Copper prices are up, so that will mean a positive start for the dream team merger twins, Rio Tinto and BHP Billiton, today.
New York Comex copper for July delivery rose 3.75 USc to $US3.604/lb on Friday.
That was 44 USc below the record reached exactly a year ago of $US4.04/lb
Copper prices have risen by around 45 per cent this year on the back of strong demand from China and the re-emergence of hedge funds and other financial players in this highly liquid metal market.
And if you had to pick a reason why some broking analysts were out there trying to get a merger story running between Rio and BHP it’s that surge in copper prices, not the huge iron ore businesses both companies own, that would be to the driver.
There was no sense, rhyme or reason to the merger idea except it seemed good on paper or in a financial model.
The idea came from a Citigroup analyst last week. Yesterday another broking analyst told ABC TV’s Inside Business that BHP Billiton is unlikely to make a move on Rio Tinto.
ABN Amro resources analyst Rob Clifford said he didn’t believe the much-hyped BHP/Rio move would eventuate.
“I think it is an attractive proposition, but no, I think the anti-trust issues, particularly in iron ore, would be very large hurdles to get over,” Mr Clifford said.
But, he said, that doesn’t mean the resources sector won’t stay busy with other mergers and acquisitions. He said miners choosing to diversify their businesses and take advantage of globalisation by expanding their reach meant takeover activity in the sector would not abate.
“There’s still a number of pure plays, particularly in North America, that I think could be consolidated into a diversified play,” he said.
He said the prospect of more sector consolidation will also be boosted by the cash balances of the larger diversified miners after taking advantage of record commodity prices, and increased confidence in the price of resources going forward.
Xstrata is still on the prowl but despite being mentioned as a possible suitor for Rio, it doesn’t have the financial firepower.
It now has to decide whether it ups its bid for Australian-Canadian nickel producer, LionOre.
LionOre Mining International has dropped the bid from Xstrata in favour of the $5.8 billion takeover by Norilsk Nickel of Russia.
LionOre said the $C21.50 offered for each of its shares from Norilsk was superior to the $C18.50-a-share bid from Swiss-based Xstrata.
“The board has determined that the Norilsk Nickel off constitutes a ‘superior proposal’ for purposes of the support agreement and has notified Xstrata of its determination,” LionOre said in a statement to the ASX last week.
The Norilsk bid is valued at about $C5.3 billion ($A5.8 billion).
Xstrata is likely to come back with a higher offer: It is already a world class major in nickel with its Falconbridge takeover in Canada last year.
Xstrata lost Western Mining Resources to BHP Billiton which topped Xstrata in 2005 with a $9.2 billion bid for WMC’s assets, which include the Olympic Dam copper-uranium mine in South Australia.
Over the past year Xstrata has spent around $25 billion acquiring Canadian nickel producer Falconbridge, Gloucester Coal in Australia and the Tintaya copper mine in Peru from BHP Billiton.
LionOre has operations in Australia and Africa and has forecast an annual production of up to 40,000 tonnes of nickel in 2007.
It’s listed here and in Canada and is Australia’s third largest nickel producer behind BHP Billiton and Minara Resources Ltd.
Norilsk established a beachhead in Australia in March with the half a billion dollar acquisition of American metal group, OM Group.
That deal delivered it the Cawse mine near Kalgoorlie and a 20 per cent stake in LionOre subsidiary MPI Mines, which operates the Black Swan nickel mine and owns the Honeymoon Well project, also in Western Australia.
The Xstrata bid closes on May 25 while the Norilsk offer closes on June 18.
……………………………..
New York gold rose $US5.30 to $US672.30 an ounce on the Comex on Friday, bouncing from the lowest point in a month.
It fell more than 2.3 per cent on Thursday and then recovered Friday. But it still fell 2.5 per cent last week.
July silver rose 16.5 USc to $US13.305 an ounce. The price fell 1.6 per cent last week for the fourth straight week in a row, the longest slide since August 2005. The metal is up 2.9 per cent this year.
