Weekly Metals And Mining Notes: Rio Tinto, Newmont Mining And ArcelorMittal

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Stake sales were the theme for metals and mining stocks this week with Rio Tinto, Newmont Mining and ArcelorMittal completing previously announced stake sales. Though reasons for these stake sales varied, they are broadly indicative of the depressed pricing environment affecting most metal and mining companies. Here are some of the major events of the week pertaining to companies that Trefis covers in the metals and mining space.

Rio Tinto

Rio Tinto (NYSE:RIO) announced this week that it has completed the sale of Rio Tinto Coal Mozambique to India’s International Coal Ventures Ltd. [1] Rio had announced the sale of the Benga and other coal projects in Mozambique’s Tete province at the end of July for $50 million. [2] The sale of Rio Tinto Coal Mozambique is a part of the company’s ongoing efforts to restructure its coal portfolio in order to operate competitively in an environment of low coal prices. Earlier in the year, the company had announced the completion of the sale of its 50.1% interest in the Clermont Mine for $1.015 billion. [3]

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We have a $54 price estimate for Rio Tinto, which is around 10% above the market price. We estimate revenues of around $49 billion and an EPS of $5.61 for Rio Tinto in 2014, as against a consensus estimate of $5.07.

Newmont Mining

Newmont Mining (NYSE:NEM) announced this week that it has completed the sale of its stake in the Penmont joint venture in Mexico to its joint venture partner Fresnillo plc for $450 million in cash proceeds. [4] Newmont holds a 44% interest in the gold properties of the joint venture- La Herradura, Soledad-Dipolos and Noche Buena, with Fresnillo holding the remaining 56% interest. [5] Gold production attributable to Newmont from these mines amounted to 183,000 ounces in 2013, out of a total attributable gold production of 5.065 million ounces for the company as a whole. [5] The mines accounted for 2.2 million ounces in attributable  proven and probable gold reserves for Newmont as on December 31, 2013, out of a total of 88.4 million ounces in attributable proven and probable gold reserves for the company as a whole. ((Newmont’s 2013 10-K, SEC))

The sale of its interest in the Penmont joint venture is a part of the company’s efforts to sell off non-core assets to operate more competitively in an environment of falling gold prices. London PM fix gold prices stood at levels of around $1,220 per ounce at the end of September, as compared to levels of $1,320 per ounce at the corresponding point of time last year. [6] The company has raised nearly $1.3 billion through non-core asset sales over the past year or so. [4]

We have a $25 price estimate for Newmont, which is around 13% higher than the market price. We estimate revenues of around $7.6 billion for the company in 2014 and an EPS of $0.85, as against a consensus estimate of $0.79.

ArcelorMittal

ArcelorMittal (NYSE:MT) and Gerdau Ameristeel have announced that the two companies have completed the sale of their respective 50% interests in Gallatin Steel Company to Nucor Corporation for a total cash consideration of $770 million. [7] The move is consistent with ArcelorMittal’s policy to selectively divest non-core assets in order to pare down its debt. ArcelorMittal has made a concerted effort to reduce its net debt burden since its credit rating was downgraded by major ratings agencies in 2012. Net debt for the company stood at $17.4 billion on June 30, down from $21.8 billion on December 31, 2012. [8] The company has set itself a medium term net debt target of $15 billion, though it has not specified an exact time frame in terms of years. [9]

We have a $14 price estimate for ArcelorMittal, which is around 16% higher than the market price. We estimate revenues of around $83 billion and an EPS of $0.33 for ArcelorMittal in 2014, as against a consensus estimate of $0.53.

 

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Notes:
  1. Rio Tinto completes sale of Rio Tinto Coal Mozambique, Rio Tinto Media Release []
  2. Rio Tinto agrees sale of coal assets in Mozambique, Rio Tinto Press Release []
  3. Sale Of Interest in Clermont Mine Completed, Rio Tinto Media Release []
  4. Newmont Completes Sale of Stake in Penmont Joint Venture in Mexico, Newmont News Release [] []
  5. Newmont’s 2013 10-K, SEC [] []
  6. Historical Gold Prices, Kitco []
  7. ArcelorMittal and Gerdau complete sale of Gallatin Steel, ArcelorMittal Press Release []
  8. ArcelorMittal’s Q2 2014 Earnings Presentation, ArcelorMittal Website []
  9. ArcelorMittal’s Q2 2014 Earnings Presentation, ArcelorMittal Website []