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Posts Tagged ‘Japan’

Mining Week 48/’11: Change in Brazil & Tax in Australia

November 27, 2011 Comments off

Top Stories of the Week:

  • Australia’s Mineral Resource Rent Tax approved by lower house
    • The new 30% tax on profits above A$75mln for coal and iron ore projects has been approved by the lower house and is now only to be approved by the senate. The tax has been debated for approx. 2 years. Initially proposed by Kevin Rudd, the former premier, the regime has been tuned down and now includes arrangements to stimulate and protect investments.
    • Sources: Wall Street Journal; Financial Times; Australian Treasury MRRT explanation
  • Vale appoints new CFO: Tito Martins
    • Tito Martins, Vale’s head of base metals, has been appointed as the new CFO of the company. Several executive management positions changed in the first major move of the new CEO to strengthen control. Mr. Martins was involved in the acquisition of Inco, which turned into Vale’s base metals division which was led by Mr. Ferreira.
    • The change of top management of Vale was started by appointing Murilo Ferreira CEO in the place of Roger Agnelli after the presidential elections in Brazil. One of the reasons of conflict between government and Vale was the building of a fleet of iron ore carriers in Asia rather than domestically. This fleet was in the news this week as Chinese ports are refusing to host them, trying to protect the interest of incumbent shipping lines.
    • Sources: Vale’s press release; Financial Times
  • Rio Tinto bids for uranium explorer

Trends & Implications:

  • The changes at Vale should prepare the company for further changes to the business environment for the major iron ore producers. The introduction of the MRRT mainly hits Rio Tinto and BHP Billiton, but all three majors are figuring out how to react to increasing uncertainty about demand. Asian steel producers are pushing for adaptations to the recently changed pricing mechanisms, moving the pricing system to shorter term contracts. At the same time various Asian players are starting to buy iron ore assets in the price range of hundreds of millions to several billions of dollars; threatening the dominance of incumbents.
  • Rio Tinto is trying to buy into uranium at a moment where industry shares are depressed because of the nuclear disaster in Japan last year. The bid for Hathor signals Rio’s management still believes in the potential of the industry. The company says it accounts for 16% of the world’s uranium production from mines in Australia and Namibia.

©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

Mining impact of Japan’s earthquake

March 16, 2011 Comments off

“Billions of dollars of uranium-mining investments in Australia could be at risk if explosions and radiation leaks at reactors in quake-hit Japan prompt governments to rethink plans to produce more nuclear power. With more than 30% of the world’s economically exploitable uranium reserves, Australia has a lucrative resource base as fears of climate change tilt governments away from fossil fuels and toward greater interest in nuclear power. But Friday’s massive earthquake in Japan is presenting miners like BHP Billiton with a major dilemma: press ahead with new uranium developments, or put them on ice until governments give a public vote of confidence in nuclear power.”

Source: Wall Street Journal, March 14 2011

“Exports of finished steel to Japan will rise in the coming months as the Asian nation rebuilds after the 9.0 magnitude earthquake, two senior Indian steel company executives said Tuesday. Economists estimate damages from the earthquake could run as high as 10 trillion yen and knock three percentage points off Japan’s gross domestic product growth this year.

‘It would be important to note that a lot of the wooden houses and structures traditionally found on Japan’s coastline may now be replaced with buildings made of steel and cement, as they would be better able to withstand the impact of a tsunami,’ Malay Mukherjee, chief executive of Essar Steel Ltd., said on the sidelines of an industry event. He said the quake could lead to a reduction in steel exports from Japan.”

Source: Wall Street Journal, March 15 2011

Observations:

  • Several nuclear power stations in Japan were severely damaged by the earthquake in Japan. The risk of damage in case of an earthquake, with potential risk of a meltdown in several reactors was known by the government as early as 2008.
  • In the very short term both demand and supply of steel in Japan drop, as power outages are expected and focus is on disaster relief and nuclear safety. Once rebuilding commences the Japanese demand for steel will certainly show a one-off increase.

Implications:

  • The disaster in Japan will not only refuel the discussion on the use of nuclear energy in general and nuclear power plants in earthquake zones in particular, but will also trigger the discussion of the corporate responsibility of miners in supplying the fuel for the power plants. Miners will most likely not change their standpoint that the uranium can and should be used responsibly, but public action against any player in the nuclear power value chain should not be ruled out.
  • The spike in Japanese steel demand will cause the global markets of steel, coal and iron ore to shift. Japanese steel makers will most likely be able to step up production to fulfill domestic demand. As a result the country will import more coal and ore, but will export less steel. All of this will result in upward pressure for the seaborne prices.

©2011 | Wilfred Visser | thebusinessofmining.com

Nippon Steel, Sumitomo Metal to Merge

February 3, 2011 Comments off

“Nippon Steel Corp. and Sumitomo Metal Industries Ltd. agreed to merge by next year, creating what would be the world’s No. 2 crude-steel producer and a tougher competitor to rivals in China and India.

The deal marks the first major consolidation in the Japanese steel industry in a decade and comes as the nation’s leading steelmakers struggle to regain their footing after the global recession. Caught between rising costs for raw materials and weak pricing power with auto makers and other key customers, Japan’s steelmakers have had difficultly boosting their profit margins.”

Source: Wall Street Journal, February 3 2011

Observations:

  • Nippon Steel came in the international news in July when it announced a drop in profitability due to higher input costs. Sumitomo also reached the headlines in July by buying a stake in a Brazilian iron ore mine of Usiminas.
  • The firm will first create a new holding company, and plans to slowly integrate operations, starting combined operation only at the end of 2012.

Implications:

  • New synergies are expected to be limited because of the far-stretching cooperation the firms are already involved in. However, the improved purchasing position will help the Japanese to compete with the large Chinese players in securing long term supply contracts with Brazilian and Australian miners. Furthermore, the management of the firms is looking to expand the product portfolio.
  • It will be hard for the Japanese to create an even bigger company to compete with Chinese and Indian rivals. Regulatory officials will not oppose this deal, but merging with the country’s #2, JFE Steel, would create a domestic monopoly. The new company will mainly have to compete by exporting value added products, outperforming the Chinese in product quality.

©2011 | Wilfred Visser | thebusinessofmining.com

Japan’s Sumitomo to buy Brazil iron ore mine stake

July 1, 2010 Comments off

“Japanese trading firm Sumitomo Corp. said Thursday it will pay 1.93 billion dollars to purchase a 30 percent stake in an iron ore mine from major Brazilian steelmaker Usiminas. The investment will boost Sumitomo’s access to iron ore by around 10 times to 10 million tons a year, the company said.

Sumitomo and Usiminas, known fully as Usinas Siderurgicas de Minas Gerais SA, will establish a new company, with the Brazilian firm taking a 70 percent interest and the Japan side to own the remainder.

‘In the past several years, Sumitomo has been actively pursuing investment opportunities in prospective iron ore projects in Brazil,’ Sumitomo said in a statement. ‘This strategic partnership will provide Sumitomo an opportunity to participate in Usiminas’ existing iron ore mining operations and their planned expansion.’

Sumitomo plans to export the bulk of the iron ore to Japan, which has very little natural resources, and other parts of Asia.”

Source: AFP, July 1 2010

Observations:

  • Sumitomo is a Japanese diversified industrial group, which activities include coal and metal mining. However, the firm is mainly active in the trading part of the miner’s value chain.
  • Usiminas will most likely use the money to fund the expansion program of the mining complex in Serra Azul. Output should be increased from 7 to 30 mln tons per year.

Implications:

  • The deal by Sumitomo demonstrates the increasing vertical integration and involvement by trading firms in the mining industry. Not only western traders (e.g. Glencore, Trafigura) are becoming more active in the upstream markets, but eastern firms try to secure access over resources too.
  • Domestic demand in Brazil will increase strongly in the coming decade. The deal positions Sumitomo well to serve the Latin American market.

©2010 – thebusinessofmining.com

EU to step up raw materials diplomacy

June 18, 2010 Comments off

European Union Raw Materials Initiative“An EU expert group has identified 14 raw materials seen as “critical” for EU high-tech and eco-industries and suggested that the European Union’s global diplomacy should be geared up to ensure that companies gain easier access to them in future.

‘It is our aim to make sure that Europe’s industry will be able to continue to play a leading role in new technologies and innovation and we have to ensure that we have the necessary elements to do so,’ said Industry Commissioner Antonio Tajani, presenting the group’s final report on 17 June. …

To guarantee that industry can access these essential raw materials, ‘we need fair play on external markets,’ said Tajani. Encouraging supply from EU sources, improving resource efficiency and increasing efforts to recycle were also highlighted in the report as ways forward.”

Source: Euractiv, June 18 2010

European Union Report: Raw Materials Initiative

Observations:

  • The European Union has realized 30 million jobs in Europe directly depend on availability of mineral resources.
  • Antimony, beryllium, cobalt, fluorspar, gallium, germanium, graphite, indium, magnesium, niobium, PGMs (Platinum Group Metals), rare earths, tantalum and tungsten are deemed to be critical for the industry in Europe. Most of them are used especially in the high tech industry.
  • The report concludes that the EU should respond to the threat of lack of supply by ensuring access to raw materials from international markets under the same conditions as other industrial competitors; setting the right framework conditions within the EU in order to foster sustainable supply of raw materials from European sources; and boosting overall resource efficiency and promoting recycling to reduce the EU’s consumption of primary raw materials and decrease the relative import dependence.

Implications:

  • European deposits of the critical raw materials are low, so the fostering of sustainable supply will not affect many companies (although some minor producers in Eastern Europe might benefit).
  • The key result of the study will be that the European Union will support manufacturers in closing long term deals with major producers of critical materials. The EU will follow China, Russia and Japan in negotiating favourable contracts, most likely promising trade benefits or even infrastructure investments in return. The official term for these actions is “Joint Dialogue”.

©2010 – thebusinessofmining.com

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