A mining marriage, but pregnant pause in M&A Rarely can an $88bn deal have been greeted with such disinterest. But the proposed union of Xstrata with Glencore International is no ordinary merger. UK-listed miners rose 3 per cent on Thursday after Xstrata and Glencore, its biggest shareholder, announced plans for an all-share merger of equals. The day before, the sector rose by 3.2 per cent after manufacturing reports from China and the US proved slightly better than expected. That positive monthly economic data triggered a bigger response than a mining mega-merger indicates how much the news had been telegraphed. The marriage date may have been news, but the engagement was being talked about since long before Glencore's $10bn flotation last May. FROM On London Under normal circumstances, an industry-changing takeover would trigger speculation on who may be next. In the four months from November 2007, when BHP Billiton launched a bid for Rio Tinto, hopes of an M&A boom led the miners to outperform the copper price by around 50 per cent. In contrast, the talk this week was of companies "Glenstrata" would not be buying. The practicalities of bringing together the world's biggest commodities trader with the fourth-biggest diversified miner are expected to stymie any further dealmaking. That assumption has weighed against stocks including ENRC, the Kazakh-based group that Glencore had been linked with last year. Analysts have also argued that Lonmin, the platinum miner in which Xstrata owns a 25 per cent stake, was unlikely to fit the plan. "Glencore have always been vocal about the limited value they see in precious metals within their business model," says UBS analyst Ben Davis. Precious metals, due to their high value density, can always be put on a plane thereby limiting arbitrage opportunities. We would expect the potential combined entity to look to divest the Lonmin stake at the right price. Once the disposals and corporate tidying are complete, Glencore-Xstrata is expected to look to further consolidation. Anglo American has been marked as a likely target - though that remains a longer term concern. But might rivals move first? Will they want to bulk up to match the pricing power created by the Xstrata-Glencore union? Not necessarily, analysts say. The enlarged company will control about 8 per cent of the copper and nickel markets, and nearly 12 per cent for zinc. But such market shares should not be enough to significantly influence pricing in these highly liquid, exchange-traded markets, so few expect to see a panic response from competitors. Industry confidence provided another reason not to expect an M&A boom. BHP's bid for Rio came just a few months before the commodity cycle's peak in mid 2008. Eighteen months later, when a weakened global economy forced BHP to abandon its pursuit, the value of its all-share offer had tumbled from $147bn to $66bn. Some have argued that Glencore's move for Xstrata as proof that both management teams retain the view that commodities are in a long-term bull market. But then, mining executives are rarely anything other than confident. Either publicly or privately, they do not stray from the industry mantra that 2008 was a blip in the bull market rather than a cyclical trend. Investors, however, have reason to be more cautious. The UK miners as a group have jumped by 23 per cent in the year to date. Yet copper has risen by less than 10 per cent over the same period and lead indicators for metals markets, such as the Baltic freight index and US scrap prices, have been trending lower. For shareholders, the continuation of the recent performance depends on whether the economies of China and America can be shepherded towards sustainable growth. Results next week from BHP Billiton are likely to provide a much clearer view on industry sentiment than Glencore and Xstrata's grand plan. The UK miners trade on average at nine times earnings - a nine-month high, and well above the trough of three times earnings they reached at the end of 2008. Some economic optimism is already reflected in valuations. Anyone waiting for M&A to push those multiples even higher may be waiting in vain.