Canada, US Analysts See More Mining Mergers
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Aug. 24-MAR--
[B] BRIDGE FOCUS: Canada, US analysts see more mining mergers
By Daniel Naccarato, Bridge News
Toronto--Aug 24--North American analysts forecast the rapid
consolidation among some of the world's biggest mining companies in recent
weeks is likely to slow down, but may yet filter into all sectors of the
industry in the coming months. The gradual recovery in some metals prices
and the relatively low share price of many companies makes this an ideal
time for further mergers.
* * *
The consolidation craze began nearly 2 weeks ago when Canada's Alcan
Aluminium announced an offer to acquire Pechiney SA of France and
Switzerland's Algroup, which would have made it the largest aluminum firm
in the world in terms of revenues.
Alcoa Inc. followed the next day with a hostile takeover bid of fellow
US aluminum company Reynolds Metals, then sweetened its bid days later.
The copper world was taken for a ride on Friday when US' Phelps Dodge
improved its bid to acquire Asarco and Cyprus Amax--which are in the midst
of completing their own merger--and potentially became the world's largest
copper producer.
"This is all a response to the dire state of the base metals
industry," said Vahid Fathi, an analyst with ABN Amro. "Buyers naturally
want to take advantage of the buyer's market conditions. It is cheaper to
pay a 30% premium for a stock at this time. . .than later when things
aren't as gloomy as today."
While analysts believe that further consolidation is on the way, they
agree that the industry is unlikely to maintain its recent pace of
takeover bids, as many of the big players are already tied up with their
own deals, said Terry Ortslan of T.S.O. and Associates.
The near-historically low metals prices in recent months and the
scarcity of robust new ore deposits has triggered the need for greater
consolidation in the industry, as mining companies find it increasingly
difficult to cut costs and improve profits.
"In my mind, the consolidation started too late. There was too much
time of profitless misery," said Ortslan.
While Inco shares on Friday rose $2.65--or nearly 9%--to a 22-month
high of $33.00 amid speculation that the nickel giant may be the next
takeover target, some analysts point out that this is an unlikely scenario
due to the relatively high concentration in the nickel sector.
"The one area that could use a little bit more consolidation is the
zinc sector," said David Davidson, an analyst at Newcrest Capital Inc.
"There are some potential opportunities in zinc, but more likely in Europe
and Australia than in North America."
Davidson added there is likely to be further consolidation among
Canadian copper producers and gold companies worldwide, which would
"provide good leverage for the inevitable pick-up in commodity prices in
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