Home > Investments, Mergers & Acquisitions > Gerdau denies Usiminas acquisition plans

Gerdau denies Usiminas acquisition plans

March 24, 2011

“Gerdau SA, Latin America’s biggest steelmaker by output, Wednesday strongly denied rumors that it will use funds from its new share sale to buy stakes in fellow Brazilian steelmaker Usinas Siderurgicas de Minas Gerais SA, or Usiminas. At the same time, Brazilian industrial group Votorantim denied it is seeking to sell its 13% stake in Usiminas’s controlling shareholders’ group.

Funds raised in Gerdau’s new share sale, the prospectus for which was published Wednesday, will be directed at Gerdau’s current investment program, Gerdau said. This foresees spending of 10.8 billion Brazilian reais ($6.51 billion) in 2011-15, 75% of it in Brazil, to meet growing domestic demand for steel and maintain the company’s export levels, Gerdau said earlier this month. The planned investment will expand steelmaking, rolling-mill and iron-ore mining capacity.”

Source: Fox Business, March 23 2011

Observations:

  • Gerdau owns rights to four iron ore deposits in Brazil’s state of Minas Gerais. Total reserves were revised up from 1.9bln to 2.8bln tons last month.
  • In comparison, Vale, Brazil’s and even the world’s largest iron ore miner, holds proven reserves of approx. 10bln tons at production over 300mln tons of ore per year.

Implications:

  • Some analysts expect Gerdau to search for options to expand by acquiring one of the smaller steelmakers in Brazil. Acquiring a flat steel maker would complement Gerdau’s strength of producing long steel.
  • Other analysts expect Gerdau to team up with an experienced mining house in order to step up production in its mining assets. Current low margins in steel making caused by high iron ore, coal and electricity prices lead many steelmakers to analyze options to move upstream.

©2011 | Wilfred Visser | thebusinessofmining.com

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