Hostility and Hope for Miners

The boss of Glencore flags the low levels of metals inventories, Barrick goes hostile on Newmont, there is increased hope for iron-ore development in Guinea, and Vale's executives fall on their swords.

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Although metals prices were lacklustre last week, the billionaire CEO of Glencore, Ivan Glasenberg, remains optimistic about market conditions. In a statement after the company's financial results, Mr Glasenberg stressed that metals stockpiles were shrinking, noting the record lows for many metals. Zinc, he said was at a record low of eight days' supply, and there was only 13 days of copper supply in inventory, with barely 34 days for nickel. The low supplies of metal were also flagged last week by US miner Freeport-McMoran.

Last week started with an all-share, hostile, US$18 billion bid from Canada's Barrick Gold Corp. for Newmont Mining Corp. The latter's CEO, Gary Goldberg, had recently scorned a potential tie-up, and described a potential takeover as a "desperate" and "bizarre" attempt to disrupt Newmont's pending US$10 billion deal with Goldcorp Inc.

In 2014, Newmont had terminated previous talks with Barrick over a possible merger, and Mr Goldberg last week maintained that a joint venture in Nevada — long considered a possibility by both companies — is still the best route for Newmont (along with an ongoing merger with Goldcorp). For his part, Barrick's CEO, Mark Bristow, said the proposed merger, which follows the miner's end-2018 US$6 billion takeover of Randgold Resources Ltd, could unlock annual pre-tax synergies of US$750 million, particularly from savings at the two companies' assets in Nevada.

Mr Bristow said that Barrick's offer (2.5694 shares per Newmont share) would result in an estimated 14% uplift in Newmont's net asset value per share. He added that the combination of Barrick and Newmont "will create what is clearly the world's best gold company, with the largest portfolio of tier one gold assets and the highest level of free cash flow to drive future growth and support sustainable shareholder returns".

The week ended with the departure of several senior executives at Vale SA, including CEO Fabio Schvartsman. The men have resigned after a request by the Brazilian authorities following the late-January rupture of a tailings dam at the company's Feijao iron ore mine. Moody's downgraded the ratings of Vale's senior unsecured notes from Baa3 to Ba1 (effectively 'junk' status), with a negative outlook.

According to S&P Global Market Intelligence, the dam failure added US$15/t to spot prices for 62% Fe ore. However, after peaking at over US$94/t, the benchmark price has retreated for three consecutive weeks, closing on Friday in London at US$84.6/t. Meanwhile, the removal of 65% Fe material from Vale's system is set to leave the market in deficit of 29 Mt in 2019, compared with S&P Global's earlier expectation of a seaborne market surplus of around 11 Mt.

In another important development last week for the iron ore sector, Beny Steinmetz's BSG Resources Ltd is to abandon the Simandou iron ore project in Guinea. The government had stripped the company of its rights to the project after investigating mining contracts signed before 2011, particularly how BSG secured the rights to the project in 2008. The two sides agreed to withdraw outstanding actions related to the dispute.

As part of the deal, a new group of investors, including Mr Steinmetz, will develop the Zogota iron ore deposit. Although considerably smaller than Simandou, production could be exported along a shorter, cheaper, route through Liberia. Mines Minister Abdoulaye Magassouba said "We are pleased there's been an amicable resolution of the dispute with BSG, particularly since Guinea will recuperate the world-class deposit of Simandou's blocks 1 and 2".

Rio Tinto holds a 45% stake in blocks 3 and 4 of Simandou but continues to face legal challenges and regulatory investigations in connection with US$10.5 million in payments made to a consultant providing 'advisory services' on Simandou. Separately, the company last week announced forecast-beating results for 2018, and returned a record US$13.5 billion to shareholders.

Apart from iron ore's 2.5% retreat last week, markets were lacklustre for the other major metals, with all trading sideways. Aluminium was 0.3% lower at US$1,906/t, gold and nickel fell 0.2% to US$1,329/oz and US$12,955/t, respectively, and copper and zinc were affectively unchanged at US$6,478/t and US$2,714/t, respectively. 

Chris Hinde

Chief Commentator, Mining Beacon

Previously editorial director of Mining Journal, and more recently head of S&P Global Market Intelligence's metals and mining team, Chris is now Mining Beacon's editor-in-chief and lead commentator. He posts two blogs every week, one on Monday reviewing market conditions over the prior week, and a second on Thursday looking at issues on the global mining scene. There is also a quarterly blog on business opportunities in the sector.