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Posts Tagged ‘ArcelorMittal’

Mining Week 1/’13: Anglo and Mittal sell iron ore assets

January 6, 2013 Comments off

Top Stories:

  • Anglo and Cliffs sell 5Mtpa Brazilian iron ore mine
    • Anglo American and Cliffs Natural Resources sell their 70% and 30% stakes in the Northern Brazilian Amapa iron ore mine to private miner Zamin Ferrous for approx. $400m. A year after buying their 70% share 4 years ago, Anglo took a $1.5bn writedown on the asset.
    • Sources: Anglo American; Financial Times; Reuters
  • Bumi looses $422m in derivatives trading
    • Bumi Resources, partly owned by Bumi plc and part of the dispute between the Bakri family and Nath Rotschild about the future of Bumi, posted a loss over the first 9 months of 2012 driven by low coal prices and a loss of over $400m on derivatives.
    • The loss on derivatives value was driven by a re-calculation of early payment rights, changing the discount rate of the value of that option from 5.25% to 17.2%.
    • Sources: Bumi Resources results; Financial Times; Wall Street Journal
  • ArcelorMittal sells 15% stake of Labrador Trough for $1.1bn
    • Cash-hungry steel maker and miner ArcelorMittal decided to sell a 15% stake of its Labrador Trough iron ore project in Canada to Chinese steel maker Posco and Taiwanese steel maker China Steel, also signing long-term offtake agreements.
    • Sources: ArcelorMittal press release; Financial Times; The Hindu

Trends & Implications:

  • The sale of iron ore mines or stakes by ArcelorMittal and AngloAmerican signal 2 different trends in the industry:
    • The large miners are actively divesting non-core assets, trying to focus management attention and funding on the large operations and development projects.
    • Many companies are having trouble securing the funds required to execute the enormous development projects that are currently in execution phase in the iron ore industry. Forming partnerships and selling minority stakes is often the cheapest way to obtain funding.
  • The loss reported by Bumi Resouces is not a sign of mismanagement, but rather a sign of cleaning up the books and trying to make sure the assets listed are actually worth what they are listed for. Valuation of options is a highly subjective art, and the management of Bumi Resources apparently chose to take the revaluation hit at a moment when low coal prices were forces the results into the red anyway.

2013 | Wilfred Visser | thebusinessofmining.com

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Mining Week 44/’11: Exchange rate and steel headwinds

October 30, 2011 Comments off

Top Stories of the Week:

  • Peabody and ArcelorMittal get MacArthur; then ArcelorMittal gets out
    • Only 2 days after PEAMcoal, the vehicle set up by Peabody energy and ArcelorMittal to buy Macarthur, announced it obtained a majority interest, Arcelor decided to get out of the combination. The company will sell the 16% of Macarthur it had to Peabody. Peabody had teamed up with ArcelorMittal because an earlier bid had not gained the support of the major shareholders.
    • Sources: Reuters; Financial Times; ArcelorMittal press release
  • Vale suffers $2.8bln exchange rate hit
    • Vale posted disappointing results for the 3rd quarter: the weak Brazilian real compared to the US dollar hit the company hard, iron ore spot prices dropped 27% q-on-q, and production volumes were lower than planned.
    • Sources: Vale press release; Financial Times; Wall Street Journal

Trends & Implications:

  • The move of ArcelorMittal out of the Macarthur acquisition is a surprising sign of hesitance and uncertainty about the development of the global steel market. The company prefers cashing $700mln over having to pay an additional $1.2bln to get 40% of the Australian coal miner. It still plans to build an iron and coal mining business to increase self-sufficiency. US steelmakers are also struggling and iron ores prices have plummeted in expectation of falling steel demand.
  • Exchange rates remain a very important factor in the competitiveness of miners because sales for miners around the world are typically in US dollars, irrespective of the currency in which costs are incurred. As shown in the exchange rate graphs below the Brazilian real has been hit harder than the Australian dollar, key currency for iron ore production of Rio Tinto and BHP Billiton, in the past quarter.

©2011 | Wilfred Visser | thebusinessofmining.com

Xstrata retains leadership in Dow Jones Sustainability Index

September 20, 2011 Comments off

“The main sustainability issue facing the mining industry is that of declining ore grades, which implies that over time, more mineral ore needs to be extracted and processed in order to produce the same amount of metal. This is likely to exacerbate many of the environmental and social issues facing the mining & metals industry going forward. Some of the prominent environmental issues include mineral waste management, as well as the management of key inputs such as energy and water. Social issues are mainly centered around the health & safety of workers and general labor conditions. Issues such as land rights, population relocations, the use of private security forces to protect mining assets, and mine closure also remain very controversial. As with other extractive industries, the mining space is particularly susceptible to corruption, bribery and other breaches of the Codes of Conduct”

Source: Dow Jones Sustainability Index Review 2011, September 2011

Observations:

  • Xstrata tops the Dow Jones Sustainability Index for the basic resources sector for the second year in a row.
  • Most important changes of the index for the mining industry are the inclusion of Newcrest and Kinross, and the removal from the index of ArcelorMittal and Goldcorp.
  • Assessment criteria include economic, environmental, and social topics. Full list of criteria can be found here.

Implications:

  • Inclusion in the DJSI is mainly a marketing issue; it does not have direct operational or financial consequences. Many countries do require foreign investors to adhere to global reporting initiatives to ensure a certain level of sustainability, but DSJI requires a much broader set of policies.
  • Xstrata especially scores higher than industry average in terms of climate strategy, mineral waste management, human capital development, and standards for suppliers. The benchmark report will certainly be used by some companies to prioritize areas for improvement.

©2011 | Wilfred Visser | thebusinessofmining.com

Macarthur backs Peabody-Arcelor offer

August 30, 2011 Comments off

“Macarthur Coal has backed a sweetened takeover bid from Peabody Energy of the US and European steelmaker ArcelorMittal that values one of Australia’s last remaining big independent coal miners at A$4.9bn (US$5.2bn). The recommendation by the Macarthur board came after PEAMCoal, a new entity owned by the bidders, lifted its offer price to A$16 a share from A$15.50. Macarthur shareholders are also entitled to a recently declared dividend, taking the total price to A$16.16 a share.

Barring a higher offer from a rival suitor, Tuesday’s agreement all but ends a protracted takeover tussle for Macarthur among multiple parties spanning more than a year. Macarthur said unnamed potential suitors had examined its books since PEAMCoal made its initial A$15.50-a-share offer, but ‘although it remains possible that a superior proposal might be made, none have emerged to date and there can be no assurance that any will emerge.’”

Source: Financial Times, August 30 2011

Observations:

  • PEAMcoal’s new bid is $0.50/share higher than the initial offer, adding some $0.2bln to the transaction value. The current bid is almost $2.0bln higher than Peabody’s offer in May 2010.
  • Macarthur agreed to a $51.4mln break-up penalty (1% of takeover price) and no shop/no talk clauses, making it hard for other parties to obtain detailed company information. However, various other potential bidders have already studied Macarthur’s books.

Implications:

  • By agreeing to PEAMcoal’s bid Macarthur’s board pressures potential other parties to hurry up. Anglo American is rumoured to be interested in bidding for the company, but no official rival bids have been made yet. As most interested parties have been in contact with Macarthur and studied the books already, the no talk clause is not very important, but Macarthur signals a decision has to be made quickly.
  • Key assumption in the valuation of Macarthur clearly is the coal price going forward. Synergies vary among potential bidders, but synergy value will be much lower than the value of the stand-alone cash flows of the company. As a result the company with the most optimistic forecast of the coal prices will be willing to pay most for Macarthur. This concept, in which the winner of an auction (or takeover process) runs a high risk of being too optimistic, is known as ‘the winner’s curse’.

©2011 | Wilfred Visser | thebusinessofmining.com

Anglo American eyes Macarthur coal

August 23, 2011 Comments off

“Anglo American is considering a counterbid for Macarthur Coal in an attempt to gatecrash a A$4.7bn (US$4.9bn) bid for the Australian coal group from Peabody Energy and ArcelorMittal. Earlier this month, Macarthur said it was open to offers that valued its business at nearly A$5bn after formally rejecting an ‘opportunistic’ bid from Peabody Energy of the US and steelmaker ArcelorMittal.
People familiar with the bid process said there were a number of interested parties, one of which was Anglo American. The mining group is said to be working with its traditional advisers, which include Goldman Sachs.
It is not clear whether Anglo will proceed with any offer, and talks are expected to come to a head in the next week. A deal would be the largest by Anglo since 2007, with its recent blooming profits creating a degree of financial flexibility that the company has not enjoyed for several years.”

Source: Financial Times, August 21 2011

Observations:

  • Peabody and ArcelorMittal have made an offer to the shareholders of Macarthur after Macarthur’s board declined to agree to the offer and not search for higher bidders.
  • Anglo’s metallurgical coal operations are currently mainly located in Queensland, giving a good geographical match with Macarthur’s operations.

Implications:

  • The current stake of ArcelorMittal in Macarthur will be an important hinderance for other parties to make a counterbid. If their bid would succeed, they would still be left with ArcelorMittal as an important party in the board room.
  • Potential other parties interested in buying Macarthur could be Chinese steel makers and/or coal miners, other large coal producers in Australia (Rio Tinto, BMA), government backed Indian coal miners, or even Vallar/Bumi. Based on the proximity to existing operations Anglo would be able to justify a higher premium than new entrants in the Queensland coal industry.

©2011 | Wilfred Visser | thebusinessofmining.com

Peabody, ArcelorMittal Sweeten Offer for Macarthur

July 18, 2011 Comments off

“The world’s largest private-sector coal miner and the largest steelmaker by output on Thursday sweetened their offer for Australian pulverized coal miner Macarthur Coal Ltd. to around A$4.73 billion (US$5.05 billion), while moving a step closer to success by agreeing to start due diligence on the deal. Peabody Energy Corp. and ArcelorMittal said Monday they would start receiving data and site access from Macarthur from the coming Monday.

St. Louis-based Peabody and Luxembourg-based ArcelorMittal made an indicative A$15.50 per share bid for Macarthur, the world’s largest miner of pulverized steelmaking coal, according to the announcement Monday.”

Source: Wall Street Journal, July 14 2011

Observations:

  • Peabody tried to buy Macarthur early 2010, but this offer did not convince the 3 major shareholders (ArcelorMittal, Posco and Citic). In the new offer, announced last week, Peabody teams up with ArcelorMittal in a 60%/40% ownership structure.
  • The sweetening of the offer consists of the withdrawal of the demand that a $0.16/share dividend not be paid out by Macarthur. In turn the buyers get access to the due diligence information required to test the offer assumptions and to prepare integration.

Implications:

  • It appears Macarthur’s board is cooperative in the deal, opening books and mines for inspection in exchange for a small increase in value for current shareholders (approx. 1% of market value).
  • If the deal goes ahead the major shareholders that don’t participate in the takeover will need to decide whether or not to sell their shares. Posco and Citic both are strategic shareholders, but only Posco has interest in retaining access to Macarthur’s products, which will potentially become much more difficult if competing ArcelorMittal increases its ownership stake.

©2011 | Wilfred Visser | thebusinessofmining.com

Peabody in new Macarthur move

July 13, 2011 Comments off

“Peabody Energy of the US has joined forces with steelmaker ArcelorMittal to make a A$4.7bn (US$5bn) bid for Macarthur Coal, the Australian coal miner that was at the centre of a failed three-way bid battle last year. With Chinese-driven demand for coal pushing up prices, Peabody is attempting to expand overseas. ArcelorMittal is seeking to buy mines to secure its steelmaking ingredients at reasonable prices. Macarthur is the world’s top exporter of a coal variety that is one of the hottest commodities in metals and mining. Macarthur received the indicative cash offer of A$15.50 a share on Sunday. It is conditional on the bidding consortium securing at least 50.01 per cent of the target’s shares.

Peabody made a A$15-a-share bid last year but the deal collapsed when it failed to secure backing from Macarthur’s board. At that time, ArcelorMittal and China’s Citic – Macarthur’s two biggest shareholders respectively owning 16 and 24 per cent – indicated they were unlikely to approve the takeover.”

Source: Financial Times, July 11 2011

Observations:

  • Peabody’s previous bid, which collapsed in May 2010, was made conditional on Macarthur’s board approval, which in turn was made conditional on 75% of the shareholder votes supporting the deal. ArcelorMittal, Posco, and Citic, controlling almost 50% of the shares, were afraid to lose contract rights and therefore did not support the deal at the time.
  • The $15.5/share bid holds a 40% premium over the share price prior to the announcement. The share price dipped in June to the lowest point in more than a year driven by low Japanese demand.

Implications:

  • ArcelorMittal ensures long term access to the coal from Macarthur and probably also other Peabody operations by taking a 40% stake in the deal. If the acquisition is successful the company makes an important step in becoming more self-sufficient in its raw material needs by integrating vertically.
  • Peabody would add approximately 25% of its size with the acquisition, and would make a big step to expand operations internationally. As Macarthur is one of the key suppliers of China’s coal demand it might happen that China’s steel industry, led by Citic, will try to outmanoeuvre ArcelorMittal by making a competing bid.

Note: on July 14th this offer was sweetened

©2011 | Wilfred Visser | thebusinessofmining.com

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