From a long and flattering piece on RIO today at the AFR:
Deutsche Bank research analyst Paul Young argues that it probably takes five years to properly judge a turnaround. But he says the signs are promising. Young believes the iron ore strategy has been “spot on” and says Walsh deserves particular credit for fixing aluminium.
Unprompted, Young says he wants to make a point about Glencore. In particular, Glasenberg’s criticism of BHP and Rio for “killing the super-cycle” by ramping up iron ore supply. “What nobody in the media writes about is that for years Glencore have been flooding the market with [thermal] coal. That’s had a huge impact on price. Yet there is all this focus on what is happening in iron ore. It’s very hard to understand.”
Does he agree in the logic of putting the two companies together to create a mega-miner with market-leading positions in iron ore, copper, nickel, zinc and coal? “No, not really.”
Young points out Rio owns several long-life, low-cost tier 1 assets such as its Pilbara mines and its 30 per cent stake in the huge Escondida copper mine in Chile. On the other hand, Glencore mostly holds lower-quality tier 2 assets. Critically, the Swiss group has no iron ore. Rio’s Pilbara operations represent the best mining business in the world. “There appears to be a lot more in it for Glencore,” says Young.
Exactly right. Glencore is massively leveraged and overly exposed to coal, the wrong coal, and wants to swap that out for some tier one assets in other commodities. It’s a high risk firm’s shot at a grand bargain with its maker.
RIO is right to say no. China will say no anyway.
