Musings by analysts at big-name broking firms on the potential for takeover bids and private equity raids on BHP Billiton and Rio Tinto have become a handy shorthand explanation for share-price surges in the mega miners.
Hot on the heels of Merrill Lynch's think-piece that a private equity buyer for BHP could earn a 30 per cent return over three years, Citi has let fly with the insight that should an undervalued Rio become a takeover target, BHP has the size to pull it off while South Africa's Anglo would have the most to benefit.
Citi said that, with Rio trading at 50 per cent discount to Citi's "sum of the parts valuation", the stock was now well into leveraged buy-out territory.
Rio ended the day up $4.53 or 5.2 per cent at a record $91.38. BHP gained 96¢ to $31.56, which is still short of its May 2006 peak of $32.
Given that private equity and competitor takeover action in the industrial market is as hot as it gets, the musings from the analysts opened up the prospect in some investors' minds that the big end of mining would not be immune from the action.
But the more sober assessment yesterday was that the 57 per cent rebound in the copper price since its February 5 low had more to do with the share-price runs.
Nickel's 44 per cent run in the same period has also helped, as has the turnaround in price sentiment on the bulk commodities of coal and iron ore from price falls in 2008, to price gains.
Since the February 5 rebound in copper started, BHP has trotted 19.5 per cent higher and Rio 21 per cent.
Those gains reflect a partial revaluation by the market of the two big miners to take account of commodity price improvements.
Recent UBS analysis suggested that, if spot prices were to prevail, BHP's valuation would be more like $60 a share and Rio's more like $149 a share.
Rio's just-retired chief executive and 37-year industry veteran, Leigh Clifford, cautioned last week that, while private equity funds were hunting for investment opportunities around the world, typically they had shied away from industries that had been cyclical in nature.
But he added that the industry had not been cyclical of late and that it would be "naive to imagine that private equity doesn't show some interest in the mining industry".
The reporter owns BHP shares.
