Xstrata fronts WMC line

AS Swiss-based Xstrata steps up the pressure in its so-called “opportunistic” takeover battle for Australian miner WMC Resources, speculation is growing over whether another company may enter the fray. A number of parties are known to be running the ruler over WMC.

However, most of those took a look when WMC conducted a demerger in 2001 but balked at making an offer then.

Sources say this is likely to happen again.

Two of the strongest contenders, aside from Xstrata, are considered to be Rio Tinto, which is being advised by Maquarie Bank, and BHP Billiton, which has retained advisers Lazard and CIBC.

Other names thrown into the mix include, Canadian nickel-miner Inco, which is being advised by Morgan Stanley, South African giant Anglo American (advised by Deutsche Bank), Brazil’s CVRD, China’s Minmetals and copper major Phelps Dodge.

Russia’s Norilsk Nickel and Canadian nickel miner Falconbridge may also be interested, while WA Business News recently learned that a tenth unnamed company is also going over the numbers.

WMC is yet to establish a data room, however, speculation suggests one is on the cards.

Although it is unlikely many, if any, bids will emerge there are some obvious synergies between WMC – given the strategic value it commands – and the named companies.

Rio Tinto is considered to have an interest in WMC’s valuable uranium assets as the life of its own Australian uranium operations are declining.

The uranium price has also doubled in the past year and many are tipping it to continue increasing as global energy demand increases and diversifies.

Meanwhile, BHP Billiton is said to have harboured a desire for WMC’s nickel assets ever since WMC’s demerger.

There has been speculation among analysts and in the media that the two giant miners could consider a joint bid, however, some high profile Australian commentators have said WMC’s flagship copper, gold and uranium mine Olympic Dam may be too complex for likes of either company.

Of the remaining parties, despite being distracted by its bid for Noranda, Minmetals, which is close to WMC’s defense adviser Citibank, is considered to be a key player and has been invited to have a look.

Minmetals, like most Chinese mineral companies, is desperate to secure resource supply and is thought to be less interested in control.

A move by Minmetals to take a large stake in WMC at a decent premium to Xstrata’s offer would support WMC’s share price and its management.

WMC’s share price has surged from below $5 to highs of up to $7.25 since it was first revealed that the board had rejected Xstrata’s $6.35 per share bid at the end of last month.

At the time WMC said the bid failed to recognise the current and strategic value of WMC’s assets.

The stock then fell back slightly as WMC’s management struggled to justify the price being above $7.

More recently things have intensified with WMC sprucing itself up, announcing the discovery of a potential new nickel province in WA’s north eastern gold fields as well as a significant resource upgrade at Olympic Dam.

To counter this Xstrata chief Mick Davis was reported as describing the proposed Olympic Dam upgrade as an advanced exploration play, shortly before Xstrata launched a second bid, this time offering the same price but going directly to WMC shareholders.