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Company Perspectives:
WMC is an Australian-based minerals company determined to be "best"—symbolising our commitment to strive for optimal bottom-line, environment, safety and team performance. Our aim is to create shareholder value by finding, acquiring, developing, and operating high-quality mineral resource projects around the world. We will maintain a diversified portfolio of commodities and exercise prudent financial management.
WMC, Limited is the Australian holding company for a diversified group of mining enterprises operating throughout the world. It is the world's third-ranked nickel producer and one of Australia's leading gold producers. It owns 40 percent of Alcoa World Alumina and Chemicals, the world's largest producer of bauxite, alumina, and alumina-based chemicals. It produces substantial amounts of copper, uranium, and talc. The company's headquarters and the majority of its operations are in Australia, but its subsidiaries undertake mining activities in at least 20 nations on every continent except Antarctica.
1930–45: Founded on Gold
As a very young man, William Sydney Robinson was a partner with his older brother in a stock brokerage firm that helped finance the Australian gold rush of the late 19th and early 20th century. The Robinsons moved to London, established a business there, and continued their involvement in financing the global mining industry. Even when most mines closed as countries mobilized to fight World War I, the younger Robinson maintained a particular interest in the Australian mining business.
After the War, Robinson returned to Australia frequently. On those trips, he observed the continued devastation of the industry that resulted from maintaining the gold standard at prewar prices in the face of substantial postwar inflation. He also observed Australia's inability to export its agricultural or mineral products to other nations because the Australian dollar was overvalued in terms of other currencies. These observations led him to believe that Australia would soon devalue its dollar to make its products less expensive on the world market. Devaluation would also raise the price of gold in Australian dollars. Robinson began to set in motion arrangements that would allow him to exploit this opportunity when it came.
In 1930, Robinson incorporated Gold Mines of Australia (GMA) in London to raise money to buy options on mining properties throughout Australia. The shareholders of this enterprise included New Consolidated Gold Fields, Ltd., of South Africa, with a 60 percent share of the company; Zinc Corporation, Ltd, of which Robinson was Managing Director; Imperial Smelting Corporation, Ltd., and some private parties. In 1931, the Australian dollar was devalued from A$1 per British pound to A$1.25 per pound. This increased the price of gold by 25 percent and again made mining profitable for at least a few years.
GMA began to accumulate and prospect promising properties, and, in a few cases, produce and sell gold. By 1933, the company had purchased several existing mines in Eastern Australia, and it was about to acquire the rights to explore and prospect in areas near existing mines in Western Australia. The greater risk attending the Western Australian activities made it advisable to form a new company to manage them. The Western Mining Corporation, Limited (WMC) was incorporated in 1933 for that purpose.
A further reorganization of the companies occurred in 1935. The original organizers of GMA had been the primary sources of finance until then, but by 1935 sufficient property had been accumulated that required new sources of finance to support large-scale exploration and development. The Gold Exploration and Finance Company of Australia, Limited (GEFCA) was therefore incorporated in London. This new company, with substantial financial participation of additional South African mining interests, was to serve as the new financing vehicle. It bought out both GMA and WMC and made them Australian operating subsidiaries.
The 1930s and prewar 1940s saw Robinson's companies complete substantial exploration, acquisition, and development of mining properties throughout Australia. Some of these mines were brought into production. Nevertheless, the companies struggled to survive because financing was difficult to secure during the Great Depression. In 1935, gold prices again fell; making it even more of a problem to secure needed financing. By the time most operations were mothballed for the duration of Australia's mobilization for World War II, the companies operated ten producing mines, but those mines had not yet generated significant profits.
1945–49: The Struggle to Survive
The years immediately after the the Second World War were challenging for Australian gold miners. The Bretton Woods agreements of 1944 had fixed the price of gold in terms of the US dollar and tied the exchange rates of other currencies to the dollar. The price of gold would not change, therefore, unless a nation devalued its currency in relation to the dollar. But when a nation did that, anything it imported would immediately become more expensive. This was a particular problem for the Australian mining industry because it had to import most of its heavy operating equipment.
Two additional difficulties affected the Australian mining industry: The nation experienced significant inflation, which increased the cost of labor and of what equipment could be procured domestically. And much of Europe had been destroyed by the War, so international commerce, on which the extractive resource industries of the nation depended, did not immediately recover.
Facing these difficulties, GEFCA and its subsidiaries, GMA and WMC, reopened the mines that were closed during the War, opened a few new ones, and continued their exploration activities. The companies, however, found it difficult to raise additional capital to support these efforts. The South African mines that were GEFCA's primary investors found better uses for their money in South Africa, and its other London-based sources of capital were likewise uninterested in Australian gold. Consequently, the London shareholders of GEFCA were receptive to a takeover offer from WMC. In 1949, WMC purchased GEFCA, including its 62 percent interest in GMA. From that time, WMC was a company headquartered in Australia and controlled by Australians.
1949–79: Diversification
WMC's establishment as an Australian company brought with it a slight improvement in its ability to obtain financing. Australian law did not tax dividends paid by gold mining companies. Wealthy Australians, who would not otherwise do so often invested in such companies as a means of reducing their tax obligations. This additional source of investment was not, however, sufficient to meet WMC's needs. Indeed, it had a major disadvantage: it required the company to pay out a substantial portion of its cash profits in dividends each year, leaving relatively little cash surplus to be reinvested in exploration and development activities.
By the early 1950s, WMC's board concluded that the company would probably not survive if it continued to mine only gold. In 1953, Sir Lindesay Clark, the company's third chairman, announced a significant revision of the company's business strategy. WMC would continue to produce gold, but it would expand its exploration efforts to seek and exploit base metal deposits. Such diversification would enable the company to produce and sell products whose prices were set by the market rather than established by international economic agreements and institutions. Base metals might also experience price cycles different from each other and from gold, thus smoothing the boom and bust gold cycles.
During the next six years, the company explored and prospected uranium, copper, iron ore, talc, bauxite, and nickel prospects. The uranium and copper properties could not be developed economically. Policies of the government of Western Australia and of the national government prevented the development of iron ore properties for export to the emerging market of Japan.
One of the first positive results of the diversification strategy was the acquisition of 50 percent of a high-grade talc mine in Western Australia in 1960. The mine was small, but very profitable. More significant was WMC's entry into the production of bauxite and its product, alumina.
During the decade of the 1950s, Japan had emerged as a resource-poor manufacturing nation. Resource-rich Australia was geographically positioned as an ideal supplier of metal products to that increasingly important market. One of the resources the nation had in abundance was bauxite, previously not exploited because known deposits were not considered economical to mine.
Acting on a newly established diversification strategy, Sir Lindesay Clark ordered a reevaluation of bauxite deposits in Western Australia in 1953. These deposits had been identified previously but had been dismissed as uneconomical. Sir Lindesay, as he stated in his memoirs, believed that times had changed. Preliminary results were sufficiently promising that WMC formed Western Aluminum, NL (WANL) with two other Australian mining companies and a bank as partners.
WANL initiated intensive exploration and development of the Western Australia bauxite deposits, laboratory testing to establish the quality of the bauxite found, and negotiations with major industrial companies in Japan. It rapidly emerged as an industrial power and market for Australian resources. The company also negotiated with the Western Australia government that wanted to export finished alumina products rather than unprocessed bauxite.
This required the construction of a smelter, a fabricating plant, and a power plant to supply them with the massive amounts of electricity required for processing bauxite. The power plant, in turn, required massive amounts of coal to fuel it. By 1959, the planning and legal arrangements for the creation of these prerequisites of an integrated aluminum industry were in place. But it was evident that WANL lacked the financial resources necessary to build and operate the necessary facilities. Sir Lindesay, therefore, began the search for a major aluminum producer that could contribute the financial support and the expertise required to create the facilities needed.
Sir Lindesay felt some urgency in completing these negotiations. Bauxite was in plentiful supply at the time, and it was expected that large deposits in West Africa would soon add to that supply. The Australians wanted to create a partnership and begin production before potential partners lost interest in the Australian resource and focused instead on Africa. Moreover, WMC itself was in danger of being taken over. Its capital was relatively small, and its 78 percent interest in WANL and its assets was quite attractive. A partnership with a financially strong business would make a hostile takeover more difficult.
In 1960, WMC initiated negotiations with the Aluminum Company of America (ALCOA). That company was interested in establishing a market for aluminum in Japan, and Australia seemed an ideal location from which to undertake this. ALCOA made two requests of WMC/WANL. They wanted a confirmed Japanese market for the Australian alumina products, and they wanted 100 million tons of the bauxite reserves to be made available for ALCOA's exclusive use. These conditions were easily met. Mitsubishi of Japan had already negotiated a first order for 150,000 tons of alumina with WANL. The company also guaranteed the necessary bauxite to ALCOA.
In 1961, ALCOA and WANL incorporated Alcoa of Australia, Ltd. (ALCOA-Aus), with the Australian partners holding a 49 percent interest. During the next three years, ALCOA-Aus built a refinery, a smelter, a fabricating plant, and a power plant. The first shipment of alumina was sent to Japan in 1964. In 1968, the first shipment of bauxite went to ALCOA refineries.
In 1979, WMC acquired most of BH South, Ltd. It sold most of its holdings, but retained a 13 percent interest in ALCOA-Aus, thus bringing WMC's interest in the venture to 40 percent. WMC merged all of its alumina assets with ALCOA's global alumina and alumina chemicals business in 1995 to form Alcoa World Alumina and Chemicals (AWAC), the world's largest alumina producer. This enterprise, of which WMC is a 40 percent partner, supplies 27 percent of the world's alumina consumption.
WMC first located nickel in 1954, but it was ten years later when the company performed sufficient geologic evaluation to determine that the deposit was worth exploration. In 1965, the company applied to the Western Australia government for exploration rights covering 527 square miles surrounding the first nickel find and the rights to take up mineral leases in the area as necessary for mining. Serious exploration was then begun, and two major ore deposits were identified early in 1966.
In this case, too, world supply of the metal influenced decision making about how rapidly to attempt to bring the deposits to production, and how much risk would attend the project. Nickel was in worldwide shortage, and INCO of Canada controlled most of the available supply. A decision to begin rapidly building a mine was risky because full evaluation of the prospect was not complete, and unexpected complications might develop as the mine was constructed. But a decision to wait until exploration advanced further could mean that WMC nickel would come to market at a time when supply had increased.
Work on the first nickel mine was therefore initiated in late 1966. This entailed not only sinking mine shafts and making the ore accessible to the miners. It also required building a mill, a concentrator, power plants, and offices to support the mine. Construction of a town and its attendant infrastructure was also necessary to house the workers. The first nickel concentrates were shipped to Japan and Canada in 1967. In 1968, construction of a nickel refinery began. It was completed in 1970, and the WMC's first refined nickel products were exported in June of that year. This was the beginning of WMC's extremely profitable integrated nickel operations.
To finance these undertakings, WMC floated two secondary stock issues. In 1966, such an offering raised A$7.5 million, of which A$5 million was used in the construction of the mine and its attendant infrastructure. A 1968 offering raised another A$46 million, of which at least A$45 million was spent on construction of the refinery; on needed railway links among the mine, the concentrator and the refinery, and on further improvements to the associated town.
1979-Present: Reorganization, Further Diversification, and Consolidation
By 1979, WMC had sufficiently diverse operations that its fourth Chairman, Sir Arvi Parbo, restructured the company. In 1964, WMC had bought the portion of GMA it did not already own. But since WMC's buyout of GEFCA in 1949, many projects and even individual mines had been operated as separate subsidiaries of the parent company. The restructuring created Western Mining Corporation Holdings, Ltd., and made it the holding company for all WMC properties and operations.
Sir Arvi's chairmanship also saw the culmination of the process of diversification initiated in 1953. The first minerals the company sought after that date had been copper and uranium. The company had located copper deposits, but for the most part, these were small or not suitable for exploitation. Only in 1972 did the company find a promising uranium deposit near Yeelirrie, Western Australia. Until 1975, governmental opposition to uranium production inhibited work on the project. At the end of that year, however, exploration recommenced and work toward an environmental impact statement began. In 1977, the Western Australia and federal governments approved further development of the project.
In 1978, WMC formed a joint venture to develop the project. WMC held a 75 percent interest; Esso Exploration and Production Company of Australia, Inc., held 15 percent, and Urangesellschaft mbH and Co. held 10 percent. A research plant was completed in 1979, and trial mining began. The conceptual work prerequisite to full development of the site was complete, and negotiations with potential customers were underway when the federal government again adopted restrictive policies toward uranium mining. Permission to develop the site was withdrawn. Work stopped in 1983.
Yeelirrie was not WMC's only venture into uranium mining. Its experience at Olympic Dam near Roxby Downs in South Australia has been a success. The company began a search for copper in 1972. By 1975, it had located a rich deposit of copper and uranium under 350 meters of barren rock at the Olympic Dam site. By 1979, WMC had determined that the site contained enormous quantities of both metals. They found a joint venture partner in BP of Australia, which took a 49 percent interest in the project, leaving majority ownership and management responsibility with WMC. After substantial development of the site, production of both uranium and copper began in 1988. In 2000, Olympic Dam produced 4,500 tons of uranium oxide and 200,400 tons of refined copper.
The most recent addition to WMC's product mix was phosphate fertilizer. As previously mentioned, WMC took over BH South, Ltd., in 1979. At that time, it retained not only its interest in ALCOA-Aus, but also its wholly owned subsidiary, Queensland Phosphate, Ltd. This property was composed of rich phosphate deposits, but was not then in production. WMC resumed small-scale production in 1981, but stopped production in 1983 because it could not get an adequate price for its product. Continued exploration of the property revealed that the site contained a phosphate resource totaling about 107 million tons. But the exploitation of the resource would require a construction project totaling hundreds of millions of Australian dollars. Moreover, the site lacked a needed supply of natural gas.
WMC put the project on hold, but continued to arrange for eventual production. In 1988, it had acquired Hi Fert, Ltd., a major Australian blender and distributor of high analysis fertilizers. In 1996, the company changed names from Queensland Phosphate, Ltd, to WMC Fertilizers, Ltd, and announced the decision to develop a A$700 million fertilizer project at the site. Australia imported all the fertilizer used in its agricultural activities. WMC expected to be able to supply the internal market, and to export a substantial quantity of phosphate fertilizer as well.
In 1998, WMC Fertilizers contracted with Cargill, Inc., to export up to half a million tons of fertilizer per year for five years. By 2000, the Queensland Fertilizer Plant was fully commissioned, and was expected to produce at a full capacity of one million tons per year by 2002.
The beginning of the twenty-first century brought signs that WMC was consolidating. In 2000, it announced the intended sale of its talc operations. The first months of 2001 saw speculation in The Financial Times of London that the company planned to sell its gold operations. Later reports from the Dow Jones Newswire said that WMC was looking for a means to enhance the value of those operations, but they did not deny that a sale would be one way of achieving this.
Principal Subsidiaries:Westminster International Holdings Pty, Ltd.; Alcoa Worldwide Alumina and Chemicals; WMC Fertilizers Pty, Ltd.; WMC Finance, Ltd.; WMC Finance USA, Ltd.; Wmc Pty, Ltd.; Wmc Resources, Ltd.
Principal Competitors:Alcan; Alcoa; Anglo American; Barrick Gold; BHP; Billiton; Cameco; Carso; COGEMA; Cominco; Freeport-McMoRan Copper and Gold; Gold Fields Limited; Homestake Mining; Inco Limited; Kaiser Aluminum; Newmont Mining; Noranda; Norlisk Nickel; Phelps Dodge; Placer Dome; Rio Algom; Rio Tinto Limited; Rio Tinto plc; UM.
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