Allegheny Technologies Inc., on November 4, 2013, completed the sale of its tungsten materials business to Latrobe, PA-based wear-resistant products company Kennametal Inc. (KMT) for $605 million. The business unit, which produces tungsten powder, tungsten heavy alloys, tungsten carbide materials and tungsten carbide cutting tools, generated $338.6 million of total net revenues and $37.2 million of operating profit for the year ended Dec 31, 2012.

Allegheny Technologies Inc. originally had three main business segments: Flat-Rolled Products, High Performance Metals and Engineered Products. However, the company, in October 2013, announced the restructuring of its Engineered Products segment, including the integration of the specialty steel forgings business into ATI Ladish's forgings operations in the High Performance Metals division and the integration of the precision titanium and specialty alloy flat-rolled finishing business into ATI Allegheny Ludlum's specialty plate business in the Flat-Rolled Products segment. Other businesses that comprised the Engineered Products division have been classified as discontinued operations and include the tungsten materials business and the iron castings and fabricated components businesses.

Allegheny decided to divest its tungsten materials business so that it can focus more on its core businesses High Performance Metals and Flat-Rolled Products. The acquisition is also expected to increase Allegheny's financial flexibility and simplify its capital allocation and deployment.

Allegheny's Flat-Rolled Products segment produces, converts and distributes stainless steel, nickel-based alloys, titanium and titanium-based alloys, and specialty alloys in various product forms - plates, sheets, engineered strips and precision rolled strip products, as well as grain-oriented electrical steel sheets - to independent service centers and end-use customers. It serves chemical process, oil and gas, electrical energy, automotive, food equipment and appliances, machine and cutting tools, construction and mining, aerospace and defense, electronics, communication equipment and computer industries. In the segment, Allegheny owns a 60% interest in a Chinese joint venture company, Shanghai STAL Precision Stainless Steel Company Limited (STAL), which commenced commercial production in 2000. Baosteel Group owns the remaining 40%. Allegheny also owns a 50% interest in the industrial titanium joint venture known as Uniti LLC. Verkhnaya Salda Metallugical Production Association (VSMPO), the Russian producer of titanium, aluminum and specialty steel products owns the remaining 50% interest.

Allegheny's High Performance Metals segment produces, converts and distributes high performance alloys including nickel and cobalt-based alloys and super alloys titanium and titanium-based alloys exotic metals (such as zirconium, hafnium, niobium and nickel-titanium) and their related alloys and other specialty alloys primarily in long product forms, such as ingot, billet, bar, shapes and rectangles, rod, wire, seamless tube, and castings. It sells products directly to end-users in the aerospace and defense, chemical process industry, oil and gas, electrical energy and medical sectors. About 70% of the demand in the segment comes from the aerospace and defense market.

Allegheny recorded sales of roughly $5,032 million in 2012 with Flat-Rolled Products, High Performance Metals and Engineered Products segments accounting for 47%, 43% and 10%, respectively.


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Sometimes finding a mineral deposit is about having found it once before. Cadillac Ventures (V.CDC) CEO Norman Brewster had brought the Burnt Hill tungsten/tin mine to test production in the early 1980’s at which point the price of tungsten collapsed. For 30 years little work was done on the deposit.

Located 110 kilometers north of Fredericton New Brunswick, the Burnt Hill area was purchased by Brewster and was joint ventured in 2007. Because the work on the area was historical Brewster explained, “We have to recreate the work I did in the 1980’s. Redo the bulk sample and redo the drilling”.

This would advance Cadillac to feasibility at Burnt Hill itself. However, on November 5, 2013, Cadillac announced that it had discovered a second mineral occurrence a Wolf Ridge, 3-6 kilometers away from the original Burnt Hill deposit. This second occurrence was discovered by the use of airborne data and trenching. The size of this occurrence is comparable in scale and grade to the original Burnt Hill deposit.

Brewster points out that the new occurrence is somewhat different from the Burnt Hill deposit as it contains much more tin. “That’s important because the tin market is a bigger market than the market for tungsten.” Tin is something of a stealth strategic metal as it is used in the solder which is used in electronic devices. (For example, an I-Pad uses between 1-3 grams of tin.)

Sumitomo Electric Industries Ltd.,headquartered in Osaka, Japan, has started tungsten refining and scrap recycling operations in the United States. Sumitomo Electric Carbide Inc., a subsidiary of Sumitomo Electric, and New York Tungsten LLC, a subsidiary of Buffalo Tungsten Inc., a tungsten powder producer in the United States, have established a joint venture company, Niagara Refining LLC (NIRE), to produce tungsten trioxide (WO3) from raw ore as well as from recycled material at NIRE’s facility in Depew, N.Y.

Operations are set to begin in March 2014.

Until now, A.L.M.T Corp., a subsidiary of Sumitomo Electric, has imported WO3 from China and other countries to produce tungsten carbide powder as a raw material for carbide tools. A.L.M.T. also has been engaged in tungsten scrap recycling at itsToyama, Japan, plant since 2011.

With the start of NIRE’s operations, Sumitomo Electric will produce raw materials for tungsten by both refining tungsten ore from tungsten mines and by recycling scrap collected from the market.

Sumitomo Electric says it will accelerate its activities to facilitate a stable supply of tungsten raw materials through using WO3 produced by NIRE and tungsten carbide powder production by A.L.M.T. This will allow Sumitomo Electric to control the supply chain from raw materials all the way to the finished product, which will further strengthen its competitiveness and achieve synergy through cooperation within the group, according to the company.


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A couple of days after announcing completion of the acquisition of Allegheny Technologies Incorporated’s (ATI) tungsten materials business, Kennametal Inc. (KMT) at its Analysts Day held on Nov 6, 2013 provided details on integration synergies expected out of the transaction.

Let us first get a quick look at the acquisition details provided earlier by Kennametal:

The agreement was announced by Kennametal on Sep 16, 2013. Allegheny Technologies’ tungsten materials business is a leading producer of tungsten metallurgical powders and also provides tooling technologies and components. The business has two divisions namely, ATI Firth Sterling and ATI Stellram. Annual revenue generation capacity of the business is $340 million and employs 1,175 people operating from 14 facilities worldwide.

The transaction value was fixed at $605 million, which Kennametal paid using its available cash and borrowings under its existing revolving credit facility. The company anticipates it will realize $30-$45 million in annual savings (versus $30-$40 million expected earlier) via consolidation of both the operations, reduction in administrative overhead costs and leveraging supply chain. Integration costs of $40-$50 million are anticipated to be incurred through fiscal 2016.

Also, the management of Kennametal provided a near-term outlook on the acquisition. Sales within $200-$220 million range with neutral earnings impact is anticipated for the eight months of fiscal 2014. Cash tax benefits of $60-$70 million are also expected to be realized during the period.  

This acquisition builds on Kennametal's Emura and Stellite acquisitions, while also increasing the company's presence in key growth sectors, including aerospace, energy and associated process industries. Further, it has also accelerated Kennametal’s plan for an advanced tungsten carbide facility. The company has lowered its capital spending plans in a big way, from $65 million to $35 million.

Besides the acquisition details, Kennametal at its Analysts Day also discussed its long-term targets/goals. The company anticipates achieving organic growth rate of 6%-10% (CAGR), EBIT % to be greater than equal to 15%, earnings per share to grow within 15%-20% (CAGR), capital expenditures to be 3%-4% of sales, and free cash flow to be greater than or equal to net income. By fiscal 2017, the company anticipates to double its base business to $5-$6 billion range.

The company also maintained its previously provided guidance for fiscal 2014. These include sales within $2.7-$2.8 billion range, organic growth within 4%-6% range, earnings per share within $2.90-$3.05 range, cash flow from operations within $330-$380 million range, capital expenditure within $130-$150 million range and free cash flow within $200-$230 million range.

Kennametal Inc. currently has a market capitalization of $3.6 billion. The stock carries a Zacks Rank #3 (Hold). Other stocks to watch out for in the industry are Xylem Inc. (XYL) with Zacks Rank #1 (Strong Buy) and Lincoln Electric Holdings Inc. (LECO) with a Zacks Rank #2 (Buy).


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