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Posts Tagged ‘steel’

Mining Week 1/’13: Anglo and Mittal sell iron ore assets

January 6, 2013 Comments off

Top Stories:

  • 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

Recycling & the Future of Mining

April 15, 2012 7 comments

For thousands of years the mining industry has supplied the world with the raw materials the growing population needed for ever increasing consumption. However, mining is not the only supplier of these raw materials. Next to the primary mining industry a secondary mining industry is growing: ‘urban mining’. The existing stock of materials in the urban environment is recycled more and more. 38% of iron input in the steel making process comes from scrap. The average ‘new’ copper cable contains some 30% recycled material. The more we recycle, the less we need to mine. As mining costs increase because ‘easy’ mineral deposits are becoming scarcer and as technological improvements make recycling more competitive, the impact of urban mining on the traditional mining sector grows. How does this change the perspectives of the mining industry in the long term? And which factors will play an important role in shaping this future?

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Chinese Consortium Buying Stake in Brazilian Miner

September 5, 2011 1 comment

“A consortium of five state-owned Chinese companies bought a 15% stake in the world’s largest niobium producer for US$1.95 billion in cash, a move that highlights the race among steelmakers to secure resources amid tightening supply.

Brazil’s Companhia Brasileira de Metalurgia e Mineração, known as CBMM, announced the deal on Friday. The company produces more than 80% of the world’s supply of niobium, which is used to strengthen steel and is widely employed in making cars and natural-gas pipelines.

China, whose steelmaking capacity has recently leapt to over 700 million metric tons a year, is the world’s biggest importer of niobium. Growth in emerging markets has underpinned demand for scarce commodities. World-wide demand for niobium grew 10% annually from 2002 through 2009.”

Source: Wall Street Journal, September 2 2011

Observations:

  • The group of 5 existing clients of CBMM buys 15% of the controlling stake of the Moreira Salles family. The family sold another 15% to a group of Japanese and Korean companies for $1.8bln in March.
  • Niobium is considered a rare earth mineral. Various governments tried to stimulate domestic mining of rare earths because China currently holds over 90% of global rare earth production. In May the new Brazilian government persuaded Vale to look into rare earth production.

Implications:

  • It is not fully clear why the Moreira Salles family sells minority stakes of their company. The almost $4bln the family raised by selling 30% is owned by the family, not by the company, and thus will not be used for expansion of the company. As the family held 55% of the company before this year (the other 45% is held by Unocal), ownership is now fragmented, with 2 or 3 of the shareholder groups required to support any major decision.
  • CBMM is well positioned to be the world’s leading niobium producer in the coming decades, as most of the world’s reserves are located in Brazil. Strengthening ties with this producer is crucial for steel makers in order to control their input prices. It will be a challenge for the large Indian and European steel makers to secure their niobium supplies without buying into a producer too.

©2011 | Wilfred Visser | thebusinessofmining.com

Anglo American eyes Macarthur coal

August 23, 2011 Comments off

“Anglo American is considering a counterbid for Macarthur Coal in an attempt to gatecrash a A$4.7bn (US$4.9bn) bid for the Australian coal group from Peabody Energy and ArcelorMittal. Earlier this month, Macarthur said it was open to offers that valued its business at nearly A$5bn after formally rejecting an ‘opportunistic’ bid from Peabody Energy of the US and steelmaker ArcelorMittal.
People familiar with the bid process said there were a number of interested parties, one of which was Anglo American. The mining group is said to be working with its traditional advisers, which include Goldman Sachs.
It is not clear whether Anglo will proceed with any offer, and talks are expected to come to a head in the next week. A deal would be the largest by Anglo since 2007, with its recent blooming profits creating a degree of financial flexibility that the company has not enjoyed for several years.”

Source: Financial Times, August 21 2011

Observations:

  • Peabody and ArcelorMittal have made an offer to the shareholders of Macarthur after Macarthur’s board declined to agree to the offer and not search for higher bidders.
  • Anglo’s metallurgical coal operations are currently mainly located in Queensland, giving a good geographical match with Macarthur’s operations.

Implications:

  • The current stake of ArcelorMittal in Macarthur will be an important hinderance for other parties to make a counterbid. If their bid would succeed, they would still be left with ArcelorMittal as an important party in the board room.
  • Potential other parties interested in buying Macarthur could be Chinese steel makers and/or coal miners, other large coal producers in Australia (Rio Tinto, BMA), government backed Indian coal miners, or even Vallar/Bumi. Based on the proximity to existing operations Anglo would be able to justify a higher premium than new entrants in the Queensland coal industry.

©2011 | Wilfred Visser | thebusinessofmining.com

Mechel Mining Plans London IPO

July 26, 2011 Comments off

“Russian coal and steel group OAO Mechel’s mining division, Mechel Mining, plans to hold an initial public offering in London this year, two bankers familiar with the matter said. The deal may raise between $3 billion and $4 billion, the first banker said adding the placement will most likely take place in the fourth quarter.

Morgan Stanley will take the lead roles on the deal, the bankers said. ‘It’s one of half a dozen Russian deals due out of the blocks in the fall,’ the first banker said. A handful of Russian deals were withdrawn from marketing in London in the first half of the year, after investors pushed back on price and amid volatile markets.”

Source: Wall Street Journal, June 3 2011

Observations:

  • Mechel’s mining segment includes: Southern Kuzbass Coal Company, Yakutugol, Mechel Bluestone coal company (USA), and the Korshunov Mining Plant. In 2010 Mechel’s plants produced 21.6mln tonnes of coal and 4.2 mln tonnes of iron ore concentrate and 3.8mln tonnes of coke.
  • Mechel announced the intention to bring the Mining division to the stock exchange in November 2010, still doubting between London, New York, and Hong Kong. The company itself listed at the end of 2004 in New York.
  • Based on a new share offering of 25% of common shares the size of the IPO still will be in the range of $3.3-4.0bln, above earlier expectations.

Implications:

  • The proceeds of the IPO will help Mechel to expand production capacity by developing the Elgo coal deposit and to reduce its gearing. Like many Russian companies Mechel is facing high debt costs while and at the same time needs to invest heavily. This combination of issues drives many Russian companies to an IPO this year.

©2011 | Wilfred Visser | thebusinessofmining.com

Peabody, ArcelorMittal Sweeten Offer for Macarthur

July 18, 2011 Comments off

“The world’s largest private-sector coal miner and the largest steelmaker by output on Thursday sweetened their offer for Australian pulverized coal miner Macarthur Coal Ltd. to around A$4.73 billion (US$5.05 billion), while moving a step closer to success by agreeing to start due diligence on the deal. Peabody Energy Corp. and ArcelorMittal said Monday they would start receiving data and site access from Macarthur from the coming Monday.

St. Louis-based Peabody and Luxembourg-based ArcelorMittal made an indicative A$15.50 per share bid for Macarthur, the world’s largest miner of pulverized steelmaking coal, according to the announcement Monday.”

Source: Wall Street Journal, July 14 2011

Observations:

  • Peabody tried to buy Macarthur early 2010, but this offer did not convince the 3 major shareholders (ArcelorMittal, Posco and Citic). In the new offer, announced last week, Peabody teams up with ArcelorMittal in a 60%/40% ownership structure.
  • The sweetening of the offer consists of the withdrawal of the demand that a $0.16/share dividend not be paid out by Macarthur. In turn the buyers get access to the due diligence information required to test the offer assumptions and to prepare integration.

Implications:

  • It appears Macarthur’s board is cooperative in the deal, opening books and mines for inspection in exchange for a small increase in value for current shareholders (approx. 1% of market value).
  • If the deal goes ahead the major shareholders that don’t participate in the takeover will need to decide whether or not to sell their shares. Posco and Citic both are strategic shareholders, but only Posco has interest in retaining access to Macarthur’s products, which will potentially become much more difficult if competing ArcelorMittal increases its ownership stake.

©2011 | Wilfred Visser | thebusinessofmining.com

Iron ore to stay above $150, says Vale

July 12, 2011 Comments off

“The price of iron ore will remain above $150 a tonne for at least the next five years, according to Vale, the top miner of the ­commodity. The bullish prediction by Guilherme Cavalcanti, finance director of the mining group, is the latest contribution to a debate on the outlook for the iron ore market that has polarised analysts and investors.

Used to make steel, iron ore is the largest contributor to the profitability for the three largest mining groups: BHP Billiton, Vale, and Rio Tinto. And if Vale’s forecast is correct, the three companies’ shares would be expected to rise sharply.

Asked how long he expected prices to remain above $150 a tonne, Mr Cavalcanti said ‘at least the next five years’, arguing that miners would struggle to meet booming Asian demand. His prediction, in a video interview with the Financial Times, runs against consensus thinking.”

Source: Financial Times, July 6 2011

Observations:

  • Vale’s finance director explains he is not concerned about high inflation in China as mainly the consumer goods price inflation is high, while construction activity still ensures full offtake of Vale’s production.
  • Commodity swaps indicate the market expects prices to decline steadily over the coming years.

Implications:

  • While Vale expects Asian demand for iron ore to stay strong, the companies mainly sees restrained production because of delayed development projects (often because of environmental permitting issues) and weather influences as the key driver for high prices. Together with the high inflation in equipment costs and the relatively weak dollar iron ore prices will for a prolonged time be very elastic to supply.
  • Vale’s share price is lagging behind the price of its main competitors over the past years, resulting in higher cost of debt and reduced ability to perform share based M&A. With Vale’s large exposure to the iron ore price the company would benefit strongly from higher iron ore price expectations in the market.

©2011 | Wilfred Visser | thebusinessofmining.com

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