Articles in Category: M&A Activity

Indian-born metals tycoon Sanjeev Gupta seems to be snapping up metals fast, whether those investments are aluminum, steel or other producers. Gupta’s investments come as competition is shying away from investing in the U.K. steel and other metals businesses.

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Gupta recently announced that he would be investing $148 million (around £120 million) in Britain’s last standing aluminum smelter. Gupta’s Liberty House along with his father’s SIMEC business will be paying $371 million (£330 million) to buy assets that include the plant at Lochaber in the western Scottish Highlands and two hydroelectric plants that power it.

UK Aluminum

The plan is to upgrade the equipment and turn it into an aluminum wheel manufacturing facility. Gupta’s Liberty and sister company SIMEC are part of the Gupta Family Group Alliance (GFG) , and, according to a report in the London Telegraph, “the move is part of the parent group’s strategy  to build what it describes as ‘a competitive and sustainable metals and engineering sector’ in the U.K.”

The Scottish government has supported the acquisition and has guaranteed the power purchases of the aluminum smelter for the next 25 years.

Liberty supplies parts to the U.K.’s automobile industry with clients including Jaguar Land Rover. Lochaber, with a capacity of 47,000 metric tons, was put on the block by Rio Tinto under its plan to dispose of its non-core assets.

The deal will immediately safeguard the existing 170 jobs, generate another 300 jobs directly and about 2,000 direct and indirect jobs in the overall supply chain.

This deal marks one of the largest single investments made by the GFG Alliance. It also marks a major step in GFG’s plan to forge a sustainable metals and engineering sector in the U.K. by integrating the supply chain.

Other Acquisitions

Liberty has spent at least $618 million (£500 million) in the past year on acquisitions. In November, it had also signaled its intention to buy some of Tata Steel UK’s specialty steel business.

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The Telegraph says the purchase of various steel furnaces is part of Gupta’s larger plan to complete his “green steel” vision, where scrap steel is recycled in the U.K. market.

The fact that X2, the mining vehicle set up by Sir Mick Davis in 2013, is releasing its financial backers from their commitments says quite a lot about the state of the global mining Industry.

X2 was set up by Sir Mick after he successfully merged  —or shall we say sold — the $50 billion mining giant Xstrata to Glencore International in May 2013. His plan was to create a new mining and metals group by acquiring assets that he believed would be sold at knockdown prices as the commodities bust unwound from 2011 onward.

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Even though commodity prices plummeted in late 2011, the expected distress sale of mining companies’ assets did not come to be. Somehow, miners found ways to lower costs and reduce debts without massive divestments or fire sales. Over the last three years, X2 has purchased a grand total of zero assets.

Not that he hasn’t tried, according to a FT the purchase of Rio Tinto’s coal assets valued at some $2 billion, fell foul of North American pension investors dismayed at the prospects for carbon based resources.

Why Can’t X2 Make a Deal?

Assets have been sold by mining firms, sure. Sir Mick’s previous partners Glencore International successfully sold various assets and paid pay down debt as a result, but for whatever reason the valuations didn’t attract X2’s interest. Meanwhile, BHP Billiton demerged its aluminum business South 32 but did so via taking the business to market which would then have forced X2 to pay a premium if they wanted to acquire the assets.

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X2 didn’t exactly have the $5.6 billion sitting in the bank. Its fund is made up as a number of pledges, six of which were said to be of $500 million each. Noble Group, the commodities trading house, and U.S. private equity firm TPG this summer indicated they will not renew their commitments for next year. This was said to be what prompted Sir Mick’s reassessment of near-term opportunities.

The fund’s other contributors included Abu Dhabi Investment Council, and three Canadian pension funds — PSP Investments, Ontario Teachers’ Pension Plan, and Caisse de Depot et Placement du Quebec —as well as a number of smaller investors, according to the WSJ. One of the problems seems to have been not just a lack of suitable targets, but that investors have the right to veto deals on a case-by-case basis, rather tying X2’s hands.

Sit Down, You’ll Rock the Boat

The lack of fire sale opportunities may also suggest that commodities as a class have not fallen completely out-of-favor. Lenders have remained supportive of the sector and the WSJ says fewer than the expected firms have gone bust as they rode out the downturn by stripping back operations and cutting costs.

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Indeed, X2’s decision to release their backers from commitments may mark recognition the commodities market has bottomed. Commodities like Iron ore, coal, gold, nickel and tin have all picked up from recent lows this year, reflected in a 22% rise in the S&P global natural resources index. X2 may have missed the boat, at least for now

The Philippines shut down 20 more mines recently, further curtailing nickel exports to China. There’s a chance a major Brazilian iron ore miner will divest some of its assets.

More Filipino Nickel Mines Shut Down

The Philippines has suspended 20 more mines for environmental violations, most of them nickel, a government official said on Tuesday, bringing to 30 the number of mines shuttered.

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The suspended mines account for 55.5% of nickel ore output in the Philippines based on last year’s production, Environment and Natural Resources Undersecretary Leo Jasareno told a news briefing.

Brazilian Iron Ore Miner Looks to Sell

Cia Siderúrgica Nacional SA is considering selling part of its stake in Congonhas Minérios SA, Brazil’s No. 2 iron ore producer, to China Brazil Xinnenghuan International Investment Co., two people familiar with the deal told Reuters on Monday.

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According to the people, the Chinese mill known as CBSteel is interested in buying about 25 percent of Congonhas directly from CSN. They said CSN, as Brazil’s No. 2 listed flat steelmaker is known, would remain in control of the unit, adding that talks are advancing slowly and may not necessarily result in a deal.

Jackson Hole: All the Hiking, Skiing and Monetary Policy You Need

Buyers of most commodities began the week by eagerly watching the annual Central Banker get together at Jackson Hole, Wyo., particularly for any clue as to when the Federal Reserve will finally raise interest rates.

But our own Stuart Burns explained that aging populations, slower productivity growth and a reluctance around the world to spend and invest have propelled advanced economies into so-called “secular stagnation” and it might be some time before the fragile U.S. economy can stomach a rate hike.

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A bigger concern for those of us that write about economics for a living is now that “kitchen sinks” and “bazookas” have been exhausted, what metaphors will we use to describe central banking policy tools? Hopefully, the central bankers at least got some good hiking in at Jackson Hole. Read more

Alcoa removed a key obstacle from its plan to split this week and the London Metal Exchange will resume open outcry trading at its new office on Monday.

Alcoa, Alumina Settle Dispute

Alcoa, Inc. and Alumina Ltd. have settled a dispute and agreed to reshape their joint venture, removing an obstacle to Alcoa’s plan to split into two companies and making its Australian partner a more attractive takeover target.

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The two companies agreed to end a court fight that had threatened to delay Alcoa’s plan to spin off its plane and car parts business, which is now set to go ahead by the end of this year.

LME Will Return Monday

The London Metal Exchange (LME) will resume open outcry trading at its offices in London’s financial district on Monday after repair works were completed, it said on Thursday.

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The exchange, the world’s oldest and largest market for industrial metals, moved ring trading to an emergency venue in July after structural problems forced the shutdown of its offices at Finsbury Square.

In the largest foray by a Chinese company into the U.S. aluminum market since the financial crisis, Zhongwang USA LLC said this week that it would buy U.S. aluminum company Aleris in a $2.33 billion deal, expected to close Q1 2017.

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Zhongwang USA is owned by Liu Zhongtian through his Chinese group Zhongwang International Group Ltd. but he is also the founder of Asia’s second-biggest extruder, Hong Kong-listed aluminum products maker China Zhongwang, a firm embroiled in anti-dumping cases in the U.S. Liu has been angling to get a toe in the U.S. market for some time, there was talk of a $120 million aluminum casting plant in Barstow, Calif., as part of an earlier attempt to get into the U.S. but it came to nothing in the end.

Automotive Demand

Zhongwang is making a bet on the growing automotive aluminum sheet market, being a substantial manufacturer of automotive extrusions in China and recently building a rolling mill for automotive sheet to service the Chinese automotive body market. Read more

Mergers and acquisitions in the metals sector were down in Q2 2016, according to PricewaterhouseCoopers‘ Q2 2016 Global Metals M&A Deals Insights report. Total deal value was down a whopping 69% to $2.8 billion from Q2 2015.

PwC’s U.S.Metals Leader, Mike Tomaro said the global economy and unpredictable commodity markets have led to caution from metals firms contemplating major deals.

“It really does seem to exist outside of anything like normalcy,” Tomera said. “We are seeing a pickup in prices. A lot of that is, we think, driven by trade enforcement actions that have come out. The question is, will these prices stick or even maintain the upward trend? There’s speculation that they may not. There’s also speculation that this will drive change.”

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17 Deals were announced during Q2 2016, down 45% from the same quarter. Of the 17 deals, 12 deals were pending (forming 71% share) valued at around $2 billion during the quarter.

Completed deals were valued only at $0.7 billion in Q2 2016, the lowest observed of all quarters in the last two years. The largest deal was JiaoZuo WanFang Aluminum Manufacturing’s acquisition by
Hangzhou Jintou Jinzhong Investment Enterprise LP for $347 million.

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All premium metals categories (steel, aluminum and iron ore) saw weaker deal activity in the second quarter while the “other metals” category surged its share to 38% in total deal value (recording the highest share). Aluminum and steel together constituted more than half of total deal value.

“If you look at the volume of deals that happened this quarter – and the volume of deals in the first quarter – it really can’t get any slower than where we’re at right now from a deal perspective,” Tomera said.”It has got to start to pick up, especially on the steel side. The price pickup should translate into a better market, but whether that translates into more deal volume remains to be seen.”

China’s crude steel output fell in July and Glencore has shelved plans to sell a copper mine in Chile.

Chinese Steel Output Falls

China’s average daily crude steel output fell in July from a record, government data showed on Friday, providing some respite to overseas rivals angered by a torrent of cheap steel from Chinese mills in the past year.

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The output decline reflected China’s efforts to address a chronic glut, and analysts predict production may shrink further in the months ahead as more mills shutter. Some analysts predict output may shrink further in the months ahead as more mills shut in a sector undergoing its most significant — and painful — restructuring in two decades.

Glencore Rethinking Chilean Mine Sale

Glencore has shelved plans to sell a copper mine in Chile that was expected to fetch about $500 million, after failing to achieve a high enough price, according to people familiar with the situation.

Free Download: The August 2016 MMI Report

Along with other big mining companies, Glencore has been seeking to offload a range of assets to reduce debt following a commodities price crash, but a rally in raw materials markets and in the value of share prices of mining companies this year has taken away the need for urgent sales at any price.

Our Renewables MMI was flat again this month, another sign of stagnant prices and renewable power generation markets that are simply not maturing very fast.

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Perhaps it’s a sign of just how tepid renewable technology metals markets are, that the purchase of major photovoltaic panel manufacturer SolarCity and electric/hyrid automaker Tesla Motors didn’t really make a blip in the prices of silicon or our other renewable metals.

Industry consolidation is usually a good sign for emerging technologies and the synergies that Tesla could possibly take advantage of in providing electric car batteries, home energy storage and now solar-energy-collecting panels sort of make sense to allow Tesla to own the green power storage segment. If vertical integration hadn’t been abandoned by the auto industry decades ago.

Renewables_Chart_August-2016_FNL

Markets have responded with a veritable shrug. SolarCity shareholders are almost certain to file a lawsuit questioning the merger, all the shareholders who are, of course, not Tesla CEO Elon Musk who is also a major SolarCity shareholder. SolarCity’s CEO is Musk’s cousin. The $2.6 billion takeover will pay shareholders only $25.83 a share. Less than SolarCity’s share price the day the deal was announced.

Analysts hate the merger, too. Adam Jonas, an influential auto industry analyst at Morgan Stanley, slashed his price target for Tesla and wrote in a note to clients that potential rewards would not adequately compensate investors for the greater risks and cash flow drain. Expanding into a non-auto business like solar energy exposes Tesla to “untested cost, competitive and regulatory forces,” he warned.

Tesla shares, themselves, dropped 10% the day the deal was announced. Even if this deal won’t move markets for silver, silicon, lithium or neodymium anytime soon, there are economies of scale that could pay off in the long run that Musk is looking at.

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Tesla owners will eventually need to get power from energy sources other than plugging into a wall unit fed by a coal-fired electricity plant, after all. Just don’t expect Tesla to become the vertically integrated battery/solar panel/electric car maker that changes the world in the next five to 10 years.

Actual Renewables Prices

Neodymium dropped from $50,642.96 per metric ton in July to $48,920/mt this month, a big drop of 3.4%. Silicon increased to $1,821.33/mt this month from $1,818.34/mt in July, an increase of .2%.

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A major merger in green power and automobile manufacturing saw Elon Musk’s Tesla Motors buy his other green company, panel manufacturer SolarCity. Japanese steelmakers increased output for the first time since 2014.

Tesla to Buy SolarCity

Tesla Motors said it will buy solar panel installer SolarCity for $2.6 billion in shares to form a one-stop clean energy shop.

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The deal is a major part of Tesla Chief Executive Elon Musk’s master plan “part deux” that calls for the company to offer consumers a single source of hardware to power a low-carbon lifestyle. Musk is also a major shareholder in SolarCity. The combined entity will offer consumers solar panels, home battery storage systems and electric cars under a single brand.

The actual purchase price in the all-stock deal is $25.83 a share for Tesla to buy SolarCity’s stock. SolarCity actually closed at $26/share on Friday.

Japan’s Top Steelmakers Boost Output

Japanese steelmakers boosted output over April to June, with top producer Nippon Steel & Sumitomo Metal posting its first such increase since 2014 on improved prices, but their annual profits are expected to be eroded as a firm yen hurts key customers.

Free Download: The July 2016 MMI Report

Higher Japanese output, at a time when the world’s biggest producer China is also churning out record volumes, could dent a recovery in Shanghai steel futures that have risen 40%t in 2016 after plunging 70% over the past six years on a global supply glut.