Consolidation continues in the mining sector with the week's major activity seeing Baosteel and Aurizon Holdings teaming up to make an offer for control of Aquila Resources.
Craig james from Commsec suggests a hunger for mergers comes from concern over growth in China and the US.
A number of joint ventures also illustrate a drive for growth; Brierty has won a $300 million contract with Rio Tinto and Energy & Minerals Australia has had a cash injection of $12 million from Andrew Forest. While Arrium Limited will cut 120 jobs at its Waratah base in Newcastle.
Economic news
Australia is headed for its fourth consecutive trade surplus, exports to China have powered above $100 billion in the year to March.
More than a quarter of all Australia’s trade is now with China alone. Iron ore volumes are lifting as are LNG export volumes, so the surplus is set to grow.
Port Hedland reported a record monthly throughput of 35.3 million tonnes in April, with iron ore exports totaling 34.8 million tonnes.
The Reserve Bank’s index of commodity prices for April fell 1.3 per cent due to slippage in the price of iron ore, coking coal and gold.
Commentary
Finance News Network spoke with Craig James, Chief Economist at the Commonwealth Bank of Australia’s
(ASX:CBA) broking arm Commsec.
Mr James is optimistic about growth in China and sees stability returning to the mining sector after a period of stability.
“We are seeing a degree of consolidation in the mining sector at present and that’s because of concerns about growth for the US, China and Europe, but once we get into the second half of the year it’s going to be clear that China is still growing.”
“We are going to see a next stage of the mining sector, greater demand for commodities, higher prices and that’s going to benefit the mining sector moving into 2015.”
You can see more of the interview
here.
Major mining mergers
Chinese giant Baosteel and Australian coal haulage company Aurizon Holdings Limited
(ASX:AZJ) have launched a $1.4 billion takeover bid for Aquila Resources Limited
(ASX:AQA). They are offering the Australian iron ore developer $3.40 cash per share, representing a 39 percent premium to the company’s last closing price. If the deal goes through Aurizon will take a 15 per cent stake in Aquila, while Baosteel’s interest would be boosted to majority ownership of 85 per cent.
Joint ventures
Brierty Limited
(ASX:BYL) has won a $300 million contract with Rio Tinto
(ASX:RIO). The civil and mining contractor will carry out works at the Western Turner syncline stage 2 project west of Tom Price in Western Australia.
Shares in Energy & Minerals Australia Limited
(ASX:EMA) jumped almost 20 per cent after revealing it received a capital injection from mining billionaire Andrew Forrest. Mr Forrest will pour $12 million into Energy & Minerals Australia. As part of the latest announcement, Energy & Minerals Australia also advised it has eliminated $24.5 million of its debt which will be converted into equity for its lenders.
Restructure
Arrium Limited
(ASX:ARI) will cut 120 jobs at its Waratah base in Newcastle. As part of a restructure, by the steel and mining group, the cuts will be made by June this year. The company says lower steelmaking requirements are behind the downsizing with demand for train wheels falling.
