Weekly Metals And Mining Notes: Alcoa, Vale And Barrick Gold

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The metals and mining space witnessed a flurry of activity this week. Alcoa announced an acquisition to boost its portfolio of offerings for its aerospace customers. Vale announced the completion of the sale of its stake in a manufacturer of phosphoric acid, as a part of its ongoing response to poor market conditions for iron ore. Barrick Gold announced the suspension of its mining operations in Zambia in response to a hike in royalty rates on mining operations. Here are the major events of the week for companies that Trefis covers in the metals and mining space.

Alcoa

Alcoa (NYSE:AA) announced the signing of an agreement to acquire TITAL, a Germany-based producer of titanium and aluminum structural castings for aircraft engines and airframes. [1] This acquisition will establish titanium casting capabilities in Europe for Alcoa, while expanding its aluminum casting capacity. TITAL counts several major European engine and aircraft manufacturers such as Airbus, SNECMA, and Rolls-Royce amongst its customers. [1] Thus, the acquisition will enhance Alcoa’s customer base in the region. TITAL’s revenues stood at $96 million in 2013, with titanium products accounting for more than half of this number. [1] Alcoa’s aerospace revenues of $4 billion in 2013 accounted for around 17% of its total revenues for the year. [2] With several major developments taking place pertaining to Alcoa’s aerospace business this year, the share of aerospace within the company’s overall revenues is set to rise.

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We have a $16 price estimate for Alcoa, which is nearly at par with the market price. We estimate revenues of $24.2 billion in 2014 for the company and an EPS of $0.89, as against a consensus estimate of $0.84.

Vale

Vale (NYSE:VALE) has announced the completion of the sale of its 44.25% stake in Fosbrasil, a Brazil-based producer of purified phosphoric acid, to Israel Chemicals Limited, after fulfilling all conditions for the completion of the transaction, including regulatory approval for the same. [3] The company had announced the sale of its stake in Fosbrasil, subject to regulatory approval, for $45 million in December 2013. [4] The transaction is a part of Vale’s efforts to shed its non-core assets as it grapples with an environment of subdued iron ore prices. The sale of iron ore, including iron ore pellets, accounted for 73% of Vale’s revenues in 2013. [2]

We have a $10 price estimate for Vale, around 37% higher than the market price. We estimate revenues of around $42 billion for the company in 2014 and an EPS of 1.47, against a consensus estimate of $1.12.

Barrick Gold

Barrick Gold Corporation (NYSE:ABX) has announced plans to initiate the suspension of its Lumwana open-pit copper mining operations in Zambia. [5] The company has announced these measures in response to the approval given by Zambia’s parliament to a government proposal to hike mining royalty rates. Starting in 2015, corporate income taxes on mines will be replaced by increased royalties. The new regulations will result in an increase in the current royalty rate of 6% for all mines to 8% for underground mines and 20% for open-pit mining operations. Barrick’s Lumwana mine will be subject to a royalty of 20%. [6] These royalties are imposed on revenue, without any consideration of profitability. The increase in royalty rates will threaten the economic viability of Barrick’s Lumwana copper mining operations.

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Notes:
  1. Alcoa to Acquire TITAL to Expand Global Growth Platform for Titanium Aerospace Components, Alcoa News Release [] [] []
  2. Alcoa’s 2013 10-K, SEC [] []
  3. Vale concludes the sale of its stake in Fosbrasil to ICL, Vale News Release []
  4. Vale’s 2013 20-F, SEC []
  5. Barrick to Suspend Operations at Lumwana Following Passage of New Mining Royalty, Barrick Gold News Release []
  6. Barrick Said to Plan Suspending Zambian Mine After Tax Changes, Bloomberg []