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<\/a><\/p>\nMega-Mag-Merger: Magnesita\u2019s vast Pedra Preta magnesite mine, near Brumado, Bahia, Brazil, which provides >1m. tpa feedstock for dead burned and caustic calcined magnesia production could be joining RHI\u2019s equally impressive magnesite resources in Austria (Ibar Nordeste\u2019s magnesite mine is in the background, soon to be exporting its DBM production).<\/strong> <\/p>\n The purchase price for the 46% stake will be paid in cash amounting to \u20ac118m and 4.6m new shares to be issued by RHI Magnesita, a new RHI entity to be established in the Netherlands and listed in London. <\/p>\n Continuing consolidation<\/strong> <\/p>\n <\/p>\n The merger enables a far superior global reach for both companies which would have otherwise remained a challenge, especially in bringing Magnesita to Europe and RHI to the Americas. <\/p>\n Immediately apparent is the consolidation of two of the world\u2019s leading DBM producers, which will now result in a magnesia group to rival Magnezit, Russia in size, and overtake SMZ, Slovakia and Kumas, Turkey in capacity.
\nThe potential of such a move was most recently signalled in June this year by Magnesita\u2019s formation of Magnesita International Ltd in the UK and its intention to list on the London Stock Exchange\u2019s AIM \u2013 the rationale was described as being \u201cin the context of strengthening the image [of Magnesita] as a global player\u201d.
\nOctavio Pereira Lopes resigned as CEO of Magnesita and was appointed Chairman of Magnesita International Ltd (apparently remaining leader of the Magnesita Group with regards to international operations), while former Technical & Raw Materials Director, Luis Rodolfo Bittencourt, was appointed the new CEO of Magnesita in Brazil.
\nMagnesita also announced plans to relocate its executive board to a London headquarters, although Brexit has somewhat thrown a spanner in the works here, and now the Netherlands is being eyed for the new headquarters.
\nIn July 2016, the Brazilian group then divested its talc business for US$55m, presumably deemed \u201cnon-core\u201d.
\nThis was a not an inconsiderable asset, and a rather nice addition for Italian talc leader IMI Fabi SpA\u2019s growing portfolio, bolstering its position behind Imerys and Mondo Minerals as third leading western talc producer.<\/p>\n<\/a><\/p>\n
\n<\/a>Mining talc at Magnesita\u2019s Cabeaceiras mine very close to the magnesite operations. This asset was sold to IMI Fabi SpA of Italy in July, in advance of the RHI Magnesita deal.<\/strong>
\nMagnesita produced around 1.5m tpa crude talc from the Cabeaceiras mine, hosting 11m tonnes talc reserves (neighbouring its magnesite operations in Bahia) and producing around 44,000 tpa high grade talc for filler markets. In 2015, the talc business generated US$ 14m in revenue.
\nOtherwise, it has been widely regarded by industry observers that the world refractories industry was ripe for further consolidation and an RHI-Magnesita deal had been mooted some years ago.
\nBack in 2011 the prospect of such a consolidation between RHI and Magnesita became a hot topic as both groups were preying on each others\u2019 home turf \u2013 Magnesita grabbing ThyssenKrupp steel contracts in Germany, RHI building a refractory plant in Brazil (subsequently placed on hold in the face of punitive antidumping import duties).
\nNevertheless, the news still arrives with some impact, as the merger of these two giants of magnesia and refractory production brings under one roof a significant array of refractory raw material assets, which are examined later, as well as refractory manufacturing plants worldwide.
\nAnnounced on 5 October 2016, RHI\u2019s Management Board has agreed to sign a share purchase agreement with Magnesita\u2019s controlling shareholders regarding the acquisition of a controlling stake of at least 46%, but no more than 50%, plus one share of the total share capital in Magnesita.<\/p>\n<\/a><\/p>\n
\nBased on RHI\u2019s six-month volume-weighted average price of \u20ac19.52, the implied value of the 46% stake amounts to \u20ac208m.
\nAs a result of the transaction, GP Investments (a controlling shareholder of Magnesita) will become a relevant shareholder of RHI Magnesita. The migration of RHI is to be effected by RHI Magnesita becoming the ultimate holding company of RHI Group.
\nCompletion of the deal is subject to approvals including the relevant competition authorities, the migration of RHI to the Netherlands, and the listing of RHI Magnesita\u2019s shares in the premium segment of the Official List on the Main Market of the London Stock Exchange.
\nCompletion is expected in H2 2017. Until then, the two companies will remain completely separate and independent. Following completion, a mandatory tender offer will be launched by RHI Magnesita or one of its affiliates for the remaining shares in Magnesita.
\nIn its statement last week, RHI expected the combined company to generate fully consolidated revenues of \u20ac2.6-2.8bn with an operating EBIT margin of more than 12%.
\nMagnesita made a London share listing a precondition for its takeover by RHI, but owing to the UK vote on 23 June to leave the European Union the group now has to find a place other than London for the headquarters of RHI Magnesita.
\nTherefore the new company is to be established in the Netherlands to remain subject to European merger rules, while its shares will be listed in London. Had the Brexit vote failed, then RHI Magnesita would most likely have been based in London. RHI is to be delisted from the Vienna Stock Exchange.
\nJust before announcement of the takeover, RHI appointed Stefan Borgas as RHI\u2019s new CEO with effect from 1 December 2016. Dr. Wolfgang Ruttenstorfer will continue to be available as interim Chairman of the Management Board until 30 November 2016.<\/p>\n<\/a><\/p>\n
\nThis is a process that has been ongoing for some time and which has radically reshaped the corporate landscape of the sector. But it has needed to.
\nThe main end use sectors for refractories are global heavy manufacturing industries which have also consolidated in similar fashion across the world: steel, cement, ceramics, glass, lime, nonferrous metals.
\nDrivers for the these markets are primarily regional economic performance, construction, and urban development.
\nIn order to conserve costs in production, sourcing, and logistics (especially in the face of low cost Chinese exports of both refractory raw materials and end products), as well as maintain an efficient global sales and distribution network, the refractory industry has shrunk considerably in the last three decades to just a few multi-national players leading the field, followed by a few medium sized companies (see chart).
\nEach of the top four refractory groups are the resultant amalgamations of massive mergers and acquisitions during the 1990s and 2000s: Vesuvius (Hepworth, Foseco); RHI (Veitsch-Radex, Didier Werke); Magnesita (LWB Refractories); Calderys (owned by Imerys: Plibrico, Lafarge Refractories).
\nSome of the companies following them have also followed this trend: Krosaki\/Harima, HarbisonWalker International (formerly ANH, the collective of AP Green, North American Refractories, and Harbison Walker Refractories).
\nRHI Magnesita will be the fusion of the world\u2019s second and third largest refractory groups, which will see it move above the current top spot held by Vesuvius.<\/p>\n<\/a><\/p>\n
\nBoth companies complement each other on basic refractory technology, particularly in magnesia and dolomite refractories, and in operations in China.
\nHowever, it is their combined refractory raw material resources which also stand out to be examined.
\nRegarding raw materials, the common bond between RHI and Magnesita has been their pursuit of self-sufficiency in key refractory raw materials, each having achieved somewhere in the region of 80% self-sufficiency \u2013 mainly in dead burned magnesia (DBM) and fused magnesia (FM).
\nAlthough the vertical integration trend kicked off in earnest in the mid-2000s, with RHI making some major magnesia acquisitions and investments, and Magnesita expanding its DBM capabilities, both companies have roots in magnesite mining, if not pioneering the development of refractory magnesia grades. That is, they were already captive mineral producers from the start.
\nWhich might explain perhaps why most other leading refractory producers have not followed suit, as was anticipated to a certain degree. In other words, unless you are an existing captive refractory mineral producer, starting from scratch might be a challenge too far.
\nKey exceptions outside China (where vertical integration is widespread) are Magnezit (magnesite) and Calderys (aluminosilicate minerals from Imerys), while a few others have limited themselves to
\nsome specific captive production, eg.: Vesuvius (fused silica), Ropczyce (fused magnesia), Refratechnik (fused magnesia), POSCO (magnesia), Saint-Gobain (silicon carbide), Kerneos (bauxite).
\nThe accompanying map illustrates an overview of the combined refractory raw material sources under the proposed new company RHI Magnesita.<\/p>\n<\/a><\/p>\n
\nRHI also has two synthetic magnesia sources using seawater, in Ireland and Norway to produce DBM and FM, respectively.
\nThe majority of DBM is for captive use in refractories production, but both groups also sell to the external market.
\nIn 2015, Magnesita\u2019s Industrial Mineral sales accounted for 6.6% of Magnesita\u2019s consolidated revenue for the year, against 5.5% in 2014. Mineral sales revenue totalled US$65m up 40.8%.
\nMagnesita explained the rise as mainly down to a 160% increase in DBM external sales, driven by higher productivity in Brumado combined with a decrease in refractory volume production. Thus DBM was the single largest external mineral sale in 2015 accounting for 29%, over 12% in 2014.
\nAnother key point is the reinforcement of refractory grade dolomite resources that is brought by Magnesita, the world leader. RHI has one source in Italy, but Magnesita is active in the USA, Europe, and China.
\nAlthough dolomite is mostly mined for feedstock for dead burned dolomite production for refractories, dolomite is also sold for non-refractory applications, such as slag conditioning.
\nIn 2015, RHI saw its raw material external sales increase by 63.2% to 297,000 tonnes in total . This was primarily due to sales of raw dolomite from Italian subsidiary Dolomite Franchi SpA which made a \u201csignificant contribution to volume\u201d. The trend appears to continue in 2016 with H1 2016 total sales up 26% to 180,000 tonnes.<\/p>\n