Worldwide mining consolidation
The time is ripe for consolidation in the world's mining industry. That's the opinion of a Wall Street Journal article ("Mining Mergers Pose Risks", 11/10/2004). Several recent hostile bids have especially stirred the pot in his segment and may lead to the biggest companies getting even bigger.
Swiss-based company Xstrata recently launched a hostile takeover bid for WMC Resources of Australia, starting with a $5.6 billion offer. WMC is the third largest miner of nickel in the world. Nickel is used primarily in making stainless steel. The company also produces uranium oxide, copper, gold, and phosphates (for fertilizer). Xstrata is major coal miner, and produces ferrochrome, zinc and vanadium, as well as timber. It has operations ranging from Australia to Swaziland and from Chile to Spain. The company is built on acquisitions. In 2002 it bought the coal holdings of Glencore International and in 2003, it bought MIM Holdings, which had coal and zinc operations.
The other hostile takeover in the works is in gold mining sector, where South African Harmony Gold Mining made a $7 billion offer to buy Gold Fields, a larger gold producer. Gold Fields is fighting the bid. Harmony has operations in Australia and New Guinea in addition to South Africa, It is the #6 gold mining company in the world, having grown through recent acquisitions ARMGold and Abelle. Gold Fields, also a South African company, has operations in that country, Ghana, and Australia. It is partly owned by Russian mining company Norilsk Nickel. Gold Fields recently announced a merger with Canadian gold mining company IAMGOLD.
In addition, Canadian mining company Noranda may be acquired by Chinese Minmetals, in what could be the biggest Chinese foreign acquisition ever. (Brazil's Companhia Vale do Rio Doce had plans to buy Noranda, but they have fallen through.) Other major mining companies such as Australia's Rio Tinto and BHP Billiton are also reported to be on the prowl, perhaps planning to come in as rescuers for the objects of these hostile bids.
The WSJ article points out that
Industry analysts point out that conditions are ripe for other deals. The world's biggest mining companies are flush with cash, and many are worried they don't have enough mineral assets in the ground to meet growing demand from countries such as China. Buying smaller companies would let large companies capitalize on currently high commodity prices - and protect their market shares-without sinking capital into projects that might take years to come into production.
There's a risk involved with over-expansion, the article points out, if demand and thus prices collapse. But we have seen in other industries that the best chance of survival is to be a big player; even when the circumstances are tough, the very biggest companies tend to survive.
9:34:26 PM 
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