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Mining Week 46/’11: Hard times for emerging market multinationals

November 13, 2011 Comments off

Top Stories of the Week:

  • Vedanta reports disappointing results
    • Earnings of the industrial metals miner with many operations in India dropped despite revenue increase of 43% for the half year. Reduced earnings were caused by losses in the aluminium group and by a weak rupee (with 45% of revenue in India).
    • Sources: Vedanta results presentation; Financial Times; Wall Street Journal
  • Anglo and Codelco battle over Sur
    • Only days after Anglo agreed to pay $5.1bln for a 40% stake of De Beers, it decided to sell a stake of its Chilean Sur copper project to Mitsubishi for $5.4bln. The sale has led to disagreement with Codelco, which claims to hold an option on 49% of the total project, not just on Anglo’s share.
    • Sources: Anglo American press release; Financial Times; Wall Street Journal
  • Caterpillar chooses to produce in USA and Indonesia, buys into China

    Trends & Implications:

    • Though the results for Vedanta were not met with enthusiasm on the markets, they were in line with the strategy set out by the management in May: growth, long term value, and sustainability. Vedanta currently chooses to increase its market share instead of generating high profits, in the awareness that the current development will for a large part determine which companies will be the emerging market multinationals of the future.
    • The fight between Anglo and Codelco over the ownership stakes in the Chilean copper assets is flanked by a fight by Japanese co-investors and traders. Codelco sided with Mitsui to build its 49% stake at a low valuation, but Anglo found a way to get a higher price by selling part of the asset to rivaling keiretsu Mitsubishi.

    M&A overview update

    The M&A overview of the Business of Mining has been updated with Anglo’s 40% acquisition of De Beers.

    ©2011 | Wilfred Visser | thebusinessofmining.com

Caterpillar to Acquire Bucyrus

November 16, 2010 2 comments

“Caterpillar Inc. (NYSE: CAT) and Bucyrus International, Inc. (Nasdaq: BUCY) announced today they have entered into an agreement under which Caterpillar will acquire Bucyrus International in a transaction valued at approximately $8.6 billion (including net debt). The acquisition is based on Caterpillar’s key strategic imperative to expand its leadership in the mining equipment industry, and positions Caterpillar to capitalize on the robust long-term outlook for commodities driven by the trend of rapid growth in emerging markets which are improving infrastructure, rapidly developing urban areas and industrializing their economies.”

Source: Caterpillar Press Release, November 16 2010

Observations:

  • Bucyrus has a product portfolio including drills; draglines; shovels; excavators; mining trucks; highwall, longwall and room & pillar miners; and belt systems. This portfolio complements the position of Caterpillar, which is mainly strong in loaders and trucks in the mining industry. Sales are roughly equally divided over surface and underground mining equipment.
  • The offer worth $8.6bln is all cash, forcing Caterpillar to increase debt by approx. $5bln and equity by approx. $2bln. However, as Caterpillar is more highly leveraged than Bucyrus, the deal will actually help CAT to reduce leverage.

Implications:

  • The premium of 32% will have to be justified by synergies that are mainly to be found in consolidation of the supply chain, dealer and service network and in the potential for increased revenues as the Caterpillar gains a stronger position to be the sole-source supplier of mines
  • The closing of the deal is subject to regulatory approvals, which might force Caterpillar to divest some assets in order to prevent a dominant position in several markets. Especially in the area of mining trucks the new company becomes a dominant player, as Bucyrus bought the mining division of Terex early this year.

©2010 | Wilfred Visser | BlogCatalog | thebusinessofmining.com