Miners throw down antitrust gauntlet: John Kemp

-- John Kemp is a Reuters columnist. The views expressed are his own --

By John Kemp

LONDON (Reuters) - Consolidation of the global mining industry is nearing its logical conclusion. For years, senior executives have predicted that the sector would in future be dominated by five or six large diversified companies.

The proposed "production joint venture" between BHP Billiton (BLT.L: Quote, Profile, Research) and Rio Tinto (RIO.L: Quote, Profile, Research), and Xstrata's (XTA.L: Quote, Profile, Research) mooted "merger of equals" with Anglo American AA.L would, if consummated, make that a reality.

BHP, Rio and Anglo-Xstrata, together with a handful of other strategic players -- Brazil's Vale (VALE5.SA: Quote, Profile, Research), Chile's Codelco, Russia's Norilsk Nickel (GMKN.MM: Quote, Profile, Research) and U.S. Freeport McMoran (FCX.N: Quote, Profile, Research) -- would dominate production and trading of bulk commodities (iron ore) as well as a host of other strategic materials (copper, ferro-alloys and platinum group metals).

For steelmakers, manufacturers and consumers, consolidation raises legitimate concerns about lessening competition and its impact on investment and pricing. Competition authorities in the European Union and elsewhere will subject the deals to intense scrutiny. The question is whether they can find legal grounds to block them.

SALAMI SLICING PROBLEM

Taken in isolation, none of the deals is objectionable, though the production joint venture between BHP and Rio comes close to the line and should be subject to especially close and ongoing surveillance. Regulators may struggle to find adequate legal grounds to block them. But the cumulative effect of a whole wave of consolidations is to make the industry significantly less competitive.

The issue is the familiar one of "salami tactics," first used to describe stealth takeovers by totalitarian parties in central and eastern Europe and later popularized in the British political satire "Yes, Prime Minister." Fictional Prime Minister Jim Hacker's chief scientific adviser shows that his boss will never reach a point at which he is prepared to press the nuclear button if the Soviets take over western Europe in a series of piecemeal moves rather than launching one brazen frontal assault. (here)