Mining Industry Consolidation Driven by China's Industrial Growth

The mining industry has witnessed a period of rapid consolidation, with several major transactions in the works. The catalyst behind this trend is China's booming industrial growth, driving up demand and prices for copper and other metals. Copper prices have tripled in the past three years, with the metal selling for roughly five times its 2003 price. This surge in prices has prompted mining companies to seek consolidation, aiming to acquire valuable resources to remain competitive.

Key Takeaways:

• Teck Cominco and Swiss-based Xstrata are engaged in a bidding war for Inco Ltd.
• Phelps Dodge proposed a three-way merger with Inco and Falconbridge to form a North American mining powerhouse, but it failed.
• Brazilian mining company CVRD has also expressed interest in acquiring Inco.
• The US-based Phelps Dodge is rumored to be an acquisition target, with Grupo Mexico exploring the possibility.
• Falconbridge's board has recommended its shareholders accept the Xstrata offer, making it the only transaction that appears to be a done deal.
• Industry experts, including Peter Schiff and Frank Holmes, believe that the consolidation will continue as long as metals prices remain high.
• Gerald Dickey, a spokesman for the United Steelworkers (USW), notes that consolidation in the steel industry in the 1990s was beneficial for the industry and may have similar effects on the mining industry.

Statistics:

• Copper prices have tripled in the past three years, with the metal selling for roughly five times its 2003 price.
• Phelps Dodge stock increased by 4% on Thursday, driven by market speculation about a possible acquisition.
• $5 billion is the size of the US Global Investors fund led by Frank Holmes.
• 1990s saw consolidation in the steel industry, which resulted in healthier companies with good pricing, contracts, pay, and benefits.

Sources:

• Reuters
• Peter Schiff, president of broker-dealer Euro Pacific Capital
• Frank Holmes, chief executive of US Global Investors
• Gerald Dickey, spokesman for the United Steelworkers (USW)
• Phelps Dodge
• Inco Ltd.
• Xstrata
• CVRD
• Grupo Mexico
• United Steelworkers (USW)