, analyst at SocGen, said she expected Shell to buy up other players in the Rovuma field. “As the number one LNG player, Shell absolutely must be in East Africa,” she said. “We should assume that 8.5% is too small for them.”
The deal requires the approval of Mozambique’s government. Standard Chartered Bank is advising Cove on the sale, while Morgan Stanley is acting for Shell.
Separately, Shell said Malcom Brinded, the head of its oil and gas exploration and production operations outside the America’s, is to step down. Brinded, who was a contender for the chief executive post before Peter Voser was appointed in 2009, will be replaced by Andrew Brown, currently head of Shell’s operations in Qatar.