205 (29.11.18)


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NEWS WRAP

Good Week for BHP, which has settled a dispute with the Australian Tax Office over its Singapore trading business, paying A$529m ($386m), “with no admission of tax avoidance”. It was carrying a provision for the settlement of $610m, journalists at Fairfax spotted. It is “critical” that exporters pay “the correct tax”, the ATO said.

Bad Week for diamond dealer Lev Leviev, who is feeling the pressure of an investigation by Israeli police. Accused of operating a smuggling ring, a lengthening list of his relatives have been arrested, whilst a bookkeeper at one of his businesses jumped out of a window at the Israel Diamond Exchange earlier this week.

Sam Walsh: 2020 Vision

During a 4-hour press briefing in Sydney, Rio Tinto's former head of iron ore Andrew Harding was battered by questions in 2015 about the group's China forecasts.
Chinese steel output was due to rise from 823m tonnes to 1bn by 2030, Rio predicted, justifying the strategy of CEO Sam Walsh, who was pushing iron ore volumes higher even as prices tanked. With 1.5 tonnes of ore needed to make 1 tonne of steel, and with China due to build the equivalent of ten New York cities over the coming decade, the world was calling for more tonnage.
Rio's numbers were “widely ridiculed”, wrote the Sydney Morning Herald. By putting a “lazy” and “beautifully round” figure on Chinese growth, mining groups were dressing-up as growth stocks even as China faltered, wrote Fairfax. Rather than growing, China's steel sector had already peaked, Goldman Sachs told clients.
Three years on and Rio's forecast is about to arrive a decade early. Despite US steel tariffs and a clean air crackdown, China's steel output has hit new record highs in eight of the last nine months, reaching 82.55m tonnes in October, according to government figures, up 6 to 7 per cent on 2017. Flat car sales in China could dent growth, but at current rates the billion tonne threshold will be easily met in 2019, or 2020 at the latest, and could soon look conservative.
Rio upped its iron ore output from 259m to 330m tonnes under Sam Walsh, who stepped down in 2016. Including his prior role as head of Rio's iron ore division and Walsh almost tripled production from under 130m tonnes, whilst investing heavily in driverless trucks and trains.
Rio's new CEO Jean-Sebastien Jacques is now enjoying the benefits, scooping-up $7.5bn of free cash flow in iron ore last year and pushing the button on a new $2.6bn mine this week. “If I look at the order books I have in bauxite, in aluminium, in iron ore, copper, they are full,” Jacques has told Bloomberg. “The Chinese machine is still working very well.”

John Paulson’s Spotlight

New York-based hedge fund Paulson & Co., led by fund manager John Paulson, who famously predicted America’s mortgage crisis in 2008, has continued to up pressure on gold mining stocks, calling out directors who hold too few shares in the companies they profess to lead in a new report published this week.
Looking at director pay, share ownership and five-year returns, the report singled-out Eric Sprott, chairman of gold miner Kirkland Lake Gold, and Pierre Lassonde, chairman of royalty group Franco-Nevada, as having the best pay-to-share ownership ratios, with both companies outdoing the gold price over five years.
But at the other end of the spectrum, insiders at Kinross, Yamana and Alamos all ranked poorly, with high pay, low insider ownership and woeful long-term performance. The report was published by the “Shareholders' Gold Council”, a new association led by Paulson, representing investors disillusioned with returns in the gold mining industry.

Maverix: Record Revenue

Competition in the royalty and streaming sector is intense, but after a nonstop run of deals, Vancouver-based Maverix Metals has pushed revenue and its share price to record highs.
Launched in 2016 and led by chief executive Dan O'Flaherty, 36, a former banker who worked on the industry’s first streaming deals, Maverix has consolidated more than 50 royalties in the last two years, doing deals with Pan American Silver, South African producer Gold Fields and gold giant Newmont, rapidly building a C$528m ($397m) market cap.
Quarterly revenue has hit $9.8m, Maverix announced last week, whilst its share price has risen from C$1.00 to C$2.45. Maverix has been “flawlessly executed in a very competitive environment”, one Toronto-based banker says. “In the end, one of the other royalty companies is going to buy it.”

 

QUOTE OF THE WEEK

“The two big ones decided to merge but what about the smaller ones.”

Egyptian billionaire Naguib Sawiris, the backer behind gold miner La Mancha, talking to Reuters after Barrick Gold’s merger with Randgold


CONTENTS

“Munch”: Banks Eye $230bn of Mining Deals

Lifting ideas from the fast food industry, bankers have a plan that could eat $230bn of mining assets for breakfast

24 Hours in China

A daily snapshot of how life has changed in the 20 years since China was invited to join the World Trade Organisation

Financing Lessons from the Oil Industry

The man behind Serbia’s Timok discovery copied his model from oil rigs, he says over lunch in London

20 Critical Trade Routes

Used in cars exhausts and hydrogen fuel cells, platinum production is shifting to South Africa’s Limpopo province, but there is only one smelter