Charting merger trends

Last year, mergers and acquisitions (M&A) were on pace to surpass 1998 levels — that is, until European Union antitrust watchdogs quashed the proposed 3-way deal between Montreal-based Alcan Aluminum, Paris-based Pechiney and Zurich-based Algroup.

The merger would have been mining’s largest in the 1990s, and the latest edition of Who Owns Who In Mining, published by Roskill Information Services, reports that the loss of this proposed US$17-billion deal caused the total value of 1999 M&A to fall back to US$19 billion from an anticipated US$35 billion.

In 1999, the number of mining-related mergers in excess of US$10 million increased to 100 — the highest number since Raw Materials Group (RMG) started its annual M&A review in 1995. Last year also saw the biggest deal since RMG began covering the sector: Aluminum Company of America’s (Alcoa’s) US$4.6-billion purchase of Richmond, Va.-based Reynolds Metals. The next two largest deals were in the copper sector: Phelps Dodge swallowed Cyprus-Amax Minerals, and Grupo Mexico won the battle for Asarco.

The Grupo Mexico deal was perhaps the first example of a developing country taking an aggressive approach to M&A, and there are signs that this trend could continue. If plans for privatization in India and Chile move forward, for example, strong domestic groups with solid financial backing could take over Hindustan Zinc and Corporacion Nacional del Cobre de Chile (Codelco).

RMG adds that although the pace of M&A has slowed in comparison to 1999 levels, the continuing pressure on gold producers to expand means further mergers are inevitable. Consider Anglo American, which is keen on acquiring Australia-based Acacia Resources and entering Tanzania by taking over Ashanti Goldfields’ share of the Geita project. In addition, the South African major intends to buy a 40% stake in the Morila gold deposit, in Mali, from Randgold Resources.

Normandy Mining is among several aggressive companies planning to take advantage of the present slump in metal prices. The Australian company has already obtained a foothold in the Americas by forming a joint venture with Toronto-based TVX Gold. Together, the companies own gold projects in Brazil, Chile and Canada. RMG also reports that South Africa-based JCI is expected to attract overseas takeover bids, as is the Kebble family’s gold mining empire.

Meanwhile, there are rumours that Broken Hill Proprietary’s copper division, or at least part of it, is up for sale. RMG also warns that small and mid-sized gold producers in Canada will have to get bigger and leaner if they are to survive.

One major that has been keeping a low profile, at least as far as mergers are concerned, is Rio Tinto. The London-based titan fully acquired the Australian diamond miner CRA in 1996 and has steadily bought out minority interests in Comalco over the previous three years.

Anglo American heads up RMG’s annual list of the top 50 mining companies in terms of market share, though its lead over Rio Tinto would appear to be shrinking. RMG predicts that, if current trends continue, Rio Tinto will challenge Anglo’s position within two years. Anglo has been at the top of the list since 1975 and now controls 6.7% of the total value of non-fuel minerals produced in the Western World, whereas Rio Tinto controls 5%.

A copy of Who Owns Who In Mining can be obtained for about US$680 from Roskill Information Services, 2 Clapham Rd., London, U.K. SW9 OJA. Phone: +44 020-7582-5155.

1.Anglo American

2.Rio Tinto

3.Companhia Vale do Rio Doce (CVRD)

4.Broken Hill Proprietary

5.Noril’sk

6.Codelco

7.Freeport-McMoran Copper & Gold

8.Phelps Dodge

9.Noranda

10.Grupo Mexico