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Posts Tagged ‘BRIC’

ICMM: Trends in the Industry

October 21, 2012 Comments off

The International Council on Mining and Metals (ICMM) published 2 new reports this week:

Trends in the Mining and Metals Industry

This 16-summary of where the industry is coming from and where it is going mainly gives an interesting perspective on geographic developments in the mining industry. The report shows how center of mining activity has shifted from Europe, via the US, to the BRIC countries and new frontiers. At the same time the report illustrates how a large part of processing capacity still is located in the developed world, though China’s processing surge is instrumental in changing this situation.

The report in summary:

  • Center of mining is shifting to new frontiers, including BRIC countries;
  • Iron ore, gold, and copper continue to account for roughly two-thirds of value of global mined metals;
  • Large companies are responsible for an increasing share of global production;
  • With lower average ore grades, bulk open-pit mining is more and more the mining method of choice;
  • Human resource challenges are becoming restrictive;
  • China-led nationalized mining is leading to a global increased in state participation in mining companies.

The role of mining in National Economies

This report presents a Mineral Contribution Index (MCI), ranking countries’ dependency on the mineral industry. The index includes:

  • The percentage contribution of the mineral industry to export value;
  • The change in this contribution over a 5 year period;
  • The mineral production value as percentage of GDP.

The top 25 countries according to the ranking with their respective scores are displayed below.

Arch to Buy International Coal for $3.4bln

May 3, 2011 Comments off

“Arch Coal Inc. said it will acquire International Coal Group Inc. for $3.4 billion, becoming the latest coal producer seeking to secure reserves and take advantage of rising prices in the market for metallurgical coal used by steelmakers. St. Louis-based Arch said the all-cash deal will create the fourth-largest coal producer globally and the second-largest U.S. producer of metallurgical coal. The appetite for the relatively scarce, deep-mined form of coal is driven by infrastructure growth in emerging economies like China, India and Brazil.

The deal will enable Arch, which has significant port and barge capacity, to boost exports of high-quality metallurgical coal currently produced by ICG, said Steven F. Leer, Arch’s CEO, in an interview. ‘They bring products we don’t have, and we bring infrastructure that they don’t have,’ Mr. Leer said. ‘It becomes a hand-in-glove fit.’ The combined company would have total shipments of 179 million tons of coal, based on 2010 results, including metallurgical and thermal coal.”

Source: Wall Street Journal, May 3 2011

Observations:

  • Both global steam coal (power generation) demand and metallurgical coal (steel making) demand are expected to rise strongly in the coming decade on the back of strong growth of BRIC-countries. As these countries will not be able to satisfy the domestic demand, imports will increase. This repositions North America as a potential large exporter of coal.
  • The announcement of the acquisition coincides with Massey’s report of a quarterly loss, indicating the cost pressure the industry in the USA is experiencing. Massey will likely be bought by Alpha Natural Resources for $7.1bln, creating a big competitor to the Arch-International combination.

Implications:

  • Arch expects annual cost savings of $70-80mln, justifying a premium of approx. $1bln over ICL’s pre-announcement market cap of $2.2.bln. However, in mid 2010 market cap was as low as $1.0bln. Additional revenue-enhancing synergies as discussed by mr. Leer are required to create value for Arch’s shareholders.
  • Most current merger and acquisition attempts in the US coal market are largely synergy driven. The American market lagged earlier consolidation trends in the global industry, leaving merger opportunities on the table in an industry with many small players. At the end of this wave of consolidation most likely some 2-4 large American coal miners will be created, potentially with strong cross-border activities in Canada.

©2011 | Wilfred Visser | thebusinessofmining.com