Report: Rio Tinto ready to talk M&A deals
The world’s second largest mining company is getting back in the saddle again.
Rio Tinto indicated at a recent analyst meeting that it is ready to consider mergers and acquisitions again, said a Morgan Stanley report, but only if it can secure the right asset at the correct valuation and win investor support. With the mining sector hovering at the bottom of the cycle, the time could be now for Rio to pull the trigger.
The company has been linked with several potential suitors such as Freeport-McMoRan Inc., Anglo American Plc and Glencore. CEO Sam Walsh has repeatedly said his company is neither interested in acquisitions nor has any short term plans of merging with anyone.
“If they can buy tier-one assets at valuations that are closer to the bottom of the cycle, then that’s not a stupid thing to do,” said Jason Beddow, chief executive officer of Argo Investments. “As asset valuations get pushed lower, larger producers may be changing their attitude toward deals.”
Mining deals fell to $51.3 billion in 2014, the lowest total in 10 years, according to Bloomberg.
Still, Rio Tinto doesn’t have the best deal-making history, suffering from the $38 billion purchase of Alcan in 2007 -- which resulted in $8.9 billion write-downs -- and its dreadful coal deal in Mozambique. However, the company is in the right place to make a deal.
After reducing its project budget to the lowest since 2010, cut spending and complete a $ 2 billion share buyback, investors may accept acquisitions, according to Beddow.
“They may need to consider that this could be a better use of capital than just buying back shares.”
An acquisition would be Rio’s first since 2012.
Vale invests $150mn to extend life of Manitoba operations
Vale has announced a $150mn CAD investment to extend current mining activities in Thompson, Manitoba by 10 years while aggressive exploration drilling of known orebodies holds the promise of mining well past 2040.
Global energy transition is boosting the market for nickel
The Thompson Mine Expansion is a two-phase project. The announcement represents Phase 1 and includes critical infrastructure such as new ventilation raises and fans, increased backfill capacity and additional power distribution. The changes are forecast to improve current production by 30%.
“This is the largest single investment we have made in our Thompson operations in the past two decades,” said Mark Travers, Executive Vice-President for Base Metals with Vale. “It is significant news for our employees, for the Thompson community and for the Province of Manitoba.
“The global movement to electric vehicles, renewable energies and carbon reduction has shone a welcome spotlight on nickel – positioning the metal we mine as a key contributor to a greener future and boosting world demand. We are proud that Thompson can be part of that future and part of the low carbon solution.”
Vale continues drilling program at Manitoba
Coupled with today’s announcement, Vale is continuing an extensive drilling program to further define known orebodies and search for new mineralization.
“This $150mn investment is just one part of our ambitious Thompson turnaround story. It is an indicator of our confidence in a long future for the Thompson operations,” added Dino Otranto, Chief Operating Officer for Vale’s North Atlantic Base Metals operations.
“Active collaboration between our design team, technical services, USW Local 6166, and our entire Thompson workforce has delivered a safe, efficient and fit-for-purpose plan that will enable us to extract the Thompson nickel resources for many years to come.”
The Thompson orebody was first discovered in 1956 by Vale (then known as Inco) following the adoption of new exploration technology and the largest exploration program to-date in the company’s history. Mining of the Thompson orebody began in 1961.
“We see the lighting of a path forward to a sustainable and prosperous future for Vale Base Metals in Manitoba,” said Gary Annett, General Manager of Vale’s Manitoba Operations.