Nearly three-quarters of a billion dollars were spent on the aborted takeover of Rio Tinto by BHP. Just imagine what that would translate to in share dividends. Instead it was directed to Goldman Sachs and other Wall Street folk for services rendered.
I know some fine mining engineers who long ago stopped doing mining engineering in the sense of making holes in the ground and recovering ore and other useful products for the bathroom and bedroom. For decades now they have been consulting exclusively on due diligence and take over bids. They have grown rich. When I accused them of being no better than California Real Estate speculators in creating and sustaining a non-productive bubble, they replied I was out of touch with the modern world.
“What is wrong with a mining bubble, or a real estate bubble for that matter, as long as you are making money. For making money is the way of the world. If we don’t make money, we don’t make anything else. It is the western way to the good life: Starbucks, Big Macs, SUV, AIG, and all those other three-letter acronyms.”
They may be right; I may be wrong and out of touch; but I feel an inherent disquiet about not producing anything, and instead just shuffling money around and growing rich. I know they are “adding value” whatever that means. I know their clients would be taken to the cleaners if they did not have the best mining-financial advice possible. But nearly a billion dollars for the BHP Rio scrap?
I cannot help but wonder if the scrap and the cost are not just sad testaments to the ego of a young man, Marius Kloppers, come to take over BHP and by extension Rio Tinto. Was this scrap initiated as another grand tragedy in the long line of invasions of foreign lands by lusty young men intent on adventure, a bit of blood, booze, brawds, and the opportunity to come home bragging about foreign wars. Is this aborted take-over bid one with the crazy Crusades, or silly Saddam’s invasion of Iran? Bush’s ignorant invasion of Iraq? If it is, it is cheap by comparison. I bet it gave many a shareholder thrills of delight while it was in play. The news did entertain the rest of us. Cheap entertainment really.
The funny thing is this fee paid to investment bankers really did nothing to preclude the financial melt-down. It is nice to think though that the billion from BHP was probably one billion less than would otherwise have had to come from the taxpayer. So we must conclude: on and upward with these vast mining take-over bids. Every one reduces the burden on the taxpayer even if it costs the shareholders.