[miningmx.com] — XSTRATA may give further mind to seeking its next investment in Africa after being edged out of the running for control of Canadian firm, Falconbridge. This was after compatriot, Inco, announced it wanted to merge with Falconbridge in a deal valued at C$34/share, or a total of C$12.4bn.
It’s the second time in a year Xstrata has been marginalised by a “home deal’ as Investec analyst, John Clemmow, describes Inco’s merger proposal. In March, BHP Billiton, headquartered in Melbourne, outbid Xstrata for control of Australian firm, WMC.
“Certainly with Australia and Canada now locked up, Africa looks to be Xstrata’s best bet,’ said Clemmow.
Marc Gonsalves, Xstrata spokesman, said the fact Xstrata had not purchased assets in South Africa for the last two to three years should not be taken to mean the company had turned its back on the continent. “We’ve not ruled out further African investment,’ he said.
The company could, however, offer its shares giving it a 12% stake which it could use to buy non-core nickel assets in the combined Inco/Falconbridge entity. “I think Mick [Davis, CEO] has said in the past that a minority stake is not a natural position for Xstrata,’ said Gonsalves.
Xstrata, which has coal and ferrochrome assets in South Africa, has been linked with Lonmin and Impala Platinum before. It recently proved its interest in South African platinum agreeing to invest $100m in the development of Der Brochen, a platinum property owned by Anglo Platinum.
More recently, however, Xstrata has been linked with a new role in the potential dismemberment of Anglo American.
The unbundling of Anglo American is a popular notion that resurfaces regularly. Nedbank produced a report on it in July (reported in Miningmx: ‘Anglo to resist restructuring’, August 21) and it has been discussed for most of this year (‘Anglo gains rand inspired’, May 27, May 31). But the fact is that Anglo has been restructuring itself since its London listing. In the last two years, it has sold $3.3bn worth of assets and said further portfolio refinement was likely.
However, the restructuring of which the market has long been speaking is far more sweeping: it is either the bifurcation of Anglo’s mining and non-mining assets, or of third and first world assets.
One view was that Anglo’s base metal assets would be merged with those of Xstrata. Certainly, Anglo is widely held, not terribly loved in London, and was outperforming its peer group on the back of this speculation.
John Meyer, an analyst for Numis Securities, believes Anglo will not be subject to such restructuring. “Unbundling is interesting, but I don’t feel that is going to create significant additional value for Anglo American,’ he told Classic Business, a radio programme aired in South Africa.
He does believe, however, that Xstrata is making enough money to be a share worth watching. Might then Xstrata turn its attention towards another African asset, or in the absence of further corporate activity, return cash to shareholders?
Certainly, the pressure is on to find a new goal because Xsrata is generating plenty of cash. For every 10% change in the copper price, Xstrata is estimated to generate $6m in earnings per day. It’s also turned a useful C$438m profit out of its 20% stake in Falconbridge purchased in August for C$28/share. Share earnings have grown from 15USc/share in 2003 to 168c in 2004. Numis expects Xstrata will further grow share earnings to 290c and 303c respectively in 2005 and 2006.
One view is that future investment in South Africa by Xstrata may heavily depend on whether it can read the rand correctly. It saw the strengthen 50% after having bought ferrochrome assets in South Africa.
“For Mick Davis it’s time to count his cash and decide where to go next. My bet would be platinum in South Africa. Lonmin is worth a look,’ said Clemmow.
“We remain comfortable with our investments in South Africa and we have continued to invest in them,’ said Gonsalves. Xstrata recently unveiled plans to invest nearly $30m in buying ferrochrome resources from Samancor. It also owns Project Lion, a 1 million ton/year ferrochrome expansion project in South Africa.