HEARD ON THE STREET: Vallar's Acquisition Challenge

1st Jul 2010 17:17

By Matthew Curtin A DOW JONES COLUMN For a well-connected financier like Nat Rothschild, raising at least GBP600 million for his new mining acquisition vehicle, Vallar, in the midst of a tough IPO market may prove the easy part. The challenge for the 38 year-old member of the banking dynasty will be to pick up a bargain among the glut of mid-tier mining assets that he expects major mining groups to divest over the next few years. That may be harder than he thinks. There should be no shortage of available assets. A decade of sector consolidation has created a handful of mining industry giants looking increasingly to focus their capital spending on big projects. As a result, many of their smaller assets will become potentially non-core: BHP and Rio have a combined $17 billion worth of assets too small to meet their investment criteria, according to Citigroup. Vallar believes competition for assets will be limited. Rival big players are unlikely to be bidders. And the listed mid-cap mining sector has been largely consolidated out of existence. Vallar has the advantage of cash in the bank and the ability to move quickly. Its first acquisition won't require a shareholder vote. But emerging market natural resources groups, including London-listed Kazakhstan-based ENRC and Indian metals group Vedanta, are increasingly on the acquisition trail. In resource-hungry Asia, the mining industry's customers are keen to lock in raw materials. South Korea's Posco and Kepco are bidding for two of Anglo American's Australian coal assets. China has become an increasingly keen bidder for mining assets across the globe. Meanwhile valuations are picking up, partly because, cash-flush again, the big mining groups are no longer forced sellers. True, stock market valuations are low by recent historical standards. Shares in smaller mining companies trade at wide discount to the diversified behemoths. But Vedanta recently paid $1.3 billion for Anglo American's zinc assets, valuing the in-ground resource at a $479 per metric ton compared with previous zinc deals at $152/ton to $372/ton. The key for Vedanta was the strategic fit with its existing business, an advantage Vallar lacks. Mr Rothschild and James Campbell, the former Anglo miner who is Vallar's chief executive, have some tough bargaining ahead. (Matthew Curtin has been a financial journalist since 1990. He has written on international finance and business - from South Africa, Singapore and France - since 1994. He can be reached at +331 4017 1746 or by email: [email protected]) TALK BACK: We invite readers to send us comments on this or other financial news topics. Please email us at [email protected]. Readers should include their full names, work or home addresses and telephone numbers for verification purposes. We reserve the right to edit and publish your comments along with your name; we reserve the right not to publish reader comments. (END) Dow Jones Newswires July 01, 2010 12:17 ET (16:17 GMT)