Iron ore prices have tumbled 40 per cent this year to under $80 per tonne, knocking $10.6bn off Rio Tinto’s market cap. Valued at $91bn, the group is increasingly within reach of Glencore, valued at $69bn, up 4 per cent this year. 

Iron ore prices have tumbled 40 per cent this year to under $80 per tonne, knocking $10.6bn off Rio Tinto’s market cap. Valued at $91bn, the group is increasingly within reach of Glencore, valued at $69bn, up 4 per cent this year. 

Glasenberg Slams Simandou in Chase for Rio Tinto

Issue 101, October 2014

Rio Tinto’s Simandou project in Guinea is unlikely to hit production given the state of the iron ore market, Glencore’s chief executive Ivan Glasenberg said this week, ramping up pressure on Rio Tinto’s board. 

“Is Guinea going to have Simandou developed at current prices?” he asked an Africa summit at Claridges in London this week. “It’s going to be difficult. It’s a project that’s going to cost in excess of $25bn.”

Simandou is emerging as valuable currency in Glencore’s bid to swallow Rio Tinto. No talks are underway between the two companies, but Glencore is thought to be holding meetings with Rio’s largest investor, China’s state-owned Chinalco.

Chinalco owns 9.8 per cent of Rio and 47 per cent of Simandou, but has been frustrated by slow progress at the project, owned by Rio for 17 years. Glasenberg’s comments are a personal jab at Rio Tinto’s chief executive Sam Walsh, personally involved in Simandou as the group’s former head of iron ore, but also nod to tensions between Rio and Chinalco.

A pledge to sell Simandou to Chinalco, which has also coveted Rio’s Oyu Tolgoi copper mine in Mongolia, would allow Glencore to win over Rio’s largest shareholder, return capital to investors and ease or waive Chinese competition concerns. Losing Simandou, a blockbuster greenfield project, would be “no heartbreak” for Glasenberg, according to Bernstein analyst Paul Gait.

Glasenberg telephoned Rio’s chairman Jan du Plessis in July to explore an all-paper merger, it emerged this week, forcing statements from Rio and Glencore, confirming the approach had been rebuffed. The news restricts Glencore from bidding for Rio in the next 6 months, but also mounts pressure on Rio to quickly prove its strategy of upping iron ore output, even as prices tumble.

“The pressure is on Rio now,” said Jefferies analyst, Chris LaFemina. “If Rio management does not deliver material capital returns to shareholders, as promised, or if the iron ore price sharply falls next year, Rio could become much more vulnerable.” 

“The pressure is on Rio now.”

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