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Posts Tagged ‘arctic’

Rio Tinto plans Russian diamond push

March 22, 2011 Comments off

“Rio Tinto is planning a push into Russian diamond mining, eyeing a tie-up with Alrosa, the state-owned miner, as the global industry looks ahead to rising demand from China amid tight supply constraints. Rio is understood to be a final contender to form a partnership with Alrosa to develop a large deposit near the northern port of Archangel, according to diamond market insiders.

The company declined to comment on its intentions or on wider reports that Tom Albanese, chief executive, had travelled repeatedly over the past year to Russia, a country where Rio has no operations. Rio makes the bulk of its profits from iron ore but it is also a significant diamond miner, producing 13.8m carats last year, compared with De Beers’ 33m and Alrosa’s 34.3m. Alrosa exceeded De Beers’ production for a second year.”

Source: Financial Times, March 20 2011

Observations:

  • Rio Tinto mined 13.8m carats last year in its Diavik and Argyle mines, the lowest volume in over 5 years. Relative importance of diamonds in Rio Tinto’s portfolio has decreased from over 20% of EBITDA 10 years ago to only some 2% now.
  • Argyle and Diavik have approximately similar proved reserves, but probable reserves for Argyle are much higher than for Diavik. Additionally the company has some low grade probable reserves in Murowa (Zimbabwe) and an ongoing feasibility study in India (Bunder). Total recoverable reserves at end of 2010 stands at 206mln carats. In the last annual report the company listed the search for opportunities for inorganic growth in Diamonds and Minerals as key priority.

Implications:

  • Alrosa is facing high levels of investment to increase production in challenging arctic underground mining conditions. Because of low cash flow from operations it has to look to financial markets (IPO) and partnerships to secure funds for capital expenditure.
  • Teaming up with Rio Tinto gives Alrosa not only access to development capital, but also to the extensive knowledge Rio Tinto has gained by operating Diavik’s mine in Northern Canada. However, Rio Tinto will not step into a partnership with a state-controlled Russian company without getting strong commitments to secure its returns.

©2011 | Wilfred Visser | thebusinessofmining.com

ArcelorMittal sweetens offer for Baffinland

January 4, 2011 Comments off

“ArcelorMittal has again sweetened its friendly offer for Baffinland Iron Mines in an escalating battle for control of one of the world’s biggest undeveloped iron ore deposits in Canada’s high Arctic. The Luxembourg-based steelmaker said on Friday that it was offering C$1.40 for each Baffinland share, valuing the company at C$551m. Gaining control of the deposit would enhance ArcelorMittal’s access to a key raw material at a time of growing competition for such resources.

Its bid equals the latest offer by a group backed by Energy and Minerals Group (EMG), a US private-equity firm. However, ArcelorMittal is bidding for all Baffinland’s shares while EMG would buy only 60 per cent.”

Source: Financial Times, December 31 2010

Observations:

  • ArcelorMittal aims to be 75% self-sufficient in iron ore supplies, up from 46% in 2007.
  • ArcelorMittal Mines Canada already operates two large open-pit mines: Mont-Wright and Fire Lake. The experience with arctic mining gained here will help to operate the Baffinland mines.

Implications:

  • ArcelorMittal reckons that the shareholders will prefer to sell the shares at the current premium instead of holding on to the shares with EMG holding 60% of the shares, which would reduce liquidity of the trade.
  • If the company wants to obtain full ownership of Baffinland, it will have to convince EMG to sell its 10% stake. As EMG is looking for full control over the company too, it is likely to give up its stake if ArcelorMittal wins the bidding war.

©2011 | Wilfred Visser | thebusinessofmining.com