MAC: Mines and Communities

Blood and Iron: Rio Tinto heads to the top

Published by MAC on 2010-03-24
Source: Financial Express

Rio Tinto is talking up its future prospects, in advance of its London annual general meeting next month.

A huge nickel mine is slated for Indonesia; the company is about to take over a vast iron ore field in Orissa.

And it's just announced a £1.9 billion deal with its largest single shareholder, the Chinese Aluminum Corporation (Chinalco), in order to advance the Simandou iron project in Guinea.

Rio Tinto is the world's second biggest iron ore producer (after Vale), while BHP Billiton is the third.

This week, Don Argus of BHP Billiton said he expected that the long-delayed merger of much of the two companies' Australian iron ore output would be completed by the end of this year. However, the deal has still to be approved by the European Union, and has met stiff protest from the Chinese regime.

If the joint venture materialises, it will create the second most valuable mining oufit on the planet - next only to BHP Billiton itself.

Rio Tinto would also benefit from an immediate injection of US£5.8 billion by its Australian-Anglo partner, to equalise their shareholdings in the new enterprise. See:

Editorial Note: Last year's bribery case, initiated by China against four Rio Tinto staff, came to court in Beijing this week. See:

Since the charges were laid, Rio Tinto has protested its own corporate innocence, while offering full support to the employees.

However, on March 23rd,  three of them admitted they had accepted bribes from Chinese steel mills, and they now await sentencing.

The Rio Tinto-Chinalco joint venture in Guinea has, of course, been welcomed by the authorities in Beijing. It may mean that leniency will be shown to the UK company, still facing allegations that it paid bribes to Chinese citizens.

But the deal also provides a significant fillip to whatever remains of the Guinean military junta's credibility, following the killing and injuring of hundreds of demonstrators by troops, at a pro-democracy rally last October. See:

Rio Tinto, Orissa to revive $1-bn JV

Dilip Bisoi

Financial Express

17 March 2010

Bhubaneswar- Global mining major Rio Tinto has decided to aggressively push its $1-billion iron ore project in Orissa. The company made its intentions clear in its annual report released on Tuesday.

In turn, the Orissa government, buffeted by a series of aborted mining projects in the state, promptly announced it has almost firmed up the draft for the agreement with the Anglo-Australian mining company.

For Rio Tinto this will be its first significant foray into the mining sector in India. Its plans are based on an assessment of how China and then India will dominate the global commodity market. Chief executive of the company, Tom Albanese, said in the report, “As China nears the top of the commodity intensity usage curve, India is expected to follow, supporting a further potential wave of strong commodity demand.”

The Orissa project had been mothballed for over a decade. The state government and Rio Tinto fought a court battle for the joint venture planned by the government-owned Orissa Mining Corporation in 1995.

State minister for steel & mines Raghunath Mohanty told FE the final draft of an agreement is being prepared. “The draft has been vetted by the state law department and OMC is in the process of preparing the documents for the signing ceremony,” he confirmed.

The joint venture was meant to develop Gandhamardan and Malangtoli iron ore deposits in Keonjhar and Sundergarh districts in Orissa.

While Rio Tinto would have 51% stake in the JV, OMC, which holds the lease on the iron ore mines, will have 49%. Rio Tinto is expected to bring in investments and technology for developing the mines and also the required infrastructure, which includes railway lines to Paradip port and an iron ore berth at the port.

It was agreed that 50% of the raised iron ore would be exported and the remaining 50% would be used in the domestic market.

But due to a slump in the global iron ore market, Rio Tinto lost interest in the project and OMC went to court to wind up the joint venture company. Sources in the government said the new joint venture company would have a capacity to raise 25 million tonne of iron ore per annum. The iron ore mined would now be first available to domestic industries, as Orissa has lined up as many as 50 steel projects in the state.

Only the surplus can be exported. Moreover, OMC will have its representative as chairman in the joint venture company even if Rio Tinto has a 51% stake in the company.

Since the mines are under the leasehold of OMC, it is required that the joint venture company be headed by a representative from OMC, sources said. As per the fresh proposal, Rio Tinto will bring in technology and invest only in the development of mines. Investments in infrastructure are not required since the export option is limited, the sources added.


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