Investment diversification strategies

The big enterprises which have traditionaly controlled the production of one specific mineral are today investing in the production of other minerals, either complementary, such as chromium or manganese in relation to iron, or substitute, such as bauxite versus copper. But investment diversification sometimes also applies to minerals which have neither a commercial nor a technical link with that usually produced by the investor. These enterprises are also investing in the energy-producing sector, and especially in coal and uranium industries.

The US firm Newmont Mining has become the biggest coal producer in the US, with a 70 million tons output, and 12% of all US production. Asarco, which is a big US copper firm, produces four million tons of coal and has many shareholdings in coal mines in Australia. Utah International is also present in the US coal sector (seven million tons) and in Australia (20 million tons). Amax has a coal output of more than 16 million tons in the US, which represents a quarter of its total turnover.

British mining concerns have a comparable strategy. They too, are investing in the energy sector, particularly in coal: for example, Rio Tinto-Zinc and Consolidated Cold Fields have taken majority shares of the capital of Australian and Canadian coal-producing enterprises.

This intervention of the big traditional mining firms in the energy sector is matched by the big oil firms' growing involvement in mining activity; these oil groups are also investing in the coal sector. Thus, at present, the US oil enterprises control one-fifth of US coal resources and production. Such enterprises as Conoco and Occidental produce large quantities but most of the others prefer to have control of resources rather than to exploit them; the same is true of the British oil groups. Shell owns a concession of four billion tons of coal in Canada as well as shareholdings in Australia. British Petroleum has a coal mining subsidiary which will produce up to 20 million tons outside the UK. The strategy of British groups is different from that of North American groups in two respects: 1) their domestic basis is much narrower and their diversification investments are in foreign countries; 2) they seem more interested in developing coal production than in controlling reserves.

Oil groups are also involved in the uranium sector, where they compete both with the traditional mining concerns and Western and Japanese government agencies. For example, Exxon, Mobil Oil, British Petroleum and Shell are actively participating in uranium prospecting in Africa.

But more interesting is the fact that these oil groups are investing in the non-energy producing minerals. Thus Amoco (Standard Oil of Indiana) is involved in two projects of copper extraction, one in Zaire and one in New Guinea. Shell has acquired the Billiton enterprise which produces bauxite in Brazil and copper in Peru. The big US copper producers, Anaconda and Amax, have been absorbed respectively by the US oil companies Altantic Richfields and Standard Oil of California. The stock exchange value of the mining enterprises is generally less than the real value of their assets, which makes such transactions relatively easy. Not all oil groups' investments in mining activity are of the merger type, however, but are also concerned with creating production facilities.

The biggest diversification investments are those of oil and mining firms in such energy-producing minerals as coal and uranium. Such investments, made in the 1970s, that is, in a context of rising energy prices, obviously presented very good profit prospects. Coal and uranium prices actually increased very markedly during that period, along with the oil price, and this made investment in high cost alternative energy sources profitable. Although the oil groups had greatly benefited from the oil price rise, their investments in coal and/or uranium were also aimed at compensating for their reduced role in the world oil industry. The mining concerns' investment in coal and uranium represented, as it were, an insurance against possible nationalization of their traditional mining interests; but their involvement was less impressive than that of the oil companies. Lastly, investments in other minerals remained relatively less important. The main function of these investments was to distribute the risks over several unconnected activities; the control structure of the different mineral industries either on the domestic or world scale remained virtually unaffected.

Investment diversification has an important geographical dimension but the situation differs according to the minerals considered. Western and Japanese industrial enterprises try to diversify their supply sources for iron ore and bauxite through the development of new fields, particularly in Africa. Such a policy was followed by the North American steel manufacturers, which, in the 1950s, had concentrated mainly on the South American iron mines, in Venezuela and Chile. The West European steel companies have a very strong propensity to invest in Africa, while a growing proportion of their imports come from Brazil and Australia. The Japanese enterprises' involvement in Africa reflects a very marked change in their supply strategy. Lastly, the big Western aluminium companies seem to have elected Guinea and Australia as the main suppliers for bauxite, thus reducing the significance of the Caribbean on the world market.

It is true that the steel crisis in the advanced capitalist countries has brought most investment projects in iron mining to a halt and that the diversification of Western and Japanese iron ore supplies in favour of those from Africa is only at the planning stage at present. But, as we have seen, the situation is quite different for bauxite and uranium, where the relocation of Western and Japanese mining investments in Africa is already effective. Since the mid-1970s, big mining and industrial capital has been trying to reduce the relative share of the Third World in its mineral supplies, but this policy does not really apply to Africa. On the contrary, some African countries, South Africa, of course, but also Liberia, Guinea, Zaire, Namibia, Gabon and Niger are considered by Western enterprises and governments as reliable components of the new 'mining belt' of the West, along with such countries as Canada and Australia.

The geographical and sectoral diversification of investments has an important implication. Each mining country usually specializes in the production of one particular mineral, while the Western groups tend to share their activities between different minerals and different countries. An intersectoral and international oligopoly is thus replacing the classical forms of horizontal and vertical economic concentration. This oligopoly's very wide range of activities is not limited to the mining industry. The big British mining groups which have been active in Africa since the beginning of the century are a good example of this diversified oligopoly.

Rio Tinto-Zinc (RTZ) is by far the biggest British transnational enterprise; its assets are distributed between mining and industry and its mining activities cover a wide range of minerals. According to a study carried out in the 1970s, its profits are derived from: iron ore (26%); copper (19%); bauxite (14%); uranium (9%); and other minerals (8%). RTZ's investments in Africa are mainly located in South Africa and Namibia and represent less than one-tenth of its total investments, which are distributed between Australia and Papua New Guinea (55%); the USA and Canada (24%); and Britain (13%). This enterprise's investment diversification strategy has been implemented along with a relocation policy in favour of Australia, Canada and the US, and also of South Africa and Namibia. RTZ contributed to the strong growth of iron ore production in Australia; it owns 40% of the capital of the Hammersley iron mine, which is the biggest in the country, with an output capacity of more than 40 million tons. RTZ has also been involved in the production of bauxite and alumina in Australia; of coal in Australia and Canada; of uranium in Australia and the USA; and of oil and natural gas in Canada and in the North Sea; but it remains heavily dependent on its Southern African mines for copper and uranium. Rio Tinto is a holding enterprise with over half its capital held by British insurance companies.

Charter Consolidated is the successor of the colonial British South Africa Company which had been granted the concession of all mining rights in what was Northern Rhodesia. More than half its capital shares are in finance companies, and the remainder are distributed between diamonds (14%); copper ( 10%); hydrocarbons (11 %); and manufacturing. This enterprise depends more heavily on its African mines than does RTZ, as 41% of its assets are in Africa; 27% in Britain; 15% in North America; 8% in Europe; 5% in Australia; but its African investments are concentrated in South Africa.

Consolidated Gold Fields, which was founded for the extraction of gold in South Africa, has diversified its activity so much that gold now represents only a quarter of its investments, against 15% for tin; 9% for energy; 23% for building materials; and 25% for financing. Here, too, diversification has been accompanied by relocation, as only 22% of its assets are still located in South Africa.

Other British mining firms remain more dependent on African mines but they have diversified their activities within the mineral sector. Such is the case for Selection Trust, which owns minority shares in mining concerns in South Africa, Namibia, Ghana and Sierra Leone; and of Lonrho, which invested in gold in Ghana, and in copper, coal and platinum in South Africa. Mining activity, however, represents only 3.5% of the sales of Lonrho and 10% of its profits.

These enterprises are often linked to each other by cross participations. Charter, for example, owns 10% of RTZs capital, 31% of the capital of Selection Trust and 6% of the capital of the South African group, Anglo-American, which in turn holds 36% of Charter's capital. All these British firms have, from the beginning, been associated with mining in Africa and the changes they have experienced in terms of capital structure, of diversification and of geographical relocation are illustrative of the global transformations that affected the world mining industry in the recent period.

The big US mining groups implemented similar strategies, with the difference that the relocation of their investments corresponded to an involvement in Africa's mining sector rather than to a disengagement as for the British firms. The same is true of the big US oil companies. As for the industrial firms of the West which have mining assets in Africa, their investments have usually been limited to the minerals they needed to feed their plants: iron ore for the steel makers and bauxite for the aluminium 'majors'. But an analysis of their global investments would indicate a quite strong diversification of their activities, either within the industrial sector or outside it.