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Posts Tagged ‘Chinalco’

Chalco drops $2.4bn Australian bauxite plan

July 2, 2010 Comments off

“Chalco, the second-largest aluminium producer, has pulled out of a A$3bn (US$2.4bn) deal to develop a bauxite refinery in Australia, blaming a drop in aluminium prices and difficult global conditions.

The Hong Kong-listed subsidiary of Aluminium Corporation of China won a permit to mine the high-quality Aurukun bauxite deposits in northern Queensland on condition it build a processing plant.”

Source: Financial Times, July 2 2010

Observations:

  • When Chalco, a Chinalco daughter, won the permit for the bauxite deposit aluminium prices were $3,000 a tonne compared with below $2,000 today.
  • Condition for the development was the construction of a smelter in Australia, to prevent the ore from being shipped directly to China. In this case the benefit for the Australian citizens would be significantly lower than with domestic smelting.

Implications:

  • The Australian government is likely to reopen the permitting process for the deposit, giving other firms a renewed option to develop the deposit. However, only few firms currently have the funds to undertake the project.
  • Today’s announcement by the new Australian prime minister that the super profit tax will only cover coal and iron ore operations does increase the feasibility of the project.

©2010 – thebusinessofmining.com

Top 10 Priorities of Rio Tinto’s CEO Tom Albanese

June 28, 2010 1 comment

In the series of specials on the priorities of the CEOs of the world’s leading mining companies we analyze Rio Tinto this time. What is top of mind for Rio’s CEO Tom Albanese?

Tom Albanese

An analysis of Rio Tinto’s latest annual report; financial reports, investor presentations and the news about the company in the last months yields a list of 10 issues that are likely to be at the top of Albanese’s list of priorities. The list holds strategic, operational, financial and relational activities, each of which are scored in terms of importance and urgency. Priority 1 on the list is the lobby on the new Australian mining tax. Number 2 is restoring the operating margin of the company. The list closes with resetting the focus of the exploration program. Read on for the full list of priorities.

 

Priority 1 – Lobby against Australian mining tax

Although prime minister Kevin Rudd has been replaced by Julia Gillard, the negotiations about the reformation of the Australian mining tax system stay the top priority for mr. Albanese. If the super profits levy proposed by mr. Rudd would be implemented without changes (which is very unlikely at this point), Rio’s profits would take a hit of approx. 20%. As part of the tax discussions Rio Tinto is re-assessing its portfolio of development projects in Australia, as the feasibility of many projects is endangered by the tax.

Priority 2 – Restore operating margin

The operating margin of the company has decreased most of the large diversified miners, down at less than 20%. Especially in the diamonds and minerals unit major cost cutting needs to take place. Furthermore, the transformation of the aluminium business is to continue to take out more costs.

 

Explore the revenue, profit & margin data at Wikinvest

Priority 3 – Achieve ‘A’ credit status

The balance sheet has been strengthened significantly in 2009, but achieving the ‘A’ credit status remains top priority for the CFO in order to ensure access to capital in the near future. “Prudent balance sheet management” and a “complete review of trading security practices” are mentioned as key issues for 2010.

Priority 4 – Sell Alcan packaging food

Rio undertook a major divestment program of non-core assets to strengthen the balance sheet. It did succeed in collecting $8bln already, but still wants to bring more cash in by selling the remainder of the packaging food division of Alcan for some $2bln.

Priority 5 – Complete Pilbara Iron ore JV

The enormous Western Australian iron ore operations, for which a Joint Venture with rival BHP Billiton has been designed, are getting ready for large scale production. However, the JV is still subject to competition authority analysis. The Australian watchdog will decide end of July, but other countries will be investigating much longer. Getting the Pilbara operations on steam is crucial for Rio’s iron ore supply position to China.

Priority 6 – Develop M&A Decision scenarios

The share price of his company will be a major concern for mr. Albanese. The market capitalization has not really recovered after the first hit of the crisis. The low prices in the industry enable many strange merger and acquisition moves. Albanese survived the acquisition effort by BHP Billiton started late 2008, but will need to be prepared for potential new moves.

Priority 7 – Strengthen relationship with China

A revolutionary deal with Chinalco involving $20bln investment by the Chinese collapsed in June 2009 as shareholders did not support the board’s intentions. With China being the single most important country for development of Rio, which is very dependent on iron ore exports, Albanese will have to find other ways to build relationships with the key decision makers in the country.

Priority 8 – Manage capital projects portfolio

Rio is planning to invest only some $5bln in 2010. However, the projects on which the money will be spend are of strategic importance to the company. Extension of Diavik diamond mine, Building of the AP50 aluminium plant, and development of Oyu Tolgoi Copper mine in Mongolia are the most important capital projects in the development phase.

Priority 9 – Improve operational delivery

Where cost cutting is one of the top priorities, increase output volumes is another key issue. Especially the output of the aluminium operations has been disappointing in recent years. Albanese will be closely monitoring the delivery excellence programs in Madagascar (new industrial minerals asset), Queensland (Clermont thermal coal and Kestrel coking coal) and the aluminium business unit.

Priority 10 – Focus exploration program

Finally, Rio’s exploration program needs renewed focus, mainly in the areas of iron ore and copper. The new Mongolian asset and a potential Bingham canyon extension could secure copper output for some time. The difficult relationship with Guinean government very much increases the need to find new iron ore, as the Simandou development can not be expected to be finished quickly.

Sources: Rio Tinto annual report 2009, Rio Tinto annual review 2009, Rio Tinto investor presentation February 2010

©2010 – thebusinessofmining.com

Bellzone Mining confirms MOU with China International Fund (CIF)

May 26, 2010 Comments off

“Shares in Bellzone Mining surged 60 percent yesterday morning on London’s AIM market, following the announcement of a 50/50 joint venture with CIF for the 2.4 billion ton JORC magnetite Kalia Iron Project in Guinea, West Africa.

CIF will fund the entire infrastructure required for the project, which will include the rail system, bulk storage facilities, port, port loading facilities, port services and power development required to produce and transport a minimum of 50 million tons per annum of iron ore.

Nik Zuks, Managing Director of Bellzone Mining, commented: ‘I am delighted to announce this binding MOU with China International Fund Limited. Under the terms of the Binding MOU, CIF will fund and construct the 286km rail and port facilities for our Kalia Iron Project in return for the right to purchase 100 percent of the off take from Kalia.'”

Source: African Business Review, May 25 2010
Related Financial Times article: CIF to fund Guinea iron ore venture

Observations:

  • CIF earlier designed the oil-for-infrastructure deal in Angola. Promising the poor governments of resource-rich countries proves to be an effective way of securing access to the resources.
  • Production from the Kalia deposit is expected to start in 2014, setting a clear deadline for the execution of the infrastructure projects.
  • Kalia is the only project Bellzone is running, share price has therefore increased sharply after the announcement of the agreement with CIF.

Implications:

  • As Vale and Rio Tinto and Chinalco will start producing in the Simandou area, close to Kalia, these companies will be interested in exploring cooperative agreements with CIF. Huge synergies could be achieved by avoiding competing infrastructure projects to be run to bring the ore to the coast.
  • Transportation of ore via Liberia, as Vale is planning to do, is certainly not in the best interest of the Guinean government. Vale will therefore have to find ways to please the government in order to secure fruitful cooperation.

Mining groups target West Africa / A richer seam

May 22, 2010 1 comment

The Financial Times published two articles this week on the increasing impact of international mining companies in Africa. The combination of articles provides a good insight into the political sensitivity and the importance for the development of the region:

Mining groups target west Africa (Financial Times, May 18 2010)

Six of the world’s biggest mining and steel companies have converged on an unprecedented scale on a mineral-rich corner of west Africa beset until recently by civil war. The companies plan to spend billions of dollars in Guinea, Liberia and Sierra Leone, where some of the world’s richest deposits of iron ore, the raw ingredient of steel, are found.
The groups are Vale, the Brazilian iron ore miner, Rio Tinto and BHP Billiton, the Anglo-Australian mining houses, ArcelorMittal, the UK steel company, Russia’s Severstal, and Chinalco, the state-owned Chinese mining company.”

Strategic resources: A richer seam (Financial Times, May 21 2010)
“China has vied with western groups in Africa for oil and minerals for the best part of a decade. But it also has ambitious nuclear power targets and its quest for uranium – repositories of which are few and far between – has thrown the rivalry into sharper focus. …

In the past three years, as China embarked on its new thrust into Africa, relations between Niamey and Paris plunged. The award of uranium concessions to China’s Sino-U and other prospectors broke the de facto 40-year monopoly of Areva, France’s state-controlled nuclear group.
The competition has seen work start on Niger’s first refinery and a $700m hydroelectric barrage, not to mention hundreds of millions of dollars in “signature bonuses”, courtesy of Beijing. It helped the country wring tougher terms from France before granting permission for Areva’s vast new mine, which will make the country the world’s second-biggest uranium producer after Kazakhstan.”

Observations:

  • This month’s acquisitions of Vale and Vedanta and earlier investments by Bellzone in Guinea count up to over $5 bln of investments. Over 50% over these investments will be in infrastructure, helping not only the resonsible mining company, but as well contributing to development of the country.
  • Total development aid to Africa in 2008 was $26 bln. Foreign Direct Investment in infrastructure related to mining is quickly bypassing this figure. Total FDI in Africa was $88 bln in 2008 (UNCTAD WIR), of which a very significant part is related to mining & metals.

Implications:

  • Although the Chinese approach of buying resource access by offering infrastructure development and more symbolic gifts is still regarded to be unethical by many westerners, western companies are working hard to catch up with the Chinese, trying to secure access to the good resources in central and west Africa.
  • Infrastructure developments are arguably the most important capital investments required for economic development of a country (J. Sachs).
  • Key problem for African leaders is the vicious circle of the resources trap they are in. Africa needs the infrastructure investment to develop the economy, but needs the resources that are shipped abroad in exchange for the infrastructure development in order to create an industry of value adding services.

Guinea set to seal fresh iron ore deal

May 11, 2010 Comments off

“Guinea expects in the coming weeks to announce another significant iron ore deal to follow Vale’s $2.5bn acquisition in the west African country, with Chinese investors considered the frontrunners.
Mahmoud Thiam, mining minister, told the Financial Times that he hoped a new joint venture involving Bellzone, an Aim-listed junior miner that says it has a ‘non-binding memorandum of understanding … with a Chinese enterprise’ to exploit its prized Guinean concession, will be announced within a month.

Iron ore has become the hottest of commodities amid voracious Chinese demand and following radical changes in March to the way big miners sell to steelmakers that allowed prices to soar. West Africa – home to some of the largest untapped stocks but also renowned for its volatility – is attracting feverish attention.
‘The [Vale] mine would turn us into the third-largest iron ore exporter in a five to six-year period,’ Mr Thiam said. ‘If the Bellzone mine comes online it will turn us into the largest iron ore exporter if both mines are going full throttle within 10 years.’

Source: Financial Times, May 10 2010

Observations:

  • The (Australian) company will try to set up the mine with $0.9 bln own funds, investing in infrastructure with $2.6 bln Chinese money.
  • The upcoming deal with a Chinese company fits in a continuing trend of Chinese investments in Africa to secure long term natural resource supply.

Implications:

  • The mining market landscape is changing: more and more companies are competing for resources in remote areas that are not in the traditional heartlands of mining, like Guinea. The geographical production base in 20 years time will be significantly different from the current situation.
  • Chinese mining & production companies will grow stronger and stronger in the mining business, as they hold a competitive advantage in securing the funds required to invest in projects like in Guinea.