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Rio Tinto

Glencore-Rio Merger Will Happen, Hannam Tells Hedge Funds – by Matthew Campbell, Dinesh Nair and Jesse Riseborough (Bloomberg News – November 24, 2014)

http://www.bloomberg.com/

Hedge funds including GLG Partners, DE Shaw & Co, and Pentwater Capital Management were told this month by a prominent London mining banker to prepare for an all-but-inevitable takeover of Rio Tinto Group by Glencore Plc (GLEN), according to people familiar with the meeting.

Former JPMorgan Chase & Co. dealmaker Ian Hannam, who now runs a boutique advisory firm, convened representatives of more than 20 investors at Corrigan’s Mayfair restaurant in the British capital in mid-November to share his views on the potential deal, the people said, asking not to be identified discussing a private matter. The meeting was intended in part to help position Hannam’s firm, Hannam & Partners, to win a role in the transaction, the people said.

“If not today, this deal will happen sometime in the near future,” Hannam said in his presentation, according to a copy seen by Bloomberg. “Glencore is M&A savvy and times deals well. The combination will create a super-major with a diversified portfolio of world-class mining assets.”

Neil Passmore, chief executive officer of Hannam & Partners, said the firm is not working for Glencore or Rio Tinto (RIO), nor is it in discussions to do so. Spokesmen for Rio Tinto and Glencore declined to comment, as did representatives for Pentwater and DE Shaw. GLG couldn’t be immediately reached.

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COLUMN-BHP, Rio were right on iron ore demand, wrong on supply – by Clyde Russell (Reuters U.K. – November 24, 2014)

http://uk.reuters.com/

LAUNCESTON, Australia, Nov 24 (Reuters) – What was lacking at BHP Billiton’s annual meeting was an admission that what has effectively happened with iron ore is that the company’sshareholders are subsidising the profits of Chinese steel mills.

Instead, what Chairman Jac Nasser told the media after the AGM on Nov. 20 was iron ore prices were “not inconsistent with the expectations we had built into our long-term investment”. Both Nasser and Chief Executive Andrew Mackenzie were keen to emphasize the productivity successes at the iron ore business, saying it remains one of BHP’s main profit drivers.

That may well be true, but the message from the executives at last week’s AGM doesn’t quite tally with what BHP was saying in 2011, when it was approving the massive expansion of its iron ore operations in Western Australia.

It was around this time that BHP, its Anglo-Australian rival Rio Tinto, newcomer Fortescue Metals Group and top iron ore miner Brazil’s Vale were all making decisions to radically boost output of the steel-making ingredient.

This unprecedented capacity expansion was based on the two-pronged view that China, which buys about two-thirds of seaborne iron ore, would continue its rapid growth for decades to come, and that low-cost producers would be able to force higher-cost miners from the market.

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The next pop can? How Ford’s new F-150 trucks are shaking up the aluminum industry – by Kristine Owram (National Post – November 22, 2014)

The National Post is Canada’s second largest national paper.

After several years of turmoil, the North American aluminum industry may have found its saviour in Ford Motor Co.’s new F-150 — arguably the biggest thing to happen to the metal since Coke and Pepsi ditched steel cans in 1967.

“When cans transitioned to aluminum it was the beginning of a new era for the industry,” said Gervais Jacques, chief commercial officer at Rio Tinto Alcan, which sells aluminum to General Motors Co., Honda Motor Co. and Tesla Motors Inc. “This is to the same extent.”

Like many other metals, aluminum prices plunged at the start of the financial crisis in 2008. Several aluminum makers were forced to dramatically curtail production in response to a collapse in global demand and an increase in Chinese production that they had dramatically underestimated.

Rio Tinto Group Plc, the global miner that bought Montreal-based Alcan at the height of the market in 2007, has been forced to take US$25-billion worth of writedowns on that acquisition — more than two-thirds of the US$38-billion it paid for the takeover. But aluminum’s troubles may be over, thanks to the aluminum-bodied F-150 and the potential for many other vehicles like it.

One company that sees a massive opportunity arising from the auto industry’s new taste for aluminum is American Specialty Alloys Inc.

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Richest Woman in Asia-Pacific Buys Iron as BHP Calls End to Era – by Jasmine Ng and David Stringer (Bloomberg News – November 21, 2014)

http://www.bloomberg.com/

Gina Rinehart, the Asia-Pacific’s richest woman, is set to start exports in September from her new A$10 billion ($8.6 billion) iron ore mine undeterred by prices trading near five-year lows and forecast to extend losses.

“We don’t like the ore price going down, but we’re in the lower quartile” of production costs, Rinehart, chairman of Hancock Prospecting Pty, said yesterday in an interview at the Roy Hill mine in Australia’s iron-rich Pilbara region.

She was talking just hours after Andrew Mackenzie, chief executive officer of BHP Billiton Ltd. (BHP), called an end to the era of “massive expansions of iron ore.” BHP and rivals Rio Tinto Group (RIO) and Vale SA (VALE5) are flooding the global market, spurring a surplus after a $120 billion spending spree to boost the capacity of their mines from Australia to Brazil.

“I don’t think next year would be ideal to be adding new supply,” Daniel Morgan, a Sydney-based analyst at UBS AG, said in a Nov. 17. phone interview. “The market is pretty well supplied for the next few years.”

BHP stock lost 4.7 percent in Sydney this week for the biggest weekly loss since March, while Rio shares fell 6.1 percent. Fortescue Metals Group (FMG) Ltd., the country’s third-biggest shipper, retreated 54 percent this year.

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Iron ore and the dangers of living by the sword – by Andy Home (Reuters U.S. – November 11, 2014)

http://www.reuters.com/

LONDON – (Reuters) – The price of spot iron ore has sunk to $75.50 per ton this week, its lowest level since 2009. The scale of the price collapse has been breath-taking. Iron ore has dropped by over 35 percent since the start of the year, a significantly worse performance than any other industrial metal.

But what’s really shocking is that the price is now at a level that until recently was collectively deemed impossibly low. It was only in April that José Carlos Martins, executive officer of ferrous and strategy at Vale, the world’s largest producer of iron ore, told analysts that “one thing is for sure, the price will not go below $110 on a sustainable basis”.

This was not irrational producer exuberance. Martins was only voicing the prevailing consensus view when he went on to argue that “we have many times seen the price going below this level but recovering very fast”. Well, here we are with the price trading not just below $110 but a lot lower still. And sustainably so.

That tells you that something has gone very wrong with the iron ore narrative. This market is in a place it was not supposed to be.

And while big producers such as Vale, Rio Tinto and BHP Billiton are sticking to that narrative, they are now facing the unpredictable consequences of a pricing war they collectively started.

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Iron Ore Has Biggest Weekly Loss Since May on Supply Glut – by Jasmine Ng (Bloomberg News – November 7, 2014)

http://www.bloomberg.com/

Iron ore capped the biggest weekly decline in more than five months amid expanding global surplus, with Vale SA’s opening of a port in Malaysia highlighting rising supplies and investments by the world’s largest shippers.

Ore with 62 percent content delivered to Qingdao lost 4.7 percent this week to $75.84 a dry metric ton, according to data from Metal Bulletin Ltd. The decline completed three weeks of losses, deepening a bear market. Prices, which rose 0.6 percent today to snap a five-day losing streak, reached $75.38 yesterday, the lowest since September 2009.

The raw material lost 44 percent this year as producers including Brazil’s Vale, the world’s largest shipper, and BHP Billiton Ltd. and Rio Tinto Group (RIO) in Australia expanded supplies and spurred the glut. Data this week showed record exports of the steel-making raw material from Australia’s Port Hedland last month. Mill closures ordered by China this week to curb air pollution for a global summit were also seen hurting demand.

“Demand in China is weak because some mills were asked to stop production before the APEC meeting,” Ben Cheung, head of metals at ABN Amro Group NV in Hong Kong, said before the price data was released. “The major producers are still expanding supply to try to increase market share. The over-supply situation doesn’t look like it will be alleviated next year.”

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Iron ore giants win first round in global battle but knockout unlikely – by Clyde Russell (Reuters U.S. – October 23, 2014)

http://www.reuters.com/

LAUNCESTON, Australia – Oct 23 (Reuters) – There is now no doubt that the big three global iron ore miners are producing record amounts in their bid to dominate the industry. The question remains, what will happen if they succeed?

Anglo-Australian giants Rio Tinto and BHP Billiton both reported record output in their latest quarterly reports, and affirmed they were on track to boost production even further.

Top producer, Brazil’s Vale is also increasing output, with Brazilian trade figures showing iron ore exports rose 16.7 percent in September from August to 33 million tonnes.

These figures show that the output side of the plan to dominate global seaborne iron ore trade is going quite well for the big three.

In the case of BHP and Rio Tinto, they are well-placed to continue to put pressure on competitors based in their home turf of Western Australia state, as well as those in other parts of the world.

With the lowest cash costs, in the region between $20 to $30 a tonne, and plans to strip out even more costs, they can survive and prosper even if iron ore prices remain weak.

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Iron Ore Risks Extending Collpapse on Supplies: Moody’s – by Phoebe Sedgman (Bloomberg News – October 20, 2014)

http://www.bloomberg.com/

The collapse in iron ore prices may have further to run as global supply increases and steel-demand growth slows, according to Moody’s Investors Service, which said it may reduce ratings on producers.

About 300 million metric tons of new and expanded supply will come on stream over the next few years, analysts including Carol Cowan said in an e-mailed report received today. Global steel-production growth in 2014 remains muted with China, the key driver of consumption, continuing to slow, Moody’s said.

Iron ore tumbled 39 percent this year after companies including Rio Tinto Group (RIO), BHP Billiton Ltd. and Vale SA raised low-cost output in Australia and Brazil, spurring a global glut. The market is in the midst of a transition without precedent in recent commodity history as supply surges and some higher-cost mines are displaced, according to Macquarie Group Ltd.

“Iron ore prices have collapsed,” Moody’s said in the report, which was dated Oct. 17. “With slowing global steel-production growth rates, iron ore prices remain vulnerable to the downside and we expect continued volatility.”

Ore with 62 percent content delivered to Qingdao, China, posted a third straight quarterly loss in the three months to September, and dropped to $77.97 a ton on Sept. 29, the lowest level since September 2009.

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BHP won’t rush to follow Rio to automate as its manned trucks beat robots – by Matt Chambers (The Australian – October 20, 2014)

http://www.theaustralian.com.au/

BHP Billiton’s mining truck drivers are outpacing their robotic counterparts when it comes to efficiency and loading at West Australian iron ore mines, indicating the miner is a long way from any decision to follow rival Rio Tinto in a large-scale driverless truck rollout.

For a little more than a year, BHP has been trialling Caterpillar autonomous trucks at its newest Pilbara region iron ore mine, Jimblebar.

The trial was recently extended to March and a decision to add three more trucks to the nine-truck fleet was taken.

But despite autonomous Caterpillar trucks making up a little over a third of the 25 trucks at the overperforming Jimblebar — the mine came on early, ramped up quicker than expected and will now produce more than flagged — they are only moving 16 per cent of the dirt and ore.

The fact annual truck hours in the manned fleet across BHP iron ore have grown from 4500 to more than 6000, a one-third improvement, is a big factor.

“We’ve seen a very material improvement in the manned truck productivity level,” BHP iron ore mines boss Eduard Haegel said at the company’s Perth office last week.

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BHP Billiton And Rio Tinto Risking A Monopoly Investigation – by Tim Treadgold (Forbes Magazine – October 14, 2014)

http://www.forbes.com/

Two of the world’s biggest mining companies, BHP Billiton and Rio Tinto , might be attracting the attention of government anti-monopoly and trade regulators in attempts to protect their share of the world iron ore market.

A powerful Australian politician warned earlier today that both miners ran the risk of breaching international trade rules by deliberately expanding to thwart competition.

Colin Barnett, head of the Western Australian state government, said that the directors of BHP Billiton and Rio Tinto should be worried about how European and World Trade Organization regulators might react to recent statements from some of their executives.

Time For The Directors To Be Nervous

“If I was sitting around a board table in one of those big companies I’d be pretty nervous about what the WTO and European regulators would think about this,” he said.

“It’s a precarious area they’re going into.” The problem, as Barnett sees it, is that BHP Billiton and Rio Tinto might be behaving in a monopolistic way — a timely observation given that a day earlier the Nobel prize for Economics was awarded to a French academic who specializes in the behavior of monopolies and oligopolies.

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Glencore and BHP Billiton face off in clash of the mining titans – by Andrew Critchlow (The Telegraph – October 11, 2014)

http://www.telegraph.co.uk/

Glencore’s Ivan Glasenberg and his counterpart at BHP Billiton were breaking bread a day after details of the $160bn “GlenTinto” deal emerged. But how much longer can these mining titans remain friends?

Ivan Glasenberg and Andrew Mackenzie — the two biggest names in global mining — had their eyes firmly fixed on each other as they were locked deep in intense conversation during a private lunch last Wednesday at the Santini restaurant in Belgravia.

Just 24 hours earlier Glasenberg, the billionaire South African chief executive of Glencore, had revealed to the market details of an audacious bid to take over Rio Tinto – currently one of the biggest rivals of BHP Billiton, the Anglo-Australian mining giant led by Mackenzie. If successful, the merger would have flipped the entire mining industry on its head.

Whether it was a remarkable coincidence, or just another routine meeting between two powerful chief executives, the lunch could not have been more timely, given the profound challenges facing the global resources industry following the recent slump in iron ore prices and concerns that the decade-long bull run for mining companies has run its course.

Although it is understood that the lunch had been in their diaries for at least a month, both men had plenty to talk about, especially so soon after Glasenberg’s failed bid to create a $160bn (£100bn) merged company that the City has already dubbed “GlenTinto”.

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Why are iron ore prices falling so quickly? – by Eric Reguly (Globe and Mail – October 14, 2014)

The Globe and Mail is Canada’s national newspaper with the second largest broadsheet circulation in the country. It has enormous influence on Canada’s political and business elite.

ROME- Iron ore mines are to Australia what the oil sands are to Canada. The Aussie iron ore business is enormous, capital intensive, profitable and has an insatiable customer – China – just as the oil sands can depend on the United States to consume almost all of its output. The Aussie and Canadian industries share another trait: falling prices.

The value of both iron ore and oil is plummeting. But the similarities end there. Oil is falling because of excess supply and waning demand in the Western world, in good part because zombie Europe is on the verge of a new recession. But global demand for iron ore is still climbing, if at a somewhat slower pace than last year. So why are iron ore prices falling, and why are they falling so much faster than oil?

The price for iron ore in China, the world’s biggest consumer of the material used to make steel for everything from office towers to dishwashers, is down about 30 per cent this year (compared to a 20-per-cent drop for oil). The spot price for iron is off about 40 per cent, though it bounced back a few bucks this week to reach $83 (U.S.) a tonne.

Iron ore is falling even though Chinese demand for steel is up about 5 per cent year on year, while demand for imported iron ore is up 15 per cent or so, outpacing import demand in 2013.

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Glencore-Rio Has Industry Evaluating Future: Real M&A – by Jesse Riseborough, David Stringer and James Paton (Bloomberg News – October 8, 2014)

http://www.bloomberg.com/

The prospect of Glencore Plc (GLEN) buying Rio Tinto Group is sending reverberations through the mining industry that could prompt more deal talks.

Combining Glencore and Rio, which both confirmed they held informal discussions in July, would create a $162 billion behemoth. That such a merger would even be attempted speaks to the pressure the industry is under to cut costs and increase shareholder value amid declining prices for commodities.

A slump in iron ore gave Glencore a chance to go after a cheaper Rio and make it part of a diversified portfolio. With the deal now likely on hold for six months, Glencore could turn to other targets such as Fortescue Metals Group Ltd. (FMG) Or Rio could pursue a defensive deal with a company such as Anglo American Plc (AAL), according to Sanford C. Bernstein & Co.

“This is a hell of a thing they’re proposing,” Paul Gait, an analyst at Bernstein, said in a phone interview. In the past, “we have had that kind of one action precipitate a whole cascade of events that puts a number of other guys in play.”

Glencore approached Rio in July about a merger, and Rio rejected the idea a month later. Rio Chairman Jan du Plessis says the $92 billion company is better off with its current strategy of cutting costs and returning cash to investors.

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COLUMN-Glencore-Rio proposal not the right iron ore deal – by Clyde Russell (Reuters U.S. – October 7, 2014)

http://www.reuters.com/

Oct 7 (Reuters) – The hullabaloo surrounding Glencore Plc’s spurned approach to rival miner Rio Tinto shows why this is probably the wrong deal at the right time.

Glencore’s proposal to create a $160 billion behemoth is certainly audacious, and may even make sense for shareholders of both companies if priced attractively.

But even if it were successful, such a deal would do little resolve the key problems bedevilling the outlook for many commodity markets, and the companies that produce those resources.

The logic of Glencore taking control of Rio Tinto would be for the former to get access to the latter’s iron ore operations in Australia, which are the lowest cost among major producers.

Iron ore is the missing arrow in Glencore’s quiver, and the assumption behind a deal would be that the Swiss-based company would be able to use its trading nous to extract more value from the well-run Rio Tinto mines.

Assuming that all the anti-trust and other regulatory obstacles could be overcome, and that Rio Tinto shareholders could be won over, then the potential for the deal to be rewarding for Glencore is compelling.

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Rio Tinto rejects Glencore merger approach amid iron ore slump – by Sonali Paul (Reuters U.S. – October 7, 2014)

http://www.reuters.com/

MELBOURNE – (Reuters) – Rio Tinto rejected a merger approach from smaller rival Glencore Plc to create a $160 billion mining and trading giant in August just as the price of its most profitable product, iron ore, slid toward a five-year low.

The miner said on Tuesday Glencore had contacted it about a potential merger in July, adding that it turned Glencore down in August and there had been no further contact between the companies on a deal.

A merger would have created the world’s biggest miner, supplanting BHP Billiton. “The Rio Tinto board, after consultation with its financial and legal advisers, concluded unanimously that a combination was not in the best interests of Rio Tinto’s shareholders,” Rio Tinto said in a statement to the Australian stock exchange.

Rio’s Australian shares jumped as much as 4.7 percent to a 9-day high of A$60.28 in a weaker broader market after the company issued the statement.

Rio revealed the approach after Bloomberg reported that Glencore had talked to Rio’s top shareholder, Chinese state-owned Aluminum Corp of China (Chinalco) [ALUMI.UL], to gauge its interest in a deal.

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