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Posts Tagged ‘America’

Alpha agrees to buy Massey for $8.5bn

January 31, 2011 Comments off

“Alpha Natural Resources, the third-biggest US coal producer, agreed to buy its rival Massey Energy for about $8.5bn in cash and stock, as the consolidation of the global coal sector continues apace.

Under the terms of the deal, Massey shareholders receive 1.025 Alpha shares plus $10 cash for each share held, valuing Massey at $69.33 a share, or 21 per cent more than its last trading price on Friday. The $8.5bn valuation includes net debt.

The combined operations will own more than 110 mines and coal reserves of about 5 billion tons, including one of the world’s largest metallurgical coal reserves. Alpha itself has 60 active mines throughout Virginia, West Virginia, Kentucky, Pennsylvania and Wyoming.”

Source: Financial Times, January 29 2011

Observations:

  • The announcement of the deal does not mention how the companies will handle potential liabilities springing from the safety investigations following April’s disaster in which 29 miners were killed. The deal is subject to shareholder and regulatory approval.
  • The merged entity will be the coal champion of North America, but will still be mainly focused on supplying the domestic industry.

Implications:

  • Will the agreement between Massey and Alpha lead to other bidders? Most likely not. ArcelorMittal was interested earlier, but the synergies to be achieved by Alpha might be larger and the corporate cultures of the companies are clearly more aligned. An alternative bidder will have to come with a very large premium to prevent Massey’s board from convincing the shareholders of the merits of merging with Alpha.
  • The $8.5bln deal (including net debt of approx. $1.4bln, making net deal value some $7.1bln) is one of the largest across industries in the last months. The deal shows the resurgance of mining M&A to be expected in 2011, with coal and gold being the primary commodities that will trigger M&A.

©2011 | Wilfred Visser | thebusinessofmining.com

World Steel Association: World crude steel output increases by 15% in 2010

January 27, 2011 Comments off

“World crude steel production reached 1,414 million metric tons (mmt) for the year of 2010. This is an increase of 15% compared to 2009 and is a new record for global crude steel production. All the major steel-producing countries and regions showed double-digit growth in 2010. The EU and North America had higher growth rates due to the lower base effect from 2009 while Asia and the CIS recorded relatively lower growth.

Annual production for Asia was 881.2 mmt of crude steel in 2010, an increase of 11.8% compared to 2009. Its share of world steel production increased to 65.5% in 2010 from 63.5% in 2009. China’s crude steel production in 2010 reached 626.7 mmt, an increase of 9.3% on 2009. China’s share of world crude steel production declined from 46.7% in 2009 to 44.3% in 2010.”

Source: World Steel Association, January 21 2011

Observations:

  • Annual steel production has increased to a new record, fully recovering from the reduced production in 2009. This reduction was fully caused by production outside China. Chinese production has increased every single year for the past decade.
  • The new iron ore pricing system leads to complaints about higher raw materials costs with many steelmakers (current spot price at $175/tonne). The recent spike in coal costs (currently up to $350/tonne) further reduces the margins of the steel makers. American producers are posting significant losses.

Implications:

  • Focus of the industry is on the new tax policies to be introduced in China to cool down the economy. Increased consumer prices of steel might have a significant impact on the growth rate of the Chinese industry, starting in the second half of 2011.
  • Across the world the increased prices of raw materials will be passed on to customers, as the mining and transportation costs are not likely to return to the levels of early 2009 with global supply conditions.

©2011 | Wilfred Visser | thebusinessofmining.com