MAC: Mines and Communities

London Calling on a Canadian corporate scrap

Published by MAC on 2006-05-19
Source: Nostromo Research

London Calling on a Canadian corporate scrap

by Nostromo Research

19th May 2006

Put another biddy in the nickelodeon!

When Xstrata took over Glencore's share of the El Cerrejon mine in Colombia, back in March, we commented to a colleague that the UK-Swiss company "represents the ugliest edge of the industry. It doesn't care about mining per se, it's a speculative trader purely interested in ramping up the profits... it crouches like a tiger ready to pounce when it reckons the prey is close to its knees. Sometimes it will lose -as it did over its battle to acquire WMC; sometimes it will get the prize. What doesn't appear to have been mentioned in the press - surprisingly - is two obvious points.

"The first is that Xstrata's take-over strategy is, to a considerable degree, influenced by its dominant shareholder, Glencore, the world's most profitable (and shady) private trading company. Second, and linked to this, are Xstrata's recent plays in Latin America. It has taken over Glencore's one third of El Cerrejon in Colombia, thus confirming its status as the world's biggest exporter of thermal coal; it already has Alumbrera in Argentina - one of the world's biggst copper producers. And Collahuasi (the world's fourth largest copper producer is now in its sights, if it secures Falconbridge".

So, the announcement last week that Xstrata is acquiring the highly controversial Tinataya mine in Peru, followed swiftly by its all-cash bid for Canadian nickel-copper miner, Falconbridge, is writing on the wall as big and ugly as it comes.

What, one wonders (and are we alone in this?) will become of the agreement forged last year between Tintaya communities and BPHBilliton, hailed by many at the time as a "ground-breaking" accord which granted some pre-emptive rights to those who'd suffered from the mining operations for a number of years?

That's just one of many urgent questions which should now be asked.

Rio Inco?

There's been recent speculation that Xstrata's Mick Davis has been talking with Teck Cominco, the world's biggest zinc producer.

Falconbridge is meanwhile huddling with Inco as both companies prepare a fight to the death against last week's bid by Xstrata for Falconbridge and Teck Cominco's for Inco.

Canadians are up in arms against Xtsrata, not least the powerful United Steelworkers (USW), which says it represent 8,500 workers in both Inco and Falconbridge. The union has already endorsed last year's proposed merger betweeen Inco and Falconbridge. According to the USW's Ontario/Atlantic director, Wayne Fraser, this is "the first step in keeping Xstrata out...Xstrata and its largest shareholder Glencore International share a history of union-busting."

Now surfaces, too, the rumour that Rio Tinto may soon "emerge" as a bidder.

In fact this prospect was aired back in October 2005 when, in an article headed "Rio eying new acquisitions? ", Miningnews reported Deutsche Bank's reaction to an exploration seminar held by the UK giant. "We sense Rio Tinto's exploration spend is extending with the cycle to new geographies and commodities with higher risk exposures," commented Germany's largest investment bank ."Nickel at 2% [of the exploration budget] seems inconsistent with the emphasis on new markets - perhaps nickel is a possible candidate for acquisition by Rio?"

If so, what would Rio Tinto go for - Inco, Falconbridge, both together or even Teck-Cominco-Falconbridge should the pieces fall that way off the table? Is it outrageous to suggest that Paul Skinner may be holding informal discussions with Mick Davis, even as we write? And will BHPBilliton resist entering the fray?

Roll on the day when the entire base metal mining world is dominated by just one company - let's call it "BHPB-Rio Tinto" for argument's sake.

Sometimes it's really ennervating trying to lop the heads off so many hydras at once.

sources: Xstrata bid for Falconbridge (see below); "Bid spoiling tactics will not deter Xstrata or Teck Cominco", Jim Jones, Mineweb May 15 2006; Xstrata-Glencore union busting: Mineweb May 18 2006; Deutsche Bank on Rio Tinto: Miningnews, October 07, 2005

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