Mining Giant Rio Tinto plc Creates Big Problems with Lawsuit Against Vale SA
In the wake of just a few days after the Guinean government had taken away vital mining permits once belonging to Vale (NYSE: VALE), Vale SA is now up against even more problems. A lawsuit has now been filed by the Australian miner Rio Tinto (NYSE: RIO) against both Vale and BSG Resources. The lawsuit contends that both Vale and BSG Resources are guilty of collusion in the effort to steal Rio Tinto’s mining concession in Guinea. Prominently called out in the lawsuit is the immense value that Rio Tinto has assigned to the Simandou iron ore deposit in Guinea.
A technical committee has already been set up by the Guinean government to investigate allegations of bribery against BSG Resources. In conjunction with this committee, President Alpha Condé had made a decision to cancel the BS Resources’ rights which was apparently influenced by the publication of a Guinea government report which alleged that BSG Resources were awarded the rights to the portion of prized mining operations through corruption and illegitimate proceedings, including bribery.
BSG Resources sold a 51 percent stake in the Simandou project to Vale in 2010. Therefore, the committee has made recommendations that the Guinean government strip both of the miners, Vale and BSG Resources, of their rights to the prize project. The government of Guinea acted as per the recommendations of the technical committee and canceled BSG Resources and Vale's mining permits. While the committee has not accused Vale of any wrongdoing, Rio Tinto has claimed that the Brazilian mining giant colluded with BSG Resources to commandeer its mining rights.
Rio Tinto previously owned the rights to the Simandou iron ore project up until 2008, at which the point the Guinean government argumentatively granted half of the mining rights to the Simandou deposit to BSG Resources. The decision was made by the then Guinea President Lansana Conte. Rio still controls half of the mining rights to Simandou deposit along with Aluminum Corp of China. And this element is a driving force behind the action Rio is currently taking, seeking compensation from Vale and BSG Resources for the billions of dollars it says it lost because of the actions of the two companies.
Rio Tinto’s new lawsuit creates a brand new problem for Vale SA since Rio is asking for significant compensation. The degree of compensation that Rio is demanding could equate to billions of dollars. This new lawsuit compounds the troubles Vale Sa is already up against, especially considering the already weak iron ore prices they’re currently dealing with, struggling with a drastic drop in profits recorded in the first quarter.
Copper, iron ore surge as Chinese investors unleash demand
The reopening of major industrial economies is sparking a surge across commodities markets from corn to lumber, with tin climbing above $30,000 a tonne for the first time since 2011 on Thursday.
In the wake of mounting evidence of inflation fuelled by higher raw materials prices, investors are also increasingly focused on when the U.S. Federal Reserve might start throttling back its emergency support.
Many banks say the rally has further to run, particularly for copper, which will benefit from rising investment in new energy sectors. Copper is at the highest in a decade, fueling bets it will rally further to take out the record set in February 2011. Steel demand is surging as economies chart a path back to growth just as the world’s biggest miners have been hampered by operational issues, tightening ore supply.
“The long-term prospects for metals prices are ‘too good’ and point to higher prices in the next few years,” said Commerzbank AG analyst Daniel Briesemann. “The decarbonization trends in many countries, which include switching to electric vehicles and expanding wind and solar power, are likely to generate additional demand for metals.”
Trading house Trafigura Group and several major Wall Street banks including Goldman Sachs Group Inc. and Bank of America Corp. expect copper to extend gains.
Copper rose as much as 1.6% to $10,108.50 a ton on the London Metal Exchange before trading at $10,080 as of 4:07 p.m. in London.
Benchmark spot iron ore prices rose to a record, while futures in Singapore and China climbed.
The boom comes as China’s steelmakers keep output rates above 1 billion tons a year, despite a swath of production curbs aimed at reducing carbon emissions and reining in supply. Instead, those measures have boosted steel prices and profitability at mills, allowing them to better accommodate higher iron ore costs.
Spot iron ore with 62% content hit $201.15 a ton on Thursday, according to Mysteel. Futures in Singapore jumped as much as 5.1% to $196.40 a ton, the highest since contracts were launched in 2013. In Dalian, prices closed 8.8% higher.
Erik Hedborg, Principal Analyst, Steel at CRU Group commented: “Recent production cuts in Tangshan have boosted demand for higher-quality ore and prompted mills to build iron ore inventories as their margins are on the rise. Iron ore producers are enjoying exceptionally high margins as well, around two thirds of seaborne supply only require prices of $50 /dmt to break even.”
Still, some analysts including Commerzbank’s Briesemann expect a short-term correction as metals become detached from fundamentals. There’s also a risk that China could engage in policies that may cool demand for iron ore and copper.
The metals rally has boosted concerns about short-term Chinese demand. Some manufacturers and end-users have been slowing production or pushing back delivery times after costs surged, while weaker-than-expected domestic consumption has opened the arbitrage window for exports.
Tin climbed as much as 2% to $30,280 a ton on the LME, boosted by rising orders for the soldering metal. Tin is at the highest since May 2011, with a 48% gain this year making it the best performing metal on the LME.