Flurry of metal deals signals bold outlook – by Brenda Bouw (Globe and Mail – July 12, 2011)

The Globe and Mail is Canada’s national newspaper with the second largest broadsheet circulation in the country. It has enormous impact and influence on Canada’s political and business elite as well as the rest of the country’s print, radio and television media. Brenda Bouw is the Globe’s mining reporter.

Miners bet commodities boom has legs by unveiling a handful of takeovers

A sudden rebound in mining acquisitions signals a return of confidence in the industry after weeks of uncertainty and volatile prices that froze deal activity in the sector.

As commodity prices begin to bounce back from a recent fall, miners are betting once again on strong and steady demand from fast-growing nations such as China, India and Brazil to prevent another severe global economic downturn.

The positive outlook driving these new deals comes despite worries that inflation and debt problems around the world will weigh on the economy and metal prices down the road. Stock markets dropped sharply Monday on renewed concerns about solving Europe’s debt crisis.

The largest deal announced Monday was Peabody Energy and ArcelorMittal SA’s joint $5-billion (U.S.) bid for Australia’s Macarthur Coal Ltd., the world’s biggest producer of pulverized coal, a type of metallurgical coal, amid strong demand forecasts for the steel-making ingredient.

Also, Peregrine Metals Ltd., the Vancouver-based company behind the Altar copper-gold deposit in Argentina, received a friendly $487.1-million takeover offer from Stillwater Mining Co., a Montana-based palladium and platinum company looking to delve deeper into other metals.

“The metals cycle is not over,” said Frank McAllister, Stillwater’s chief executive officer, adding that “we will yet see additional upside in the marketplace.”

There were also a handful of smaller deals in the gold and uranium industries, while giant miner Vale SA said it bowed out of the bidding for Metorex Ltd., which owns copper and cobalt mines in Africa. That leaves China’s Jinchuan Group Co. as the front-runner to acquire the company with its $1.36-billion bid.

The new deals are being generated as commodity prices begin to climb up again. Prices had slipped from record levels reached earlier this year as concerns mount that China, the world’s largest consumer of commodities, will need to take tougher measures to curb growth in order to tame inflation and prevent its economy from overheating.

As a result, many mining stocks have lost value as merger speculation waned. But metal prices started to regain ground in recent days, due in part to labour disruptions at various mines worldwide, including a 24-hour strike at the world’s largest copper producer, Chile’s Codelco. Some investors are also slowly wading back into the market, which is helping to boost prices.

For instance, copper, considered an economic indicator because of its uses in a wide range of sectors, is now trading around $4.35 a pound, after falling to about $4 in May. The metal hit a record $4.62 in February. Nickel, zinc and lead are also up in recent weeks.

The spot price of coal has also levelled off to about $308 a tonne, after reaching $388 in January, around the time flooding halted production at several mines in Australia.

The bid for Macarthur marks further consolidation within the coal sector after Arch Coal bought International Coal Group Inc. for $3.4-billion and Alpha Natural Resources paid $6.6-billion for Massey Energy earlier this year. Walter Energy struck a deal for Canada’s Western Coal Corp. for $3.3-billion late last year.

“It definitely signals that M&A is not over,” said BMO Nesbitt Burns coal analyst Meredith Bandy.

The new coal deal in particular demonstrates the current scarcity for the product, and the goal of steel makers such as ArcelorMittal to secure their own supply. Steel makers are looking to buy more coal to rely less on sales from big players such as BHP Billiton Ltd., Vale and Rio Tinto PLC.

For the rest of this article, please go to the Globe and Mail website: http://www.theglobeandmail.com/report-on-business/industry-news/energy-and-resources/miners-look-for-pay-dirt-in-mergers-acquisitions/article2093198/

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