[Federal Register Volume 61, Number 95 (Wednesday, May 15, 1996)]
[Notices]
[Pages 24517-24520]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-12128]



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SECURITIES AND EXCHANGE COMMISSION

[Investment Company Act Rel. No. 21947; 812-9906; International Series 
Release No. 975]


Minorco S.A., Notice of Application

May 9, 1996.
AGENCY: Securities and Exchange Commission (``SEC'').

ACTION: Notice of Application for Exemption under the Investment 
Company Act of 1940 (the ``Act'').

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APPLICANT: Minorco S.A.

RELEVANT ACT SECTION: Order requested under section 3(b)(2) of the Act 
or, alternatively, under section 6(c) granting an exemption from all 
provisions of the Act.

SUMMARY OF APPLICATION: Applicant seeks an order declaring that it is 
primarily engaged in a business other than that of investing, 
reinvesting, owning, holding or trading in securities or, 
alternatively, granting it an exemption from all provisions of the Act 
and the rules and regulations thereunder.

FILING DATE: The application was filed on December 14, 1995, and 
amendment on May 7, 1996.

HEARING OR NOTIFICATION OF HEARING: An order granting the application 
will be issued unless the SEC orders a hearing. Interested persons may 
request a hearing by writing to the SEC's Secretary and serving 
applicant with a copy of the request, personally or by mail. Hearing 
requests should be received by the SEC by 5:30 p.m. on June 3, 1996, 
and should be accompanied by proof of service on the applicant, in the 
form of an affidavit or, for lawyers, a certificate of service. Hearing 
requests should state the nature of the writer's interest, the reason 
for the request, and the issues contested. Persons who wish to be 
notified of a hearing may request such notification by writing to the 
SEC's Secretary.

ADDRESSES: Secretary, SEC, 450 Fifth Street, N.W., Washington, D.C. 
20549. Applicant, c/o Minorco (U.S.A.) Inc., 30 Rockerfeller Plaza, 
Suite 4212, New York, New York, 10112.

FOR FURTHER INFORMATION CONTACT: Mary Kay Frech, Senior Attorney at 
(202) 942-0579, or David M. Goldenberg, Branch Chief, at (202) 942-0564 
(Division of Investment Management, Office of Investment Company 
Regulation).

SUPPLEMENTARY INFORMATION: The following is a summary of the 
application. The complete application

[[Page 24518]]

may be obtained for a fee from the SEC's Public Reference Branch.

 Applicant's Representations

    1. Applicant, a Luxembourg corporation, is a foreign private issuer 
whose ordinary shares are listed on the Luxembourg, London, 
Johannesburg, and Paris stock exchanges. Applicant has a market 
capitalization of over $6 billion and reported net earnings of $365 
million for calendar year 1995. Applicant, together with its 
consolidated subsidiaries (the ``Group''), has over 20,000 employees 
worldwide and is active in international natural resources with 
operations across a broad geographic and commodities spectrum. The 
Group operates five business segments: gold, base metals, industrial 
minerals, paper and packaging, and agribusiness.
    2. Applicant is the successor to a line of companies that have been 
in existence since 1928 and that had their origin in the operation of 
copper mines. In 1987, the Group relocated its headquarters to 
Luxembourg and reorganized into a structure where applicant became the 
parent company of the Group. At that time, applicant held within the 
Group significant interests in operating companies involved in natural 
resources businesses. Applicant subsequently has focused on operating 
as a natural resources company by expanding its activities into the 
ownership and operation of, and direct participation in, resource-based 
assets, and deemphasizing passive investments. Since 1989, this 
strategy has resulted in approximately $5.1 billion being spent on 
acquisitions and other investments in operations (including capital 
expenditures on expansion of existing operations), and the disposition 
of approximately $1.9 billion of non-controlling interests. All of the 
acquisitions made by applicant since 1989 have been of controlling 
positions, or complete ownership, of operating companies, with the 
exception of two small strategic investments made in connection with 
larger transactions.
    3. Applicant's natural resources business is operated worldwide 
through three major wholly-owned holding companies: Minorco (U.S.A.) 
Inc. (``Minorco USA''), AMSA Limited (``AMSA''), and Taurus Investments 
S.A. (``Taurus''). Applicant, either directly or through its wholly-
owned subsidiaries, provides technical services, including experts in 
engineering, metallurgy, and geology, to its operating subsidiaries, 
maintains a human resources department to coordinate compensation and 
benefits among Group companies, and maintains a corporate finance 
department to provide financial analytical services to Group companies.
    4. Applicant conducts its operations in the United States through 
Minorco USA and Taurus. Minorco USA wholly-owns Independence Mining 
Company Inc. (``IMC''), which operates various mines and processing 
facilities directly and indirectly through its wholly-owned subsidiary 
Pikes Peak Mining Company. IMC and its subsidiaries also conduct the 
Group's exploration programs in the United States and Mexico. Minorco 
USA and Taurus own 52.4% of Terra Industries Inc., a marketer of 
fertilizer and other agricultural products, and a producer of nitrogen 
products and methanol.
    5. Through Taurus, applicant also owns 32% of Engelhard Corporation 
(``Engelhard''), a provider of specialty chemical products, engineered 
materials, and precious metal management services. Applicant is the 
largest shareholder of Engelhard's voting securities, with the next 
largest shareholder holding less than 7%. Applicant's directors hold 
four out of the ten seats on the board of directors of Engelhard and 
serve on several of its key board committees. Applicant states that its 
control position with respect to Engelhard has allowed it to actively 
participate in the selection of Engelhard's chief executive officer, 
and to regularly provide its views on strategic, policy, and management 
issues.
    6. Applicant's European operations include the United Kingdom's 
only potash mine, as well as wholly-owned subsidiaries in Germany, 
Spain, and the United Kingdom that produce aggregates, burnt lime 
products, and ready-mixed concrete. The Group continues to look for 
growth in its European industrial minerals segment by acquisition. In 
1995, the Group acquired a 100% interest in a German sand and gravel 
operation and a 100% interest in Tilcon Holdings Limited, the United 
Kingdom's seventh largest producer of aggregates. Applicant's paper and 
packaging business is held indirectly by Taurus and operated through 
Mondi European Holdings BV, incorporated in the Netherlands, and Mondi 
Paper (U.K.). The Group assumes management functions and provides 
operational advice to its subsidiaries in this segment, and 
participates in all important strategic decisions.
    7. The Group has a 50% joint venture interest in the Lisheen Joint 
Venture, which owns a zinc/lead deposit in Ireland, and also owns 24.5% 
of Ivernia West PLC, the owner of the other 50% joint venture interest. 
The Group is the manager of the joint venture.
    8. Applicant's gold, base metals, and industrial minerals 
operations in South America are conducted through AMSA, a South 
American mining business whose administration is centered in Brazil. 
AMSA owns and operates, either directly or in associations with local 
partners, a range of resource companies, and is developing projects in 
Argentina, Brazil, Chile, Peru, and Venezuela.
    9. In Brazil, the operations of the Group are conducted through 
AMBRAS Participacoes Ltda. (``AMBRAS''), a wholly-owned subsidiary of 
AMSA, in association with Cia. Bozano Simonsen Comercio e Industria and 
its subsidiaries (the ``Bozano Simonsen Group''). The operations 
consist of a gold mining complex, several base metal producers, and, in 
the industrial minerals sector, an integrated petrochemical plant and 
phosphate mining operation. The vehicle for the association in Brazil 
between the Group and the Bozano Simonsen Group is MMV Participacoes 
Minerais (``MMVPM''). The Bozano Simonsen Group owns an indirect 
minority interest in MMVPM and acts in conjunction with the Group in a 
joint venture so that the Group and the Bozano Simonsen Group jointly 
control companies within the MMVPM group in which the Group's 
shareholdings are non-voting. Joint control is established by an 
arrangement under which 50% of MMVPM's board of directors is composed 
by the Group's representatives, and decisions of the board require the 
favorable vote of a majority of directors. All officer positions of the 
operating companies within the MMVPM group are occupied by the Group's 
representatives, so that the Group ultimately is responsible for the 
management and conduct of the operations. The arrangements confer upon 
applicant, through its majority-owned subsidiaries, the ability to 
manage and control its natural resources business in Brazil.
    10. Applicant holds its interests in Brazil through AMBRAS and 
through its association with the Bozano Simonsen Group in order to 
reduce the impact of restrictions (which are no longer in effect) upon 
remittance of capital and dividends, to obtain favorable tax treatment 
with respect to the Group's activities outside Brazil, and to 
accommodate the joint venture activities of applicant's majority-owned 
subsidiaries.
    11. In Chile, AMSA holds a 74.9% interest in Empresa Minera de 
Mantos Blancos S.A. (``Mantos Blancos''), the only Chilean copper 
producer listed on

[[Page 24519]]

the Santiago stock exchange. Mantos Blancos owns and operates copper 
mines and also owns controlling interests in important gold deposits in 
Chile. Applicant, through its majority-owned subsidiaries, appoints the 
majority of the board members of these mining operations and exercises 
exclusive management over their operations. The Group also currently 
holds a 50% interest in the Collahuasi copper project in Chile, a joint 
venture operation with Falconbridge Limited, which is expected to be 
one of the largest copper mines in the world. The Group jointly 
controls the management of the operations of the venture, and has three 
seats on the six member board.
    12. In addition to the operations described above, various projects 
are in the course of development in South America. These include a gold 
and silver project in Argentina for which the Group is contributing 
substantial management of the project during production, and a nickel 
mining project in Venezuela in which the Group has an 85% equity 
interest and will exercise full control over the project. Applicant 
also holds indirectly, through wholly-owned subsidiaries and joint 
ventures, minority interests in certain companies and projects that are 
of strategic importance to the operating business of the Group.
    13. Applicant states that the Group's hands-on involvement is 
consistent with the background, training, experience, and expertise of 
applicant's officers and directors in the various natural resources and 
related sectors. Applicant believes that the various joint ventures in 
which the Group has interests are characterized by the Group's economic 
influence and its management of the operations. Applicant asserts that 
the Group's complex holding company structure reflects, among other 
things, the manner in which natural resources companies tend to spread 
risk, as well as the laws and business customs of many of the countries 
where the Group carries on its businesses. To the extent that applicant 
has minority voting interests in intervening holding companies, those 
minority interests are in closely held companies where the majority 
interest is owned by applicant's joint venture partner in order to 
comply with former restrictions on foreign investment in Brazil. This 
structure, however, poses the issue of whether applicant would be 
considered an investment company within the meaning of the Act.

Applicant's Legal Analysis

    1. Applicant seeks an order under section 3(b)(2) of the Act 
declaring that it is primarily engaged in a business or businesses 
other than that of investing, reinvesting, owning, holding, or trading 
in securities, and therefore, is not an investment company as defined 
in the Act, or in the alternative, an order under section 6(c) of the 
Act exempting it from all provisions of the Act.
    2. Under section 3(a)(3), an issuer is an investment company if it 
``is engaged or proposes to engage in the business of investing, 
reinvesting, owning, holding, or trading in securities, and owns or 
proposes to acquire investment securities having a value exceeding 40 
per centum of the value of such issuer's total assets (exclusive of 
Government securities and cash items) on an unconsolidated basis.'' 
Section 3(a) defines ``investment securities'' to include all 
securities except Government securities, securities issued by 
employees' securities companies, and securities issued by majority-
owned subsidiaries of the owner which are not investment companies.
    3. Applicant states that it is not primarily engaged in the 
business of investing, reinvesting, or trading in securities. Certain 
of applicant's businesses, however, are conducted through a controlled 
company, and a significant portion of the Group's assets currently 
consist of highly liquid investment grade securities pending use in 
operations and for acquisitions. Thus, approximately 30% of applicant's 
total assets are held in investment securities within the meaning of 
section 3(a)(3). If applicant's South American joint venture interests 
were characterized as securities, however, applicant might be deemed to 
own investment securities equal to approximately 52% of the value of 
its assets on an unconsolidated basis. Applicant, therefore, may be 
deemed an investment company within the meaning of section 3(a)(3).
    4. Section 3(b)(2) provides that notwithstanding section 3(a)(3), 
the Commission may issue an order declaring an issuer to be primarily 
engaged in a business or businesses other than that of investing, 
reinvesting, owning, holding, or trading in securities either directly, 
through majority-owned subsidiaries, or through controlled companies 
conducting similar types of businesses. Applicant believes that it 
meets the requirements of section 3(b)(2) exempting it from the 
definition of an investment company because it primarily engaged, 
through its wholly- owned or majority-owned subsidiaries, or through 
companies which it primarily controls, in the business of a natural 
resources group focused on gold, base metals, industrial minerals, 
paper and packaging, and agribusiness.
    5. In determining whether a company is ``primarily engaged'' in a 
non-investment company business under section 3(b)(2), the Commission 
considers the following factors: (a) the issuer's historical 
development; (b) its public representations of policy; (c) the 
activities of its officers and directors; (d) the nature of its present 
assets; and (e) the sources of its present income.\1\
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    \1\ Tonopah Mining Company of Nevada, 26 S.E.C. 426, 427 (1947).
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    a. Historical Development. Applicant is the successor to a line of 
companies that have been in existence since 1928 and that had their 
origin in the operation of copper mines. Although applicant contends it 
always has maintained significant influence over its natural resources 
operating companies, applicant has not always held itself out as a 
holding company exercising direct control over the operating businesses 
of the Group. Applicant states that the process of becoming a ``hands 
on'' operating group began in 1987 with the relocation of applicant's 
headquarters to Luxembourg, a reorientation of its asset holdings into 
the ownership and operation of, and direct participation in, resource-
based assets, and the disposition of non-controlling passive 
investments. At that time, applicant articulated a strategy to focus on 
direct participation in operating businesses, and, since 1989, has made 
a series of acquisitions of controlling interests in natural resources 
companies with the result that applicant believes it now has 
established itself as an operating group. Applicant asserts that the 
Group today exercises primary or joint control over virtually all of 
its constituent companies, either through direct voting control, 
management agreements, or cross directorships.
    b. Public Representations of Policy. Applicant states that it does 
not hold itself out as an investment company within the meaning of the 
Act, and has never been a registered investment company (or subject to 
any analogous regulatory scheme). Applicant further states that it 
consistently represents itself to its shareholders and the public as an 
international natural resources group. This is supported by, among 
other things, statements in its annual reports, news articles, and 
analyst reports. Applicant's 1995 annual report, for example, discusses 
its operations and projects, and states that applicant is continuing to 
expand in its five operating business segments: gold, base metals, 
industrial minerals, paper and packaging, and agribusiness.
    c. Activities of Officers and Directors. Applicant states that its 
management,

[[Page 24520]]

on the whole, spends substantially all of its time actively involved in 
the natural resources business of the Group. Of applicant's twenty-two 
directors, only one director, who serves as applicant's Finance 
Director, spends any meaningful amount of his time (approximately 5%) 
monitoring the Group's securities holdings and cash management 
activities, and that time is spent mostly on administrative and 
supervisory matters. Applicant's five executive directors have been 
with the Group for a significant amount of time and have substantial 
experience in applicant's natural resources operations. Of applicant's 
thirteen principal officers, only the Treasurer spends any time 
(approximately 60%) on cash management.\2\ Applicant is represented by 
its directors and officers on many of the boards of directors of its 
subsidiaries and its controlled company. In many of those companies, 
applicant's directors and officers play a leading role in management's 
strategic decision making or in other essential operational functions.
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    \2\ Approximately 40% of applicant's cash management activities 
are conducted through outside managers on a fully discretionary 
basis.
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    d. Nature of Assets. As of December 31, 1995, applicant had total 
assets of $5,162 million.\3\ For purpose of analysis under section 
3(b)(2), 63% of applicant's total assets were operating assets 
attributed to its majority-owned subsidiaries (including wholly-owned 
subsidiaries), its controlled company, Engelhard, and applicant's 
interests in its joint ventures.
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    \3\ The methods used in the valuation of applicant's assets were 
in accordance with section 2(a)(41) under the Act.
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    e. Sources of Income. As of December 31, 1995, applicant derived 
approximately 66% of its income from its operating businesses and 
approximately 34% from its investment activities. With respect to 
income earned by the Group's operations, applicant's majority-owned 
subsidiaries (including wholly-owned subsidiaries) accounted for 
approximately 26% of its income, Engelhard accounted for approximately 
12% of its income, and its joint venture interests accounted for 
approximately 28% of its income.
    6. In the alternative to exemptive relief under section 3(b)(2), 
applicant requests an order under section 6(c) exempting applicant from 
all provisions of the Act and the rules and regulations thereunder. 
Section 6(c) authorizes the Commission to issue a conditional or 
unconditional exemption from any provision of the Act or rule 
thereunder if the exemption is ``necessary or appropriate in the public 
interest'' and is ``consistent with the protection of investors and the 
purposes fairly intended by the policy and provisions of [the Act].'' 
Applicant states that it was structured for valid economic and legal 
reasons and not with the Act in mind. Consequently, applicant believed 
that it would be inappropriate and detrimental to applicant and its 
shareholders to be treated as an investment company and made subject to 
the Act. Furthermore, applicant believes that it is not the type of 
company and does not engaged in the activities the Act was designed to 
regulate. Accordingly, applicant submits that the requested exemption 
is necessary and appropriate in the public interest, is consistent with 
the protection of investors, and is consistent with the purposes of the 
Act.

    For the Commission, by the Division of Investment Management, 
under delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 96-12128 Filed 5-14-96; 8:45 am]
BILLING CODE 8010-01-M