DataMining March 2011

| Published on March 3, 2011

AggMan Index essentially flat for the month

John Neuner is the managing director at Harris Williams & Co. He can be reached at 804-648-0072 or jneuner@harriswilliams.com.

Over the past month, the S&P 500 posted an increase of about 1 percent to an indexed value of 116.5, and the broader markets crossed several key momentum barriers with the Dow Jones Industrial Index breaking through 12,000 and the S&P 500 trading over 1,300. The last time each of these key indices were at these levels was mid-2008. Despite these positive trends, the AggMan Index was essentially flat for the month and ended at 104.9 after rallying from a mid-month dip. While we are just starting to see the earnings releases from the public construction materials companies, we are hearing about what was expected — that the U.S. construction materials sector did not get materially worse at the end of 2010. However, there are some signs of life in regional markets as rates of declines slowed and some markets such as Texas posted gains. At this point in the year, investors are intently listening to management’s commentary on their earnings and outlook to gauge what 2011 has in store. One of the key items that the industry is watching is the level of federal funding from the Highway Trust Fund. While the fund has the capital to maintain funding levels in the $41-$42 billion range, the money flowing into the fund does not currently support that level, and the stimulus dollars are not likely to be re-committed to make up this gap. All eyes are on the new Congress and President Obama to see how they address this issue — whether through higher gas taxes or other means. Unfortunately, there is not an easy near-term solution and, with the weather that has impacted most of the country this winter, the expectations are that it will be mid-second quarter until the markets can assess the outlook for 2011. As a result, we expect to see the AggMan Index remain relatively flat for the next few months.



The outlook for aggregates drives the outlook for transactions

According to the U.S. Geological Survey’s (USGS) Mineral Commodity Summary for 2011, total construction aggregate apparent consumption (crushed stone, sand, and gravel) is estimated to have declined slightly in 2010 from 1.99 billion tons to 1.95 billion tons, or a decrease of 2.1 percent. Prices appear to have held with the total value of aggregate apparent consumption declining by only 0.3 percent. Many believe we have reached the bottom and can expect similar, or slightly better, results in 2011.

George H. Reddin is a principal in FMI’s Investment Banking practice. He can be reached at 919-785-9286 or at greddin@fminet.com.

Confidence that the bottom has been reached and 2011 is the beginning of a protracted recovery, together with improvements in the capital markets, should help generate deal activity this year and beyond.

Recent transactions

M. Luis Construction Co., Inc., a woman- and minority-owned construction and paving company, acquired an asphalt manufacturing facility in Rockville, Md., from Lafarge North America, Inc. The asphalt facility can produce up to 300 tons of asphalt per hour and about 250,000 tons a year. M. Luis plans to invest about $5 million in the plant this year.

Holcim (US) Inc. is acquiring the remaining 51 percent interest in Lattimore Materials Co., L.P. Lattimore is a Texas-based aggregates and ready-mixed concrete producer that operates seven aggregate mines, 26 ready-mix sites with 35 concrete plants, four rail terminals, and a fleet of more than 400 mixer and haul trucks.

Oldcastle Materials, Inc. acquired Sebastian County Sand & Gravel, Inc., which is based in Fort Smith, Ark.

Other transactions

Cemex announced a $1 billion private placement of senior secured notes which will mature on Jan. 11, 2018. Cemex will use the proceeds for general corporate purposes, which may include the repayment of debt.

Cemex also announced it would propose issuing up to six billion new shares to raise funds to reduce its debt. The share proposal is part of a refinancing deal that the cement maker has with creditors to issue at least $1 billion in shares or convertible securities before September 2011.

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