News: RIO BREAKINGVIEWS-Mining debt junkies in danger of $100 bln relapse

(Refiled to add stock symbols. The author is a Reuters Breakingviews columnist. The opinions expressed are his own.)

By Andy Critchlow LONDON, June 13 (Reuters Breakingviews) - Glencore’s renewed hunger for multibillion-dollar deals could signal a return in the mining sector’s appetite for risk. Along with the likes of BHP (BHP), Anglo American and Rio Tinto (RIO), the Switzerland-based resources group run by Ivan Glasenberg has cut back its borrowing since the last boom. The sector has plenty of room to gear up again if miners decide it's time to put balance-sheet austerity aside.

Despite tepid commodities prices and mixed signals from key markets like China, deal activity is heating up. Glencore said on June 9 that it had offered $2.6 billion to acquire Rio Tinto’s stake in Australian producer Coal & Allied Industries. A few weeks earlier it proposed a multibillion-dollar merger of its agriculture business with U.S.-listed trader Bunge .

This marks a shift. Big acquisitions and capital expenditure have been thin on the ground since miners started cutting back to deal with the downturn in commodity prices that started in late 2013. Spare cash, including what would have been earmarked for dividends, was increasingly siphoned off to pay down debt. Although the strategy has repaired threadbare balance sheets it has left many investors frustrated about their returns. BHP – the largest of the four – is fending off calls for a break-up by hedge fund investor Elliott Advisors.

The risk is that growth and expansion could start to seem more attractive than being frugal. At the peak during the last decade, the big four's net debt reached almost 3 times EBITDA. Apply the same multiple to their forecast EBITDA for 2018, according to Eikon, and it would give them a combined war chest of more than $100 billion. That's on top of anything they raise from selling mines to rivals.

For now, commodities prices remain weak. Iron ore, a bellwether for Chinese industry, has fallen 9 percent in price this year. Copper, another must-have for developing countries, is still down by about a third from the record highs in 2011.

That means miners aren't yet casting caution aside. Glencore aims to keep net debt below 2 times adjusted EBITDA; Anglo American has a target of between 1 and 1.5 times. Glencore is also funding its acquisitions in part by selling assets. But mining is nothing if not cyclical, and as prices recover, it's likely that miners' animal spirits will too.

On Twitter http//twitter.com/baldersdale

CONTEXT NEWS - Glencore on June 9 offered $2.6 billion in cash and assets to buy a group of Rio Tinto’s coal mines in Australia’s Hunter Valley.

- In May, the Swiss commodities trader said it had informally approached U.S.-listed grains trader Bunge about a multibillion-dollar merger with its agriculture business.

- The world’s largest commodities groups are coming under increasing pressure from investors to generate higher returns and growth despite weak prices.

- Hedge fund Elliott Advisors called on April 10 for BHP to revise its current dual Anglo-Australian corporate structure and spin off its petroleum business.

- For previous columns by the author, Reuters customers can click on [CRITCHLOW/]

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Glencore outbids Yancoal for Rio Tinto's Hunter Valley coal 

mines BREAKINGVIEWS-Glencore looks well-placed to snatch Rio coal unit BREAKINGVIEWS-Glencore food binge could leave investors hungry

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