Fitch Says M&A Mining Risk Rising For Diversified Miners
May 11 2011 - 1:45PM
Dow Jones News
Debt ratings agency Fitch Ratings said Wednesday that the risk
to credit ratings from mergers and acquisitions activity in the
mining sector is rising.
"Fitch considers the risk to ratings from M&A activity is
rising, although the likelihood of large transactions varies
substantially across individual issuers," the credit ratings agency
said after canvassing investors during a series of seminars in
Europe.
Investors cited two key concerns in the mining sector: M&A
risk and cost inflation.
Anglo-Australian mining titan BHP Billiton Ltd (BHP) has the
strongest financial capacity in the sector; "large scale M&A is
a clear option" for BHP, Fitch said.
Fitch expects that BHP's most likely targets would be Australian
natural gas producer Woodside Petroleum Ltd (WPL.AU) and U.S. oil
producer Anadarko Petroleum Corp. (APC).
"In Fitch's opinion, a potential link with these companies would
be plausible as they would enhance BHPB's scale and operational
profile in the highly profitable oil and gas sector," Fitch
said.
A BHP spokesman declined to comment on BHP's interest in the two
companies.
Fitch expects Anglo-Australian miner Rio Tinto PLC (RIO) to
pursue a more conservative M&A strategy, in line with its
previous guidance that it would make small to medium size
acquisitions in the mid-single billion dollar scale.
The mining giant recently took control of Riversdale Ltd
(RIV.AU) after a bid valuing the Mozambique-focused coal miner's
equity at nearly $4 billion.
Anglo American PLC (AAL.LN) may also increase its appetite for
M&A, Fitch said, although it's less certain because the company
has been primarily focused on organic growth, Fitch added.
Rising costs are also a concern, Fitch said, but less so than in
the period prior to the financial crisis that caused commodity
prices and demand to slump in 2008-09.
Fitch said many companies supplying tires, diggers and other
equipment to the mining industry increased their production
capacity during the last mining boom (prior to the crisis) and as
such "the extreme time delays experienced in 2007 are unlikely to
be repeated in coming periods to the same degree."
-By Alex MacDonald, Dow Jones Newswires; +44 7776 200 924;
alex.macdonald@dowjones.com
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