Archive for the ‘Vertical: Energy’ Category

Glencore Considering $19.5 Billion Bid for ENRC…

Monday, June 13th, 2011

You thought you had heard the last of Swiss based Glencore, the famed diversified commodities trading firm, with the news of its multi-billion dollar IPO.  Now rumors of a nearly $20 billion takeover?  Looks like Glencore’s management team is taking advantage of its new currency.  According to ENRC’s 3 founders, Alexander Mashkevitch, Patokh Chodiev and Alijan Ibragimov, who control 45% of the company, Glencore’s CEO recent discussed a possible merger.  ENRC, a Kazakhi miner, trades at a 15% discount to its peers, using a trailing P/E multiple, and is down almost 30% this year.

HISTORY OF GLENCORE

Glencore, headquartered in Baar, Switzerland, is the world’s largest commodities trading firm, which a 60% market share in the trading of zinc, and a 3% market share in the trading of crude oil.  The company is also the biggest shipper of coal in the world.  Glencore’s 485 traders own and run the company today.  It was formed by a management buyout of Marc Rich & Co AG in 1974.  Marc Rich, now a billionaire commodities trader at the time was charged with tax evasion and illegal business dealings, fleeing to Iran.  Years later, he was pardoned by President Bill Clinton.

In 1994, after failing to corner the zinc market, the company lost $172 million and nearly went bankrupt, forcing Rich to sell his share in the company back to the firm, which was renamed Glencore.  It was run by Rich’s inner circle, including Willy Strothotte and Ivan Glasenberg.

Over the years, Glencore has also been accused of illegal dealings with rogue states, including the USSR, Iran, and Iraq (under Hussein).  It has a history of breaking UN embargoes to profit from corrupt regimes.

The company owns stakes in Rusal, Chemoil, Xstrata, Minara Resources, PASAR, Evergreen Aluminum, Katanga Mining, Windalco, OAO Russneft, and many other firms.

INITIAL PUBLIC OFFERING

With its initial public offering weeks ago, Glencore was valued at about $60 billion, and raised about $10 billion.  Each of the 485 traders received average payouts of $100 million through the flotation.

I highly recommend reading, “Secret Lives of Marc Rich.”

Saudi Day of Rage – Fri., March 11th

Thursday, March 10th, 2011

We have seen riots in Tunisia, Algeria, Egypt, Libya, Bahrain…and now Saudi Arabia?  All of these countries have fallen victim to internal unrest because of both their lack of basic freedoms, and wealth disparity between the rich and the poor.  All of the countries above are known to be wealthy oil nations, but more than 20% of the youth in each are unemployed.  Grain prices in these areas have more than tripled, and food inflation is causing unrest.  Shiites in Saudi Arabia have also claimed discrimination, as almost all senior businessmen and officials are Sunni Muslims, despite qualifications and experience.  This has helped drive Brent crude prices to as high as $118, crippling both emerging and developing economies.  Some are calling for a “day of rage” on March 11th, while others claim it will be delayed…

According to CNN, protesters in Saudi Arabia called for a “day of rage” Friday, though longtime observers of the kingdom remained skeptical that it would make a major impact. ”I don’t think any protests that happen tomorrow will be destabilizing to the country,” said Christopher Boucek, a Saudi expert with the Carnegie Endowment for International Peace.

Prominent blogger Ahmed Al-Omran said the Saudi government remains unresponsive to the streets. ”I don’t think they’re really in touch with the people,” he said. Still, he said, Friday’s planned protests could set the tone in Saudi Arabia for the next few months.

The Saudi government prohibits all kinds of public demonstrations. But more than 100 Shiite demonstrators defied that ban and rallied Wednesday in the eastern city of Qatif, calling on authorities to release Shiite prisoners. A sprinkling of women were among the protesters, said Ibrahim Al-Mugaiteeb, president of the Human Rights First Society. Police kept a watchful eye but did not intervene, he said. Earlier, Saudi authorities had authorized its security forces to “take all measures against anyone who tries to break the law and cause disorder.”

Last week, about 24 protesters were detained in Qatif as they denounced “the prolonged detention” of nine Shiite prisoners held without trial for more than 14 years, Amnesty International said. Police kicked and used batons to beat three protesters in what was an apparent peaceful demonstration, Amnesty said in a statement. ”The Saudi Arabian authorities have a duty to ensure freedom of assembly and are obliged under international law to allow peaceful protests to take place,” said Philip Luther, deputy director of the human rights group’s Middle East and North Africa program. ”They must act immediately to end this outrageous restriction on the right to legitimate protest.” There was no immediate reaction from the Saudi government to the Amnesty statement.

The protests in the majority Sunni kingdom have followed similar demands across the Arab world for more freedom and democracy. Rights activists have been advocating the right to protest for months in the kingdom but they have been denied permission to assemble. Lately, grass-roots ferment mirroring the unrest across the Middle East and North Africa has emerged, with a Facebook group calling for days of rage and Shiites taking to the streets. Activists have been calling for reform and the release of people jailed without charge or trial.

Amnesty said the recent detentions came a week after a prominent Shiite cleric, Sheikh Tawfiq Jaber Ibrahim al-’Amr was arrested after a sermon calling for reforms in Saudi Arabia. He was released without charge Sunday. Most of the protesters are believed to be held in a police station in Dhahran, an eastern city. Among them are activists who have protested arrests and discrimination against the minority Shiites.

“The Saudi authorities must investigate reports of beatings of protesters by security forces. They should also ensure that those detained are either charged with recognizable offences and tried fairly or released,” Luther said. ”While in detention they must be protected from torture and other ill-treatment and given regular access to their family, lawyers and medical staff.”

The Shiite activists in “prolonged detention” have been held in connection with the deadly 1996 bombing of a U.S. military complex in Khobar in which 20 people were killed and hundreds injured. ”According to reports, they were interrogated, tortured and denied access to lawyers together with the opportunity to challenge the legality of their detention,” Amnesty said.

Check out our intensive investment banking, private equity, and sales & trading courses!  The discount code Merger34299 will work until April 2011. Feel free to e-mail thomas.r[at]leverageacademy.com with questions.


Chavez is the New Mother Theresa?

Thursday, March 3rd, 2011


Since when can Chavez promise world peace?  The dictator in Venezuela has confiscated billions worth of private interests, has nationalized industries, and has ruled with an iron fist over his country for years, exploiting its oil wealth.  He has done so poorly, that he has had to de-value his currency multiple times, despite the oil revenue Venezuela generates.  In an interesting turn of events, Chavez made a call to another dictator, Qaddafi, calling for an end to the riots in Libya.  ”We want world peace!” he said.

Did Chavez win here, where Obama, the UN, and the  entire developed world failed?  Did WTI crude oil fall from $103 to $101 on Chavez’s remarks?  Of course not, it was temporarily overbought.  Let’s wait until the Rage Riots in Saudi Arabia on March 11th to see oil’s true color.  (Beware the ides of March? Unfortunately, doesn’t fall on the same date)  Here is a response from the Arab league:

“A proposal by Venezuela’s president to solve the current crisis in Libya does not include a clear plan, Hisham Youssef, assistant Arab League secretary, said on Thursday.

On 17 February, a popular uprising erupted In Libya against the regime of Libyan leader Muammar al-Qadhafi, who has been in power for 42 years. Thousands of protesters have been reported dead during the clashes with pro-Qhadafi forces.

President Hugo Chavez had suggested an international mediation delegation of representatives from Latin America, Europe and the Middle East be sent to Libya in a bid  to hash out a peaceful resolution through negotiations between protesters and Qadhafi’s regime.

Youssef said Venezuela’s foreign minister phoned Arab League Secretary General Amr Moussa to introduce Chavez’s proposal and that Moussa described the ideas as vague.

“There were no definite ideas, we need to know the basis for the suggested negotiations and where to start them”, Youssef told Al-Masry Al-Youm.

Youssef said the Arab League’s stance on the Libyan crisis was expressed on Wednesday during a meeting of Arab foreign ministers. “This crisis should be handled in  a way that responds to the aspirations of the Libyan people, and not only from a security perspective,” he said.”

So, Chavez certainly our new Mother Teresa.  In honor of this public servant, here is a short biography below:

Mother Teresa (26 August 1910 – 5 September 1997), was a Catholic nun of Albanian ethnicity and Indian citizenship, who founded the Missionaries of Charity in Calcutta, India in 1950. For over 45 years she ministered to the poor, sick, orphaned, and dying, while guiding the Missionaries of Charity’s expansion, first throughout India and then in other countries. Following her death she was beatified by Pope John Paul II and given the title Blessed Teresa of Calcutta.

P.S. WTI crude is back at $102.50 at 10:25 PM EST, March 3, 2011.

Crude Oil Makes $6, 7 Standard Deviation Move in Four Hours

Thursday, February 24th, 2011

After a steep run-up in crude oil (both Brent & WTI) crude fell from $103 to $96 dollars in only two hours, a 7 standard deviation move.  Over the past week, Colonel Qaddafi’s violence in Libya had driven up prices to as high as $120/barrel (brent) and $103/barrel (WTI), as oil consuming nations feared that Libya could take 1.6mm barrels per day or 2% of global supply offline.  Libyan oil is also sweet (low sulfuric content) versus other fuels, and is very valuable to Europe and Japan, which do not have the refining capabilities we have in the United States.  As a result, analysts fear that if this supply is kept online for a prolonged period of time, prices could rise and have significant inflationary impact.  Nomura (which has numerous problems of its own, i.e. a lack of business) was bold enough to predict $220/barrel crude, adding oil to the fire.  After that silly forecast, we at Leverage Academy have decided to never give the bank any vote of confidence again.  Fear mongering…maybe that will help your prop desk, eh?
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Soon after OPEC announced that it would increase output (Saudi) and the U.S. exclaimed that it would release strategic oil supplies, rumors arose that Qaddafi has been shot.  Within minutes, oil fell two dollars (then another $4) and the S&P500 was up 15 points.  Talk about volatility.  Tomorrow, I am getting ready to invest in the oil VIX, as the 6 months of low volatility the market has experienced are long over.

Egypt’s Protests Strain Market

Sunday, January 30th, 2011

Following in Tunisia’s footsteps, Egypt’s streets have been full of protestors demanding President Mubarak to step down and end his 30 year reign. Mubarak announced early Saturday that he had asked the country’s government to resign, and pledged to install a new government with a better democracy; proclaiming to be on the side of the people, willing to respect their freedom of speech as long as they protested peacefully. However, as protests continued, curfew was broken, and government vehicles were torched, Mubarak mobilized the army to control the crowds. The White House threatened to cut off its annual aid of $1.5 billion to Egypt if security forces continued to use violence to suppress protestors.

Egypt’s Suez Canal conducts an estimated 8% of global sea trade, carrying approximately 1.8 million barrels a day of crude oil and refined petroleum in 2009, according to the U.S. Energy Information Administration. U.S. crude futures rose to $89.43 a barrel, up 4.4% on Friday. Investors worry that uncontrolled protests could destabilize the already volatile region, and have an even greater impact on crude prices. The CBOE volatility index (VIX), used to gauge fear in the market, jumped more than 24% Friday and the Dow Jones Industrial Average fell 1.4 percent to 11,823.70 after a straight 9 week gain.

Stocks worldwide plunged the most since November, crude oil posted the biggest jump since 2009 and the dollar rose versus the euro after protesters posed the biggest challenge to Egyptian President Hosni Mubarak’s 30-year rule. Egypt’s dollar bonds sank, pushing yields to a record.

The MSCI All-Country World Index of stocks in 45 countries lost 1.4 percent at 4:59 p.m. New York time. The Dow Jones Industrial Average fell 1.4 percent to 11,823.70, preventing its longest weekly winning streak since 1995. Oil futures increased 4.3 percent to $89.34. The dollar appreciated 0.9 percent to $1.3611. Yields on Egypt bonds due in 2020 surged 22 basis points to 6.51 percent. Gold futures jumped 1.7 percent, the most in 12 weeks.

Egyptian protesters clashed with police throughout the country and into the night, defying a curfew and setting fire to buildings. Mubarak imposed the curfew after tens of thousands of marchers chanted “liberty” and “change.” After U.S. markets closed, Mubarak said he asked the government to resign. The demonstrations offset data showing that growth in U.S. gross domestic product accelerated in the fourth quarter.

“The unrest in Egypt has people concerned,” said Mark Bronzo, who helps manage over $25 billion at Irvington, New York-based Security Global Investors. “When it comes to the Middle East, there’s worries the unrest is going to spread. It has negative implications for the world.”

The Dow had to close above 11,871.84 to post a ninth straight weekly gain. Before today, it had risen 1 percent this week, supported by higher-than-estimated earnings. More than 74 percent of the 183 companies in the Standard & Poor’s 500 Index that reported quarterly earnings since Jan. 10 beat the average analyst projection, according to data compiled by Bloomberg.

Egypt overshadowed evidence the U.S. economy, the world’s biggest, is improving. GDP expanded at a 3.2 percent annual pace in the fourth quarter, up from 2.6 percent during the prior three months, as consumer spending climbed by the most in more than four years.

Investors who pushed the Dow above 12,000 for the first time since 2008 this week may be getting ahead of themselves. It surpassed that level the past two days. More U.S. stocks are trading above their 200-day average price than any time since April, when the Dow began a 14 percent slump. The cost to insure against S&P 500 losses with options has fallen to an almost three-year low.

The Dow may have surged too fast following its more than 2,000-point jump since August even as analysts forecast a third straight year of profit growth for the S&P 500, said James Investment Research Inc.’s Tom Mangan and BB&T Wealth Management’s Walter “Bucky” Hellwig. Mangan and BGC Partners LP’s Michael Purves see signs investors are too optimistic about the next few months.

Shares of Ford Motor Co. plunged 13 percent as the automaker said profit slid 79 percent. Amazon.com Inc. declined 7.2 percent after saying earnings may miss analysts’ projections. The Chicago Board Options Exchange Volatility Index, which measures the cost of insurance against losses in U.S. stocks, jumped 24 percent, the most since May.

The NYSE Arca Airline Index lost 4.3 percent after oil jumped. Any disruption to Middle East oil supplies “could actually bring real harm,” U.S. Energy Secretary Steven Chu said on a conference call.

The Suez Canal, which connects the Mediterranean and Red Seas, is located in Egypt. One million to 1.6 million barrels a day of oil and refined products moved north to Europe and other developed economies in 2008 and 2009, according to the Energy Information Administration, the statistical arm of the U.S. Energy Department.

Microsoft Corp. had the biggest drop in the Dow, retreating 3.9 percent, after a shortfall in Windows revenue raised concerns about demand. The slump drove the Nasdaq Composite Index to a 2.5 percent decline, the most since August. The S&P 500 fell 1.8 percent, the biggest decrease since Aug. 11.

The dollar and Swiss franc advanced the most in three weeks against the euro as a day of clashes in Egypt between police and protesters spurred demand for the safety of the currencies. Egypt’s pound traded at an almost six-year low against the American currency. Fitch Ratings revised the Middle East nation’s outlook to negative.

The Swiss franc advanced 1.4 percent to 1.2806 per euro. Egypt’s currency traded at 5.8575 per dollar after touching the weakest level since January 2005 yesterday. Turkey’s lira sank as much as 2.1 percent to 1.6171 per dollar, falling along with the currencies of other nations near Egypt. Israel’s shekel declined as much as 1.8 percent to 3.7141.

Treasuries rose, pushing two-year yields to a seven-week low of 0.54 percent. Yields on 30-year bonds had reached a nine- month high of 4.64 percent following the report showing U.S. GDP growth accelerated.

Gold futures for April delivery rose 1.7 percent to $1,341.70 an ounce, the biggest gain since Nov. 4. The metal climbed to a record $1,432.50 on Dec. 7.

BP Loses 15% in One Day, 41% from 2010 Peak After Devastating Underwater Oil Spill

Tuesday, June 1st, 2010

Since the BP oil spill, oil drillers and energy stocks have taken a pummeling.  Today, BP fell nearly 15%, extending peak to trough losses from Jan. 2010 to 41%.  Oil prices also fell today in reaction to weaker manufacturing numbers from China, as a result of government tightening measures.

According to ZeroHedge, the largest BP shareholder daily losers of June 1st include: #1: State Street, with 43.4 million shares has lost $260 million today, #2: Wellington, 34.8mm, $209 million, #3: Barrow Hanley, 16.7mm, $100mm; #4: Bank of America, 13.9mm, $83mm; and #5: State Farm, 13mm, $78 million. “That’s half a billion in losses for the top 5 holders today alone. And this list doesn’t even include Anadarko, Transocean, or Halliburton.”

To make matters worse, the Associated Press just released the following: “Attorney General Eric Holder said Tuesday that federal authorities have opened criminal and civil investigations into the nation’s worst oil spill, and BP lost billions in market value when shares dropped in the first trading day since the company failed yet again to plug the gusher.

Investors presumably realized the best chance to stop the leak was months away and there was no end in sight to the cleanup. As BP settled in for the long-term, Holder announced the criminal probe, though he would not specify the companies or individuals that might be targeted.

“We will closely examine the actions of those involved in the spill. If we find evidence of illegal behavior, we will be extremely forceful in our response,” Holder said in New Orleans.

With the ambitious “top kill” abandoned over the weekend, BP’s hope to stanch the leak lies with two relief wells that won’t be finished until at least August. The company is, however, trying another risky temporary fix to contain the oil and siphon it to the surface by sawing through the leaking pipe and putting a cap over the spill.

Coast Guard Adm. Thad Allen, the national incident commander, said Tuesday that BP was making its first major cut with super shears that weigh 46,000 pounds and resemble a giant garden tool. The company will also use a powerful diamond-edged cutter the resembles a deli slicer to try to make a clean cut above the blowout preventer, then will lower a cap over it with a rubber seal.

After several failed attempts to divert or block the well, BP’s latest attempt involves cutting the broken riser pipe, making it spew as much as 20 percent more oil into the water for days while engineers try to position a cap over the opening.

Eric Smith, an associate director of the Tulane Energy Institute, said the strategy had about a 50 to 70 percent chance to succeed. He likened it to trying to place a tiny cap on a fire hydrant.

“Will they have enough weight to overcome the force of the flow?” he said. “It could create a lot of turbulence, but I do think they’ll have enough weight.”

BP Chief Operating Officer Doug Suttles said there was no guarantee the cut-and-cap effort would work. He did say the company has learned from past efforts to contain the leak, which gives them a better shot at success.

“I’m very hopeful,” Suttles said. “I think we’ll find out over the next couple of days.”

The cleanup, relief wells and temporary fixes were being watched closely by President Barack Obama’s administration.

The president gave the leaders of an independent commission investigating the spill orders to thoroughly examine the disaster and its causes, and to follow the facts wherever they lead, without fear or favor.

The president said that if laws are insufficient, they’ll be changed. He said that if government oversight wasn’t tough enough, that will change, too.

Meanwhile, BP spokesman Graham MacEwen said the company was awaiting analysis of water samples taken in the Gulf before making a final determination on whether huge plumes of oil are suspended underwater. CEO Tony Hayward said Sunday there was “no evidence” of the plumes even though several scientists have made the claims.

Billy Nungesser, president of Plaquemines Parish, fired back at Hayward.

“We ought to take him offshore and dunk him 10 feet underwater and pull him up and ask him ‘What’s that all over your face?’” said Nungesser.

On the business side of things, the company’s share price, which has fallen steadily since the start of the disaster, took a turn for the worse Tuesday, losing 15 percent to $6.13 in early afternoon trading on the London Stock Exchange.

That was the lowest level in more than a year. The shares have now lost more than a third of their value, wiping some $63 billion off BP’s value, since the explosion at the Deepwater Horizon oil rig six weeks ago.

BP said early Tuesday it had spent $990 million so far on fighting and cleaning the spill, with multiple lawsuits for damages yet to be tallied.

The Coast Guard also announced that it was replacing the admiral who has been the federal on-scene coordinator since the oil rig exploded, though the agency said the change was previously planned. Rear Adm. Mary Landry will now return to duties as commandant of the 8th Coast Guard District in New Orleans to focus on hurricane season preparations.

BP failed to plug the leak Saturday after several attempts with its top kill, which shot mud and pieces of rubber into the well but couldn’t beat back the pressure of the oil.

The spill has already leaked between 20 million and 44 million gallons, according to government estimates.

The National Oceanographic and Atmospheric Administration also announced that almost one-third of federal waters — or nearly 76,000 square miles — in the Gulf were closing to commercial and recreational fishing because of the spill.

The relief well is the best chance to stop the leak. A bore hole must precisely intersect the damaged well, which experts have compared to hitting a target the size of a dinner plate more than two miles into the earth. If it misses, BP will have to back up its drill, plug the hole it just created, and try again.

“The probability of them hitting it on the very first shot is virtually nil,” said David Rensink, incoming president of the American Association of Petroleum Geologists, who spent most of his 39 years in the oil industry in offshore exploration. “If they get it on the first three or four shots they’d be very lucky.”

The trial-and-error process could take weeks, but it will eventually work, scientists and BP said. Then engineers will then pump mud and cement through pipes to ultimately seal the well.

On the slim chance the relief well doesn’t work, scientists weren’t sure exactly how much — or how long — the oil would flow. The gusher would continue until the well bore hole collapsed or pressure in the reservoir dropped to a point where oil was no longer pushed to the surface, said Tad Patzek, chair of the Petroleum and Geosystems Engineering Department at the University of Texas-Austin.”

Australian Super Tax on Resource Producers Could Slow Down Commodities: Traders Wary

Sunday, May 9th, 2010

Australia is the largest supplier of coal and iron ore to developing nations such as China.  Government officials have been watching for the past five years as their resources have been exported to these ever-growing nations.    A resource tax was recently imposed on the largest Australian exporters of raw materials, so that Australian could benefit from the exploitation of their resources.  Unfortunately, this tax is both too high and comes at the worse time, as the western world begins to recover from the deepest recession since the 1930s.  Commodities producers have already halted projects in Australia in shock.  Talk about bad timing…as Greece falls into an abyss, other nations impose taxes to cut down production.

According to Ms. Daley of Bloomberg, “Australia will impose a 40 percent tax on the profits of resource companies like BHP Billiton Ltd. and Rio Tinto Group to pay for infrastructure, retirement and company levy changes as part of the broadest overhaul of its tax system since the Second World War.

The government, commenting on Treasury Secretary Ken Henry’s 10-year tax plan, said the tax would start in 2012 and raise A$12 billion ($11.1 billion) in the first two years. The move to better tap into the nation’s mining boom, fueled by commodities demand from China and India, comes as Prime Minister Kevin Rudd prepares for an election later this year.

“This will use super profits on resources owned by all Australians,” Rudd told reporters in Canberra, saying he’s prepared for a backlash to the measures. “This will help convert Australia’s strong economic position today into enduring prosperity.”

The changes set up a potential clash between Rudd and resources companies that make up 9 percent of the economy and last week warned that a 40 percent levy and double taxation with state royalties would threaten $108 billion worth of planned investment.

“If implemented, these proposals seriously threaten Australia’s competitiveness, jeopardize future investments and will adversely impact the future wealth and standard of living of all Australians,” BHP’s Chief Executive Officer Marius Kloppers said in an e-mailed statement today. The company’s effective tax rate will increase to 57 percent from 2013 from 43 percent now on its Australian earnings, it said.

Profit Cut

BHP, the world’s biggest mining company with 51 percent of its assets in Australia, will have earnings cut by 19 percent as a result of the tax, Merrill Lynch & Co. said in an April 27 report on the 40 percent tax. Rio, the world’s second-largest iron ore exporter, which has about a third of its assets in Australia, would see a 30 percent earnings cut.

The proposal may erode Australia’s “competitiveness, severely curtail investment and limit job growth,” said David Peever, Rio’s managing director for Australia.

“Altering the rules for existing multibillion dollar projects in mid stream, after large amounts of capital have already been put at risk over many years, would be the worst possible message Australia could send to investors,” Peever said in a statement.

The government today said it will compensate companies for the state royalties they have paid.

‘Highest’ Taxes

“Under the plan announced today, Australia will have the highest taxed mining industry in the world,” Minerals Council of Australia Chief Executive Officer Mitch Hooke said in an e- mailed statement. “Australia’s hard-earned reputation as a stable investment environment will be dramatically undermined.”

The government runs the risk of “taking away from Australia the strongest industry we have and the one that saved us from the global financial crisis,” said Keith De Lacy, chairman of Brisbane-based Macarthur Coal Ltd., the world’s largest producer of pulverized coal. “Always 50 percent of our net profits went into development and exploration and so much of that is going now so obviously we’ll grow slower.”

The introduction of the resource tax would cut Australia’s competitiveness, Citigroup Inc. said on April 28 before the release of the review. Mining companies’ tax burden currently stands at 35 percent, Citigroup said in its report last week.

Chinese and Indian demand for resources from Australia, the world’s biggest exporter of coal, iron ore and alumina, helped the A$1.2 trillion economy skirt recession during the global financial crisis. China is the nation’s largest resource customer.

Aging Population

Rudd’s Labor government, which has led the opposition Liberal-National coalition in opinion polls, commissioned the tax review two years ago to create a simpler and fairer system to meet the needs of a growing and aging population. One quarter of a projected population of 36 million will be aged 65 and over by 2050, increasing pressure on roads, rail, ports, schools and hospitals.

The government will use the resource tax revenue to create a A$5.6 billion infrastructure fund, cut company taxes to 28 percent in mid-2014 from the current 30 percent and boost retirement funds, now worth A$1.3 trillion. It will also give a tax concession for resource exploration, including geothermal, affecting 4,300 companies, Treasurer Wayne Swan said.

The company tax rate, reduced to 30 percent from 36 percent by the previous Liberal-National government, will be cut to 28 percent by mid-2014, with 720,000 small businesses getting a one-year head-start. The government may decrease the rate further.

Retirement Funds

The government will also increase the amount companies have to pay into people’s retirement fund to 12 percent from 9 percent of their gross salary in mid-2019. Australia will also make it more attractive for some 8.4 million Australian workers to increase their own contributions to the pool and the changes will add A$85 billion to the A$1.34 trillion fund, Swan said.

In total, the government’s tax policy changes will add 0.7 percent a year to the nation’s economy.

Economic growth in Australia will accelerate to 3.5 percent in 2011 from 3 percent this year, and the country will continue to be among nations leading the world on raising borrowing costs, the International Monetary Fund said on April 21. Glenn Stevens, the first Group of 20 central bank governor to raise rates after the global recession, also expects Australia’s economic growth to strengthen this year.”

Haliburton Buying Boots & Coots for $240 million, Cash & Stock Deal

Sunday, April 11th, 2010

Haliburton, a leading services company competing with Schlumberger recently announced the acquisition of Boots & Coots, after the founder of the firm passed away late March. Edward “Coots” Matthews was a phenomenal entrepreneur who died working at the age of 86. The deal was recommended by the company’s board of directors, to take advantage of the fact that Boots & Coots would need new leadership. Boots & Coots provides a suite of integrated pressure control and related services to onshore and offshore oil and gas exploration and development companies worldwide.

Boots & Coots may see an influx of business along with other firms in the space because of Obama’s recent approval of offshore drilling for oil.

According to Mr. Shankar of Bloomberg, “Halliburton Co. agreed to buy Boots & Coots Inc. for about $240.4 million in stock and cash, adding equipment and services to fight oil-well fires.

Boots & Coots holders will receive $1.73 in cash and $1.27 in Halliburton stock per share, Halliburton said in a statement yesterday. The combined price, $3, is 28 percent more than Boots & Coots’ closing price yesterday. Both companies are based in Houston.

The addition of Boots & Coots will allow Halliburton to offer a more complete suite of services to customers, said Marc Edwards, a senior vice president. Halliburton is the world’s second-largest oil-field services company after Schlumberger Ltd.

Edward “Coots” Matthews, who died on March 31 at 86, founded the company in 1978 along with Asger “Boots” Hansen. For 20 years prior to that, they had worked with Red Adair, whose skill at battling oil-well fires was portrayed in the 1968 movie “Hellfighters,” starring John Wayne as Adair.

Both Matthews and Hansen were involved in fighting well- known oil-well blowouts, including the “Devil’s Cigarette Lighter” in Gassil Touil, Algeria, in 1961 and another at Lake Maracaibo in 1991. They also extinguished the fires from 700 oil wells in Kuwait, blazes set by retreating Iraqi troops near the end of the first Gulf War in 1991, according to the company.

For 2009, Boots & Coots reported net income of $6 million, or 8 cents a share, on revenue of $195.1 million.

Halliburton said the boards of both companies had approved the transaction and it will close this summer.

Boots & Coots had 80.13 million shares outstanding as of March 2, according to Bloomberg data. The stock fell 3 cents to $2.35 yesterday. It’s up 42 percent for the year.

Halliburton fell 9 cents to $31.57 in New York Stock Exchange composite trading yesterday. The shares have climbed 4.9 percent this year.”

Peabody Increases Offer for Macarthur Coal to $3.6 Billion After Rejected $3.3 Billion Bid, Bidding War with Noble – Research Attached

Tuesday, April 6th, 2010

Regional Thermal Coal Sector

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The coal market is heating up in Asia, and North American companies are struggling to capture some of the growth in the region. Australian companies like Macarthur Coal have been able to capitalize on the Chinese need for natural resources. Peabody has entered a bidding war with Noble Energy for Macarthur Coal.  The company increased its offer by $300 million from $3.27 to $3.57 billion.  Analysts are waiting for the Macarthur’s shareholder meeting on April 12th…

According to Businessweek, “Peabody Energy Corp., the biggest U.S. coal company, increased its takeover offer for Macarthur Coal Ltd. by 8 percent to A$3.56 billion ($3.27 billion) after the Australian company rejected the first bid.

Peabody offered A$14 cash a share, it said in a statement, from A$13. Macarthur, which last traded at A$14.87 before it was halted, last week rejected the initial offer because it didn’t value its expansion plans.

The offer may thwart Noble Group Ltd.’s attempt to become Macarthur’s biggest shareholder in a stock swap for the Hong Kong-based commodity supplier’s Gloucester Coal Ltd. Peabody operates eight mines in Australia’s Queensland and New South Wales states, and is seeking more to feed power stations and steel mills in China, the world’s largest user of coal.

ArcelorMittal, the world’s biggest steelmaker, holds 16.6 percent of Macarthur and South Korea’s Posco owns 8.3 percent, according to data compiled by Bloomberg. Citic Australia Coal Ltd. has 22.4 percent. Peabody is offering alternatives to Macarthur’s three major shareholders should they wish to maintain their holdings in the company.

Macarthur is the world’s biggest supplier of pulverized coal used by steelmakers. Peabody wants Macarthur to delay an April 12 shareholder meeting when investors will vote on the Gloucester and Noble deal.

Separately, Noble backed by China’s $300 billion sovereign wealth fund, moved to secure full ownership of Gloucester by offering A$127 million, or A$12.60 a share, for the 12.3 percent of Gloucester it doesn’t own, Singapore-based Noble said today in a statement. Gloucester, halted from trading in Sydney, last traded on April 1 at A$9.31.”

According to Peabody, “This represents: a 44% premium to A$9.70 per share, the price at which Macarthur agreed to issue shares to Noble Group in relation to the Gloucester takeover offer (and provide board representation);

a 39% premium to A$10.04 per share, the closing share price of Macarthur on 25 February 2010, just prior to the release of the Lonergan Edwards Independent Expert’s Report;

up to a 42% premium to the valuation range for Macarthur determined by the Independent Expert, based on a 100% controlling interest; and

a 22% premium to A$11.48 per share, which was the 30-day volume-weighted average share price through 30 March 2010, when Macarthur announced Peabody’s original proposal.

Peabody has also reduced the conditionality of the proposal. While Peabody continues to offer alternatives to the three major shareholders to retain their original interest in Macarthur, Peabody’s offer is not contingent on their commitment provided the Macarthur Board supports our proposal.

Peabody today repeated its request to the Macarthur Board to delay its 12 April 2010 shareholders’ meeting, so that its shareholders may have the opportunity to consider Peabody’s proposal and realize a cash premium for their shares.

If the 12 April 2010 meeting proceeds and the resolution is approved, it will mean the Gloucester takeover offer and associated transactions with Noble Group are likely to proceed, in which case Noble Group will receive shares at a significant discount to the current price and Peabody’s proposal will lapse. Macarthur shareholders would then lose any potential opportunity to benefit from Peabody’s proposal.

Peabody believes the takeover offer for Gloucester and the associated transactions with Noble Group are not in the best interests of Macarthur shareholders. In particular, Peabody believes:

Macarthur is paying too much for Gloucester. Based on Peabody’s indicative offer price, Macarthur’s offer for Gloucester is valued at nearly A$1 billion. This is more than 40% higher than the mid point of the Independent Expert’s valuation of Gloucester and 26% above the top end of the valuation range determined by the Independent Expert. It would result in Gloucester’s shareholders receiving the majority of the benefits of the transaction;

Noble Group will receive Macarthur shares at a significant discount, becoming its largest shareholder and holding a position of significant influence. Macarthur is proposing to issue shares to Noble Group at A$9.70 per share; Peabody’s proposal is 44% above this price;

While the Independent Expert appointed by Macarthur concluded that the proposed issue of shares to Noble Group was reasonable, it also determined the offer was not fair based on a relative valuation assessment. Peabody believes that Noble Group’s proposed ownership interest in Macarthur would provide a blocking stake, further reducing the likelihood of any future premium offer for Macarthur shares.

Peabody believes its proposal is superior. Peabody’s indicative offer price of A$14.00 per share is more than 12% above the highest value for Macarthur that was determined by the Independent Expert, on a 100% controlling interest basis.

Peabody continues to urge Macarthur’s board to delay the 12 April shareholders meeting to provide its shareholders the opportunity of making an informed choice between proceeding with the Gloucester takeover offer and associated transactions with Noble Group, or endorsing a proposal from Peabody that would deliver a cash premium for their shares. Peabody believes it is in the best position to deliver a superior outcome for Macarthur shareholders.

According to Bloomberg, “Gloucester Coal Ltd., an Australian producer controlled by Noble Group Ltd., said it expects its largest shareholder to make an offer to buy the company.

Noble, which had earlier agreed to swap its stake in Gloucester for shares in Macarthur Coal Ltd., holds 87.7 percent of Gloucester, the Sydney-based company said today in a statement requesting a trading halt.

The bid comes after Peabody Energy Corp., the biggest U.S. coal company, last week offered A$3.3 billion ($3 billion) in cash to buy Macarthur Coal Ltd., the biggest exporter of pulverized coal used by steelmakers. Brisbane-based Macarthur rejected Peabody’s offer saying it fails to value its expansion plans.

Macarthur shares were halted from trading in Sydney today pending the release of an announcement about Peabody’s “interest” in the company, it said.”

$65 Billion Wind Energy Investment by China WindPower, Iberdrola SA, and Duke Energy!

Tuesday, March 23rd, 2010

Wind-power will generate almost 41 gigawatts of energy generation capacity this year.  This is the equivalent of 34 new nuclear power plants!  Wind development is growing exponentially, especially in the U.S. Southeast and Midwest.  $65 billion will be invested in new wind development this year!  Turbine costs are falling, driving up demand as government subsidies further enhance the wind energy market.  Renewable energy is certainly gaining market share, but at lower margins for manufacturers.

According to Mr. Loon and Mr. Morales of Bloomberg, “China WindPower Group Ltd., Iberdrola SA and Duke Energy Corp. will lead development of an estimated $65 billion of wind-power plants this year that let utilities reduce their reliance on fossil fuels.

The estimate from Bloomberg New Energy Finance assumes a 9 percent annual increase in global installations of wind turbines, adding as much as 41 gigawatts of generation capacity. That’s the equivalent of 34 new nuclear power stations.

Utilities that built natural gas-fired generators during the last decade are increasingly erecting turbines and buying wind power from competitors, tapping a renewable-energy source as governments consider ways to penalize carbon-based fuels.

“Wind development is moving fast,” James Rogers, chairman of Duke, which owns utilities in the U.S. Southeast and Midwest, said in London on March 18 at the Bloomberg New Energy Finance conference. “In the last 10 years, 90 percent of plants we’ve built have been gas. I’ve used gas plants like crack cocaine.”

While gas-fired plants are relatively cheap to build and pollute less than coal plants, they still emit carbon dioxide, which will carry higher costs if governments tighten environmental rules.

Last year, $63 billion was invested in turbines, adding 37.5 gigawatts of new capacity and bringing potential output of electricity from wind to 157.9 gigawatts, according to the Global Wind Energy Council, a Brussels-based industry group. A third of those turbines were installed in China, which doubled its capacity to 25 gigawatts.

Lower Prices

Wind is gaining support as turbine costs fall and government stimulus money helps pay for the plants. Prices for turbines have declined by about 15 percent to 1.05 million euros ($1.44 million) per megawatt over the past two years, according to William Young, an analyst at Bloomberg New Energy Finance.

“It makes sense and it makes money,” said Michael Liebreich, founder of the London-based consultant bought by Bloomberg LP in December.

If this year’s forecast holds, the new wind turbines may supply up to 12.3 million homes, less than the almost 33 million customers that the 34 nuclear plants would power with the same capacity, according to data from the U.S. Department of Energy and American Wind Energy Association. Output from a nuclear plant is steady while turbines work only when the wind blows.

Renewables Boom

Worldwide investment in renewable-energy, which also includes solar and biomass facilities, may top $200 billion this year after outlays fell 6 percent to $162 billion in 2009, Bloomberg New Energy Finance estimates.

That investment is moving ahead even after world leaders failed to reach a binding agreement limiting emissions from carbon-based fuels when they met in Copenhagen in December, Deutsche Bank AG Vice Chairman Caio Koch-Weser said. The cost of carbon permits for December 2010 traded in Europe has fallen 3.2 percent since that summit ended.

“The renewables story is gaining momentum independently now,” Koch-Weser said in an interview at the same conference. “I see with many clients from China to California to India now a really good renewables paradigm shift happening.”

This year, Duke plans to install 250 megawatts of wind equipment in the U.S., Rogers said. Bermuda-based China WindPower will invest about HK$900 million ($116 million) in 10 to 12 wind farms this year, nearly doubling its capacity, the company said on March 8. Iberdrola SA’s clean-energy unit expects to add 1,750 megawatts of new capacity in 2010, most of that from wind power, it said last month.

Market Share

Renewable energy sources may expand their share of the electric power generation market to 9 percent worldwide by 2030 from 2.5 percent now as gas use remains about 21 percent, the International Energy Agency estimates. Natural gas consumption has risen 20 percent since 2000, the IEA says.

Coal, which produces the most carbon when burned, also is benefiting from rising energy demand. Its market share for electric generation will grow 3 percentage points by 2030 to 44 percent, according to the IEA.

The world needs to invest $26 trillion through 2030 to meet growing energy demands, the IEA, an adviser to oil-consuming nations, said last year. Proven gas reserves are sufficient to provide supply for 60 years at current production rates, the group said in its World Energy Outlook, published in November.

‘Scalability’

Lower wind turbine prices mean more power for the same money, and developers are rushing to take advantage of $184 billion in economic stimulus money set aside for clean energy projects, said Mike O’Neill, president and chief operating officer of wind project developer Element Power.

“We are getting low-cost, low-risk money into this market,” O’Neill said. “You are getting money coming in.”

Making wind power even more attractive is its “scalability,” or the ease with which a developer can add turbines as demand rises, said Petra Leue-Bahns, chief financial officer of Ecolutions GmbH.

“Wind is relatively easy to install in big packets and then scale up,” she said. “Wind will probably reach grid parity” and be able to compete with fossil fuels without subsidies within four years, she said. Ecolutions invests in renewable-energy projects in Europe and Asia.

BP Plc, the world’s biggest oil producer, is investing in wind and solar power as renewable energy gains market share on fossil fuels.

“If you want to have the same size of company that you have today, then you need to start the shift,” said Katrina Landis, chief executive of the London-based company’s alternative energy unit. “It means to some degree giving up what you’ve done for the last 100 years.”