Decision time approaches for Mongolia, Rio Tinto and Turquoise Hill on Oyu Tolgoi, the enormous copper mining project that could one day represent about a third of the landlocked nation’s economy.
Since we reported that Mongolia’s yet to be created sovereign wealth fund could take an equity stake in Turquoise (which releases earnings after the close in Toronto on Tuesday), one deadline has been extended, the mining minister has done his best to wind up investors, China has reasserted itself and Tony Blair has popped up.
All of which means that a deal to start work on the underground part of the mine (phase II), funded by $4bn of loans by commercial banks and multilateral lenders, is very close. But it remains caught up in Mongolian politics, and may not hit the March 31 deadline on which the funding hangs. Read more
Warning! Read the boiler plate here
What follows concerns the likely actions of the government in Ulaanbaatar, which is pretty much the definition of a frontier market and all the perils that go with it. With that warning, come with us to Mongolia.
What we hear, from sources with a record of reliability, is that the government is strongly considering the purchase of a small stake in Turquoise Hill, the mining company controlled by Rio Tinto. Read more
In the M&A hall of shame, Rio Tinto’s top-of-the-market $37bn acquisition of Alcan (in CASH) is right up there. In this century, at least.
It was a truly disastrous deal that nearly killed the Anglo-Australian mining company and its after-effects are being felt to this day. Just ask Tom Albanese. Read more
It was supposed to be one of the best trades of 2013 – buy mining stocks to get leveraged upside to the global economic turnaround. But as we approach the end of the first quarter, only one half of that equation is working. The world economy is recovering strongly but the big miners are being well and truly left behind – Australian Financial Review.
Yep, the miners as a ‘leveraged play on global growth” is not going exactly to plan: Read more
What now for Xstrata CEO Mick ‘The Miner’ Davis?
Bloomberg thinks it has the answer: Read more
Sam Walsh, the new Australian boss of Rio Tinto has probably never heard of Tony Pidgley, the chairman of upmarket UK housebuilder Berkeley Homes.
Which is a pity because Pidgley, adopted from Barnardo’s at the age of four by travellers, could give him some tips on how to run a cyclical business and maximise returns to shareholders. (Something, of course, his predecessor conspicuously failed to do). Read more
The new Rio boss has a few nice words about his predecessor, followed by a flash of steel, in a letter to staff. And it’s about all you’re likely to hear from Walsh until annual results on Valentines Day. Read it after the jump: Read more
John Kemp at Thomson Reuters has pointed us in the direction of colleague Clara Ferreira-Marques’ piece on the likely repercussions of Rio Tinto’s $14bn revaluation of aluminium and coal assets last week. As she notes, it’s almost certain that Rio Tinto’s hit will now set the stage for a wave of writedowns across the industry. Read more
A final word on Thursday’s defenestration of Rio boss Tom Albanense (via JP Morgan).
Nothing short of an RNS fit for framing from Rio Tinto this Thursday morning:
Rio Tinto expects to recognise a non-cash impairment charge of approximately US$14 billion (post tax) in its 2012 full year results. These impairments include an amount of approximately US$3 billion relating to Rio Tinto Coal Mozambique (RTCM), as well as reductions in the carrying values of Rio Tinto’s aluminium assets (mostly Rio Tinto Alcan (RTA) but also Pacific Aluminium) in the range of US$10-11 billion. The Group also expects to report a number of smaller asset write-downs in the order of US$500 million. The final figures will be included in Rio Tinto’s full year results on 14 February 2013.
Here’s a bold call: the developed world’s fastest growing (that’s Australia for those of you at the back of the class) will fall in to recession next year as the China-driven mining investment boom ends.
Given the recent declines in Chinese steel prices and spot iron ore price, Deutsche Bank economist Adam Boyton reckons Australia’s terms of trade (the price of exportable goods divided by price of importable goods) could be 15 per cent lower year-on-year by the fourth quarter. Read more
Where will the new floor be? Iron ore is still falling below the $120/tonne mark…
As low cost producers, with arguably the best resources in the world, it’s little wonder that BHP Billiton and Rio Tinto are shipping as much iron ore as they possible can from their mines in the desolate Pilbara region of Western Australia. Assuming a $7/tonne freight rate, Lex estimates, the landed iron ore price in China would have to fall to $37/t before Rio lost out.
So even with the iron price at a near three-year low of $112 , Rio and to a lesser extent BHP are making a killing and will continue to do so as higher cost producers (mainly Chinese) fall by the way side. Read more
It can’t be much fun being an Australian in London at the moment. (Trailing the Brits is one thing, but lagging the Kiwis in the medal table must really hurt.)
But at least our antipodean visitors can afford to indulge in a little retail therapy at Westfield Stratford City (the Australian dollar is trading close to a record high against the British pound) or, if they are really embarrassed, hop on the Eurostar to Paris (where the dollar hit a record high against the eurothingy just last week). Read more
A BHP executive’s comments about Chinese steel demand growth flattening have gone viral, with lots of market reports pointing to Ian Ashby’s words to explain European markets closing lower yesterday and falling Asian stocks today.
From the Australian Financial Review: Read more
BHP Billiton, the world’s biggest mining company, said China’s steel production is slowing as the world’s fastest-growing major economy starts to shift to focus more on consumers than large building projects. Read more
On Sunday, Caterpillar locked out about 450 union workers at a locomotive plant in London, Ontario, while Rio Tinto Alcan locked out about 800 union workers in Quebec at a smelting plant. Workers have been pushing back against cost-cutting drives by employers, who are increasingly pushing back, reports the WSJ. Caterpillar is seeking to negotiate a new contract with its workers, and a spokesman for the company said the lockout would continue until one is agreed. Meanwhile union officials said that the latest offer from the company would see wages cut in have and benefits slashed. Rio Tinto has been in negotiations with its unionised workers since October.
Breaking pre-market news on Monday,
- Rio Tinto says customers are now more cautious — statement. Read more
Remember when Vale and BHP, two of the world’s biggest iron ore miners, changed their pricing contract methods with China and Japan?
The move from annual to quarterly contracts came amid resurging Chinese demand for iron ore, which put the miners in a powerful position. Read more
The government of Mongolia has backed down from its demand for a larger share of Oyu Tolgoi, one of the world’s biggest new copper mines, in an about-turn that boosted the share price of Rio Tinto, the FT reports. In a joint statement, the Mongolian government, Rio and Ivanhoe Mines – Rio’s joint venture partner – said the three parties had “reaffirmed their continued support” for the 2009 Oyu Tolgoi Investment Agreement, a contract that started a mining boom in copper and coal-rich Mongolia. The statement ended two tense weeks for investors, who are increasingly seeing resource-rich countries attempt to raise taxes on miners and claim larger stakes in top projects.
– By Neil Collins –
Dear Lloyds: nobody wants to buy your bank Read more
The government of Mongolia is seeking a bigger stake in Oyu Tolgoi, the biggest undeveloped copper mine in the world, the FT reports, in a surprise move that underlines the challenges ahead for Rio Tinto and Ivanhoe Mines as they develop the country’s flagship mining project. The government of Mongolia has asked to reopen discussions over the 2009 investment agreement for Oyu Tolgoi, a project widely considered to be a litmus test for future mining developments, following mounting pressure from parliamentarians and environmentalists. Meanwhile commodities companies which were expected to invest billions of dollars in Zambia’s mining sector over the next five years, including Glencore, First Quantum, Barrick Gold and Vale, are wary that the country’s new president, Michael Sata, may put past threats against foreign investors into practice now that he has been elected, the FT reports separately.
It was only a couple of months ago that Vale was talking up iron ore prices out to 2015 and beyond, and analysts were saying the discount being applied to company shares on expectations of a glut were too steep.
Moreover, Marius Kloppers and Tom Albanese were both cautioning that building up the planned new capacity that might take longer than expected. Read more
Rio Tinto, one of the world’s largest natural resources companies, has warned that some of its customers were asking to delay shipments of metals, the FT reports. The warning represents a marked shift in industry sentiment from only six weeks ago, when most miners, commodities traders and oil groups painted a bullish outlook for commodities demand and prices despite falling equity markets. “It is noticeable that markets are somewhat weaker,” said Rio Tinto chief executive Tom Albanese in an interview. “In a few cases, customers are asking to reschedule deliveries. “This is consistent with customers being cautious about the current state of business.”
Breaking pre-market news on Monday,
- Rio Tinto and Anglo American to sell Palabora Mining shares –statement and statement. Read more
Nothing has been harder hit in the current market swoon (in London at least) than the mining sector.
Rio Tinto, the London-based miner, and Japan’s Mitsubishi Corp have offered A$1.5bn (US$1.6bn) to buy out minority investors in Australia’s Coal & Allied Industries in a bid timed to take advantage of the global stock market rout, the FT reports. Rio and Mitsubishi, which together own 85.9 per cent of Coal & Allied, said on Monday that they made their indicative proposal at the weekend after securing the backing of Perpetual Limited, an institutional investor with a 6.3 per cent holding whose support is crucial to the takeover’s success. The bid team need 50.01 per cent of minority investors to back the deal, which values the Australian miner at A$10.6bn, before it can be formally launched. Perpetual owns 45 per cent of those minorities. The plunge in global equity markets, which last week suffered their biggest drop since the height of the financial crisis in late 2008, has made Rio and Mitsubishi’s A$122 a share proposal much more attractive to Perpetual, according to people close to the situation. Coal & Allied shares last week fell more than 10 per cent to A$91. Perpetual said it would discuss the proposal with Coal & Allied’s independent directors, but added Rio and Mitsubishi were the “only potential buyers”.
Breaking pre-market news on Monday,
- FTSE 100 seen down 84 points – IG Index. Read more