There has been a lot of activity in the mining arena over the past few months, as major players in the field are making significant acquisitions and announcing major expansions. Barrick Gold (ABX) lost a lawsuit against Goldcorp (GG) and New Gold (NGD) regarding the acquisition of the highly profitable El Morro project in Chile. This was a significant win for Goldcorp, as the El Morro region is one that yields a great reserve.
The situation was, at face value, a complicated one. Barrick insisted that Goldcorp's acquisition of no less than a 70% interest in El Morro (from a subsidiary of New Gold) was illegal due to the fact that the "right to first refusal" was not in line with the law. This claim has since been dismissed in court and Goldcorp now officially owns the controlling interest in El Morro. This will give Goldcorp a significant edge over the competition. As it is a smaller company in the mining arena it needs a move like this to get it out on top. As a result of this acquisition, Goldcorp's stock shot up to nearly $40, its highest price since two weeks prior. Its trading volume shot up too as investors started taking notice of the courtroom victory. Goldcorp has a long way to go to reach its 52-week high, and it's down almost 15% so far in 2012.
Perhaps the greatest advantage of the situation now is that Goldcorp's investors and shareholders now have some clarity on the situation. On the other side of things, Barrick is down far from its 52-week high and much lower on that range than investors would like. It does offer a dividend of 4x Goldcorp, however, so investors may not jump ship anytime soon.
AngloGold benefits through this to a great degree as it will, as a result of the acquisition, be able to increase its yearly production from Brazil significantly. The company will now get 500,000 ounces from Brazil, and its reserves in the Americas combined will be up to about 1 million ounces.
The deal, which should close during this quarter for an amount of $220 million, is one that we have heard news about for quite a long while now. Kinross indicated a while ago that it intended to divest itself of Crixas. This is part of the company's intention to focus more closely on its core assets rather than on peripheral ones such as Crixas, and to optimize its capital expenditure program.
To be short, AngloGold Ashanti needed this win. It's down almost 25% this year and sits on the far lower side of its 52-week range. But, if you thought that was bad, look at Kinross Gold, down over 30% from its 2012 high. Its EPS is -1.95 and there's not much good news on the horizon for it.
Rio Tinto (RIO) announced that it has completed the expansion of its Yarwun alumina refinery in eastern Australia, and BHP Billiton (BHP) has increased the number of licenses it owns to explore in the Olympic Dam area, indicating that its planned expansions will indeed go through.
Rio's Yarwun expansion in Australia, which cost the company $2.45 billion, is now complete. Yarwun is a profitable Alumina refinery. The company also recently announced that it has begun the process that is required to ensure that the refinery will be up to full production by next year. This will have to be a careful and gradual process as there is a lot that has to go into bringing a refinery up to full production levels safely. The expansion is significant for the company in that it will put it in the lead in terms of bauxite and alumina production. The expansion will no less than double the production output at that particular refinery, a significant step up.
BHP Billiton also announced that it has acquired further exploration licenses in the Olympic Dam area. To me this indicates that the company intends to move forward with its expansion plans for Olympic Dam. The company itself, however, states that it is merely making a sensible investment and that the permits will not necessarily be exercised for a long time to come. So there is still a big question mark hanging over whether or not the proposed expansion of the Olympic Dam project will go forward or not.
Expansions in Australia are the way forward for companies like Rio Tinto and BHP Billiton. Even though the global economy is suffering and China's economic growth is slowing down, there will still be a high demand for resources from Australia for a long time to come. A focus in this region is therefore a sensible move for companies such as Rio Tinto and BHP Billiton.
These companies, too, were in need of some good news. Rio Tinto is down 35% from this time last year and is on the lower side of its wide 52-week range. Its dividend offering is strong and its EPS is reasonable, so there's plenty to like. The Yarwun news is still more than welcomed. BHP looks much the same as Rio Tinto, though it's had a rougher 2012 (down over 8%). Its EPS is up near 9, a good sign, though I can't see any way for it to get up to its 52-week high of $94.95.
In a climate where the prices of commodities have dropped significantly, mining companies are making an attempt to improve their assets through additional acquisition expansions, a trend that can be seen across the board. The industry is hurting and these moves might just help it out of the rut. I'd look into Rio Tinto and AngloGold Ashanti for now, with BHP Billiton being a consideration if news is good coming from the Olympic project. Barrick and Goldcorp don't offer quite the possibility as these others, even with Goldcorp's win.