ArcelorMittal to raise $4 bn via public offerings

Steel behemoth ArcelorMittal, which posted consecutive quarterly losses, today said it would raise up to $4 billion through issue of securities as part of efforts to strengthen its balance sheet among other things. The company would look to sell about 140 million common shares through public offerings to raise the amount. "Total aggregate proceeds from the offerings are about $3.5 billion or $4 billion, in each case before deduction of underwriting discounts and commissions," the company said in a statement. The company intends to use the proceeds of common stock offering for general corporate purposes and to strengthen its balance sheet and the proceeds of the convertible senior note offering to lengthen its debt maturity profile and refinance existing indebtedness, it added. ArcelorMittal also said it would be pricing its public offering of $700 million aggregate principal amount of 5 per cent convertible senior notes due May 15, 2014. The offering is scheduled to close on May 6, 2009, it added. The steel giant said it has agreed to sell 125.1 million common shares at a public offering price of euro 17.10 each. The company has granted the underwriters an option to purchase up to an additional 15.7 million common shares in the 30 day period following the date here of, it added. ArcelorMittal yesterday posted loss of $1.1 billion for the first quarter ended March 2009. In the year-ago period, it had a net income of $2.4 billion.

Source: Business Standard

Vedanta says buys 9.5 percent stake in HudBay

Indian mining group Vedanta Resources Plc (VED.L) said on Monday it had bought a 9.5 percent stake in Canada's HudBay Minerals Inc (HBM.TO) but gave no reason for the move. London-listed Vedanta, India's largest base metals miner, confirmed a Globe and Mail newspaper report that it had bought the stake, 14.5 million hudBay shares, through a subsidiary, Lakomasko BV, a privately-held company based in Amsterdam. "They do control that stake. It (Lakomasko) is an organisation that is controlled by Vedanta Resources," Vedanta spokesman Robin Walker said in London, declining further comment. HudBay shares were up 3.3 percent to C$7.83 by 1515 GMT, adding to a 9 percent rise on Friday. The shares have more than doubled in 2009 since ending last year at C$3.06. The Globe identified K. Coimbatore Venkatakrishnan as the principal and top executive of Lakomasko. He was the chief executive of Vedanta's Konkola Copper Mines in 2006. KCM is Zambia's largest copper producer. Vedanta, which has been aggressively expanding outside its home base in India, last week got approval from a U.S. bankruptcy judge to go ahead with a plan for its unit Sterlite (STRL.BO) to buy copper miner Asarco LLC for $1.7 billion. [ID:nN22274894] HudBay chief executive Peter Jones began his second stint as CEO last month after a failed attempt to take over fellow Canadian miner Lundin Mining (LUN.TO) prompted a shareholder revolt that forced the company's former board and management to step down. Jones's first turn as CEO ended when he was pushed out in January 2008 for not seeking acquisitions aggressively enough. He said in March that HudBay would try to expand through takeovers, and may be open to overtures from larger players. Jones was part of a slate put forward by shareholder SRM Global Master Fund, which wanted HudBay to distribute its war chest of approximately C$700 million to shareholders. Jones has said the company will only do that if attempts to expand through acquisition fail.

Source: Reuters

Tatas pick up 15% stake in Sydney firm

Tata Steel has picked up a 14.99 per cent stake in Sydney-based Riversdale Mining, which owns coal mines in South Africa and Mozambique. Tata Steel has steadily bought into Riversdale, listed on the Australian Stock Exchange, through its Singapore-based subsidiary Tata Steel Global Minerals Holdings. In a filing before the Australian Stock Exchange earlier this week, Tata Steel Global Mineral said it had acquired a 4.99 per cent stake in Riversdale through market purchases at an estimated investment of $41 million (Australian), or Rs 143 crore. When contacted, a spokesperson for Tata Steel declined to comment. The Singapore subsidiary of Tata Steel, the sixth largest player in the world in terms of steel making capacity, has been buying into Riversdale through market operations from September last year. By October, it had a stake of 10 per cent. Stock exchange data show it had spent $20.54 million (Australian), or about Rs 70 crore, in October to raise its stake from 7.29 per cent to 10 per cent. With the latest round of market purchases, the company has become one of the largest shareholders of Riversdale.
Passport Capital, Talbot Group and Merrill Lynch & Co are some of the other shareholders in the company. It is Tata Steel’s biggest ever investment in any mining company. The company had paid Rs 106 crore in October last year to acquire a 19.9 per cent share in Canada’s New Millennium Capital Corporation, an iron ore miner. Apart from the Benga coal mine in Mozambique, Riversdale has Zululand Anthracite Colliery in South Africa.
Tata Steel has been scouting for iron ore and coal to feed Corus’s operations in Europe.
Mozambique booty. Tata Steel’s association with Riversdale Mining dates back to August 2007 when it decided to acquire a 35 per cent stake in the Benga project. From then on, the Benga coal mine has increased its production and Tata Steel’s investment has reaped rich rewards.
Riversdale and Tata Steel plan to produce 20 million tonnes of hard coking coal from Benga, up from the initial 5.6 million tonnes. Apart from Riversdale and New Millennium, Tata Steel has an iron ore project in Ivory Coast and a limestone quarry in Oman. It also owns 5 per cent of Australia’s Carborough Down coal project in Central Queensland.

Source: The Telegraph

Grupo Mexico offers $1.3 bln for bankrupt Asarco

MEXICO CITY, April 13 (Reuters) - Grupo Mexico offered $1.3 billion of cash to recover bankrupt U.S. miner Asarco in a U.S. court on Monday, a Grupo Mexico lawyer said.
In the middle of court proceedings in Corpus Christi, Texas, Jorge Lazalde confirmed the amount of the offer, saying more details will be available after the hearing concludes.

The offer could be padded with additional payouts, a Grupo Mexico executive told Reuters.
"The plan still has to be finalized and presented to the judge ... and if its approved we'll move forward. Right now there is nothing more than a preliminary suggestion," the executive said.
India's Sterlite Industries (STRL.BO), a unit of London-listed Vedanta Resources Plc (VED.L), offered $1.7 billion -- $1.1 billion of cash, plus a $600 million of notes -- to take over the ailing Arizona-based miner, weighed down by heavy environmental claims.

Grupo Mexico (GMEXICOB.MX) acquired Asarco in a leveraged buyout in 1999, but lost board control due to the bankruptcy. In a separate court case in Brownsville, Texas, Asarco sued its former parent, saying it was not paid fair market value during the original sale. A U.S. district court judge ruled on April 1 that Grupo Mexico had committed a fraudulent transfer and ordered it to return as much as $6 billion of stock and dividends to Asarco, but the Mexican miner said it would appeal the decision.

Shares of Grupo Mexico rose 6.50 percent to 11.30 pesos on Monday.
Source: Reuters

Refer to our STREET view to know more about what the analysts think about the Sterlite bid for Asarco.
http://mergers-in-india.blogspot.com/2009/03/street-view-sterlite-asarco-deal.html

New issue in Sterlite - Asarco deal: Grupo Mexico bids $1.3 bn in cash

The mining giant Grupo Mexico has offered $1.3 billion in cash to outbid London-listed Vedanta Resources for acquiring bankrupt copper mining firm Asarco, says a media report. The $1.3 billion of cash by the Mexican firm would also help to retrieve its ailing unit and America's third largest copper producer, Asarco, out of bankruptcy. "Mexican mining company Grupo Mexico SAB threw a fresh punch in its fight to retain US copper subsidiary Asarco LLC, pledging $1.3 billion in cash to take the unit out of Chapter 11 proceedings and defeat a rival bid by Vedanta Resources PLC," The Wall Street Journal said. In March, Vedanta Resources' Indian arm Sterlite Industries had offered $1.7 billion, which included $1.1 billion in cash, plus a note for $600 million for Asarco. (Refer to our section STREET VIEW: Sterlite - Asarco deal http://mergers-in-india.blogspot.com/2009/03/street-view-sterlite-asarco-deal.html)
The report published online stated that US bankruptcy judge would have to determine which offer better serves Asarco's many creditors, including the US and several other states, which are seeking money to clean up mining-related pollution. The report said that Grupo Mexico told the US Bankruptcy Court in Corpus Christi that a key group of Asarco creditors supported its offer. The creditors were claimants to damages from asbestos liabilities that could run into the hundreds of millions of dollars. A committee of asbestos litigants had been opposed to the deal to sell Asarco to Vedanta Resources, which has most of its assets in India, it added. "This is a sea of change with the creditors," quoting Victor Karl, a former Asarco executive, who is also an unsecured creditor in the bankruptcy proceedings, The Wall Street Journal said. Grupo Mexico's announcement renews its fight with Vedanta over Asarco, which has been in bankruptcy protection since 2005. Any sale of Asarco's assets requires approval from Judge Richard Schmidt, who is overseeing Asarco's reorganisation, the report noted. Last year, Vedanta walked away from a deal for Asarco, valued at $2.6 billion when copper prices plummeted and credit markets seized up, it added.

RKKR gets Rs 136cr PE fund for Andhra plant

Despite the global slowdown and sluggish market conditions, RKKR Steels, one of the oldest and leading steel manufacturers in south India, has secured private equity (PE) infusion of Rs 136 crore from Mauritius-based ADG Fund to part-fund its ongoing 0.5 million tonnes per annum integrated steel project in Andhra Pradesh.RKKR is implementing a Rs 1,100-crore integrated steel project at Krishnapatnam, which would be set up under a separate company called SBQ Steels, will make special and alloy steels for automotive ancillary units. The project is being implemented over three phases.“We have received a term sheet for private equity from ADG Fund in Mauritius, which is managed by Montrosa Asset Management for Rs 136 crore. The dilution in equity by the promoter group will be to an extent of less than 10 per cent,” chairman of RKKR Group Rajiv Rai said. “In this global meltdown, getting PE meant that the company exhibited a good and robust business plan with a road map, which is clear and capitalised on the strengths of the group that has been in steel making for over 58 years. Another factor was the speed in implementation and for the many firsts that the company had to its credit, which only meant adding value.”This funding from ADG will be for the equity requirement for Phase-3 of the project, where the company has tied-up for term lending to an extent of Rs 280 crore from various banks in India, he said.The Krishnapatnam steel project comprises coke ovens, sinter, blast furnace, sponge iron, steel melt shop and rolling mill units. However, the company has already completed the blast furnace, coke and sinter plants.As part of Phase-3, the company will be setting up a captive power plant and putting in place other cost-cutting measures in addition to some marginal increase in iron-making capacity. With the captive power unit, the steel plant will not only be 100 per cent self-sufficient in its power requirement but can also sell its surplus power.“By and large, the company has utilised its resources to the very best because the cost per tonne of annual capacity has been just $500 against $800-1,000 in most other greenfield plants that have been recently set up in our country, said Rai.

STREET VIEW: Sterlite - Asarco deal

We present to you the views of different analysts across brokerage houses.


CLSA Asia

“Sterlite has driven a hard bargain acquiring Asarco for 50% lower price. At 5.2x EV/EBITDA assuming long term copper prices, the new acquisition price does not look expensive on a long term view - especially given potential for reserve enhancement and cost reduction. Near term, copper prices could see a sharp drop, which could severely impact consolidated profits. The acquisition will also substantially reduce Sterlite’s net cash position. We believe stock will ontinue to be driven by nearer term profitability issues and maintain U-PF”

Credit Suisse

“The new price of US$1.7 bn has a NPV of US$1.4 bn, US$400 mn higher than our previous estimate: to take Rs30/share out of fair value. As per Sterlite’s management, Asarco can produce 200 kt of refined copper: the 237 kt CY08 sales volume includes tolled production. The cost (ex. tolling) is US$1.5/lb. At the current cost, production and prices, valuation is 10.5x EV/EBITDA, versus the sector average of 8.2x CY09. Sterlite expects production to rise 25% to 250 kt and costs to fall 20% to US$1.2/lb, bringing down EV/EBITDA to 4.2x (Fig. 2) at current Cu prices. Sterlite’s expectation of a three-year payback seems to be based on a Cu price of US$4,100/t (now US$3,662/t). Asarco’s Jan. 2009 P&L shows a US$1.5/lb cost of production, a sharp fall MoM. EBITDA of US$1.8 mn turned positive after four months. The US$1.1 bn in upfront payment will make Sterlite a net debt company, though gearing will remain nominal. Subsequent payments should be possible from Asarco operations. We would have been more positive if the transaction had not taken place or if the acquisition price was lower than US$1 bn. We remain positive on Sterlite due to its Zn and power businesses.”

BOA – ML

“Asarco is value dilutive in our view; Reiterate Neutral. Sterlite announced that it has signed a new agreement with Asarco to purchase its operating assets for up front cash payment of $1.1bn and staggered payment of $600m over next nine years. On NPV basis, this implies total cost of $1.35bn. We value Asarco at $750m and hence believe this acquisition is value dilutive. On a near-term 1 year horizon, we estimate, it is earnings dilutive by 7%. However, we think a good part of the bad news has already been reflected in the current share price. Asarco can be funded internally given that Sterlite (stand alone) has cash of ~$2bn.”

“Asarco needs copper price of US$4,600/ton to be value neutral
Our value of $750m for Asarco is based on the assumptions of: Cu price in FY10/11 of $3500/3761/t, cost of production at $3087/t & WACC of 13.7%. We get EBITDA/t in FY10/11 of $588/862 and from FY12 onwards we take $1000/t. To be value neutral, we need Asarco to earn EBITDA of $1650/t. Given that Asarco is a high cost asset (in 3rd quartile globally), contrary to management expectations we believe cost reduction will be challenging. Hence, for the acquisition to be value neutral, we need copper price to be (and sustain over the
25-year mine life) at $4600/t vs spot of $3700/t.”

Goldman Sachs

“This is an earnings accretive transaction, with valuation multiple of about 3.0x CY08E EV/EBITDA (GS estimate based on limited disclosures by the company) vs Sterlite at our target price implied multiple of 2.7x FY09E EV/EBITDA. We await further details on the operating financials of Asarco. We also believe significant uncertainties exist before conclusion of this
transaction.”

Implications
“We reaffirm our Buy rating on the stock, for the following reasons: 1. Valuation – In our view after deducting immediate cash payment for this acquisition: a) Sterlite is still trading at 0.8x FY2010E P/B with FY2010E ROE of 11.8%, vs global comps trading at 0.9x P/B with 6% ROE. b) Net cash on balance sheet accounts for roughly 35% of market cap. 2. Competitive industry position – We believe that: a) Sterlite is among the lowest cost producers of zinc in the world, and b) possesses strategic advantages in its forthcoming aluminium projects, in our view.
Our target price is unchanged. Risks: M&A risks, metal prices, project funding & execution, delays in securing balance stakes in key subsidiaries, and delays in securing coal blocks.”

Kotak Institutional Equities

“Sterlite has announced the acquisition of ASARCO for a consideration of US$1.7 bn—of this, US$1.1 bn would be paid upfront and the balance US$600 mn would be paid over a period of nine years which would be in the form of a senior secured, non interest bearing promissory note. The deal has been backed by two letters of credit totaling US$100 mn issued by ABN AMRO, Chicago and an additional US$25 mn letter of credit would be issued if the bankruptcy court approves the disclosure statement for ASARCO’s reorganization plan. Upon closing, ASARCO will release Sterlite from any claims arising out of the first purchase and sale agreement signed in May 2008.

In NPV terms, the acquisition value is US$1.3 bn. Sterlite would be acquiring the operating assets of ASARCO which include smelting capacity of 270,000 tons, refining capacity of 500,000 tons and copper mines with an estimated reserve of 5 m tons of copper (to last 25 years). Sterlite has indicated that it would not be acquiring any liabilities and would be completely ring-fenced from existing environmental liabilities. We believe the acquisition will likely be positive for Sterlite given (1) the mining reserves of ASARCO, (2) Sterlite’s past operational track record, no other company would be better equipped to reduce costs at ASARCO and (3) attractive acquisition price given current copper prices. Our DCF calculation indicates that, at a long-term copper price of US$3,800/ton, the ASARCO deal would be value neutral to Sterlite. Current copper prices are at US$3,850 ton.”

Macquarie Research

“The deal – better than expected: The new offer includes an upfront payment of US$1.1bn and deferred payments of US$600m over the next 9 years (non interest paying and non recourse, US$20m each year and US$460m bullet payment in the 9th year). This represents an effective cost of US$1.4bn against the street’s expectation of US$1.5-2.0bn. This is a substantial improvement over the previous bid of US$2.6bn and is better structured with a lower initial cash outflow. EPS accretive and positive NPV: Based on our copper price forecasts, the deal has a NPV of US$350m and would add Rs23 to our target price. It is marginally EPS decretive in FY10, but would add around Rs5, or 10%, to our FY11 EPS estimate. Asarco assets – sufficient scope to improve: Asarco operated at a cash cost of US$1.45/lbs of copper in the December quarter and in January at US$1.37/lbs against the current copper price of US$1.6c/lbs. Also, it has 5m tonnes of copper reserves which, on the current production of 200kt,
represent 25 years of mine life. Smelter capacity is even higher at 270ktpa.
Management expects to increase production by 25% and reduce costs further
to US$1.25/lbs, to bring Asarco to the second quartile of the cost curve. Well funded for the acquisition: On its standalone balance sheet, Sterlite has US$2bn of cash and doesn’t need to raise debt for this acquisition. It has already provided for equity contributions of US$500m each for its energy business and the Vedanta alumina ventures and is still left with US$1bn for reducing minorities in Hindustan Zinc and Balco (estimated cost US$1.5bn).”

Nomura

“Although the bid price was expected to come down as management was renegotiating the deal, the structure of the deal is favourable for Sterlite as just US$1.1bn will be paid upfront and the balance of US$600mn will be paid over a further nine-year period. While earlier we were building in US$-1.3bn on account of the Asarco acquisition, at current copper prices with new bid price there will be value destruction of US$670mn only. We have valued Asarco at the current copper price of US$3,681/tonne and total reserves of 5mn tonnes. Total net profit from Asarco will be in the range of US$45-50mn, which will be close to INR3.3/share of Sterlite, according to our estimates. However, total cash and cash equivalents for Sterlite will also be reduced by US$1.1bn, which will result in a similar fall in other income.”

Graphite to consider demerger of Powmex Steels

The company has board meet on March 27 to consider demerger of Powmex Steels of GKW into itself. Story to follow.

Vedanta to hike stake in Malco to 93%

NRI billionaire Anil Agarwal-led Vedanta Resources today said it will hike stake in its group firm Madras Aluminium by 13.2 per cent to 93.2 per cent for a consideration of Rs 171.35 crore.
"Vedanta has accepted the discovered price of Rs 115 per equity share and intends to acquire approximately 14.9 million shares (representing 13.2 per cent stake) of Malco tendered at the discovered price," the metals and mining major said in a statement here today.

The firm added it will apply to the domestic stock exchanges for delisting Malco from the bourses."Application for delisting Malco will be made to the Indian stock exchanges and Malco shares will be delisted once the requisite approvals have been received," it added.
Last month, Vedanta Resources had made an offer to the shareholders of Malco through its arm Twin Start Holdings to acquire 20 per cent stake in the firm. The metals and mining major at present holds about 80 per cent stake in Malco.

The buy-back offer would start on March 26 and end on April 9, the statement added. -->

Yash Birla Group buys Kennametal JV

Yash Birla Group has hiked its stake in Birla Kennametal to 88.48 per cent.

Shearson Trading & Investment Company Pvt Ltd, a firm of the Yash Birla Group, has purchased 14.20 lakh equity shares of Birla Kennametal from US-based Kennametal Inc, pursuant to which shareholding of the Yash Birla group now stands at 88.48 per cent.

As a consequence to Kennametal Inc, off-loading its entire shareholding of the company to Yash Birla group, the joint venture agreement between Kennametal Inc and Birla International Pvt Ltd, a company of the Yash Birla group has also come to an end.

Birla Kennametal is a joint venture company between Yash Birla Group and US-based Kennametal Inc. The company manufactures wide range of precision metal working and mining cutting tool products.

(Source: "The New Look" Economic Times )

Hindalco shares rise 4% on takeover buzz

The Aditya Birla group-promoted Hindalco industries, the country’s largest aluminium producer, surged by about 4 per cent on the bourses to Rs 146.60 on market buzz that it could be a takeover target of the Alcan-Sterlite combine.

The Birla Group holds about 30 per cent stake in Hindalco with foreign institutional investors (FIIs) and institutions holding 20 per cent and 12 per cent, respectively. About 10 per cent is in GDRs, while the remaining is with retail investors.

Sources in the Birla Group said the consolidation in the metal industry was taking place across the world where an identifiable promoter is not present. In Hindalco’s case, there is an identifiable promoter who holds 30 percent stake and would not sell under any circumstances.