Article Series
The Arctic Cold War Looming
The Uranium Merger Mania Pending
The Paradigm Behind Global Trade Protectionism
The Stealth Rally in Mining Mergers
Special Memorial Day Weekend Report
Special Report
The Paradigm Shift of Sky-High Oil
A New Era of Consolidation
By George Bell
In an era of uranium supply shortages, the recent bid war for Rio Tinto (NYSE: RTP) comes as no surprise… and it could be just the tip of the consolidation iceberg for the sector. Here’s what’s happening:
BHP Billiton (NYSE: BHP) is attempting to buy Rio Tinto with an outstanding offer to swap three shares of BHP for every one share of Rio Tinto. And just this week, Rio Tinto requested Britain’s securities administrators (Takeover Panel) to implement the country’s “put up, or shut up” rules, which would force BHP to put the deal in writing. Why? The two company’s have locked horns. BHP Billiton feels the offer is more than ample, while Rio Tinto feels the company is worth much, much more.
Twisting The Bid
Here’s where the story gets interesting… Rumors are swirling in the market that private equity player Blackstone (NYSE: BX) could make a move on Rio Tinto as well. However, if Blackstone were to obtain the winning bid for Rio Tinto, the outcome could be dramatically different.
Blackstone would most likely hack up Rio Tinto and sell off the company’s businesses for a premium.
There’s probably not too many things in the investment world that would be more of a slap in the face to BHP Billiton. After all, doing so would not only force BHP to pay more of the counterparts, but also redistribute Rio Tinto’s businesses to other payer (assuming BHP doesn’t pay up.)
At the end of the day, Blackstone’s involvement is a major thorn in the side of BHP Billiton. Very likely though, we will see an upped bid (with a hard deadline) by BHP Billiton in the coming days.
Three Moves Ahead on the Chess Board
Within the whole conundrum here, another development may be working its way to the surface as well: uranium. According to the company, “Rio Tinto has interests in two uranium mines: Energy Resources of Australia Ltd (ERA) in Australia (68 per cent interest) and Rössing in Namibia (69 per cent interest).” Energy Resources of Australia is the third largest uranium producer in the world.
BHP Billiton knows acquiring Rio Tinto, would immediately add a major segment to its uranium portfolio and put the company head-to-head with Cameco (NYSE: CCJ) for “largest uranium producer” status. However, if Blackstone were to break up Rio Tinto, there’s always the chance Cameco may consider bidding for ERA, or Rossing, should either of the two come up for sale. Basically, what we have here is a situation where another massive wave of mergers could begin rolling in. And, if Blackstone were truly to make a move on Rio Tinto, the event could spur even more takeovers in the uranium sector, as larger players rush to grab up smaller and producers and explorers.
Using the banking sector over the past year, as an example, we know from history that when consolidation begins within a sector, a larger “roll up” trend can persist for some time.
And, there’s no better time for mergers in the uranium sector than now, as the spot price of uranium has pulled back from summer 2007 highs.
Savvy players know the price of uranium is going up over the long haul, so consolidating companies in the near-future would be quite smart, so as to not pay a premium several years down the road. With all of the aforementioned in mind, the BHP Billiton/Blackstone/Rio Tinto news is very exciting for the entire sector (including both producers and explorers), and could make the game very interesting for shareholders who are willing to take on a little risk.
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