Post by Catdaddy on Nov 20, 2007 16:21:21 GMT -5
BHP-Rio deal could shake up Canada diamond industry
www.reuters.com/article/marketsNews/idINN2059847420071120?rpc=44&pageNumber=1&virtualBrandChannel=0
Tue Nov 20, 2007 12:09pm EST
By Cameron French
TORONTO, Nov 20 (Reuters) - BHP Billiton's (BHP.AX: Quote, Profile, Research) proposed $140 billion takeover of Rio Tinto (RIO.AX: Quote, Profile, Research) may trigger a shake-up of the diamond industry in northern Canada, analysts say.
The combination of BHP and Rio would create a behemoth dominant in several metals markets, and would also allow BHP to add Rio's 60 percent stake in the Diavik diamond mine in Canada's Northwest Territories, which yielded nearly 10 million carats in 2006.
BHP already owns the nearby Ekati mine, which produces about 4 million carats a year.
However, as these assets are widely seen as noncore for both companies, which focus on base metals, attempts to streamline the companies or sell assets to raise funds could see the mines come on the market, analysts say.
"That's an obvious place where if they wanted to sell something, they could," said David Whetham, fund manager at Scotia Cassels.
Both BHP and Rio have at times been rumored to be eager to get out of the diamond mines, and while the current all-share offer by BHP doesn't require cash funding, the deal could change significantly by the time it's finished.
Rio has already rejected BHP's $140-billion offer as too low, and several scenarios, including offers from other rivals or even a reverse bid for BHP by Rio are seen as possible.
John Kinsey, a portfolio manager at Caldwell Securities, said he expects BHP and Rio would be more likely to hang on to businesses connected to their core metal holdings, and jettison precious metals.
"I think they will be trying to streamline the business a little more and selling off noncore assets," he said.
CASH COWS
Desjardins Securities' analyst John Hughes said he sees Rio's Diavik stake as more likely to be sold than BHP's Ekati, as Diavik is earlier in its mine life and has a natural buyer in 40-percent stakeholder Harry Winston Diamond Corp (HW.TO: Quote, Profile, Research).
"These are cash cows. These are not bad assets to hold. They make them money and to a large part the capital investment has been made," he said.
Harry Winston chief executive Robert Gannicott said this week he would be interested in buying out Rio's share if it became available.
World No. 1 diamond producer De Beers, whose Canadian subsidiary has begun producing diamonds from its Snap Lake mine and is also building the Victor mine, would also be seen as a potential buyer.
De Beers Canada spokeswoman Linda Dorrington wouldn't comment on the Rio and BHP mines or the deal specifically, but she said the company does see Canada as a growth platform.
"If the right assets came available at the right price and the timing was right for us, it's something we would consider," she said.
Rio completed its $38.1 billion takeover of Alcan just ahead of BHP's takeover bid for it. To finance the Alcan deal, Rio took billions in debt, and has said it plans to divest more than $10 billion in assets, including Alcan's packaging business.
Rio also is exploring options for the sale of its U.S. coal business, but has not identified any other operations as yet for disposal, a spokesman said.
A BHP spokesman said on Tuesday he could not comment on the company's plans for individual assets.
(Reporting by Cameron French; Editing by Peter Galloway)
www.reuters.com/article/marketsNews/idINN2059847420071120?rpc=44&pageNumber=1&virtualBrandChannel=0
Tue Nov 20, 2007 12:09pm EST
By Cameron French
TORONTO, Nov 20 (Reuters) - BHP Billiton's (BHP.AX: Quote, Profile, Research) proposed $140 billion takeover of Rio Tinto (RIO.AX: Quote, Profile, Research) may trigger a shake-up of the diamond industry in northern Canada, analysts say.
The combination of BHP and Rio would create a behemoth dominant in several metals markets, and would also allow BHP to add Rio's 60 percent stake in the Diavik diamond mine in Canada's Northwest Territories, which yielded nearly 10 million carats in 2006.
BHP already owns the nearby Ekati mine, which produces about 4 million carats a year.
However, as these assets are widely seen as noncore for both companies, which focus on base metals, attempts to streamline the companies or sell assets to raise funds could see the mines come on the market, analysts say.
"That's an obvious place where if they wanted to sell something, they could," said David Whetham, fund manager at Scotia Cassels.
Both BHP and Rio have at times been rumored to be eager to get out of the diamond mines, and while the current all-share offer by BHP doesn't require cash funding, the deal could change significantly by the time it's finished.
Rio has already rejected BHP's $140-billion offer as too low, and several scenarios, including offers from other rivals or even a reverse bid for BHP by Rio are seen as possible.
John Kinsey, a portfolio manager at Caldwell Securities, said he expects BHP and Rio would be more likely to hang on to businesses connected to their core metal holdings, and jettison precious metals.
"I think they will be trying to streamline the business a little more and selling off noncore assets," he said.
CASH COWS
Desjardins Securities' analyst John Hughes said he sees Rio's Diavik stake as more likely to be sold than BHP's Ekati, as Diavik is earlier in its mine life and has a natural buyer in 40-percent stakeholder Harry Winston Diamond Corp (HW.TO: Quote, Profile, Research).
"These are cash cows. These are not bad assets to hold. They make them money and to a large part the capital investment has been made," he said.
Harry Winston chief executive Robert Gannicott said this week he would be interested in buying out Rio's share if it became available.
World No. 1 diamond producer De Beers, whose Canadian subsidiary has begun producing diamonds from its Snap Lake mine and is also building the Victor mine, would also be seen as a potential buyer.
De Beers Canada spokeswoman Linda Dorrington wouldn't comment on the Rio and BHP mines or the deal specifically, but she said the company does see Canada as a growth platform.
"If the right assets came available at the right price and the timing was right for us, it's something we would consider," she said.
Rio completed its $38.1 billion takeover of Alcan just ahead of BHP's takeover bid for it. To finance the Alcan deal, Rio took billions in debt, and has said it plans to divest more than $10 billion in assets, including Alcan's packaging business.
Rio also is exploring options for the sale of its U.S. coal business, but has not identified any other operations as yet for disposal, a spokesman said.
A BHP spokesman said on Tuesday he could not comment on the company's plans for individual assets.
(Reporting by Cameron French; Editing by Peter Galloway)
