A merger proposal between Xstrata and rival Anglo American could pave the way for a series of consolidated agreements as smaller miners strive to save cash to beat the global economic crisis.
Xstrata sent a proposal to Anglo’s board last week for an $84 billion merger that would position the joint company as a leading nickel and zinc producer and the world’s third-largest miner by market value.
IBISWorld senior analyst Ed Butler said the merger would enable both companies to merge synergies and cut costs to compete with their larger rivals.
“The deal will bring them into the same league against the other major miners and increase the competitive environment,” he told MINING DAILY.
Butler predicts a number of consolidated companies will be established over the next two years as miners try to save costs and boost efficiency of their operations.
“Merger agreements allow companies to spread costs across a number of operations to make them more efficient,” he said. “Now is a great time for businesses to take advantage of the economic cycle and build up their asset portfolios if they have access to the capital.”
Butler’s claims follow the proposed joint-venture of Rio Tinto and BHP Billiton’s iron ore operations, which is expected to deliver wide-spread benefits to iron ore operations in the Pilbara.
Despite concerns that merger agreements between larger companies may monopolise the industry, Butler said a unified Xstrata/Anglo company is likely to benefit the industry.
“It will deliver big efficiencies and savings to operations in South Africa, Europe and the Pilbara and increase competition,” he said. “It will be a good thing for the global iron ore and coal market.”
Anglo Coal spokesperson Jacqui Strambi told MINING DAILY merger talks are in a “preliminary stage” and details are yet to be released.
“There is no certainty any transaction will be forthcoming,” she said.
Xstrata Coal spokesman James Rickards said more information will be provided as it becomes available.