KEY POINTS:
The mining industry could top last year's record number of mergers and acquisitions with more than US$250 billion ($325 billion) worth of takeovers this year as demand from Asia inspires an unprecedented land-grab in the sector.
Michael Lynch-Bell, head of the metals and mining team at Ernst & Young (E&Y), the accountancy firm, predicted that there could be at least three US$50 billion-plus transactions done this year.
The forecast comes just days before BHP Billiton is expected to submit its first round of responses to European Commission antitrust inquiries into its proposed US$145 billion bid for Rio Tinto. That deal would be the largest in the industry's history and would forge its first super-major. It is a situation that sector majors are watching closely.
Speculation of other tie-ups are rampant. Lynch Bell said: "The appetite for further transactions is strong and the sector is cash-rich. Concerns about resource security are inspiring new acquirers, and the credit crunch is providing new challenges for developing mining companies - 2008 will be the year that defines the hunters and the hunted."
Behind the tussles is China, which shows no sign of slowing its industrialisation drive, leading to seemingly insatiable demand for a range of commodities. The country's ability to so far sail through the credit crunch has redoubled belief throughout the mining industry that it is in the midst of a "super-cycle", representing a break from its tumultuous boom-bust past. Confidence is high - last year the industry did 903 deals worth a combined US$211 billion.
E&Y believes this year could prove even more prolific, not least because lenders who have shunned many other industries still seem quite willing to open their wallets for miners. The sector attracted the majority of debt raised through the second half of last year.
The report was based on interviews with executives at the world's top 40 mining companies, most of whom said that they plan to grow via acquisition within the next two years. Forty per cent said they would rely on acquisitions as their sole mode of growth.
Last week rumours surfaced that Xstrata could be eyeing a takeover of Alcoa, the aluminium giant, a move that Credit Suisse said would provide "an ideal opportunity for Xstrata to buy an out-of-favour stock in a commodity that has still yet to show its true potential".
- INDEPENDENT
