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Rio Tinto

BHP and Rio fork out $3.7 billion for water in Chile – by Brian Robins (The Age – July 26, 2013)

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

BHP Billiton and Rio Tinto are being forced to spend $US3.4 billion ($3.67 billion) on a water plant at their copper project in Chile, at a time when mining companies globally are curtailling capital spending.

The two miners will lose access to most of their water supply at the Escondida project, the world’s largest copper mine, in 2017.

BHP’s share of the new round of investment is estimated at $US1.97 billion and Rio’s at $US1.03 billion. Construction on the planned desalination plant is to start immediately, with completion planned for 2017.

The partners are in the middle of a $US4.5 billion round of spending which is to be completed next year, primarily on a new ore concentrator at the project, together with ancillary upgrades.

When completed, these upgrades will enable the production of more than 1.3 million tonnes of copper a year from 2015.
When the partners in Escondida disclosed the $US4.5 billion upgrade early last year, they signalled this was the first in a series of programs that could substantially expand capacity at the mine.

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Seeing Upside in Iron-Ore Miners – by Diana Kinch (Wall Street Journal – July 25, 2013)

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

Some Investors Say Stocks Have Fallen Too Far, and News Isn’t All Bad

LONDON—Mining stocks are among the worst performers this year, with those exposed to iron ore down sharply amid concerns about overcapacity and sluggish demand from China. But some investors believe the rout could be overdone, with share prices of miners falling much further than market prices for iron ore.

“Right now, we’re moving into the low and everyone’s twitchy; the market’s focused on the third quarter, when we’ll have shutdowns in the Chinese steel industry and a seasonal downwards [move],” said Clive Burstow, manager of Barings’ Global Mining Fund, which holds some $15 million in mining stocks.

Capacity to produce iron ore is set to boom in the next few years as expansion programs planned before the financial crisis start to come on stream. By 2018 there will be an extra 419 million tons of capacity, according to estimates compiled from producers’ data, around 40% above 2012’s seaborne traded levels of just over one billion tons.

About half of the new capacity is expected to come on stream by late 2015, including from new projects by Rio Tinto RIO.LN +0.17% PLC and BHP Billiton PLC in Australia, and from Vale SA VALE5.BR -0.31% in Brazil.

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COLUMN-BHP, Rio gamble on iron ore, but they’ve stacked the deck – by Clyde Russell (Reuters U.S. – July 18, 2013)

http://www.reuters.com/

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

LAUNCESTON, Australia, July 18 (Reuters) – Ramping up output in the face of an expected easing in demand growth may seem like an odd tactic for a miner, but it’s exactly what Rio Tinto and BHP Billiton are doing in iron ore.

The world’s second- and third-ranked producers both said this week that their expansion plans are on track, notwithstanding the expected slowdown in China, which buys about two-thirds of global seaborne iron ore supply.

But there is method in the seeming madness of increasing production when the demand outlook is less than rosy. Both Rio and BHP are effectively betting that their low-cost operations in Australia will be able to dominate the market, squeezing out both Chinese domestic production and higher-cost mines elsewhere in Australia and around the globe.

They are also betting that the fears of a slowdown in Chinese demand growth are being overstated, and that import volumes will remain healthy. While these may look like risky assumptions for the two Anglo-Australian mining giants, they stand a good chance of being correct.

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UPDATE 3-Big iron ore miners go for volume even as glut looms – by James Regan (Reuters U.S. – July 17, 2013)

http://www.reuters.com/

SYDNEY, July 17 (Reuters) – Record iron ore output from BHP Billiton and other mining giants appears to defy logic, with demand for the steel-making raw material cooling in top customer China and a price-eroding supply glut looming.

But the sector’s heavy guns are digging more for less to tighten their stranglehold on the world’s second-biggest commodity market, as competitors struggle.

In mining parlance, this is known as a “rebalancing” strategy, designed to improve the operating margins of the majors to such an extent that smaller competitors or new projects may be all but squeezed out.

“The majors want to maximise those economies of scale,” said MineLife sector analyst Gavin Wendt. “As long as they keep margins well ahead of a declining iron ore price, they are winning.” BHP Billiton, Rio Tinto and Fortescue Metals Group, with their iron ore operations in Australia, and Brazil’s Vale are leading the charge.

Seaborne-traded iron ore prices, which have lost 10 percent so far this year, are forecast to hit their lowest in four years by the end of 2013 as these big miners dig deeper and faster.

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Rio Tinto Posts Record Iron-Ore Output – by Robb M. Stewart (Wall Street Journal – July 16, 2013)

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

The Miner Says It Is Maintaining Guidance Despite an Equipment Breakdown, Wet Weather

MELBOURNE, Australia—Rio Tinto RIO.LN +2.73% PLC achieved record output of iron ore in the first half of the year despite an equipment breakdown and unseasonably wet weather.

Helping its outlook further, the world’s second-largest producer of iron ore after Brazil’s Vale SA VALE5.BR +1.02% said it is recovering from a landslide at a major copper mine in the U.S. faster than anticipated.

Rio Tinto held to its output guidance for the year and said the expansion of operations in the remote Pilbara region of Western Australia to 290 million metric tons a year is on track to start this quarter.

However, the boost to its bottom line from higher volumes will be muted by a volatile price for iron ore, which accounts for around 80% of Rio Tinto’s earnings. The average spot price for the steelmaking commodity fell 2.8% in the first six months of this year compared with a year earlier.

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Special report: In tax case, Mongolia is the mouse that roared – By Anthony Deutsch and Terrence Edwards (Reuters India – July 16, 2013)

http://in.reuters.com/

AMSTERDAM/ULAN BATOR – (Reuters) – Turquoise Hill Netherlands is a little-known Amsterdam-based company with three employees, no office, and not even its own mailbox. To the government of Mongolia, though, the company represents billions in taxes that it will never see.

Turquoise Hill was created in 2009, five years after Mongolia and the Netherlands signed a tax treaty to avoid double taxation and boost investment in Mongolia. But in 2011, Mongolia decided to cancel the pact, arguing that it would cost the country income from one of the most lucrative gold and copper mines in the world.

The move was rare – tax experts say only a handful of such deals between countries have ever been cancelled – and it highlights a big contradiction.

The Netherlands, which has more than 90 such treaties globally, spent roughly 13 million euros ($17 million) on three aid programs to Mongolia in 2009 and 2010. Globally its aid budget is about $5.5 billion – the fifth most-generous rate among rich nations at 0.71 percent of Gross National Income, according to the OECD.

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Outlook fails to quell ore appetite – by Arpan Muhkerjee (Dow Jones/The Australian – July 16, 2013)

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

DIRE predictions of slumping iron ore prices and warnings of the end of the commodities super-cycle aren’t deterring some deep-pocketed, long-view investors whose appetite for the steelmaking raw material is driving mining-asset mergers and acquisitions activity from Australia to Canada.

The short-term outlook for iron ore isn’t good.Prices have fallen 12 per cent since the start of the year and are down more than 20 per cent from the high of $US158.90 a tonne in February.

Some see iron ore slumping to $US90 a tonne or less due to rising supplies and slowing growth in top consumer China. UBS expects iron ore to average $117 a tonne this year, while Goldman Sachs has forecast $US80 a tonne in 2015.

“People are looking to buy cheap assets, so this is the perfect time when the downside (in prices) is still there,” said Helen Lau, senior analyst at UOB KayHian in Hong Kong. “Investors are able to negotiate even cheaper prices with miners.” Also weighing on prices is likely future iron ore supply rises.

Rio Tinto, Australia’s biggest iron ore exporter by volume, is pushing ahead with an expansion of output in the ore-rich Pilbara region.

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Mettle of big miners’ austerity to be tested – by Matt Chambers (The Australian – July 15, 2013)

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

THE nation’s biggest resource companies release quarterly reports this week in the first chance for investors to gauge progress in the big miners’ self-proclaimed new era of spending restraint and productivity.

BHP Billiton, Rio Tinto, Woodside Petroleum and Santos will report production, and energy firms revenue, from what has been a weaker quarter than it could have been from the nation’s resource-rich Pilbara in Western Australia. Rio and BHP experienced a very wet dry-season month of June in the Pilbara.

This is understood to have affected production from Rio, which reports tomorrow, and is likely to drag down its regional production, including minority partners’ interests, by a couple of million tonnes from the 61 million analysts had forecast.

Data from Rio’s Dampier and Cape Lambert ports in the Pilbara compiled by Credit Suisse backs this up, showing June exports this year were at their lowest in four years for the traditionally strong month. BHP, which reports on Wednesday, is said to have been hit to some extent.

While any impacts will be unwelcome, they are unlikely to worry investors and will be seen as one-offs that have a good chance of being compensated for over the rest of the calendar year.

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Global Iron Ore Shortage Looms Due to Rio Tinto’s Delay in WA Mine Expansion – by Vittorio Hernandez (International Business Times – July 12, 2013)

http://au.ibtimes.com/commodities/

JPMorgan warned of a global iron ore shortage because of Rio Tinto’s (ASX: RIO) plan to delay the expansion of its $5.4-billion iron ore mine in Western Australia. The bank reviewed Rio’s plan to boost its yearly production of the key steelmaking ingredient commodity by 70 million tonnes.

Although the second-largest global miner has began building the port and rail capacity, it has not yet committed to the mine expansion, which would delay the iron ore ramp-up by three years from the current 2016 target.

As it is, Rio is expected to report this week a 2-million-tonne shortage of iron ore production for Q2 due to the rains and conveyor belt problems. The delay in expansion plans is because Rio, like the other large miners, are reducing spending and cost due to lower demand and commodity prices in the international market.

Besides delaying expansions and slashing costs, mining companies are also reducing the compensation packages of their executives. Rio’s new iron ore chief executive, Andrew Harding, axed about 50 middle management position at the company’s iron ore office in Perth.

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Rio Tinto Starts Shipping Copper From Oyu Tolgoi – by Robb M. Stewart (Wall Street Journal – July 9, 2013)

The First Laden Trucks From the Mongolian Mine Are a Sign of Easing Tensions

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

MELBOURNE, Australia—The first convoy of trucks has left Rio Tinto RIO.LN -0.62% PLC’s $6.2 billion Oyu Tolgoi mine in Mongolia’s Gobi Desert region carrying copper to China, an important milestone for the operation and a sign tensions between the government and the mining company have eased since the incumbent president won a second term in office.

Oyu Tolgoi is central to Rio Tinto’s efforts to produce new mineral supplies in developing resource hotspots and to reduce its dependence on iron ore, which accounts for about 80% of its earnings. It is also vital to Mongolia. Rio Tinto says the mine will likely account for more than 30% of the country’s gross domestic product when it reaches full production in 2020.

“With continued development, Oyu Tolgoi will generate wealth for many decades to come,” Jean-Sebastien Jacques, chief executive of the Anglo-Australian mining company’s copper division, said in a statement Tuesday.

The first copper concentrate was produced at Oyu Tolgoi in January. Rio Tinto had forecast commercial output would begin by the end of June, provided it could resolve several issues with Mongolia’s government.

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Export income dispute holds up Rio’s Oyu Tolgoi mine – Mongolia – by Terrence Edwards (Reuters India – July 4, 2013)

http://in.reuters.com/

ULAN BATOR, July 4 (Reuters) – The Mongolian government and Rio Tinto have not yet reached an agreement on whether the miner can repatriate earnings from the $6.2 billion Oyu Tolgoi mine, the country’s mining minister said, delaying first copper shipments.

The dispute could heighten investor concerns about the risks of mining in Mongolia and threaten Rio Tinto’s plans to grow its copper portfolio to ease dependence on iron ore.

Metals traders have been closely watching whether Rio gets official approval to export concentrate from Oyu Tolgoi amid a shortfall in shipments from the Grasberg mine in Indonesia, run by Freeport McMoRan Copper & Gold. The unlocking of ore shipments would increase supply in top copper consumer China and boost treatment and refining charges charged by smelters there.

Exports from the copper and gold mine were initially due to start on June 14, but were then postponed to June 21, before the Mongolian government told Rio to delay them again without setting a date. Uncertainty over the reasons for the delay has slashed the share price of other Mongolian miners.

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Mongolia risk to hurt growth even with Oyu Tolgoi start-up, election – by Terrence Edwards and Sonali Paul (Reuters India – June 26, 2013)

http://in.reuters.com/

ULAN BATOR/MELBOURNE, June 26 (Reuters) – Mongolia’s efforts to protect its mineral wealth have scared investors so much that not even the first exports from its biggest mine and the expected re-election this week of a president who wants foreign capital will turn sentiment around.

With the country’s economic growth heavily tied to its vast copper and coal resources, Mongolia should have been celebrating the first copper sales to China from the $6.2 billion Oyu Tolgoi mine.

Instead, the government twice this month told mine operator Rio Tinto to delay the first shipment, partly due to a dispute over the repatriation of profits. Some analysts said the holdup was also aimed at keeping a lid on nationalism ahead of the presidential vote on Wednesday.

Industry experts believe exports will start soon, but the delays follow a year in which Mongolia introduced draft legislation to tighten control over mining activity and limit foreign investment.

“Whilst the country has lots of resource potential and holds Oyu Tolgoi, a world-scale mine, there’s too much headline risk,” said Darko Kuzmanovic, a portfolio manager at Caledonia Investments, which holds global mining stocks but has steered clear of Mongolia-focused miners.

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UPDATE 3-Mongolia tells Rio Tinto to delay Oyu Tolgoi copper exports (Reuters India – June 21, 2013)

http://in.reuters.com/

ULAN BATOR, June 21 (Reuters) – Rio Tinto said its plan to start exporting copper from the $6.2 billion Oyu Tolgoi mine on Friday has been delayed at the request of the Mongolian government, heightening investor concerns about the risks of mining in the country.

Uncertainty over what was behind the delay sparked an exodus out of shares in other Mongolian miners on Friday, with Canadian and Australian listed miners exposed to the country sliding between 10 and 20 percent.

Journalists had been invited last week to attend a ceremony at the copper and gold mine on June 14 to mark the first exports. That was postponed to June 21, but the event was again cancelled at the last minute. Mongolia is due to hold a presidential election on June 26.

“Oyu Tolgoi is ready to start its first shipments of copper concentrate from its Mongolian mine and all necessary permits to do so have been received from relevant authorities,” Rio Tinto spokesman Bruce Tobin said on Friday.

“However, plans to start shipping on Friday 21 June have been postponed at the request of the government of Mongolia.” The company declined to comment on what was behind the latest delay.

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Rio Tinto’s Oyu Tolgoi mine in Mongolia to begin shipments – by Robb M. Stewart (Dow Jones/The Australian – June 20, 2013)

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

RIO Tinto plans to make its first shipment of copper and gold from the Oyu Tolgoi mine in Mongolia on Friday, an operation the mining company estimates will account for over 30 per cent of the country’s gross domestic product when it reaches full production in 2020, says a person familiar with the matter.

A ceremony marking the event would be held that day at the mine in the southern Gobi Desert, about 100km north of the Mongolia-China border, the person said.

The $US6.2 billion Oyu Tolgoi mine is key to Rio Tinto reducing its dependence on iron ore, which accounts for about 80 per cent of its earnings. Faced with volatile commodities markets, new Chief executive Sam Walsh is moving to simplify the company’s structure and is selling non-core and poor performing assets and targeting more than $US5bn in cost savings by the end of next year. A number of senior managers at Rio Tinto’s iron ore division in Western Australia were laid off this week.

The first copper-gold concentrate was produced at Oyu Tolgoi in January and Rio Tinto had forecast commercial output would begin by the end of June, provided it could settle a dispute with Mongolia’s government over costs and the further development of the mine.

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Sam Walsh: no ‘bazaar sale’ at Rio Tinto – by Emma Rowley (The Telegraph – June 16, 2013)

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

In his first interview since taking over at the mining giant, Rio Tinto’s CEO talks about cutting costs and why he won’t launch a ‘bazaar sale’

He may be giving his first interview as Rio Tinto’s chief executive, but Sam Walsh has his elevator pitch well honed.

“A sudden appointment for someone who was running Rio’s largest business, the iron ore business. An operations background, both within Rio and the car industry before that. But a very heavy focus on delivery, on strategically positioning the business,” he rattles off.

It is understandable that he is keen to map out the story clearly. His predecessor, Tom Albanese, under whom he worked as iron ore chief, was forced out in January by vast $14bn (£9bn) writedowns on purchases gone bad.

Walsh, a genial Melbourne man, takes over at the FTSE 100 mining giant – the world’s biggest after BHP Billiton – at a time when falling commodity prices, ballooning costs and project overruns have left shareholders clamouring for better from the industry.

Now in situ in offices high above London’s Paddington station, he is keen to show he knows what matters to investors: “Shareholder value. That’s what drives business. That’s what it’s all about. They deserve returns.” He talks of strengthening checks and balances within the business and spending money as if it’s your own.

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