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It certainly took some of us by surprise.
At a time when banks are too scared to lend to one another, never mind anyone else, Rio Tinto (RIO) announced it had raised £20 billion to fund its takeover of Canadian aluminium giant Alcan. But it seems that where the deal is deemed low risk, and the sector solid, there's money ready to invest.
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And right now, there's no more solid industry than mining.
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Rio's deal comes on the back of another set of record results from BHP Billiton (BLT), the world's largest mining company. Melbourne based BHP's $A16.7 billion profit was just short of the $A17.3 billion budget surplus announced by Australian federal treasurer Peter Costello earlier this week. Which means it's making just as much money as the Australian government.
'We are going into a growth phase at BHP Billiton in terms of petroleum, copper, nickel and this is just reminding everyone that it's coming,' David George, a resources analyst at JP Morgan tells Reuters. 'We'd have to rate it as a pretty strong result."
At first glance, BHP may sound rather overconfident in declaring that Asia is more than capable of taking up the slack from a slowing US economy. "Global economic fundamentals remain strong and the ongoing strength shown by emerging Asian economies (including China) should support global growth,' it said.
But BHP has done a survey of its biggest customers. And they've found that while the US is indeed slowing, China and India are in still in dire need of the raw materials they need to maintain domestic growth. And that's good news for the mining industry. "In China, there is a boom in infrastructure and factory building," says ABN AMRO fund manager Arjan Palthe. "Considering the economic expansion there, this industry group is likely to continue providing excellent returns for a number of years."
China now accounts for 20% of BHP's output, while India's share is growing. BHP is today selling more volume to India in volume terms than it did to China six years ago, says the company's incoming Chief Executive Marius Kloppers. "That is a pretty amazing statistic", he tells Bloomberg.
As is the fact the Chinese Central Bank just raised rates for the fourth time this year, in order to cool domestic demand. This at a time when the world's central banks fret over whether they shut cut rates to ward off an economic slump. So even if US demand for Chinese good does weaken, it looks like it will have a minimal effect on the mining industry.
In fact, the sub-prime fallout is likely to have a negligible effect on commodities. According to Goldman Sachs, investors are unlikely to hold large positions in both sub-prime and commodities. So when an investor in sub-prime starts looking for cash to fund his heavy losses, it's doubtful that he will have to flog significant holdings in commodities to do so. This "reduces the likelihood of contagion to the commodity markets," the investment bank said back in July. "Commodities have outperformed and still have upside from here."
And there's one company better suited than any other to benefit. Down from a high of 1553p last month, at the current price of 1365p, BHP shares look exceptionally cheap on a P/E of 10. That's attractive compared to the rest of the FTSE 100, even though it is positioned for growth.
"We have no doubt that this is a company with exceptional growth potential", wrote JPMorgan Equities Ltd. analyst Ross Gardiner in a recent note. 'It has identified $70 billion of projects that could be brought on stream." BHP is planning a $5billion expansion of its Olympic Dam mine in Australia, which will see 500,000 extra tons of copper and 5,000 tons of uranium a year brought on line.
The broad nature of its business across areas such as copper, coal and even petroleum also means it was one of the most diversified plays on the market - and therefore defensive.
Cheap, growth orientated and defensive, there probably isn't a better stock on the London market to put your money in right now.
Turning to the wider markets...
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London market close: FTSE 100 - 6,196.9 (+0.9)
European markets: Paris CAC-40 - 5,523.33 (+5.16); German DAX-30 - 7,511.96 (+11.48).
US markets: Dow Jones Industrial Average - 13,235 (-0.25); S&P 500 - 1,462 (-1.57); Nasdaq - 2,541 (-11.10).
Asia markets: Japanese Nikkei - 16,248.97 (-67.35); Hang Seng - 22,921.89 (-45.08).
Crude oil: $69.66. Brent spot: $68.83.
Gold $656.90. Silver: $11.59.
Currencies: pound/dollar: 2.0027; pound/euro: 1.4731; dollar/euro: 0.7353; dollar/yen: 115.8900.
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