what i reckon, page-12

Asian consortium to buy stake in Namisa

By Jonathan Soble in Tokyo, Song Jung-a in Seoul and Rebecca Bream in London

Published: October 17 2008 09:03 | Last updated: October 17 2008 14:12

$3.2 billion deal and more in recent weeks
1. Japan’s Itochu and a group of Asian steelmakers have agreed to buy a 40 per cent stake in Nacional Minerios (Namisa), a Brazilian iron ore producer owned by steel company Companhia Siderurgica Nacional (CSN), for $3.12bn.
2. Several deals in the mining and metals industries have been scuppered in recent weeks by the volatile market conditions and the darkening outlook for the world economy.

Bucks the trend
1. The plan to buy the Namisa stake bucks this trend, and indicates that Asian companies are feeling the effects of the credit crunch less than their western counterparts.

2. As well as Itochu, the Japanese commodities trading house, the consortium includes South Korean steelmaker Posco and Japanese steelmakers JFE Steel, Nippon Steel, Sumitomo Metal Industries, Kobe Steel and Nisshin Steel.

3. The consortium, which has reached a basic agreement to buy the stake, will also enter into long-term iron ore purchase agreements with the Brazilian company.

3.1> Each producer will buy up to 14m tonnes per annum after Namisa’s expansion is completed in 2013.

3.2> Namisa, which is located in the Brazilian state of Minas Gerais, is expected to sell 18m tonnes of iron in 2009 and aims to expand its future production to 42m tonnes per year.

3.3> Last year Namisa reported net earnings of $23m on sales of $221m.

It has been in Australia
1. Itochu already has investments in Australia and said on Friday that the deal fitted with its strategy of diversifying its business.

2. Itochu said that in signing the deal it had not considered the current financial crisis in its calculations, but was instead taking a long term view on the industry.

3. Asian steelmakers have been buying iron ore producers in an attempt to counter the pricing power exerted by major mining groups.

4. Three miners - Brazil’s Vale and the Anglo-Australian groups Rio Tinto and BHP Billiton - together control about three quarters of global iron ore supply.

4.1> With demand for ore soaring through the first half of the year, Vale had been pushing for an unprecedented mid-year price increase on top of a previously negotiated 71 per cent hike in contract rates.

4.2> ”Buying ore assets of their own helps steelmakers improve their negotiating position,” said Shinya Yamada, a steel industry analyst at Credit Suisse in Tokyo.

4.3> Japanese trading companies, the traditional intermediaries between global ore suppliers and Japan’s steelmaking giants, have in last few years emerged as major mining investors in their own right.

One of the largest recent deals
1. In one of the largest recent deals, Mitsubishi, the country’s biggest trading house, agreed to fund half the estimated $3bn development cost of a new iron ore port in Western Australia.

2. Itochu said last month it was aiming to control 30m tones of annual iron ore production by 2015, about triple its current holdings.

3. Posco, the world’s fourth-largest steelmaker, said in a regulatory filing on Friday that it planned to buy a 6.48 per cent stake in Namisa. The final decision on the acquisition will be made on October 21.

4. Posco reported a 40 per cent jump in third-quarter net profit on record sales of Won8,813bn. But its earnings momentum is expected to weaken as higher raw material prices begin to affect its bottom line.

5. Earlier this week, Posco warned of falling demand for steel products amid growing concern that the steel industry cycle has peaked as demand from China slows and global steel prices fall.

6. Shares in Itochu closed on Friday up 1.1 per cent, and Nippon and JFE rose 5.3 per cent and 7.2 per cent respectively after a big sell-off a day earlier.
Posco shares closed 0.2 per cent higher, beating a 2.7 per cent drop in the wider market.

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