Simmering below the surface, metals await next merger eruption

Nov 19, 2004 | 07:09 AM | Josephine Mason

Skyrocketing base metals prices are filling the war chests of the world's largest miners and metals producers this year, but there is little evidence to suggest they are ready to embark on any kind of large acquisition strategy that would transform the landscape of the market.

Base metals prices have rallied to multiyear highs in the past 12 months, but there has been a dearth of major merger and acquisition activity. However, as base metals prices approach their cyclical peaks, the market already has begun to speculate about what form the next wave of consolidation might take.

The metal giants so far have preferred to invest their earnings in expanding existing projects, paying down debt or implementing share-buyback programs. Anglo-Australian mining titan BHP Billiton, for example, announced such a plan--to the tune of $2.5 billion--in October.

The reluctance of companies to hit the acquisition trail in this business climate isn't so strange, however, given that they likely would have to pay top dollar at present. Companies traditionally wait for a downturn to acquire assets at a lower cost.

Rio Tinto, the other Anglo-Australian mining giant, is considered the most resistant to any large acquisitions, and Leigh Clifford, the company's chief executive officer, suggested as much earlier this year. "The end of the summer is not always the time to buy a straw hat," he said.

With burgeoning deficits in most base metals markets, producers have instead begun ramping up investments in greenfield and brownfield projects to take advantage of higher prices.....