The company’s new mining division will be attractive fare for global mining majors hungry for bigger exposure to iron ore
Stewart Bailey
Iscor’s soon-to-be-created mining division has been tipped as a star performer on the JSE Securities Exchange, but it is unlikely to grace the bourse’s resource board for very long.
The division, to be dubbed Kumba Mining (meaning “to dig” in Zulu) after its split from Iscor Steel, houses the last great iron-ore operation still up for grabs. Early indications are that mining majors are licking their chops at the prospect of getting their hands on the group.
The jewel in its crown, the Sishen open-cast mine in the Northern Cape, is the third-largest iron ore mine in the world, boasting a production of about 26-million tons of high-grade output each year. Plans to beef up production to around 30-million tons a year are far advanced and Kumba’s executives put the life of the mine at 27 to 30 years.
Analysts agree that once the mining and steel divisions are separated, the door will be open for BHP Billiton, Anglo American, Anglovaal Mining and Rio Tinto to duke it out for the mining group. That said, most agree that Kumba will boast one of the shortest-lived listings on the Johannesburg exchange.
Sishen’s attraction is strong. Its capital expenditure is past its peak, with the group expecting to spend about R200-million a year from next year. The iron-ore business churns out cash at an alarming rate and it is expected to show earnings for the year of more than R1,1-billion. All told, these factors provide the perfect recipe for a bidding war as the resource land-grab enters its final phase.
So we have a mining group with an attractive suite of assets and three or four serious contenders lining up with their chequebooks. It is easy to put forward a strong case for each of Anglo, BHP Billiton, CVRD or Rio Tinto to take the honours.
Smart money is on Anglo to pick up Kumba once the bidding starts. It has tried and failed to get its hands on Australia’s North, where it was scooped by Rio Tinto, and Brazil’s Caemi and Fertecao, where it was pipped by CVRD. Getting hold of Sishen is its last chance. The bulk of the operations are in its own backyard and it will be prepared to pay up for them.
But Anglo can expect a spirited fight from both Rio Tinto and BHP Billiton, particularly since Billiton has the former head of Iscor mining, Ben Alberts, on its board.
The key to their ardour, however, is likely to lie in Kumba’s Hope Downs iron-ore prospect in Australia.
According to initial assessments, Hope Downs has a reserve of 401-million tons and will produce 25-million tons of iron ore a year. But the glitch is the lack of rail infrastructure needed to transport the ore 370km to Port Hedland for export.
BHP Billiton and Rio Tinto each have rail lines servicing their own iron-ore assets, which flank Hope Downs on either side; and they don’t want to share. While there is a precedent in Aussie law which allows for infrastructure sharing among competitors, Iscor has made slow progress in this regard and its execu-tives don’t seem hopeful of a resolution. Analysts seem doubtful that the project will fly if it has to shoulder the burden of a rail project on its balance sheet.
There is one caveat, though. Remember the North Ltd bidding war? Japanese steel producers sided with Anglo American, with the promise of assisting in securing funding for the railway line to service the mine. Not much has changed.
The major steel mills Mitsui, Sumitomo and Nippon are still concerned about the consolidation in the iron-ore industry and the potential squeeze by CVRD, BHP Billiton and Rio Tinto on their input costs. They might assist in funding infrastructural costs in return for equity in the project or some price concessions from Anglo.
Or BHP Billiton and Rio Tinto could form a joint venture company to take out Kumba or Minnow and early aggressor Avmin could be the surprise package and beat the majors to the punch; the possibilities are endless. But whichever way this goes, investors will want to be in Iscor before the next round of resource consolidation starts.
@Name-dropping, spreading sauces and some brave forecasts
Bruce Whitfield
Hollywood stars and some of the world’s big multinationals have been knocking on Robbie Brozin’s door recently, but there’s no “For Sale” sign up on Nandos just yet. Operating in about 20 countries, it’s still very much a South African group, but because of its strong presence in London, many franchise enquiries are coming via the British capital.
After reporting diluted headline earnings of 2,86c for the past year Brozin is upbeat about comfortably beating that in the year ahead. “Anything above 65, 70% is what we think we are going to be achieving. Our management team has to achieve that.” He’s confident that his brand is increasingly being recognised worldwide, and while he has had a lot of interest from the United States he is still very wary of investing there, and he is against doing what he describes as “Hollywood-type deals”.
“Guys like Denzel Washington, who comes to South Africa, love Nandos. As he arrives, he jumps in and has his fix of Nandos. Also had some interest from Oprah Winfrey when she came out recently and we’ve had some discussions with her, through third parties. I haven’t directly had a chat to Oprah.”
Nandos’s South African base poses some interesting challenges for the company on a global scale. After starting out in Rosettenville in Johannesburg’s southern suburbs in the 1980s, Nandos rates itself as the world’s biggest non-American chicken franchise business, but that doesn’t seem good enough for some of the world’s bigger players.
“The multinationals look at South Africa and write off South Africa completely. It’s actually quite embarrassing. If you talk to a merchant banker in London, or you talk to a merchant banker in New York, they basically take our South African operation and wipe it off. They look at London and even Australia, to a certain extent. They say, that’s not real, you’ve got to be in London and you’ve got to be in America.”
But Brozin admits the US market is one the group is scared of. It’s a market he would have been tempted to dive into two years ago, but he says the group has decided to take a more conservative approach to doing business in the US and is starting to test that market by selling its sauces, which are produced in South Africa, there. That means they are being produced with rand costs and are generating hard currency revenues.
“We’ve had a hell of a lot of response from people wanting to open with us in the US. People feel that we are trended right. There are some global food trends, people think Nandos must come into the US now, we’ve had incredible interest from film stars and various other people.”
The group has spent much of the past year on its extensive restructuring programme, and has been trading as a restructured group for the past six months.
Brozin admits the group has taken a far worse than expected “klap” in Israel due to the ongoing political crisis in that country, and has budgeted for a loss this year. While South Africa forms the backbone of the profits, good money is being made in the United Kingdom, Australia and New Zealand. Canada could turn a small profit in the current financial year, while the new Middle Eastern operations will need some time to bed down.
“South Africa is slowing down dramatically, because we are no longer a company-owned operation, we are a franchise operation. South Africa, as a contributor to the profits of the group going forward, is going to be reduced as we go along. We see our main hubs as being the UK and Australia.”