Recently, Korean steelmaker,
) acquired shares in one of the largest iron ore projects, the Roy
Hill Project, in Pilbara, Australia. The acquisition complies with
the company's aim of increasing its self-sufficiency in two major
raw materials required for manufacturing steel, iron ore and
The Korean company together with Marubeni, STX, and China Steel
acquired 30% shares in the Project from the Executive Chairman of
Hancock, Gina Rinehart. The latter is the largest shareholder in
the Australian iron ore project, having 2.3 billion tons of high
quality iron ore reserves.
POSCO's share in the project would be around 12.5% and once
production commences, it will be supplied with 7 million tons of
iron ore for 30 years. Annual production from the mines is
estimated at roughly 55 million starting 2014.
Apart from iron ore, POSCO also invested in coal mines of
Australia in 2010 that improved its self-sufficiency in coal by 6%.
The company's Australian unit had acquired 70% shares of Sutton
Forest Mine, having roughly 115 million tons of coal reserves.
POSCO will be supplied with roughly 1.3 million tons of coal
annually starting 2016.
Considering the broader perspective, we believe POSCO remains in
an advantageous position to leverage benefits from the growing
steel demand, both in the global and domestic markets. Moreover,
efforts are being made to expand operations in the fast growing
markets and industries. According to the World Steel Association,
global steel demand is anticipated to rise by 3.6% in 2012 and 4.5%
The Zacks Consensus Estimate for POCO stands at $7.83 and $8.91
for 2012 and 2013, respectively, reflecting a year-over-year
decline of 27.09% for 2012 and growth of 13.79% for 2013.
Stiff competition from steel giants including
) and Nippon Steel Corp. raises concern. POSCO currently has an
Underperform recommendation and also bears a Zacks #4 Rank
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