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M&A Share Attractiveness Ranking – February 2013

February 17, 2013 Comments off

The latest update of the M&A share attractiveness ranking for the world’s 40 largest mining companies demonstrates the current slump of gold (and to lesser extent copper) mining stocks. Discounting Ivanhoe, which has been taken out by Rio Tinto, ENRC tops the list of companies that might become the target of an acquisition. The company’s stock moved higher over the past weeks on acquisition rumors, reducing its attractiveness ranking, but analysts still see approximately 50% upside in the stock. Behind ENRC the ranking is dominated by gold and copper miners, with Anglo American the only non gold or copper miner in the top 10. Low gold and copper prices and the emergence of gold ETFs has depressed the share price of the miners over the past year, but most analysts still expect better times for this group of miners.

The thebusinessofmining.com M&A share attractiveness ranking is a combination of analyst expectations and current share level compared to the annual high, normalized against BHP’s share performance. The ranking provides a market perspective of how ‘cheap’ a stock is for potential acquirers.

Mining M&A - Share attractiveness chart - 130217

Mining M&A - Share attractiveness ranking - 130217

Rio Tinto: Reinvigorated, but worried about volatility

February 10, 2011 Comments off

“Chairman Jan du Plessis said ‘This year’s record results reflect a combination of strong
commodity markets
, first class assets and excellent operational performance at our managed
operations. We are in a significant growth phase and have multiple opportunities to pursue. Our strategy
remains the same, and our strengthened balance sheet means we are in a good position to
deliver on this. We will continue to make substantial investments in value-adding organic
growth
and targeted small to medium-sized acquisitions.’

Chief executive Tom Albanese said ‘Rio Tinto is reinvigorated, running strongly and benefiting from favourable markets. GDP growth in emerging markets and supply constraints mean the
general market and pricing outlook for commodities remain positive, albeit with elevated risk.
In particular, the timing and speed at which post-global financial crisis stimulus packages are
removed have the potential to generate both volatility and substantial swings in commodity
prices
. We are well placed to cope with the risks of both short term volatility and long term
demand growth. In 2010, by safely running many of our operations at full capacity we more than doubled our underlying earnings to $14 billion. Our leadership in operational performance was
demonstrated by record iron ore production from our world class Pilbara operations.'”

Source: Rio Tinto press release, February 10 2011

Observations:

  • Gross revenue for the year was $60.3bln, about 8% above analyst concensus estimate. Key revenue drivers were high iron ore, coal, and copper prices.
  • Earnings increased 122% to $14bln. Price increases led to a 151% increase, but exchange rates, inflation, energy costs, and increasing operational costs reduced the increase. Volumes increased slightly, primarily in the Pilbara iron ore operations.
  • Earnings Per Share of 735$ct are in the range of analyst expectations.
  • Rio Tinto launched an extensive report on the outlook for metals and minerals by Vivek Tupulé, the group’s Chief Economist. The report expresses concern about the high inflation in China and the potential impact of interest rate resulting increases for the resources industry.

Implications:

  • The prudent growth outlook, framed by both the chief economist and CEO Albanese, refuel the industry debate about the short and long term sustainability of Chinese growth. Shares of Rio Tinto dropped over 2% pre-market in New York (vs. just over 1% for basic materials peers), indicating that worries come as a surprise to part of the investor community.
  • The high commodity prices have helped the company to rebuild a healthy balance sheet. With current level of cash generation the announced share buybacks and the $11bln capital expenditure for 2011 should not impede the company to continue searching and bidding for sizeable acquisitions. The company might benefit from its relative low activity in acquisitions in the past years to gain regulatory and public approval for deals around the world that would currently be harder for rival BHP Billiton to pursue.

©2011 | Wilfred Visser | thebusinessofmining.com

Analyst expectations for diversified miner’s results

February 7, 2011 Comments off
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