London Calling - August 1 2002Published by MAC on 2002-08-01
London Calling - August 1 2002
No Portugal without a storm
The new right wing Portuguese government has cried "wolf" over an agreement with Rio Tinto allowing the world's second biggest mining company to sell its 49% stake in the huge Somincor copper and tin mine (Neves Corvo). The purchaser was to have been Murchison Ltd of Australia, which is listed on London's AIM (Alternative Investment Market). The company was to have purchased the share for just under US$ 80 million (US$ 78 million) in a deal arranged by CIBC Capital Markets, part-financed by Rio Tinto and brokered by Beeson Gregory (London) and Euroz Securities (Australia). Murchison would have shelled out more than three times its market value - believed to be the biggest capital raising ever by an AIM company.
As a result of the Portuguese rebuff, Murchison's share dealing in London and Australia was suspended last Monday July 29th though it is expected to resume before the end of this week.
Hell hath no fury like a miner spurned
Both companies are furious with the Portuguese government, according to mining analyst Ken Gooding of The MiningWeb. Murchison is not likely to be compensated for the loss of its prime acquisition and is not hiding its disgust. Rio Tinto is also incensed, says Gooding, but "would not dream of admitting so publicly", adding: "[F]or a group of its size, US78 million is of course peanuts (sic)".
Perhaps even more humiliating for a company long used to telling governments what to do - rather than the other way around - was what happened when Oscar Groeneveld, head of Rio Tinto's copper division, flew to Portugal in a last-ditch attempt to salvage the deal. The Secretary of State for Industry was late, and the Economy Minister failed to turn up at all!. For those with longer memories at Rio Tinto, this must have kindled unpleasant memories.
Thirty years ago this year (in 1972) , Rio Tinto (then RTZ-CRA) had opened up another huge copper mine, on the Papua New Guinean island of Bougainville. Two years after production started - and partly as a result of massive damage caused by construction and operation of the mine - the company was forced to re-negotiate its give-away contract with the newly-installed independence government of Sir Michael Somare.
"What, no police band!"
RTZ chair Sir Val Duncan flew to Papua New Guinea for talks in 1974, expecting the "stone age" country to fall into the palm of his hands. But on arrival at its capital, Port Moresby, there was, says Richard Jackson, "no red carpet, no police band, not even a minister at the airport.." Somare had chosen to spend his day at the golf links, while an incensed Duncan twiddled his sweaty thumbs, making vain attempts to get hold of him.
PNG Minister Albert Maori Kiki made a comment at the time which now rings decidedly familiar bells, as the South African government tussles with the mioing industry (including Rio Tinto) over "black empowerment" Declared Kiki:
"[We] are acting as a sovereign power which comprehends our role as owner of our resources, custodians of our national heritage and as a taxing authority on behalf of the people"
Just what the Portuguese now intend to do with the Somincor stake is not known, though clawing it back into state ownership seems highly unlikely under the present (or indeed any) government .
Neves Corvo is situated on the fabled Iberian mineral belt which constitutes the oldest continually-exploited base metals region in the world: mining dates back to Etruscan times when it was centred on what were to become the Rio Tinto mines in Andalusian Spain - so-called after the discolouration caused by pyrites gushing into the local river. It was here that the eponymous company built up its early empire, rising to become the world's most profitable mining outfit within twenty years.
However, the Neves Corvo extension wasn't methodically test-drilled until late last century. The mine has been cited (for example by Philip Crowson of Rio Tinto at the Rio summit in 1992) as proof that massive, low-cost, economically viable ores are still down for grabs - so why worry about impending depletion of scarce global resources?
Unless you have an ounce of ecological sensitivity.
Or - like the now-poorer shareholders of Murchison - find these resources snatched from under your very nose?
[Sources: Ken Gooding, "Portuguese govt dumps Rio Tinto", The Mioing Web 31/7/02; Roger Moody "The Gulliver File" Partizans, London and CAFCA Christchurch, Aorteaeoa/New Zealand, 1991; R Jackson "Ok Tedi: pot of gold" University of Papua New Guinea, Port Moresby, 1982; Don Woolford " Papua New Guinea Initiation and Independence, University of Queensland Press, Brisbane, 1976; Charles E Harvey "The Rio Tinto company: an ecoomic history of a leading international mining concern 1879-1854" Alison Hodge, Penzance, 1981]