(Corrects TVX market value in Trading Gold section in story published March 5, 2012.)
Eike Batista is $3.2 billion closer to his target of becoming the world’s richest man after warning Mexican billionaire Carlos Slim that he planned to overtake him. At this rate, he’s unlikely to take the top spot before 2024.
Batista’s net worth of $29.8 billion places him as the world’s 10th wealthiest individual, according to the Bloomberg Billionaires Index. After telling Brazilian media he’d be No. 1 by 2013, the Rio de Janeiro-based billionaire told Bloomberg News last March he would take first place by 2015. Slim’s current fortune is $68.5 billion, according to the rankings.
Batista, the son of a former Vale SA (VALE5) chief executive officer, became Brazil’s wealthiest man selling shares in a series of interlinking commodity start-ups. He’s poured $2.2 billion back into his companies over the past six years, while receiving just one dividend payment -- $20 million -- in return. That’s drained his cash, pushing him to take on at least $1.4 billion in debt as he pursues ventures ranging from gold to fertilizers to managing Ultimate Fighting Championship bouts.
“With the current horses he has in the race, I don’t think he’ll make it,” said Eric Conrads, who oversees $600 million in Latin American stocks at ING Investment Management in New York and which owns shares in Batista’s oil company, OGX Petroleo & Gas Participacoes SA. “But it’s always good to have that goal. Even if you don’t reach it, you might end up in the top five.”
Batista’s net worth has fallen from $33.4 billion in March last year, when he warned he would overtake Slim, after OGX, his most valuable holding, slid 12 percent in dollar terms. Slim’s wealth has dropped from $75.3 billion, dragged down by a 14 percent slide in phone operator America Movil SAB. (AMX) If maintained, Batista’s $3.2 billion progress in narrowing the gap would put him above Slim in about 12 years from now.
“You don’t do this from one year to the other,” Batista said in a March 2 telephone interview from Rio, arguing he still plans to overtake Slim by 2015. “I absolutely maintain that goal. I do not regret it, absolutely not.”
Batista’s main holdings are five publicly-traded companies including oil unit OGX, iron-ore producer MMX Mineracao & Metalicos SA and shipbuilder OSX Brasil SA. (OSXB3) He also controls LLX Logistica SA (LLXL3), constructing what the billionaire says will be the world’s third-largest port, and power-generation company MPX Energia SA. Batista uses the letter “X” in his company names because he says it symbolizes the multiplication of wealth.
Batista, 55, began trading gold in the Amazon in the early 1980s after dropping out of college in Germany. In 1983 he sold mining assets to Toronto-based TVX Gold Inc. in a deal that made him the largest shareholder and eventually chairman and chief executive. His tenure saw the company’s market value peak above $1.7 billion in 1996, before legal battles in Greece and Russia drove it below $60 million by 2001, when he resigned to focus on his investments in Brazil.
Now Batista’s betting again on the precious metal, taking on $1.4 billion in debt for last year’s acquisition of Ventana Gold Corp., which owns mining rights in northeastern Colombia.
“He never lost the gold bug,” Richard Warke, the former Ventana chairman who negotiated the sale to Batista, said in a telephone interview from Vancouver. “I found him very knowledgeable about the business, the industry’s valuations and he has a very good team. He is just a very tough negotiator.”
Now called AUX, the company has rights to deposits 400 kilometers (248 miles) northeast of Bogota. Ventana had reported 3.5 million ounces of gold before Batista took it private in March 2011. In his interview on March 2, he said it had 9 million. He said last month he’s in talks with sovereign wealth funds and other potential “strategic partners” to sell a stake, and may also conduct an initial public offering.
“This was a deal that was win-win for both sides,” former chairman Warke said. “I think there is a lot more gold there, it’s just going to take time to drill it, that’s all.”
Batista hasn’t always been able to bring projects in on time. His last company to go public, shipbuilder OSX, is trading 49 percent below its March 2010 IPO price after environmental licensing took longer than expected and forced the company to move its planned shipyard to a new location. While he had initially planned to lure as much as $5.6 billion to the company’s initial sale, OSX ultimately raised just $1.4 billion -- with Batista injecting about $300 million of that from his own pocket, according to the transaction’s final prospectus.
OGX, Batista’s oil and gas company, started to produce crude in January, seven months after its original target. Still, output came just over two years after finding the Waimea deposit in the waters of Rio’s Campos basin, which prompted Batista to say the discovery-to-production schedule was “a world record.”
Batista invited OGX skeptics to “drink hot petroleum,” according to a posting on his Twitter account at the time.
While Batista has earned more than $4 billion before taxes from asset sales over the past six years -- including $3.4 billion from the sale of an iron-ore business to Anglo American Plc (AAL) in 2008 -- he’s since burned through most of his cash. He sunk a total of $1 billion into his own companies’ IPOs and another $1.2 billion into notes linked to their shares, convertible bonds and other instruments, according to regulatory filings. Last year he bought $311 million in structured notes tied to OGX after the stock hit a two-year low.
“He obviously believes in what he’s doing,” said Urban Larson, who helps manage about $2.3 billion in emerging-market stocks at F&C Management Ltd. in London and bought OGX shares for the first time near the end of 2011. “His companies are not going to be a source of cash for him for a long time.”
Batista said March 2 his companies will post close to $1 billion in earnings before interest, taxes, depreciation and amortization this year, and double that in 2013.
EBX Group Co., the holding company for most of Batista’s assets, said in an e-mailed statement that he has a $1.4 billion investment portfolio. That includes his 30 percent personal stake in LLX’s Acu port project. EBX values the holding at about $380 million and considers it a liquid asset.
Based on future production, Batista’s group says gold explorer AUX is worth $4.8 billion excluding debt, and values land in Chile where he has secured licenses to build a port at $1.1 billion. All together, EBX put Batista’s net worth about $5.7 billion higher than the estimate in the Bloomberg Billionaires Index, adding that he has no debt beyond that carried on AUX’s balance sheet. That would put him in eighth place in the ranking.
“I am probably, among the billionaires, the least indebted guy of all of them,” Batista said in the March 2 interview.
As his commodity and logistics companies leave the pre-operational phase, Batista is diversifying into segments such as sports and technology. EBX has entered the catering-services market through NRX-Newrest, a joint venture with Newrest Group Holding, and also started IMX, a partnership with IMG Worldwide Inc. focused on sports and arena management in Brazil, including Ultimate Fighting Championship events.
Batista is considering investing $2.5 billion in a plant to make electronic screens in Brazil through a joint venture with Foxconn Technology Group, a maker of metal casings for Apple Inc., he said Feb. 15. In October, EBX signed an agreement with Orascom Construction Industries of Egypt for a fertilizers partnership that may require $3 billion in investments.
For investors such as the Ontario Teachers’ Pension Plan, Canada’s third-biggest pension fund with $108 billion of assets under management, betting on Batista’s projects early on proved lucrative. The fund invested about $450 million in OGX in December 2007 after managers met Batista during a cocktail party at Rio’s Copacabana Palace Hotel. By the time the company went public less than six months later, that initial investment was valued at about $2.5 billion, according to the prospectus.
“Eike is one of the few individuals who has both this enormous vision and this tremendous ability to create very high-quality management teams,” Bill Royan, a vice president at the fund, said in a telephone interview. The fund owns stakes in three other companies controlled by Batista.
Batista’s strategy contrasts with that of Slim, who invested heavily during the Mexican recession of the early 1980s, and last year increased his holdings in New York Times Co. (NYT) and Saks Inc. after share prices tumbled.
“Some investors take advantage of crises to buy assets that are worth a few cents,” Batista said in “O X da questao,” a book he published in 2011 to explain his trajectory as a businessman. “I don’t do that. I create wealth from zero and I’m proud of it.”