Mining company doesn't dig takeover

BHP Billiton, Rio Tinto logos

TEXT OF STORY

Kai Ryssdal:
Eighteen months and one global economic crisis later, a deal for what could have been the world's biggest mining company has come to naught.

A year-and-a-half ago commodity prices were on their way to record highs. Mining company stocks were soaring. And the Australian mining giant BHP Billiton decided it was a good time to get bigger.
It launched a hostile bid for its smaller British rival Rio Tinto.

At one point the deal was worth almost $200 billion. And then subprimes happened. The global economy slowed. Commodity prices collapsed as demand tailed off. And today BHP walked away.
As Marketplace's Dan Grech reports.


Dan Grech:
The Rio Tinto takeover today is valued at $60 billion. That's a 70 percent drop in just a matter of months.

Rod Eggert is an economics professor at the Colorado School of Mines. He says the turnaround in metal and mineral prices is simply unprecedented.

Rod Eggert: The rise in prices over the last five years was longer and higher than is normal, and the fall in prices over the last several months was quicker than anything I can remember or know about.

The global economic downturn has driven down demand for commodities like iron ore, copper and coal. And with the credit markets in shambles, now's certainly not a time for BHP Billiton to take on the billions in debt that the takeover would have required.

Chris Hinde: In many ways, BHP's been lucky that they've had the chance to call off the deal.

That's Chris Hinde, editorial director of Mining Journal. He says European regulators would have forced the combined company to sell off assets in iron ore and coal to lessen its power over the steel industry. But those sales would be worth a lot less now than even a few months ago.

The global downturn has derailed several big mining mergers of late. But with metal prices way down, mining giants may still be eying some smaller takeovers.

Rod Eggert:

Eggert:The market probably has overreacted in terms of devaluing many of the smaller and junior companies. And I think in an opportunistic way, some of the larger companies will take advantage of this.

Some analysts say cash-rich China could get involved as well. China has already begun to snap up mining companies in Africa.

I'm Dan Grech for Marketplace.

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