Mining’s old guard needs strong medicine
A new report details subpar investor returns in the mining industry over the last decade, particularly big cap diversified companies which have not adapted to new realities.
Rio Tinto and Chinalco will be positioning their drills in Mainland China, the two companies announced today, in a new exploration joint venture to operate under the name Chinalco Rio Tinto Exploration Co. Ltd. (CRTX).
According to a press release issued by Rio Tinto, the primary focus of CRTX will be copper exploration, with coal and potash to be considered later.
Chinalco will hold a 51% interest in the new company, with Rio Tinto retaining 49%.
“The formalization of our exploration JV is an important milestone in the expanding relationship between Rio Tinto and China. Given that mainland China is highly prospective, the JV has the potential to create valuable opportunities for both partners,” said Rio Tinto chief executive Tom Albanese.
Chinalco and Rio Tinto have a checkered past.
In 2009 Rio rejected a $19.5 billion investment from Chinalco — a state-owned aluminum producer. The following year, four Rio Tinto employees in Shanghai were jailed for stealing state secrets and accepting bribes.
The two firms made peace last year when they became joint-venture partners in the Simandou iron ore deposit in Guinea.
According to the Globe and Mail, today’s agreement signals a clear intent that China, the world’s largest consumer of copper, is anxious to nail down security of supply for the red metal:
The country is anxious to find more copper reserves at home. Chinese firms, despite their deep pockets, balked recently at paying rich premiums to buy a couple of Canadian-based producers.
China’s Minmetals Resources Ltd. made a $6.3-billion hostile bid for copper producer Equinox Minerals Ltd. in April, but refused to enter a bidding war after Barrick Gold Corp. topped the price by $1-billion.
Last month, Chinese mining firm Jinchuan Group Ltd., backed by sovereign wealth fund China Investment Corp., failed to strike an acceptable deal for assets owned by copper-focused Lundin Mining Corp., according to sources. Jinchuan was among a handful of buyers that examined Lundin’s properties across Europe and Africa, but the Chinese miner’s interest has yet to result in a sale.
From Chinalco’s point of view, the agreement fits with the company’s plan to diversify out of aluminum and into other commodities:
“Access to natural resources is a critical component to many of the world’s leading economies,” said Chinalco president Xiong Weiping, during a signing ceremony today in Beijing. “Drawing on the respective strengths of both companies, this exploration JV could potentially create commodity supplies to benefit the global economy.”
