Mining Boom Times Continue (BHP, RIO, CAIQF, GLNCY, AAUKY, MACDF, BTU, MT, YZC)
The world’s largest mining company, BHP Billiton plc (NYSE: BHP) reported an increase in profits of 86% and a revenue increase of 36% for its 2011 fiscal year ended June 30th. But the company is not bursting with enthusiasm for the the future. BHP sees the higher prices it realizes for raw materials being reflected in finished goods that it must then buy. Steel and fuel are two examples that the company’s CEO singled out. BHP expects cost pressures to increase going forward.
That is not slowing down the efforts from the largest miners to acquire more assets. Rio Tinto plc (NYSE: RIO) is teaming up with Japan’s Mitsubishi Corp. on a $1.6 billion offer for Australia’s Coal & Allied Industries Ltd. (OTC: CAIQF). Recently public Glencore International (OTC: GLNCY) has bid $280 million for Australian nickel miner Minara Resources.
Anglo American plc (OTC: AAUKY) is also preparing a bid for Australia’s Macarthur Coal Ltd. (OTC: MACDF), which recently rejected a $4.9 billion bid to acquire the company from Peabody Energy Corp. (NYSE: BTU) and Indian steel giant ArcelorMittal (NYSE: MT). China’s Yanzhou Coal Mining Co. Ltd. (NYSE: YZC) is also believed to be in the running to acquire Macarthur.
The flurry of activity in the mining sector probably reflects the old adage of making hay while the sun shines. High commodity prices have far outstripped cost increases and other anchors on earnings like exchange rate issues. The large miners are flush with cash and are seeking to ensure future growth by acquiring high-performing companies with substantial reserves of materials that are expected to see increased demand when (if) the global economy improves.
Macarthur is one of the world’s largest producers of metallurgical coal and its reserves are among the largest in the world. The company is not trying to avoid a takeover as much as it is trying to generate a higher bid than the Peabody/ArcelorMittal offer of around $15.75/share. So far the company has been unsuccessful and the company faces a September 2nd date when Peabody and ArcelorMittal will take their bid directly to shareholders.
As time passes, though, it will get tougher for potential buyers to offer the premiums now on the table. Either the global economy will pick up, raising buyers’ costs again, or the global economy will continue to slow, lowering demand for the raw materials the miners produce. Either way, if any of these deals is going to happen, it had better happen soon.
BHP’s shares are down about -0.25%, at $80.69, in a 52-week range of $64.14-$104.59, as the cautious forecast weighs on the share price. Rio Tinto’s shares are down about -0.75%, at $57.73, in a 52-week range of $47.10-$76.67.
Paul Ausick