Rio Tinto’s year of living under the predatory shadow of Ivan Glasenberg has openedwith a set of production numbersthat confirm the quality of its recovery of competence, and illustrate the dimension of the challenge ahead should Glencore’s man make good on the takeover pitch so firmly anticipated by the London market.
Rio Tinto has confidence in the growth plans of its Pilbara iron ore asset. Photo: Reuters
As much asRio boss Sam Walsh might want it otherwise, his every move through 2015 simply has to be received through the prism of the aspiration Glasenberg revealed last July. It was then, in a phone call apparently bubbling with distilled excitement, Glasenberg invited Rio’s chairman, Jan du Plessis, to join him in creating the world’s biggest mining company.
In early August du Plessis politely declined an offer that finally became public in October. And Glasenberg’s subsequent denial of any active interest in Rio meant under British takeovers rules Glencore cannot pursue the matter until April 10.
There is a fair bank of opinion that says Glasenberg will come back at Rio despite the fact that the new year equity markets have made the task of running an aggressive, all-scrip bid a more expensive task.
With energy and copper prices on the slide, investors have stripped nearly 10per cent of Glencore’s market capitalisation so far this year while trimming a relatively modest 3.6per cent from Rio’s.
But this divergence in valuation has been pretty much the story since Ivan’s call to Jan became public. Since July last, Glencore’s price has fallen 25per cent and Rio’s has shed 15per cent.
Just last week Rio’s Walsh urged his people to avoid obvious external distractions, to focus only on the tasks at hand – driving productivity, cutting costs, working Rio’s operations for cash and keeping the business safe.
It is hard to believe Walsh did not have Glasenberg at front of mind when he penned: “2015 will be another big year for Rio Tinto and we must not get distracted. Our time is best spent on setting our own course and staying true to it. Don’t forget, no one knows our company like we do and I am confident we will continue to deliver stunning results.
“We have made great inroads, and we will continue the momentum by staying very focused on achieving world-class delivery and making 2015 our safest year ever. I know we can do it. We are strong, resilient and resourceful and we thrive when the going gets tough.”
Now, just as they advertise Rio’s return to excellence, the 2014 full year production numbers also amplify the essential disconcert between the Glencore and Rio view on how to manage the inevitable cycles of the minerals and energy business.
Glasenberg, very famously, reckons big commodity producers should manage supply to sustain peak pricing and margin for as long as possible. He has loudly accused big iron ore producers of blowing the boom by swamping the market with new, ever cheaper supply.
CHASING DOWN THE PRICE
Glasenberg’s view is that iron ore’s big fellas should not have chased the price down by sending ever more tonnes to the system. The simple fact that iron ore prices fell by 50per cent last year seems to reinforce this view.
That Glencore did exactly the same thing in coal through 2013-14 would, on the other hand, suggest sustaining efficiency in a time of surplus is a more complex formula than Glasenberg might acknowledge.
Of course, as if to demonstrate the error of everyone’s ways, Glencore stopped coalmining in Australia over Christmas in an attempt to contain the supply-side surplus that has so withered coal prices.
Rio, for its part, says every cent of the $US49billion spent on growing its Pilbara system over the past five years has done a lot more than simply introduce massive new volume into the global seaborne system.
With Tuesday’s confirmation it had crossed the threshold of 300million tonnes of annual production in 2014, Rio reiterated plans to deliver 330million tonnes of Pilbara product to market by this year’s end while embedding the potential to move to 360 million tonnes a year promptly after that. The logistical infrastructure for 330 million tonnes is already in place and the bits and pieces needed to get to 360 million tonnes capacity are 80per cent complete.
First published in the Australian Financial Review
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