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Posts Tagged ‘Chinalco’

Mining Week 15/’12: Coal in Mongolia, no coal in Australia.

April 9, 2012 Comments off

Top Stories of the Week:

  • Chalco bids for Mongolian coal miner
    • Chalco (holding company = Chinalco) made a tentative $930mln offer for 57.4% ownership of SouthGobi Resources, a Canadian listed company, currently owned by Ivanhoe resources.
    • Sources: Financial Times; Wall Street Journal
  • Coal production issues in Australia
    • BMA, the coal JV between Mitsubishi and BHP Billiton in Queensland, declared force majeure after a week long strike in some of its mines. The labor conflict has been going on for almost a year, with workers campaigning for better contract rights for contracted workers and to retain the union’s power in recruiting decisions.
    • Sources: Financial Times
  • Alcoa again cuts production
    • Alcoa, the largest aluminium producer in North America, announced it would cut alumina production by 2% to support prices.
    • At the start of the year Alcoa cut aluminum production, at that time by 12% and mainly in the USA. The 2% alumina cut is said to be aligned with this 12% ‘final product’ cut.
    • Sources: Wall Street Journal; Financial Times; Alcoa press release

Trends & Implications:

  • The potential Chalco – SouthGobi deal appears to be engineered by or via Rio Tinto. Chinalco owns a significant stake of Rio Tinto, which became the majority shareholder of Ivanhoe recently with the key objective of quickly developing the Oyu Tolgoi gold-copper mine (also in Mongolia).
  • Despite a general demand boom which has not passed aluminum many major aluminum producers are posting losses. Profit margins over the past 10 years average below 10%. The key reason for this situation is an overcapacity resulting in oversupply and high inventory levels. Aluminium is currently one of the very few mined natural resources that could be seen as a ‘demand-driven’ market rather than a ‘supply-driven’ market for price setting. However, as more and more producers cut investment, the demand growth fundamentals should invert this situation in the next couple of years.

Alcoa's long term demand outlook as presented end of 2011

©2012 | Wilfred Visser | thebusinessofmining.com

Chinalco not planning to sell Rio Tinto stake

April 5, 2011 Comments off

“Chinalco, the Chinese aluminium group, has no plans to sell down its shares in Rio Tinto, viewing the mining house as a key strategic partner as Chinalco expands overseas. ‘We can’t go out to fight alone,’ said Chinalco chairman Xiong Weiping, explaining that co-operation with global miners was essential for overseas development. ‘With Rio being one of the top mining companies in the world, Chinalco can learn a lot from them, including in operational management, asset operation and risk management.’

Chinalco is seeking to move into mining to take advantage of the commodities bull run that has been created by China’s huge demand for raw materials such as iron ore, copper and coal. Mr Xiong outlined their plans to expand from their core aluminium business, which has struggled to make profits, into a global mining house. He said he was hunting for high-grade copper, bauxite, iron ore and coal resources, the minerals that China needs to fuel its urbanisation. ‘Our target areas are mainly countries next to China, for example south-east Asia, Mongolia and central Asia,’ said Mr Xiong.”

Source: Financial Times, April 3 2011

Observations:

  • Aluminum Corporation Of China Limited, Chinalco, and Chalco are often used interchangeably, as they are basically the same company. Chinalco is the state-owned holding company of Chalco, which is listed on various exchanges with a small part of ownership.
  • Chinalco signals its interest in partaking in the Oyu Tolgoi copper project in Mongolia, which is operated by Rio Tinto. Until now Rio Tinto has held away potential contributors to the project.

Implications:

  • With China’s mining sector growing in international importance it would be no more than logical if some of the largest diversified miners in the world in 10 years time are from China. In the domestic struggle to be this player state support will be crucial. Chinalco is positioning itself to be the Chinese diversified miner and desperately needs strong international connections to support this claim.
  • In the short and mid term the strategic stake of the company in Rio Tinto certainly is a symbiotic relationship, as demonstrated by investments in Africa and exploration partnership in China. However, if Chinalco grows into an international diversified miner as it is planning, in the long term the companies will become fierce competitors. At this point the stake in the Australian company will certainly cause conflicts.

©2011 | Wilfred Visser | thebusinessofmining.com

Copper wars: Minmetals in $6.5bn bid for Equinox

April 4, 2011 Comments off

“China’s Minmetals Resources has launched a C$6.3bn (US$6.5bn) unsolicited bid for Equinox Minerals, the Australian-Canadian copper miner which itself is in the throes of seeking to acquire Vancouver-based Lundin Mining. The bid is the largest-ever unsolicited takeover attempt by a Chinese mining company, at a time when China’s miners are increasingly seeking to go abroad.

Minmetals on Sunday night said its all-cash offer of C$7 per share, a 23 per cent premium to Friday’s closing price, was a superior alternative for Equinox shareholders to the Lundin acquisition, offering them ‘certainty of value and timing in realising their investments’.

The bid is conditional on Equinox dropping its offer for Lundin. Andrew Michelmore, Minmetals’ chief executive, said that the Chinese group was only interested in buying Equinox, which he said aligned with Minmetals’ strategy for growth and enhanced its global production portfolio.”

Source: Financial Times, April 4 2011

Observations:

  • Minmetals is the third stage in the developing copper wars for consolidation in the industry. In the first stage Lundin and Inmet proposed a merger of equals named Symterra. In the second stage this merger was derailed by a takeover attempt of Lundin by Equinox.
  • Minmetals is one of the most active Chinese companies in foreign investment, buying most of the assets of Australian OZ Minerals to form Minerals and Metals Group (MMG) in 2009 for $1.4bln. It appears Minerals and Metals Group and Equinox will be combined. MMG is mainly run by western managers.

Implications:

  • For most shareholders the all-cash offer of Minmetals will be preferable to the takeover of Lundin, which would increase the gearing of the company to dangerous levels. Equinox’ management might be able to get a slightly better price from Minmetals, but it is unlikely that the company will stay independent.
  • The announcement of Minmetals comes on the same day the World Copper Conference kicks off in Santiago. Many of the industry’s CEOs are gathered for this event. Also today, Chinalco announced its intention to expand the scope of activities from aluminium to other commodities, including copper. It is unlikely that other state-controlled Chinese companies will come with a competing offer for Equinox, but the meetings around the Copper Conference might trigger other M&A developments in the industry.

©2011 | Wilfred Visser | thebusinessofmining.com

Guinea to review mining licenses

March 7, 2011 Comments off

“Guinea is planning a comprehensive review of its mining licences that could disrupt a $1.35bn iron ore agreement between China’s Chinalco and Rio Tinto, a $2.5bn iron ore acquisition by Brazil’s Vale, and a slew of smaller mining deals in the mineral-rich west African state.

All mining companies in Guinea will have to submit to higher standards of transparency in order to invest, as will the countries from which they originate, according to a joint statement from Alpha Conde, Guinea’s new president, and George Soros, the billionaire philanthropist who advised him.

‘All contracts will be reviewed and reworked by the beginning of the second half of this year,’ said a senior official from Guinea’s ministry of mines at a conference in Paris on Thursday. ‘The government will become a minority shareholder in all mining contracts.'”

Source: Financial Times, March 7 2011

Observations:

  • According to the new licensing structure all foreign investors and their host countries will need to subscribe to the WorldBank’s EITI (Extractive Industries Transparency Initiative). Furthermore the government will request minority ownership of all projects.
  • The most important mining project in the country is the iron ore complex around Simandou and Kalia. Rio Tinto and Chinalco, Vale, and Bellzone and CIF hold licenses to various blocks of the complex, from which production should start within 2 years.

Implications:

  • China and Chinese companies, as brought in by Bellzone and Bellzone, don’t subscribe to the EITI yet. This could lead to significant development delays and/or break-up of consortia. It is unlikely that the government will push the large foreign investors out of the projects, as they need the foreign money to get the projects going.
  • In the Economist’s country operational risk benchmark, Guinea ranks 149th out of 149 countries, tied with Iraq. The 10 risk categories included in the benchmark are: security; political stability; government effectiveness; legal and regulatory; macroeconomic; foreign trade and payments; financial; tax policy; labour market; and infrastructure. Next to the changing regulatory environment the infrastructure risk is important for Simandou’s projects, as Guinea and Liberia are fighting over the port to be used for shipping the ore and the way the ore should be transported to the port.

©2011 | Wilfred Visser | thebusinessofmining.com

The Most Influential People in Mining 2010

December 30, 2010 4 comments

2010 has been an exciting year for the mining industry. The Australian Super Profits Tax debate came to a climax; the iron ore pricing mechanisms was changed to a system related to the spot market after 40 years of benchmark pricing; the Western Australian Iron Ore Joint Venture between Rio Tinto and BHP Billiton was cancelled; BHP attempted to acquire PotashCorp; 33 Chilean miners were at the center point of global media attention when they were rescued after 68 days underground. Who have been the world’s most influential people in the mining industry this year?

The Business of Mining.com gives a top 25. Based on a combination of metrics on ‘Opinion Impact’ (both public opinion and boardroom opinion) and ‘Decision Impact’ (both for 2010 and for the future). The list features a combination of industry leaders, politicians, journalists, advisors and regulators. 24 men; 1 woman. 5 Australians; 4 South Africans; 3 Chinese, 3 Americans; 2 Indians; 2 Canadians; 2 Brits; 1 Guinean; 1 Kazakh; 1 Mongolian; 1 Brazilian. The figure below gives an overview of the 25 most influential people in mining in 2010.

(Blue dots: industry leaders; green dots: journalists; orange dots: advisors; red dots: politicians; black dots: regulators)

1. Marius Kloppers – CEO BHP Billiton

Heads the world’s largest mining company. Tried to add potash to the portfolio of the company by (unsuccessfully) offering $39bln for PotashCorp of Saskatchewan. Earlier in the year not only played an active role in the debate about the Australian super profits tax, but also in the attempt to form a Joint Venture for iron ore export from Western Australia. Is furthermore seen as one of the key drivers behind the change of the iron ore pricing scheme.

2. Tom Albanese – CEO Rio Tinto

Heads the world’s third largest mining company. Worked with Kloppers on the Pilbara iron ore JV, the new pricing mechanism for iron ore, and the lobbying against the super profits tax as proposed by Kevin Rudd. Used 2010 to restructure the capital structure of his company and to strengthen the ties with Chinese industry and government via various deals with Chinalco.

3. Roger Agnelli – CEO Vale

Heads the world’s second largest mining company and largest iron ore producer. Less well-known in the west than Kloppers and Albanese, but certainly a powerful leader in the mining industry. Secured development opportunities in Guinea and in potash production expansions while carefully building relationships with the Brazilian government and the new president: Dilma Rousseff.

4. Tony Clement – Industry Minister Canada

The man that killed BHP Billiton’s hopes of acquiring PotashCorp by imposing unacceptable conditions in order to secure the deal’s ‘benefit for Canada’.

5. Cynthia Carroll – CEO Anglo American

The only women in the list, heading the fourth largest diversified miner in the world. Led the company back to profits after a dramatic 2009. Was appointed chairman of related Anglo Platinum this year and holds directorships of De Beers and BP. Furthermore plays a role in the debates about the future of the industry at the World Economic Forum.

6. Graeme Samuel – Chairman of the Australian Competition and Consumer Commission

Head of the regulating body that was the key obstacle for the Joint Venture between BHP Billiton and Anglo American to export iron ore from Western Australia as the JV would have given the two companies a position that would threaten global competition.

7. Michael (Mick) Davis – CEO Xstrata

Heads the world’s fifth largest diversified mining company, build rapidly by acquisitions under the helm of Davis. Proposed a merger with Anglo American in 2009, and continues to look for expansion options. Plays an important role in the debate around a potential merger of Xstrata with trading house Glencore, the company’s largest stakeholder.

8. Kevin Rudd – Former Prime Minister Australia

The brain behind the Australian super profits tax, designed to skim the ‘excessive profits’ of mining firms. The public debate around the tax was one of the reasons Rudd was not re-elected. Although not in the office anymore, the idea of the super profits tax was implemented by the new government in an adjusted form.

9. Julia Gillard – Prime Minister Australia

Benefited from the drop in popularity of Kevin Rudd to take over the position of Prime Minister of Australia. Did involve the miners in redesigning the law into the Minerals Resource Rent Tax (MRRT), eliminating its major shortcomings. However, the new law, which will become active in 2011, will drastically increase profits for the mining operations in Australia, forcing many mining firms to re-evaluate investments.

10. Jacques Nasser – Chairman of BHP Billiton

The man behind the scenes at BHP Billiton. Worked with Kloppers on all major events this year, including the super profits tax, the Pilbara JV, and the PotashCorp offer. Appointed former British Minister Shriti Vadera on the company’s board and prepared the decision to restart high dividend payments to shareholders.

11. Xiong Weiping – President Chinalco

12. Anil Agarwal – Executive Chairman Vedanta Resources

13. Partha Bhattacharyya – Chairman Coal India

14. Ivan Glasenberg – CEO Glencore

15. Mahmoud Thiam – Minister of Mines and Geology Guinea

16. Sukhbaatar Batbold – Prime Minister Mongolia

17. Brad Wall – Prime Minister Saskatchewan

18. Xi Jinping – Trade Minister China

19. Vladimir Kim – Chairman Kazakhmys

20. Duncan Sloan – Global Mining Lead Accenture

21. Mike Elliott – Global Mining & Metals Lead Ernst & Young

22. William MacNamara – Mining Analyst Financial Times

23. Robert Friedland – Founder Ivanhoe Mines

24. John Chadwick – Editor International Mining

25. Chen Yan – Governor China Development Bank

 

©2010 | Wilfred Visser | thebusinessofmining.com

Rio Tinto strengthens its position in China

December 6, 2010 1 comment

“Rio Tinto and Chinalco today signed a non binding Memorandum of Understanding (MoU) to establish a landmark exploration joint venture (JV) in China. The JV will explore mainland China for world-class mineral deposits and is expected to come into operation in the first half of next year. It is intended that between three and five large area exploration projects will be selected for initial focus by the JV, with the potential for additional regions to be added at a later date. Chinalco will hold a 51 per cent interest in the JV and Rio Tinto will hold a 49 per cent interest.”

Source: Rio Tinto press release, December 3 2010

“My second idea revolves around assisting China in the search for world class mineral resources in its own backyard within China. In saying this, let me stress that I recognise China has considerable expertise in this area and that a lot of exploration work is being undertaken in China and that new resources are being discovered here. …

There is no “magic wand” in mineral exploration. Success requires highly experienced people, rich databases, a deep understanding of conceptual orebody models, robust research and development teams, appropriate technology, and good management, to name a few. We believe we can bring that expertise and know-how to bear in helping China to find major orebodies on its home soil. I remain happy to discuss these ideas further.”

Source: Albanese presentation at Melbourne Mining Club Shanghai, August 19 2010

Observations:

  • Rio Tinto will work with Chinalco in an exploration Joint Venture in which Rio Tinto will hold 49% of the shares. The CEO of the JV will be appointed by Rio Tinto.
  • In August of this year mr. Albanese informally invited the Chinese to search for options in which the company could work together.
  • While in Beijing, mr. Albanase also signed an extension of the agreement with Sinosteel to expand the Channar mine in the Pilbara region in Western Australia.

Implications:

  • Rio Tinto has been working hard to establish strong ties with Chinese government and companies. With Chinalco as the largest shareholder it holds a good position. However, the refusal to give Chinalco an even larger share and the conviction of three employees for corruption in China did slow down the process for some time. Mr. Albanese has managed well to regain the momentum of discussion.
  • BHP Billiton has not yet managed to establish a foothold in the Chinese industry. Whether the company deems the political risk in the country too high, the company is scared away by the operational risk of developing infrastructure (most interesting exploration prospects in China are located far in the inland, making transportation to the markets near the coast challenging), or the company simply did not manage to establish the right connections yet is not clear.

©2010 | Wilfred Visser | BUJEZKKNXD3Z | thebusinessofmining.com

The Rise of China in Mining

October 4, 2010 4 comments

China is rising as a global superpower in the mining industry. Ore from mining companies all around the world is shipped to Chinese ports to fuel the growth of the economy. Building relationships with Chinese government and customers is a top priority for many business leaders. However, few people in the industry know that China itself is a major producer of many minerals. This article explores the Chinese rise of production, the rise of demand, the rise of Chinese mining firms and the rise of investment and sketches the implications for the mining industry of the changing role of the country.

 

1. The Rise of Production

China’s mining industry is the world’s largest in many aspects: the country has 200,000 collectively owned mines1, employing over 10 million miners; it is the world’s major producer of coal, lead, zinc, tin and rare earth minerals and also ranks high in output of iron ore, gold, bauxite and other minerals.

The country has been a major producer for decades, but the enormous demand, the opening of the market to private investors and the introduction of modern mining techniques has boosted the productivity and production of the industry. Significant reserves of most minerals allowed China to grow the market share of mining output for all major minerals in the past 15 years (Figure 1). The growth of the iron metal content output share is even more remarkable when considering that Chinese iron ore typically has a very low metal content: while share of iron content grew from 14% to 15% since 1995, the share of gross weight grew from 24% to 37%2.

Figure 1 - Chinese share of world mining output

The largest part of worldwide reserves of rare earths, titanium, tungsten & molybdenum are in China. These minerals are crucial in the production of many high tech products, giving China a powerful position in international trade. Recently the country has demonstrated this power by implementing export quota for rare earth minerals, favoring the domestic high tech industry.


2. The Rise of Demand

China hardly exports any minerals; all domestic mine production is absorbed by the domestic. Value of total mineral exports in 2009 was a mere $0.2bln, 60% of which was molybdenum3. Until a few years ago the country was a net coal exporter, but the growing demand from the utility and steel industry has turned it into an importer. Though the country does not export ores, it has been building a large iron and steel industry, exporting at a total value of $53bln in 2008. In the same year the production of 500Mt of crude steel accounted for 38% of the world production2. In 2009 the imports exceeded exports, as steel companies responded to the crisis by cutting production. Stepping up production will turn the country into a net exporter of steel again.

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