Goldman recommends "buy" for Anglo American

Goldman Sachs Group Inc. recommended buying Anglo American Plc call options on speculation the mining company's shares will extend a two-month rally as economic uncertainty subsides and its recent suspension of dividend payments help to bolster the company's finances, a newswire service reported.

The brokerage advised buying calls expiring in December with a strike price of 1,900 pence. Shares in the mining company have gained 81 percent since reaching a five-year low on March 2.

Anglo American, based in London, announced in February that it would suspend its dividend and only resume payments "as soon as market conditions allow." The company also sold $2 billion worth of bonds last month after its finances were hit by a decline in commodity prices.

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Alloy battles: billions at stake

This week's announcement by Johannesburg-listed Metmar that Finland's Ruukki Group is to pay ZAR 2bn for an 84.9% interest in Mogale Alloys further entrenches the battle by the low profile Kermas group in taking on Xstrata, and its controlling shareholder, Glencore, which operates primarily as a global trader and logistics outfit. Xstrata, a diversified miner, ranks as the world's leading producer of ferrochrome, of which 80% of global primary production goes into the making of stainless steel.

South Africa, the world's dominant producer of ferrochrome, sits at the centre of the battle; Kermas is already the controlling shareholder in Samancor Chrome, world's No 3 in production, after ENRC, which produces in the Eurasian area. World No 4 Hernic operates in South Africa, and is controlled by Mitsubishi Corporation, followed by No 5 in the form of South Africa's Assore. Kermas previously had links with Russia's Kluchevsky Ferroalloys, and its very aged plant and facilities.

The production (and pricing) of ferrochrome can be volatile; on 5 May, Johannesburg-listed Merafe, one of Xstrata's black economic empowerment partners in South Africa, announced that ferrochrome production for the Xstrata-Merafe venture for the first quarter of 2009 was 76% lower compared to the same period in 2008. Seventeen out of twenty furnaces, equivalent to some 80% of annual production capacity, remained suspended during the first quarter "as destocking continued in response to weak demand".

For a diversified miner, ferrochrome can have its uses. Xstrata posted EBITDA (earnings before interest, tax, depreciation and amortisation) of USD 234m for 2006, for its alloys division, which also includes certain other alloys. The number soared to USD 389m for 2007, and then positively exploded in 2008 to USD 1bn.

But not even Samancor Chrome, which possibly holds 70% of global ferrochrome deposits, was attractive to two of the world's biggest miners. Samancor Chrome was previously owned 60% by BHP Billiton and 40% by Anglo American, and was sold, excluding The Wonderkop joint venture (with Xstrata) and Palmiet Ferrochrome plant, to Kermas in February 2005 for USD 469m.

BHP Billiton has long held, however, 60% of Samancor Manganese, where Anglo American again holds 40%. Samancor Manganese, which operates in South Africa and Australia, earned BHP Billiton underlying EBIT of USD 132m in 2006, nearly doubling to USD 253m for 2007. The number positively soared in 2008 to USD 1.6bn.

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Anglo American appoints Ms Hunter as head of Government and Social Affairs

Anglo American plc announced that the appointment of Ms Anji Hunter as Group Head of Government and Social Affairs, in succession to Mr Edward Bickham.

Ms Anji will take up her position with effect from June 1st 2009 with a view to achieving a seamless transfer of responsibilities by the end of August. She will be responsible for government relations and community and social development and will report to Mr Russell King Chief Strategy Officer of Anglo American.

Ms Anji Hunter brings her considerable public and private sector experience gained over 6 years at BP plc as Director of Communications and 5 years as Director of Government Relations at No.10 Downing Street.

Mr Russell King said that “I am delighted that Ms Anji will be joining Anglo American to build upon the strong progress made with our key stakeholders over the last nine years. Anglo American is widely recognized as a leader in the mining industry for its commitment to responsible, safe and sustainable mining. Our relationships with host governments and local communities around the world are critical to the future success of our operations and the delivery of our considerable strategic growth plans. I look forward to working with Ms Anji.”

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Anglo 'vulnerable to takeover'

miningmx.com -- Mining group Anglo American Plc may be vulnerable to a potential takeover from rival Xstrata, the Japanese bank Nomura said.

Anglo has ditched its previous conservative strategy, but the fruits of a new high-growth approach will not be seen for around two to three years since it has postponed three flagship projects, a research note said.

"Anglo may be facing an identity crisis that could leave the company vulnerable to takeover," analyst Paul Cliff said.

"While BHP/Rio and Vale/Xstrata have attracted most of the M&A headlines in the sector recently, we would not rule out an Xstrata all-share offer or merger of equals with Anglo over the next 12 months."

Assuming a 30% takeover premium, a deal would be accretive to Xstrata in terms of earnings per share by 10 percent in 2010 and 13 percent in 2011, he added.

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Blair's minder joins Anglo American

The move, due to be announced on Tuesday, follows her departure 18 months ago from her role as BP's communications director under its former chief executive Lord Browne.

Miss Hunter, who is married to Sky's political editor Adam Boulton, will be London-based and take charge of Anglo American's relationships with governments in southern Africa, South America and Australia – where the majority of its mining operations are based.

She will also lead the miner's corporate social responsibility programmes.

But it is understood that she will not play any role in representing De Beers, the world's largest diamond miner, which is 45pc owned by Anglo American.

Miss Hunter replaces Edward Bickham, who is leaving the company. She is to report to Russell King, Anglo's chief strategy officer. Under Tony Blair, Miss Hunter was director of government relations at Number 10. She left in November 2001.

The daughter of a Scottish rubber plantation manager and born in Malaya, Miss Hunter was seen as the former Prime Minister's most influential 'minder' and 'gatekeeper' to Number 10, having worked with Mr Blair for 15 years.

She left BP at the end of 2007 following Lord Browne's departure.

Anglo American declined to comment.

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Wuhan Steel May Buy MMX Stake, Build Mill in Brazil

(Bloomberg) -- Wuhan Iron & Steel Co., China’s third-largest steelmaker, may buy a stake in MMX Mineracao e Metalicos SA or the Brazilian mining company’s Sudeste unit.

Wuhan may also build a steel plant at LLX Logistica SA’s Port of Acu in Brazil as part of a possible partnership with MMX and LLX, Rio de Janeiro-based MMX said in a regulatory filing. Brazilian billionaire Eike Batista controls both LLX and MMX.

Batista on March 31 said he hired an adviser to help sell all or part of MMX as part of a strategy to “get the assets on their feet, then put them up for sale.” LLX on April 1 said it also hired an adviser to study the sale of a stake in its $740 million Sudeste port project, in southeast Brazil.

China, the world’s third-biggest economy, became Brazil’s leading trade partner this year after the global recession choked sales to the U.S. A deal between MMX and Wuhan would “likely represent the single most important Chinese investment in Brazil,” Batista said in today’s statement.

The steel mill that Wuhan may build at Acu would be able to produce 5 million metric tons a year and be controlled by the Chinese steelmaker. Batista’s holding company EBX may have a minority stake, MMX said in the statement.

LLX and Ternium SA, Latin America’s second-largest steelmaker, previously signed a memorandum of understanding on a possible investment in a 5 million tons-a-year steel plant at Acu. Yesterday, LLX Chief Executive Officer Ricardo Antunes said the company plans to push for the development of two steel mills at the site.

Supply Contract

The accord signed today may also include a long-term supply contract for almost all Sudeste’s iron-ore exports to Wuhan at benchmark prices, an agreement on use of services at Sudeste port and the supply of Wuhan steel products to Batista’s shipbuilding unit Brasil Estaleiros SA, the statement said.

MMX fell 58 centavos, or 7.84 percent to 6.82 reais in Sao Paulo trading. LLX declined 33 centavos, or 8.15 percent to 3.72 reais.

The stocks have gained 138 percent and 148 percent, respectively, since the start of the year, more than a 28 percent gain in the Bovespa index of traded companies.

“They’ve gained since late last year when Eike first signaled a sale,” Galdi said in a telephone interview. “Batista is sticking to his strategy of selling off MMX’s best assets and then rebuilding the company.”

MMX has the capacity to produce 10.8 million tons annually of iron-ore from its Sudeste and Corumba mines, with the potential to expand to 40 million tons a year, it said.

This year it will produce 6 million tons, Sales Director Chequer Hanna Bou-Habib said yesterday on a conference call.

The company has reserves of more than 2 billion tons in Brazil and Chile.

In March 2008 the company agreed to sell its biggest assets, the 26.6 million tons-a-year MMX Minas-Rio iron-ore mine project and a 70 percent stake in the MMX Amapa iron-ore mine, to Anglo American Plc as part of a $5.5 billion deal. Cleveland Cliffs Inc. previously bought 30 percent of MMX-Amapa.

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De Beers Diamond Company Woos Safe Haven Investors

De Beers has launched a global campaign to convince investors that diamonds are an alternative to gold as a safe-haven investment, writes The Financial Times.

Below is the full article published yesterday by The Financial Times:

The move is a sign of the pressure on the world's biggest diamond miner to find new markets following the collapse of traditional sales. Stephen Lussier, De Beers' executive director for corporate affairs, told the Financial Times the group had been approached in the past two months by ‘half-a- dozen’ brokers linked to sovereign wealth funds and wealthy individuals. He refused to identify them but said talks were in early stages.

But analysts and investors said that the closed nature of the diamond market made them a much less attractive option than gold. Chaim Even-Zohar, an industry expert who runs Tacy, an Israeli diamond consultancy, said De Beers, which is weighed down by $3.6bn of bank debt, has been scouting for new sources of sales because of a collapse in demand which is expected to force the company to cut production by 40 per cent this year.

"De Beers are leaving no stone unturned to find buyers," he said.

The privately-held company, whose biggest shareholders are mining giant Anglo American, the government of Botswana and South Africa's Oppenheimer family, had sales last year of $6.89bn.

One emerging markets fund manager, who invests in commodities, said: "When you have people asking questions about gold's intrinsic value, it's difficult to see a bankable case for diamonds as a store of value."

Brock Salier, mining analyst at Ambrian, a London-based resources investment bank, said the uncertainty that has gripped equity and currency markets had sparked demand for "hundreds of millions of dollars of something they can stick in a vault," such as diamonds. An anonymous private buyer at a Geneva auction this week paid a record $9.5m for a rare blue diamond from Petra Diamonds' Cullinan mine in South Africa.

But Mr Salier added that diamonds represent a much riskier investment than gold. Unlike the yellow metal the stones, traded through auctions and private tenders, have no public market price and there is no instrument investors can use to hedge against fluctuations. One Johannesburg mining executive suggested De Beers was targeting Saudi Arabia, which is in the process of creating what could be the world's biggest sovereign wealth fund.

But De Beers said Gareth Penny, its chief executive, had not had any meetings with the Saudis during a recent visit to the Gulf, "nor are we aware that anyone has made a presentation to them on our ideas". State-backed funds in oil-rich Middle Eastern nations and Asian exporters flush with foreign exchange cash have been investing huge sums in western assets in recent years but have suffered losses of late, notably in US financial stocks.

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