(ShareCast News) - Global mining group Rio Tinto said on Friday that it is reviewing arrangements with Russian companies impacted by US sanctions.
The arrangements impacted include Rusal's 20% interest in Rio's Queensland Alumina in Australia, including associated supply and offtake arrangements, bauxite sales to Rusal's refinery in Ireland and offtake contracts for alumina used at Rio Tinto's smelters in France and Iceland.
Russian aluminium producer Rusal, which had $7.5bn net debt at the end of 2017, has been hit particularly hard by the sanctions and will receive short term liquidity from the Russian state according to the Kremlin.
In a statement Rio Tinto said: "As a result of the imposition of these sanctions, Rio Tinto is in the process of declaring force majeure on certain contracts and is working with its customers to minimise any disruption in supplies."
The sanctions, imposed on a number of Russian individuals and companies, were passed by the US Treasury department on 6 April in response to "malign activity" such as alleged meddling in the 2016 US Presidential election.
So far, 17 Russian government officials were affected as were seven of Russia's richest men and their companies, including Oleg Deripaska and his company Rusal.
The sanctions prohibit Americans from doing business with the companies, and people of other nationalities could face sanctions themselves if they are found to have facilitated transactions.
Rio Tinto said it is committed to fully complying with the sanctions.
The news follows yesterdays revelations that two former Prime Ministers of Mongolia have been arrested in connection with an investigation into corruption and misuse of power in mining deals with Rio Tinto.
Chimediin Saikhanbileg and Sanjaagiin Bayar will be held in a detainment centre for 30 days after being detained on Wednesday in relation to their handling of two agreements related to the massive Oyu Tolgoi gold-copper mine.
On a slightly pedantic note, copper coins in the UK havent been made of copper for several years now as the value of the metal became more than the face value of the coins. They are now electroplated steel. Personally I find that they are now just a nuisance but they are still associated with the perceived need to price items at 99 pence (formely £19/6d or £19/11d ) so as to ensure that the sale is rung up on the cash register and the customer given the change. This was partly a move to counter pilfering by shop workers.
Rio had indicated intention to sale thermal coal assets but keep high grade coking coal, Kestrel produced 83% coking coal in 17. Price is 6.6 x EBITDA and 8.7 x PTP which I guess is not bad for coal assets and presumably RIO have higher return investment options.
Rio Tinto has entered into a binding agreement with a consortium comprising private equity manager EMR Capital (EMR) and PT Adaro Energy Tbk (Adaro), an Indonesian listed coal company, for the sale of its entire 80 per cent interest in the Kestrel underground coal mine in Queensland, Australia, for $2.25 billion.
Rio Tinto chief executive J-S Jacques said "The sale of Kestrel, together with the announced divestments of Hail Creek and our undeveloped coal projects, delivers exceptional value to our shareholders and will leave our portfolio stronger and more focused on delivering the highest returns through targeted allocation of capital.
About the Asset*
The Kestrel mine is located in the Bowen Basin, 40km north-east of Emerald in central Queensland, Australia. Kestrel employs longwall mining to produce high quality coking and thermal coal products for export markets.
In 2017 the Kestrel mine produced 5.1 million tonnes of saleable coal, comprising 4.25 million tonnes of hard coking coal and 0.84 million tonnes of thermal coal. At 31 December 2017, Rio Tinto reported marketable reserves for Kestrel of 146 million tonnes and mineral resources of 241 million tonnes.
In 2017 Kestrel generated EBITDA of $341 million and profit before tax of $258 million, being Rio Tinto's attributable share. Rio Tinto's share of gross assets at 31 December 2017 was $1,441 million.
Im afraid Im not an oracle on the charts, just reading the fundamentals
Nevertheless, the IO selling appears to be abating. The return of construction activity seems a little delayed by the weather hence rebar inventories are high but this should change. House prices have cooled a bit.
There is evidence that some low grade supplies are being cut due to the wide discount which will help Rio in the long term.
Short term its all about the seasonal fluctuations in iOP but long term its fundamentally about growth in China and Asia as a whole
This video gives you some sense of how broad the Chinese vision for the region is
RIO remains a fantastically well run company with high margins, a real competitive advantage due to its scale and low costs, and good prospects for growth as more copper is required for EVs etc.
Does this look like a correction to you with Rio? Lot of talk about stockpiles reaching record levels but this seems to be with the low grade iron and high grade seems to be in play and very much in demand.
200Day moving average at 3622 so seems to be supported here. If goes through this then not sure where the next level is. What do you think?
Well, it's been a rough and tumble couple of months hasn't it?
The IO price seems to be slowly recovering (notwithstanding Barclays bearish forecast of $50). The port inventories rear their head again as they always do, but seem to be largely irrelevant as the grade mix is has been well documented. Steel rebar stocks are however historically high and this presumably reflects the ramp up in production yet construction activity has not yet turned up due to continuing bad weather. It should start to rise over the next couple of weeks I think and the relative strength in the sp probably reflects the market starting to price this in. We have the 'Goldilocks' economy and 'synchronised global growth', and against this the spectre of a 'bond yield inversion'. The fact is that we are nearing the end of a historically long bull market and yet corporate growth is still strong. It WILL turn but when is anyone's guess! (mine is 18/12 btw but WTFDIK!)
I still have a (very) significant holding in Rio as I believe that China, and the emerging markets (esp India ) together with the Belt and Road initiative represent the future of world GDP growth, and irrespective of what the mad man in he oval office tweets, supply and demand will dictate all eventually. What I have learned over the years is that investing on the basis of fundamentals and ignoring any short term noise (news) is the only sensible strategy.
Interestingly Trump is far less secure than Li now (leader for life) and so the balance of power has shifted. If Trump loses the mid terms he could be starring at impeachment. He may become more strident in response, but the Chinese can take the long view, a luxury not afforded to Trump.
"The Treasury could be paving the way for the end of 1p and 2p coins as it seeks views on the future of cash.
It is inviting comments on the mix of coins in circulation as consumers move to non-cash payments such as contactless and digital spending.
Ministers say there are no current plans to scrap them.
But the consultation hints at the growing cost of handling these coins. It also questions the validity of the £50 note.
"From an economic perspective, having large numbers of denominations that are not in demand, saved by the public, or in long-term storage at cash processors rather than used in circulation does not contribute to an efficient or cost effective cash cycle," the Treasury consultation document says.
Many countries - including Canada, the home of the current Bank of England governor Mark Carney - have ditched their low denomination coins.
The document points to surveys that suggest six in 10 of UK 1p and 2p coins are only used once before being saved in a jar or discarded.
In one in 12 of these cases, the coins are thrown in the bin.
Previously, the government and the Royal Mint have needed to produce more than 500 million 1p and 2p coins each year to replace those falling out of circulation.
However, the coins are now being used less often and being held in greater numbers by coin processing businesses, as consumers move to non-cash payments.
LONDON (Alliance News) - Rio Tinto PLC said Friday it is looking to find a domestic power solution for its Mongolian mine after the government cancelled a previous agreement.
The FTSE 100-listed mining giant said the government of Mongolia has cancelled the Southern Region Power Sector Cooperation Agreement.
The PSCA was a cooperation framework between the Mongolian Government and Oyu Tolgoi to deliver a "comprehensive energy plan for the South Gobi region." The primary intention of this was to develop a new independent power plant at the Tavan Tolgoi coalfields. Under this arrangement, Oyu Tolgoi would be an off-taker rather than owner.
"The decision to terminate the PSCA indicates that the Government of Mongolia no longer views the Tavan Tolgoi Power Project as a viable option for Oyu Tolgoi," Rio Tinto said in a statement.
"As a result, and in line with the terms of the 2009 Investment Agreement, Oyu Tolgoi is now obliged to deliver a domestic power source for the operation within four years."
Rio Tinto explained it was working with its partners Oyu Tolgoi and Canada-listed Turquoise Hill to fulfil its commitments under the investment agreement with the Mongolian government.
The partners are evaluating "all viable power" options which include the construction of an on-site power plant. Any costs and means of financing this will be finalised between shareholders, Rio added.
Rio Tinto said it has already earmarked USD250 million a year for the development of a power station in Mongolia in its 2019 and 2020 capital expenditure forecasts. It will, however, continue to review capex forecasts.
Rio Tinto owns a 51% stake in Turquoise Hill which, in turn, own 66% of the Oyu Tolgoi project.
In late January, Rio Tinto Chief Executive Officer Jean-Sebastien Jacques met with Mongolian Prime Minister Ukhnaagiin Khurelsukh and other government officials to strengthen its partnership regarding the Oyu Tolgoi project in the country by setting up a joint working group. As part of this they intended to look at an accelerated path of development for a power solution in Mongolia.
Taken a slice of profit here. Price moved up strongly today in the general recovery and I think there may be more to come, but can't help thinking that we are getting pretty close to fully valued and near to 5+ year highs. Its just reward for holding through the dark days.
The 4Traders and Digital Look forecasts for EPS are all showing decline from here on. Of course if the scenario of quality iron ore driving prices significantly higher plays out then those numbers are likely to get revised up and Fx could change the picture.
Still holding ~2% and a few BLT. Lightening up on remaining BLT is next on the agenda if miners continue the rise.
Rio might technically be a diversified miner, but iron ore is really what it's all about.
It accounts for almost 60% of group EBITDA (earnings before interest, tax, depreciation and amortization) and with production costs at the flagship Pilbara mines as low as $13.4 a tonne, Rio's cost of production is incredibly low. Prices are up 20% on last year to $64.10 a tonne. The ore doesn't cost any more to dig up, so every cent of that price growth is profit.
Of course that sensitivity to commodity prices is a curse as well as a blessing. When prices collapsed in 2015/16 Rio was forced to embark on a brutal cost cutting exercise. The situation wasn't helped by the mountain of debt on the balance sheet.
Following a root and branch review, most of the group's coal assets have been let go. Rio is now firmly focused on industrial metals (plus a smaller diamonds business) and is investing in future capacity to safeguard long term earnings.
With debts now firmly back in hand, and expenses significantly reduced, Rio is in a position to pass the benefits of higher commodity prices back to shareholders. When times are good the mining mega groups are cash machines, and 2017's heady mix of dividends and buybacks are proof of how rewarding that can be.
The move towards a 'percentage of earnings' type dividend policy is sensible, since it helps keep the balance sheet healthy over the long term. However dividends will be volatile as commodity prices shift.
The shares currently offer a prospective yield of 5.2%.
"Rising US Treasury yields were just the excuse money men needed to bank massive profits made since Donald Trump's election victory. However, just as markets cannot keep rising forever, they must also stop falling at some point, but it's still ..."
"What a difference a couple of years has made at LSE:RIO:Rio Tinto. Back in February 2016, the previous management team frustrated investors by ending the Anglo-Australian company's progressive dividend policy, arguing that it was not appropriate ..."
Personally, I liked the reduction in net debt. I know it's the in-thing to have so-called 'efficient balance sheets', but they're cr ap in any downturn, and irresponsible IMHO.
"LONDON (Alliance News) - Anglo-Australian miner Rio Tinto PLC significantly increased cash flow from operations and reduced net debt in 2017, both above analyst expectations, allowing it on Wednesday to further increase returns to shareholders including a record dividend.
Net cash generation from the blue-chip miner's operating activities rose 64% year-on-year to USD13.88 billion from USD8.47 billion, ahead of analyst consensus of USD13.73 billion.
Rio Tinto reduced its net debt to USD3.85 billion, well down on the USD9.59 billion at the end of December 2016, and likewise below consensus of USD4.89 billion. The company's net gearing ration has fallen to 7% from 17% in 2016.
Looking ahead, Rio Tinto expects additional cumulative free cash flow of USD5.0 billion from 2017 to the end of 2021 due to productivity improvements, including GBP300.0 million in 2018. It is targeting an annual exit rate from mine to market productivity improvements of around USD1.5 billion from 2021.
Rio Tinto will pay a total dividend of 290 US cents per share for 2017, including a final dividend of 180 cents. This figure compares to a total dividend for 2016 of 170 cents, with analyst consensus expecting a payout of 275 cents.
Alongside the record dividend, the company has declared a further USD1.0 billion share buyback programme, to be completed by the end of 2018, having this time last year surprised the market with a similar announcement. It returned USD4.0 billion via share buybacks in 2017.
This is the second year in a row in which Rio Tinto has delivered welcome news to the market regarding shareholder returns. Twelve months ago, its 170 cents total dividend was down 21% on 2015 but well above a 110 cents commitment and analyst expectations of a 113 cents payout.
Alongside the bigger-than-expected dividend payout at the end of 2016, the market was pleasantly surprised by the announcement of a USD500.0 million share buyback over the course of 2017.
Rio Tinto followed this up in September last year by adding a further USD2.50 billion to the buyback, bringing total buybacks for 2017 to USD4.00 billion after similar announcements in February and August.
Rio Tinto completed the February and August buybacks totalling USD1.50 billion in December, and announced a further USD1.93 billion on-market buyback to be completed by the end of 2018.
Analysts at Deutsche Bank said towards the end of January given its attractive cash flow, as well as the divestment of assets, the company should have been able to continue to pay-out significantly to shareholders, which Rio Tinto has done.
During 2017, Rio Tinto completed USD2.7 billion worth of divestments, including September's USD2.69 billion sale of its Coal & Allied Industries Ltd business to Yancoal Australia Ltd. Post year-end, the company announced a USD500.0 million offer for its Aluminium Dunkerque smelter in France from Liberty House.
The returns to shareholders come as Rio Tinto posted a 69% increase in underlying earnings for 2017 at USD8.63 billion compared to 2016's USD5.10 billion and narrowly ahead of market consensus of USD8.58 billion. Underlying earnings were boosted by USD4.1 billion post-tax due to higher commodity prices.
Rio Tinto's net profit totaled USD8.76 billion in 2017, almost double from 2016's USD4.62 billion net profit, due to disposals.
Revenue was USD40.00 billion in 2017 compared to USD33.80 billion in 2016, slightly down from consensus of USD41.55 billion. This, the company said, was primarily due to higher commodity prices through the year.
The Platts price for 62% iron Pilbara fines was 20% higher on average than 2016, Rio Tinto said. Realised hard coking coal prices were 42% higher on average year-on-year, while realised thermal coal prices were 32% higher
"The past 12 months have offered mixed fortunes for income investors. On the upside, 2017 was a record year for dividend payouts. In total, Â£94.4 billion found its way back to investors with the help of special dividends and much improved payouts ..."
"LONDON (Alliance News) - Rio Tinto PLC said Tuesday that Chief Executive Officer Jean-Sebastien Jacques met with Mongolian Prime Minister Ukhnaagiin Khurelsukh and other government officials to strengthen its partnership regarding the Oyu Tolgoi project in the country.
The FTSE 100 miner said the talks in the Mongolian capital Ulaanbaatar saw the company and government discuss ways to strengthen the relationship by "setting up a joint working group".
The working group would explore whether funding costs can be reduce to improve benefits from the Oyu Tolgoi projects. It also would look at an accelerated path of development for a power solution in Mongolia and an acceleration of the strategy at Oyu Tolgoi to invest in nearby town Khanbogd for sustainable community development.
"Rio Tinto remains fully committed to Oyu Tolgoi and Mongolia," Jacques said. "Our nearly 14,000 employees and the people of Mongolia should be proud that Oyu Tolgoi is one of Rio Tinto's safest and most productive mining businesses in the world. We remain committed to creating opportunities for talented Mongolians to build their careers on a global stage."
"We want to work with the government of Mongolia to create long-term sustainable solutions that benefit all stakeholders and the country while staying true to the established investment frameworks," Jacques added.
"We will continue to work together to solve outstanding issues as the joint working group progresses win-win solutions on matters such as power and community development," Jacques concluded.
On Friday, Canada-listed Turquoise Hill - which is 51% owned by Rio Tinto - declared force majeure at Oyu Tolgoi after a protest by Chinese coal workers which resulted in an obstruction of a road to China saw it unable to deliver concentrates to customers.
Turquoise Hill owns 66% of the project, with the Mongolian government owning the balance.
Rio Tinto emphasised at the time that normal mine operations at Oyu Tolgoi were maintained and production was unaffected. It made no further comment on the situation on Tuesday. "
In line with guidance basically. Not great figures but the only bad bit, which will have already been in SP, was following:
"Mined copper production of 478.1 thousand tonnes was nine per cent lower than 2016 due primarily to the impact of a 43 day strike at Escondida in the first quarter. Production was in line with revised guidance."
I did hear on Bloomberg TV this morning that iron ore prices are likely to fall in 2018. The story was that some of China's iron ore mines were shut down for the winter to reduce pollution. It is anticipated that they will start up again in the spring reducing demand for iron ore imports. They are also shutting down their old, polluting, steel mills, which will remove some overcapacity and again reduce demand for iron ore.
Sorry, I haven't looked into BHP in as much detail, but my analysis of RIO was just based on the publicly available data, nothing proprietary.
I think that the only chance a PI has of riding the market is to conduct a level headed analysis of the value of a companies business model, take into account the trends that the commentators are talking about, and avoid the short term herd mentality of brokers who are just thinking of the next 5 minutes and who are afraid to divert from the group think as it makes them vulnerable.
Warren Buffet famously says that he only invests in companies that he understands, and that have a moat around their product.
Well the big IO miners have a pretty simple business model IMO, and while they are presently price takers rather than makers, having the lowest production cost is some sort of moat. What is interesting is to ponder whether the Chinese environmental push shifts the power balance in favour of the big 3 miners. If the attractiveness of the low grade marginal producers has been damaged by the Chinese restrictions, then the market could be much more on edge than previously imagined, and in this scenario, the big 3 have a real monopoly between them, much more so than OPEC at its height. In addition for heavy infrastructure there isn't any alternative material on the horizon (aluminium bridges anyone?) Listen to Robert Rennie explain how the apparent glut of steel is actually not what it seems, much of the increase is simply the replacement of illegal low quality product that was never counted, by more legitimate supplies.
All the big miners (Rio, Anglo, BHP) have been doing well since before Christmas. I'm up 18-23% on my initial forays into this sector in October. My trading approach is to buy more once the SP has gone up 5%, so I've now bought 3 tranches of each one. Originally I was buying for the high yield, but who's to complain!
Been struggling with this for some time - should I add. Seems as if I'm not the only one struggling with it.
Certainly, China is moving towards using higher grade IO in their attempts to curb polution (less energy required), but countering that is, as said, miners increasing production of HGs - including Vale. Thankfully, they're further from China than BLT and RIO. It's a long haul from Brazil to Shanghai, or wherever. Twice took phosphates from Morocco to China, and ran out of domestic water on the way - bucket a day per person. I digress.
But there's so much going on atm: Copper is expected to go into deficit in a couple of years, and Mongolia should come into some sort of production around 2020 - maybe. Good timing. That's going to be a real game-changer (copper). I can just see all those juicy car-charging cables being sought after by unpleasant types.
Anyway, there's a nice dividend to be going on with. It might not make it in 2019, but you never know cash-flow might provide a SD to ease the temporary pain. Personally, I prefer this to BLT, of which I have some, purely as BLT has some 20% in oil/gas, and I'm way over invested in oilies right now - and have been for some time.
Thanks. I'm not up on the CBB so no view I'm afraid.
What the short term will bring is anybodies guess, I've given up trying to forecast the market as simply too hard IMO. What I do see is the underlying fundamental value in Rio (and BHP) which barring any 'Black Swan' events, and if the demand and supply hold up as I think they might, should be reflected in the sp at some point. In the meantime, dividends are your friend and counsel to remain patient!
All Imo DYOR of course.
I've learned that focussing on value rather than trying to trade the short term moves works much better for me at least.
Good to see your posts and your bullish forecasts. What's your view on the recent report back from China Beige Book on evidence CBB but seem like a credible outfit with a good track record on reporting?
Rio has moved nearly 16% in just 3 weeks and I wasn't expecting this move so quickly. Massive jump on last trading day of the year, wondering if it was some window dressing . The trend is definitely up but wonder if there will be a pullback before venturing above £40. 200 day MA at about £34 - tested it 3 weeks ago and then bounced off it .
I think the other thing is that there is growing evidence of a structural shift in the IO market.
Rio and BHP have been saying it for some time, but I guess the market has been considering this as them talking up their own book.
But listen to Robert Rennie from Westpac, who seems to have some decent credentials behind him.
If the pollution curbs over winter are seen as successful in that they reduce pollution while still allowing mills to function by using largely high grade ore to maintain reasonable total output, then it could become a regular and predictable feature of the already very seasonal market.
This would have a number of effects. It would make low grade domestic chinese producers deeply uneconomic, and make life very difficult for the marginal low grade producers (e.g. FMG) Maybe this is why FMG are now taking about increasing their target grade. OF course increasing their grade will reduce their total output, increase costs and reduce mine life. All of this increases the cost curve for IO. In addition the planned winter slowdown would have an effect of magnifying the normal rush to re-stock that normally happens early in the new year in China and this would also keep steel margins high and therefore encourage mills to use high grade to increase output.
All of this potentially points to a structural change favouring a long term higher price for high grade IO even at current total demand, and with a likely reduction in total IO production largely because low grade and high cost miners are forced out.
If we get to Jan/Feb with still a reasonably steady IOP, and historically low steel inventories then we could be in for a massive squeeze on the IOP when Chinese production ramps up again. Ignore the port inventories because they are not reflective of the availability of high grade ore which is what the mills want/ need.
I'm confident enough of this premise to sit tight, with the comfort of a likely 6% dividend to cushion any short term volatility. Difficult to see where else to park funds with this risk/ benefit ratio and a reasonable dividend stream (perhaps Lloyds if the Brexit talks don't fall apart, or HSBC? Would like to get back into house builders but they never fall far enough for me to have an attractive entry point. I sold out of Apple after a 40% gain and don't want to exit Rio too soon!)
Yes I realise that markets are forward looking while dividends are historic, and furthermore the forecasting of div's is highly speculative.
But it seems to me that a lot of downside is priced in to the current sp (i.e. a fall in IOP, currency etc.) while there is at least a reasonable indiction that there has been a structural change in the IO market favouring higher grades. As such I wonder if most of the risk is actually now to the upside, while at the same time the current SP is supported by at least a medium term prospect of very healthy 5%+ dividends and a return of 2-2.7B from the asset disposals.
It seems to me the current sp is factoring in an IOP of around $55-$60
I must be fairly unusual to have this sort of asymmetric risk in a high yield (albeit cyclical) stock?
Important message from the Financial Conduct Authority:
Posting inside information that is not public knowledge, or information that is false or misleading, may constitute market abuse.
This could lead to an unlimited fine and up to seven years in prison.
If you have any information, concerns or queries about market abuse, click here.
The content of the messages posted represents the opinions of the author, and does not represent the opinions of Interactive Investor Trading Limited or its affiliates and has not been approved or issued by Interactive Investor Trading Limited.
You should be aware that the other participants of the above discussion group are strangers to you and may make statements which may be misleading, deceptive or wrong.
Please remember that the value of investments or income from them may go down as well as up and that the past performance of an investment is not a guide to its performance in the future.
The discussion boards on this site are intended to be an information sharing forum and is not intended to address your particular requirements.
Whilst information provided on them can help with your investment research you need to consider carefully whether you should make (or refraining from making) investment or other decisions based on what you see without doing further research on investments you are interested in.
Participating in this forum cannot be a substitute for obtaining advice from an appropriate expert independent adviser who takes into account your circumstances and specific investment needs in selected investments that are appropriate for you.