At this game the first are the best served

The wind turned in the mining world. The despotic masters of natural resources roll one after the other in the dust. The long commodity prices upward cycle initiated in 2002 gave wings to a consolidation of unprecedented magnitude. Between 2005 and 2008, 550 and 600 billion was mobilized by mining mergers. The rule was to offer premiums of the order of 30 below the market value of companies target of building operations and to provide two-thirds of the price in cash.

Driven by the race for the critical size, capitalization was constantly inflating. When BHP Billiton has developed on the table nearly 150 billion dollars by Exchange of shares for Rio Tinto, the direction of the refused the approach in considering it does not sufficiently valued assets contemptuously. The advanced 90 billion a year by Vale were not sufficient to convince Xstrata and its shareholder Glencore to abandon their other requirements. Mountains of debt was accumulated in the balance sheets. Banks accessed any funding application. The few Cassandras who denounced the formation of a stock market bubble of the mines preaching in the desert. The flight continued until summer 2008. Then, with the hardening of the crisis, the construction of the new mining landscape collapsed like a House of cards.

Afflicted in their balance sheets, banks have hardened the conditions for the granting of credits. Capital suddenly decreased. Current transactions have left indelible traces. Rio Tinto, Teck Cominco, and OZ Minerals, three heavyweights in the sector, have been trapped. Others, Xstrata, Norilsk Nickel and Freeport McMoRan reeling after a season of acquisition price paid. Anglo American, which yet stationed to buy up mines, displays a high debt ratio. BHP Billiton and Vale in time withdraw their respective bids on Rio Tinto and Xstrata. Their balance sheets are safe.

According to one analyst, the accumulation of net debt of the five top rated mining companies in London Rio Tinto; BHP Billiton; Xstrata; Anglo American and Kazakhmys should turn around 70 billion dollars in 2009. And this despite the implementation of aggressive strategies to ease the burden. The average ratio affected would be net debt to equity around this year the 46, while two of them BHP Billiton and Kazakhmys should show a rate of 17. For companies in difficulty, the solutions required are not many. The first is to use massive market. Xstrata is successful at the time also under the unwavering support of Glencore, its reference shareholder who is responsible also for commercialization of a substantial portion of its products. But the pockets of the lenders are not bottomless. Far from it.

At this game, the first are the best served. And in there is not for everyone. Second solution, proceed to clear cuts in its assets by transferring or turning them. Unfortunately, the income of these operations is not sufficient. Sales are slow. Purchasers pay little and attention to the most lucrative assets.

Last resort against the risk of cessation of payments, along with a cash-rich and powerful partner. Today, there is only Chinese State groups as Minmetals and Chinalco to accept to pay large sums of money. Gourmet of mineral resources, suspected of wanting to grab natural resources around the world, the Chinese are not always welcome. But their contribution in cash is, for some mining firms, the only way to avoid bankruptcy. This is the case of OZ Minerals coveted by Minmetals or Fortescue, in sights of the sovereign funds and a Chinese steelmaker. Rio Tinto himself had to accept the interested support of Chinalco. The 19.5 billion dollars suggested the Chinese, its serious problems of debt management will disappear suddenly. And Rio Tinto is not OZ Minerals. If the transaction succeeds, this is far from assured at this point, it will keep the operational control of its mines. However, it is likely that he will lose full power on the marketing and the prices of its products. Chinalco, become its 18 shareholder, cannot fail to assert reasons for Beijing and Chinese customers. The game of influence on its Board of Directors between the representatives of the Western shareholders and Chinalco could result in an arm of iron of every moment. The independence of the mineral groups is not only threatened in Western countries. In Russia, the Kremlin is brutally invited to the Board of Directors of Norilsk Nickel by taking advantage of the fighting cocks of the oligarchs. They had to make weapons for the State banks the necessary refinancing of their astronomical debts. Here also, the shareholders are the big losers.