By Melissa Pistilli-Exclusive to Iron Investing News

EU objects to BHP takeover of Rio

The European Commission (EU) has issued a statement of objections to BHP Billiton Ltd. concerning its hostile takeover of Rio Tinto Inc.

The statement outlines the potential competition problems that may result from such a merger. EU anti-trust regulators have voiced concerns over the bid since July, which many feel may lead to price increases and reduced consumer choice. The takeover would merge together two of the world’s leading iron ore miners into a mining giant that could displace the world’s largest iron miner, Companhia Vale do Rio Doce. The Commission is scheduled to make a final decision by January 15, 2009.

Europe’s steel manufacturers brought their worries to the EU Competition Commissioner in May. The steel industry fears that such a deal could create inflated raw material prices. BHP first made the bid of 3.4 BHP shares for every Rio Tinto share in February of this year. Brazil’s Rio opposes the takeover because it feels BHP’s offer undervalues the company.

Vale withdraws price hike

Vale has withdrawn its demands for a 12 per cent price increase from its Chinese customers. The company first put forth the hike in September, angering Chinese steelmakers who were already cutting production due to the global economic slowdown. The Brazilian mining giant’s demands were “bad timing when the global steel industry is in the throes of a downturn,” said Xu Lejiang, Chairman of China’s largest steelmaker.

Vale had threatened to holdback shipments unless steel manufacturers accepted the increase on top of the 71 per cent increase set earlier in the year. Now, due to the current global crisis, the world’s largest iron ore producer has to eat crow and acquiesce to its Chinese customers.

Iron sector hit by global slowdown

Vale CEO Roger Agnelli has said the global slowdown and its effect on iron ore demand will likely push 50 per cent of producers out of the market. “The next two to three months will clarify who is in the market and who is out.”

Those most affected will be juniors with limited access to financing. “Some projects are costly, and raising the money in this environment could be difficult, but if you link up with a large player with financial resources it gives the company a competitive advantage,” said Centrex Metals Managing Director Gerard Anderson. The Australian junior has Chinese steel producer Baotou Iron and Steel as a shareholder and is in talks with other Chinese firms.

No matter how depressing the current global situation may be, it’s hard to deny that the world will continue to grow and industrializing countries like China and India will continue to lead that growth. While the situation looks bleak for the short term, the long term projection remains positive for continuing global economic growth.

The iron ore juniors that will most likely survive the global crisis and come out on top will be those with well-positioned and managed projects as well as partnerships with larger iron producers and steel manufacturers.

Some news of Adriana Resources Inc.

Adriana Resources Inc. [TSX-V: ADI] is an example of an iron ore junior who has aligned itself with a large steel manufacturer. The Canadian company has plans to become a fully integrated iron ore producer by developing its Brazilian iron ore port facility, acquiring iron ore mineral resources in Brazil as well as advancing its Lac Otelnuk Iron Project on Quebec and the Mustavaara Project in Finland.

Adriana’s most interesting project is its port facility near Rio de Janeiro. The area has limited shipping capacity on ports, which is currently frustrating access to foreign markets for iron producers. The company intends to develop a facility for iron ore shipment to steelmakers in Asia and Europe. It is expected the port will ship 10 million tonnes per year with the option to expand to a deep sea port capable of 50 million tonners per year.

The world’s leading steel company, ArcelorMittal [NYSE: MT] has agreed to purchase 80 per cent of the port facility for US$40.5 million, which will give Adriana over US$65 million in working capital. The steel giant will also purchase up to 19.9 per cent of Adriana shares and aid the company in finding financing to fund its portion of the US$250 million port.

Currently, shares of Adriana Resources are trading at .40c, down from a 52 week high of US$1.39. Shares of ArcelorMittal are trading at US$30.65, down from a high of US$104.25 in June.

1 Comment

Tweet