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Brazilian steel maker, Gerdau S.A. ((GGB - Analyst Report)) recently communicated its intent on investments in Chile under a project that was framed in 2008, but was deferred due to the global meltdown.

Now, as the world economy is on its path to recovery from the crisis, the company has revived its Chilean investment plan and hopes to invest $240 million in the region, primarily targeted to boost its output capacity and steel production. The project, for the 2012-2015 time period, gets the green signal only after receiving approval from the company’s executive board by the end of 2011.  

The company will now focus on the construction of a 90-tonne capacity furnace in place of the existing 60-tonne capacity plant. The replacement is expected to increase Gerdau’s annual steel production capacity to 800,000 tonnes from 520,000 tonnes currently. In addition, the company will construct a rolled-steel plant with an annual production capacity of 400,000 tonnes. 

Gerdau is one of the leading steel producing companies in the world, operating primarily in South America, North America, Europe and Asia. It produces steel mostly through its mini-mills and distributes steel products through its own network of commercial branches in Brazil.  

The company recently posted its second quarter 2011 financial results with its net income falling 41% year over year to R$503 million (US$316.4 million). Earnings per share (EPS) were R$0.32 (20 cents per ADR) down compared with R$0.54 (29 cents per ADR) in the year-ago period. The bottom-line results were negatively affected by higher cost of sales, which more than offset higher revenue in the quarter.

The current Zacks Consensus Estimate for the third quarter of 2011 is 20 cents, representing a 9.09% decline year over year. Estimates for the fiscal year 2011 and 2012 are $1.09 and $1.39, representing growth of 33.41% and 27.24%, respectively.

The company faces stiff competition from its peers like Companhia Siderurgica Nacional ((SID - Analyst Report)), Arcelor Mittal ((MT - Analyst Report)) and Usinas Sider (USNZY.PK). We currently maintain a Neutral recommendation on the stock.

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