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Mining Investing: Do the mergers mean it’s time to cash out?

Posted February 4, 2008

"It’s not surprising that China wants to break-up the Rio / BHP party. After all, these two together would control 35% of the iron ore market. That would be very bad news for a country that needs plenty of iron ore for its infrastructure needs. So what’s next?" — John Stepek

by John Stepek, Money Week

Baltimore and London – (TFN):  It’s all getting exciting on stock markets again.

Companies with cash, rather than indebted private equity giants, are looking to buy. Microsoft’s bid for Yahoo was one big weekend headline grabber. But of more interest, is China’s move on Rio Tinto.

It’s not surprising that China wants to break-up the Rio / BHP party. After all, these two together would control 35% of the iron ore market. That would be very bad news for a country that needs plenty of iron ore for its infrastructure needs.

So what’s next?

On Friday morning, Chinese state-owned miner Chinalco teamed up with US miner Alcoa to buy 12% of Rio Tinto’s UK-listed shares (that’s 9% of its overall value as it’s listed in Australia, as well). Meanwhile, Brazilian miner Vale is looking at buying Xstrata.

The rush of M&A in the mining sector is unsurprising. The companies in question have plenty of money (unlike their counterparts in the financial sector) and because of rising mining costs, in many ways it looks cheaper to buy rivals than to invest in developing new mines. Read on to learn if you should take profits on miners or let them ride through the merger madness.

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Posted by John Stepek · Filed Under Gold and Resources 

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