[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