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RPT-COLUMN-Rio’s Mozambique debacle sows seeds of next commodity boom – by Clyde Russell (Reuters U.S. – July 31, 2014)

http://www.reuters.com/

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

LAUNCESTON, Australia, July 31 (Reuters) – While it’s easy to point the finger of blame at Rio Tinto’s former management and feel a tad smug about their downfall, the real lesson of the company’s humiliating exit from its Mozambique coal assets is that the wheels of the next commodity boom are now in motion.

This may seem counterintuitive at first, as once all the arguments over Rio Tinto’s wisdom of paying $4 billion to gain a foothold in Mozambique are stripped away, it comes down to the fact that weak coal prices made it uneconomic to spend any more to develop the mines and infrastructure.

Oversupply in the coal sector has been a chronic problem, and given the amount of mine capacity that is currently under-utilised, it’s likely that prices will struggle for some time to come even if optimistic demand projections are met.

When Rio bought Riversdale’s Mozambique assets in 2011, thermal coal prices at Australia’s Newcastle port, an Asian benchmark, had peaked at $136.30 a tonne in January of that year. Coking coal reached an eye-watering $330 a tonne at mid-year.

Since then, prices have plunged. Newcastle thermal coal is currently $67.89 a tonne, while Australian spot coking coal fetches about $114 a tonne.

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UPDATE 3-Rio Tinto pulls plug on ill-fated Mozambique coal venture – by Silvia Antonioli and Jim Regan (Reuters India – July 30, 2014)

http://in.reuters.com/

LONDON, July 30 (Reuters) – Rio Tinto has agreed to sell coal assets it bought through a $4 billion acquisition of Riversdale in 2011 for just $50 million to an Indian joint venture, ending its ill-fated venture in Mozambique’s coal sector.

The sale of Rio Tinto Coal Mozambique to International Coal Ventures Private Limited (ICVL), includes the Benga coal mine and other projects in Tete province, assets that had a value of $71 million as of March 31 in Rio’s books.

In 2013, Rio Tinto sacked its chief executive and other executives directly involved in the acquisition of Riversdale and wrote off about $3.5 billion of the purchase price, partly owing to a failure to secure a permit to move coal by barge down Mozambique’s Zambezi River.

Rio Tinto is only retaining one of the assets it got from the Riversdale acquisition: the Zululand Anthracite Colliery, a small coal mine in South Africa.

“It has clearly been a horrible experience for Rio Tinto,” said Liberum analyst Richard Knights, saying that the sale price was lower than he expected and implied a further writedown.

“The assets clearly weren’t as good as they thought but in order for them to be written down that aggressively they must have seen very little scope in the foreseeable future for the profitable export of coal from Mozambique.”

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COLUMN-Big 3 iron ore miners in volume, price sweet spot – by Clyde Russell (Reuters India – July 28, 2014)

http://in.reuters.com/

LAUNCESTON, Australia, July 28 (Reuters) – One thing has become clear from the latest production reports from the big three iron ore miners: They appear intent on ensuring their dominance by boosting low-cost output.

BHP Billiton mined a record 225 million tonnes of the steelmaking ingredient in the year to end-June, beating its own forecast by 4 percent. BHP said in its latest production report that it expects to increase output further, to 245 million tonnes in the 2014-15 financial year.

Fellow Anglo-Australian miner Rio Tinto boosted output 23 percent in the second quarter from the same period last year to 75.7 million tonnes. It also is forecasting higher annual output, with the quarterly report released on July 16 pointing to 2014 production of 295 million tonnes, up 11 percent from 266 million in 2013.

The world’s biggest iron ore miner, Brazil’s Vale , also had record output in the second quarter, posting a 12.6 percent gain to 79.45 million tonnes. The company is planning to boost its annual output to 450 million tonnes by 2018 from 306 million last year.

The three global iron ore giants have effectively gambled that they can continue to boost production and grab bigger slices of global demand, given that they can withstand lower prices due to their low-cost mines and economies of scale.

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Rio Tinto Iron-Ore Output, Shipments Surged in First Half – by Rhiannon Hoyle (Wall Street Journal – July 16, 2014)

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

Production Rose 10%, While Shipments Increased 20%

SYDNEY— Rio Tinto RIO.LN -0.83% produced record volumes of iron ore in the first half of 2014, after expanding several vast mines in the Australian Outback even as prices of the steelmaking ingredient tumbled.

The results demonstrate how Rio Tinto is deepening its reliance on a commodity used in things as diverse as cars and apartment blocks for profit, despite concerns among some investors that global mining companies are adding new supply too quickly. Several fund managers recently cut their holdings of mining shares, including Rio Tinto’s stock, amid worries about a looming supply glut of iron ore that could take years to clear.

Meanwhile, Fortescue Metals Group Ltd. said Wednesday that it expects to ship as much as 29% more iron ore to buyers in countries such as China over the coming year after completing an expansion of its Australian operations.

Fortescue, the world’s No. 4 iron-ore mining company, has grown over the past decade from a tiny explorer, competing against resource titans such as Rio Tinto and BHP Billiton. BHP.AU -0.42% It recently reached a long-targeted annual output rate of 155 million tons after building new mines in the resource-rich Pilbara region of Western Australia state.

Rio Tinto said Wednesday that it produced 139.5 million metric tons of iron ore in the first half, up 10% from a year earlier. Its shipments rose 20% to 142.4 million tons.

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B.C. claims privilege on Kitimat report – Wendy Stueck (Globe and Mail – July 13, 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 — In an ongoing tussle over the Kitimat Airshed Study, lawyers representing two women in an Environmental Appeal Board case have asked that agency to force the province to turn over the study or explain its claim of cabinet privilege.

The study, which the province commissioned last year to weigh the impact of industrial emissions on the Kitimat Airshed, has yet to be publicly released, even though some groups interested in its conclusions – including the District of Kitimat – had expected to see it before the end of June.

Now, the report is the subject of a tug-of-war between the province and appellants in the EAB case, which concerns sulphur dioxide emissions from the Rio Tinto Alcan smelter in Kitimat. The province says it received a draft of the Kitimat Airshed Report in March and that it is “now part of discussions around cleanest LNG requirements” and will be released later this year. For now, however, the government says the report is being discussed by cabinet and subject to Crown privilege.

Emily Toews and Elisabeth Stannus – the appellants in the EAB case – would like to see the report now, maintaining it would provide the most up-to-date information about industrial emissions in Kitimat.

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Australia’s big three miners look to tighten their iron grip – by Jamie Smyth (Financial Times – July 8, 2014)

 

http://www.ft.com/intl/companies/mining

Port Hedland – The man who made a US$10bn bet on the global iron ore market is predicting Australia’s big three miners will tighten their grip on the global industry over the next few years as higher cost producers fall victim to lower iron ore prices.

Andrew “Twiggy” Forrest, founder and chairman of Fortescue Metals Group, says the sharp fall in iron ore prices since the start of the year is causing some smaller Australian producers and overseas competitors to exit the industry.

“Because you have incredibly low operating costs with the big Australian producers we are seeing more substitution take place from China and India as competitors switch off production,” says Mr Forrest, who owns one-third of Fortescue shares.

“The wholesale shutting down of iron ore production industries basically happens in other countries. The Pilbara [in Western Australia] has always been historically the big player.”

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BHP Billiton looks to catch up to Rio Tinto in ironman contest – by Amanda Saunders (The Age – July 7, 2014)

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

Miner BHP Billiton is confident it can ”close the gap” with iron ore arch-rival Rio Tinto on margin per tonne within a few years.

And it is likely to develop the $20 billion outer-harbour project at Port Hedland rather than expand its inner-harbour operation if it moves to produce beyond its current annual run rate target of 270 million tonnes. BHP president of iron ore Jimmy Wilson says the miner is trailing Rio on margin per tonne, and ”our desire absolutely is to close that gap”.

He said the miner would never be in a competition with Rio on volumes but stressed ”where we would like to compete is on the cost of production side, more importantly, the margin per tonne that we make”.

”While we are marginally behind Rio at the moment, we’ve got to back the fact that we are going to eliminate that gap in the foreseeable future,” he says.

”What is the foreseeable future? I’d be disappointed if it took more than a couple of years. ”I do respect our competitors – Rio, Fortescue, Vale – [and] none of them is standing still either. So, I think, at the end of the day, you are going to see an improvement come through for all of those businesses.”

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Rio Tinto looks to catch up in potash – by Emiko Terazono (Financial Time – July 3, 2014)

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

Miner’s Canadian joint venture is latest in oversupplied market

Dark clouds are gathering over the potash industry again. Last week, Rio Tinto and its partner, Russian fertiliser group Acron, said they would push ahead with the development of the Albany project in Saskatoon, Canada.

In its first disclosure of the size of the asset, north Atlantic Potash, the 50-50 joint venture between Rio and Acron, said the project area contained 1.4bn tonnes of assumed potash resources, a key fertiliser ingredient, of which 329m are estimated to be recoverable.

The announcement does not bode well for an already oversupplied sector where several other major developments, the biggest being BHP Billiton’s Jansen mine with its 5.3bn tonnes of measured resources and 1.3bn tonnes of inferred potash, are also on the drawing board.

Rio, which invested in the joint venture in 2011, has not disclosed how much it has spent on the project, but it sees it as a “tier one” exploration asset.

According to last week’s announcement, the next steps for Rio and Acron are a continuation of the environmental assessment and the pre-feasibility study.

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Rio Tinto, Acron JV pushes ahead with Canadian potash project – by Silvia Antonioli and Karen Rebelo (Reuters U.K. – June 27, 2014)

http://uk.reuters.com/

LONDON/BANGALORE – (Reuters) – Global mining company Rio Tinto and Russian fertiliser producer Acron OAO are moving ahead with the development of the Albany potash prospect in Saskatchewan, Canada, Acron said on Friday.

In its first disclosure of the size of the discovery, Acron said the project area contained 1.4 billion tonnes of inferred resources within the mining caverns at an average grade of 31 percent potassium chloride (KCl). The company put the recoverable amount at 329 million tonnes of KCl.

“The next steps for the project include continuation of the environmental assessment and the pre-feasibility study,” Acron said in a statement.

Rio’s rival BHP Billiton has invested in a larger potash project in Canada, the $14 billion Jansen development, but has pushed back production until at least 2020, looking for the right time to enter the currently oversupplied market..

BHP’s Jansen has 5.3 billion tonnes of measured, or proven, resources with 25.7 percent potassium oxide and 1.3 billion tonnes of inferred, or assumed, resources.

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Rio Disputes Mongolia Claim Over Unpaid Taxes – by Jesse Riseborough and Michael Kohn (Bloomberg News – June 23, 2014)

http://www.bloomberg.com/

Mongolia’s Tax Authority claims a Rio Tinto Group unit operating in the country has unpaid taxes, penalties and disallowed entitlements associated with the $6.6 billion Oyu Tolgoi copper mine development.

Rio’s Turquoise Hill Resources Ltd. (TRQ) says it has paid all taxes and charges required under its accord with the government and has complied with the country’s laws, the Vancouver-based unit said yesterday in a statement. The disputed amount is about $130 million, Ganbold Davaadorj, a director of the mine’s operating unit Oyu Tolgoi LLC, said yesterday in an interview.

“We strongly disagree with the claims in the audit report and are currently reviewing all options to resolve this matter,” Kay Priestly, Turquoise Hill’s chief executive officer, said in the statement. The company may need to seek resolution through international arbitration, it said.

The fresh dispute is evidence of further strains on London-based Rio’s relationship with Mongolia. Recent discord has centered on funding for a second-stage expansion of the mine, delaying the $5.1 billion proposed development.

A feasibility study into the underground expansion is likely to be delayed if the tax dispute isn’t resolved by June 30, Turquoise said yesterday. Missing the study’s deadline would heap pressure on negotiations between Mongolia and Rio to finalize a $4 billion financing package. Commitments from the participating banks are set to expire on Sept. 30.

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Rio Tinto digs deeper for next big discovery – by Brett Winterford (IT News.com – June 23, 2014)

http://www.itnews.com.au/

A group of a dozen physicists and geologists from mining giant Rio Tinto and the University of Western Australia is two years away from commercial production of a tool that could dramatically expand the scope of mineral exploration in Australia.

VK1, a collaboration between the mining giant and the university, is an airborne gravity gradiometer that harnesses quantum physics, superconduction, liquid helium cryogenics and aerial survey data to solve the ultimate challenge facing iron ore miners: how can we see underground?

Australia has become a reasonably mature exploration environment, according to Stephen McIntosh, head of exploration at Rio Tinto.

“It is relatively well-explored in the exposed parts of the continent – areas that don’t have cover over the mineral deposit, or some form of material that is younger sitting on top of the mineral deposit.

“The dilemma for Australia is that somewhere between 70 and 80 percent of the continent is covered by something. You actually have to see through a veneer of something to explore underneath the surface – to a mineral deposit a few metres to hundreds of metres below your feet.”

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China Miners’ Loss Is BHP’s Gain as Iron Prices Slump 44% – by (Bloomberg News – June 20, 2014)

http://www.businessweek.com/

Rio Tinto Group and BHP Billiton Ltd. (BHP), two of the world’s biggest iron ore producers, are benefiting as falling iron ore prices pressure smaller rivals in China to shut down.

The price of iron ore has plunged 44 percent from its February 2013 peak on the back of record output. That’s hurting mining companies in China where 20 percent to 30 percent of mines have closed, according to the China Metallurgical Mining Enterprise Association.

The closures are helping Rio Tinto and BHP which, along with Vale SA (VALE5), already control about two thirds of global seaborne supply from their low-cost mines. About $40 billion a year of iron ore is mined in China, the country that’s also the world’s biggest buyer of the steelmaking component.

“Many smaller mines in China have stopped production due to the falling prices,” said Sarah Wang, a Shanghai-based analyst with Masterlink Securities Corp. “It’s the right time for BHP and Rio to seize the opportunity to boost their market share.”

BHP, the world’s biggest mining company, last month also flagged the closure of some Chinese ore mines.‘ “Most of them are smaller ones, while the bigger ones are also starting to be affected,” Liu Xiaoliang, the association’s general secretary, said in an interview. “Almost 70 percent of the ore processing companies have also closed.”

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Diversity back in vogue for miners as iron ore price tumbles – by STEPHEN EISENHAMMER, SONALI PAUL AND SILVIA ANTONIOLI (Reuters U.K. – June 5, 2014)

http://uk.reuters.com/

(Reuters) – After pouring billions of dollars into producing more iron ore to feed China’s construction boom, the world’s mega miners now face a self-induced price slump and are counting on other commodities to revive their allure to investors.

Base metals copper and nickel, oil and gas, as well as more offbeat commodities such as fertilizer potash, are increasingly important differentiators between the kings of iron – Vale , Rio Tinto and BHP Billiton – and could be welcome sources of growth this year as iron ore languishes near two-year lows.

BHP’s oil and gas portfolio and Vale’s nickel production have attracted positive attention. Glencore Chief Executive Ivan Glasenberg, meanwhile, has spoken of the advantage of smaller exposure to iron ore, saying it provided an “opportunity against our peers.”

Lack of diversity has not been an issue in recent years as Chinese demand for steel to build cities, railways and ports tripled iron ore prices from 2008 to 2011 – a windfall for the “big three” who produce 70 percent of the world’s seaborne iron ore.

But in May the price fell below the $100 mark for only the second time in four years, as production jumps just as Chinese demand growth appears to be slowing. Although many analysts see the price perking up again later this year, the fundamentals are worsening and the trend is downward.

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TWO MINING BEHEMOTHS BATTLE AN ISRAELI BILLIONAIRE – by Patrick Radden Keefe (The New Yorker – June 2, 2014)

http://www.newyorker.com/

One day in November, 2008, two rival groups of mining executives convened for a meeting in a black office tower on the southern tip of Manhattan. They represented two of the largest mining companies in the world: Brazil’s Vale, and its Anglo-Australian competitor, Rio Tinto. Vale was interested in acquiring a stake in one of Rio Tinto’s most prized projects: a mountain range in the tiny west African nation of Guinea, which contained the planet’s richest deposit of untapped iron ore and was known as Simandou.

When they met that day, executives from Rio Tinto acknowledged that their legal claim to Simandou was under threat. In the summer of 2008, the government of Guinea had rescinded its right to develop the concession, and a new player had emerged on the scene: an Israeli billionaire named Beny Steinmetz, who had made his name in the diamond trade and now had designs on Simandou.

The negotiations between Vale and Rio Tinto eventually fell apart, but Rio Tinto’s concerns turned out to be well founded. Guinea granted Steinmetz’s company, B.S.G.R., exploration rights to half of the Simandou deposit. Then, in 2010, B.S.G.R. announced that it was forming a joint venture to develop the ore—with Vale. The leadership at Rio Tinto was incensed: not only had they lost half of their precious asset to Steinmetz but he had then gone into business with their chief competitor, with whom they had only recently been negotiating a joint venture themselves.

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Rio Tinto leader Ray Ahmat cuts a trail for others – by Sarah-Jane Tasker (The Australian – May 31, 2014)

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

RAY Ahmat, the first local Aboriginal superintendent at Rio Tinto Alcan’s bauxite mine in Weipa, has outlined the opportunities to develop local talent after taking out a top award at an industry function.

Mr Ahmat received the Overall Indigenous Award at the Queensland Resources Council’s Indigenous Awards last night for his contribution as a role model in the state’s sector.

He leads a large operational team of more than 170 people at the mine, on the Western Cape of York Peninsula in Queensland, managing pre-mining and post-mining activities.

Mr Ahmat, born and bred in the region, said his parents were strong role models in his life. His father had worked at the mine for 32 years and his mother spent 28 years at the operation.

“I got to where I am to seeing what they did,” he said. Mr Ahmat, who is a Yupungathi traditional owner, joined the miner 15 years ago as a truck driver before moving up the chain to superintendent — a path he hopes he can encourage others in his community to follow.

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