Bloomberg reported that Standard Chartered Plc as saying that Mining chief executives gun shy from the global financial crisis may favor small to medium takeovers to expand production rather than building their own mines that take years to develop.

Mr Jeremy Gray Standard Chartered’s global head of equity research for resources said that the only option they have in M&A is to do the USD 5 billion to USD 10 billion deals maybe even less. That’s the beauty of M&A, you’re locking in cash flow and you don’t have to deal with long dated projects.

Mr Gray said that the collapse of BHP Billiton Limited’s USD 66 billion bid for Rio Tinto Group and Vale SA’s USD 90 billion offer for Xstrata Plc has discouraged mining companies from mounting similar sized deals.

Mr Gray said that companies very quickly realized those became long drawn out deals that just didn’t work because shareholders of all these different groups on each side thought so highly of their companies they never did the deal.

He said that mergers and acquisitions have proven to be a faster and almost a cheaper route to building new mines. The cost of building a copper mine has more than doubled over the past 5 years. Almost USD 200 billion worth of projects were postponed or canceled after the collapse of Bearn Stearns Cos and the global financial crisis in 2008 crimping mine supply.

Mr Gray said that mining company chiefs are too gun shy to go back out and promise new projects. The lack of new supply will produce a massive move in the prices of iron ore, coal and copper over the next two years.

Copper may rise to USD 12,000per tonne in the next 2 years as none of the seven largest producers will bring on any new production next year or 2012.


(Sourced from Bloomberg)