Articles in Category: M&A Activity

Rio Tinto Iceland Ltd (ISAL). Source: ISAL/Einar Aron Einarsson

Norwegian firm Norsk Hydro announced Monday that it had put in a bid for Rio Tinto‘s aluminum plant in Iceland, according to a company release.

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“We see great potential in exchanging competence and technology elements between our aluminium plants,” said Hilde Merete Aasheim, head of Hydro’s Primary Metal business area, in the release. “We are now running a technology pilot in Norway which aims to be the world’s most energy-efficient and climate friendly aluminium production facility. These innovations will be expanded to other Hydro facilities, and as part of Hydro, ISAL will benefit from such technological spin-offs and competence.”

The bid came in for $345 million, according to a Rio Tinto release. Following the conclusion of a consultation process, Rio expects to ink the deal in the second quarter of this year, according to the Rio announcement. The bid for Rio’s 100% stake in the Iceland Ltd. (ISAL) plant also includes Rio’s stakes in the Dutch anode facility Aluchemie and Swedish aluminium fluoride plant Alufluor.

“The binding offer for the sale of these assets provides further evidence of Rio Tinto’s commitment to strengthen our business and deliver value by streamlining our portfolio,” said Alf Barrios, Rio Tinto Aluminium’s chief executive, in the release. “Hydro has a solid track record in the aluminium industry and is a partner to Rio Tinto in other ventures. ISAL, Aluchemie and Alufluor are a natural fit with Hydro’s portfolio and this transaction should secure the long term future for the sites and continued economic benefit for the wider communities.”

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Hydro cited the acquisition’s reinforcement of the firm’s position as a European supplier of extrusion ingot, and touted the ISAL plant for its production based on renewable energy. According to the announcement, ISAL’s 210,000 mt of aluminum produced with renewable power would increase Hydro’s capacity in primary aluminum production to 2.4 million mt in 2018. In addition, Hydro’s share of production from renewable energy sources would rise to over 70% with the acquisition, according to the release.

Steel is the buzzword in India these days.

In addition to increased uptake, the revival in the steel cycle has also led to an unlikely output – many steel majors are now showing renewed interest in acquiring stressed Indian steel assets that have been put on the block for loan default.

Now, Indian steel is seeing an uptick in sales after almost a decade.

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The renewed interest in steel plants that are in a financial mess and have been put up for suitors is logical, analysts say, since most are going for approximately U.S. $600 per ton, while the rate to set up a new steel plant is almost about U.S. $800 per ton. Not to mention that buying an already up and running steel company means no hassles of taking government and other permissions.

What adds icing to the cake is many of these stressed assets are on the block for nothing else than the fact that most were set up at high costs, and other operational reasons.

Foremost in the race is Tata Steel Ltd., with its highest bid for the insolvent Bhushan Steel Ltd. and Bhushan Power & Steel Ltd. The former has offered to pay up to about U.S. $ 7 billion (Rs 45,000 crore) for Bhushan Steel and about U.S. $3.7 billion (Rs 24,500 crore) for Bhushan Power. Others are Numetal Mauritius, a company having VTB Bank as a majority shareholder and the Ruias as a minority partner, and ArcelorMittal for the stressed Essar Steel. Tata’s last major acquisition was the U.S. $13.5-billion Corus deal in 2007.

Tata Steel currently has 13 million tons per annum (MTPA) capacity; if it managed to grab the two Bhusan plants, it could add about 8.0 MTPA.

Bhushan Steel was sent for debt resolution by its lenders after the company failed to repay its dues worth about U.S. $8.62 billion (Rs 560 billion) under the Insolvency and Bankruptcy Code 2016.

But according to a report in The Hindu Businessline, there is now one hiccup in Tata’s path.

Bhushan’s lenders have invited the U.K.-based Liberty House to also submit its bid for the assets, well after the deadline, which was Feb. 8 this year. Only JSW Steel and Tata Steel had submitted bids by the deadline.

Quoting a Liberty House spokesman, the report said it had been invited by the lenders to bid for both the Bhushan assets, and would be doing so within a fortnight.

When asked why the company had failed to bid before the deadline, the spokesperson said Liberty House had been finalizing its India strategy.

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In mid-February, ArcelorMittal India Pvt Ltd (AMIPL) submitted its offer for Essar Steel, which includes a detailed investment plan to address the operational issues in Essar’s existing asset base. The company has expressed confidence that with its industry expertise and “renowned operating prowess,” it was best equipped to implement a successful turnaround, which would be beneficial to Essar’s stakeholders.

Sanjeev Gupta, the industrial buyer of distressed steel, aluminum and coal assets (to name just a few of the areas he has expanded into in recent years), has so far managed an uncanny knack of good timing.

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Buying steel assets just before the global steel market finally lifted even Europe out of the doldrums, and now aluminum. To be fair, Gupta is not new to aluminum.

Gupta’s Liberty Group bought the Lochaber aluminum smelter and hydro-electric power plant from Rio Tinto in 2016 in a $410 million deal when Rio was desperate to shed “non-core” assets and raise cash.

Since then, the aluminum price has risen some 30%. Now, with aluminum on a roll, Gupta is again picking over the carcass of Rio’s aluminum assets, this time putting in a $500 million offer for Europe’s biggest refinery: the Dunkerque aluminum smelter.

Lochaber was only 47,000 tons capacity, but Dunkerque is on an altogether different scale, producing 280,000 tons a year. That disparity makes it a steal with respect to purchase price per ton of capacity compared to Lochaber, and is said to be profitable at current aluminum prices.

For most aluminum producers — unless they are niche, high-purity players or have integrated downstream activities — tend to have larger concerns leveraging economies of scale and sometimes integrating upstream into alumina, and even bauxite mining, to secure their supply chains. It is rumored Gupta may have something of the same objective. He is apparently in talks with Rio for more of its aluminum assets, according to the Financial Times. Rio is also looking to sell a 205,000-ton-per-year Isal aluminum smelter near Reykjavik, Iceland, and its Pacific Aluminum business, which analysts say could fetch more than $2 billion, with Gupta rumored to be interested.

Quite how he has managed to fund his rapid acquisition spree in recent years is the subject of some speculation. With purchases of generally distressed assets in shipping, recycling, banking, commodities trading and energy, there does not appear to be an obvious theme to his empire building beyond being broadly metals-related and presumably cheap.

Turning distressed assets around, though, is a hugely intensive and time-consuming process — and not without considerable risk, as many fail.

Yet so far, Gupta’s vehicles, Liberty Group and Simec under the GFG Alliance holding company, have apparently done rather well.

The success of Dunkerque will be contingent on the French nuclear generator EDF continuing to supply electricity at viable rates. That is probably, for now, a given, since the French apparently are more concerned about maintaining employment of the 600 workers at the plant.

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This morning in metals, officials from Thyssenkrupp’s home German state indicated they are confident the merger proposed for the German firm and Tata Steel can be pushed through, a mothballed U.K. steel plant is now back up and running, and Great Lakes steel production picked up last week.

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Time to Make a Deal

Tata Steel and Thyssenkrupp recently came to an agreement to merge their European operations — however, there are still some hurdles to clear in order to seal the deal on the move.

On Wednesday, German officials in North Rhine-Westphalia, the state in which Thyssenkrupp is located, indicated they were confident that management of the company would be able to strike a deal with workers, Reuters reported.

Gupta to Revive Shuttered Former Tata U.K. Facility

Sanjeev Gupta, of Liberty Speciality Steels, re-opened a steel facility Wednesday in the U.K. that was closed by former owner Tata Steel, The Economic Times reported.

Gupta revived a small bloom caster at its Aldwarke works facility in Rotherham, the Times reported. The move comes more than a year and a half after the facility was closed by Tata Steel UK.

Great Lakes Steel Production Up

Production of steel in the Great Lakes region recently got a boost, ticking up 2.7% last week, according to The Northwest Indiana Times.

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Last week, 684,000 tons of steel were produced in the region, according to the report citing data from the American Iron and Steel Institute (most coming from the northwest Indiana counties of Lake and Porter).

Thyssenkrupp and Tata Steel have finally made it to the altar.

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After 18 months of mostly behind-the-scenes negotiations to resolve several potentially “deal-off” stumbling blocks, all the major issues have been resolved. The two firms have signed a memorandum of understanding to create a 50:50 joint venture based in Amsterdam, Netherlands, called Thyssenkrupp Tata Steel (TTS).

The behemoth will rank second to ArcelorMittal with 21 million tons of annual steel capacity generating sales of €15 billion ($17.8 billion) and employing 48,000 people, The Telegraph reported.

New Focus

TTS will focus on three main production hubs: Ijmuiden in the Netherlands, Duisburg in Germany and Port Talbot in South Wales, the paper reports, Analysts say improved viability will come from cost savings of between €400 million and €600 million a year arising after 2,000 redundancies and another 2,000 jobs going out of the combined business as overlapping operations are removed.

Not surprisingly, TTS sees the value proposition as the enhanced opportunity for the combined group to move its business up the value chain in cooperation rather than competition with each other.

Hans Fischer, Tata Steel Europe’s chief executive, said “We need to focus on higher value products, China has huge overcapacity and there is a risk they will flood the market. The answer is not to compete with them, but try but find a solution where we have products that cannot be produced easily. We need to be a technology leader.”

Tata wriggling out of the old British Steel Pension fund liabilities was the final major hurdle to overcome — albeit to be fair, at considerable cost to the parent — and the willingness of British workers to agree to an end to the final salary scheme and reduced benefits for existing members underlines their desperation for a deal, matched by compromises made in Germany by workers fearful of the prospects of foreign competition with the European steel industry.

But therein lies the dilemma.

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This morning in metals news, a new European steel giant could be coming on the scene, that giant could result in the loss of thousands of jobs and aluminum hits a five-year high ahead of further Chinese supply cuts.

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Tata Steel, ThyssenKrupp Agree to Merge European Operations

The New York Times reported Wednesday that Tata Steel and ThyssenKrupp had agreed to a deal to merge their European steel operations — a merger that has been in the news for more than a year.

According to the report, while there are still some obstacles to completion of the merger, if it goes through the merged operation would make the second-largest steelmaker in Europe, behind only ArcelorMittal.

Merger Could Yield Loss of 4K Jobs

While the potential merger of the Indian steel giant Tata and German firm ThyssenKrupp’s European operations might be cause for celebration for some, it won’t be for a considerable number of workers, according to one report.

The merger of the two firms’ European operations could lead to the loss of 4,000 jobs, according to CNNMoney.

The merger is expected to cut costs by between €400 million and €600 million ($720 million) a year, according to the report.

Aluminum Soars to Five-Year High

Aluminum continued its strong 2017, hitting a five-year high, Reuters reported.

Not surprisingly, news from China has much to do with the rise, as supply cuts are forthcoming from Chinese producer Chinalco, according to the report.

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LME aluminum traded at $2,191 per ton, its highest since September 2012, according to Reuters.

China Zhongwang is a company that is used to controversy.

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Then again, you don’t get to be the world’s second-largest aluminium extruder in the space of a few years without ruffling a few feathers.

Zhongwang’s attempts to muscle in on the global stage by buying Aleris Corp immediately ran into opposition from U.S. senators. Just this week, Zhongwang USA, an investment firm backed by Zhongwang Group’s chairman and Aleris Corp, announced its intention to extend the deadline for a decision by two weeks to end September, Reuters reported.

Zhongwang USA is not part of Hong Kong-listed China Zhongwang Holdings Ltd, but Liu Zhongtian heads up both companies — a fact that has clouded multiple investigations against one entity or another in recent years.

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This morning in metals news, U.S. steel production is up for the year, copper backed off its three-year high and a U.S. firm extended its merger deal with a Chinese company.

Steel Production Up 3.2%

According to data released by the American Iron and Steel Institute (AISI), U.S. raw steel production is up 3.2% in the year to date (through Sept. 2) compared with the same time frame in 2016.

Adjusted production through Sept. 2 amounted to 60,900,000 net tons, up from the 59,025,000 net tons last year to the same point last year.

For the week ending Sept. 2, domestic raw steel production was 1,747,000 net tons, up 8.6% for the same week in 2016 and up 0.4% from the previous week (ending Aug. 26).

Copper Falls Back

After hitting a three-year high, copper fell back slightly from that Wednesday.

LME copper fell 0.3% to $6,880 a ton by 0155 GMT, according to Reuters.

Staying Together

Aluminum and rolled products producer Aleris International extended a merger agreement with Chinese firm Zhongwang USA LLC, according to Platts.

The deal was extended to Sept. 15, according to the report. The deal was previously set to expire Aug. 31.

Before we head into the weekend, let’s take a look back at the week that was.

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  • In case you missed it, our August MMI Report is out. Metals like copper and aluminum hit record highs, and nine of our 10 sub-indexes posted upward movement as a result of a strong July. Will that momentum continue? Check back next month for the September MMI report.
  • Many have predicted a decline for iron ore prices, but as our Stuart Burns wrote on Monday, reports of its demise have been greatly exaggerated. A weak U.S. dollar, combined with strong equities and global GDP, have helped keep iron ore performing well, not to mention Chinese steel and the wider metals market. Read through for Burns’ assessment of the iron ore market.
  • In India, a boom of bauxite production is expected, wrote our Sohrab Darabshaw. In fact, it is expected to more than double by 2021. How is that possible? One reason, Darabshaw writes, is “increased domestic demand for aluminium, which will largely be sourced from the quintupling of land under mining lease in the Odisha province (which has the bulk of India’s bauxite reserves).”
  • One commodity almost everyone is interested in is oil. On Tuesday, Burns wrote about the future of oil prices. But, since this is MetalMiner, after all, those prices also have an effect on metal markets.
  • Everyone loves a good M&A story, and Burns had one earlier this week on the ongoing talks between Indian steel giant Tata Steel and Germany’s ThyssenKrupp. Plus, he touches on ArcelorMittal’s takeover of Italy’s Ilva. Burns writes: “For the first time in years, steelmakers at least seem to have a plan and are actively pursuing it. Whether that plan is to the eventual benefit or detriment of consumers remains to be seen — but a healthier domestic steel industry must certainly be advantageous to all.”
  • How about zinc? Burns wrote about the metal’s rise to $3,000, and the reasons behind zinc’s price hitting its highest point since 2007.
  •  Last week was a busy one for the U.S. Department of Commerce, which handed down preliminary determinations in countervailing duty investigations for both Chinese aluminum and silicon coming from a trio of countries.
  • Back in India, steel exports are on the rise as the Indian government’s protectionist measures seem to be paying off for its domestic industry.
  • Lastly, representatives of the U.S., Canada and Mexico began talks on Wednesday regarding renegotiation of the North American Free Trade Agreement (NAFTA), the trade deal instituted in 1994. The U.S. is focused on, among other things, bringing down ballooning trade deficits with the two countries (particularly Mexico). The talks are scheduled to continue until Sunday, so check back for updates on the proceedings.

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Unlike the steel mergers of the mid-noughties, the mergers currently in the news are born out of weakness, not strength, a recent Financial Times article suggests.

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According to the piece, profitability among the continent’s steelmakers plunged from a peak in the third quarter of 2008 — when each ton shipped delivered on average €215 in earnings before interest, tax, depreciation and amortization — to just €46/tonne in the first quarter of 2016, according to calculations by UBS.

The figure has recovered since to about €83/tonne in the first quarter of 2017, but at the cost of 86,000 job losses since the financial crisis and years of losses contributing to the bankruptcy of the continent’s largest steel production plant, Ilva, in Italy.

Source Financial Times

Despite years of suboptimal capacity utilization, there has been limited rationalization of production continentwide, with governments fiercly opposing job losses in their backyard and steelmakers hoping the other guy will make the cuts. Even Ilva is now being taken over by ArcelorMittal rather than closing completely, and following a major investment will be back in production next year.

Source Financial Times

Although the industry acknowledges Europe will never need as much steel as it once did, ArcelorMittal is quoted as saying the industry is looking to governments to do more to stem imports from Russia and China, and facilitate the planned and phased closure of persistently loss-making plants. Less foreign competition and more consolidation is the agenda in the hope fewer more-consolidated steelmakers can achieve greater clout with buyers in a more constrained market, forcing through higher prices.

Source Financial Times

When ArcelorMittal’s takeover of Ilva is complete, the combined entity will control some 30% of European flat-rolled steel production, up from 26.5% for ArcelorMittal now. While Tata Steel’s proposed and much-delayed merger with ThyssenKrupp’s steel division — currently Europe’s second-largest steel producer — would raise their combined market share for hot-rolled flat products to over 20%.

Steel prices are already up nearly 60% from the bottom in 2015 on the back of improved recovery in steel demand and a gradual increase in anti-dumping legislation restricting some types of steel imports into Europe. Producers would like to see this go a lot further, of course, but consumers are fighting to keep the import market open, fearing — with some justification — that more action will reduce competition and result in significantly higher prices.

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For the first time in years, steelmakers at least seem to have a plan and are actively pursuing it. Whether that plan is to the eventual benefit or detriment of consumers remains to be seen — but a healthier domestic steel industry must certainly be advantageous to all.