FEARLESS FCX + The INEVITABLE

In light of Brazilian mining behemoth Vale (RIO...$170 Billion marketcap) ending its TAKEOVER talks with London-traded European mining company Xstrata (Xstrata's current marketcap is $35 Billion), who could be next on their list to ACQUIRE ?

http://www.bloomberg.com/apps/news?pid=20601081&sid=ahBpW.PXmMvw&refer=australia

I can't tell you for certain but I believe American made Freeport-McMoran Copper & Gold (FCX) is a very attractive takeover target. Sure it's a commodity stock and because of that its volatile movements can be difficult to STOMACH...BUT...as I mentioned in a previous post, this industry is rapidly + UNDOUBTEDLY undergoing 'consolidation' (acquisitions done in order to reduce/shrink the size of global players/sellers).

Couple of major reasons WHY global commodity players are consolidating:

1.) EXTERNAL GROWTH IS CHEAPER --> Because of current industry dynamics, it is actually cheaper for a lot of the MAJOR public commodity players (BHP Billiton, Vale, Rio Tinto, etc.) to outright buy smaller companies on 'wall street' vs. growing their businesses on 'main street' (i.e: taking the time to discover sites, gain regulatory approval, set up shop, explore, mine, etc.). In other words, 'external' growth is currently more attractive + cost efficient to these guys versus growing their businesses internally. Makes you think that a lot of the commodity stocks on wall street (many of which are selling at P/E's of 10-15) are INHERENTLY CHEAP, huh?? !

2.) GLOBAL SUPPLIER PRICE LEVERAGE --> Industry consolidation also offers the major players the opportunity to organize and incrementally gain global COMMODITY PRICING LEVERAGE against the HUGE + growing emerging market demand-side counter-parties (aka the usual suspects like India, China, Russia, etc.). As the demand base becomes larger these commodity companies are feeling the pressure to organize + consolidate in order to maintain pricing power.

The 'supplier/demander' war on commodities is very much REAL, ongoing and pretty darn interesting. For example, in an effort to block BHP from merging with RTP, CHINESE aluminum company, Chinalco, just recently teamed up with American aluminum company, Alcoa (AA), to acquire a 9% stake in BHP's potential takeover target Rio Tinto (RTP)! Why is that interesting? In MY opinion, China (the demand side) is clearly reacting to and feeling threatened by BHP's unsolicited RECORD $147 BILLION takeover bid for Rio Tinto. China is (and SHOULD be) concerned about doing its very best to STOP such a blockbuster merger from happening because it could very likely result in higher priced commodity imports for the country.

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Some FCX Stats:
*Marketcap: $37 Billion
*P/E: 12
*FORWARD 08 P/E: 14
*Dividend yield: 2%

*World's largest publicly traded copper company.
*2007 revs rose 190% yoy to $17 Billion (Phelps Dodge acquisition).
*2007 profits rose 93% yoy to $2.7 Billion.
*2007 Free Cash Flow rose 225% yoy to $6.2 Billion.

Full Disclosure: I own shares of FCX.