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June 10, 2010 Dear Friend,
We raised our price
target to $77 from $71 and our investment rating to
Overweight or "Buy" for Domtar owing to its May 5th $150 mm
share repurchase announcement, $1.00 dividend and more rapid
debt paydowns combined to its subsequent share price
declines to $57. Further, our methodology may understate
the benefits of future share buybacks owing to the unknowns
of consummation and future buy back stock prices.
We were the only U.S.
sell-side analyst to visit the Delta, Ohio sheet minimill
tour yesterday of Bluescope Steel (spun out from BHP
Billiton early this decade) and Cargill, which we
characterize as a "Nucor look-alike." Bluescope Steel
also has standalone cold-rolling, hot dip galvanizing, metal
buildings and other construction fabrications in the West
Coast. Bluescope is the 47.5% partner to Nucor in the
Castrip technology as well. We believe either the other
western operations or the Delta, Ohio 2.2 million ton
hot-rolled sheet minimill would be "juicy" takeover targets
for either Nucor or Steel Dynamics.
The Delta, Ohio sheet
minimill was built with a novel 4" semi-thin,
semi-thick Sumitomo continuous slab caster in 1996, which
was novel compared to the 2" SMS thin slab casters that
Nucor, Steel Dynamics, Severstal Columbus, Gallatin Steel
and over 25 others abroad bought. It believes that it
obtains a better surface quality from the thicker slab.
Separately, we talked
Aussie politics late into the night Tuesday night with the
Bluescope tour guests. Most expect Howard Rudd to be voted
out of office and for the Labor Party to lose seats in both
the lower house and Senate. My Aussie friends appeared a
bit disappointed with their local politicians, and unaware
that the Communist Alliance had registered in 2008 and the
Australian Sex Party in 2009 to compete on the Left side of
the political spectrum with the Labor and Green parties in
the next election.
Further, we repeated our
International Paper report sent out midday on Wednesday
under Joe Reagor's name as I toured the steel mill. Some of
you may have missed the upgrade to Neutral from
Underweight due to its share price decline.
Faithfully,
John C. Tumazos, CFA
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Copyright © 2008 John Tumazos Very Independent Research,
LLC
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