Now that CEO Tom Albanese has flashed Rio Tinto’s cash with a record-breaking $44 billion bid for Canadian aluminium producer, Alcan, it’s a no-brainer to forecast that BHP Billiton’s new CEO, Marius Kloppers, will be forced to follow with an even bigger bid for Alcoa.
The real question, which should have the attention of every Australian investor, is how can they profit from the aluminium party, or is it only a game open to the big boys?
The quick answer is that the aluminium party really is a big boys only affair. Direct exposure to the trio of commodities that make up the aluminium cycle – bauxite (the ore), alumina (the intermediate product) and aluminium (the metal) – is extremely limited.
Alumina (AWC) — which is up 4% mid-morning at $8.71 on a p/e of about 19 times — is the only pure play on the ASX, but it’s really a captive of Alcoa because the American light metals giant owns 60% of Alumina’s key operating asset, Alcoa World Alumina and Chemicals (AWAC).
If/when Kloppers bids for Alcoa it is possible that he will also bid for Alumina. Speculation along those lines can already be seen in the Alumina share price, which has risen from a 12-month low last August to be trading at an all-time high level this week – and it’s almost certainly destined to rise further.
But, and this is the key, aluminium is only part of a much wider game – and Albanese said as much when making his well flagged, friendly, move on Alcan.
He said, and let these words ring in the ears of every investor: “There will be three big metals in the China story: steel, copper and aluminium.”
Well, just as it’s a no-brainer to see Kloppers move on Alcoa (if only because he needs to be seen as decisive even before he officially gets his feet under the CEO’s table) then it doesn’t require too much thinking to widen the investment net to catch commodities other than aluminium.
For Australian investors that means keeping an eye on emerging, pure-play, iron ore stocks such as Gindalbie, Midwest, Murchison Metals, Mt Gibson, Atlas and the tear-away leader, Fortescue, even if it is suffering cost blowouts and will soon see its enigmatic chief executive, Andrew Forrest, in court to face a corpore misdemeanour charge.
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Copper, likewise. This is a commodity which, like iron ore and aluminium, is a fundamental building block in a fast-growing industrial/manufacturing society, such as China. It is used in every part of industry, from construction to electronics to consumer goods.
There’s a pattern here for anyone who wants to look closely, and it’s not just Canada, which lies at the heart of what’s happening. The pattern will be revealed in the future takeover activity in stocks that envelop the three commodities nominated by Albanese: steel, copper and aluminium.
(This is an abridged version of the lead story from Eureka Report which will be available this evening at www.eurekareport.com.au)