Australia | Nov 21 2006
By Greg Peel
US miners Freeport and Phelps Dodge have entered into a merger agreement that sees Freeport acquiring its larger competitor for a tidy US$29.5bn. This deal will create the world’s sixth largest mining company and the world’s largest listed copper producer.
UBS analysts point out that mergers of this nature are positive for the metal price as it suggests miners are acquiring for growth rather than digging new holes.
A further implication is that pure-play copper companies (indeed any metal really) are always a chance to be snapped up in the race to ensure producers hold sufficient assets to compliment their exploration programs. While this has long been understood, the Freeport/Phelps deal simply reinforces the possibilities.
UBS thus suggests Aditya Birla (ABY) is looking naked in the spotlight. This is nothing new, but Aditya is trading at a multiple of 1.7x 2008 and the Phelps deal implies a multiple of 5.9x 2007. Aditya has lost about 20% in value in the recent copper sell-off.
UBS notes that it is signalling out Aditya because it is the only copper stock its analysts cover. Most of Australia’s copper producers are diversifieds, including the biggies BHP Billiton (BHP), Rio Tinto (RIO), not-quite-as-biggie Oxiana (OXR) and gold miner Newcrest (NCM).