Showing posts with label Rio Tinto. Show all posts
Showing posts with label Rio Tinto. Show all posts

Sunday, February 3, 2013

Rio Tinto faces tough talks in Mongolia over giant mine

ULAN BATOR/MELBOURNE – Rio Tinto faces tough negotiations next week in Mongolia, where the government is under pressure to plug a budget deficit and increase its share of the wealth from the $6.2-billion Oyu Tolgoi copper and gold mine.

Oyu Tolgoi, 34% owned by Mongolia and controlled by Rio Tinto, produced its first concentrate this week and is on track to start supplying metal and paying royalties by June.

The success of the mine is crucial for both sides as, at full tilt, Oyu Tolgoi will account for nearly a third of Mongolia's economy, while Rio Tinto is depending on the mine to drive growth beyond its powerhouse iron-ore business.

Rio Tinto is not expected to have to give up a bigger share of the mine, but some analysts say it could end up agreeing to provide more funding in areas like infrastructure to remove uncertainty over a project that is expected to produce 425 000 t of copper and 460 000 oz of gold a year.

Rio Tinto and its subsidiary, Turquoise Hill Resources, last year fended off an attempt by Mongolia to renegotiate their 2009 investment agreement on Oyu Tolgoi.

The government is drafting a law that would require Mongolians to hold at least a 34% stake in mines, however talk that this would apply to Oyu Tolgoi has died down.

Instead, there is speculation the government may press Rio for more funding outside the agreement, which includes a 5% royalty on all sales, as Mongolia faces a revenue squeeze despite being touted as the world's fastest growing economy as recently as 2011.

"It looks as if the government of Mongolia will run a large budget deficit in 2013," said Nick Cousyn, COO at BDSec, an investment bank in Mongolia.

"How they will close this gap is anyone's guess, but we think unilaterally changing the OT agreement is off the table," he said.

UPPER HAND

In meetings scheduled for next week, the government could question why project costs have blown out, raising concern that Rio Tinto may want to slow development due to the steeper costs, as it has done with other major capital projects.

Rio Tinto executives in Ulan Bator and a spokesman declined to comment on the upcoming talks.

Turquoise Hill last year put the total project cost at $13.2-billion, including developing an underground mine and sustaining capital costs, up from a 2010 estimate of $9.55-billion.

A Bloomberg report this week said Rio was considering a temporarily halt of construction to protest against demands by the government for a bigger stake in the project and new royalty rates.

In response to the report that cited two unnamed sources, Rio Tinto said it remained on schedule to start selling ore from the mine in the first half of the year.

One analyst said the firm may be considering delaying the project's second stage to build an underground mine, but others said it was unlikely to hold up the expansion for too long.

"It's not going to kill the project off because it's a cracking asset," said Hayden Bairstow, an analyst at CLSA.

The feasibility study for the underground mine is due to be finished in the first half of 2013. Construction was estimated last year at $5.1-billion.

ANOTHER WRITEDOWN?

Rio Tinto's latest battle in Mongolia poses a challenge for its new CE, Sam Walsh, who replaced Tom Albanese in January after the firm reported $14-billion in writedowns in aluminium and coal.

Walsh may want to smooth relations with the government rather than play tough to ensure that the firm does not have to keep fighting off a clamour for greater Mongolian ownership, CLSA's Bairstow said.

"When it's effectively a third of GDP, getting the entire country offside isn't a go-forward position that's going to work," he said.

If the firm bowed to some of the government's demands and as a result had to take a small writedown, the market may be forgiving, as it would remove uncertainty, Bairstow said.

The talks with Rio Tinto are part of a wider effort by the government to squeeze more out of the mining industry.

At a meeting on Friday, Mongolian miners complained about the proposed new mining law that would impose taxes on exploration and step up local ownership of resources to as much as 51%.

Though one of the aims of the law is to make sure resources stay in Mongolian hands, some local miners are just as worried over the legislation as foreign counterparts.

The proposed law includes heavy fines and could even have a company's licensed land revoked by the government, said Enkhsaikhan Batmunk, director general of Magma Mines.

Another concern is that if the state owns 51% of a firm, it will be tough to raise money via a public listing.

But while Mongolians recognised the need for foreign investment, "What's under the ground belongs to them like the sky," said Namgar Algaa, executive director of the Mining Association.

Edited by: Creamer Media Reporter

Saturday, January 19, 2013

Investors accept a share of the blame for Rio's woeful takeovers

Top shareholders in crisis-hit Rio Tinto have identified an unusual scapegoat for the hapless takeovers that triggered the company's eye-watering $14-billion writedown - each other.

Chief Executive Tom Albanese, who led a top-dollar purchase of the Alcan aluminium group, and Doug Ritchie, the executive who secured Mozambican coal business Riversdale, both lost their jobs on Thursday after Rio confessed how badly their deals had turned sour.

Parsing the company's announcement, investors came to a rare conclusion. Rather than demand further scalps from the Rio board, several said they had only themselves to blame for failing to veto acquisitions that looked so wildly overpriced.

"It is really simple. Big acquisitions, especially big acquisitions at big premiums, are really dangerous. We've known it for years," one of Rio's 15 largest shareholders told Reuters. "It's just that human desire and psychology fight against that evidence."

Thursday's reactions suggest the 'shareholder spring' - the trend identified last year in which investors acted more like owners than passive bystanders (and in the process torpedoed several blue-chip companies' pay packages for senior executives) - may have longer to run.

Albanese was the muscle behind Rio's takeover of Alcan in 2007 - a $38-billion miscalculation that came at the end of a commodities boom and on the eve of a financial crisis which brought chaos to global markets.

Rio's offer for Alcan eclipsed an earlier bid from Alcoa Inc. by more than $10-billion and despite some whispers of discontent, shareholders seduced by the banker spin voted convincingly in favour of the union.

Albanese and Ritchie then gave chase to Mozambique-focused coal miner Riversdale in 2011 during a short-lived period of calm in a volatile global economy.

Optimistic estimates on future market demand and the quality of Riversdale assets helped Rio trump rival bids. Again, the majority of shareholders accepted the deal. But since then, like many others in the region, Rio has struggled with poor infrastructure between pit to port, and has had to cut estimates of how much coal it can deliver.

"Mozambique is more of a surprise but the industry's record on acquisitions is appalling and Rio is not alone in destroying shareholder value," said a second shareholder among Rio's ten largest investors.

Even investors who opposed the deals say there's a limit to how much blame they can deflect back to management and board.

"We always thought Alcan was a poor deal (but) I would not be agitating for the chairman to go," said a third large investor adding Rio had done enough by way of making amends.

Rio shares closed just 0.5% down on London's FTSE 100 in spite of the high-profile sackings, suggesting that investors were braced for bad news long before the company announced it would atone for its unsuccessful M&A activity.

Striking a newly cautious note, the investors called on their cohorts to look harder at the next alluring deal to come to the table.

"The M&A bankers come out with great stories, the managers get excited about scale and it's up to shareholders to identify ill-discipline and react to it," the first investor said.

"It's a perpetual cycle. Scaling up, storytelling, realisation, regret, forget and then there's a brand new story. We're in a phase where in this particular industry, people are starting to pay the price for hubris."

Edited by: Reuters

Thursday, December 20, 2012

EU regulators drop Rio Tinto antitrust case

European Union regulators dropped an investigation into metals company Rio Tinto Alcan on Thursday, saying they were satisfied with commitments made by the firm to ensure it does not favour subsidiaries when purchasing supplies.

The ruling means the European Commission, the EU's antitrust authority, will impose no penalty against the firm.

"Rio Tinto Alcan's commitments will open up the market for equipment used in aluminium smelters. As a result, the customers of aluminium technology and equipment will have more choice," EU competition commissioner Joaquin Almunia said in a statement.

The EU launched its investigation into the unit of Anglo-Australian mining group Rio Tinto over concerns that its tying of sales of its own smelting technology to plans to buy speciality equipment may have breached EU rules.

Rio Tinto Alcan offered to provide flexible licensing terms to rivals to end the investigation and avert a possible fine.

Edited by: Creamer Media Reporter

Saturday, November 10, 2012

Miner Rio Tinto says fresh China stimulus unlikely soon

China's incoming leadership change is unlikely to spur fresh economic stimulus measures anytime soon, according to global miner Rio Tinto, which sells tens of millions of tons of iron-ore, copper and coal to China annually.

"The forces for a big stimulus are pretty limited," Rio Tinto chief economist Vivek Tulpule told reporters.

Earlier rounds of stimulus helped drive global iron-ore and coal prices to record highs. This in turn translated into soaring profits for the likes of Rio Tinto and other mega-miners, including BHP Billiton and Xstrata .

Since then, an economic downdraft has seen Chinese growth slow for seven successive quarters and left 2012 on course to be the weakest full year of growth since 1999 – albeit at a 7.7% clip that is the envy of developed economies.

The Chinese Communist party's week-long congress is due to anoint a new generation of leaders, but is also an opportunity for senior officials to hash out or defend policies.

Rio Tinto expects economic growth in China to rise to at least 8% in 2013 and average 8% to 9% to 2015, a more bullish view than the global miner's main rivals.

China is scheduled on Friday to release a string of data, including industrial output and retail sales, expected to show modest growth recovery in the world's No.2 economy.

Rio Tinto, the world's No.2 iron-ore miner, sees Chinese growth picking up from below 8% this year as a new government in Beijing relaxes restrictions on real estate investment and pushes infrastructure spending, which will drive demand for steel and in turn iron-ore, its chief economist said.

"On balance we're seeing some green shoots and an expectation next year that the GDP growth rate will have an 8 in front of it, at least 8%, maybe on the low side of that," Tulpule said.

Among those green shoots, he pointed to recent data showing a pick-up in containers in ports and rail cargo turnover in September, a rise in housing sales, and an increase in credit from new financing sources.

Rio is sticking to its view outlined earlier this year for Chinese growth to average 7% to 8% from 2015 to 2020 and slowing to 5% to 6% growth beyond 2020, but said it was likely to be a volatile path towards slower growth as the Chinese economy evolves from being investment driven to consumer driven.

"There are some uncertainties about the future," he said.

By comparison, top global iron-ore miner Vale now sees China's economy growing at 6% to 7% a year over the rest of this decade. BHP Billiton sees China's annual growth averaging 7% to 8% over the next decade.

Rio Tinto sees Chinese steel production peaking at one-billion tons a year around 2030, slightly later than earlier forecasts for it to peak at that level around 2025.

Tulpule warned that if the US failed to find a solution to the "fiscal cliff" it would not only shave US demand for commodities, but would have a bigger impact in terms of contagion in financial markets, which would hit activity on the London Metal Exchange, where trading of metals like copper and aluminium has been driven by speculation.

The fiscal cliff refers to a $600-billion package of automatic spending cuts and tax increases due to take effect early next year unless Washington can negotiate a deal.

But Tulpule said the net impact on bulk commodities, like iron ore, would be limited because if Chinese growth slowed sharply as a result of the US fiscal cliff, we would likely see China step up stimulus spending swiftly.

"If we don't, then I think we would start to see some negative effect on bulk markets," Tulpule said.

Edited by: Reuters

Tuesday, October 23, 2012

Rio's iridescent diamonds draw keen interest from international bidders

By Marc Howe

Rio Tinto's auction of a fresh set of multi-hued diamonds from its Argyle mine in Australia have elicited strong competition amongst bidders hailing from both Asia and Europe.

According to the Australian, buyers purchased 56 single pink diamonds, two red diamonds and 19 blue diamonds.

Argyle Pink Diamonds manager Josephine Johnson says the company was "delighted to see such a strong appetite" for the auction of the iridescent gem collection.

Johnson says several of the diamonds were snapped up by Indian bidders, where pink diamonds are becoming increasingly popular, while a bidder from Japan, the traditional market for the oddly hued gemstones, managed to nab the Argyle Elektra, a stunning blue diamond.

The most valuable diamond from the collection, a 1.32 carat pink diamond, went to designer John Glajz who intends to use gemstone for a heirloom jewellery piece.

Despite the strong show of interest in the rainbow-hued gem set, Rio Tinto recently announced plans to slash staff positions at its Argyle mine in Western Australia by a fifth, in what many believe was a preparatory measure for its sale or public listing.

Production at the Argyle mine, which accounts for 90% of the global supply of pink diamonds, is set to come to an end within a decade, after which point prices for the rare gems are expected to soar.

Sunday, October 14, 2012

Rio Tinto ‘more cautious’ on short-term outlook

Mining giant Rio Tinto CEO Tom Albanese on Tuesday took a more cautious stance on the prospects for the next few quarters, citing volatile macroeconomic conditions.

While economic growth in China remained robust, the Rio Tinto CEO pointed out that it was moderating and added that growth in developed countries remained “slow and uneven”.

Rio Tinto has lowered its estimates for Chinese gross domestic product growth to just below 8% this year.

“Significant stimulus efforts have been announced in China, the US and Europe, but its uncertain exactly when we will see the impact of these on our markets. Given this, and the considerable price fluctuations in recent times, we are somewhat more cautious on the outlook over the next few quarters.”

Rio Tinto also pointed out that iron-ore and copper prices were expected to remain volatile in the near future.

The company also stated that about 100-million tons of primary Chinese iron-ore production had become unprofitable and that a large portion of this had already been curtailed.

UK-based investment bank Fairfax commented that Rio Tinto’s downgrade on Chinese growth brought its outlook more in line with the market. “The tone of Rio’s seminar is not surprising given the current economic backdrop,” it added.

With the continuing volatile short-term environment, Rio Tinto was looking at further reducing costs, primarily in operating-, evaluating- and sustaining-capital costs across the business.

“The drive to reduce service and support costs so far has produced savings of $500-million a year,” the company added.

Despite the negative short-term outlook, Albanese said that the longer term picture remained positive, with increasing urbanisation in emerging markets driving strong demand growth across a range of commodities, and a slower supply response from the industry.

“Our business remains resilient in this environment, and our operations are performing better than our peers, reflecting our consistent strategy of running long-term, cost competitive operations. We aim to maintain our single A credit rating and are driving our cost reduction efforts harder and faster,” he said.

Edited by: Mariaan Webb

Thursday, August 30, 2012

Iron-ore hits lowest in nearly 3 years; miners' shares tumble

Iron-ore prices fell to their lowest levels since 2009 on Thursday, dragging down shares in miners including top producers of the steelmaking ingredient, Rio Tinto and BHP Billiton , as a slowdown in top consumer China threatened to further sap demand.

Benchmark iron ore with 62% iron content slid nearly 2% to $88.70/t on Thursday, the lowest since October 2009, according to data provider Steel Index. Iron ore pricing moved from decades old once-a-year benchmark system to daily assessments in 2010, although recorded spot prices fell as low as $59 in early 2009.

The iron ore price has dropped by a third, or almost $50/t, since July, as Chinese steel producers shun cargoes and the appetite of the world's largest consumer cools.

Prices could fall up to 30% more, with no sign consumption will rebound anytime soon, analysts and traders said.

"It's possible for prices to fall to as low as $65 to $70 in the spot market, before a recovery back to the $80 to $90 range," said Fairfax I.S. analyst John Meyer, adding that the price slide could continue for the next one to two months.

"It's a little early to look for significant restocking in China. I think they're still shaking the tree."

Iron ore is a leading economic indicator as it highlights demand in key industrial sectors such as construction and carmaking.

Many traders are currently trying to liquidate their iron ore cargoes with little success, a further sign that a rebound is not on the cards in the short term.

"Not only is a recovery in the near term unlikely, there is also no sign that the fall will stop," a UK-based iron ore trader said.

"Looking at the cost curve these prices make no sense but there are no signs at all of an improvement in demand. The further traders wait the more they lose and waiting for a recovery is a big risk to take."

A second trader said he was getting "no interest whatsoever" for an iron ore cargo he was offering.

A movement of the iron ore swaps forward curve on Thursday also indicated the market has lost faith in a price recovery in the near term.

Swaps tied to iron ore deliveries for the firt quarter next year traded above swaps for the last quarter this year, showing players think a rebound is unlikely until 2013.

CHINA SLOWDOWN PUTS ON BRAKES

Iron ore has been the biggest revenue earner for top miners Vale, Rio Tinto and BHP Billiton and producers have for years banked on China's industrialisation efforts to sustain its appetite for the material.

But the slowdown in the Chinese economy put the brakes on a rally that lifted spot rates to near $200 last year, more than triple the level since 2008.

Prices have been falling rapidly since early July.

Shares of Rio Tinto in Australia fell 3.8% to close at A$48.63, their lowest since July 2009, while rival BHP lost 2.4%, the steepest single-day drop in a month. In London, BHP shares were down 2.9% in afternoon business, while Rio was trading close to 2012 lows, down 2%.

Mid-tier miners were under even more pressure as the margin between costs and prices narrows. Shares in Ukrainian producer Ferrexpo fell as much as 10%, as analysts quoted fears of a fall in the premiums for pellets and high freight costs.

Analysts at Liberum said Australian producer Fortescue Metals Group , with cash costs around $50 per tonne, in reality had much higher costs once royalties, corporate overheads and freight are included. All in, costs would be $79/t, not far from realised prices, the analysts said.

Shares in emerging west African producers African Minerals and London Mining were also hit by the margin fears, down 4.8% and 5.4% respectively, underperforming a 2.4% drop in the sector .

"The speed in the fall of the iron ore price is alarming. I don't think many people expected it to be sub $100 and to see it go below $90 is eye-opening to say the least," analyst Asa Bridle at Seymour Pierce said.

"For a long time there was uncertainty over whether a lot of the planned production would come on, and perhaps that is still the case, but for those that have made it to production, the timing is cruel to say the least."

STRUGGLING

The iron-ore market will remain under pressure until the steel sector recovers and this will not be a quick process, analysts said.

"With sluggish manufacturing activity in Europe and a construction market that's struggling to pick up in China, demand for steel has dropped sharply with no quick fix in sight," said Metal Bulletin research steel analyst Kashaan Kamal.

Chinese steelmakers said the sector, nourished by a decade of breakneck growth, needs to brace itself for weak demand and razor-thin margins over the next three to five years that will force inefficient mills to shut.

The most active rebar contract for January delivery on the Shanghai Futures Exchange slipped 0.2% to close at 3,437 yuan a ton, stretching its losing streak to a 14th day running.

Rebar, or reinforcing steel bar which is used in construction, hit a record low of 3,327 yuan on Wednesday. Down almost 9% so far in August, it is on track to extend its monthly loss to a fifth straight month.

Fading steel demand in China will see producers incurring bigger losses this month following a loss of 1.9-billion yuan ($299 million) in July.

Baoshan Iron and Steel Co, China's biggest listed steelmaker, said global demand for iron ore could drop in the second half of 2012 compared with the first six months, while 50-million tons of additional supply will come on stream, weighing further on prices .

Iron ore lost almost a quarter of its value this month as most Chinese buyers opted to keep their iron ore inventories low and bought smaller lots from port stockpiles instead of ordering fresh cargoes.

"We're lucky we don't have so much cargo. Many traders are struggling to unload their material into the market," said an iron ore trader in Shanghai.

Price offers for cargoes from Australia, Brazil and India fell by another $2/t to $4/t on Thursday, traders said.

Source: Reuters

Wednesday, August 8, 2012

Rio Tinto costs, spending in focus as profit seen falling

Rio Tinto, the world's second-largest iron-ore producer, is expected to stick with its spending plans when it announces first-half results on Wednesday, even as profits fall sharply on lower prices and softer Chinese demand.

Consensus forecasts for the miner point to an almost 40% drop in interim underlying earnings, to $4.9-billion.

Investors are keenly awaiting an update on Rio's efforts to control stubbornly high cost inflation in the face of a Chinese slowdown - a combination which last month dragged rival Vale , the world's largest iron-ore producer, to its worst quarterly result in two years.

But they are also homing in on Rio's spending plans, particularly projects like Rio Tinto-operated Mongolian copper mine Oyu Tolgoi, which will help diversify earnings that are largely reliant on steelmaking iron-ore.

Rio, like its diversified peers, is juggling bumper capital expenditure plans with volatile markets and an uncertain outlook. But while some rivals have begun to signal they could cut back, the miner has stayed firm on its own plans to date.

CE Tom Albanese said last month the company's key expansion projects still stacked up.

"At this time, we anticipate Rio will hold to its $16-billion spend planned for 2012," Morgan Stanley said in a note.

The bank's analysts said Rio's growth projects were more incremental and therefore less contentious than those of rival BHP Billiton, which has said it is reviewing the sequence and pace of its major investments.

Rio Tinto committed in June to spend $4.2-billion expanding its Pilbara iron-ore operations in Australia and is also sticking to plans to develop the Simandou project in Guinea, confident in the medium- to long-term outlook for iron ore.

With iron-ore prices under pressure, investors are eager to see progress on the Oyu Tolgoi copper and gold project, where commercial output is due to begin in 2013. That hinges on securing power from China soon.

Rio is also expected to update the market on its efforts to turn around its aluminium business, where it has an ambitious EBITDA margin target of 40%, and on plans to restructure, sell or spin off its diamond arm.

Source: Reuters

Tuesday, June 26, 2012

Rio Tinto exec sees moderation in iron-ore prices

Rio Tinto expects a moderation in iron-ore prices going forward as additional supply comes on stream, and sees no going back to annual pricing, a senior company executive said on Tuesday.

"The demand outlook is strong but supply is responding as well," Alan Davies, president of international operations for Rio Tinto told Reuters in an interview on the sidelines of a Metal Bulletin iron ore conference.

"Iron-ore prices are high from historic standards now but as supply comes on we would expect a moderation in the price in the medium term."

In response to recent comments by the CEO of steelmaker Posco and by that of competing iron-ore miner Vale about a possible return to annual iron-ore pricing, Davies said he did not see that happening.

"I don't see a turnaround," he said. "I'd personally be surprised if it went back to a longer term pricing regime because our customers wanted a shorter term prices regime and that's exactly what we have got."

The big three iron-ore miners: Vale, Rio Tinto and BHP Billiton started to price iron ore on a quarterly, monthly and spot market system after the 2008/9 financial crisis, when many steelmakers, especially in China, defaulted on annual contracts to take advantage of falling spot market prices.

Rio Tinto is currently selling iron ore to Korean, Japanese and Taiwanese buyers on a quarterly-lagged mechanism.

Its sales to China, which represent about 60% of the company's sale, are made on a mix of spot, monthly and quarterly prices.

Rio, the world's second-largest miner of iron ore after Brazil's Vale is continuing to invest heavily in iron ore, which it sees as one of the most profitable commodity in its portfolio as prices remain historically high although lower than a peak of almost $200 per ton hit in 2011.

Rio said last week it will spend $3.7-billion to increase iron-ore output in Australia by a further 25% to 353-million tons a year tonnes by 2015.

"Iron ore is a great commodity we are heavily investing in it, the margins are good and we expect margins to be good because we only invest in lowest cost projects," Davies said.

He added iron ore production cost at its main projects, in the Pilbara, Australia, and in Simandou, Guinea, would be cheap compared with other projects.

"We expect there will be 700-million tons of supply opportunity for producers to actually meet demand over the next seven to eight years and we expect to bring on about 25% to 28% of that."

Edited by: Reuters

Wednesday, June 20, 2012

Rio Tinto breaks the piggy: $4.2 billion investment to boost its iron ore business

Giant miner Rio Tinto (LON:RIO) continues to build its reputation as the most bullish of the major mining companies after it announced today it will spend $4.2 billion on top-tier iron ore projects.

Rio, the world’s second-largest exporter of iron ore, will invest $3.7 billion in its Western Australian iron ore operations, the miner’s most profitable business, and $501 million in its Simandou operation in Guinea.

The news of Rio’s spending in the West African asset, which will turn Guinea into the world's third-largest iron ore producer after Australia and Brazil, came only weeks after market rumours were pointing to an Anglo-Chinese consortium ready to grab the Simandou asset.

"Today's announcement is in line with our long-held strategy of investing in and operating long-life, low-cost, tier one assets, and consistent with our view of the economic outlook,” said Rio Tinto chief executive, Tom Albanese.

“We are mindful of short-term uncertainties, and remain fully committed to a balanced approach to investment, while maintaining a single A credit rating and a progressive dividend policy," he added.

Other companies with major ongoing expansions in the Pilbara iron belt are BHP Billiton (LON:BLT) (NYSE:BHP) and Fortescue Metals (ASX:FMG)

Wednesday, June 13, 2012

World may face aluminium deficit in 2013 – Rio Tinto

NEW YORK – The global aluminium market will be more balanced this year and could shift into a supply deficit by 2013 as new projects fail to keep the pace with high-cost capacity cuts this year, Rio Tinto Alcan's CE said Tuesday.

"Supply will become more challenging ... the market will be near a balance this year," Jacynthe Cote said at American Metal Market's Aluminium Summit in New York.

"If you look at the supply side, year-over-year, there's been virtually zero growth given what has been added versus what has been taken out."

Many higher-cost smelters in the 40-million-ton-a-year market have struggled to remain profitable after prices plunged almost a third in the past 12 months, to below $2 000/t.

On Tuesday, aluminium hit December lows, roiled by concerns over sluggish demand and high inventories.

Three-month prices on the London Metal Exchange (LME) were at $1 960/t on Tuesday, close to or below many plants' breakeven level.

With power accounting for a third of production costs, smelters with long-term steady energy contracts or cheap hydroelectric power can survive the current turmoil.

But many have divested or shut expensive production.

Rio Tinto plans to sell 13 assets across six countries, including smelters and alumina refineries worth an estimated $8-billion.

US producer Alcoa has said it is taking a hard look at the cost profile of its Point Henry smelter, having already announced the shutdown of about 500 000 t of yearly capacity at the start of the year.

Norsk Hydro shut its 180 000 t/y Kurri Kurri smelter, in Australia.

"So we are getting closer to a near balanced market. If that trend continues, we could be in a slight deficit next year and the following year because all of the projects are being delayed now," Cote said.

Even so, while producers make cut-backs, many are replacing it with capacity in low-cost regions such as the Middle East.

Alcoa is building its Ma'aden smelter in Saudi Arabia which will open next year and produce 740 000 t/y of aluminium. Many traders say they are also concerned that Chinese output remains high even with the falling prices.

And while Cote sees a long-term supply challenge, demand outlook, primarily from China, is a bright prospect.

"I can't prevent myself from being pretty positive about China," Cote said.

China's move last week to cut interest rates for the first time since the depths of the global financial crisis was another sign that the world's leading metals consumer "will continue to track their growth in a very responsible way", Cote said.

"China is still going to grow at near 8% this year," she said. "The aluminum demand will probably be near 9% this year ... it's growing in the single digits, but it's growing from a much larger base than 10 years ago."

Over the next five to teb years, 70% of aluminum supply will come from China and close to 25% will come from the Middle East, she said.

Talk of a supply deficit may also surprise those who see record stockpiles of almost five-million tons in LME-bonded warehouses, with another four-million to five-million tons estimated to be in off-exchange storage, as a sign of massive oversupply.

But much of that material, which started building in 2007 as the global economy deteriorated and demand fell, is not immediately available as it is held in financing deals, traders say.

In those deals, the owner of the metal agree to keep the material in storage for months and often years at a time in return for cheap rent.

They make a profit because their metal is gaining in value due to the contango on the LME, with forward prices at a premium to cash.

Source: Reuters

Friday, May 25, 2012

China iron ore market "steady as it goes" – Rio Tinto

Rio Tinto , the world's No.2 producer of iron ore, sees no signs of a slowdown in demand from top consumer China and still plans to almost double its output of the steel-making ingredient by 2016.

Slowing growth in China has rattled commodity markets in recent weeks, prompting sharp falls in some raw materials prices on fears demand will slump.
Some Chinese buyers have defaulted on coal and iron ore contracts and others are deferring deliveries following a drop in prices, traders said this week.
But Sam Walsh, the head of Rio Tinto's iron ore division, said the company was seeing little evidence of such turmoil.
"We're not physically seeing it on the ground," he said, describing the China market as "steady as it goes" in the short-term.

China's factories faltered in May as export orders fell to two month lows, a private sector survey showed on Thursday, suggesting surprise weakness in April's hard economic data persists even as policymakers seek to shore up growth.
Shares in Rio traded down 0.5 percent, having tumbled to a near three-year low last week amid concerns about the growth outlook and spending plans.
Rio, along with other big diversified miners including BHP Billiton , Vale and AngloAmerican , are beefing up iron ore divisions in anticipation of long-term demand despite the short-term set-backs in China.

Rio is already committed to lifting yearly output capacity at its main Pilbara mines by 23 percent to 283 million tonnes. It has a proposal before its board to increase that to 353 million tonnes by the first half of 2015.
"At current estimates, we have options to expand to a global annual capacity approaching 450 million tonnes by 2016, when Canada and our new project in Guinea are added in," Walsh told a business luncheon in Sydney.

PILBARA EXPANSION
Walsh reiterated that a decision on the Pilbara expansion was on course to be made within months.

BHP also has plans to expand its Australian iron ore mines. The company's chairman, Jac Nasser, said last week BHP would not meet its five-year, $80 billion capital expenditure plan, but did not mention which areas may be pushed back.

Analysts say big iron ore expansion and infrastructure projects in the Pilbara, where margins are among the industry's fattest, are less likely to be affected.
However, smaller iron ore players are struggling to raise funds for development projects, with access to credit more difficult and investors more wary.

Also on Thursday, China's Hanlong Mining put back its $1.3 billion takeover of Australian-listed Sundance Resources by six months amid delays over funding and consents.
Sundance is developing a $4.7 billion project on the border of Congo and Cameroon in western Africa.

Source: Reuters

Rio's Zimbabwe spin-off covets Murowa diamond mine

Zimbabwe's RioZim Limited has opened talks with Rio Tinto in a bid to take full control of the Murowa diamond mine as the global mining major seeks to leave the gem business, a key shareholder said on Thursday.

Rio Tinto has a 78% stake in Murowa, a diamond mine which produced 324 000 ct in the last financial year, while RioZim controls 22% of the mine.

Locally-owned RioZim was created in 2004 when Rio, the world's third largest miner, largely left Zimbabwe while retaining its diamond interest.

RioZim is keen to exercise its pre-emptive rights to acquire Rio Tinto's shares in Murowa, Harpal Randhawa, whose private equity group Global Emerging Markets (GEM) recently bought 25% of the Zimbabwean firm, told an investment conference in Harare.

"We're now in discussions with Rio Tinto to acquire the 78% of Murowa that they want to offload," Randhawa said.

Rio Tinto signalled its intention to leave the diamond industry in March, effectively inviting bids for its $1.2-billion diamonds business, which also includes two other mines in Australia and Canada.

Randhawa, who said only time would tell if his group's decision to invest in RioZim was "either brave or stupid," said the firm was compliant with Zimbabwe's empowerment law as it was 54% controlled by locals.

President Robert Mugabe is championing a law that seeks to transfer at least 51% shareholding in foreign firms, including mines and banks, to locals.

Several foreign firms, including the world's two largest platinum miners, Anglo American Platinum and Impala Platinum are in talks with the government over plans to turn over majority stakes in their local operations to Zimbabweans.

"The main constraint that indigenisation [as the empowerment policy is called in Zimbabwe] has put on any company is a capital constraint due to the limited ability of locals to inject capital," Randhawa said.

RioZim, which is battling to clear a $50-million debt owed to local banks, badly needs to recapitalise its gold mines and develop its substantial coal and chrome concessions.

Source: Reuters

Wednesday, May 23, 2012

Japan Q3 aluminum premium talks kick off at $200/mt plus LME CIF Japan

Negotiations for premiums for primary aluminum ingot to be exported to Japan in the third quarter have started, with Rio Tinto Alcan offering a premium of $200/mt plus London Metal Exchange cash CIF Japan, sources said.

A representative from a second global producer, who will be meeting with Japanese buyers this week, has not yet made Q3 premium offers, two Japanese buyer sources said.
Six other overseas suppliers are expected to make their Q3 premium offers in the coming weeks, Japanese buyers added.

The negotiations are for 30,000-50,000 mt/month of primary aluminum ingot of minimum 99.7% aluminum and maximum 0.2% iron, 0.1% silicon content.
Some Japanese buyers started negotiations earlier in May to secure Q3 volumes amid mounting concern over tightening supply, Platts reported earlier.

There was talk in the market of two deals settling at $190-200/mt plus LME cash CIF Japan for 500 mt/month shipments over June-September, but this could not be immediately confirmed.
Two sources said they had heard of a spot deal done at $190/mt plus LME cash CIF earlier this month. Three other sources said another deal was heard done last week at $200/mt plus LME cash CIF Japan, with one adding that it was believed to be for two or more shipments over several months from June.

Platts was not immediately able to reach the companies named as directly involved in the deals.
One buyer source said the deals reached earlier in May were the result of some Japanese buyers wanting more shipments to arrive over May-June before possible power shortages emerge over July-September in the Osaka region. Kansai Electric Power Company, the power utility in Osaka, has not yet been able to restart its nuclear power plant.

But rolling mills and other aluminum end-users outside Osaka are not advancing their production schedules to avoid power shortages, sources added.

"The moves to produce ahead, to avoid power shortages, is limited to mills producing foils [in Osaka] that consume more power [than production of other rolled products]," one rolling mill source said.

"Most mills are keeping their output level unchanged," the source added. "For some mills, I hear aluminum products orders have been slower than their initial expectations since April."

Source: Platts

Monday, May 21, 2012

Rio Tinto offloads aluminium cable business for $185m

Rio Tinto has agreed to sell its Atlanta, Georgia-based wire and cable business Alcan Cable to NYSE-listed General Cable for $185-million, the companies said on Monday.

The diversified mining giant has been selling off non-core operations from the aluminium business it bought in 2007 for some $44-billion, announcing in October it was putting up 13 assets up for sale.

Alcan Cable has around 1 000 employees with factories and distribution facilities in the US, Canada, Mexico and China.

The Rio Tinto unit had low-single digit operating margins last year, General Cable said, adding that the business would contribute some $650-million to $700-million in yearly sales, using current metal prices.

Alcan Cables operating margin would meet that of its acquirer’s over a cycle, thanks to operating synergies, General Cable noted.

“With these synergies, an improving North American market and an accelerating greenfield operation in China, the transaction is expected to create shareholder value in the near term,” General Cable said.

Alcan Cable mainly sells its products to the utility and building sectors.

The deal is likely to close in the second-half of 2012, and the purchase price is subject toadjustments base on the target's working capital levels at that point.

Sunday, May 20, 2012

Vale Loses to Australia as Mine Laws Curb Market Share

By Juan Pablo Spinetto

Vale SA (VALE5), the world’s largest iron-ore producer, is poised to lose market share to Australian rivals Rio Tinto Group (RIO) and BHP Billiton Ltd (BHP) as Brazil imposes stricter environmental rules on new mining projects and labor costs soar.

Brazil’s share of the seaborne iron-ore market may sink to 27 percent by 2016, down from 31 percent now, as the country boosts capacity by 188 million tons, according to data compiled by Bloomberg. Australia will probably add about 502 million tons, taking its market share to 50 percent from 41 percent.

Vale, based in Rio de Janeiro, delayed the $8 billion Carajas Serra Sul expansion and at least three other projects in Brazil last year amid environmental permit issues, higher costs and labor shortages. The company also cut its 2015 iron ore output estimate by 10 percent to 469 million metric tons and is weighing asset sales as it focuses on metals production.

“We are becoming less competitive,” Jose Fernando Coura, president of the Brazilian Mining Institute, said by telephone from Brasilia. Getting approval for a new project is “a Calvary because you need to go through 350,000 institutions,” he said.

BHP, based in Melbourne, said April 18 that fiscal third-quarter iron-ore output surged 14 percent as it expands mines and ports in Australia. London-based Rio Tinto’s production gained 9 percent to 45.6 million tons, while Vale’s dropped 2.2 percent to 70 million after bad weather hurt operations.

Miners are boosting output to meet Chinese demand as the country’s growth stokes demand for steel in automobiles, appliances and construction. Chinese steel production reached a record in March amid the ramp up of new plants.

 

Australian Ore

Australian iron ore output may climb to 940 million tons by 2016, compared with an expected 519 million tons for its South American rival, according to Bloomberg data.

Vale rose 2.6 percent to 35.70 reais in Sao Paulo on May 18. The stock has fallen about 18 percent in the past twelve months, more than the 13 percent decline of the Brazilian benchmark Bovespa Index. (IBOV) BHP, the world’s biggest mining company, lost 29 percent in Sydney during the same period while Rio Tinto fell 32 percent.

China’s steel demand will remain positive until at least 2025 and production will rise to about 1.1 billion tons by 2025 from about 700 million tons currently, BHP said in March. The company is more than doubling its iron ore capacity by 2020 and this year got initial approval to expand its export harbor in Western Australia, where most of the country’s ore is mined.

 

Australia Investment

“The investing environment in Australia is a little bit friendlier than in Brazil from a political, environmental and permitting standpoint,” said Andrew Cosgrove, a Bloomberg Industries analyst in Princeton, New Jersey. “Brazil may not be seen as the source of new supply in the future that a lot of people are expecting.”

Brazil, which counts iron ore as its key export product, shipped 330.8 million metric tons last year, 107 million less than Australia. The gap between the two has widened since 2008, the year the country overtook Brazil as the largest exporter.

Australian exports will grow 12 percent this year to reach 493 million metric tons, the country’s Bureau of Resources and Energy Economics said in a March 21 report. Brazilian exports will gain 6.4 percent in 2012, it said.

Vale’s Carajas Serra Sul project, which is expected to increase capacity by 90 million metric tons, is two years behind schedule, the company said Nov. 28. Vale is expecting to get a preliminary environmental license for the project by June.

 

‘Licenses to Maintain’

“We obtained licenses to maintain,” Vale Chief Financial Officer Tito Martins told reporters May 18. “The difficulty that arose is getting licenses to expand.” Vale’s permit to operate its N5 Sul pit, granted in January, was the first license the company obtained in the Carajas region, where the company has its biggest mine, in 10 years, Martins said.

Vale isn’t the only company grappling with project delays and challenges in obtaining licenses in Brazil. Anglo American Plc (AAL), based in London, was ordered by the authorities to stop construction at its Minas Rio project, the company’s biggest, six times. The reasons for the stoppages included protecting the area’s artistic and cultural heritage.

“This is a painful process, but we go through it,” Paulo Castellari, the head of Anglo’s iron-ore unit in the Latin American country, said of the Brazilian permitting processes in an April 5 interview from Rio de Janeiro.

The company last month also had a license to install a power line at the project suspended by a Minas Gerais state court. Anglo failed to fulfil some of the conditions to obtain the permit, prosecutor Francisco Francisco Chaves Generoso told the court in a civil lawsuit.

 

Higher Costs

In December, Anglo raised its cost projection for at least the fourth time to as much as $5.8 billion, more than double the figure planned when the company agreed to buy the assets. The company has followed all legal requirements for environmental licensing on the project, which remains on track to begin shipments in the second half of next year, according to London-based spokesman James Wyatt-Tilby.

Mining projects in Brazil may become less profitable because of planned legislation. The government is drafting new rules to increase royalties on the extraction of iron-ore and other minerals.

Vale last year stopped publishing a long-term iron-ore output forecast after cutting its 2015 estimate. Rio Tinto, the world’s second-largest iron-ore exporter, has embarked on a plan to boost output capacity by more than 50 percent in Western Australia, reaching 283 million metrics tons in 2013, with a plan for a further increase to 353 million tons by the first half of 2015, it said in February.

Still, Vale’s low production costs and the high quality of its iron ore may prevent it from losing the lead in the market, according to Alan Glezer, an equity analyst at Banco Bradesco BBI SA.

“The company has the lowest production costs and has an iron ore of high quality, so they have a privileged position as the market expands,” he said by telephone from Sao Paulo.

Wednesday, May 16, 2012

Latin American mining investment boom continues unabated

Over the past decade, mining investment in Latin America has more than doubled, even after experiencing a sharp drop in 2009. According to a report by the Metals Economic Group, Latin America is now the primary destination for mining exploration investment in the world, with 25% of total investment going to Chile, Peru, Brazil, Colombia, Mexico and Argentina.

In 2003, hardly 10% of global mining investment was headed towards Latin America, but today big announcements abound.

London-based Hochschild Mining, which operates throughout Latin America, recently said it will invest another LIMA$425 million in two silver projects near its Arcata and Pallanca mines in southern Peru over the next two years.

Unveiled earlier this week at the International Gold Symposium in Lima by Hochschild’s executive chairman, Eduardo Hochschild, this is the latest mining investment announced for Peru, and for Latin American mining in general, which continues to experience an investment boom.

Other recent announcements have included a combined $1.3 billion investment into Colombia’s coal mining industry by the Drummond Company Inc., Cerrejon Mineria Responsable and Glencore International’s Prodeco Coal; as well as South African miner Gold Fields’ increased investment for its Peruvian Chucapaca project to $1.2 billion, from an earlier US$750 million.

Over the next five to 10 years, more than $425 billion in investments have already been announced, again, with a focus on Chile, Peru and Colombia, from such companies as BHP Billiton, Xstrata and Rio Tinto, among others.

Thursday, May 3, 2012

Rio Tinto CEO warns of growing risks to global supply of metals

Tom Albanese warned investors Thursday that rising costs and calls for buybacks and special dividends eat away at incentives to build new mines.

Global miner Rio Tinto warned on Thursday of risks to keeping up the global supply of metals as increasing demands from governments, rising costs and calls for buybacks and special dividends eat away at incentives to build new mines.

"It is getting harder and harder to find supply, harder and harder to find resources. And resources are in places where stakeholder activism is tough and resource nationalism is tougher. It takes longer to get permits approved, if they get approved at all," Rio Chief Executive Tom Albanese told investors at a Sydney conference.

"So the next five years is going to be a supply story; the last five years has been a demand story. I am not sure the economic forecasters have cottoned on to that observation yet."

Soaring prices for labour, materials and power have dented profits and forced miners to review some potential growth projects. They are also facing increased demands from governments that want a larger share of the resources pie.

Meanwhile, investors have begun to fret over miners' ever larger and more capital intensive projects, demanding that companies do a better job of balancing growth with the need to compensate shareholders with dividends and buybacks.

Rio, a day after BHP Billiton reassured investors at the same conference, said it was listening to concerns over spending discipline. But warned that would mean fewer projects across the sector. [ID:nL5E8G2HWZ ]

"Each of you in this room want more money back. You want buybacks, you want dividends, you want special dividends. You don't want us spending as much money," he said.

"We recognise that. We respect that. But what that means, and we are hearing it, we know our peers are hearing it, (is) there is going to be less supply coming in."

Rio has more than $33 billion of major capital projects underway, including Oyu Tolgoi in Mongolia, one of the world's largest copper-gold mines.

Albanese said operating conditions for coal miners in Australia were difficult but stopped short of confirming a report that Rio was reviewing its coal expansion plans there, largely due to capital costs and investor pressure to return more cash.

The Australian Financial Review had said Rio's proposed $2 billion Mount Pleasant coal project in New South Wales State looked likely to be shelved.

He said separately the miner had no shortage of suitors interested in its diamond business, put up for sale earlier this year.

Monday, April 30, 2012

Rio Tinto reviews options for future of its diamond business

Rio Tinto has begun a strategic review of its diamond business that will include exploring a range of options for potential divestment of its diamond interests.

Rio Tinto operates three diamond mines, Argyle in Australia (100 per cent interest), Diavik in Canada (60 per cent interest), and Murowa in Zimbabwe (78 per cent interest), as well as Bunder, an advanced diamonds project in India (100 per cent interest).

Harry Kenyon-Slaney, chief executive Diamonds & Minerals, said “We regularly review our businesses to ensure they remain aligned with Rio Tinto’s strategy of operating large, long-life, expandable assets.

“The diamonds market outlook is very positive, with demand growing strongly and lack of new discoveries limiting supply. We have a valuable, high quality diamonds business, but given its scale we are reviewing whether we can create more value through a different ownership structure.

“This process may take some time. We’re committed to keeping stakeholders informed about any key developments, and in the meantime are reassuring employees and the governments in the states and countries where we operate that it is very much business as usual.”
About Rio Tinto Diamonds

Rio Tinto operates a fully integrated diamonds business from exploration through to sales and marketing. It is one of the world’s major diamond producers through its 100 per cent control of the Argyle mine in Australia, 60 per cent of the Diavik mine in Canada, a 78 per cent interest in the Murowa mine in Zimbabwe. These three mines allow Rio Tinto to produce the full range of diamonds for all market segments. Rio Tinto also has an advanced diamond project, Bunder, in India.

Rio Tinto’s share of the production from its three operating diamond mines is sold through its sales and marketing headquarters in Antwerp, with representative offices in Mumbai, Hong Kong and New York. It also operates a niche cutting and polishing factory in Perth for the rare pink diamonds from its Argyle mine. Rio Tinto is a leading supporter of the Kimberley Process as well as a founding member of Responsible Jewellery Council. Website:

www.riotintodiamonds.com.

Source: Rio Tinto

Wednesday, April 25, 2012

Rio Tinto finalizes Guinea JV with Chinese aluminum giant

Anglo-Australian miner Rio Tinto announced today it has completed the formation of its joint venture with a group led by China’s Chalco, subsidiary of state-owned aluminum giant Chinalco, to operate the Simandou iron ore project in Guinea.

After receiving Chinese regulatory approval for the new company, Chalco gave Rio a $1.35 billion earn-in payment.

Rio Tinto is already working on the project, which includes developing the railway, mine and port in order to ship its first cargo of the steelmaking raw ingredient by mid-2015 and increase iron ore output to 95 million metric tons a year from Simandou in the future.

Rio and Chalco hold a respective 53% and 47% interest in the JV, which translates into a 50.35% and 44.65% interest in the project. The private sector arm of the World Bank, the International Finance Corporation, holds the remaining 5% of Simandou.

Guinea retains its options for participation in the project and is expected to take up its first share in the near future, Rio Tinto said.

Last year, Rio Tinto and Chinalco formed another joint venture to explore for copper and other metals in China.

“China is a vast country rich in minerals and it has the geological pedigree to produce significant world-class deposits. Exploration work carried out over past decades is a rich source of data and experience on which to build. With Rio Tinto’s industry-leading technology and global mining experience, the exploration JV will be able to drawn on the two parties’ strengths to achieve our common goal,” said at the time Rio Tinto managing director China Ian Bauert.