Editorial: Rio Tinto bets heavily on aluminum with Alcan offer

There hasn’t been the slightest slowdown this summer in mergers-and-acquisitions activity, with the week ended July 14, the 28th trading week of 2007, punctuated by the largest takeover in global mining history and the largest takeover in Canadian corporate history.

* On July 11, Britain’s Rio Tinto tabled its all-cash, US$101-per-share offer for Canada’s largest metals company, Alcan, valuing the latter at US$38 billion and blowing away Alcoa’s cash-and-scrip hostile offer for Alcan by about 33%. Like most, we’d been expecting at least one rival to Alcoa to emerge, but were somewhat taken aback by the huge premium offered by the traditionally very disciplined and cautious Rio Tinto. This latest offer has caused Alcoa to quickly withdraw and, at presstime, has silenced other potential bidders such as CVRD or BHP Billiton.

Alcan’s management, led by chairman Yves Fortier and president and CEO Dick Evans, deserve tremendous praise from Alcan shareholders for starting from scratch and negotiating such a generous deal only two months after Alcoa forced Alcan’s hand with its hostile bid. The deal is a great one for most of Alcan’s employees in Canada, for whom it should pretty much be business as usual going forward, as Rio Tinto is pledging to consolidate its global aluminum business in Montreal under the banner “Rio Tinto Alcan” and push ahead with Alcan’s ambitious growth plans in Quebec and British Columbia.

Additionally, Alcan employees may find career opportunities opening up elsewhere around the world within Rio Tinto’s excellent organization, or even just within Canada as the Montreal office becomes the new hub for Rio Tinto’s existing Canadian mining operations, which include the Diavik diamond mine in the Northwest Territories, the Iron Ore Company of Canada’s assets in Labrador and Quebec, and the QIT-Fer et Titane titanium dioxide mine in Quebec. Alcan’s francophone employees, in particular, may find challenging new managerial jobs in Rio Tinto’s growing but understaffed operations in French-speaking Africa.

For those Canadians who are a little too sentimental about selling their Alcan shares to foreigners, please, no nationalist whining; Simply take your juicy profits and plow them back into Rio Tinto stock, which should begin trading in Canada next year.

* If you think Turkey is ready to join the European Union, have a look at how they treat Western miners there. On July 11, Eldorado Gold’s management woke up and smelled the Turkish coffee, getting blindsided by a court injunction forcing the company to shut down within 30 days its large, year-old Kisladag open-pit gold mine in western Turkey. The local anti-mining group that forced this latest injunction had unsuccessfully challenged Eldorado’s environmental impact assessment in court last year, but, with mining permit in hand and mining under way, Eldorado had mistakenly thought that that was the end of it.

In the ensuing conference call, Eldorado’s head honchos were bewildered and testy, but ultimately confident the company would win its day in court once government workers get back to the office after taking August off as a holiday.

Kisladag could become Turkey’s largest gold mine if it’s ever allowed to reach its full capacity of 240,000 oz. gold annually. The production forecast for this year had been 190,000 oz. gold until this latest setback.

This is by no means a first: In August 2004, Newmont Mining was forced by a court order to shut down its Ovacik gold mine, in Turkey’s Izmir province, in order to complete additional permitting and EIA work. Newmont voted with its feet, selling the mine a year later to a Turkish company.

* In B.C., a coroner’s jury studying last year’s freak deaths at Teck Cominco’s closed Sullivan mine ruled that the deaths by anoxia were accidental, and handed down 16 recommendations, including that B.C. ambulances be equipped with oxygen sensors, and emergency dispatch centres be better soundproofed so dispatchers can hear callers more clearly. Last year, over a couple of days, water sampler Doug Erickson, Teck Cominco worker Bob Newcombe and paramedics Kim Weitzel and Shawn Currier died one by one as they entered an innocent-looking but oxygen-deprived water-monitoring shed at the old Kimberley mine site.

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