"Glenstrata" could flex muscles in iron ore

The $80 billion proposed merger of commodities trader Glencore and Swiss-based miner Xstrata could lead to a fresh round of acquisitions in iron ore, Reuters is reporting today.

Responding to speculation about an upcoming merger, Xstrata confirmed earlier this week that it is in negotiations with Glencore.

The Anglo-Swiss diversified miner said that Glencore had proposed an all-share merger of equals. Glencore, which already owns 34% of Xstrata, said that there was no certainty of an offer being made, but acknowledged that under UK takeover rules, it must make an announcement by no later than March 1 about whether it intends to make a firm offer for Xstrata.

The deal, reports the National Post, would create a combined group worth more than US$79 billion. The merged entity would be the largest thermal coal and zinc producer and the third-largest copper producer on the planet, according to Reuters.

The new mining giant would have operations around the world, including key nickel mining and refining companies in Canada, where Xstrata owns the former Falconbridge nickel company. The combined miner would have a market capitalization of over $100 billion, putting it above Rio Tinto PLC but not quite at the level of Brazilian miner Vale SA and BHP Billiton PLC.

Reuters observes that Xstrata tried to get into iron ore in 2009 by attempting to buy AngloAmerican, but "has been thwarted by a scarcity of major new discoveries and a virtual oligopoly among mining giants Vale, Rio Tinto and BHP Billiton, which have no intention of loosening their grip, say industry players and analysts."

The story also quotes an iron and steel analyst at Macquarie who says "There is no doubt Xstrata would like to do more in iron ore but if they want to be big they have to buy a big player."

Key acquisition targets could include Fortescue Metals, Atlas Iron, BC Iron and Aquila Resources, Reuters reported.

MINING.com posted a number of reactions to the proposed tie-up including an analysis by Canada's Globe and Mail newspaper saying that Anglo American could be the merger's first target:

If I were Cynthia Carroll, CEO of mighty Anglo American, one of the Big Four mining giants, I’d be more than a tad nervous right about now.

In 2009, Xstrata, the Anglo-Swiss mining company that owns Canada’s Falconbridge, offered Anglo a no-premium “merger of equals.” Ms. Carroll, who had spent much of her career at Montreal’s Alcan, politely told Xstrata boss Mick Davis to take a hike. He did, and concentrated on organic growth.

The next lunge at Anglo may not be so easily repelled. – Globe & Mail