Guardian.co.uk: Xstrata looks at Congo, aluminum, iron ore
If you are not fish food, you are a shark. The question of consolidation in the mining industry is coming to a head. It could be that before too long we are going to end up with the survivors of the industry, and that will include an independent Xstrata.
Xstrata is a brilliant story of a company coming from nowhere and leveraging into a bloody huge company with an excellent set of assets. The management has kept the company independent, kept it a shark rather than letting it become fish food. The question is, what now? Management says that if Xstrata is going to stay independent it is going to grow, and it has stated that Xstrata is going to buy into markets where it does not have a footprint.
I, however, do not see how they can get into the iron ore game in the way that they want to. MMX in Brazil went to Anglo. African assets present a set of risks that the South African management of Xstrata understands only too well. Xstrata does not buy juniors for the most part. They want operating assets, and it’s damn hard to find them. I do not see them paying the price for a stake in Fortescue.
So in my mind, they are going to be faced with buying and developing risky African assets, or just going for gold and bidding for Anglo. Yes, Anglo would give Xstrata what they want: iron ore, more copper, and a decent portfolio of projects. It is not such a bad idea, and I think they could get it with a 1/2 cash, 1/2 paper bid. That puts $40 billion of leverage on Xstrata’s books, but I think they can handle it just fine.
Xstrata has proven to have guts and brains. And frankly, Anglo is worth more with a clean slate of management where the 28 layers of middle management have been cut out. Xstrata has to follow the lead of Mittal and go after the real fish. They have the size to do so. They can buy off the old family with De Beers and a few other crumbs.
What does Anglo do to counter this? They consolidate Anglo Platinum and direct that company with better focus and market control. They focus on the markets where they have strength and build more in those areas, and they go out and continue to buy assets and they stop trying to buy back shares. Buying back shares just makes them weaker as they have a smaller registry to take over. In fact the Anglo share buy-backs do the same thing as if an arb bought the shares and put them into the hands of someone who wants to take over Anglo.
If Xstrata has not lost its nerve, it is going to have to take the next step and buy Anglo, creating a real force.
