1) Glencore - Xstrata Merger of Equals
The first, the widely reported merger of Glencore and Xstrata businesses looks increasingly likely. This would formalise Glencore's large investment stake in the Xstrata mining business and create an $80bn behemoth, fourth in global mining behind BHP, Vale and Rio.
As far as I can read it Glencore can be seen as the "Smartmoney" in commodities, the Goldman of commodity traders.
Their float on the London Stock Exchange last year was seen by some as marking the top in a commodities bubble, and certainly the stock tumbled post-float as the market went risk off during 2011.
However the limitations on selling by senior directors and the continued ownership of Glencore by their key traders seems to mark positioning for liquidity for some future exit, and in the meantime creation of a powerful vehicle for acquisition, consolidation and growth.
Similarly Mick Davies at Xstrata has shown himself to be a remarkably ambitious mining leader and will be tied into 2 years at the merged group.
Watch Glencore-Xstrata closely to predict the end of the boom in tangible assets.
This may be just the beginning of "Commodity Wars" as discussed at the always intriguing Jesse's Crossroads Cafe following and anticipating monetary trends. To quote Jesse (my emphasis)
As you may recall, I was speaking about the Currency War long before it became a recognized issue. From my analysis of history and the major monetary trends it seemed inevitable even in 1999, and events shortly after that confirmed it.
Those who see what is going on behind the scenes are securing supplies of key commodities and hard assets. And this is not limited to the large national banks and financial firms.
Consolidation in the mining sector is going to happen in a rush when the panic for supply ensues. But it will be the same for several key sectors.
This is a recurring macro theme and major trend, an extension of the Currency Wars as the US dollar regime that has existed since the end of World War II shifts and changes.
Since the outcome is uncertain, the major players are grabbing assets now that will likely be playable chips no matter what the eventual resolution.
Two things intrigue me.
If the precious metals are in particularly important positions as we move forwards will the "Big Miners" start to acquire in the Gold space, or is this area just too small and specialised? The entire precious metals market cap is < Apple - see previous post, with spreadsheet updating with market prices.
If the big miners do move into acquisition in the gold space the impact on valuations could be enormous.
Equally why did Barrick complete the Equinox acquisition for Copper production rather than make further moves in the gold-space? In an "electrifying" world copper may indeed be key. Large Copper-Gold deposits would be particularly interesting having both monetary and global growth/energy development interest. Perhaps classification of companies as "precious metals" will attract specific taxation while general commodity groups will escape this.
2) Gold Ore Resources and Elgin Mining Announce Merger
In a very different league some of the smaller cash rich gold producers are making moves to drive continued growth through acquisition in the junior space.
Having previously proposed an offer to acquire Astur Gold's deposit in Spain, (a deposit I still like) Gold Ore Resources (GOZ.TO), a producer in Sweden, have withdrawn, paying a $2.5m break fee to Astur and instead entered a deal with Elgin Mining who control the past producing Lupin Mine in Canada aswell as other projects. The deal leaves GOZ holders with the majority stake but reverses into the Elgin stock.
One could imagine some very successful groups emerging in the precious metals space which consolidate control of numerous smaller miners and developers, in particular those near production, increasing valuation as single deposit high risk entities are combined, increasing valuation of reserves and funding development through cashflow from production against a rising goldprice.
Production exposure to a rising gold price + growth should be very powerful stock with which to fund acquisitions and enhance further growth.
I seek companies in a similar position to Elgin on the "Old Gold Mines - New Exploration" Page on this blog.
There are some very high powered directors at Elgin for a small company, see page linked above, do they have more significant ambitions?
I also notice that large volumes of Armistice shares, another old Canadian mine, traded recently.
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