This morning I would like to share some initial thoughts on the $50bln Anglo-Teck mining mega merger to create the #5 global copper player.
The basic premise is this: any time Anglo does a major transaction, it always makes me nervous because they are the UMC — the Ultimate Mining Contra. The examples are almost too many to count. Most are aware of their spinning/selling out of Thungela thermal coal and Anglo Platinum on multi-year (decade) lows in the recent cycle. But the Contra is boss level in this one, and it goes back a long time. Younger readers won’t recall this, but in 2012 they paid over $5bn to acquire the 40% of De Beers they didn’t already own just as lab-made diamonds were becoming a thing. However the true UMC achievement (possibly the greatest ever if only from a matter of pure timing) came in August 2008 — one month before the financial world nearly ended as Lehman’s bankruptcy threw the world into the biggest recession since the Great Depression, and three months after the all-time high in MSCI Brazil (EWZ) that still holds to this day. This is when Anglo bought into Brazilian iron ore by acquiring over US$5bln in assets from MMX, the second largest company of failed billionaire Eike Batista.
I am clearly bullishly biased when it comes to copper so take this with an entire shaker of salt, but it occurs to me there’s something more to this contra than just “Anglo did a giant deal so the mining cycle is over.” Sure, maybe we are close to a correction in the near term if we get a recessionary dip in global economic activity that takes metals down with it. But this Contra requires a deeper look.
Let’s play…
