LONDON -- BHP Billiton, the world's largest miner, has built up about $18 billion in cash during the last year and expects to use some of it, along with additional borrowings, to acquire large rivals, possibly setting in motion a new round of acquisitions in the mining sector.
BHP, which launched the last major cycle of industry mining mergers when it went after its chief rival, Rio Tinto in 2007 with a $68 billion bid, said it has identified "four or five opportunities", all large mining, oil or gas companies, or assets in those sectors, more likely in mining. It would expect to make a move within the next 12 months.
"We have no pressure to do it. But I can tell you we have done a lot of work," said BHP's Chief Commercial Officer, Alberto Calderon, who is spearheading the company's acquisitions efforts.
Mr. Calderon said that BHP has set aside about $10 billion this fiscal year, which began July 1, for development of new projects and expansion of existing ones.
A separate undisclosed amount, including money built up this last year and in reserve from previous years, will be for acquisitions.
Mr. Calderon said the company has enough cash on hand and a low enough debt level to enable it to borrow more. "Out of this crisis, we would like to put our balance sheet to work. At some point, you have to put your money where your words are," said Mr. Calderon.
Mr. Calderon declined to name potential targets but said the company wanted to expand in certain commodities: iron ore, copper, coking coal, petroleum and potash, which is used as fertilizer.
"These are all areas where we are looking at, both organic growth and M&A," he said.
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A haul truck is loaded with iron ore at a BHP Biliton mine in West Australia's Pilbara region. .U.S.-based Freeport-McMoRan Copper & Gold Inc., the world's largest publicly traded copper company, is a possibility, say some analysts. It has some lower-cost copper assets and sizeable gold operations.
With a market capitalization of $29 billion, Freeport would require a sizeable offer but smaller than BHP's offer for Rio Tinto, which ultimately fell apart when the two sides couldn't agree on price.
Freeport said it does not comment on speculative mergers and acquisitions.
Another potential target is Potash Corp. of Saskathchewan Inc., Canada. Potash is considered a growing market because of the need for fertilizer to grow more food.
The company said it had heard rumors but doesn't comment on market speculation.
BHP could have its eye on Anglo American PLC and Xstrata PLC, two mid-sized miners. But those companies may not offer enough synergies in terms of geography and product, say some mining analysts.
Anglo, which is struggling and selling off assets, is a large producer of platinum, which requires deep excavation and can be dangerous. BHP has said it's not interested in mining platinum.
Xstrata is heavily invested in coal and a combination with BHP could trigger regulatory issues because of BHP's portfolio of coal.
Anglo and Xstrata said they don't comment on mergers and acquisitions. Anglo-American rejected an overture by its rival Xstrata this year in favor of staying independent.
Brazil's Vale SA is an unlikely target because it is partly owned by the Brazilian government, which analysts say would be reluctant to cede to foreign ownership and control.
BHP has said that it wanted to generally stay near existing assets and in countries where conducting business is easier and more predictable.
Russia and many parts of Africa are generally not seen as desirable, despite the fact that they may be holding some of the biggest metal and mineral deposits.
More attractive are assets in Australia, U.S., Canada, Chile, Indonesia and Colombia.
BHP wants to move relatively quickly, before the economy picks up more strongly, causing prices to increase and assets to become more expensive. It used the same strategy in 2001, when BHP and Billiton combined into one company, which was well positioned to profit from record commodity prices.
It wants to be similarly positioned for what it expects to be another price and demand rebound fueled by consumption in China, India and other emerging countries.
"We have just come through the biggest recession and to have them now say that the outlook is good longer term is significant," said Johan Rode, senior metals and mining analyst for Citi. "Their timing in the last cycle was really good."
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