China stakes out mining giants
By Greg Hoy
Posted Tue Feb 5, 2008 8:31am AEDT
Updated Tue Feb 5, 2008 8:56am AEDT
With China now building a city the size of Brisbane every month, the red hot world market for steel shows no sign of cooling off [File photo]. (Getty/AFP)
Mining analysts believe Chinese alumina giant Chinalco's lightning raid on Rio Tinto is part of a bigger trend by the Asian nation to snap up a strategic interest in the Australian resource sector.
It is already the big Australian, but if BHP Billiton goes ahead with its plans to take over the world's second biggest mining company, Rio Tinto, the result would be a global colossus.
Already it has become clear that the Chinese Government, in desperate need of raw materials to feed its bursting economy, will fight any push to further concentrate control of Australia's rich mineral resources.
A Chinese delegation was in Sydney on Monday explaining its lightning raid on Rio last Friday with minority partner, Alcoa America.
Meanwhile, on the other side of the country, it was revealed that the Chinese were also in talks with Fortescue Metals over the possible sale of almost 16 per cent of its shares.
The US economy may be faltering, but with China now building a city the size of Brisbane every month and the rapid industrialisation of the likes of Russia and India, the red hot world market for steel shows no sign of cooling off.
The global hunger for this precious metal is rising, as is competition for a slice of the action.
Those companies who mine raw ingredients that variations of steel require, like iron ore, magnetite, nickel and coal, to fire blast furnaces.
Scarce resources
Professor Clive Palmer of Mineralogy Limited says resources in the world are limited.
"There is a finite amount of iron ore, a finite amount of coal. The factor is in China, of course, steel mills," he said.
"They realise it's not just a question of price, it's a question of availability and by investing in Australian resources and Australian resource projects they're able to secure long-term supply at the world price of Australian resources."
DJ Carmichael analyst James Wilson says Australia has some of the largest iron ore resources in the world.
"Between Australia and Brazil it's probably in excess of 90 per cent of the world's resources of iron ore, and thus, it's a very strategic asset to have a significant stake in," he said.
Now the world's biggest mining company, the big Australian, BHP Billiton, is keen to cannibalise the world's second largest miner, Rio Tinto.
Ostensibly we are told to combine infrastructure and better serve its customers.
Former BHP chairman Sir Arvi Parbo says that fundamentally it makes good sense.
Confident
BHP Billiton chief executive officer Marius Kloppers says the company is very confident.
"The pro-customer value proposition that we're making, that is more volumes, more quickly, and the intrinsic nature of the combination that we are exploring here, will give us a very reasonable chance," Mr Kloppers said.
Sir Arvi says there are benefits of scale.
"There is a need for strong financial ability to expand large operations and to bring in new mines," Sir Arvi said.
But around the world, many are anxious about the possibility of an ulterior motive, including Professor Palmer, the magnetite magnate who recently dedicated $300 million of his company's future mining royalties to charity.
"There's strong opposition from the Chinese Government, I think and Chinese enterprises, I think in Australia too, it's not in our interest to consolidate things," Professor Palmer said.
"It's far better to have the competition."
Fat Prophets analyst Gavin Wendt says market power and pricing control is a politically incorrect thing to be talking about from BHP's perspective.
"But, of course in our view it's the major driver of this whole deal," he said.
Pricing power
Mr Wilson says it has a huge effect on pricing power.
"Once you actually control most of the market you can dominate the pricing," he said.
Mr Kloppers says the company believes that the market should work.
"That supply and demand conditions should set prices," he said.
Formidable BHP Billiton (BHPB) chairman, Don Argus, now describes his company as " the big fella".
Already it weighs in as the world's 15th largest corporation and easily the largest miner.
That is before it attempts, should it proceed, to engulf its major rival, Rio Tinto.
Sceptics
The sceptics' fears are two-fold.
First, that BHPB will have trouble with international regulators.
Second, is that so called "big fella" might end up like an overambitious anaconda with a severe case of indigestion.
Mr Wendt says it is not easy to manage a company theoretically of that size.
"We are concerned that historically these mega mergers haven't really generated the returns for shareholders and the value for shareholders that's been promised at the start," he said.
"So we're cautious about the whole prospect, even though on paper it sounds like a good one."
Iron ore is already the nation's biggest commodity earner, with exports this year tipped to top $18 billion.
Market strength
Fortescue Metals Group spokesman Graeme Rowley says all the debate shows the strength of the current market.
"The recent spate of discussions, whether it's BHP and Rio Tinto, whether it's interest from China into Rio, or the like, really just underscores how strong the current marketplace is," he said.
"It's enormously important for us to know that we're in a game now that is full of strong possibilities and growth into the future.
"Clearly with a limited number of suppliers but enormous demand we see a very positive and profitable future ahead."
The epicentre of this boom, the vast Pilbara region of Western Australia, is where BHP Billiton and Rio Tinto now compete in the iron ore market.
In May, they will be joined by a baby boomer, fledgling Fortescue Metals, whose shares are already being targeted by overseas miners and steel mills, as have other junior players across the mining spectrum.
Mr Rowley says they have had discussions with potential interested parties such as steelmakers and financial houses that have an interest in taking a place in what is the success of China.
"The evidence of this strong growth is such that I think everybody at the moment is very keen to get on board," he said.
National interest
In Sydney on Monday, those responsible for the weekend's pre-emptive $15.5 billion share raid on Rio Tinto talked generally of the dangers of consolidation in the mining sector.
Chinalco president Zioa Yaqing said the bid is okay as long as any such activity does not create monopolies and people think it is commonplace.
"No government would want to see monopolies happen," he said.
Federal Treasurer Wayne Swan says he will consider the deal with the national interest in mind.
"I'm the one who actually under the legislation has to take the decision, and if the foreign acquisition and takeovers act is triggered, then I will be taking that decision and taking it on national interest considerations," he said.
"I have no further comment to make about those matters."
Sir Arvi says the Government should pay close attention, as Australia's ride on the back of the mining boom cannot and will not last forever.
"If we didn't have the income from minerals, export income, our economy would be in a much worse shape," he said.
"In fact, it would be in a very poor shape, so you can say that it's vital to Australia at the present time.
"Booms by definition are not there all the time, they come and go. So if and when the demand for minerals does weaken for some reason or another, then, of course, we have a problem."
Tags: business-economics-and-finance, industry, mining, rural, mining, australia, wa, china
Paul Klugman of the New York Times is vastly incorrect. and what is horrifying is that his remarks are wafting about the so-called progressive internet under the auspics of truthout.com.
So here is my tuppence on all that.
We are at the point whereby producing ARMS is the only industry left standing. The war industry is the Cutting Edge.
The reason for the bailout is LIQUIDITY; but liquidity to deliver the vastly expanding new arms production cycle and the new rush to MINING to produce ever more materials to produce ARMAMENTS .. that is why the price of URANIUM is soaring! More nukes, more computer (they call it high tech) generated target systems!! All this started with THATCHER, who killed the entire UK economy under her WAY TOO LONG reign. She was the tool of arms manufacturere and GUN RUNNERS for a very long period of time.
Henry the K was right “in there” then and is right in there NOW (Just came back from Moscow and will soon be in DC this fall pushing the SPP, Security and Prosperity Protocol to CONGress) -- trying to consolidate all the resources of the world for the elite. We are watching (in horror) as the SPP is put into place and ALL of Canada’s and Mexico’s resources are laid at the feet of the US WARMONGERS. No coup d’etat necessary; it is already fait accompli .. these ruling individuals have long known how to bail themselves out.
The war for the Arctic is ON, the nukes are being moved into the Arctic region DAILY.
So’s who telling you this .. certainly not the mainstream, lamestream media . They, the owners of these megoliths, have THEIR dollars riding on more development!! Watch very carefully the ascent of MINING STOCKS .. or miss it if you just care to focus very narrowly on what is happening. The real news is in the mining newsletters these days!!
Below are some quotes from the elites true mouthpiece too, Paul Klugman ... and my responses.
See, that is EXACTLY what they would tell YOU to do .. they would not suggest that halting mining activity would be a good idea if we are all to save our skins, and that is what it is down to now. Ho hum. Let's swarm the indigenous for more of their resources .. and get the governments in there protecting Big Business interests. It's worked for 500 years, hasn't it? You won't see any Big Player praying, they're waiting on their next dividend cheques. Profits are bigger than ever.
The panic for WHO? People who want to keep eating and working in SAFETY have plenty to be panicking about. In a few months try to get a job without an ID . and ID provided by employers! but issued by governments. Sound like fascism to YOU?
Really? Are we not ALL the messiah now? I mean seriously folks, there are OTHER problems besides Bush’s lack of credibility, his ability to morph into a Yale/Harvard MBA notwithstanding .. it’s the fracturization of all opposition to warmongering that is really the problem. We are forced to “attack” from many, many different fronts .. economic, political, social, physical (everything really is falling apart and Big Pharma and the insurance co.’s race for profits makes real health nearly impossible) .. and getting the Big Picture is nearly impossible.
This $130.2 billion dollar bailout is just something that hinders more people grasping what IS going for a bit longer, but the ruling elite has known for a long time. The last BIG BAILOUT was on 9/12/2000 (ring any bells) when $86 billion was pumped into the economy. Ca$h is pretty easy to print, iffen the presses don’t fall apart while its being printed. The Fed Reserve and the ECB have long known THAT.