Any slim remaining chance that Rio
Tinto would launch a counter-bid for WMC Resources all but disappeared
this morning when the London-based dual-listed company confirmed it is
proceeding with a $400-$500 million offmarket share buy back. Check out
the Rio Tinto announcements here.
If you were about to splash $10 billion on something, you’d be
organising lines of credit and having an equity raising, not using your
cash flow to buy back shares.

Rio Tinto is demonstrating
discipline and showing it puts shareholder returns ahead of strategic
and potentially nationalistic considerations. This is not to say Rio
Tinto doesn’t like contested bidding wars — after all, who can forget
the battles to win North and Ashton Mining four years ago?

Mining
stocks were off across the board this morning as BHP Billiton fell 24c
to $18.90, Rio Tinto dropped 52c to $46.78 and WMC Resources eased 6c
to $7.96. Anyone who got out of WMC above $8 did well, as BHPB’s $7.85
a share bid will succeed.

Meanwhile, a mining engineer writes:

There
is a significant operational aspect to BHP Billiton’s buyout of WMC
that nobody has yet commented on. Nearly all of WMC’s assets are
underground hard rock mines, something BHPB has no expertise in.
Underground hard rock operations require a good deal of planning
finesse to be successful – you can’t just hit them with a bigger hammer
to force them to ramp up production.

It will be interesting to
see how BHPB management adjusts to such a change in mindset, and how it
affects WMC’s current operational managers.

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Peter Fray
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