Digging deep, finding profits

The great mining predators are on the prowl again, says Judi Bevan. The Chinese are on a spending spree in Africa. And there’s plenty of room for canny investors to make money by following the deals closely

For those worried they have missed the move in mining shares – the FT mining index has nearly doubled since the market hit bottom in March – consider this. As of late November, the index was still around 40 per cent down from its peak in June 2008 and a renewed outbreak of bid speculation – along with Xstrata’s so far unsuccessful approach to Anglo American – indicates that those who are actually running mining houses believe there is plenty more value to be unleashed.

The surge in share prices has given predators such as Xstrata the paper power to go prowling once again. Before the stock market meltdown of last autumn, several deals had been in the air. China’s biggest aluminium group, the state-owned Chinalco, had been seeking to buy an 18 per cent stake in Rio Tinto, while the former Brazilian state miner Vale had enjoyed informal talks about bidding for Xstrata.

Last autumn, as stocks and commodity prices sky-dived, with the exception of gold which moves on a separate axis, all big deals were put on ice. Now, as animal spirits resurface, the game is on again.

For some, it is a case of eat or be eaten. Mick Davis, who left BHP Billiton seven years ago to build Xstrata from a small Swiss group worth around £500 million into the world’s fifth biggest mining group today, is back on the acquisition trail with his not-so-friendly approach to Anglo American in September.