[miningmx.com] — It’s ironic that the bid Brian Gilbertson wanted to make at BHP Billiton, which contributed to his departure when he couldn’t get backing from the board, is now, two CEOs later, threatening to trigger a major reshaping of the world resources industry.
It’s ironic, too, that the bid for Rio Tinto has been revived under Marius Kloppers, who started life as a bit of a Gilbertson protege, survived his mentor’s downfall at BHP, and has now risen to the top in succession to Gilbertson’s own successor, the amiable Chip Goodyear.
It’s idle to hark back to what Gilbertson might have had to pay for Rio Tinto, and compare it with what BHP may have to pay this time round.
I say may, because so far Rio has mounted a spirited defence, and as things stand I reckon the odds are that it will beat off BHP. But the world is very different now from when Gilbertson was trying to grow BHP; simplistically, the Chinese have changed the rules of the game, and none of the world’s major resource companies are what they were five years ago.
Of course, to say that Rio may repel BHP doesn’t mean that it will succeed in keeping its independence. Market talk is that there may be a counter-bid from China. The Chinese have pockets so deep as to be almost bottomless, and it would fit into their national strategy to buy up the suppliers of the minerals so essential to their continued economic development.
Inscrutable as they are – like all good businesspeople – they’re unlikely to tip their hand before they’ve come up with a well thought out plan of action, and I don’t see them rushing prematurely into a competitive auction. After all, as Rio has pertinently pointed out, BHP has not made a formal bid yet. It may even decide not to bid, but whether it does or not, sensible rivals will stay shtum until it’s either put up or shut up.
There’s no point in outbidding an offer that may never happen.
But whatever happens to Rio won’t be the end of the story. BHP has in effect put every resource group in the world in play, either as bidder or as target, and sometimes as both at once.
From a South African perspective, the spotlight obviously falls on Anglo American. At one time, the prospect of South Africa’s biggest company being taken over by foreigners would have been too ghastly to contemplate and would have had Ernest and Harry Oppenheimer revolving in their graves. But fact is, Anglo is no longer a South African company, and if management still has a residual commitment to this country, it can only weaken with time.
However much it may have been denied, this shift of focus was implicit in the move of domicile to the UK. I know that Tony Trahar liked to parade the list of capital projects Anglo has recently committed itself to in South Africa, and I’m sure that Cynthia Carroll has a similar piece of paper tucked safely in her top drawer for use at strategic moments, but Anglo simply can’t find enough big enough projects, in the right commodities – like copper and nickel – in SA.
Investing in collieries to supply Eskom’s next generation of power stations is all very well, but it’s not the main driver of Anglo’s next expansion phase.
On balance, though, I would see Anglo as a predator rather than a victim, and I would think the same is true of its expansion-minded Brazilian counterpart, Companhia do Vale Rio Doce.
Xstrata could be scouting
It’s when you move down a tier or two that things really get interesting. Most attention here is focusing on Xstrata, run by ex-Eskom exec Mick Davis. That company has confirmed that it’s hired advisers, but has no doubt deliberately left it vague whether the brief is to find targets or pretty the business up for sale.
My feeling is the former is the more likely, for two main reasons. Firstly, after working for others at Eskom and then being passed over for the top job, I don’t think Davis will want to forgo the enjoyment he gets from running his own shop.
Secondly, Xstrata has a dominant, if not nominally controlling, shareholder in international commodities trader Glencore, which I suspect values the preferential access to a reliable supply of product.
A subsidiary point is that Xstrata has just completed a couple of major acquisitions of its own, and it might be more prudent to defer a bid until it’s clear that these are properly bedded down.
Not that this seems to be holding back Davis himself: market rumour is already trying to identify his next target, a favourite candidate being Freeport McMoRan of the US, whose website proclaims it to be the world’s largest publicly traded copper company.
Other products include gold and molybdenum, and its market cap is about $43bn. In contrast, a combined BHP-Rio would have a market cap of about $350bn, in a ratio of about 60:40.
In a presentation earlier this month, Freeport disclosed net reserves of 77m lb copper, 1.8bn lb moly, and 38m oz gold, spread across North and South America and Indonesia, and all equivalent to more than 20 years’ reserves, with revenues running at about an annualised $20bn. An active project pipeline includes the Tenke-Fungurume copper deposit in Congo (Kinshasa), which broke the hearts of many Anglo geologists a few decades ago.
Unless I’m overestimating the strength of Rio’s defence, I’d think the most likely outcome is that a few companies of that size will be swallowed up.
But in any event, this won’t be a year when the top execs of the world’s resource companies will be able to snooze too comfortably in front of the fire after overindulging in their Christmas turkey; they’ll need to stay awake and keep casting an eye over their shoulder for possible boarders.
