- 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
“Taiwan’s China Steel and China’s Baosteel are planning to invest jointly in overseas iron ore mines. …
The co-operation also highlights the pressures that volatile iron ore prices impose on mid-sized steel mills. In recent months, this has led to a number of iron ore mine acquisitions by steel companies, as well as a new pricing system for iron ore this year.
Tsou Jo-chi, China Steel chairman, has previously said he hoped to increase his company’s self-sufficiency in iron ore from 2 per cent to 30 per cent within five years. China Steel uses about 20m tonnes of iron ore a year.”
- China Steel’s 30% self-sufficiency for 20m tonnes iron ore content requires the company to gain control over approx. 6Mt mine production. This is approx. 0.3-0.4% of global production.
- Recent Chinese steel maker’s investments in mining capacity abroad include Shandong’s investment in Sierra Leone Tonkolili mine and Wuhan’s joint venture with Australian Centrex Metals Ltd corporation.
- Upward vertical integration by steel makers will increase due to the increased risk for the downstream business of the new iron ore pricing system. However, as the Chinese steel makers don’t have the expertise to operate the iron ore mines, they will typically need to look for investments with a western operating partner.
- Analysts suggests the companies are partnering in order to have a stronger financial position for acquisitions. This implies they will not be looking for many small acquisitions, but rather for 1-3 major operations.
©2010 | Wilfred Visser | thebusinessofmining.com