There was a lot of mining news in the papers this morning. First up is the retirement of Sam Walsh from Rio Tinto. He’s being replaced by Jean-Sebastien Jacques, who moves up to the top job having run Rio’s copper and coal division. Views are that the appointment may herald a return to deal making by Rio after Sam’s rather cautious approach. Having said that, given all the appalling write-downs the company had to make, Sam’s reticence was understandable. Also, Jacques is coming in at a much better time in the cycle. What is clear from the work that Jacques has done in getting Oyu Tolgoi moving, upping the profitability of the copper business and his willingness to divest coal and copper assets, is that he is a ‘can do’ kind of guy. This could be an interesting few years for Rio and I hope that it will go on a massive M&A and disposal spree. If Jean-Sebastien Jacques is reading this, he should know that I can help. My number is: +44 20 3440 6817. Feel free to give me a bell!
Next is Sirius Minerals. Its share price has fallen off the proverbial cliff after the announcement that the York Potash Project will need £2.4bn in financing. This is certainly a problem for all those retired couples living in Scarborough and Whitby that are massively long in Sirius Minerals’ stock, but these project costs are hardly a surprise. Quite why all these so-called investment professionals marked the shares down on an announcement they all knew was going to be made is baffling.
The investment community has got this project wrong consistently while the pensioners have got it right. I’ve been told by fund managers that there is no market for polyhalite (although signed off-take agreements clearly suggest there is), that it would never get permitted as it was in a national park (it did), that it was technically too difficult (yes, it’s costly, but building deep mines and long tunnels isn’t exactly an unheard of skill in the UK) and that it would never be financed. Well, according to The Times this morning, the company says the project will make a net contribution of £2.3bn to UK GDP, will employ 1,000 people directly (and a further 1,500 indirectly) and is “the biggest private investment project in the north of England by a billion miles.” In my opinion, there’s a lot of interest in seeing this get built and the management team is going to have great success in front of the UK investment funds. Also, it’s in Yorkshire and we don’t do negativism in; it was the cradle of the Industrial Revolution, so we know how to get things done.
Finally, the move in gold prices is being picked up on. The lack of a second interest rate rise by the Fed was entirely predictable (it’ll probably have to cut if anything), so the gold price went up and thus so did Randgold and Fresnillo. There is a definite pick-up in interest from the generalist funds for the first time in years. The rally is being seen in established market names with production. This is always where the rallies start, and it is the gold stocks that are leading the way. Generalists are still a long way away from investing further down the line to pre-production or development names, but, don’t worry, their time will come.