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Speaking to an audience of mining industry professionals in Toronto, Tom Albanese made his message loud and clear. “The consolidation we are seeing heralds a new era that we have not seen before and probably won’t see again,” Mr. Albanese, then the chief executive of Rio Tinto Ltd., told the crowd. “We’re on the cusp of something huge.”
That speech was made in March 2008. It was highly appropriate at the time, as the global mining industry was in the midst of the biggest round of consolidation in its history. Just a few months earlier, Rio Tinto paid US$38 billion for Alcan Inc. In 2006, Inco Ltd. and Falconbridge Ltd. were acquired in twin deals worth around $20 billion each. And two years after that speech, BHP Billiton Ltd. tried and failed to buy Potash Corp. of Saskatchewan Inc.
But today, his remarks just seem silly. The great consolidation wave of the past decade, which so many experts said was permanent and irreversible, is being reversed in a big way. This week, Brazilian mining giant Vale SA said it may spin off its base metals unit in an initial public offering in Toronto, effectively bringing Inco back to life. BHP is spinning off (some would say dumping) US$15 billion of assets into a new company.
Other big consolidators such as OAO Severstal, Barrick Gold Corp., Kinross Gold Corp. and Cliffs Natural Resources Inc. are unloading assets for far less than they paid. And there are always rumours that Rio Tinto could shed its Alcan-led aluminum business as well.
Most of the giant transactions completed between 2005 and 2011 were massively overpriced, leading to writedowns and a wave of CEO firings and resignations. That includes Mr. Albanese, who left in a cloud of embarrassment last year.
So what did the big buyers of the past decade get wrong, and why are they now undoing so much of what they did?
For the rest of this article, click here: http://business.financialpost.com/2014/12/06/breaking-up-is-easy-to-do-potential-inco-ipo-highlights-mining-sectors-new-reality/