August 22, 2008

Citigroup sees CAD 300 billion for mining M&A in 2008

Citigroup metals and mining analysts recently suggested that a potential cash pool of more than CAD 300 billion is available for mining M&As in 2008.

Citigroup predicted that among the top large cap global companies, which will acquire other mining companies, are Xstrata, Teck Cominco, Oxiana, Newcrest, Vale and Kazakhmys. Other possible acquisition oriented companies include Peter Hambro Mining, Peabody Energy, CONSOL Energy and Sally Malay China Shenhua.

Swiss based mega miner Xstrata was also identified by the analysts as a top acquisition target, as well as Anglo American, First Quantum, Freeport McMoRan Copper & Gold, NovaGold, Steel Dynamics and Foundation Coal. Other potential acquisition targets identified by Citigroup are Lonmin, Iluka, Alumina, Equigold and Oxiana.

Citigroup's analysis found that the next generation of copper mines will incur development costs of roughly CAD 3.50 to CAD 4 per pound capacity. Meanwhile, Citigroup warned that the scarcity of quality undeveloped copper project should not be underestimated, particularly after the slew of recent transactions by acquisitive majors and strategic Asian buyers.

Citigroup said that they believe that acquisition oriented top miners are looking mainly for a mix of commodity and or geographical diversification, as well as assets that could increase production growth. The target companies are generally worth at least CAD 10 billion, which makes them generally a company transforming deal. However, there is a scarcity of stocks in this territory, which highlights the likelihood of strong competition in any deal.

The analysts noted that several recent mining M&A deals have been focused on generating mining companies' exposure to new geographies, such as India, Russia, Central and West Africa and Kazakhstan, which offer significant resource potential.