BHP and Rio stumble

BHP and Rio are struggling … and shrewd investors, including Glencore’s Ivan Glasenberg, see through the false economics of over-producing.

Summary: While Glencore stalks Rio Tinto, BHP Billiton is trying to win support for its demerger plan, and both major miners are expanding their iron ore operations in the face of a falling price. All-in costs are likely higher than reported and investors appear to be seeing through the miners’ spin, with BHP’s market cap falling more than $21 billion since the spin-off plans were announced. Rio has rejected a merger offer from Glencore, but the suitor knows how to play the takeover game. BHP could be next in line to receive an offer.

Key take-out: The divergence between the aims of the major miners’ shareholders and management has been widened by changes in commodity and capital markets. This gives raiders an opportunity to pounce.

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