As introduced a couple of days ago, there are two major buy-out proposals at play in the global mining sector.

(1) Anglo-Australian BHP Billiton has launched a $140 billion hostile takeover bid for Anglo-Australian Rio Tinto PLC.

China has decided to take an active role in this drama. The Aluminum Corp. of China (a.k.a. Chinalco) has partnered with Alcoa Corp. of Pittsburgh to buy a 12% stake in Rio Tinto. It is thought that Alcoa is hoping to eventually acquire the assets of Montréal-based Alcan Aluminum. Alcoa lost out to Rio Tinto in an earlier bid for Alcan.

In the meantime, Rio Tinto/Alcan has committed to major expenditures to expand aluminum production in Québec and British Columbia. The proposed replacement of an out-of-date smelter complex in Kitimat-Kemano B.C. will cost $2 billion and will raise production by 40%, while lowering greenhouse gas emissions also by 40%. A pre-condition for proceeding with this project has been approval (now in place) to sell some of the electricity produced at the site to B.C. Hydro.

Rio Tinto is also proceeding with major iron ore investments in Newfoundland and Labrador. This $500 million expansion project will be carried out by Iron Ore Co. of Canada (59% owned by Rio Tinto) at its Labrador City mining site.

(2) The second major acquisition move in the mining sector involves the $90 billion offered by Brazil’s Companhia Vale do Rio Doce (a.k.a. CVRD or Vale) for Anglo-Swiss Xstrata PLC.

Vale owns plenty of iron ore assets. Therefore, the motivation for its Xstrata bid is to lock up more coal properties. Furthermore, a Vale/Xstrata entity would control nearly a third of world nickel production. Vale owns Canada’s Sudbury-based Inco Ltd., which is undertaking a multi-billion dollar investment at its Voisey’s Bay mine, also located in Labrador. Inco is also well-known for its copper production.

There are recent indications that the Vale/Xstrata merger may have been shelved. Whether this is permanent or just part of a longer dance number remains to be seen.

Alex Carrick

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