Hot prospects: the biggest mining mergers to rock the industry

Talal Husseini 2 October 2018 (Last Updated October 2nd, 2018 10:51)

With annual revenues often in the tens or even hundreds of billions, mining companies are big business. When mergers or acquisitions occur, they create some of the largest mining powerhouses in the world and can have an everlasting impact on the industry. Here are six of the biggest mining mergers in history.

Hot prospects: the biggest mining mergers to rock the industry
With annual revenues often in the tens or even hundreds of billions, mining companies are big business. What are the biggest mining mergers in history? Credit: horjaraul.

With annual revenues often in the tens or even hundreds of billions, mining companies are big business. When mergers or acquisitions occur, they create some of the largest mining powerhouses in the world and can have an everlasting impact on the industry. Here are six of the biggest mining mergers in history.

Shenhua Group and China Guodian Corporation: $272.96bn

Two of China’s largest state-owned enterprises (SOEs), Shenhua Group and the China Guodian Corporation, completed a merger on 20 November 2017, valued at almost $273bn. The resulting entity, the China Energy Investment Corporation, became the world’s largest organisation in the coal mining, thermal power, renewable energy, and coal-to-liquid conversion industries.

At the time of the merger, China Energy took over the operation of 83 coal mines and had an approved production capacity of 429 million tons (mt), according to national broadcaster China Central Television (CCTV).

The chair of state-owned Assets Supervision and Administration Commission of the State Council Xiao Yaqing said: “It is the biggest consolidation among central SOEs in recent years.”

According to Xiao, the deal was made to improve corporate profitability and to synchronise coal and electricity markets.

Topping the list of biggest mining mergers, the company boasts an incredible workforce of 326,000 staff in total, which is said to be four times the number of employees in the entire US coal-fired power industry in 2016.

China Energy has an installed capacity of 225GW, making it the biggest power company by capacity, larger than both EDF and Enel. China Energy chairman Qaio Baoping told Xinhua that the company would shift its focus to coal mining and power generation, and make efforts to mitigate excess capacity and boost supply to global markets.

Glencore and Xstrata: $90bn

On 2 May 2013, multinational mining company Glencore completed the acquisition of Anglo-Swiss mining company Xstrata, in a deal worth around $90bn.

According to the Financial Times, Glencore chief executive Ivan Glasberg said in a letter to employees: “Glencore has always thrived on a culture combining entrepreneurial initiative, collective responsibility, hard work, and reward. It is vital that decisive action is taken to reinforce this culture within the combined group.”

The merger created one of the world’s largest natural resources conglomerates, with a combined workforce of 190,000 people across 50 nations, and a portfolio of 90 commodities, including copper, barley, oil, and vanadium.

Glencore Xstrata had a market cap of around $65bn in May 2013, although this has since fallen to just under $47bn as of September 2018. It is also the world’s largest mining company, with an annual revenue of $205.5bn.

At the time, the takeover was fifth-largest in the natural resources industry, positioned alongside mega-mergers such as Exxon and Mobil; Amoco, Chevron and Texaco; and Total and Elf.

Rio Tinto and Alcan: $38.1bn

Anglo-Australian mining giant Rio Tinto acquired Alcan in July 2007 in a deal worth $38.1bn, making it the world’s largest producer of aluminium and bauxite at the time.

Former Alcan CEO Dick Evans, however, described the takeover to the Wall Street Journal in 2013 as one of the “worst decisions ever” in mining history.

Rio Tinto had paid a premium of almost 65% to buy Alcan, in a conscious effort to outbid other potential suitors such as Alcoa and BHP. Furthermore, in the time it took to complete the acquisition, the booming aluminium commodities market that had reached a 20-year peak was struck by the full force of the 2007-2008 financial crisis.

Additionally, Chinese companies were producing aluminium more efficiently and on a large scale. It was the perfect storm for Rio Tinto, which saw company debt increase from $2.4bn in June 2007 to $46.3bn in December of the same year.

Today, Chinese mining company Hongqiao Group is currently the largest aluminium producer in the world, producing 7.5mt of aluminium, while Rio Tinto Alcan produces just over half of this output, at 3.6mt, according to Statista.

Barrick Gold and Randgold Resources: $18bn

The most recent of the biggest mining mergers, Canada-based Barrick Gold announced its acquisition of Randgold Resources for around $18bn on 24 September 2018. The merger will create the world’s biggest gold mining company, with a combined production capacity of 6.6 million ounces of gold per year.

Under the deal, Barrick will own two-thirds of the new entity, with the remainder going to Randgold shareholders.

Barrick executive chair John L. Thornton said in a company press release: “Our overriding measure of success will be the returns we generate and not the number of ounces we produce, balancing boldness and prudence to deliver consistent and growing returns to our fellow owners, a truly simple but radical and achievable concept.

“There are no premiums in the merger because we strongly believe in the opportunity to add significant value for our shareholders from the disciplined management of our combined asset base and a focus on truly profitable growth.”

Both companies have suffered from falling gold prices and concerns over their strategies, leading to a 30% reduction in shares overall. The price of gold has fallen by more than 8% this year, adding to growing pressures in the industry.

Randgold CEO Mark Bristow added: “Our industry has been criticised for its short-term focus, undisciplined growth and poor returns on invested capital. The merged company will be very different. Its goal will be to deliver sector-leading returns, and in order to achieve this, we will need to take a very critical view of our asset base and how we run our business, and be prepared to make tough decisions.”

CVRD and Inco: $13.3bn

In 2006, Brazilian mining company CVRD announced its intentions to buy Canada’s Inco for around $13bn. CVRD purchased a 75.66% stake in Inco and changed the name to Vale Inco the following year.

CVRD chief executive officer Roger Agnelli said: “This is an exciting opportunity for CVRD. The operations of the two companies are complementary and the combination will enhance our capabilities to benefit from the fast-changing global landscape in the metals and mining industry. For Inco shareholders, our all-cash offer provides a very attractive opportunity to realise substantial gains with no exposure to market risks.”

Following a fourth name change in 2010, the current entity, known simply as Vale, is the second largest nickel mining company worldwide, according to financial advisors The Balance. With an annual production of 260 kilotonnes (kt) of nickel, the company is eclipsed only by Russian firm Norilsk Nickel, which produces 285kt of nickel per year.

Caterpillar and Bucyrus International: $8.8bn

Caterpillar, best known for its construction machinery, announced the acquisition of US mining equipment company Bucyrus International for $8.8bn in June 2011.

Caterpillar Group president Steve Wunning confirmed the takeover in a news release, saying: “This acquisition is all about growth and unprecedented opportunities. Combined with our aggressive product development and capacity expansion plans, it will position Caterpillar to offer a broad range of surface and underground mining products and solutions to our customers.”

“The rapid development of the world’s emerging markets is expected to continue to drive an increasing need for commodities as billions of people around the world seek to improve their standard of living.”

Bucyrus has its own comprehensive history. The company was an early manufacturer of steam shovels and supplied 77 of the 102 steam shovels used to build the Panama Canal in 1904.

However, Caterpillar has recently been accused of attempting to remove all traces of Bucyrus since the merger. Residents of South Milwaukee, Wisconsin are aiming to immortalise the former company with the construction of a new museum.

Resident Bob Jelinek said to Journal Sentinel: “The objective was to keep as much of the archive collection intact as possible and re-open at another local location to display the history of Bucyrus as an educational non-profit.”

BHP and Biliton: $8.72bn

Netherlands-based mining institution BHP, founded in 1885, agreed a merger with multinational mining, metals and petroleum company Biliton in 2001, worth $8.72bn.

Since then, the entity has attempted an array of smaller mergers within the mining industry, including the successful acquisition of WMC Resources, owners of the Olympic Dam copper, gold and uranium mine in Southern Australia, for $7.3bn in 2005.

BHP Biliton also intended to buy Rio Tinto in 2007. However, the risks involved in light of the financial crisis proved too much of a gamble for the mining giant.

As part of its new rebranding project, BHP dropped the Biliton portion of its name and is running a new $10m advertising campaign called ‘Think Big’, which launched its second phase on 16 September. According to BHP chief external affairs officer Geoff Healy, the next phase will address global supply chain issues and sustainability.

“We are continuing to tell the story of how the people of BHP develop and deliver the resources that underpin global development and support Australia’s economy,” said Healy in a press release.

“Each advertisement will focus on a key global challenge and highlight the role of our commodities in helping build a sustainable future. The first adverts focus on steel; which is crucial for growing cities and is made from iron ore and coal, and electric vehicles; which need four times more copper than conventional cars.”

Alpha Natural Resources and Massey Energy: $8.5bn

In the same year as the Caterpillar-Bucyrus merger, US producer of metallurgical coal Alpha Natural Resources (ANR) paid $8.5bn for Appalachian coal extractor Massey Energy.

The deal created the second largest US coal mining company by market value. ANR holds 2,110 mines and total coal reserves of 5 billion tons.

ANR chief executive Kevin Crutchfield said in a press release: “Together we will be America’s largest supplier of metallurgical coal for the world’s steel industry and a highly diversified supplier of thermal coal to electric utilities in the US and overseas.

“The strategic and operational fit of our two companies is clear and compelling. Both companies’ stockholders will gain an opportunity to participate in the upside potential of a global industry leader with a robust production portfolio, attractive growth profile and substantial reserve base.”

The takeover occurred roughly a year after the Upper Big Branch Mine Disaster, when a coal dust explosion 1,000ft underground killed 29 of the 31 coal miners at the Massey Energy-operated site in West Virginia.

In the investigation led by former assistant secretary to the Mine Safety and Health Administration J Davitt McAteer, the report concluded that Massey Energy was to blame: “The company broke faith with its workers by frequently and knowingly violating the law and blatantly disregarding known safety practices while creating a public perception that its operations exceeded industry standards.”