Home > Mining Week > Mining Week 13/’12: Diamonds are not forever, neither are iron ore chiefs

Mining Week 13/’12: Diamonds are not forever, neither are iron ore chiefs

March 31, 2012

Top Stories of the Week:

  • Rio Tinto puts its diamond division up for sale
    • Rio Tinto started a ‘strategic review’ of its diamond business to explore divestment options for the 4 assets. The move comes only months after BHP Billiton announced it intends to sell its only diamond project.
    • Rio Tinto was seen as the most likely buyer of BHP’s Ekati project because of the close proximity to it’s Diavik operation.
    • Sources: Rio Tinto press release; Financial Times; Wall Street Journal
  • BHP Billiton iron ore president quits; replaced by insider
    • Ian Ashby, president of BHP Billiton’s iron ore division, announced he will step down in July. BHP will replace him with the head of the energy coal business: Jimmy Wilson.
    • The leadership change comes during an aggressive investment program to expand capacity of the Pilbara operations.
    • Sources: BHP Billiton press released; Wall Street Journal
  • Indian privatization of coal mines backfires
    • A leaked government report states that the Indian government missed out on $210bln by selling state owned coal assets to cheaply without having a proper auctioning mechanism in place.
    • The hedge fund TCI, which owns close to 2% of Coal India, has started a process to sue the management of Coal India for allowing too much government interference related to the sale of assets.
    • Sources: Financial Times; Times of India; Financial Times II

Trends & Implications:

  • In March of last year Rio Tinto was said to explore a partnership with Alrosa, the world’s second largest diamond miner. This cooperation never materialized, and it appears Rio Tinto’s management has decided the iron ore business does not fit in its strategy of running large scale operations of traded minerals. With the presence of DeBeers and Alrosa it is unlikely that a third player will be able to invest to buy both Rio Tinto’s and BHP Billiton’s operations.
  • India is one of the few mineral rich countries in the world that had to go through a large scale privatization program in the last years. Typically domestic investors who know the businesses and have access to influential officials manage to get good deals in buying assets (Russia is another good example). Often the real value of the formerly government owned assets only becomes apparent after a couple of years of operation in private hands.

©2012 | Wilfred Visser | thebusinessofmining.com

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