This blog post by Andy Whitmore originally appeared on the PIPLinks website.
On 30th January, the relatively minor Australian ‘miner’ Indophil released their quarterly report for the three months ending 31 December 2013. Such standard reporting fare hardly registers very high on the ‘news Richter scale’. Yet, part of the release managed to spark reports, first in the Philippine press, and then across global news wires.
Indophil is the junior partner of Glencore Xstrata in the Tampakan project in the Southern Philippines. This project has long been resisted by many of the local B’laan indigenous people, and has been the centre of huge amounts of controversy. This is at least partly thanks to multiple human rights violations resulting from the attempts of various companies to push this project through against public opposition in a highly militarised area. You can read a range of articles on the situation here.
The news that was jumped upon by the press is the quote that “Glencore Xstrata has informed Indophil of its preference to divest its stake in Tampakan.” This led to headlines such as Rappler’s “Glencore-Xstrata selling Tampakan stake” and Reuters’ “Glencore Xstrata to sell stake in Philippines copper-gold project”.
For those of us who have followed this project, working on behalf of the B’laan communities, I guess this throws up a number of questions. First, is this really news at all? Glencore has been saying to anyone who wants to listen that it they wish to pull out of a number of large-greenfield (copper) projects. Indeed the Chinese competition authorities have insisted Glencore must divest of at least one mega-copper project in order to secure last May’s merger with (or rather take-over of) Xstrata. The currently nominated project is Las Bambas, but the company is so far struggling to secure the sale. Also, Glencore have effectively ‘moth-balled’ the Tampakan project, including widespread redundancies, which is hardly a ringing endorsement of their enthusiasm.
Therefore, none of this seems like particularly fresh news, but perhaps it is the most direct ‘confirmation’ of sale we’ve had (even if Glencore is maintaining a characteristically gnomic silence on the affair). Likewise, it seems the headline writers have distorted what was originally announced to make it much more a fait accompli.
So what is in it for Indophil to publicise this news? As their report notes later “To date, no formal divestment process has commenced in respect of Glencore Xstrata’s interest in Tampakan, although discussions have been ongoing.” So if there seems no need to announce to the world that these discussions are happening, why do it?
The wants and desires of these two bed-fellows have seldom matched in the past. Indophil, as a smaller company with greater pressures on cash-flow, have long been pushing for the project to progress faster than their senior partners wish. (It is interesting to note that while Xstrata and then Glencore have, rightly, come in for criticism for trying to steamroller the project through against local wishes, at least they have been advocating for a slower pace in order to gain the necessary ‘social license to operate’). Now it seems that Glencore’s enthusiasm has deteriorated to the point of the project being on virtual, permanent hold. A behemoth like Glencore can afford that easily, given that it keeps the asset on its books while it concentrates on other developments (and the slow process of re-arranging assets after its merger). A minnow like Indophil needs some sort of return as it stares at its cash reserves, and shareholder patience, draining away.
So Indophil needs to look like it is doing something. And that something is to be talking to Glencore on ways forward. Its apparent, indeed somewhat fanciful, solution is to buy out Glencore’s majority stake in the mine. That solution would put it back in the driving seat of the dumper-truck, with full diesel engine ahead (straight into the road blocks thrown up by local opposition). But it also seems, in honesty, extremely unlikely. Looking at the accounts of the company, its only apparent major asset is its 37.5% share of the project. What collateral can it raise to get the money to buy out the majority partner’s share? Surely not it’s own share? That’s a strange form of double accounting. It is not impossible, especially if a white knight were fool enough to ride to the company’s aid (a large Chinese mining company or one of the larger Philippine mining houses, like Philex or San Miguel Corp; the latter having already sunk money into the project and looking to supply the coal-fired power for the mine). But it is very unlikely. And that then begs the question why would any would-be rescuer invest through financing Indophil, rather than just buying any stake directly from Glencore?
Also how likely is it that any negotiations between Indophil and Glencore would go well? As noted their relationship has been historically strained. (Interestingly, these spats have given campaigners one of their greatest gifts, via a prospectus that Xstrata published in 2008 when trying to buy out Indophil’s stake from their shareholders. In it Xstrata laid out all the reasons that investing in Tampakan was a serious risk in order persuade Indophil shareholders to sell at the price offered. All those points argued then still hold true, and any potential buyer into the project now would do well to consult that document!).i
The current relationship far from happy. The headline-seeking news sources missed a genuinely interesting snippet of information buried in Indophil’s recent report. The Supreme Court of Queensland has (re)scheduled court proceedings between the two project partners. It seems that Indophil has not yet made Glencore Xstrata the registered legal owner of the 62.5% share of the local company, Sagittarius Mining Inc. (SMI), that they bought some time back. According to the report “Indophil has lodged its defence, and the Court process is continuing.” Apparently this problem has occurred for tax reasons (what better reason is there?), and is supposedly owing to the nefarious world of Philippine bureaucracy. So it would seem that Glencore Xstrata doesn’t even legally own the shares it is trying to divest! As if this cursed project needed any more uncertainty… So, it looks like there must be more of that inevitable delay; the very delay that Indophil, even as it fights the court case, can so do without.
To me that is the key point. There will be delay, and JCB-digger loads of it. I am sure on past experience it will take a long time to find a buyer for Glencore’s share (assuming one can be found), to go through necessary due diligence and then, if after that they can, to secure a sale. The example of Las Bambas is indicative of the Tampakan situation. Under pressure to sell because of the merger, deadlines were set for the project’s sale. Various Chinese conglomerates declared an interest, and yet now – roughly nine months after the merger – still no deal has been done as the Chinese buyers look for a bargain, and Glencore refuse to give it to them.
For those supporting the B’laan and other local communities opposed to the mine, such uncertainty and delay are surely all welcome (assuming that the ideal won’t happen; that is that the companies involved simply get up and leave). These latest shenanigans just add to the arguments of what a black-hole the project is, sucking in company money and resources while failing to move forward.
There are at least two absolute, clear local impediments for the project moving forward. The first is the provincial government’s ban against open-pit mining. There are often rumours this could be overturned, but so far this has failed to happen. Tellingly, despite arguing it is unconstitutional, the companies have been very reluctant to take a case to the Supreme Court. The second, and perhaps more important is to get the free, prior, informed consent of the B’laan who will be affected by the project. Recently, B’laan representatives have lobbied the Philippine government to ask that no free, prior, informed consent even take place, as the pre-conditions for giving free consent were not there, while their area is militarised and their leaders are being killed. Given the blood that has been spilled, it seems unlikely that position will change any time within people’s living – and possibly ancestral – memories.
Indophil know this, and surely their directors and current investors must be terrified as uncertainty piles on misfortune for them. But any other investor considering betting on this project would just walk on by.
i) Xstrata Copper Bidder’s Statement, Offer by Xstrata Queensland Limited to acquire all of your shares in Indophil Resources NL., 13 June 2008
This blog post by Andy Whitmore originally appeared on the PIPLinks website.