M&A Mania Smelts The Iron Ore Industry

Tue,February7, 2012

Last Thursday, Swiss miner Xstrata and commodities trader Glencore announced a potential blockbuster merger that would shake up a few of mining’s biggest industries.

According to Reuters, the deal is set to total $80 billion. And the newly combined firms “would rank as the world’s largest thermal coal exporter, the largest zinc producer and third-largest copper miner…”

Many analysts are already predicting a jump in the price of coal, copper and zinc in the coming weeks.

But the all-share merger would also disrupt another big mining industry… iron ore. And investors will want to pay close attention.
Iron Ore Equals Big Profits

Over the past 10 years, iron ore has had a run even gold can’t touch.

From August 2001 to August 2011, prices jumped 1,266%. Gold jumped 566% comparably.

Today, about 70% of iron ore traded in the world is accounted for by three companies – BHP Billiton, Vale and Rio Tinto. And they’re raking in massive profits.

Reuters reports, “Iron ore sells for around $140 per tonne to China… and only costs about $20 to $30 per tonne to mine.” China’s steelmakers aren’t very happy about paying such high prices. But since October 2011, they’ve had a little bit of a reprieve.

The “big three” have flooded the market with iron ore supplies, driving the price lower, to around $120.

As mining.com explains, the iron ore’s big players are “concentrating on building market share rather than maximizing prices. This way the giants drive high-cost producers out of the business.”

If Glencore and Xstrata don’t want to get left out in the rain, they should make this merger happen.

And there are two main reasons it’s more likely to happen than not.
Glencore and Xstrata Make Sense

First, Glencore already owns 34% of Xstrata. So both companies already understand the risks and advantages this merger carries. And it should make it that much easier for them to agree on a final price.

Second, Xstrata has been trying to gain a stake in the iron ore industry for years. In 2009, the company attempted to purchase Anglo American (AAUKF.PK). The deal would have made Xstrata the fifth-most-profitable company in the iron ore market. But talks fizzled and the deal fell through.

Now the proposed merger between Glencore and Xstrata has reignited speculation of another takeover attempt coming for Anglo American, the world’s fourth-largest iron ore producer.

A few other companies also stand to be bought up if a deal is reached, as well.
Iron Ore M&A Heating Up

First Quantum Minerals (FQVLF.PK), Fortescue Metals Group (PINK: FSUMF.PK) and Freeport McMoRan Copper & Gold (NYSE: FCX) are also being seen as potential targets.

But Freeport may also be too expensive for Xstrata and Glencore and could end up as more of a competitor than potential takeover.

Only time will tell. But this is one development that should begin unfolding in just the next few weeks.

Disclosure: Investment U expressly forbids its writers from having a financial interest in any security they recommend to our subscribers. All employees and agents of Investment U (and affiliated companies) must wait 24 hours after an initial trade recommendation is published on online - or 72 hours after a direct mail publication is sent - before acting on that recommendation.

(sourced SeekingAlpha.com)

Rajasthan to grant mining rights to RINL and SAIL

Monday, Jan02, 2012


JAIPUR: The Rajasthan government has decided to grant iron ore mining rights to two public sector units - Rashtriya Ispat Nigam Limited (RINL) and Steel Authority of India Limited (SAIL) - in Bhilwara. Rajasthan industries and mines minister Rajendra Pareek told ET that the state government is sending proposal to central government for the allotment of mines to these two PSUs. "We have earmarked 864.6 ha for SAIL and 1043 ha mining area for RINL. We will allot them mines once we get the nod from central government," he said.

The two PSUs are likely to invest Rs 4000 crore in Bhilwara for creating 5 million tonnes mechanized iron ore mining capacity at Bhilwara. "Once the mining rights are granted, the state will get 2 million tonne per annum greenfield steel plant, 1.8 million tonne per annum pelletisation plant and one miilion tonne per annum sponge iron plant. These projects are likely to create 2000 direct jobs and over 20,000 indirect employment opportunities," he said.

Apart from these two companies, steel pipemaker Jindal SAW is also setting up a beneficiation plant in the same geography to produce approximately 6,000 tonnes of concentrate per day. It has executed a mining lease agreement for 30 years with Rajasthan for iron ore mines having approximately 180 mn tonnes of reserves of various categories of iron ores.

The iron ore mines of Bhilwara were discovered way back in 1967. But the ore in the area is of magnetite grade, yielding only about 30-35% recovery which is lower than that mined in Karnataka and other states. It had kept steel companies away from these mines for long. Now companies are taking interest after the Rajasthan government has assured linkages to limestone from Jaisalmer and dolomite from Jodhpur.

(sourced ET)

Brazil miner Vale taps Murilo Ferreira as new CEO

Tue Apr 5, 2011 2:34am GM

* Ferreira replaces Roger Agnelli as of May 22
* Follows heavy government pressure to replace Agnelli

RIO DE JANEIRO, April 4 (Reuters) - Brazilian mining giant Vale chose a former executive of the company, Murilo Ferreira, as its new chief executive, replacing Roger Agnelli following months of heavy government pressure.

The nomination will take effect on May 22, Vale , the world's largest iron ore miner, said in a statement.

Ferreira, 58, joined the company in 1998 in its aluminum division and later became president of Vale's nickel operations in Canada. Ferreira left the company in 2008.

The government's heavy hand in replacing Agnelli may spark fears of state meddling in Brazilian private enterprise, but is not expected to dent investor confidence in the firm. (Reporting by Denise Luna, Bruno Marfinitti, Jose de Castro, Guillermo Parra-Bernal; Additional reporting by Brian Ellsworth; Editing by Raymond Colitt)

African Minerals finalizes $417.7 million loan facility, appoints new COO

February 2011 15:16:15 (GMT+2)
On February 4, African Minerals Limited (AML), a Channel Islands-based iron ore miner with significant iron ore and base metal interests in Sierra Leone, West Africa, finalized a secured loan facility agreement, with final commitments amounting to $417.7 million. As SteelOrbis previously reported, on December 13 AML had declared the successful outcome of the marketing of its secured loan facility announced on November 11, 2010, with commitments received for in excess of $370 million to that date, adding that the company retained the option to receive further commitments until closing up to the maximum facility amount of $500 million.

The company believes that, following the closing of this facility, it will have sufficient funds in place to reach production under its Phase I development program worth $1.1 billion. As SteelOrbis previously reported, African Minerals announced on June 9 last year that an aggressive exploration program is underway to define additional hematite mineralization to underpin the expansion of the Tonkolili project to 25 million mt per year of direct shipping ore (DSO) output. The company said that it is currently on schedule to commence shipping of 12 million mt of DSO hematite product in Q4 2011.

Meanwhile, the miner also disclosed the appointment of Mr. John (Jack) Finlay MacKenzie Rowley as chief operating officer, effective immediately. Mr. Rowley, aged 51, was, between 2002 and 2008, founding shareholder and managing director of Calibre Global Pty Ltd, which specialized in EPCM delivery to the major participants in the iron ore industry, providing services covering all operations from pit to port, including Australian giant Rio Tinto and BHP Billiton.
(sourced:steelorbis)
Tags: iron ore , raw mat , Australia , Sierra Leone , Africa , Oceania , mining , investments