Mining’s old guard needs strong medicine
A new report details subpar investor returns in the mining industry over the last decade, particularly big cap diversified companies which have not adapted to new realities.
The cost of borrowing for Brazil’s Vale has risen to record highs relative to competitors BHP Billiton and Rio Tinto, as the Brazilian government looks to reap more in mining taxes amid surging metals prices, Bloomberg is reporting:
The world’s largest iron-ore mining company’s dollar bonds due in 2019 yielded 4.22 percent, a record 152 basis points more than similar-maturity bonds from higher-rated BHP. The yield gap has swelled 61 basis points, or 0.61 percentage point, this year. The spread over Rio Tinto Group bonds reached 84 basis points yesterday after averaging 51 points in the first seven months of 2011.
Vale’s bonds have fallen on concern Brazil is seeking to tighten its grip over mining after boosting control of the oil industry last year, according to Bloomberg. The company’s CEO, Roger Agnelli, was replaced earlier this year following years of accusations by the Brazilian government — a key shareholder — that the company was not doing enough to bolster Brazil’s economic development, Brazilian media said at the time.
Reuters reported Sept. 6 that Brazil’s overhaul of its mining code is likely to double royalties from 2% to 4%. The increase is part of an overall strategy by Brazil to increase state control over the mining industry and to boost government revenues.
Vale is the world’s largest producer of iron ore and a leading copper and nickel miner.
