BHP Billiton in the firing line: 2010 stylePublished by MAC on 2010-10-25
Source: IPS, Telegraph, Globe & Mail (2010-10-20)
The world's most profitable mining company, BHP Billiton, came in for varied criticisms at its London annual shareholder meeting last week.
The "Big Australian"s failure to implement promises in Colombia; potential damage from a planned coal mine in Indonesia; and a possible violation of rights to self-determination by the people of Western Sahara, came under some scrutiny.
To the company, such issues are minor irritants. No doubt that's also true of problems caused by emissions from its upgrade of the Mozal aluminium smelter in Mozambique - once vaunted by BHP Billiton as its model project.
Much more important to the directors in the near future is dealing with the recent failure to amalgamate their Australian iron ore operations with those of Rio Tinto - a joint venture which could have added several billion dollars yearly to their profits.
Then there's the Saskatchewan problem. Many in the province oppose BHP Billiton's attempt to take over the world's biggest potash miner. And that battle has now been joined by some indigenous First Nations.
Mind you - while loyally beating the "pro-Saskatchewan" drum - some of Potash Corp's top executives also stand to gain a hefty pay-out, should BHP Billiton's bid succeed. Or so says Toronto's Globe and Mail.
In the end, and whatever the outcome of BHP Billiton's current plays at maintaining its global ascendancy, it's not likely that the poor or oppressed will stand first in line to toast any future company successes.
[Comment by Nostromo Research, 23 October 2010]
BHP Billiton Plans Six Month Bypass of Smelter Smokestack Scrubbers
By Nastasya Tay
20 September 2010
The company says it needs six months to upgrade fume treatment centres, during which time emissions will be released directly into the air.
Civil society groups are challenging a six-month authorisation granted aluminium giant BHP Billiton to emit potentially dangerous fumes from its Mozal smelter into the air without treating them first.
In May, the government gave BHP Billiton's Mozal smelter, located in the town of Matola, 17 kilometres from the capital, the go-ahead to bypass two Fume Treatment Centres (FTCs) at its carbon plant, which re-processes and produces anodes for use in producing aluminium.
Authorisation for the bypass, which Mozal says is required to rebuild and upgrade the FTCs, has been granted for a period of six months, and is due to begin in late October 2010.
Environmental groups opposed
Civil society groups in Maputo and Matola filed a court action Sep. 14 to reverse the government's decision, which they say is based on insufficient information about the potential impact to human health and the environment around the smelter.
The presence of fluoride in the anode production process means that compounds which pose both short and long-term threats to health are part of the cocktail of fumes during reprocessing. The purpose of the FTCs is to filter the carbon plant's emissions of potentially harmful pollutants, before it is released into the air.
Bypassing the FTCs means that compounds including hydrofluoric acid and sulphur dioxide - which in sufficient quantities can cause hypocalcemia, cardiac and respiratory arrest, and death - will be released into the atmosphere in greater concentrations.
While Mozal claims that the quantities of harmful emissions will not endanger human health or the environment around the smelter, a civil society coalition established to fight the bypass, led by local groups Livaningo and Justica Ambiental (Environmental Justice), says that the community has not been presented with adequate evidence that the bypass will not be harmful to their health.
The coalition has collected over 14,000 signatures on a petition to be submitted to the government, outlining their concerns and asking that more information be made available before a decision is taken on the matter.
Antonio Reina, spokesman for the coalition, says public health is his biggest concern. "It has been aggravated by the process by which they are dealing with it. It's very sad that a company like Mozal goes around like this, operating with complete impunity," Reina says.
Some of Matola's nearly one million residents live within two kilometres of the 10-year-old smelter, and are concerned that their proximity to the untreated emissions will cost them dearly.
Arlindo Mandlate lives five kilometres from the smelter. He believes that the operation of the smelter has already damag ed agricultural production in the area, to the detriment of local livelihoods. And he says the bypass will only make it worse.
Public consultation deemed inadequate
Mozal held meetings with the community but we aren't happy with the explanations. We are really worried. They say that they are meeting international standards without the filters but this doesn't make sense to us. Why would you spend $10 million replacing filters if you don't need the filters? It's a contradiction," Mandlate says.
Mozal says it has actively sought stakeholder engagement, but the community disagrees. After announcing the bypass operation at the end of a regular community meeting in April 2010, a public outcry encouraged Mozal to convene three meetings - for civil society, the media, and the community respectively - to explain what was happening.
These meetings have been described by local civil society leaders as extremely basic information sessions which should not be characterised as public consultations. A series of debates televised on several local stations took place without a Mozal representative.
BHP Billiton operates another similar aluminium smelter, across the border in South Africa at Richards Bay. The Richards Bay Clean Air Association's Sandy Camminga says that they would strongly object to such an event at the Hillside Aluminium Plant in Richards Bay.
"To the best of our knowledge the longest bypass undertaken at Hillside Aluminium Smelter lasted 72 hours, and took place amid objections and serious environmental and health concerns," Camminga says.
Company points to safety findings
Mozal says it has commissioned an independent report on the safety of its proposal, including an appropriate air dispersion model to simulate the distribution of harmful pollutants during the bypass. According to a Mozal statement, the report, co-authored by two independent consultants, concludes that "the outcome of the predicted values showed a non-significant cumulative impact on health, environment and community."
However, the report has not been released to the public, and its two authors have not been given permission to speak publicly about their findings.
The only report in the public domain - a single printed copy has been placed in the library of the Mozambican Ministry for the Coordination of Environmental Affairs (MICOA) in Maputo - is a study commissioned by the Mozambican government to assist it with making the decision on whether to grant the bypass authorisation.
This report concludes that the bypass poses no significant risk, but disturbingly alludes to the impossibility of holding Mozal responsible for damages that may occur in areas affected by the emissions, because the government has no record of environmental quality in those areas.
Harold Annegarn, a professor at the University of Johannesburg with over 30 years experience in air quality management, has reviewed the findings and been in discussion with the industry players involved. Annegarn says the government's anonymously-authored report uses an inappropriate scale for its dispersion study, "and as a result, it tells us nothing... From the study, it is impossible to tell whether emissions would be within the World Health Organisation recommendations for exposure."
However, having consulted with the authors of Mozal's commissioned report, Annegarn is confident that the other study was completed appropriately. And based on that study, he is satisfied that the predicted emissions levels would not constitute a risk to human health.
An independent company, SGS, has also been engaged to monitor emissions for the duration of the bypass.
But Arnegarn is concerned that neither the company's report, nor information about ongoing monitoring, has been made available to the public.
I am concerned that the public has not had the relevant information made available to them," Annegarn says, "And that's the company's responsibility to do that... There's been a complete lack of transparency."
Does move meet performance standards?
The Mozal smelter is funded in part by World Bank financing, through the International Finance Corporation (IFC), requiring it to adhere to specific performance standards - which have been adopted as global industry standards - throughout the life of the project to maintain its loan.
Desmond Dodd, IFC Africa's head of Communications, says "IFC is aware of the issues surrounding Mozal and its emissions during plant maintenance. IFC requires its clients adhere to high environmental and social standards, and so we are in consultation with the company to ensure that any emissions are consistent with those standards."
Mozambique's Environmental Affairs Ministry declined to comment, saying discussions about the bypass issue were ongoing.
BHP Billiton also declined to comment beyond a statement issued in July 2010, as it was unable to contact the relevant personnel at Mozal.
First Nations chiefs plan legal Potash challenge
By Helia Ebrahimi, Senior City Correspondent
15 October 2010
It's a serious game of cowboys and indians when there's $38bn (£24.8bn) at stake. But that's the prize awaiting the winners of the latest battle to be fought over Potash in Canada's Saskatchewan province.
A group of Saskatchewan chiefs are threatening to file a court injunction in Canada to stop the takeover of Potash Corporation by miner BHP Billiton.
A group of resident First Nations chiefs are threatening to file a court injunction to force revenue sharing at the company, which could scupper its takeover by mining giant BHP Billiton.
Up until this week, the fight had been relatively straightforward. In one camp stood Potash and its hoped-for protector, the Canadian government. In the other, the cowboy raiders from BHP. They had a $130-a-share cash bid in the saddlebag and nothing but gunshot for Potash chief Bill Doyle, who's after a few dollars more - say $40, at least.
But while Potash was defending itself from its South African/Australian marauder, a fresh battle was brewing on the home front.
First Nations chief Guy Lonechild - the head of the Federation of Saskatchewan Indian Nations (FSIN) - has been banging another drum. He's insisting his people should share in Saskatchewan's resource revenues, arguing that the Canadian government has ridden roughshod over their rights in the past.
"If you want First Nations to take a stand, we'll take a stand," Lonechild told a high-profile meeting of 74 tribal chiefs on Wednesday.
His predecessor, the chief of the Little Black Bear First Nation, also weighed in, stressing that Canada's government only has rights to land at "depth of a plow". That's kind of shallow - given that potash is mined more the 1km below ground level.
Despite the Province's commodity riches, Lonechild rehearsed an old complaint that "First Nations people are still living on the margins of the Saskatchewan economy". Neither, he claimed, had the Canadian government fulfilled its obligations to educate his people.
With the arrows flying, it wasn't long before Canada's Premier Brad Wall shot back by brandishing legislation dating back to 1930. "If there's any attempt from a legal standpoint [to claim ownership]," he said, "we would defend the fact that the natural resources of Saskatchewan are the exclusive jurisdiction of the province of Saskatchewan according to the Natural Resources Transfer Act of 1930." Mr Wall said the Act "sets out whose jurisdiction this is and we obviously feel very confident in that being the position of the province".
But the indians are less interested in the Act than treaties dating back to the 1870s. Back then, John A Macdonald, Canada's first prime minister, needed co-operation to build a transcontinental railway across their land.
As an official federal document noted at the time, simply occupying the prairies to install a telegraph line was something "calculated to further unsettle and excite the indian mind, already in a disturbed condition". A better way, the pioneering government thought, would be to enter into talks with the First Nations. The upshot was a treaty that, in return for the cession of land, the indians received food, medicine, cash and schooling. Crucially, however, the indians believe to this day that the treaty surrendered only a certain depth of land.
Chief Perry Bellegarde of the Little Black Bear First Nation in south-east Saskatchewan, argues that no treaty signed ceded land beyond the "depth of a plow". In exchange for the resource riches below that, he wants a revenue-sharing agreement. "We need to be involved in a respectful, meaningful, substantive way, and we're not involved," he said. "It's increasingly frustrating that we've got to look at legal means in order to be heard."
Saskatchewan energy and resources minister Bill Boyd insists the province has no obligation to share any revenues from potash or other natural resources with First Nations. "We're always prepared to sit down and talk with First Nations with respect to areas of interest or concern, but our government's position is that Natural Resources Transfer Agreement of 1930 provides exclusive jurisdiction to the province in this area," Boyd says.
Not everyone agrees. Saskatoon lawyer Tom Molloy reckons "it's important there be discussions", while Jim Miller, a University of Saskatchewan history professor, believes "the sensible thing is to sit down and negotiate". But that's unlikely to appease the First Nations people, who are determined to seize their chance.
This game of cowboys and indians won't be much fun for Potash's Doyle.
Potash sale would yield huge payout for insiders
By David Milstead
Globe and Mail
1 October 2010
Insiders of Potash Corp. of Saskatchewan Inc. (POT-T147.49-2.73-1.82%) will earn one of the largest windfalls from any takeover in recent Canadian history if the company is sold, according to a detailed analysis by The Globe and Mail of company documents.
Top executives and board members of the Saskatoon-based company would collectively reap more than $700-million (Canadian) in option profits, stock proceeds, severance and other payments at BHP Billiton PLC's current offer price of $130 (U.S.) per share, or about $134 Canadian. If the company ultimately sells for roughly $150 (U.S.) - as many investors and analysts expect it will - the number would exceed $800-million (Canadian).
Even the lower of those two figures far exceeds the amount that key insiders walked away with in such deals as Rio Tinto's $38-billion acquisition of Alcan Inc. in 2007, or Vale SA's $19-billion purchase of Inco Ltd. the year before.
The amount of money reflects a number of factors, including huge increases in potash prices and the company's stock and the decision of a number of board members to take their directors' fees in shares instead of cash, which governance experts applaud. But it is also sure to stoke the debate over commodity companies' use of stock options, which some believe unfairly rewards executives for market changes they have little control over. Options are the greatest single source of personal wealth for Potash Corp. executives.
The main beneficiary of the BHP bid is chief executive officer Bill Doyle, who stands to walk away with more than $400-million (Canadian) at BHP's $130 (U.S.)-a-share bid. Another top Potash executive - chief financial officer Wayne Brownlee - will make more than $100-million (Canadian) from the sale. A third, senior vice-president Barbara Jane Irwin, will cross that threshold if Potash sells for $146 (U.S.) a share. It has traded near or above that level since BHP unveiled its takeover bid in August and closed Thursday at $.
"I find that [$700-million] absolutely obscene," said Stephen Jarislowsky, whose money management firm, Jarislowsky Fraser Ltd., owns Potash Corp. shares for its clients.
While his clients have benefited from the long-term run up in the stock price, Potash Corp. executives "have nothing to do with that ... They're not responsible for the worldwide demand for potash and the lack of supply, other than what they put out of their own mine," Mr. Jarislowsky said. "You don't even have to look for it - all you have to do is make a hole in the ground and bring it up. How much genius does that require?"
To arrive at the figures, the Globe included profits on stock options, gross profits on the sale of stock, severance packages and other incentive-plan payouts, and an estimate of the executives' future pension payments. The actual amount insiders would receive would be reduced by taxes.
Potash spokesman Bill Johnson declined to comment on the Globe's calculations or address matters related to a change in control. He did note, however, the company makes a distinction between compensation and shares held by insiders that were purchased on the open market. "We have guidelines for our directors and our named executives as to the number of shares they are required to hold relative to their annual compensation. Most executives exceed that threshold by many times."
The amounts represent the culmination of many years of work - the top four executives have averaged 17 years at Potash - for a company that has richly rewarded its shareholders. Over the past 20 years, Potash Corp. stock has returned nearly 15,000 per cent. Over the past decade, the time period covered by the executives' outstanding options, the total return is more than 1,700 per cent (in U.S. dollar terms).
At the same time, the executives have benefited from the one-two punch of Potash Corp.'s generous use of stock options and the escalating price of the commodity it sells, potash, a key soil nutrient used in fertilizers.
Annual grants of options that were originally in the tens of thousands have multiplied along with the company's multiple share splits so that Mr. Doyle now holds more than 3 million options and Mr. Brownlee holds more than 1 million.
As a result, option gains produce more than $300-million of Mr. Doyle's potential payout, and more than 80 per cent of the other executives' merger proceeds.
All told, the company had nearly 12.6 million employee stock options outstanding in February from its last five years of issuances - equal to about 4 per cent of Potash Corp.'s outstanding shares. At $130 (U.S.), they'd produce profits of more than $1.1-billion for a wide range of Potash Corp. employees.
"Stock options create, and I suspect always will create, huge debate as to whether they're the most effective way to compensate management," says Ken Hugessen, a Toronto compensation consultant. "Some will point to a situation like this and say this is the way it should work, and others will point to this and say, ‘This is the problem.' "
One of the issues with stock options is that large grants, coupled with the gains of a rising stock market, can produce outsized payouts whether a company performed particularly well or not. It is, as compensation consultant Christopher Chen of the Hay Group says, a question of "is your management team performing that well, or is a rising tide lifting all boats?"
For the past half-decade, Potash Corp. has made efforts to ensure its options reflect something other than broad market gains.
Since 2005, the company's options have been granted under a "Performance Option Plan" that requires the company hit certain hurdles in a measure of cash flow return. If the company doesn't hit the marks, some or all of the stock options fail to "vest," or become usable. And since 2005, Potash Corp. has blown away its benchmark, meaning the executives have kept all their options.
However, Potash Corp.'s cash flow, its revenue, its profit - all have been driven by a surge in the price of the commodity it produces. While selling prices vary by market, U.S. government data suggest the typical price a decade ago was about $150 (U.S.) a tonne, leaping to $700 a tonne by 2008, before collapsing. But potash was still more than $340 a tonne as of August, according Scotia Capital, which tracks prices out of Vancouver.
That has pumped up the stock. "You get the same effect in oil and gas," Mr. Hugessen says. "It wasn't too many years ago that everybody in Calgary was rich - and I'm not so sure everybody in Calgary was brilliant. A few years later, they weren't quite as rich, and I don't think they got a case of the dummies."
Special to The Globe and Mail
Here's what key Potash Corp. of Saskatchewan insiders would earn if shareholders were to accept BHP Billiton's current offer of $130 (U.S.) a share
Chief executive officer
Option gains: $304.3-million
Stock held: $62.9-million
Incentive plan shares: $5.9-million
Severance, pension and other: $30.5-million
Chief financial officer
Option gains: $99.9-million
Stock held: $7.9-million
Incentive plan shares: $1.7-million
Severance, pension and other: $12.5-million
Chief operating officer
Option gains: $16.5-million
Stock held: $5.4-million
Incentive plan shares: $0.9-million
Severance, pension and other: $2.9-million
Barbara Jane Irwin
Senior vice-president, administration
Option gains: $79.0-million
Stock held: $7.2-million
Incentive plan shares: $0.8-million
Severance, pension and other: $1.2-million
TOTAL: Top four executives: $639.5-million
Total value of shares, options and DSUs held by directors: $66.8-million
*All amounts are in Canadian dollars calculated at exchange rate of C$1=US$0.9674