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Arcelor Mittal may offer A$4.2 bn for Australian coal company

Arcelor Mittal may offer A$4.2 bn for Australian coal company
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First Published: Thu, May 22 2008. 12 17 AM IST
Updated: Thu, May 22 2008. 12 17 AM IST
Melbourne/London: World’s biggest steelmaker, ArcelorMittal, may offer at least 4.2 billion Australian dollars (Rs17,080 crore) for Australia’s Macarthur Coal Ltd to secure supplies as prices for raw materials surge.
Macarthur shares rose after Luxembourg-based ArcelorMittal said it paid A$631 million for a 14.9% stake. Macarthur also said a potential rival bidder pulled out of talks.
ArcelorMittal may acquire Brisbane-based Macarthur, the world’s biggest maker of pulverized coal used by steel makers, to increase its self-sufficiency in coal beyond 15% after prices of the steel making raw material tripled this year. Australia is the largest exporter of coal used to make steel.
“I would assume they will go for full control,” Andrew Keen, an analyst at Sanford C. Bernstein in London who has an “outperform” recommendation on ArcelorMittal, said. “This could become a hotly contested situation because a lot of people have very deep pockets at the moment.”
The shares advanced 8.1% to close at A$19.86 in Sydney, giving the company a market value of A$4.2 billion. The stock, which is trading at 79 times estimated earnings, has risen 50% since the company said on 21 April that it was approached about a possible transaction.
ArcelorMittal paid an average of A$19.96 a share for its stake, less than the 15% holding that would require approval from Australia’s Foreign Investment Review Board. ArceloerMittal now Macarthur Coal Ltd’s third-biggest shareholder.
The steel maker, led by billionaire Lakshmi Mittal, bought a 4.3% stake from Macarthur’s largest shareholder and founder, Ken Talbot, and the balance from private investor Nathan Tinkler, the company said in an emailed statement. Talbot didn’t return calls seeking comment.
Global steel makers are trying to lock in long-term raw- material supplies. Nippon Steel Corp. wants to invest in Cia. Vale do Rio Doce’s $1.4 billion (Rs5,978 crore) planned coal mine in Mozambique, the company said on Tuesday. Macarthur Coal’s pulverized coal is used by steel makers as a cheaper alternative to coking coal.
“There’s very few steel mills actually globally that have much sufficiency in coking coal,” Andrew Driscoll, a Hong Kong-based analyst at CLSA Ltd, said in Singapore.
In January, ArcelorMittal paid OAO Severstal, Russia’s largest steel maker, $720 million for three mines to boost its coking coal supplies.
Buying Macarthur would take ArcelorMittal’s coal self-sufficiency to about 20%, compared with the 45% coverage it has in iron ore, another key raw material, Bernstein’s Keen said.
A coal producer may pay as much as A$24.25 a share, or A$5.1 billion, for Macarthur, taking into account potential annual cost savings of A$20 million, UBS AG said in a report on Tuesday.
There have been $57 billion mining and energy takeovers this year in Australia, compared with $29 billion in 2007, according to Bloomberg data. Xstrata Plc, which was reported by The Wall Street Journal on 2 May to be in talks with Macarthur, bought Australian coal producer Resource Pacific Holdings Ltd for A$1.1 billion this year. Macarthur chairman Keith De Lacy didn’t return calls seeking comment and Xstrata spokeswoman Claire Divver declined to comment. Macarthur is being advised by JPMorgan Chase & Co.
Xstrata, Anglo American Plc. and Vale may benefit from buying Macarthur, Sophie Spartalis, an analyst at Macquarie Group Ltd, said last month. Other possible acquirers include Noble Group Ltd and Citic Group, Macarthur’s second-largest shareholder, which is backed by the Chinese government, UBS analysts led by Sydney-based Glyn Lawcock said.
Citic declined to comment on a Dow Jones report that it’s in talks to sell its 20% stake in Macarthur. A potential buyer has approached Citic and the company would sell “if the price is right,” Dow Jones said, citing an unidentified person familiar with the situation.
“We do not comment on media speculation,” Chen Zeng, managing director of Citic Australia Pty Ltd, said in a phone interview from Melbourne on Wednesday. “Our stake in Macarthur is a strategic and long-term investment.”
“Citic in our view holds the key to whether any potential corporate action turns hostile,” UBS said.
Macarthur produces 35% of the global supply of pulverized coal from two mines, Coppabella and Moorvale, in Australia’s Queensland state.
Prices of coking coal will stay at records next year because of rising demand for steel and as higher costs delayed the construction of new mines, Macquarie Group Ltd said in a 5 May report. The price of pulverized coal will be $245 a tonne, up 63% from its previous estimate of $150 a tonne, the bank said. Macarthur received between $67 and $68 a tonne for pulverized coal in 2007, the company had said in earlier this year.
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First Published: Thu, May 22 2008. 12 17 AM IST