Merged Glencore, Xstrata would take aim at iron ore

Fri Feb 3, 2012 9:42am EST
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By James Regan

SYDNEY (Reuters) - An $80 billion marriage of commodities trader Glencore and miner Xstrata could lead to a new round of takeovers in iron ore, creating a goliath eager to muscle its way onto one of mining's richest and most closely guarded sectors.

Glencore and Xstrata, which have yet to reach a deal, would together rank as the world's largest thermal coal exporter, the largest zinc producer and third-largest copper miner - but would remain all but non-existent in iron ore mining.

Xstrata wants to get into iron ore, underlined in 2009 by its attempt to buy mining giant AngloAmerican. But it has been thwarted by a scarcity of major new discoveries and a virtual oligopoly among mining giants Vale, Rio Tinto and BHP Billiton, which have no intention of loosening their grip, say industry players and analysts.

"With a fortified balance sheet thanks to Glencore, it's a logical move for Xstrata which should light a fire under the others, like Vale," said an Australian mining executive who asked not to be named.

Iron ore sells for around $140 a tonne to China, the world's top buyer of the steel-making commodity thanks to the mass urbanization underway there, and only costs about $20-$30 a tonne to mine.

Australia alone provides almost half of China's iron ore imports, with BHP Billiton, Rio Tinto and Fortescue Metals Group the main suppliers.

"There is no doubt Xstrata would like to do more in iron ore but if they want to be big they have to buy a big player," said Macquarie steel and iron ore analyst Colin Hamilton.

Xstrata is considering an all-share merger of equals with Glencore, which would leave the new entity with low enough debt to fund a big push into iron ore, including possible acquisitions in competition with the likes of big miners Vale, Rio and BHP.   Continued...

<p>File picture shows logos in front of Swiss commodities trader Glencore building in Baar, near Zug, January 5, 2010. REUTERS/Christian Hartmann/File</p>