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Glencore, Rio Tinto merger whispers leave analysts skeptical over financial details – by Eric Reguly (Globe and Mail – October 7, 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 — Is Glencore CEO Ivan Glasenberg about to strike again? The great white shark of the global commodities industry is laying the groundwork for a blockbuster deal that would see Glencore Xstrata PLC merge with Rio Tinto Group to create a mining giant that would displace BHP Billiton Ltd. as the world’s top mining company, Bloomberg reported on Monday.

A Glencore spokesman in Switzerland would not confirm or deny that Glencore, the world’s biggest trader of commodities, from coal to grain, is contemplating a merger with Rio Tinto. “No comment,” he said.

Rio Tinto said late Tuesday that it had rejected a merger approach from its smaller rival in August, finally responding to a string of media reports over the past month that have said Glencore wanted to merge with Rio. It also said there had been no further contact between the companies on a merger.

“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.

The American depository receipts (ADRs) of Rio shot up 18 per cent after the Bloomberg story appeared, then slipped back for an 8 per cent gain. On the London exchange, Rio shares rose 1.6 per cent, giving it a market value of £56.3-billion.

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Glencore Said to Lay Groundwork for Potential Rio Merger – by Matthew Campbell, Anousha Sakoui and Dinesh Nair (Bloomberg News – October 6, 2014)

http://www.bloomberg.com/

Glencore Plc (GLEN) is laying the groundwork for a potential merger with Rio Tinto Group (RIO) in the next year that would create the world’s largest mining company, worth about $160 billion, according to people familiar with the situation.

As a preliminary step, Glencore has reached out to Aluminum Corp. of China, the Chinese state-backed company that is Rio’s largest shareholder, to gauge its interest in a potential deal, said two of the people, who asked not to be identified because the matter is private. The discussions with the company, which is known as Chinalco and controls about 9.8 percent of Rio, took place in recent weeks, one of them said.

Rio executives are well aware of Glencore Chief Executive Officer Ivan Glasenberg’s interest in a deal, which has been made clear in informal settings, the people said. However, no talks are underway between the two companies, no formal offer has been made, none is likely before the end of 2014, and Glencore could decide against an offer, they said.

Glencore views Chinalco as potentially supportive of a change in control after the Chinese company failed to secure a board seat at Rio and has seen little progress on a joint iron-ore project in Guinea, one of the people said. Glencore is also gauging the views of other Rio shareholders, and studying the tactical, financial, and regulatory obstacles to the deal as it considers its next steps, the people said.

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Rio $5.4 Billion Copper Project Mired as Deadline Missed – by Simon Casey and David Stringer (Bloomberg News – October 3, 2014)

http://www.bloomberg.com/

Rio Tinto Group (RIO) and the Mongolian government broke another deadline set by lenders for the $5.4 billion expansion of their Oyu Tolgoi project, raising concerns over the earnings outlook for Rio’s copper business and the strength of the Mongolian economy.

Commitments from project finance lenders expired Sept. 30, Rio’s unit in Canada, Turquoise Hill Resources Ltd. (TRQ), said in a statement yesterday. Oyu Tolgoi’s shareholders haven’t asked for those commitments to be extended, although “engagement” with lenders continues, it said.

“With iron ore in decline, the market is looking for Rio’s other businesses to fill the gap,” said David Radclyffe, a Sydney-based analyst at CLSA Asia-Pacific Markets. “The market is concerned from the point of view that Rio needs to do the expansion to give its copper business relevance.”

Underground development at Oyu Tolgoi, the largest foreign investment in Mongolia, has been held up for more than 18 months on disputes between London-based Rio and the government over taxes due and cost overruns, among other issues. Copper accounted for 11 percent of Rio’s revenue in the 2013 fiscal year, behind iron ore and aluminum.

An Oyu Tolgoi board meeting was scheduled yesterday, according to Mongolia’s mining ministry. Three Mongolian members of the board didn’t respond to phone calls after the meeting. A call and e-mail to the government’s cabinet secretary Saikhanbileg Chimed went unanswered.

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End of the Iron Age – by James Wilson and Neil Hume (Financial Times – September 29, 2014)

http://www.ft.com/home/us

A collapse of ore prices throws miners’ strategies into doubt and threatens an industry shakeout

Iron is one of the most abundant elements on earth but pulling it out of the ground efficiently can be a daunting undertaking. Snaking through the low, green hills of southern Brazil is a 530km pipeline, the decisive link in Anglo American’s $8.2bn Minas-Rio project to extract iron ore in the Brazilian interior and ship it from a new Atlantic port. Way over its original $3.6bn budget and two years late, Minas-Rio is finally close to the point of “first ore on ship”.

For years, huge mining projects such as these have formed the backbone of global economic expansion. The world’s most important commodity after crude oil, iron ore has been devoured by Chinese steel mills, emerging as the raw material for an infrastructure-led growth spurt.

But Minas-Rio is about to deliver its first ore into a much less welcoming world. The price of iron ore has plunged more than 40 per cent this year, the worst performance across metals and bulk commodities in 2014. From an average price of $135 per tonne last year, the benchmark iron ore contract sank last week to less than $80 for the first time since the global financial crisis.

“The iron ore market is in the midst of a transition without precedent in recent commodity history,” says Macquarie, the Australian bank.

Behind the change is a big increase in iron ore exports – and not just the 26.5m tonnes that Minas-Rio will bring to market when fully operational in 2016.

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Glencore, Rio Tinto could save $500m by merging coal operations – by Sarah-Jane Tasker (The Australian – October 1, 2014)

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

DIVERSIFIED miners Rio Tinto and Glencore could target $500 million in annual savings if they merge their NSW coal operations, analysts on a site tour of the Swiss giant’s assets have flagged.

Glencore, rumoured to be eyeing acquisitions, highlighted the significant synergy potential with Rio Tinto in the Hunter Valley region given the two miners had many adjacent assets.

“These have not been quantified but could total close to $500m per annum pretax, and relate to overhead reduction, mining efficiencies, logistics and blending,” Credit Suisse analyst Liam Fitzpatrick said. “Despite this, there appears to have been very limited progress between the two companies.”

Recent media reports have suggested Glencore chief Ivan Glasenberg has Rio on his acquisition wish list, but neither company has weighed in on market speculation.

Glencore kicked off a sell-side analysts tour of its Australian ¬assets this week with a visit to its coal operations, and the head of coal assets, Peter Freyberg, told those on the trip the company had a “synergistic and targeted acquisition strategy”.

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Mine of the Future™ – people and technology working together – by Rio Tinto (September 28, 2014)

 

http://www.riotinto.com/default.aspx

Technology & Innovation

Technology is an increasingly important success factor in the mining and minerals industry. Improvements in technology can change the way that we look at mineral deposits, make our operations safer, help us manage costs and respond to environmental imperatives.

Rio Tinto’s Technology & Innovation (T&I) group focuses on creating sustainable value and competitive advantage by making improvements to the way we operate. T&I partners with the business and external partners to provide technical insights into how we run our operations and deliver our projects.

T&I employs approximately 700 people. To help us achieve our goals, we’re also working with some of the best minds in the world of academia, through partnerships with leading institutions such as the University of Sydney and Imperial College London.

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Iron Ore Seen Weak by Albanese as High-Cost Mines Hurting – by Jasmine Ng and Rishaad Salamat (Bloomberg News – September 29, 2014)

http://www.bloomberg.com/

Iron ore prices that retreated to a five-year low this month will remain weak for a sustained period as supply exceeds demand and China’s economy slows, according to Tom Albanese, former head of Rio Tinto Group.

High-cost producers are facing a “pain point” at prices of about $80 a metric ton, Albanese, chief executive officer of London-based Vedanta Resources Plc (VED), said in interviews with Bloomberg Television and a reporter today. While low-cost producers would still be able to make good money in iron ore, there will be closures of higher-cost mines over time, he said.

The raw material lost 42 percent this year as Rio Tinto and BHP Billiton Ltd. (BHP) expanded supplies, pushing the market into a glut just as demand growth slowed in China. Australia’s state forecaster cut its price estimates for this year and 2015 last week and predicted further closures of high-cost producers. Iron ore is heading for “pitiless pricing” on the expansions by major miners, according to Credit Suisse Group AG.

“At $80, the prices are at a pain point for many higher-cost producers,” said Albanese, who headed Rio from 2007 to 2013. “In this environment, you now have supply probably in excess of demand. It doesn’t take much to drive prices lower.”

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COLUMN-Will the Big 3 iron ore miners have enough time to win price war? – by Clyde Russell (Reuters India – September 24, 2014)

http://in.reuters.com/

LAUNCESTON, Australia, Sept 24 (Reuters) – The recent debate over iron ore has tended to be whether the three mining giants who dominate seaborne supply will win their massive bet that they can drive high-cost producers out of the market.

But a more relevant question is whether they will have the time to achieve their aims. The Anglo-Australian pair of Rio Tinto and BHP Billiton, as well as Brazil’s Vale have flooded the market with their low-cost iron ore, with supply from Western Australia ramping up dramatically in the past year.

This has led to a collapse in the Asian spot price .IO62-CNI=SI to a five-year low of $79.40 a tonne on Tuesday, down 41 percent from the end of last year and 58 percent from the record $191.90 a tonne reached in February 2011.

The main question for the big three is not whether they can drive higher-cost competitors to the wall, but how long their own investors will tolerate the lower earnings as a result of the weak iron ore price.

While the chief executives of the big three haven’t exactly said so in public, they are clearly hoping for a relatively short war and a quick victory, after which iron ore prices will once again rise and stabilise at a higher level. Again, that price level hasn’t been clearly spelt out, but I would imagine the big three have a number in mind somewhere above $90 a tonne, with $110 likely viewed as a ceiling.

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Ghost town to boom town: B.C.’s Kitsault looks to LNG – Brent Jang (Globe and Mail – September 23, 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.

VANCOUVER — The proud owner of a B.C. ghost town figures he will get the last laugh. But Krishnan Suthanthiran still has a long way to go before making his unorthodox investment in the remote community of Kitsault pay off, if ever. Row after row of houses and other buildings sit empty, waiting for the first occupants since 1983. For now, the town serves as a time capsule from the early 1980s.

Mr. Suthanthiran paid $7-million for the community in northwestern British Columbia in 2005, when the region went through another round of rough times.

Today, the area’s economy is faring much better, fuelled in part by Rio Tinto Alcan’s massive modernization project at its aluminum smelter in Kitimat, a 230-kilometre drive south of Kitsault. Across northwestern British Columbia, several energy firms are doing preliminary work on their liquefied natural gas proposals.

Mr. Suthanthiran serves as president of Kitsault Energy Ltd., the name of a fledgling project to export LNG to energy-thirsty customers in Asia. Kitsault Energy is one of 17 B.C. LNG proposals announced to date, though it is far from certain that even one export plant will get built.

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Iron ore giants eating little guys now, but cannibalism looms – by Clyde Russell (Reuters U.S. – September 3, 2014)

http://www.reuters.com/

Clyde Russell is a Reuters columnist. The views expressed are his own.

LAUNCESTON, Australia – (Reuters) – There was maybe more than a touch of hubris in Rio Tinto boss Sam Walsh’s recent comment that it’s time for other iron ore producers to “really feel the consequences” of the current low price.

The chief executive of the world’s No.2 iron ore miner was speaking after his company’s first-half results last month, basically delivering the message that Rio Tinto is going to keep going full-steam ahead on its iron ore expansion plans.

Walsh, along with the bosses of top iron ore miner Vale and No.3 BHP Billiton, is betting that their low-cost, high volume model will force smaller competitors to the wall, leaving them the undisputed kings.

Perhaps he should have a word or two with the chief executives of coal miners, which, oddly enough, includes himself given Rio Tinto’s extensive coal assets.

When the price of both thermal and coking coal started to decline in mid-2011, the word from the industry was that this wasn’t too big a surprise, but no need to worry as Chinese demand will ensure prices don’t fall too far, and all the new capacity brought on and planned will be profitable.

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Rio Tinto Considers Exiting Papua New Guinea Copper Mine – by Rhiannon Hoyle (Wall Street Journal – August 18, 2014)

http://online.wsj.com/home-page

New Law Threatens Project, Closed for 25 Years, as It Moves Toward Reopening

SYDNEY— Rio Tinto RIO.LN -1.18% has maintained control of its closed Bougainville copper mine through independence clashes in Papua New Guinea.

But as the mine today edges toward restarting after a quarter-century and copper prices are strong, Rio might head for the exit.

The Anglo-Australian company on Monday said it was reviewing its options for its controlling stake in Bougainville Copper Ltd. BOC.AU +1.22% , after the government passed new laws that could strip the company of its lease on its Panguna mine.

When Panguna—one of the world’s biggest copper deposits—started operations in 1972, Papua New Guinea saw the project in Bougainville as a path to riches. The impoverished country then was still under Australian control and had little industry beyond fishing the schools of tuna that swam near its shores.

But islanders soon became envious that revenue that was flowing to government coffers in Port Moresby rather than to Bougainville schools, health clinics and local incomes. Those frustrations, combined with worries over the mine’s poor environmental record, burst into violence in 1989 when militants forced the mine to shut down.

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Diversified mining giants becoming less so – by Lawrence Williams (Mineweb.com – August 19, 2014)

http://www.mineweb.com/

Confirmation that BHP Billiton is planning to demerge what it considers its non-core assets into a new company continues the trend for the world’s biggest miners to simplify their structures.

LONDON (MINEWEB) – The big post 2008 fallout in the global mining sector has been a major influence on corporate policy since. It has already seen the culling of the chief executives who had the misfortune to be in place as metal prices slumped and profits collapsed. They had previously been exhorted by their institutional shareholders to go for growth almost at any cost.

But once it became apparent that some of the huge capital programmes involved were actually having a negative impact on the bottom line, helped by the fact that the concentration on growth had led to management’s eyes being taken off controlling costs at existing operations, then institutional pressures changed and heads started to roll. CEOs became an endangered species

Now it looks as though there is something of a different tack coming into play. For the single commodity players – e.g. those in the precious metals sector there has also been a move to demerge, or just sell what are considered to be non-core assets – those that had appeared to be taking up too much management time and effort, but without complementary returns. A typical example of this has been Barrick Gold’s floating off of African Barrick which now at least seems to be turning itself around, but still probably falls short of its parent’s return requirements. Others have been divesting of so-called non-core projects piecemeal.

But while the gold miners were relatively quick to act – the big diversified miners perhaps took a little more time over their moves to do likewise.

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Rio and BHP tighten grip on world iron ore – by John Addis (Sydney Morning Herald – August 18, 2014)

http://www.smh.com.au/

Mexican drug cartels have been diversifying into the iron ore business, smuggling ore worth about $US1 billion a year into China. But it’s the emergence of a more legitimate cartel – one run largely by Australians – that should worry China more.

Rio’s latest result shows how powerful the big three global producers have become. The company’s results for the six months to June 30, with underlying earnings rising 21 per cent to $US5.1 billion ($5.47 billion), are remarkable given that iron ore prices actually fell 20 per cent over the period.

After slashing costs, capital expenditure and debt, management hinted at higher dividends and more buybacks. If the mining boom is supposed to be over, no one told Rio Tinto.

The really interesting element to the result concerned production increases. Although lower iron ore and coal prices stripped $US1.4 billion from underlying earnings, volume increases, particularly in iron ore, offset that fall by more than $US900 million. All up, iron ore contributed more than 90 per cent of total profit.

With China slowing and the country’s government frantically shifting spending away from capital expenditure towards consumption, which dampens demand for ore, Rio Tinto and BHP are expanding output.

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UPDATE 1-Rio Tinto to review stake in closed Papua New Guinea copper mine – by Sonali Paul (Reuters India – August 18, 2014)

http://in.reuters.com/

MELBOURNE, Aug 18 (Reuters) – Rio Tinto is set to decide on its stake in a long-dormant copper mine in Papua New Guinea’s Bougainville after the passage of a new mining law on the island, with the company possibly pulling out of the project after a quarter of a century.

The interim mining law converts Bougainville Copper Ltd’s mining lease into an exploration lease. That can be converted to a mining lease if approved by the autonomous province’s government, which now controls resources on the island.

“In light of recent developments in Papua New Guinea, including the new mining legislation passed earlier this month by the Autonomous Bougainville Government (ABG), Rio Tinto has decided now is an appropriate time to review all options for its 53.83 per cent stake in Bougainville Copper Limited (BCL),” the company said on Monday.

Rio Tinto declined to comment on what was the most likely outcome of its review or how soon a decision would be made. Selling its stake would be an option.

A secessionist rebellion on Bougainville in 1989 stopped mining at BCL’s Panguna mine. The mine produced some 3 million tonnes of copper and 9.3 million ounces of gold over 17 years.

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Rio Tinto’s Kitimat aluminum smelter upgrade price tag rises to US$4.8 billion – by Ross Marowits (Canadian Business – Aug 7, 2014)

 http://www.canadianbusiness.com/

The Canadian Press – MONTREAL – Rio Tinto will pump another US$1.5 billion into the aluminum smelter upgrade at Kitimat, B.C., increasing the total project cost to US$4.8 billion, as the mining giant says it remains confident about long-term fundamentals about metal demand.

The London-based company announced Thursday that its board has approved a further $1.5 billion expenditure to complete the modernization. That’s on top of $400 million that was previously allocated but unspent.

Rio Tinto Alcan’s former CEO Jacynthe Cote had said that difficulty in finding the right workers pushed the project off schedule and over budget.

There are about 1,100 employees at Kitimat and nearly 3,000 people working on the smelter upgrade, which is expected to start metal production in the first half of 2015.

Engineering, procurement and construction is 70 per cent complete but construction is only half finished, spokesman Bryan Tucker said Thursday.

The company announced in 2011 that it would upgrade the aging Kitimat smelter, boosting its aluminum production capacity by more than 48 per cent to about 420,000 tonnes per year.

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