Mergers of mining companies are booming

By Ambereen Choudhury and Brett Foley
Bloomberg News

Salt Lake TribuneArticle Last Updated:06/14/2008 12:48:47 PM

Metals are the new green on Wall Street, as mining has displaced financial services to become the biggest source of mergers and acquisitions.
The value of announced mining takeovers more than tripled to $199 billion in the first five months of 2008 from a year ago, even as the global pace of M&A dropped 37 percent, data compiled by Bloomberg show. Financial-services companies, the largest driver of merger fees for the past two years, disclosed $173.5 billion of transactions in the first five months. It’s the first time mining mergers have topped the M&A table since Bloomberg began compiling the data in 1998.
”We have moved into the age of commodities,” said Carl Hughes, a London-based partner at Deloitte & Touche LLP, who oversees the firm’s energy and resources practice. ”You clearly have a large number of mining companies just generating cash and profit like there is no tomorrow.”
A $100 billion deal is ”imminently possible,” said Shaun Treacy, who runs Lehman Brothers Holdings Inc.’s global metals and mining group from London. That would be in addition to BHP Billiton Ltd.’s $147 billion unsolicited bid this year for Rio Tinto Group, the owner of Kennecott Land and Kennecott Utah Copper, in the world’s largest mining transaction.
”The race is on for valuable, high-quality, scarce resources,” said Treacy. ”Rumors are circulating about various transactions, as there continues to be significant appetite.”
The increase in takeovers is occurring as companies compete for scarce minerals assets and as rising costs make it cheaper to buy rivals than to develop new mines.
”I wouldn’t be surprised to see megadeals in the next six months, whether it is $20 billion or $50 billion and up,” said Tim Goldsmith, 45, a partner at PricewaterhouseCooper’s mining practice in Melbourne. ”There is a global desire to grab whatever resources are available because they are in short supply. There are good times ahead.”
Freeport-McMoRan Copper & Gold Inc., the world’s second-largest copper producer, Alcoa Inc., the third-biggest aluminum producer, and Grupo Mexico SAB’s Southern Copper Corp. are possible acquisition targets, bankers said. The companies have a combined market value of about $112 billion. Officials at all three companies declined to comment.
Cia. Vale do Rio Doce, the Brazilian iron-ore producer that scrapped a takeover bid for Xstrata Plc, said June 10 that it may sell as much as $15 billion of shares to pursue takeovers.
BHP, the world’s largest mining company, filed for antitrust approval last month in Europe, the U.S., Australia and South Africa to acquire Rio Tinto, which would create a producer of a third of the world’s iron ore and become the biggest provider of copper, aluminum and power-station coal.
The value of BHP’s offer for Rio is calculated from the day it sweetened its all-share bid to 3.4 BHP shares for each Rio share on Feb. 6.
”It’s a frenzy, and I don’t see it changing,” said Paul Knight, 48, the co-global head of UBS’ metals and mining business, who is based in London. ”Boards have confidence that this environment is going to stay.”
Much of the M&A business is being generated by Russian, Chinese and Indian companies snapping up assets to provide metals those economies need to fuel construction booms. It also has been boosted by demand for other commodities, from gold in the Middle East to copper and aluminum in emerging countries.
Aluminum Corp. of China and the Chinese state-owned Sinosteel Corp. have spent more than $16 billion buying stakes in mining assets worldwide to diversify their sources of raw materials after coal prices tripled and iron ore rose 65 percent this year. India’s Vedanta Resources Plc agreed to pay $2.6 billion last month for the assets of bankrupt Asarco LLC, its first North United Co.