Analysts say Rio could look for a trophy producer such as Anglo American's (OTCPK:AAUKF, OTCPK:AAUKY) De Beers unit, but Anglo sees diamonds as a core part of its future; Rio could pursue Anglo outright, but that would involve taking on many mines it would not want.
Rio tried last year to by the 40% in Canada's Diavik mine from Dominion Diamond (NYSE:DDC) that it does not already own, but the deal was rejected internally before reaching the board level; it also could try to buy the company outright.
Another option could be to buy Mountain Province Diamonds’ (NYSEMKT:MDM) 49% stake in Canada's Gahcho Kue mine; otherwise, a remaining handful of smaller producers such as Petra Diamonds (OTC:PDMDF), Lucara Diamond (OTCPK:LUCRF) and Gem Diamonds (OTC:GMDMF) likely would not make a material impact in Rio’s business.
Even if Rio resorts to exploration, new deposits are so hard to find that most of the industry, which has spent $7B in exploration since 2000, has all but given up.
South Africa's mining industry is at risk of collapse due to political unrest and labor instability which have negatively impacted investment into the country, Sibanye Gold (SBGL +1.2%) CEO Neal Froneman tells Reuters.
"We sit on a knife edge as an industry. It could well collapse, and that means it's unlikely that Africa's potential will be realized because resources will be sterilized," the CEO says at the Investing in African Mining seminar in London.
South Africa's mining sector, which accounts for ~7% of GDP, opposes the introduction of regulations and laws that could see the powers of the mining minister increase and black ownership commitments of companies rise.
Ratings agencies Fitch and Moody's on Friday kept their ratings on South Africa unchanged but Fitch cut its outlook for the economy to negative, citing concerns over political risk and low growth.
Anglo American (OTCPK:AAUKF, OTCPK:AAUKY) says operations at its Los Bronces copper mine in Chile are returning to normal after it halted activities and evacuated 1,500 employees there on Wednesday when protesters seized installations.
Anglo says the protesters have been removed from the mine and security has been re-established.
Mine workers in Chile, the world's top producer of copper, have been striking recently to protest company cuts following the decline in metal prices.
Global copper markets will be oversupplied for at least two years, according to executives at some of the world's top copper producers, casting doubt on the chances of a prolonged rally in prices.
The cautious outlook comes after benchmark copper prices last week recorded their biggest weekly gain since 2011, largely fueled by Pres.-elect Trump's promises of infrastructure spending.
"In 2017, it will still be a relatively oversupplied market. In 2018 it will not be better than 2017," says a VP at Jiangxi Copper, China's largest copper producer; he also describes the market's recent moves as "irrational."
The founder and president of Maike Metals Group, one of China's top metals traders, says China's government needs to control "overspeculation" in the local futures market, hit by volatile trading over the last week as it was whipsawed by speculative cash.
The price of iron ore jumps 7.4% to $79.70/metric ton, marking its highest level since October 2014, on expectations of better than expected demand in the U.S. and China as well a slower than expected iron ore supply growth in recent months.
Iron ore prices have surged 18% since the Trump election victory; other commodities such as copper also have rallied due to expectations that Trump will aim to fulfill his promise of spending more on U.S. infrastructure.
But the rise may be overdone, according to Capital Economics Ltd., which expects iron ore to face growing pressure on rising supply from Australia and Brazil as well as headwinds to demand in China.
Anglo, which wants to focus on diamonds, platinum and copper, is looking at packaging up its non-core thermal coal and iron ore assets in South Africa, according to the report.
The spinoff reportedly would include Anglo’s 70% stake in Kumba Iron Ore and a string of mines providing thermal coal for export and the domestic market, but is unlikely to include its 40% stake in South Africa Manganese or its Amplats (OTCPK:AGPPY) platinum arm, where the company sees an opportunity to become a global champion for the metal.
Anglo says Q3 production of diamonds, its largest underlying earnings driver in H1, rose 4% to 6.3M carats compared to a year ago, when its majority owned De Beers diamond unit cut output in response to weak market conditions.
Q3 production of iron ore output, Anglo's second largest underlying earnings driver in H1, jumped 14% Y/Y to 16.3M tons following the restructuring of the Sishen mine in South Africa and the ramp up of its Minas Rios mine in Brazil.
Q3 copper production fell 9% to 139,800 metric tons due to problems at its Los Bronces mine in Chile, which was affected by heavy snowfall and a strike.
Q3 platinum production rose 1% to 619K oz.; nickel production soared 66% to 11.3K metric tons following the successful completion of the Barro Alto furnace rebuilds in 2015.
Anglo maintains its full-year output guidance across its platinum, copper and nickel divisions, and expects iron ore production from its Kolomela mine to slightly exceed its full-year guidance of 12M metric tons.
Iron ore heavyweights Rio Tinto (RIO -3.4%) and BHP Billiton (BHP -3.5%) are sharply lower following the news that Chinese exports fell by a more than expected 10% and imports dropped by a more than anticipated 1.9%.
Also, Rio and BHP are downgraded to Sell from Neutral at Citigroup, which cites the impact of slack China commodities demand after the country's monetary stimulus and supply restrictions have driven a surge in bulk prices in 2016.
Anglo American (OTCPK:AAUKF, OTCPK:AAUKY) shares rose above £10 in London trading for the first time in more than a year, as the rebound in commodity prices and a flurry of asset sales and cost cuts that lowered its debt have brought the miner back from the brink of disaster.
The stock hit a record-low 215.55 pence in January but has more than tripled this year, for the best performance on the U.K.’s FTSE 100.
“Further asset sales and meaningful consensus mark-to-market upgrades should support the share price in the near term,” Barclays says.
The P-E consortium headed by Apollo Global Management (NYSE:APO) is the clear front-runner to purchase Anglo American's (OTCPK:AAUKF, OTCPK:AAUKY) Queensland metallurgical coal assets and now is in exclusive talks, Australian Financial Review reports.
APO reportedly is working in a consortium with Pennsylvania coal exporter Xcoal Energy Resources, the largest U.S. exporter of coal.
A BHP Billiton (NYSE:BHP) alliance with Mitsubishi and U.S.-based Coronado Coal have not yet pulled out of the race for the assets, according to the report.
"There is stability in demand in China, and most of the new large volume supply has already come on to the market," Power tells Financial Times, adding that some forecasters are overestimating the speed at which new supply would materialize.
The CEO says long-term iron ore demand and price would be determined by Chinese economic policy and the rate of growth in emerging economies across Asia, and that “the demand side will be much more important than new supply.”