Genesee And Wyoming Further Diversifies By Hauling Copper

Sep. 5.11 | About: Genesee & (GWR)

On Thursday, Sept 1, Genesee and Wyoming Inc (NYSE:GWR), finalized its acquisition of Arizona Eastern Railway (AZER) from Iowa Pacific Holdings, LLC of Chicago, IL. GWR paid $90.1M in cash.

GWR is a diversified railroad company operating across the globe from Europe to Australia to North America. I am most interested in GWR’s services that support the mining sectors in Canada and Australia. The company is thus directly related to investments in physical assets although I did not list it as such in “Preparing for Profits in a Resource-Constrained World.” The acquisition of AZER makes GWR even more attractive. AZER’s largest customer is Freeport Mcmoran (NYSE:FCX), hauling copper for them in the southwest of the U.S. Here is how GWR described the deal back in early August:

AZER primarily provides rail service to Freeport-McMoRan’s largest North American copper mine and its North American smelter, hauling copper concentrate, copper anode, copper rod and sulfuric acid. In conjunction with the transaction, AZER and Freeport-McMoRan have entered into a long term agreement whereby AZER will provide specific service and track upgrades, and Freeport-McMoRan will provide AZER with certain guarantees. In addition, AZER serves other local customers, predominantly in the mineral, agricultural and forest product sectors…

…The Arizona Eastern serves world-class copper mining and smelting facilities, and we are pleased to be investing in long term rail infrastructure that will improve rail service and support the expansion of copper production in the region. This acquisition in the United States further complements our other recent investments to serve the mining sector in Canada and Australia.

GWR primarily makes its profit from hauling coal and agricultural products. This relationship with FCX should give GWR an edge in acquiring hauling contracts when mines get opened in more and more remote areas of the world in the planet’s scramble for more and more natural resources.

Like many stocks last week, GWR’s rally from the August lows was stopped cold directly under a declining 50-day moving average (DMA) and a flattening 200DMA. At $48.10, GWR still has a 24% post-QE2 gain. Erasure of that gain would make GWR an automatic buy according to the rules I have put into place for the “commodity crash” playbook. In the meantime, I will watch whether the August lows hold before deciding whether to initiate a position.

GWR still holding onto a substantial portion of its post-QE2 gains

*Chart created using TeleChart

GWR still holding onto a substantial portion of its post-QE2 gains

Be careful out there!

Disclosure: No positions