It was literally good news and glum news for shareholders of Australia’s second ranked steel group OneSteel yesterday, while for another leading industrial it was a win/win day (see below).
OneSteel confirmed the overnight news that it was paying $US944 million for the Moly-Cop and AltaSteel businesses of Anglo American, but indicated that first half financial performance would be flat compared with a year ago.
That might sound a lot, but when the dollar is near parity (and debt offshore in the US can cost less than what it does in Australia, even after hedging), the timing was good for OneSteel, especially with mining booming, in particular in South America and in Chile and Brazil.
The trading update was only for the first half; the company said it couldn’t give a full year update because of the high level of uncertainty in local and global markets.
The twin announcements left the company’s shares steady at $2.74 yesterday, after hitting a high of $2.83
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All in all it was hardly a ringing endorsement for the acquisition and more a recognition, that, like its bigger competitor, BlueScope Steel, times are tough in the sector.
But OneSteel does have its iron ore export business to keep its revenue and earnings looking better than if they were just based on making and selling steel.
That’s why BlueScope could have an interim after tax loss, unlike OneSteel which says it looks like earning around what it did in the first half of 2009: a small profit.
OneSteel said it had bought the grinding media and steel products businesses based in North and South America from global giant Anglo American. (Grinding media are used in the process of extracting minerals from ore, particularly in the gold and copper mining industries.)
"Post this transaction, OneSteel would have four or five of the largest grinding media facilities in the world," OneSteel chief executive Geoff Plummer said in a statement yesterday.
"It provides OneSteel with an opportunity to leverage its capability it has in terms of market knowledge, and the technical knowledge associated with grinding media which is a significant value-added input product into the mining industry."
Moly-Cop is based in Santiago Chile, with factories in Chile, Peru, Mexico and Canada. AltaSteel is a steel mini-mall based in Edmonton, Canada (and therefore needs Canadian approval).
"We will be positioned in the high-growth mining consumables industry to supply grinding media to the major copper and gold miners in the Americas, in addition to our existing customers in Australasia and the United States," Mr Plummer said.
"The acquisition of these businesses is an ideal strategic fit for us."
The deal would be funded by debt, Mr Plummer said, with a "$US500 million acquisition breach facility" in place and that combined with the undrawn lines we have, OneSteel will be able to cover the acquisition".
But at the later AGM Mr Plummer had the glum news: no real improvement in first half earnings, which will again have to depend on the company’s iron ore export business for support.
Mr Plummer told the meeting: "Due to the delay in recovery, including ongoing weak construction activity together with the impact of the strong AUD against the USD, OneSteel estimates that NPAT for 1H FY11 will be at a similar level to 1H FY10.
"We are unable to provide quantitative earnings guidance for the full year at this time due to the volatility in the AUD and the uncertain timing of recovery in domestic and international steel demand.
"We have a higher level of confidence of expected volume benefits from increased infrastructure activity but expect these benefits to be skewed to the second half," he said.
"Other volume benefits are dependant on improved economic conditions and confidence levels.
"We expect to continue to be impacted by challenges in construction, with resources generally strong."
And chairman Peter Smedley told the meeting that "First half profit performance has continued to be impacted by weak construction activity, as well as the much stronger Australian dollar, which has negative implications for our US dollar earnings and our competitive position in domestic steel".
OneSteel had net earnings of $117 million in the December half year of 2009, 49% lower than for the same period of 2008-09.
The underlying EBIT was $199 million (down 50%) of which $126 million (up 70%) was earned by the company’s iron ore export business, which will have had its 2010 returns clipped by the stronger Australian dollar.
Brambles (like OneSteel) revealed a trading update and big purchase before trading opened yesterday.
Brambles didn’t have its AGM yesterday to tell shareholders; that’s coming on Thursday.
But the trading update was better than OneSteel, so Brambles shares jumped by nearly 5.8%, or 38c, to $6.93, before they eased to close at $6.88, up 35c on the day and around a six month high.
Brambles said in the update:
"Brambles Limited today reported sales revenue for the f
