The rationalisation of the resources
industry continues apace with the Arizona-based Phelps Dodge overnight agreeing
to buy
Canadian miners Falconbridge and Inco for some US$40 billion.

It looks like the deal leaves Xstrata
standing at the altar again – it had been after Falconbridge. That comes after
BHP trumped Xstrata’s attempted takeover of WMC in 2004, but CEO Mick Davis can
always fall back on his great success in buying MIM at a bargain price.

The double takeover gives copper major
Falconbridge an important diversification into nickel. It’s also part of the
trend that has resulted in less competition between the big mining houses as
there are fewer of them around to compete.

The deal shows how unruffled solid
companies have been by the international equities correction of the past few
weeks. I can’t remember any other correction being as calmly conducted, thanks
to the way the fundamentals of international economic growth remain in place.

Sharp stockmarket falls can break takeover
battles, but this time they’ve continued to roll along. Aside from the local
OneSteel-Smorgon deal yesterday, over the weekend Anadarko Petroleum won
Kerr-McGee and Western Gas Resources for US$21 billion and Mittal Steel
completed its five-month takeover fight for Arcelor for US$33.6 billion.

With the worst of the speculative froth now
blown out of the market, such deals and those crucial fundamentals provide an
investment floor that hype and noise about the normalisation of interest rates
shouldn’t rattle. As Credit Suisse chief
economist Dr Neal Soss says in an interview in the latest Eureka Report (www.eurekareport.com.au): “There are times when
everybody knows something and it turns out that what they know is in fact
accurate.”

Peter Fray

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