Mitsui Seeks Copper Acquisitions With Record $17 Billion Cash: Commodities

Author: Spencer Ogden
Date posted06/Mar/2012
Author: Spencer Ogden

Mitsui & Co. (8031), holding a record $17 billion in cash, wants to buy mining stakes and expand operations to triple copper output and more than double coal production, easing its reliance on iron ore sales.

The biggest Japanese iron ore supplier is looking to buy 9 million metric tons of annual coal production from Russia, Australia, South America and Africa, Fuminobu Kawashima, head of resources of the Tokyo-based company, said in an interview. Mitsui also wants to add 120,000 tons of copper a year from South America, expecting Chinese demand will expand, he said.



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Copper will average $9,000 a ton this year, according to Barclays, or $8,500 a ton, according to JPMorgan & Chase Co. Photographer: Bartek Sadowski/Bloomberg
“Iron ore makes a very strong contribution to our profit, and I’d like to see it balanced,” Kawashima said. Iron ore, the main raw material for making steel, provides more than half of Mitsui’s net income, according to Barclays Capital. (JNK)

The most resource-dependent of the Japanese trading companies has the most cash since at least 1993, after ore prices gained more than tenfold in the past decade. Separately, Mitsui is expanding mining ventures with partners including Chile’s Codelco, Rio Tinto Group (RIO) and BHP Billiton Ltd. (BHP) as metals prices hover near historical highs.

“Iron ore lends Mitsui competitive strength and supports profits, but in the mid- to long-term it’s important to widen the pipeline,” Barclays analyst Kazuhisa Mori said by telephone in Tokyo. “Copper is a promising commodity.”

The company may take advantage of the recent price drop in copper, the metal used in wires and pipes. It has declined 11 percent to $8,447.25 a ton in London during the past 12 months as concerns over Europe’s debt crisis and a slowdown in Chinese economy cut demand.

Partner Codelco

Copper will average $9,000 a ton this year, according to Barclays, or $8,500 a ton, according to JPMorgan & Chase Co. (JPM) A strengthening of the U.S. economy is helping boost demand from consumers and investors, which indicates a third annual shortage in 2012, according to Barclays.

Mitsui may partner with Codelco, the world’s biggest copper producer, should the Chilean company expand outside the country, said Kawashima, who’s also the senior executive managing officer. The company reported $16.9 billion of cash and near- cash items in the fiscal third quarter.

Mining deals are accelerating as companies struggle to replace depleting deposits and China’s industrial growth stokes demand for metals. More than $27 billion was spent globally on copper deals in the past 12 months, according to data compiled by Bloomberg, compared with $169 billion on all mining deals.

Share Performance

Mitsui shares have lost about 10 percent in the past 12 months and, along with Mitsubishi Corp. (8058), which has dropped 17 percent, underperformed peers in the MSCI World Trading (MXWO0TD) Companies & Distributors index. The benchmark gained 1.7 percent in the period. The stock trades at about 6 times estimated earnings for the current year, compared with 12 times for the index, according to data compiled by Bloomberg.

The value of mining companies has fallen 22 percent from a year-high in April on concern economic volatility may continue, curbing demand for commodities. That may create buying opportunities for Mitsui outside iron ore, SMBC Nikko Securities Inc. (NKCS) analyst Takashi Murakami said by telephone in Tokyo.

“There is a feeling that outside of iron ore Mitsui’s resource are weak,” Murakami said.“It’s a good time to pick up mining assets.”

Metals Investments

The Japanese trader is spending 260 billion yen ($3.21 billion) on resources in the current fiscal year ending March 31, representing about 37 percent of its total investments. Mitsui relied on metals and energy for almost all September quarter profit, Barclays said in a Feb. 21 report. It’s spent more than $25 billion on investments in the past decade to the end of 2011.

“If we don’t secure resources we’ll lose out to the competition abroad,” Kawashima said.

The company has spent $18 billion on deals in the past decade, according to data compiled by Bloomberg. Its biggest sole purchase was the $1.1 billion cash purchase of a minority stake in Malasia’s Integrated Healthcare Holdings Ltd. in May.

Mitsui expects copper output of 63,000 tons this fiscal year. That’s less than half the 140,000 tons Mitsubishi secured in the previous fiscal year and less than Marubeni Corp. (8002)’s 125,000 ton target for this year. Mitsubishi expects its copper output to jump to 250,000 tons in 2012, it said Feb. 1.

Globally, copper consumption will outpace supply by 376,000 tons this year and there will be another shortage in 2013, Barclays said in a Feb. 29 report.