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Posts Tagged ‘Itochu’

Coal’s Glow Attracts Major Miners

September 12, 2011 1 comment

“The sector’s confidence in emerging market demand for coal, especially the sort used in steel making, is keeping deal activity brisk. Four of the 10 largest mining-sector mergers and acquisitions in the first half of this year were for metallurgical coal assets, according to PwC. Total deal value so far this year, at nearly $19 billion, is already close to last year’s $22 billion total. Peabody Energy and ArcelorMittal’s $5 billion agreed bid for Macarthur Coal late last month is unlikely to be the last transaction. Anglo American, which was in the running for Macarthur, remains on the prowl for acquisitions, as do other mining majors.

But strong demand and a scarcity of top-notch coal assets can lead to punchy valuations. Acquirers this year have paid 13.2 times trailing operating profit for coal companies, compared with an 11.2 times average over the previous decade, according to IHS Herold. Peabody and ArcelorMittal are paying 20.8 times trailing operating profit for Macarthur.”

Source: Wall Street Journal, September 9 2011

Observations:

  • Top coal mining deals of the last year include Peabody-Arcelor’s (PEAMcoal) $5.2bln bid for Macarthur, Itochu’s $1.5bln Drummond deal, Alpha Natural Resources $8.5bln acquisition of Massey, and Arch Coal’s $3.4bln acquisition of International Coal.
  • In a poll on this site in January 38% of respondents indicated coal would be the commodity triggering most M&A in 2011.

Implications:

  • The key drivers for high valuations of coal producers in the last year are consolidation of the North American industry and the ‘need’ for steelmakers to integrate vertically and secure the access to a stable supply. A similar trend could drive up valuations of iron ore mines if growth of demand keeps up and ramp up of capacity of the major miners goes as slow as expected.
  • Most of the recent acquisitions in the coal sector have been done by Indian steelmakers or US coal miners, with targets often in Indonesia, Australia and Southern Africa (all relatively close to Asian consumers). Surprisingly Chinese companies are not yet playing an important role. Strategic acquisitions by Chinese steelmakers and/or coal mining giants, supported by government institutions, could further drive up valuation ratios of metallurgical coal assets in the area.

©2011 | Wilfred Visser | thebusinessofmining.com

Itochu beats rivals to $1.5bln Drummond deal

June 17, 2011 Comments off

“Itochu, the Japanese trading house, has beaten global commodities and mining rivals, including Glencore and Xstrata, to secure a 20 per cent stake in Colombian coal assets owned by Drummond, a family owned US mining company, for $1.52bn. The deal, announced on Thursday, is the clearest sign of the renewed appetite among Japanese traders for thermal coal, the commodity used to fire power stations, as the post-tsunami nuclear crisis threatens the future of electricity generation in the country.

The transaction values the assets at $7.6bn, well above the $6bn that other bidders were prepared to pay, highlighting the rapid appreciation of coal assets driven by strong demand from Asia. China and India have joined traditional buyers such as Japan and South Korea in competing for supplies, which has driven up prices. Berlin’s decision to phase out nuclear power in Germany could also boost demand in Europe. Drummond said that the transaction would give Itochu “rights” to market coal produced in the Colombian mine into Japan.”

Source: Financial Times, June 16 2011

Observations:

  • Last November Glencore was reported to be interested in buying Drummond’s Colombian assets: Mina Pribbenow and El Descanso open-pit coal mines located in the Cesar Coal Basin near La Loma; Puerto Drummond, a deep-water ocean port on the Caribbean Sea near Santa Marta; and coal transportation and handling facilities.
  • Itochu, a Fortune 500 trading company with approx. $150bln annual revenues, hopes to benefit from high prices for steam coal in Japan. It will get the rights to market coal from the Colombian assets, which will still be operated by Drummond, in Japan. Drummond will use the funds from the sale of the 20% ownership of the assets to increase the capacity of the mines.

Implications:

  • After the nuclear crisis in Japan the interest in coal fired power in the country has returned, increasing the market value of steam coal. Itochu is hoping to benefit from this trend in the long term, but will now also benefit from the profitability of the Colombian assets.
  • The ownership stake bought by Itochu does not prevent any other company from buying out Drummond and gain control over the assets. The sale of this stake gives a potential acquirer a clear valuation, which could help to bid for the remaining 80%. To Itochu this would not necessarily be an issue, as long as the contracts to market the coal in Japan are not changed.

©2011 | Wilfred Visser | thebusinessofmining.com

Itochu Buys Stake in Australian Miner

July 12, 2010 Comments off

“Itochu Corp. said Friday it has struck a deal with London-listed Polo Resources Ltd. to buy a roughly 10% stake in the owner of one of the world’s largest undeveloped uranium deposits. Itochu’s acquisition of Polo’s stake in Extract Resources Ltd. gives it a major advantage over North Asian rivals in the race to secure offtake from the Rossing South mine in Namibia once it begins production.

Australia’s Extract has been in talks for several months with potential partners in the development of Rossing South, which it says has the potential to produce 15 million pounds of uranium oxide a year. That would make it the world’s second-largest uranium mine. Itochu is buying Polo’s entire 9.2% stake, plus a 1.1% interest from a related party of Polo, in a transaction valued at about 15 billion yen (US$169 million) in total.”

Source: Wall Street Journal, July 9, 2010

Observations:

  • Itochu, a Japanese industrial conglomerate, basically buys 10.3% of Rossing South mine in Namibia, the worlds largest undeveloped (known) uranium deposit.
  • The company tries to secure a long term supply of uranium for the Japanese nuclear power industry. Japan is one of the countries with the highest capacity of nuclear power generation in the world.

Implications:

  • Uranium deposits and uranium exploration companies are becoming increasingly attractive acquisition candidates as the US government and large energy companies seem to agree that the next generation of nuclear energy (fast breeder reactors that do not produce nuclear waste and that do not have the potential of explosive reactions) is the most likely cure for the world’s fossil energy addiction in the long term.
  • The main producers of uranium are Canada, Australia, Russia, Namibia and Kazakhstan. This spread of deposits makes the production of uranium host to much less geopolitical issues than oil production.

©2010 – thebusinessofmining.com