Gerdau Announces New Mining Strategy
11/02/2012 - As it reported its third quarter earnings results, Gerdau announced it has discontinued its search for a strategic partner for its mining projects; in addition, its iron ore resource deposits in Minas Gerais are 117% larger than previously announced.
Gerdau announced that it has discontinued its search for a strategic partner for its mining project. Such a decision was made because a larger quantity of mineral resources was found and the proposals from potential partners did not meet Gerdau's expectations. As a result of prospecting activities and studies, Gerdau's current mineral resources deposits are 6.3 billion tonnes of iron ore in Minas Gerais; 117% larger than previously announced (2.9 billion tonnes), with an iron content higher than 40%.
Therefore, Gerdau announced new mining investments in addition to the R$ 838 million investment previously disclosed, with the purpose of reaching an annual installed capacity of 11.5 million tonnes by 2013. This amount will make it possible for Gerdau to achieve iron ore self-sufficiency, as well as to sell its surplus. According to the new investment plan, R$ 500 million will be used to increase the annual installed capacity to 18 million tonnes by 2016.
Gerdau will have a broad portfolio of high-quality iron ore products – concentrates, pellet feed, sinter feed, and lump ores – to comply with the requirements of the most demanding markets.
An additional amount of R$ 500 million will be invested in the construction of a rail terminal in Miguel Burnier (MG) with the purpose of shipping the product. This rail terminal will be able to meet the demand from future expansions and additional volumes of Gerdau's iron ore production. As to the project of building a port terminal in Itaguaí (RJ) and shipping the export volumes, Gerdau is still developing strategic solutions to make sure that the project is sustainable and profitable. Furthermore, the Company continues to keep an eye on currently available opportunities in order to meet the demands of short-term shipping.
In the iron ore sector, another highlight is the fact that the first iron ore export deal was made involving 160,000 tonnes of sinter feed to be shipped in November.
Gerdau aims to reach 24 million tonnes of annual production capacity as a result of the construction of a new processing plant, which is expected to start operations in 2020. This expansion is still under Technical Study.
"The decision of increasing our mining investments, without harming the iron business sustainability, is an additional action to improve our results in a context of highly expensive raw materials, lower than expected growth of global iron demand, and intense global competition. In addition to the investments in iron mining, we are increasing the supply of coal from the units located in Colombia and broadening the network of captive scrap suppliers. Also, we have already started to sell our production of iron ore and we will start to produce flat steel in Brazil between the end of 2012 and the beginning of 2013. Thus, Gerdau will keep adapting fast to the market fluctuations by making streamlined decisions and carrying out flexible operations. Such characteristics are typical of the Company's management and make us trust our ability to overcome the difficulties created by the current global economic scenario," said Chief Executive Officer (CEO) of Gerdau, André B. Gerdau Johannpeter.
Gerdau's performance in the third quarter
The global economic scenario and its related impact on the iron market had an influence on Gerdau's performance in the third quarter. Consolidated physical sales (4.8 million tonnes) were roughly in line with the figures for the third quarter last year. Consolidated steel production (4.7 million tonnes) was 5% lower than the volumes recorded from July to September 2011. However, consolidated net revenue showed a 10% growth over the same period last year, reaching R$ 9.8 billion.
In the third quarter, generation of cash from operations (EBITDA) was R$ 1 billion, which represented a drop of 15% over the third quarter last year as a consequence of strong raw material cost pressure. Net profit was R$ 408 million, a 43% drop over the same period last year.
In the year-to-date, consolidated net revenue reached R$ 29 billion, and consolidated physical sales reached 14.3 million tonnes. Steel production between January and September reached 14.7 million tonnes. EBITDA was R$ 3.3 billion, and net profit reached R$ 1.4 billion.
During the third quarter, the markets supplied by Gerdau performed differently. In Brazil (except for special steel mills), physical sales (1.8 million tonnes) were mainly impacted by the lower volume of exports and less intense activity in the home and commercial construction industry of the domestic market.
In the United States and Canada (excluding special steel mills), 1.8 million tonnes were sold from July to September, which is an 8% increase against the same period of 2011. Such increase was mainly caused by the strong demand of the industrial and energy sectors in this region, as well as the improvement in the construction industry. In the third quarter, the plants located in Latin America sold 705,000 tonnes, which is similar to the amount sold between July and September 2011. The sales of the Special Steel Business Division (including mills in Brazil, the United States, and Spain) totaled 625,000 tonnes compared to the 734,000 tonnes sold in the same period last year.
Gerdau invests R$ 904 million in the third quarter of 2012
During the third quarter, Gerdau invested R$ 904 million in fixed assets; and in the year-to-date, the Company's investments reached R$ 2.4 billion.
Carrying on with its investment plan, Gerdau will build a new melt shop with an annual installed capacity of 650,000 tonnes at the Riograndense mill, located in Sapucaia do Sul (RS). This new melt shop will replace the current melt shop, which has an annual production capacity of 450,000 tonnes of steel. The investment of R$ 460 million will also make it possible to enhance productivity, operational safety, product quality, and environmental protection, in addition to reducing electric energy consumption. The amount invested in the new melt shop, which will start up in the second half of 2015, includes construction of the infrastructure needed to expand the plant, purchase of machinery and equipment, civil construction, and facilities.
Considering the uncertainties of the global economic market, Gerdau is being more selective in evaluating future investment projects and is currently revising its investment plan of R$ 10.3 billion (2012-2016). A new investment plan will be announced in February 2013.
Gerdau is the leader in the segment of long steel in the Americas and one of the main suppliers of special long steel in the world. With over 45,000 employees, it has industrial operations in 14 countries—in the Americas, Europe, and Asia—which together represent an installed capacity of over 25 million tonnes of steel per year. It is the largest recycler in Latin America; and in the world, it transforms each year millions of tons of scrap steel, reinforcing its commitment to sustainable development in the regions where it operates. Gerdau is listed on the stock exchanges of São Paulo, New York, and Madrid and has over 140,000 shareholders.
