July 25, 2008

Vale Xstrata tie up - Both poised for lighter takeovers

Reuters reported that global mining majors Vale and Xstrata are likely to focus on smaller takeovers and internal expansion until the dust settles on volatile markets that may have helped torpedo a plan to merge the two firms. Analysts said that both vale and Xstrata will no doubt keep an eye on other possibilities for mega-mergers, but could be wary in the short term after recent lurches in equity, metals and credit markets.

Mr Rogerio Zarpao of Brazilian bank Unibanco said that "Vale has clearly stated when bidding for Xstrata that they want copper and coal, so I guess we can expect isolated acquisitions at a smaller scale for now. They secured USD 50 billion in financing for Xstrata, and it would not be difficult for them to raise a smaller sum very quickly.”

Mr added that "Also, from the second quarter, they will have a lot more firepower with their cash flow reinforced by the recent iron ore and pellets price hike."

Among the possible takeover targets mentioned by analysts were Grupo Mexico's Southern Copper unit, London listed Chilean miner Antofagasta and US based Freeport-McMoRan Copper & Gold as well as coal companies in China and elsewhere in Asia.