Glencore, Rio Speed Partner Deals After Stock Declines
Glencore International Plc and Rio Tinto Group are among miners buying out companies in which they own stakes during the downturn in equity markets. Katanga Mining Ltd. (KAT) and Extract Resources Ltd. may be the next targets, said Liberum Capital Ltd. and Ord Minnett Ltd.
Mining companies have spent $15 billion this year boosting their stakes in companies, with this quarter the strongest for deals in the last four, according to data compiled by Bloomberg. In the midst of a four-week global equity rout that wiped about $8 trillion of market value, Rio and Mitsubishi Corp. (8058) today raised their bid for Coal & Allied Industries Ltd. to A$1.53 billion ($1.6 billion) after Glencore offered to buy Minara Resources Ltd. (MRE) on Aug. 24.
“Those companies that have cash on their balance sheet and have that strength are taking advantage of this market volatility,” BlackRock Inc.’s Catherine Raw, who helps manage the $17 billion World Mining Fund, told Andrea Catherwood on Bloomberg Television’s “Last Word” program, citing Rio’s offer for Coal & Allied.
Glencore, the world’s largest publicly traded commodity trader, will buy more assets, Chief Executive Officer Ivan Glasenberg said yesterday. This week he offered A$270 million in cash to buy the shares in Australian nickel producer Minara Glencore doesn’t already own. The offer was made after Minara plunged 34 percent from its January peak this year of 97 cents.
The Baar, Switzerland-based company also owns 39.6 percent of Century Aluminum Co. (CENX) after buying 503,343 shares this month, according to data compiled by Bloomberg. It also holds a 74 percent stake in Katanga Mining Ltd., through its company Jangleglade Ltd., and 34.4 percent of Xstrata Plc. (XTA) Katanga is down 37 percent from its peak of C$2.17 ($2.19) in April.
“Within the existing portfolio the obvious name to replicate the Minara transaction is Katanga,” Dominic O’Kane, a London-based mining analyst at Liberum, said by phone. “They own 74 percent and in time we believe there would be an obvious strategic desire to take outright ownership.” A call to the office of Bermuda-based Katanga’s Chief Executive Officer John Ross was unanswered. Glencore spokesman Simon Buerk declined to comment.
Glencore’s stake in Xstrata “is probably a longer-term play, but it will have to be resolved one day,” Peter Arden, a senior research analyst at Ord Minnett, said from Melbourne. Extract Resources Ltd. (EXT), aiming to develop the world’s third- largest uranium mine, may also be a target for Rio, he said. It’s down 25 percent from its March high. Extract Chief Executive Officer Jonathan Leslie didn’t immediately return calls to his London office.
Glencore is weighing a bid for Optimum Coal Holdings (OPT) Ltd., the Financial Times said yesterday, citing unnamed executives. Optimum Coal is valued at about $1 billion and Glencore’s share of deal could be $700 million, the newspaper said. Glencore’s Buerk declined to comment when contacted by Bloomberg News. Optimum Coal is South Africa’s fourth-largest exporter of coal used in power stations.
The plunge in equities has wiped 20 percent off the value of mining companies, creating a buying opportunity for the bigger producers holding cash who are optimistic about demand for commodities in the years ahead. The six-biggest miners will have $144 billion in cash by the end of 2013 and demand for metals will remain strong, Standard Chartered Plc said this month.
“There’s no doubt the pullback in the equity markets and the continuing escalation in capital costs is firmly balancing that equation in favor of buy versus build,” said James Bruce, who helps manage $3.5 billion at Perpetual Ltd., including Minara and Coal & Allied shares, in Sydney. Ivanhoe Mines Ltd. may be a target, he said.
London-based Rio this week said it paid C$529.5 million to increase its holding to 48.5 percent in Ivanhoe, which is developing the Oyu Tolgoi copper project in Mongolia. It can lift that to 49 percent by Jan. 18, 2012. The first stage of the project is budgeted at $4.5 billion, Ivanhoe said this month. It’s trading 31 percent below its February high.
Ivanhoe doesn’t comment on market speculation, the company said in an e-mailed statement. Bruce Tobin, a Melbourne-based spokesman for Rio, wasn’t available for comment.
Australian coal producers, New Hope Corp. Ltd. which is 60 percent owned by Washington H. Soul Pattinson & Co., and Gloucester Coal Ltd. (GCL), in which Noble Group Ltd. (NOBL) holds a 63 percent stake, may be targets, according to Patersons Securities Ltd. New Hope chairman Robert Millner, who also chairs Washington H. Soul Pattinson & Co., declined to comment.
“There may be more deals like this because it’s less risky to mop up minorities,” Andrew Harrington, a resources analyst at Patersons in Sydney, said by phone.
Brad Smolar, of Smolar Ltd., an outside spokesman for Noble Group Ltd., couldn’t be reached on his mobile phone.
Rio has a preference for small to medium-sized acquisitions and developing its own projects, Chief Executive Officer Tom Albanese said in May. He lifted Rio’s stake in Extract Resources to 14.2 percent in February.
Rio and partner Mitsubishi, which own stakes of 75.7 percent and 10.2 percent respectively in Coal & Allied, made an initial offer this month at a 34 percent premium, valuing the target at A$10.6 billion. They raised it today by 2.5 percent, winning acceptance from Coal & Allied’s board. The offer came after a 30 percent slump in Coal & Allied’s share price from a January high.
Northern Dynasty Minerals Ltd. (NDM), developing the Pebble copper mine in Alaska, may also be a target for Rio, Royal Bank of Scotland Group Plc said in May. Pebble may be the world’s largest undeveloped copper deposit, RBS said. Rio owns 19 percent through its affiliate QIT-Fer Et Titane Inc.