Global mining: a shaft of light Dig it up, transport it, sell it. Mining may be the plainest of industries, but a decade of rising commodity prices has transformed it from moustaches and short-sleeved shirts into one of the hottest sectors going. With sex appeal come the hookups. At $170bn, announced deals last year were worth four times more than a decade earlier, according to Dealogic data. And although the A-list pairing of BHP Billiton and Rio Tinto fizzled out three years ago, Glencore and Xstrata talks have set tongues wagging yet again. Who is next? Dispassionate investors, however, need to remember a few golden rules when it comes to global mining deals. The first is that cost synergies are hard to come by. There are exceptions: the $10bn-odd of potential annualised savings from BHP and Rio operating identical railways and ports in the Pilbara probably justified that deal alone. But, more often than not, mines are discrete assets a long way apart. The next concerns commodity prices. Ignore the acquirer rabbiting on about long-term demand, or the number of washing machines in China. Dismiss, too, a company rejecting an offer because it does not reflect "strong fundamentals." Such factors, however bullish, should already have been reflected in both companies" share prices. Which does not mean the market is always right. Recent history suggests that mining assets were sold too cheaply in retrospect. But that can quickly change of course - which leads to the third golden rule of mining M&A: investors should focus on so-called tier-one assets. These are mines that are either large, established or well-run enough to operate at or near the lowest marginal cost for a particular commodity. Only these have a chance of staying profitable when the cycle eventually turns. Tier-one assets help the likes of Xstrata achieve 30 per cent-plus gross margins. But because it has many other projects at different stages of production, its return on assets was only in single-digits last year. For all the glam, mining is still a tough, dirty business.