BHP Billiton could find rivals in its backyard with nickel at these prices......writes Ian Howarth of Financial Review.........Monday 2nd May.2005
BHP Billiton's aggressive bid for WMC Resources has been portrayed as a hedge against future uranium demand, with the undisputed importance of the massive Olympic Dam copper-uranium mine commanding headlines.
But the factor that makes the $7.85 a share takeover, valuing WMC Resources at $9.2 billion, such a short term winner is the nickel price of US$7.35 a pound.
With nickel at a multi-year high and Chinese demand showing no signs of easing, the worlds largest miners believe prices will remain high for several years at least.
It's the view of echoed by Scott Hand, CEO of Inco, the world's second largest nickel miner, which has made no secret of its desire to dethrone Russia's Norlisk Nickel as the world's biggest producer. It's also no secret the Canadian company took a hard look at WMC before BHP Billiton trumped Xstrata's hostile bid.
Mr. Hand, in Melbourne last week to address a mining club lunch, told The Australian Financial Review .... Inco was interested in participating in the Australian nickel industry but emphasised it would initiate only friendly joint ventures or mergers. Inco has formed an alliance with Heron Resources, snaring 10.5% stake in the company and a possible 60% interest in its proposed $1.4 billion Kalgoorlie Nickel Project subject to the completion of development studies. The deal gives Inco the chance to take on BHP Billiton in its own backyard, a move that motivated the mining giant to secure a potential blocking stake by snapping up an 11.2% interest of its own. According to Macquarie Research Entities, Inco's pipeline of major projects is likely to see it emerge as the worlds largest producer by 2010, when its attributable production is forecast to reach 326,000 tonnes a year.
Driving that force is an impressive pipeline of projects, including Goro in New Caledonia and Voisey's Bay in Canada. Inco is moving full steam ahead on both, no doubt motivated by what it and many analysts believe are fundamentals that will underpin strong nickel prices for at least five years. Mr. Hand told AFR the buoyant nickel price had created unprecedented boom times for the mining industry. "In my 30 -odd years in the business, I can't recall ever seeing such great interest and activity. Some would say that many of the stars are aligned" Mr.Hand said. While not clearly ruling out a bid for WMC Resources, Mr. Hand appeared to play down such a prospect: "Certainly we have seen some interesting moves this year,especially here in Australia, with Xstrata and now BHP Billiton making their bids for WMC."
In Canada , Noranda and Falconbridge recently announced a merger, creating another major global nickel player. " What we're seeing with both these announcements is a shift in the mining landscape, specifically a reduction in the number of mid-cap players, which means that as a mid-size player, Inco is part of an increasingly rare species." " We all know that consolidation is a very real and growing fact of life. And there are those who believe that this consolidation is a virtual force of nature : futile to resist. We happen to think otherwise."
HRR Price at posting:
0.0¢ Sentiment: Hold Disclosure: Held
