Nickel Gain Enables BHP to Anglo to Sell Mines: Real M&A – by Maria Kolesnikova and Firat Kayakiran (Bloomberg News – June 4, 2014)

The 37 percent surge in nickel this year means some of the world’s biggest metals companies may finally be able to sell as much as $14 billion in unwanted mines they’ve held for years.

Diversified mining companies such as BHP Billiton Ltd. (BHP) and Anglo American Plc (AAL) don’t see the metal as strategic because it generates less cash than other commodities and requires more investment. With nickel prices improving and companies looking to cut costs, OAO GMK Norilsk Nickel, the largest producer, last month agreed to sell two mines in Australia. BHP, valued at $174 billion, said May 14 that it’s holding talks to sell its Australian nickel unit, while London-based Anglo said it may consider shedding its mine in Brazil.

Private-equity firms and smaller companies such as $12 billion First Quantum Minerals Ltd. (FM) could be potential buyers, according to Sanford C. Bernstein & Co. Should nickel prices continue to rise, BHP’s assets could be valued at as much as $9 billion and Anglo’s at $5 billion, Macquarie Group Ltd. said.

“Deals chase a rising commodity,” Lee Downham, global mining transaction chief at Ernst & Young LLP in London, said by e-mail. When prices climb, those companies “with a strategy to divest look to capture positive market sentiment in order to generate a higher valuation.”

China Substitute

Nickel is rebounding from three straight years of declines as Indonesia, the biggest nickel ore miner, banned ore exports in January in an effort to boost domestic processing. China depends on the ore for its low-grade nickel used in stainless steel and, with the ban disrupting supplies, Macquarie estimates China’s output will fall 25 percent this year, tipping the global market into deficit.

Analysts are divided on how long the rally will run. Nickel for three-month delivery at the London Metal Exchange rose to $21,000 a ton May 13, the highest since February 2012, and was trading at $19,025 at 12:47 p.m. local time. While Goldman Sachs Group Inc. sees prices dropping in the next 12 months as the Chinese build up processing capacity in Indonesia to skirt around the ban, Macquarie forecasts rising prices for years.

“The Indonesian ore export ban is a game-changer,” both for the nickel markets and for asset disposal, Jeffrey Largey, an analyst at Macquarie in London, said in a phone interview. “We have a very compelling price profile, it ramps pretty aggressively. That’s mainly because we start to see a meaningful structural deficit emerging in the commodity.”

Buyer List

At current prices, Bernstein estimates the BHP nickel assets would be valued at $3 billion to $4 billion and Anglo’s Barro Alto nickel project at $1 billion to $2 billion. Surging prices would mean the estimates more than double, with BHP’s assets valued $9 billion and Anglo’s at $5 billion in a sale, based on a long-term price of $24,000 per ton, Macquarie said.

Among the potential buyers are private-equity funds, such as X2 Resources, and smaller mining companies, such as First Quantum, which has bought struggling assets and turned them into producing ones in the past, according to Bernstein.

“High prices create a perfect opportunity for the large miners that see little value in nickel assets to find buyers,” Paul Gait, an analyst for Bernstein, said in an interview.

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