Mexico Barite Production/Sales Business
Establishing a new supply source through acquired interests focused on rising demand
*Affiliations and titles are current as of the time of the posting of this article.
Demand for barite has been increasing rapidly as a weighing agent mainly in oil and gas drilling. In 2012, Sojitz acquired a stake in a barite mine in Mexico. This move was aimed at diversifying and stabilizing the supply structure by introducing an alternative to China, which currently dominates the barite trade. The project is moving steadily toward the first shipment, slated for 2014. This issue introduces trajectory Sojitz has reached with its investment in the barite mine and its future plans, which call for further expansion of the trade.
China: Holding Over Half of Total Global Production
Over 90% of all barite is used as a weighing agent in oil and gas drilling, with the rest for industrial use. Over half of total global production of barite, starting ingredient for barium, is controlled by China with their abundant reserves. From the beginning of 1990s, Sojitz’s barium trading has centered on Chinese barium due to its high-quality and low price. This barium was then sold to customers as an ingredient in glass and ceramics.
Sojitz has been trading with CPC in Chinese barite and paper-making chemicals for the last 20 years through Sojitz Corporation of America’s New York office. When CPC’s barium was introduced to a Japanese electromaterial manufacturer as a high value-added product by Sojitz, CPC approached Sojitz about entering into a business deal which would allow them to resume operations at their barite mine in Mexico.
Coming Together for the Sake of the Deal
For roughly the next year, the Chemicals Division kept CPC in mind as a potential acquisition as they braced for a rising global demand for barite coupled with unstable supply. In July 2012, the decision was made to purchase a 49% stake in CPC Mineria, which is subsidiary company (Curently, it is CPC Sojitz Mineria, CSM). Tomoharu Tsuruta, manager of the Chemical Division’s Osaka Business Dept. Sect. 2 who worked on the project from the outset, recalls the process, saying: “At first, we were requested to make a decision in the first six months, but as negotiations dragged on, we ended up spending about a year before we managed to put together an offer. The biggest factor behind finally getting internal approval for the project was how everyone, from the Division President to employees at the job site, was able to come together for the sake of this deal.”
Shiro Suita,seconded to CSM as an executive officer and thus directly related to the management of CPC, said at the time:
“There were a number of difficult aspects to this project, including the legal considerations. It was vital that all members cooperated in order to forge a deal which was acceptable to the company.”
Mr. Suita went on to say: “Despite the numerous demands on our end, our partner CPC stuck with us for a full year, adamant about wanting to work with Sojitz.”
Aside from barite, Sojitz has had no trouble building a track record with CPC over a wide range of additional products, including strontium, other minerals, and talc. “CPC came to an internal consensus that it was in their best interest to team up with Sojitz. That really helped us out.” (Suita)
Diversified Sources—A Shosha’s Greatest Supply Function
The greatest consumer of barite worldwide is the U.S. at 2.8Mt a year, with roughly 70 percent of that reliant on imports. More than half of those imports comes from a single country: China. Sojitz pays careful attention to country risks, which is why we recommend to customers that they alter their supply sources to decrease this reliance on China. In that sense, the Mexican reserves represent an extremely promising back up source for barite, and customers have cultivated high expectations for the operation. This will be the biggest advantage for end-users doing business with Sojitz.
“The diversification of our sources is just one function we can provide on the supply front. Looking at sales as well, there is great value in handling a material which is believed will keep growing in use, proportionate to the quickly growing demand fordrilling brought on by the shale gas revolution.” (Tsuruta)
Mr. Suita says, “When it comes to oil and gas, North America is the world’s largest market. In addition to the major petroleum players like Exxon-Mobile and Shell, they also have giant companies like Halliburton and Baker Hughes which specialize in drilling. Suppliers are looking for a stable supply which will contribute to industry profits. While it can be a hard industry to break into, by winning that supply position as a manufacturer, we gained the right to enter into this business. I think that was extremely important for us.”
Mr. Tsuruta also responded, saying, “By purchasing 49%, nearly half of the company, we can be closely involved in the management. Moreover, as a manufacturer, we can dig deep into the industry. It was paramount that we secure a large investment ratio.”
Aiming to Establish the Sojitz Brand
Opening ceremonies of barite plant were held on August 19th. Yoshihiro Tamura, Senior General Manager of the Ecological Materials & Resources Unit, attended as Sojitz’s representative.
Mr. Suita says, “This project has generated jobs for 30 – 40 people locally. Seeing all of them with smiles on their faces at the opening ceremony, from the very old to the very young, left a serious impression on me. I made a vow to myself that we would continue to expand and stabilize the job pool for the future of the area.”
Mr. Tsuruta responded, “I was unable to attend the opening ceremony, but the project is still in the opening stages. I felt a renewed sense that we must get the ball rolling on our sales.”
The project is still currently in the initial stages, with the first shipments expected to go out at the beginning of next year. The business’s goal over the next 5-10 years is to increase the quantity of products we deal with. In that way, the business aims to increase its market presence. “This may sounds like just a abstract answer, but since we are still new to the industry, our target is to make Sojitz a brand name with industry recognition.” (Suita)
Although barite is the principal ingredient in drilling fluid, there are almost 100 different chemicals apart from barite which are used to increase the liquid properties of the solution.Sojitz is working to up their industry presence by also increasing the number of products to include these additional chemicals used in drilling fluid. As Sojitz moves forward with these two initiatives simultaneously, it has gradually begun to build an industry track record.
CPC Barite Mine Opening Ceremony Address
Under this blazing sun in nearly 50°C weather, we have managed to bring this opening ceremony to a close without a hitch, thanks to the cooperation of nearly 40 Mexican workers and the local government officials. In this cactus-lined land with no major industries to speak of, I can acutely feel your ambitions for this project, and I have had my oath renewed to make this project a success.
This project is very significant in that it will bring a stable supply of the minerals necessary for shale gas extraction. I have conviction that we can make “New way, New value” a reality and develop this project to become a model for expanding business in the Americas. As Mexico continues to develop, it is my hope that all related parties will come together and push through the sweat and tears to increase the number of “Sojitz amigos” and create further projects in Mexico.
A word from the project members
At the time, I was a member of the Planning Office’s Investment & Loans Team.
From the moment the project first came under consideration to finally receiving approval for the investment, I had been in charge of supporting the responsible division to present the request for approval.
The project was originally brought to us by one of our business partners, and I remember very clearly how much time was spent debating it from the very beginning. It was a new area of investment for our company, and during the time we were deciding on our business strategy, members of the supervising department would often say things like, “What do you hope the company will accomplish through investment in this project?”
I also had the good experience of collecting information prior to the formal proposal, attending each negotiation with our local partners, and learning the ins and outs of a M&A project.
Now that I am part of the business division, I am the one developing these projects, and I can make full use of the things I learned during my work on the barite project.
In the past, I had the regrettable experience of failing to get an investment project I was working on to the formal proposal stage.
I secretly saw this barite project as a way make amends for that, and I resolved to “follow up words with action” as I worked to support the business division.
In textbook terms, an M&A is one way for an organization to achieve its goals or implement a business strategy.
The difficulty with this project, then, was that we only began to consider the goal/strategy after the project had already fallen into our laps.
Specifically, we had a hard time deciding where to shift our focus. In terms of business diversification, we had to decide between vertical (value chain development) or lateral (entering the petroleum and gas drilling market—a new market for us) diversification, and in terms of investment return, we had to decide between logistics profits and business profits.
In the end, we chose the latter of both options. To get approval within our limited timeframe, we had to figure out how to effectively and efficiently divide the work, collect information, analyze it, share it with the other members, and discuss it.
I remember always worrying about what I could contribute to the team.