Mining industry verging on mega merger
November 22, 2007
Greetings investors!
Personally, I hate to see it when the world’s largest mining companies start making takeover bids for each other.
It’s not a bad thing necessarily, but it shows a ripening bull market, a peak if you will.
Last week I said I wasn’t keen on new or emerging base metals and precious metals producers, because of the economics of that stage in a company’s lifecycle. The biggest gains are made in the early stages of discovery, and during the latter stages of optimizing the company’s presumed operations. It’s when the company begins to get profitable, and enters a period of exponential growth.
In a similar vein, I’m not keen on the big producers such as BHP Billiton Ltd. or Rio Tinto plc, which have had several consecutive quarters of untrammelled growth. I think they’re fully valued.
BHP Billiton wants to acquire London-based Rio for $150 billion. Wow! The bid was nixed earlier this month, but I think the Australian mining giant will keep trying and eventually succeed.
Apparently the takeover would achieve efficiencies by reducing overlapping investments in mines and other assets. It is also said to be a good thing for steel makers.
Not so, according to the steel industry federations in Japan and China, who fear the creation of a mega monopoly on iron ore that would be unfair to the producers.
The two companies control 60 per cent of Japan’s raw materials imports, according to the federation.
Like, whatever. The point is this: Iron ore and steel making are good businesses right now, and going forward! It’s why I’m in favour of iron ore start ups like Northland Resources (NAU.TSX-V) which has an impressive suite of projects in Scandinavia.
One of those is the 100% owned Hannukainen iron-copper-gold project in Finland, where Northland plans to collect a bulk sample for the purpose of metallurgical testing. Metallurgy is one of the final stages of feasibility, and suggests the project is well advanced.
Check them out. The stock is just over $3 Cdn per share!
Kb
The BarkerLetter on November 22nd 2007 in Commodity investing, Iron, Steel
