RE: Cdn Diamond Companies a Target?''JACQUIE MCNISH
From Saturday's Globe and Mail
Conclusion
The long haul
How short-term gains won the day, and lost the basin
How did Xstrata and CVRD hijack one of Canada's best hopes for a global corporate champion? The easy answer is that Swiss and Brazilian miners have more benevolent owners and deeper pockets to outbid their Canadian competitors. A more awkward truth is that Canada's mining and political leaders couldn't have played their hands more ineptly. Imprisoned by the bonds of old rivalries, personality clashes and conservative directors averse to risky takeovers, Canada's mining leaders waited too long to unify against advancing foreign raiders. When the Canadians finally moved, they were tentative and cautious. They badly miscalculated the regulatory landscape and the emerging power of hedge funds on the takeover battlefield. When they turned in desperation to Ottawa for political support, they encountered two shaky minority governments unwilling to tangle with the politics of protectionism.
Canada's 20th-century mining companies were no match for a new breed of 21st-century raiders. An industry that once prized geologists and engineers now hails financial and banking experts as the new kings of mining. The world's fastest-growing mining companies are BHP Billiton, CVRD and Xstrata, and it is no coincidence that their chief executive officers are former bankers and financial men. They view their mining conglomerates as global trading houses that can quickly assemble billion-dollar pools of capital to acquire competitors and launch new mines. They seek to preserve their profits in a relentlessly cyclical business by controlling production to temper sharp swings in metals prices.
Don Lindsay, another banker, was right when he predicted 1½ years ago that Canada's mining industry was poised for consolidation. What he got wrong was that no Canadian company, not even Teck, could match the gutsy deal-making finesse of such titans as BHP Billiton, which a few years ago leveraged its perch in Australia to become the world's largest mining company. As a result, two of Canada's most powerful companies proved to be much better sellers than acquirers. Shareholders and executives at Inco and Falconbridge reaped huge stock and options windfalls. But Canada lost control of massive mineral deposits, including Canada's crown mineral jewel, the Sudbury Basin. Executives in London and Rio de Janeiro are now preparing to take advantage of hundreds of millions of dollars of Sudbury cost savings that were first envisioned by Project Pentlandite.
As for the men who once led the Canadian companies through the takeover wars, their careers have been shuffled like the mining assets they traded this summer. Scott Hand was hired last month to oversee CVRD's acquisition of Inco, and he will report to bosses in Rio de Janeiro until he retires next year. Derek Pannell quietly crossed sides two weeks ago to join the board of his summertime takeover opponent Teck. Don Lindsay, the man who saw five takeover strategies vaporize in less than two years, is already charting a new acquisition strategy at Teck. Unable to buy nickel or copper companies, his company is now betting its future on acquiring Canadian diamond operations, which he believes could be Canada's next Inco or Falconbridge. Steve Whisler, the Phelps chief who couldn't tie up takeovers of Australian or Canadian mining rivals, this week agreed to be swallowed by its U.S. competitor Freeport McMoRan Copper & Gold Inc. in a friendly $26-billion merger proposal.
And what of the 12 Inco directors who started their turbulent takeover journey in Labrador in September, 2005? After 13 months and 50 board meetings, the hard-working guardians of shareholder value earned well-deserved praise for negotiating such a lucrative takeover premium for their investors. That is the short-term story. A longer-term perspective is not so generous. While it is true that Inco had been in decline for decades, its directors could have acted boldly to change the destiny of a onetime mining great. Instead, Inco's directors and executives moved too late to forge a transformational alliance with its neighbour Falconbridge. When they did act, their naiveté and lack of prowess in the political and takeover arena weakened their hand. Yes, Inco officials will say powerful hedge fund investors are making it harder for public companies to make big bets on acquisitions. And yes, foreign regulators interfered with a homegrown deal. But these forces have not thwarted the ravenous deal makers at BHP Billiton and Xstrata, who now tower over Canadian mining companies. These risk takers, not Inco or Falconbridge, are the builders of a new mining century''.