Mining industry gets reoriented

Canada’s largest mining company could have a new owner sometime next year — the Chinese government.

State-owned China Minmetals Corp. is negotiating the purchase of Noranda Inc. for $5 billion, plus assumption of about $2.5 billion in debt. Noranda, either directly or through its majority stake in another mining company, produces copper, zinc, nickel and aluminum. Much of that comes from mines in Canada and Chile.

Noranda should be a familiar name to Inland Northwest residents. Until two years ago, Noranda held the rights to develop the Montanore silver and copper deposit in northwestern Montana. Spokane-based Mines Management Inc., which took over the project, is seeking environmental permits.

In May, Noranda and Century Aluminum bid for the Gramercy alumina refinery owned by Kaiser Aluminum Corp. Noranda’s aluminum operations are not part of the proposed deal with Minmetals. Those assets will be repackaged as a new company to be spun off to Noranda shareholders.

If Australia were not a much more convenient supplier of alumina, Minmetals might have scooped up that operation as well. Gramercy will go dirt cheap unless another buyer steps forward as a bankrupt Kaiser liquidates operations that do not produce finished products.

Minmetals has become a global player in the metals industry as China hunts for the raw materials to sustain its rapidly growing economy. As China’s largest metals trader, Minmetals already imports 40 percent of that nation’s copper and half its alumina, from which aluminum is smelted. Almost three-quarters of the nickel scrap exported from the United States in the last year has been consumed by China.

Nickel is used in the manufacture of stainless steel.

Minmetals’ revenues were $11.7 billion last year. That’s one big junkyard dog.

Demand from China has a lot to do with the impressive rise in metals prices over the last year. Copper prices are up 64 percent; nickel has surged 40 percent.

But owning supplies makes a lot of sense if you are looking years ahead, which the Chinese are. By 2010, for example, China’s consumption of copper will constitute 25 percent of world demand.

And they are bold. Besides their offer for Noranda, the Chinese have approached the Russians about purchasing one of their oil companies.

Is there a threat here? Not if you are a capitalist. Brascan, which owns 42 percent of Noranda, shopped the company for months before giving the nod to Minmetals. The Chinese may yet be outbid. Analysts say Teck Cominco, whose zinc operations include the Pend Oreille Mine at Newport and a smelter in Trail, British Columbia, is a possible but unlikely candidate.

A spokeswoman for the National Mining Association had no comment on the deal except to note consolidation has been rolling up mining companies as metal prices improved.

The stock market certainly was not impressed by the Noranda news. Not only did the price of its shares drop Monday, so did those of Brascan and Falconbridge, a copper and nickel producer majority owned by Noranda. Although the final terms of the acquisition by Minmetals have not been set, investors had already bid up the price of Noranda’s shares in anticipation of a decision to sell from Brascan. If the anticipated price stays where it is, it could be a sign the long climb in metals prices could be near an end.

Brascan has some interesting plans for Minmetals’ cash, as well as another $352 million from the sale of half its interest in a maker of the oriented strand board that is widely used in housing construction. The company reportedly wants in on the redevelopment of the World Trade Center site in New York City. It already owns prime real estate in other major world cities.

Brascan is also buying up small hydroelectric projects in eastern Canada and the U.S., and may get into the wind energy business in Ontario province. Do company executives expect prices for kilowatts to rise like those for copper? If so, look out.

But remember, too, Noranda’s reasons for abandoning Montanore: metal prices were too low.