Solidium Oy, which owns stakes in mining industry consolidation targets Metso Oyj and Outotec Oyj, says its holdings are not for sale on the cheap while the sector is at a cyclical trough as prices will rise.
“Both companies operate in an area where we see that the super-cycle will continue one way or another,” Kari Jaervinen, managing director of Solidium, the Finnish state’s equity-asset manager, said in a Helsinki interview in yesterday. “We don’t want to sell anything underpriced.”
Solidium has increased its stakes in both companies in the first half of the year, betting that the stocks will rise as the industry starts spending on mining equipment again after a lull. In April and May, Metso rejected takeover bids by Glasgow-based Weir Group Plc. Speculation of similar interest on Outotec has caused its share to fluctuate, including a 20 percent intraday jump on July 23.
“They’re in a situation where a lot of pressure is focused on their stock as the short-term outlook in the mining industry is challenging,” Jaervinen said.
Analysts at DNB ASA said in a July 23 note that an alternative merger between Metso and Outotec “would make strategic sense” and form a better fit than Weir. However, Metso’s strategy shift announced on July 31 “seems to have taken it further away from this kind of consideration,” Jaervinen said.
Solidium owns 11.7 percent of Helsinki-based Metso and 10.4 percent of Espoo, Finland-based Outotec. Metso shares, up 26 percent this year, are still 21 percent below a Oct. 11, 2007 peak. Outotec shares are 49 percent down from their peak on Nov. 1, 2007.
The slump in the mining industry follows a decade-long boom, which peaked in 2012. Exploration spending fell by 30 percent or $10 billion last year, squeezing budgets to search for minerals and sustain supplies, according to MinEx Consulting Pty. Metso Chief Executive Officer Matti Kaehkonen said in January the company is looking at a “transition year” as mining customers spend less.
“Ownership matters,” Pekka Ala-Pietilae, Solidium’s chairman, said in an interview. “Having a big enough stake in large companies offers the possibility to take a stance and steer their long-term operations.”
The economic challenges faced by Finnish Prime Minister Alexander Stubb’s government have forced Solidium to increase its payouts. Finland’s economy will not grow this year and may contract, marking three consecutive years of decline, the finance ministry said Aug. 27.
Solidium will distribute 900 million euros ($1.2 billion) to the Finnish government for its fiscal year ended June, it said yesterday. This brings its total state payouts to 3.5 billion euros since the investor’s inception in late 2008.
Dividend demands to prop up the government budget could risk further asset sales by Solidium, which in February raised 800 million euros by selling shares in insurer Sampo Oyj, according to Jaervinen.
“In the long run, it’s a concern for us,” Jaervinen said. “Certainly it affects our capability and credibility as an owner. At the same time the owner is sovereign and we act according to parameters given.”