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South Africa: Rio Tinto 'Views SA As Prospect'
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Business Day (Johannesburg)
11 September 2007
Posted to the web 11 September 2007
Charlotte Mathews
Johannesburg
GLOBAL resources group Rio Tinto saw additional opportunities for exploration in SA and was continuing to invest in the country, CE Tom Albanese said at the weekend.
Albanese, in SA for one of the group's top-level strategy sessions that take place in various countries where it has operations, said in an interview he did not agree with the view in some quarters that SA was a mature mining area.
Rio Tinto had operated in southern Africa for decades, and had established a good local reputation and leadership in areas of sustainable development and community development, he said.
The group was busy with empowerment transactions at its 50%-held Richards Bay Minerals and 57%-held Palabora Mining. It was also investigating the engineering and commercial viability of its potential coal project at Chapudi in Limpopo and, when it concluded its deal to acquire aluminium producer Alcan, it said it would also have the Coega smelter project in SA.
Rio Tinto was also rumoured to be one of the bidders for De Beers' historic Cullinan diamond mine. Asked if it were, Albanese said: "I think it is fair to say because we are a global player in the diamond business that we would keep our eyes open for any projects and look for opportunities. Generally we would stick to larger projects as they fit better within Rio Tinto."
Albanese said the outlook for the diamond industry was positive, with good growth in demand. Although the European, U.S. and Japanese markets were mature, it was becoming clear that Chinese affluence was growing and they represented a future bloc of consumers.
On the supply side, it was getting harder to make new diamond discoveries and Rio Tinto did not expect diamond supply to catch up with trends in demand. That supported its efforts to continue exploring for diamonds. It was exploring in India, but had not yet had much success in southern Africa.
Doubts about Rio Tinto's commitment to SA arose when the group, together with Palamin's other major shareholder, Anglo American, decided to raise external finance three years ago rather than make shareholder loans when Palamin's move to underground mining from open-pit operations incurred heavy debt.
The banks financing Palamin required a hedge on its copper production, which was done at prices considerably below the copper price of the past two years. In the previous financial year the cost of selling copper below spot price was R1bn and in the first six months of this year it was almost R600m.
Albanese said the decision to raise bank finance was based on the fact that Rio Tinto did not own 100% of Palamin.
"As a general rule, Rio Tinto does not embark on a hedge transaction, but when we had complex ownership structures, with third parties and public shareholders, it was most suited for project financing and we had to put in the hedge to support it," he said. But Rio Tinto had given other assistance to Palamin in the form of managerial and technical support, he said, and he was pleased to see the company in a profitable position.
The group's caution in putting in shareholder loans was not related to the pending empowerment transaction at Palamin, he said. The first priority was to improve the prospects of the business, and now that it was viable, Palamin was seeking an empowerment partnership.
Asked about continued investment in the underground operations, Albanese said Palamin was exploring the geology below the mine to determine if there were further resources at depth and if they would be economically and technically feasible to exploit. "It is still very early days," he said.
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Albanese will meet senior government officials and stakeholders.
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