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$90 billion mining merger would alter industry

Jeremy Hobson Feb 7, 2012

Jeremy Hobson: Today the mining company Xstrata agreed to get together with the commodities trading company Glencore in a $90 billion merger. I don’t blame you if you’ve never heard of those companies, but just for some context, $90 billion is the ballpark of what analysts say Facebook is going to be worth when it goes public.

Joining us now to demystify this merger is John Meyer. He’s a mining analyst with Fairfax Investment Bank, and he’s with us from Cape Town, South Africa. Good morning.

John Meyer: Good morning.

Hobson: Tell me first of all: why this deal matters within the mining industry?

Meyer: This deal is a landmark for the industry. It ties up one of the world’s largest miners, which is particularly important in copper and coal, with the world’s largest and arguably most successful trading company, which is critical in the supply of raw materials into manufacturing companies around the world.

Hobson: So you’ve got a company that can then both mine the material and then sell it.

Meyer: Yes, in many cases a miner will go through a trading company, which has better connections with the manufacturers and the end users; particularly good connections into China, Eastern Block, really tenticals all over the planet. And it’s critical to global trade.

Hobson: Why does it matter to ordinary Americans? How do we interact with these companies even if it’s far down the change?

Meyer: It’s really important from a safety perspective. The companies that produce these products, these speciality steels or consumer electronics products, where we depend on the structural integrety of that steel so that our railways are safe, so that our cars hold together in the right way, so that our houses are structurally sound.

Hobson: John Meyers is a mining analyst at Fairfax investment bank. John, thanks.

Meyer: Your very welcome.

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