Betting on Brazil
Eike Batista is owner of a large iron ore conglomerate in Latin America
| |
| Karen Mazurkewich |
| Financial Post |
Wednesday, October 10, 2007
 | | CREDIT: (National Post/Handout) | | Eike Batista |
|
Eike
Batista should have been an engineer, but the son of a Brazilian iron
ore executive decided to embark on Indiana Jones adventures in the
Brazilian jungle.
Mr. Batista, now the owner of MMX Mineração e
Metálicos S.A., a large iron ore conglomerate in Brazil, got his start
trading diamonds to supplement his allowance while in university, but
turned his attention to gold in 1979. "I heard about the gold rush in
the Amazon jungle," he says.
The gold play in the untamed
frontier consisted mainly of simple garimpeiros, pick and-shovel
peasants, tearing across the tops of alluvial deposits. At the peak in
the 1980s, they were mining US$70-billion worth of gold. "I came back
to Rio and convinced two jewellers in Rio to lend me US$500,000 to buy
gold, and that was the beginning of my trading operation," he says.
Not
every kid fresh out of university can convince investors to give him
$500,000, but Mr. Batista had a big connection in his father. Eliezer
Batista de Silva is revered in Brazil for turning the former state-run
iron-ore conglomerate Companhia Vale do Rio Doce (CVRD) into an
international powerhouse in the 1950s and 1960s by integrating mines
with infrastructure. His son bears the famous Batista name, but insists
he's a self-made man: "In our culture [nepotism] is very common. But my
father never allowed any of his children to be anywhere near anything
that was part of CVRD," he says.
Mr. Batista eventually bought up
the mining rights to millions of hectares in Brazil, and raised money
on Bay Street to front a large-scale mine. His bank backers took over a
shell on the Vancouver Stock Exchange called Treasure Valley
Explorations Ltd. (renamed TVX Mining Corp. and later TVX Gold Inc.),
and raised $12.4-million to buy some of Mr. Batista's claims and fund
exploration. His operations would soon start turning profits of
US$1-million a month, he says.
He added five other gold mines
in Brazil, and the largest silver mine in Chile under the TVX umbrella.
No one wanted to touch the La Coipa deposit in Chile, then owned by
Consolidated Gold Fields PLC. There were dozens of lawsuits involving
local property owners to contend with. Even his own TVX board wanted
nothing to do with it. From his own pocket, Mr. Batista purchased the
mining rights for US$30-million and paid off the landowners. After
sealing the deal, TVX purchased a 49% share in the mine. It eventually
grew to US$2-billion in market value, he brags.
The '80s were
good to Mr. Batista, who embraced the playboy lifestyle, taking up
Superboat racing. "I wanted to win a sporting competition, but I needed
a machine behind me," he jokes. He would eventually be declared the
World Champion in 1991. During that time he collected another trophy --
his now-former wife, Luma de Oliveira, a Playboy model, who once led
the parade at Rio's infamous Carnival festival.
Having broken
speed records on the water, Mr. Batista was now gunning to expand in
Europe and Russia. But, he admits, his timing was off. He was hunting
gold when prices were dropping to US$250 an ounce. His deals in Russia
didn't go well -- then disaster struck. His Kassandra gold mine in
Greece was derailed in 2002 after the country's highest court annulled
government permits issued to the TVX Hellas SA unit of TVX. "The Greek
government that awarded a mining licence then took it away...imagine
that," says Mr. Batista.
The Greek bureaucracy, in fact, was
responding to a crisis on the ground. Local villagers began engaging in
violent protests around the site, arguing that the underground mine was
destabilizing the village's infrastructure and that TVX hadn't done a
proper environmental assessment. Blockades ensued and at one point
protestors torched a TVX drill rig. The Greek government responded by
sending in the army - then it went to court.
The experience in
Greece "destroyed a lot of value in TVX," he says. The company lost
US$330-million in the process, he estimates. He stepped down as
chairman and CEO of TVX in 2001 and the company was later purchased by
Kinross Gold Corp.
The loss, he says, taught him to divest from
gold and refocus on South America where he had originally built his
wealth. "I learned from my mistakes," he says. Now he is back with a
vengeance.
Mr. Batista's new vision is to take on CVRD by
investing $3.6-billion in iron ore mines and infrastructure, including
a long slurry pipeline and port projects, including a deep-water port
at Acu, near Sao Joao da Barra in Rio de Janeiro state.
That's
just for starters. Also on the books is a 6.5-million-tonnes-a-year
iron ore in Amapa state near French Guyana, that he says will be linked
to an ocean port by a 200-kilometre railway.
The new schemes are
mushrooming so quickly, Mr. Batista announced in July that he would
spin off the logistics components of MMX into a separate company known
as LLX Logistica SA.
If all his mining and infrastructure
activities were not enough, Mr. Batista has also announced that another
new company of his, OGX, will participate in the next licensing round
for offshore and onshore gas exploration.
"Brazilian businessmen are now plugging into the valuation matrix of the world," he says.
Financial Post
kmazurkewich@nationalpost.com