The Priory of Mining

[CFD.JC]

I'd like to share some thoughts on the current state of play for the raw material & mining industry. We are currently four years into a twenty year mining boom cycle. Everyone agrees on this point. As happened in the late 70's & early 80's one of the key components of a mining boom is the consolidation of miners that shortly follows the confirmation of the boom.

We are seeing that right now with the top five companies jostling for position to provide biggest and leanest operation. These companies include in no particular order: BHP, RIO, Vale (CVRD), AngloAmerican and Xstrata. Rumours abound each day about who is buying who and how hunters are becoming hunted. Whilst the larger hedge funds are enjoying the volatility of the prices of these huge companies its the smaller investor who is hoping or even praying that the consolidation spills over into their precious mid-cap mining sector. Are they mis-guided or even wrong? I'd like to hear others thoughts on this as mine are becoming stronger by the day. The more I observe this tussle to be the biggest the more I see the mid-caps getting overhauled to add fuel to the already glowing fire.

Not that anyone would, but don't rule out China. Direct ownership of the supply lines would be much preferred by the Chinese than bowing to prices dictated by the majors. China is one of the most cashed up countries the world has ever seen. Whilst the credit crunch has bluntened the private equity groups who rely on leverage to snap companies up the China can use their cash. Will they use it?

Cheers, JC

[wildww]

Sure China has a lot of cash but they don't have schools, roads, social security, water or power plants to satisfy their population. If they did they would have no cash and even more debt than the US. As for commodities, you think that its a 20 year cycle already? That would mean 1987. I think that your a bit early my dear friend. When I was in High School then the price of gas was so cheap. I think it was 1997 it all began. Dot Com was all the focus. The internet moving in to the mass market was the time. No one really took notice of Asia especially after the Asian Tigers got hurt. Those who were here in Asia could see the foreign investment moving in and the manufacturing jobs from the west starting to disappear. Walmart was an early example. Also, the rise if India as an outsourcing center was underway. If people are getting paid they want to buy things which invariably consume more inputs. Gucci just opened thier first store in Mumbai where they even planned the style and colour of the staff turban. Consumption of inputs is here for at least 10 more years. As for the mid-tier companies well of course they should consolidate or get acquired. The cost of producing raw ore may not have been as attractive as it is now at these secondary mines/companies but they are now. Look for more consolidation as management seeks to squeeze as much savings from economies of scale as possible.