|Bid||52.14 x 800|
|Ask||52.15 x 800|
|Day's Range||51.26 - 52.28|
|52 Week Range||35.35 - 64.02|
|Beta (5Y Monthly)||0.62|
|PE Ratio (TTM)||10.68|
|Forward Dividend & Yield||3.82 (7.33%)|
|Ex-Dividend Date||Mar. 06, 2020|
|1y Target Est||N/A|
The global impact of COVID-19 has been unprecedented and it is far from over, but for savvy investors there may be no better time to invest in “indirect” discount gold
(Bloomberg) -- Key investor advisory groups are divided on whether Rio Tinto Group shareholders should support a demand for the world’s No. 2 miner to extend the range of its targets to reduce greenhouse gas emissions.Institutional Shareholder Services Inc. is recommending Rio investors support a resolution tabled by an advocacy group calling on the producer to add additional targets, including so-called scope 3 emissions -- those generated by customers through the use of its products. In contrast, Glass Lewis & Co. advises holders to reject the plan at an annual meeting on Thursday.The division highlights a debate in the mining and energy sectors on the extent to which raw materials companies bear responsibility for emissions created when customers, such as steel mills, use their products. BHP Group has pledged to set goals for its scope 3 footprint later this year, and Royal Dutch Shell Plc last month set out plans to cut the same category of emissions by 65% by 2050.Shareholders “have a long-term interest in assessing whether Rio Tinto is adequately assessing and acting on its climate risk and opportunities,” including through “targets to work with its customers to achieve reductions in its scope 3 emissions,” ISS said in an April 30 note to clients, recommending they vote in favor of the proposal submitted by environmental campaign group Market Forces and a small group of investors. Rio has advised investors to vote against the proposal.Why ‘Scope’ Matters for Oil Companies Cutting Carbon: QuickTakeLondon based-Rio argues that unlike competitors who produce fossil fuels and can potentially supply less-carbon intensive alternatives, it has little capacity to address the emissions created by its customers. The company’s scope 3 emissions are generated mainly when its iron ore is used in China’s steel mills, or bauxite is consumed in the aluminum-making process.“Our ability to directly influence our customers’ emissions is limited,” Peter Toth, Rio’s global head of corporate development, told an investor meeting last month. “It is even difficult to accurately quantify their emissions and so our strategy is to work in partnership across these value chains.”The producer is collaborating with China Baowu Steel Group and Tsinghua University in Beijing to curb pollution in the steel sector, which accounts for about 7% of all global emissions.Read More: Rio Tinto Rejects Setting Targets for Customers’ PollutionDirect annual emissions from Rio’s operations are about 31.8 million tons of carbon dioxide equivalent, compared with the company’s estimate of about 491 million tons of emissions in its wider supply chain, the miner said earlier this year.Rio said in February it would seek to cut emissions from its own businesses by 15% on 2018 levels by 2030, will target net zero emissions by 2050 and spend $1 billion over the next five years on the efforts.While the producer should continue to reduce its own emissions, it’s probably not “feasible for the company to set goals based on how its customers determine to utilize its products,” Glass Lewis said in a note to clients last month. The producer has made “extensive disclosure on the steps it is taking to mitigate its environmental impact,” according to the adviser.For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
(Bloomberg Opinion) -- It’s looking decidedly somber out there for the world’s favorite sparkly stone.Diamonds were ailing even before the coronavirus came along. Now, weeks into lockdowns in the U.S. and elsewhere, all but the largest diggers, polishers and retailers are struggling for cash. Unable to sell its stones, Dominion Diamond Mines, the miner that sold luxury brand Harry Winston to Swatch Group AG in 2013, filed for insolvency protection late Wednesday. Anglo American Plc’s De Beers cut 2020 production guidance by a fifth Thursday, in line with demand.To secure their future, diamond giants may need a rebranding akin to the storytelling feat pulled off by Harry Oppenheimer, the late De Beers chairman who cultivated the engagement ring to overcome a slump after the Great Depression. In so doing, he forged a tradition that fueled sales for decades. Today, a refreshed myth-making effort could target the post-pandemic concerns of millennial consumers: marketing the diamond as a store of value in volatile times comparable to art, which is also authentic, traceable and sustainable.Since 2011, when prices peaked thanks to China’s new shoppers, diamonds have faltered. Lab-grown stones, initially priced confusingly close to the real thing, posed a challenge. To make things worse, a supply glut hit the market, pushing producers to cut prices. A 26-million-carat increase in 2017 was the largest single-year volume addition since 1986, according to consulting firm Bain & Co. Meanwhile, financing availability shrank dramatically as traditional lenders pulled away. A 2018 fraud scandal involving celebrated Indian jeweler Nirav Modi didn’t help. The coronavirus will accelerate some developments that aren’t unwelcome. In supply terms, the industry may look healthier if older or more marginal mines are obliged to stop digging. Rio Tinto Group last year had already announced the 2020 closure of its Argyle mine, which produces both low-quality gems and fabled pink diamonds, taking some 13 million carats out of global annual production of just over 140 million. The current crisis will add to that. In March, Dominion stopped work at its Ekati mine in Canada, and other pits have been closed or are working only partially. Not all will return.There will be a shakeout among polishers and perhaps more integration in some parts of the industry, of the sort demonstrated by Louis Vuitton’s purchase earlier this year of the largest rough diamond since 1905. Sales of rough and polished stones will change too, as travel restrictions in South Africa, Botswana and India push more deals online. It’s a remarkable feat for a conservative industry that thrives on face-to-face interaction, and arcane systems like De Beers’ “sights,” as its regular sales are known.Yet the scale of this health crisis, rapidly turning into an economic cataclysm, has also made other problems far worse. India’s polishers are not only strapped for credit, but also struggling with a weaker rupee, lockdowns and curfews; Thousands of workers have been forced to leave hubs like Surat altogether. Elsewhere, both diamantaires and jewelry buyers are stuck at home, making it harder to clear excess inventory. The flow of diamonds has dwindled to barely a trickle.The real concern is demand, where a grim outlook for disposable incomes suggests a hoped-for 2020 recovery is impossible, even as supply shrinks. The very top of the market may be insulated, but further down even China’s “revenge purchases” aren’t going to be enough. As my colleague Nisha Gopalan has pointed out, such splurges won’t save luxury products — especially if U.S. job losses continue to pile up. Inventory could flood the market, too.All this upheaval does makes it a good time to rethink the storytelling behind diamonds, though. Coordinated marketing, once the industry’s go-to solution, will need to make a comeback as consumers emerge from the wreckage of coronavirus. Post-pandemic values may change broadly.Three things could be highlighted. First, a store of value for the long term, especially for the largest gems where prices vary less. Like art, or fine wine, only wearable. Better yet, to appeal to the millennials that make up its consumer base, the industry can promote the stones’ authenticity, building on existing work around provenance and traceability, dating back to the Kimberley Process, the multilateral system aimed at ensuring the proceeds of diamond mining aren’t used to fund conflict. The industry is also sustainable, with relatively clean, chemical-free processes.Marketing spend has recovered after a dip in the past decade, but coordinated industry expenditure remains far below even the early 2000s. While the likes of De Beers and Alrosa PJSC may be reluctant to sponsor cash-strapped smaller rivals, it would be money well spent. Nearly seven decades after Marilyn Monroe’s immortal song, it's time for a new myth.This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.Clara Ferreira Marques is a Bloomberg Opinion columnist covering commodities and environmental, social and governance issues. Previously, she was an associate editor for Reuters Breakingviews, and editor and correspondent for Reuters in Singapore, India, the U.K., Italy and Russia.For more articles like this, please visit us at bloomberg.com/opinionSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
(Bloomberg Opinion) -- Last year was supposed to be an aberration for iron ore, an unexpected period of sky-high prices after a fatal dam collapse in Brazil and a tropical cyclone in Australia. Instead, it continues to defy gravity. Sheltered from the worst of the pandemic upheaval, Australian diggers like BHP Group, which reported stable output for the March quarter Tuesday, can expect to benefit.Rio de Janeiro-based Vale SA warned just weeks ago that weak demand from steel mills outside China would hurt iron ore as the coronavirus spreads, industrial appetite shrinks and producers bring down the shutters. The first part of the statement has proved accurate: Bloomberg Intelligence forecasts that pandemic-linked manufacturing shutdowns, especially among automakers, will drag demand down by 10% to 15% in the U.S. and Europe this year. BHP says it expects steel outside China to contract by a double-digit percentage, as logistical difficulties and collapsing demand force customers to cut back. Yet prices remain surprisingly robust, with Singapore futures hovering around $83 per metric ton. The main explanation sits with China, where furnaces and construction projects are recovering. The country accounts for about 70% of global demand for seaborne iron ore, so a rebound there matters far more than pain elsewhere. By way of example, China’s import requirements amount to about 1.1 billion tons, against 100 million for Europe.While the risk of a second wave of infections remains, China’s return to work is real: Port stocks have been steadily reducing, while premiums for higher-quality material have been unusually high. BHP estimates electric-arc furnace utilization has recovered to 56% after falling to 12%. It’s true that exporters of finished products such as excavators will be hit by a weak global economy, but a lot more ore is gobbled up for the giant home market.Alongside that, global supply is doing worse than many expected. Granted, widespread closures aren’t just a problem for iron ore. Coronavirus stoppages are hitting other commodities like copper, where Chris LaFemina at Jefferies estimates 20% of supply is now impacted, versus 8% for global iron ore. That supply crunch is supporting base metals and other commodities to the point that China’s grim first-quarter economic data left the metal uncharacteristically unruffled Friday.For iron ore, there’s more. On top of the pandemic, there are ongoing disruptions: specifically, upheaval at Vale, which is still struggling with permits as it tries to recover from the Brumadinho dam collapse. On Friday, the company cut 2020 production expectations for iron ore fines to 310 million to 330 million tons, from 340 million to 355 million, while warning the fallout from the health crisis could get worse. The Brazilian government’s poor handling of the pandemic means it isn’t impossible to imagine a drop to 2019’s level of 302 million tons — a significant loss to a large, though tight, seaborne market.For producers Down Under, none of this is bad news. While in copper everyone is suffering as large mines from Latin America to Africa slow or stop digging, the pain in iron ore hasn’t been equally distributed. Australia’s enormous Pilbara operations have by and large kept going, with exports up significantly last month. Vale is benefiting from higher prices that may cushion output losses; by contrast, the big Australians are digging and selling more, too. BHP reported a 3% increase in production for the nine months to the end of March. Rio Tinto Group, now the world’s top producer, last week also reported higher first-quarter output and shipments, compared to a year earlier.Better yet, costs are coming down. That’s thanks to the effects of a weaker domestic currency against the U.S. dollar, rock-bottom oil prices and still-depressed shipping rates. BHP’s unit costs for Pilbara already hovered around $13 per ton. At the same time, realized prices have held — BHP says its average in the March quarter was just over $74 per ton, down just 5% on the six months to December. That will help offset damage in harder-hit commodities, particularly oil.It’s unclear how long this corner of the commodities market will continue to hold up. Other producers may well limp back, adding to supply, and China could face further virus setbacks. For now, Brazil looks vulnerable and China robust. It may be another unexpected year of grace for iron ore. This column does not necessarily reflect the opinion of Bloomberg LP and its owners.Clara Ferreira Marques is a Bloomberg Opinion columnist covering commodities and environmental, social and governance issues. Previously, she was an associate editor for Reuters Breakingviews, and editor and correspondent for Reuters in Singapore, India, the U.K., Italy and Russia.For more articles like this, please visit us at bloomberg.com/opinionSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
(Bloomberg Opinion) -- After years of buying at the peak of the economic cycle and selling in the trough, could the world’s big diggers do the reverse? Compared to peers in oil and gas, Rio Tinto Group and the largest diversified miners are riding out the coronavirus storm in sheltered positions: They have low operating costs, little debt and more than $60 billion in liquidity.History matters here. Just over a decade ago, miners binged on hubristic investments like Rio’s acquisition of aluminum producer Alcan or Anglo American Plc’s Minas Rio iron-ore venture. In the hangover years between 2012 and 2016, some $200 billion was written off, and a generation of chief executives were shown the door. It was a near-death experience akin to what the energy sector is going through today, and one that left behind an industry focused on cleaning up, cutting back and returning cash to shareholders. Rio has been among the most generous, handing back $36 billion since 2016.It means the industry’s largest players went into this crisis with two things: balance sheets at their most robust in years, and a pedestrian growth outlook. Almost the opposite is true at long-coveted targets like Freeport-McMoRan Inc., with a market value of $11 billion, and First Quantum Minerals Ltd., valued at $3.5 billion. These mid-size base metal producers are beginning to look fragile, with expanding copper mines but nearly $19 billion of total debt between them. Their shares have fallen more than 40% this year. No one knows how long a recovery from the pandemic will take, or what life will look like on the other side, but miners have a little more certainty than most: Metals like copper, used for electrification and a host of consumer goods, will be needed, and will be in short supply. It’s a tantalizing state of affairs. As ever, things aren’t quite that simple, and even the heftiest miners aren’t immune to the world’s turmoil. BHP Group has to contend with the crashing oil price. Anglo American is dealing with lockdowns in South Africa, Peru and elsewhere, as governments try to contain the spread of coronavirus. Glencore Plc, long the most buccaneering of the large players, is tackling succession, trouble in Zambia and a pending U.S. Department of Justice investigation into its business practices.At Rio, Chief Executive Officer Jean-Sebastien Jacques has perhaps the strongest motivation to act. He is less exposed to many of these uncertainties, and is running a miner that still relies on iron ore for about three-quarters of its Ebitda, as steel consumption hovers at or near a peak in China. Large mainland miners, like acquisitive Zijin Mining Group or Jiangxi Copper Co., may be his competitors. There are cashed-up bullion players, too: Barrick Gold Corp.’s CEO, Mark Bristow, has said he could consider copper and even Freeport’s Indonesian Grasberg mine.The trouble is, we’re not yet at the distress levels that will prompt boards to approve a rush for checkbooks. Travel and due diligence are impossible, markets are too volatile for share deals and the next few months remain an unknown quantity. Shareholders may balk. In past crises, even distressed sellers were able to command premiums, so bargains will be tough. Copper prices are still above the depths of 2016.Worse, not even the most obvious prey would be easy to snap up: Freeport and First Quantum come with traps. Freeport, the world’s largest listed copper producer, faces the question of who will lead it when veteran Richard Adkerson retires, along with concerns over older U.S. mines and the costly move underground at Grasberg. Rio, unhappy with the environmental and political risks, sold its interest in the Indonesian mine in 2018. First Quantum, more bite-sized and so perhaps more appealing, battened down the hatches earlier this year with a poison pill, after Jiangxi Copper built an 18% stake. Its flagship Cobre Panama mine has yet to operate through a full wet season. Chinese players eyeing miners with Australian assets, meanwhile, would also have to deal with a regulator bent on discouraging opportunistic foreign bargain-hunters.Yet the longer the pandemic lockdowns drag on, the more the pain increases, as fixed costs go out and no cash comes in. It’s visible already in lithium, with Tianqi Lithium Corp. seeking to sell part of its stake in the Greenbushes operation in Australia, as it struggles to repay debt taken on to buy a stake in Chilean giant SQM. It’s rare to see large Chinese producers in distressed sales, even if lithium prices have plummeted since 2018. Rare-earth producer Lynas Corp., meanwhile, says it may need public funds to complete an ore-processing plant. Buyers won’t pounce yet. A global economic recovery isn’t in sight and will be slow; most will need a little more confidence that growth is coming back. That will mean a wider improvement than China’s stimulus and return to work, as encouraging as State Grid Corp.’s 2020 investment plans may be. They’ll also need travel restrictions to lift. Wait too long, though, and the opportunity to buy cheap will pass — again. This column does not necessarily reflect the opinion of Bloomberg LP and its owners.Clara Ferreira Marques is a Bloomberg Opinion columnist covering commodities and environmental, social and governance issues. Previously, she was an associate editor for Reuters Breakingviews, and editor and correspondent for Reuters in Singapore, India, the U.K., Italy and Russia.For more articles like this, please visit us at bloomberg.com/opinionSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
(Bloomberg Opinion) -- Aluminum isn’t the worst-performing base metal this year, an honor that goes to copper. Yet that’s only because it had less far to fall: Demand was ailing well before the coronavirus forced some three billion people to stay home. Add the near-total shutdown of the world’s auto and aviation industry, crunching more than a third of demand, and the lightweight metal is fast heading for levels last seen during the global financial crisis. That should translate into some of the mining industry’s deepest cuts as the pandemic forces producers such as Alcoa Corp. and Rio Tinto Group to take long-overdue decisions.Aluminum is a serial underperformer, having racked up the biggest real losses for any base metal since 1913, according to Bloomberg Intelligence. Demand has slowed for a decade, and a surplus was expected this year even before the current crisis. Prices have declined for eight consecutive weeks to below $1,500 per metric ton. That’s made most of the world’s production unprofitable.The metal has never been good at responding fast to a changing market. That’s partly because it’s inexpensive to mine the raw material bauxite. At the same time, smelters that produce aluminum metal from its oxide are slow and expensive owing to fixed costs such as power. As a result, the industry is still working through the stockpile accumulated during the last crisis. In this context, it’s less surprising that China’s aluminum production increased in the first two months of the year.The scale and speed of the demand drop caused by the coronavirus will test the industry’s elasticity. Aircraft makers are pondering production cuts, while automakers have shut down from Japan to Germany. The premium paid by Japanese buyers over the London Metal Exchange price is at its lowest in over three years. Car sales in locked-down economies have dropped by around 80%. Other sources of demand, like machinery, have been little better. While shoppers have hoarded canned food, this accounts for a small fraction of aluminum usage.Analysts at BMO LLC estimated late last month that worldwide primary aluminum demand could fall 6% in 2020 from a year earlier — similar to 2008, but larger in absolute volume terms. That’s not the steepest estimate out there, yet they suggest it already entails an unsustainable surplus of 4.2 million tons, roughly 5% of global demand. Aluminum giants cut back during the global financial crisis, and a few years later in 2015, when cheap Chinese metal flooded the market. China won’t help much to soften the blow this year, even when the full extent of Beijing’s stimulus plan is unveiled. In 2009, when consumption dropped 17% outside China, it rose 15% inside the country, according to a Boston Consulting Group report. This time, even Chinese appetite could take years to recover fully.There are some welcome signs of realism. Norsk Hydro ASA said last week it would postpone the restart of its Husnes plant. Analysts at CRU Group estimate some 365,000 tons of Chinese capacity has already been taken out. More should be on the way, even if low-cost production from the likes of China Hongqiao Group Ltd. is spared: Russian giant United Co. Rusal estimated in mid-March that at prices below 13,000 yuan ($1,830) per metric ton, more than a quarter of China’s smelters, equivalent to 10 million tons of annual capacity, were losing money. Less environmentally friendly operations will suffer disproportionately.Rio Tinto, meanwhile, had already been reviewing its Tiwai Point smelter in New Zealand and its ISAL smelter in Iceland, and now needs to think hard about the capital allocated to its least profitable division.All of those cuts and more will be needed, especially if demand weakness lingers. BMO forecasts 4.2 million tons per year of idled capacity by the third quarter, rising to 10 million tons by 2025. There are plenty of unknowns, from how long the downturn lasts to the level of demand from traders seeking to bet on stronger markets down the road. For now, absent a significant reduction to supply, it’s hard to see anything but a dim future.This column does not necessarily reflect the opinion of Bloomberg LP and its owners.Clara Ferreira Marques is a Bloomberg Opinion columnist covering commodities and environmental, social and governance issues. Previously, she was an associate editor for Reuters Breakingviews, and editor and correspondent for Reuters in Singapore, India, the U.K., Italy and Russia.For more articles like this, please visit us at bloomberg.com/opinionSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
Rio Tinto Ltd said on Tuesday its Tiwai smelter in New Zealand will scale back some operations to ensure the health and safety of its workers and comply with government restrictions on containing the coronavirus. New Zealand is in a four-week lockdown to contain the virus that has infected more than three quarters of a million around the globe. The smelter will scale back part of its aluminium making facilities, and affected workers will be reallocated to other areas of the plant, Rio Tinto Aluminium New Zealand said in a statement.
Rio Tinto said on Thursday it had found several cases where Australia's biggest mining industry body advocated for thermal coal in contravention of 2015 Paris climate goals, as it released a review of its membership in industry groups. Rio Tinto laid out its expectations for the industry associations that it funds last April to ensure that their policy on climate change and energy advocacy was consistent with the miner's own, as well as the Paris Agreement which aims to limit global warming to "well below" 2 degrees Celsius. Where there was a lack of cooperation on advocating for those policies, Rio would reconsider its support and its membership of the groups, it said in an updated review released overnight.
The Zacks Analyst Blog Highlights: Freeport-McMoRan, Teck Resources, Vale, Rio Tinto and Southern Copper
The Anglo-Australian miner said production at its Richards Bay Minerals in South Africa will be halted on Thursday for 21 days, in line with a nationwide lockdown after the number of cases sharply rose. It was too early to predict the impact of the disruption to operations on its production forecast for fiscal 2020, or when things will get back to normal, Rio said in a statement. In Canada, Rio Tinto said it was working to comply with the Quebec government's directive to reduce business activity after the province tightened restrictions, including ordering the closure of all non-essential businesses.
(Bloomberg Opinion) -- Lockdowns imposed to control the coronavirus have battered China’s appetite for everything from coal to copper, pushing stockpiles of raw materials higher and global prices lower. The next crunch could come from supply. The risk of an outbreak is growing in ill-prepared producer countries, with mandatory quarantines and border shutdowns threatening to choke off production.Prices of bulk commodities are already seeing some support from such disruptions, as ports and mines close. Coking coal in particular has outperformed owing in part to Mongolia’s decision in late January to seal its border with China, which cut off a key source of supply. The impact may be only short term. With factory shutdowns spreading through the U.S. and Europe, the reduction in wider metals supply would need to be dramatic to offset crumbling global demand. Upheaval could provide some price support regardless.Appetite for virtually all commodities has slumped since January, when the extent of damage from the novel coronavirus became clear. Even where mills, smelters and factories stayed open, that largely translated into crammed warehouses. China’s industrial production, investment and retail sales for the first two months of the year plunged across the board, with construction particularly weak. China’s economy is now all but certain to contract in the first quarter from a year earlier.With European automakers and other manufacturers shuttering operations, the drop in commodity demand in the first three months is likely to be even worse than during the global financial crisis. Steel demand will fall more than a fifth, copper will slide 14% and aluminum almost a third, analysts at BMO Capital Markets estimate.It hasn’t helped futures prices that the latest wave of closures is coming as we head into the second quarter, usually a peak period for demand. China, by contrast, was worse hit during the quieter Lunar New Year. Copper, a bellwether of confidence in global manufacturing, has tumbled to four-year lows of around $4,800 per metric ton on the London Metal Exchange.Travel and quarantine restrictions have already damaged supply, making it harder for miners to fly employees in and out and impeding projects under construction. Peru’s quarantine has already prompted Anglo American Plc to stop all nonessential work at its $5 billion Quellaveco project and withdraw most of the site’s 10,000 staff and contractors. Canada’s Teck Resources Ltd. has suspended work at its Quebrada Blanca Phase 2 in Chile, while Rio Tinto Group says work has slowed on its underground mine at Oyu Tolgoi in Mongolia.Lockdowns may be even more severe. Copper mines are among the worst affected as Chile and Peru, the world’s top two producers, scramble to contain the virus, prompting Anglo American, Antofagasta and others to send staff home. Chilean state behemoth Codelco will work at reduced capacity for two weeks, while workers at BHP Group’s Escondida, the world’s largest copper mine, threatened action to compel the company to take more preventative steps. The miner said Saturday it would reduce the number of contractors onsite. Analysts at Bank of Nova Scotia estimate a two-week halt in operations in those two countries would amount to 325,000 tons of lost production — roughly 4% of their combined annual output. This serves to underline the geographical concentration of a handful of key materials. Lithium is produced mainly in Chile and Australia, while iron-ore exports are dominated by Australia and Brazil. The price surge after last year’s Vale SA dam disaster shows what a port closure could do to the iron-ore market, though such a move appears unlikely given the huge budget contribution that the material makes to Brazil and Australia.Many producer countries are developing economies and ill-equipped to handle an epidemic that has floored even the world’s richest nations. In Brazil, the response has been patchy at best, with some states taking measures that are increasingly at odds with the federal government. Poorly implemented lockdowns, as seen in the Philippines, could push thousands of casual workers out of cities in search of work in more remote areas — potentially extending the spread.If more drawbridges are raised, expect supplies from explosives and tires to heavy equipment to get blocked, hampering even mining operations that could otherwise keep going. In the meantime, low prices will hurt some higher-cost projects, though rock-bottom prices for oil, a significant input, will cushion the blow. This will affect smaller producers first, given the healthy balance sheets of big miners. Still, operations like Rio’s Pacific Aluminium, or pricey U.S. copper mines, look vulnerable.Demand was the first part of an unprecedented crunch for the global commodities industry. The second act is only beginning. This column does not necessarily reflect the opinion of Bloomberg LP and its owners.Clara Ferreira Marques is a Bloomberg Opinion columnist covering commodities and environmental, social and governance issues. Previously, she was an associate editor for Reuters Breakingviews, and editor and correspondent for Reuters in Singapore, India, the U.K., Italy and Russia.For more articles like this, please visit us at bloomberg.com/opinionSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
(Bloomberg Opinion) -- Oil majors and big miners have been falling over themselves to promise better behavior when it comes to greenhouse gases. A significant number now say they are targeting zero emissions. Unfortunately, not everyone agrees on exactly what that means. It leaves investors clear on good intentions, but far less so on how to price transition risk, compare strategies and judge success.The real trouble sits with the widest and most significant category of emissions — those that don’t come directly from operating a well or mine, but are produced indirectly when oil, gas, iron ore or coal is burned or processed by customers. For outfits like BP Plc and BHP Group, these so-called Scope 3 emissions can add up to as much as 90% of their total footprint. They’re also far harder to control, as they aren’t produced by the reporting companies themselves.Resources giants, even poorly performing oil majors, have the scale and financial clout to manage a transition to a carbon-light economy — should they choose to. The rapid destruction of value in segments of the coal sector has left few in doubt of how quickly they could be left behind if they ignore such downstream emissions. This week's collapse in oil prices is another memento mori for carbon-intensive businesses.That doesn’t mean everyone has embraced the idea of targeting Scope 3 emissions. Rio Tinto Group, for one, has said it can’t set targets for its clients, though it will engage in as yet unspecified projects with the likes of China Baowu Steel Group Corp. BHP will produce numbers later this year. Others, like BP, have promised to eliminate Scope 3 emissions where they’ve drilled the oil, but won’t commit to doing the same if they’re only doing the refining. Spain’s Repsol SA is among the few to be promising an absolute zero target for all three sets of emissions.In this flurry of green activity, what should investors be demanding?The first thing should be transparency. Many of the biggest emitters have yet to make full Scope 3 disclosures, including such pillars of developed-market stock indexes as Exxon Mobil Corp., Anglo American Plc, and Fortescue Metals Group Ltd. At this point, that decision is almost churlish: It isn’t hard for investors to do their own calculations. Those that don’t face up to the reality of decarbonization will increasingly be treated like any other business that’s careless about its medium- and long-term liabilities.A second point is comparability. Although the overwhelming majority of Scope 3 emissions for resources companies come from the processing and combustion of their products, the standard incorporates a range of other activities such as waste disposal, product distribution, and even business travel and staff commuting.To add to that complexity, companies can replace the standardized emissions factors used to produce the figures with bespoke ones if their customers operate particularly efficient plants. Without full transparency about where those savings come in, companies could reduce their footprint by leaning on overly generous assumptions, and claim credit that more rigorous competitors would miss out on.There is also the unsolved question of how to manage double-counting, when, for example, coking coal and iron ore are sold to a producer that will use both in making steel.Investors should demand the means to measure progress, and success. Laying out ambitions for emissions 30 years hence is all but meaningless unless you’re also describing a path to get there. If investors are to take these numbers seriously, they’ll want to see plans for the steps along the way.That won’t be easy. For oil majors, it will require nothing less than a reinvention of their entire businesses, moving into industries that have historically produced lower returns than fossil fuels, as former BP Chief Executive Officer Bob Dudley has pointed out.Mining giants that have depended on revenues from high-volume bulk commodities such as coal and iron ore will have to either push their customers to switch to new technologies such as hydrogen-reduced steel, or depend on less lucrative base metals, specialty commodities and agricultural inputs.Providing too much detail about the road ahead risks disclosing a company’s business strategy, too, or tilting the market. How much of the reductions will come, as with Glencore Plc, from allowing mines and wells to deplete naturally as their reserve base is used up? How much will depend on selling assets, such as BP’s near-20% stake in Rosneft? How much will rely on technology that exists, but is not yet used on a wide scale, like carbon capture and storage?The last point on fund manager wish lists should be consistency. Investors will benchmark talk of long-term ambitions against performance on actual, shorter-term activity.Gabriel Wilson-Otto, head of stewardship, Asia Pacific, at BNP Paribas Asset Management, suggests that will mean keeping an eye on capital spending: Projects that generate downstream emissions decades into the future should be attracting more scrutiny. Similarly, corporate lobbying will be monitored for evidence it is allowing organisations to flash up green ambitions but still campaign against action on climate.None of this should be a burden on good governance. The CDP, a nonprofit research group that pushes for greenhouse disclosure, found in 2014 that the return on investment for companies that do so was 67% higher than for those that didn’t.The winds of decarbonization are blowing through the commodities industry. Companies that don’t bend in the face of these changes will break. To contact the authors of this story: Clara Ferreira Marques at email@example.comDavid Fickling at firstname.lastname@example.orgTo contact the editor responsible for this story: Matthew Brooker at email@example.comThis column does not necessarily reflect the opinion of Bloomberg LP and its owners.Clara Ferreira Marques is a Bloomberg Opinion columnist covering commodities and environmental, social and governance issues. Previously, she was an associate editor for Reuters Breakingviews, and editor and correspondent for Reuters in Singapore, India, the U.K., Italy and Russia.David Fickling is a Bloomberg Opinion columnist covering commodities, as well as industrial and consumer companies. He has been a reporter for Bloomberg News, Dow Jones, the Wall Street Journal, the Financial Times and the Guardian.For more articles like this, please visit us at bloomberg.com/opinionSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
(Bloomberg Opinion) -- China is poised to let some of its biggest state-owned entities help develop a giant West African iron-ore deposit that’s been tantalizingly promising and painfully problematic for two decades. Whatever happens next, this watershed moment for the steelmaking commodity is bad news for big producers, particularly Rio Tinto Group.The State-owned Assets Supervision and Administration Commission is actively pushing forward with the Simandou mine in Guinea, Bloomberg News reported Thursday, citing people familiar with the matter. The project may cost more than $20 billion.Simandou, tucked away in the south of Guinea, has near-mythical status in the industry, having been coveted by everyone from Ivan Glasenberg of Glencore Plc to Andrew Forrest of Fortescue Metals Group Ltd. and the late Roger Agnelli, former head of Vale SA. After 2007 and 2008, when Rio Tinto used Simandou’s promise to ward off BHP Group’s advances, it was heralded as the project that would open up a new, high-quality iron ore frontier in West Africa to rival Australia’s Pilbara. Instead, it’s been caught in years of expropriation rows, corruption investigations and political disputes. Not a ton has been dug up.A lot is still unclear about what Beijing’s blessing would mean in practice for the deposit, divided into four blocks. The first two were handed last year to SMB-Winning, a consortium backed by Chinese and Singaporean companies, while blocks 3 and 4 are held by Rio Tinto and Aluminum Corp. of China, known as Chinalco. In all likelihood, it will involve financing and practical support for the project’s logistics, the lion’s share of the total cost because of its complexity: 650 kilometers (404 miles) of railway, plus tunnels, roads and a port.Approval would be a significant bet on iron ore, and in some ways, a surprising one. Simandou is at least five or six years away from producing anything. It will miss the bulk of China’s latest infrastructure splurge and could well collide with slowing steel demand. Indeed, in 2018, Chinalco passed on the opportunity to buy Rio’s stake.Two years is a long time in commodities markets, though. China, squeezed by the trade war, has put the focus back on self-reliance for key commodities, and even half of Simandou’s deposit could deliver more than 100 million metric tons a year of high-quality ore, roughly 10% of Beijing’s annual imports. That would help buffer China against events such as a supply squeeze in 2019 caused by a disaster at a Vale dam in Brazil, which drove up iron-ore prices. For China, whose seaborne imports total more than 1 billion tons a year, that output crunch may have added roughly $20 billion or more of extra expenses, not far off the cost of Guinean infrastructure.All of this is a headache for the handful of miners that dominate iron ore production, none more so than Rio. It isn’t as if Pilbara will cease to be profitable. Brazil, with higher freight costs, looks more vulnerable on that front.But China’s newfound enthusiasm for Guinea, if confirmed, leaves Rio in an unwelcome quandary: It can’t ignore a project that could flood the market, especially with the high-quality ore that steel producers increasingly favor. Joining in might give it some control over timing, and the ability to blend Simandou ore with its existing output. Yet it will struggle to convince investors, who can see the miner’s technical and political struggles in Mongolia, and recall that it is still involved in an investigation by the U.S. Department of Justice over corruption allegations in Guinea.Then there's the risk that enthusiasm for West Africa could help secure funding for smaller projects, or prompt those already looking at the region, like Fortescue, to invest in destructive volumes.Simandou is still years away at best, and its complex logistics have defeated earlier pretenders. Yet China’s track record in digging up Guinean bauxite suggests it can be done. If nothing else, Beijing has sounded an iron ore warning. To contact the author of this story: Clara Ferreira Marques at firstname.lastname@example.orgTo contact the editor responsible for this story: Matthew Brooker at email@example.comThis column does not necessarily reflect the opinion of Bloomberg LP and its owners.Clara Ferreira Marques is a Bloomberg Opinion columnist covering commodities and environmental, social and governance issues. Previously, she was an associate editor for Reuters Breakingviews, and editor and correspondent for Reuters in Singapore, India, the U.K., Italy and Russia.For more articles like this, please visit us at bloomberg.com/opinionSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
Investors in Rio Tinto Ltd have renewed efforts to force the world's biggest iron ore miner to commit to targets that would scale back emissions of its customers in line with the Paris Agreement on combating climate change. A group of institutional investors represented by Market Forces has updated a resolution to be presented at Rio Tinto's annual general meeting in Brisbane on May 7, the unit of environmental group Friends of the Earth said on Thursday. Shareholders want Rio Tinto to report annually on short-, medium- and long-term targets for its direct and indirect greenhouse gas (GHG) emissions, as well as those of its end customers - known as scope 1, 2 and 3 emissions - and performance against those targets.
It looks like Rio Tinto Group (LON:RIO) is about to go ex-dividend in the next 4 days. This means that investors who...
(Bloomberg Opinion) -- A combination of hefty dividends and contracting output is turning the world’s second-largest miner into the poster child for a $1.5 trillion industry’s growth quandary.Rio Tinto Group announced a record $3.7 billion final dividend Wednesday, adding to $11.9 billion of cash returns already paid in 2019. Yet it produced less iron ore, copper and aluminum, leaving market prices to lift underlying earnings by 18%. Rio’s Pilbara operations stumbled early in the year. Its Mongolian copper mine, a key source of future production and the basis of a greener portfolio, is now not only sorely overdue and over-budget, but also tangled in international tax arbitration. The $86 billion mining giant isn’t alone. High dividend yields and pedestrian output have begun to define resources heavyweights that used to be known for the exact opposite. Diversified groups relied on their varied sources of cash to expand, but large-scale opportunities are scarcer than ever, and portfolios look far less diverse too, once coal and other less appealing assets have been carved off. At Rio, iron ore now accounts for three-quarters of its underlying Ebitda.For investors, it hasn’t been all bad news. Since Chief Executive Officer Jean-Sebastien Jacques took the helm in 2016, Rio’s total return including reinvested dividends adds up to an impressive 112%, outpacing most rivals.Yet much of that is due to generous payouts. For a company that digs stuff up for a living, this may not be sustainable — especially for one that aims to build a portfolio better aligned with a carbon-light global economy. It may also be an indication of just how hard it is to change. Rio paid shareholders in 2019 more than double its capital expenditure budget for the same year.One priority has been copper. Under Jacques, head of that unit until he became CEO, Rio has said it wants to add more of the red metal as its existing mines age, and will look at other green ingredients, those for rechargeable batteries and the like. Yet a unit set up to consider just such deals hasn’t sealed a single one despite considering more than 200 opportunities, and the company has suffered blow after blow in Mongolia. Its Oyu Tolgoi mine in the South Gobi accounts for only a fraction of Rio’s value today, but could dictate the company’s fortunes. So far, it’s mostly an unhelpful headache. The mine, which Rio holds through Canada-listed Turquoise Hill Resources Ltd., is one of the largest copper deposits around, and could produce an annual 550,000 metric tons of copper, almost as much as Rio produced last year, plus 450,000 ounces of gold. In the parlance of big miners, it moves the needle.Unfortunately, it also encapsulates everything that makes such projects so challenging: tough geography, messy local politics and complex geology. The cost of the largest, underground, portion has swelled to as much as $7.2 billion, and could rise again when a final estimate is published later in 2020. First production may now be be 30 months later than predicted. Fears of a cash call have dragged down Turquoise Hill shares.In the latest development, Rio announced last week it would begin arbitration proceedings to solve a tax dispute. Few arbitration deals yield significant victories — ask Barrick Gold Corp. and Antofagasta Plc, which won a $5.8 billion ruling against Pakistan last year — and they tend to irk host governments, so it’s a worrying sign. The risk is that Oyu Tolgoi becomes Rio Tinto’s own version of Freeport-McMoRan Inc.’s Indonesian pride and joy, Grasberg – wonderful in theory, nearly impossible in practice.Rio won’t drop Mongolia, and not just because of Jacques’ own attachment to the project. A copper option, however long-dated, is valuable, even if the company doesn’t yet jump in to buy out Turquoise Hill minority shareholders.But what then? Rio has manageable debt and ample cash — $9.2 billion in free cash flow in 2019, the highest level in almost a decade — and deals look cheaper as shares in copper-heavy Freeport and First Quantum Minerals Ltd. have roughly halved since 2018. Perhaps, though, not cheap enough to warrant wrestling with Freeport’s U.S. liabilities or First Quantum’s Zambian operations.Rio isn’t shrinking quite yet. It has exploration projects, and iron-ore production already did better in the second half, albeit still short of the company’s ultimate target. Yet with Oyu Tolgoi mired in arbitration and geological complexities, and the economy swiftly shifting, it might be time for Rio to consider just how creative it can get.To contact the author of this story: Clara Ferreira Marques at firstname.lastname@example.orgTo contact the editor responsible for this story: Matthew Brooker at email@example.comThis column does not necessarily reflect the opinion of Bloomberg LP and its owners.Clara Ferreira Marques is a Bloomberg Opinion columnist covering commodities and environmental, social and governance issues. Previously, she was an associate editor for Reuters Breakingviews, and editor and correspondent for Reuters in Singapore, India, the U.K., Italy and Russia.For more articles like this, please visit us at bloomberg.com/opinionSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
MELBOURNE/BENGALURU (Reuters) - Rio Tinto warned on Wednesday that the coronavirus outbreak may create challenging conditions over the next six months, with more disruptions to global supply chains and potential delays to projects in Australia. The miner's warning comes on the heels of its best underlying earnings since 2011, buttressed by a sizable jump in iron ore prices last year.
While the prices of most major commodities are wilting in the face of the coronavirus spreading out of China, iron ore is rallying, proving that supply disruptions can overcome the bearish sentiment over the economic fallout of the epidemic. Spot iron ore has rallied 14% since hitting a low of $79.85 a tonne on Feb. 3, closing at $90.85 on Monday, according to commodity price reporting agency Argus. Chinese iron ore futures on the Dalian Commodity Exchange enjoyed their longest winning streak in four years, rising 16.6% from a closing low of 580 yuan ($82.50) a tonne on Feb. 10 to end at 676 yuan on Monday.
(Bloomberg Opinion) -- Sharp falls in Asian markets and U.S. stock futures Monday suggest investors are starting to catch up to the disconnect between the coronavirus’s widening impact and hopes of a V-shaped recovery.It’s a gap that has been particularly visible in metals. China, where much of the economy remains in lockdown, accounts for about half the world’s appetite for materials from iron ore to copper. That makes the sector highly vulnerable to a coronavirus-induced slowdown, and a helpful gauge of how well the reality of economic activity is being reflected in financial markets. The answer? Not enough.While some larger mills and smelters are working, disrupted transport and absent workers mean physical demand is in the doldrums. Domestic inventories of everything from steel to copper are high. Bloomberg Economics calculated last week that the world’s second-largest economy was running at 50-60% of capacity in the week ended Feb. 21. That is better than the week before and could well improve over the coming days. Still, it’s a level that seems hard to square with the way shares in miners such as BHP Group, Rio Tinto Group and others have been trading.Almost all major mining stocks bounced back after February lows, with BHP and peers falling below that only on Monday. They remain well above their troughs last year, when concerns over the U.S-China trade war rattled the market. Even copper futures on the London Metal Exchange, a reflection of confidence in the global economy rather than just physical demand, have rebounded.It’s not that investors are brushing off risk. There’s evidence of nervousness to be found in haven assets like gold, which last week broke through $1,600 an ounce. Yields on long-dated U.S. Treasuries have tumbled. More pessimistic commentary is also emerging from company executives.Investors appear to have been betting on three things. First, that the virus will be contained in the coming weeks. Second, that Beijing will unleash hefty fiscal and monetary stimulus. Finally, that demand impacted by the virus will be deferred, and not simply lost. Unfortunately, none of these things is certain. For metals and the resilient equity valuations of their producers, the coming days will be critical, as it becomes clear just how many workers emerge from quarantine and how much the Chinese government’s push to restart production is paying off. So far, the number of people on any form of transport is still a fraction of where it was a year ago, according to Bloomberg Economics.There are risks even if people do return. It’s much harder for face masks and hand sanitizer to offer protection in construction projects, which may well push back the start of the spring season, hurting steel and ingredients like iron ore. Domestic prices for steel used in manufacturing and building are still at their lowest in almost three years. BHP, which expects Chinese real GDP growth of around 6% for 2020, said last week that it would revise its forecasts lower if construction and manufacturing don’t return to normal in April.So how does that square with what equity investors are pricing in? The hope for a hefty stimulus from Beijing, which underpins much of the equity market’s buoyancy for miners and beyond, seems broadly to match what China has already said and done. There is already monetary easing and other forms of support, from help with social security payments for small companies to busing in workers in some provinces. But it’s still unclear what shape the bulk of the fiscal stimulus will take and how heavy it can be in sectors such as property, where the government remains wary of bubbles. China is also well aware that splurging on debt to get the economy moving will mean pain in the not-too-distant future. That creates plenty of uncertainty.The other two assumptions are even more problematic.Whether China can contain the virus will be hard to tell for some time, not least given Beijing’s changes to the way cases are reported. It’s unclear what will happen once sealed-off areas begin to open, given epidemics can have more than one peak. Mass quarantines at this scale are also untested in the age of supply chains. Assuming everything bounces back swiftly is optimistic. The emergence of substantial clusters outside Hubei and indeed beyond China — in South Korea, Iran and Italy — is worrying.Then there’s demand for everything from washing machines to takeaway coffee and bigger-ticket items like cars, where sales have dropped 92% in the first half of February. It’s unclear how much will be pushed back. The underlying economic uncertainty is greater than during the severe acute respiratory syndrome outbreak in 2003, when growth rebounded quickly.That all makes mining stocks and the wider equity markets look a little lofty. During SARS, Hong Kong’s market fell almost a third from its 2002 high to the trough of 2003. This time, the Hang Seng Index, admittedly with different components, is down just 6% from its pre-virus 2020 high, as of Friday. It may all blow over. For now, the risks are to the downside. To contact the author of this story: Clara Ferreira Marques at firstname.lastname@example.orgTo contact the editor responsible for this story: Matthew Brooker at email@example.comThis column does not necessarily reflect the opinion of Bloomberg LP and its owners.Clara Ferreira Marques is a Bloomberg Opinion columnist covering commodities and environmental, social and governance issues. Previously, she was an associate editor for Reuters Breakingviews, and editor and correspondent for Reuters in Singapore, India, the U.K., Italy and Russia.For more articles like this, please visit us at bloomberg.com/opinionSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
Rio Tinto appoints three women as non-executive directors. Mining group had one of the least gender diverse boardrooms of world’s biggest companies