Another day, Another Takeover in Coking Coal. If you're a regular reader of ETB then you're probably already aware of my Steel industry CONSOLIDATION investing thesis impacting both Coking Coal and Iron Ore producers. Despite a relatively weak 2008 Merger and Acquisition backdrop, I've found and highlighted several recent examples of GLOBAL Steel industry consolidation following this theme via my blog. (For reference's sake you can check out some of my more recent posts on the topic via the Archive..they include: 8/20/08's 'ArcelorMittal: Gobbling Up Share In Brazil'...7/29/08's 'Coal Played - Another Day, Another T-O'...7/17/08's 'Steelmaking Coal Play Gets A Bid', etc.). To quickly recap the Long term, Secular Investing Thesis...In order to gain control on the soaring prices of raw materials (iron ore, coking coal), STEEL manufacturers are moving quickly to vertically integrate their businesses by aggressively purchasing producers of both Coking Coal and Iron Ore.With that said, BEHOLD the latest REAL World example echoing my steel industry consolidation thesis...Russia-based Severstal's $1.3 Billion purchase of U.S. based PBS Coals Corp.
reuters.com/article/marketsNews/idUSLM58701520080822?pageNumber
Deal Facts Quoted from the above Reuters link:
* PBS operates six underground and six opencast mines in Pennsylvania. It produced 2.4 million tons of coal, including 1.5 million of coking coal, in the year to March 31, 2008. Total annual metallurgical coal capacity is 4 million tons.
* PBS has 133.5 million tons of in-place coal reserves and 228.3 million tons of in-place coal resources, Severstal Resources said in the statement.
* PBS would supply Severstal's North American unit with about 40% of its Coking Coal needs, said Roman Deniskin, chief executive of Severstal Resources, the firm's mining division.
* "The acquisition looks a bit expensive compared with Russian coking coal producers. But compared with North American coals, it's a bit cheaper," Alfa Bank analyst Maxim Semenovykh said...He estimated Severstal was paying about $450 per ton of raw coal capacity for PBS and compared this with $350 per ton for Raspadskaya, Russia's largest pure-play coking coal miner, and an average of around $500 for U.S. coal miners.
* The acquisition of PBS by its mining division, Severstal Resources, represents the company's first venture into the raw materials sector in North America...Severstal, Russia's largest steel maker, has already spent over $1.7 billion in the last year acquiring steel mills in the United States, where Russian companies with record profits to burn have snapped up around a tenth of steel melting capacity.
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* Anecdotally thinking, perhaps the most interesting facet of this global theme as its relates to the STEEL industry is the TIMING and therefore pricing of these deals. Steel companies are aggressively pursuing raw material acquisitions during times of RECORD HIGH commodity prices. While that fact on the surface may seem like a sucker's game, if you TRUST that the steel companies know what they're doing then in effect you have to believe that these companies INTERNALLY view their business fundamentals very favorably moving forward (not just out 1 year but perhaps out 5 years, 10 years, etc.).
Data Courtesy: Reuters.
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