Best of the Week
Most Popular
1. TESLA! Cathy Wood ARK Funds Bubble BURSTS! - 12th May 21
2.Stock Market Entering Early Summer Correction Trend Forecast - 10th May 21
3.GOLD GDX, HUI Stocks - Will Paradise Turn into a Dystopia? - 11th May 21
4.Crypto Bubble Bursts! Nicehash Suspends Coinbase Withdrawals, Bitcoin, Ethereum Bear Market Begins - 16th May 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.Cathy Wood Ark Invest Funds Bubble BURSTS! ARKK, ARKG, Tesla Entering Severe Bear Market - 13th May 21
7.Stock Market - Should You Be In Cash Right Now? - 17th May 21
8.Gold to Benefit from Mounting US Debt Pile - 14th May 21
9.Coronavius Covid-19 in Italy in August 2019! - 13th May 21
10.How to Invest in HIGH RISK Tech Stocks for 2021 and Beyond - Part 2 of 2 - 18th May 21
Last 7 days
Overclockers UK Custom Built PC 1 YEAR Use Review Verdict - Does it Still Work? - 16th Oct 21
Altonville Mine Tours Maze at Alton Towers Scarefest 2021 - 16th Oct 21
How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
The Only way to Crush Inflation (not stocks) - 14th Oct 21
Why "Losses Are the Norm" in the Stock Market - 14th Oct 21
Sub Species Castle Maze at Alton Towers Scarefest 2021 - 14th Oct 21
Which Wallet is Best for Storing NFTs? - 14th Oct 21
Ailing UK Pound Has Global Effects - 14th Oct 21
How to Get 6 Years Life Out of Your Overclocked PC System, Optimum GPU, CPU and MB Performance - 13th Oct 21
The Demand Shock of 2022 - 12th Oct 21
4 Reasons Why NFTs Could Be The Future - 12th Oct 21
Crimex Silver: Murder Most Foul - 12th Oct 21
Bitcoin Rockets In Preparation For Liftoff To $100,000 - 12th Oct 21
INTEL Tech Stock to the MOON! INTC 2000 vs 2021 Market Bubble WARNING - 11th Oct 21
AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
Stock Market Wall of Worry Meets NFPs - 11th Oct 21
Stock Market Intermediate Correction Continues - 11th Oct 21
China / US Stock Markets Divergence - 10th Oct 21
Can US Save Taiwan From China? Taiwan Strait Naval Battle - PLA vs 7th Fleet War Game Simulation - 10th Oct 21
Gold Price Outlook: The Inflation Chasm Between Europe and the US - 10th Oct 21
US Real Estate ETFs React To Rising Housing Market Mortgage Interest Rates - 10th Oct 21
US China War over Taiwan Simulation 2021, Invasion Forecast - Who Will Win? - 9th Oct 21
When Will the Fed Taper? - 9th Oct 21
Dancing with Ghouls and Ghosts at Alton Towers Scarefest 2021 - 9th Oct 21
Stock Market FOMO Going into Crash Season - 8th Oct 21
Scan Computers - Custom Build PC 6 Months Later, Reliability, Issues, Quality of Tech Support Review - 8th Oct 21
Gold and Silver: Your Financial Main Battle Tanks - 8th Oct 21
How to handle the “Twin Crises” Evergrande and Debt Ceiling Threatening Stocks - 8th Oct 21
Why a Peak in US Home Prices May Be Approaching - 8th Oct 21
Alton Towers Scarefest is BACK! Post Pandemic Frights Begin, What it's Like to Enter Scarefest 2021 - 8th Oct 21
AJ Bell vs II Interactive Investor - Which Platform is Best for Buying US FAANG Stocks UK Investing - 7th Oct 21
Gold: Evergrande Investors' Savior - 7th Oct 21
Here's What Really Sets Interest Rates (Not Central Banks) - 7th Oct 21
CISCO 2020 Dot com Bubble Stock vs 2021 Bubble Tech Stocks Warning Analysis - 6th Oct 21
Precious Metals Complex Searching for a Bottom - 6th Oct 21
FB, AMZN, NFLX, GOOG, AAPL and FANG+ '5 Waves' Speaks Volumes - 6th Oct 21
Budgies Flying Ability 10 Weeks After wings Clipped, Flight Feathers Cut Grow Back - 6th Oct 21
Why Silver Price Could Crash by 20%! - 5th Oct 21
Will China's Crackdown Send Bitcoin's Price Tumbling? - 5th Oct 21
Natural Gas News: Europe Lacks Supply, So It Turns to Asia - 5th Oct 21
Stock Market Correction: One More Spark to Light the Fire? - 5th Oct 21
Fractal Design Meshify S2, Best PC Case Review, Build Quality, Airflow etc. - 5th Oct 21
Chasing Value with Five More Biotech Stocks for the Long-run - 4th Oct 21
Gold’s Century - While stocks dominated headlines, gold quietly performed - 4th Oct 21
NASDAQ Stock Market Head-n-Shoulders Warns Of Market Weakness – Critical Topping Pattern - 4th Oct 21
US Dollar on plan, attended by the Gold/Silver ratio - 4th Oct 21
Aptorum Group - APM - High RIsk Biotech Stocks Buy, Sell, Hold Investing Analysis for the Long-run - 3rd Oct 21
US Close to Hitting the Debt Ceiling: Gold Doesn’t Care - 3rd Oct 21
Powell: Inflation Might Not Be Transitory, After All - 3rd Oct 21
Original Oculus VR HeadSet Rift Dev Kit v1 Before Facebook Bought Oculus - 3rd Oct 21
Microsoft Stock Valuation 2021 vs 2000 Bubble - Buy Sell or Hold Invest Analysis - 1st Oct 21
How to profit off the Acquisition spree in Fintech Stocks - 1st Oct 21
�� Halloween 2021 TESCO Shopping Before the Next Big Panic Buying! �� - 1st Oct 2
The Guide to Building a Design Portfolio Online - 1st Oct 21
BioDelivery Sciences International - BDSI - High RIsk Biotech Stocks Buy, Sell, Hold Investing Analysis for the Long-run - 30th Sep 21
America’s Revolving-Door Politics Behind the Fall of US-Sino Ties - 30th Sep 21
Dovish to Hawkish Fed: Sounds Bearish for Gold - 30th Sep 21
Stock Market Gauntlet to the Fed - 30th Sep 21
Should you include ESG investments in your portfolio? - 30th Sep 21
Takeda - TAK - High RIsk Biotech Stocks Buy, Sell, Hold Investing Analysis for the Long-run - 29th Sep 21
Stock Market Wishing Away Inflation - 29th Sep 21
Why Workers Are NOT Returning to Work as Lockdown's End - Wage Slaves Rebellion - 29th Sep 21
UK Fuel PANIC! Fighting at the Petrol Pumps! As Lemmings Create a New Crisis - 29th Sep 21
Gold Could See Tapering as Soon as November! - 29th Sep 21

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Mining Merger Mania : Say it Three Times Fast

Commodities / Metals & Mining May 09, 2007 - 07:38 PM GMT

By: Michael_K_Dawson

Commodities I was shocked last week when I read a report from Merrill Lynch stating that BHP Billiton could possibly be a target of a private equity bid. BHP Billiton is the largest mining company in the world. I have always envisioned it as the acquirer not the acquiree. However, with so much money at stake - anything is possible.

According to Forbes , “China is moving at a pace that amounts to building a city the size of Houston every month. There are more sky cranes in the city of Shanghai alone than in the rest of the world. They are pouring a lot of concrete, stringing a lot of wire, plumbing a lot of pipe and pounding a lot of nails.” China is not alone in its thirst for industrialization. “India's year-on-year growth rate could well hit double figures at some point in 2007, and the country may even grow faster than China for at least one quarter,” per the Economist. In BHP's most recent half-year report, it reported revenue of $22 billion an increase of 22% over 2006. Supplying resources to the emerging markets is clearly a high-stakes game.

In my previous life, I worked for a software company. When a sale was completed, the customer was given a security code and access to our ftp site. The customer would download the software and live happily ever after. The numbers of sales were immaterial from a supply perspective.

It doesn't quite work that way in the mining world. Doug Casey sums it up quite nicely, “cranking up supply in the short term is usually impossible; the process of prospecting, exploring and developing a mine takes many years, sometimes decades. The scale of most base metal mines is huge—they take an enormous amount of financing, require endless environmental permissions and need extensive infrastructure. These factors make it very difficult to balance supply with demand in the short term (meaning, up to a few years), creating frequent cycles of price increases when supplies tighten, followed by corrections when new supplies come online.” 

Therein is the crux of the matter. The demand by China, India and others is simply outstripping demand and supply can't come on-line fast enough. This is especially evident in the case of Nickel. 

“We are confident that global demand for nickel will continue to grow strongly …. In the circumstances, when a number of sizable projects in the industry are delayed, we do not see enough supply to cover the expected demand,” said Dmitry Usanov of the world's largest Nickel producer, Norilsk Nickel. 

These dynamics motivated Xstrata on March 26 to launch a bid to acquire Canadian based Nickel producer Lion Ore Mining. However, Xstrata left the door open for competing bids by only offering a 5.8% premium over the closing price. 

Norilsk stepped up and delivered a superior offer on Monday – topping Xstrata's bid by 16%. More than likely this is far from over. Last year Nickel producers Falconbridge and Inco had four companies clamoring over them. 

Mondays aren't called Merger Monday for no reason. Alcoa, the world's second largest aluminum producer, rocked the mining world with its hostile bid to acquire its Canadian rival Alcan for $27 billion. Its cash and stock bid offer represented a 32% premium. This surprised many since Alcoa has been rumored as a take over target and has been selling off underperforming units to make itself more attractive. 

Once again this is in the early innings. Alcan closed higher than the offer price signifying that investors believe that a better bid is in the making. There is so much liquidity around that most of the big mining companies are being seen as possible suitors. BHP Billiton and Rio Tinto were reportedly eying Alcan last year. 

This brings us full circle to BHP Billiton the hunter being the hunted. In Casey's analysis of the supply and demand, he highlighted the cyclicality of the mining business. Historically, private equity has avoided cyclical businesses. In the Merrill Lynch note authored by Vicky Binns and Duncan Hay, it stated, “We are believers in the 'super cycle' and expect commodity prices to stay above historic averages for years to come." 

The day a private equity firm buys a mining company will signify to me that we are in phase two of a bull market in mining stocks. Bull markets run in three phases. Phase one is when smart money accumulates their positions. Anyone who has been buying mining stocks since 2001 could be considered – smart money. Phase two is when the institutional money such as private equity starts buying. Phase three is John Q. Public. 

Once we enter phase two, the computer goes off and I am going fishing. Each day I will hire a taxi to take me to my favorite fishing hole. When the taxi driver starts talking about mining stocks - I will know that we are in phase three and it is time to sell.


Since anyone and everyone is a target, the best strategy is to buy a basket containing a mix of large, mid and small cap mining companies. My Big Build-Out (BBO) basket is a great example. After your basket is in place, sit back and enjoy the fireworks. I suspected that there would be several mergers and acquisitions over the years, but not to this extent. The BBO is up over 25% this year. 

By Michael K Dawson

Copyright © 2007 Michael K Dawson
Michael K Dawson founded the Time and Money Group with the aim of educating and sharing 20 years of experience on how to reach financial freedom. "Financial Freedom is freedom to focus on what is truly important to you and your family without having to trade time for a wage. It is enabled by a portfolio of income producing assets, managed by you, which generates sufficient income to cover your yearly expenses on an ongoing basis. It provides both time and money". The intent of his website is to become a repository of information to put you on the fast track to becoming financially free. For further infromation visit

© 2005-2019 - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.

Post Comment

Only logged in users are allowed to post comments. Register/ Log in