, a unit of Colombian Natural Resources, the mining company managed
The Goldman Sachs Group
), has entered into an agreement with Brazil-based
). Through this deal, Goldman will purchase thermal coal assets
worth $407 million from Vale in Colombia.
As per terms of the agreement, Vale has agreed to conduct the
sale in cash. Moreover, the deal includes selling of Vale's El
Hatillo coal mine, the Cerro Largo deposit and a port terminal on
the Atlantic coast of Colombia. Additionally, an 8.4% stake in the
railway, which links the port with the mines, will be sold. The
transaction awaits regulatory approval from the Colombian
Benefits Associated with the Deal
With the completion of the deal, Goldman's existing coal
operation in Colombia will expand and become stronger. Previously,
Goldman had also acquired a coal miner in Colombia as well as
metals warehousing group-Metro International in 2010. Apart from
its banking operations, such dealings will also augment Goldman's
trading in physical commodities.
On the other hand, Vale's aim to sell thermal assets indicates
its plan to concentrate on its core metals business. Precisely,
Vale plans to focus on its main operations in coking coals that are
used by steel mills, instead of thermal coals that are used for
generating electricity. In 2008, these assets were purchased by
Vale for approximately $306 million.
In the current unsettled environment, the completion of the deal
will provide some liquid cash to Vale. Therefore, after selling
thermal assets, Vale would be able to concentrate more on its core
business of providing coal for steel production and focus on
completing various projects already undertaken.
In 2011, production at Vale's mines climbed 19.4% to 3.57
million metric tons, while Colombian Natural Resources increased
its production by 58% to 2.39 million metric tonnes. Therefore,
following the completion of this agreement, with increased
accessibility between port and railway for Colombian Natural
Resources' existing mines, Goldman's coal mining capacity will get
Through its asset management arm, Goldman is also planning to
foray into Japan's property market.Last week,
reported that the U.S. investment bank is strategizing to initiate
a private real estate investment trust (REIT) on the Japanese soil
with a capital investment of approximately 50 billion yen ($628
Goldman expects a turnaround in the Japanese real estate market;
hence, it has decided to make such a huge investment in it.
At the current level, investing in Japanese properties would yield
higher returns over the long period once the Japanese economy
stabilizes and government's policies come into effect
As the banking sector is undergoing a radical structural change,
it will witness headwinds in the near to mid term. However,
entering the new capital regime and refining exiting operations
will ensure stability and security in the industry over the long
term. Goldman currently retains a Zacks #3 Rank, which translates
into a short-term Hold rating.
GOLDMAN SACHS (GS): Free Stock Analysis Report
VALE SA (VALE): Free Stock Analysis Report
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