RIO/CAN, ZFX/OXR.

We can expect to hear a lot more about the future of Rio Tinto’s empire this week.

Last week Rio Tinto’s London shareholders were told of the determination of the board and management to remain independent (see below) and on Friday Coal and Allied, 75.6% owned by Rio, revealed hints of an ambitious $5 billion plan to expand coal output in NSW by more than double in the next few years.

This week ERA, the uranium miner, has its AGM in Darwin and we can expect more details about its future and drilling around the existing mine which has found more uranium ore with good grades.

And on Thursday the Australian shareholders of Rio meet in Brisbane and will no doubt hear a repeat of the London defence, with a local flavour.

But the truth of the matter is that Rio’s future is in Australia, not in far away London with its dearth of mineral prospects.

London is where Chinalco and its American mate, Alcoa raided to build up a 9% stake in Rio; Australia is where the booming iron ore industry is being driven from and the reason why BHP Billiton is trying to take over Rio.

Raiding in Australia would have been impossible without disturbing the share price and causing problems with the Federal Government.

Rio chairman Paul Skinner will have a similar message to the one he delivered in London.

He said the company will continue to resist BHP Billiton’s hostile bid because it does not represent good value.

Mr Skinner told the meeting last week the mining giant was thriving and had a bright future.

“We shall therefore continue on our course of creating value for shareholders and the board will not engage in discussion with any party whose proposals do not fully value Rio Tinto,” he said.

“This would need to reflect a significant premium to what we can achieve ourselves - so far we have not seen that.

“In the meantime the momentum in our business continues to develop strongly.”

The meeting came amid rumours that BHP Billiton could launch an improved offer for its Anglo-Australian mining rival.

Those stories disappeared on Friday (the reports came from London which is notorious for being the source of these sorts of ’stories’).

Rio shares fell $6.06 on Friday in Australia to $139.94 when the BHP rumour was put to bed. BHP fell 97c to $42.42. (Both thought they might get a kick along this week from instability in the Chilean copper industry, if it doesn’t spread to their Escondida mine). The 3.4 BHP share offer is worth $144.23.

Friday in Sydney investors in Coal and Allied heard for the first time of the company’s ambitious expansion plans. (Sad though that it takes a vigorous takeover offer to force this information out of a company like Rio.)

Coal and Allied Chairman Chris Renwick said the company envisaged doubling the company’s annual coal output to 58 million tonnes by 2015.

“We envisage that Coal & Allied could potentially more than double its overall production from our existing portfolio of coal and other assets in the next 7 years,” he said

“This would require us to spend some $5 Billion on new projects. It would create more than 6000 jobs at our mines, and have a flow-on effect of creating, by 2015, a further 18,000 jobs indirectly in the Hunter region.

“Such growth would of course result in increasing value for you, our shareholders. This optimism for future growth demonstrates our belief in the long term market demand for thermal and coking coal and our belief that advances in technology will enable coal to retain its relevance in a carbon-constrained world.

“It will also assist the long-term economic benefit of this country, and build the regional economy of NSW.”

“Coal & Allied is investigating the viability of a coal bed methane development project in the Hunter Valley.
“This year, drilling has begun at Mount Thorley Warkworth mine for testing and evaluation of coal bed methane.

“The trial project is designed to find a way to reduce greenhouse gas emissions by degassing coal seams ahead of open-cut mining activities. RTCA is funding the project to be conducted in association with its managed operations.”

Coal seam methane is a rapidly growing source of energy in Queensland, especially in the Bowen Basin area, with up to four export LNG export projects on the drawing boards of companies like Santos and Queensland Gas Co.

“We have other expansion opportunities. These include Hunter Valley Operations South, in which we are currently seeking project approval for 21 years from the state government to extract a further 84 million tonnes of coal and upgrade a range of associated infrastructure at the mine, including the Lemington Coal Preparation Plant.

But in the meantime, the company, like producers in the Hunter and in Central Queensland, faces enormous constraints on export capacity because of poor infrastructure.

“Last year the topic of infrastructure dominated my AGM address. Today, it is still the single most dominant issue facing Coal & Allied.

“Infrastructure reforms to coal chain bottlenecks are vital. Not just for Coal & Allied, or other NSW producers, but ultimately for the long-term economic benefit of this country, particularly NSW and the Hunter region,” Mr Renwick said.

In Melbourne on Friday Zinifex chief executive Andrew Michelmore (who will be CEO of the merged Zinifex and Oxiana if the deal goes through, as it should) outlined an aggressive approach born out of his Russian experience when he takes the reins of the expanded group.

It was as though he was trying to compete with Oxiana CEO, Owen Hegarty, who is an old ‘dig the hole and they will come’ type of miner with a ready quip and laid back, colourful turn of phrase.

There is in fact quite a push for Hegarty to run the merged company, as we saw at the Oxiana AGM in Melbourne on Thursday.

Oxiana (See My Portfolio.) and Zinifex have agreed to a $6.2 billion merger, with Mr Michelmore earmarked for the chief executive role of the combined group, which will create the world’s second largest zinc producer, with a significant position in copper, lead, gold and silver.

Mr Michelmore spoke around 24 hours after Mr Hegarty’s last appearance at an Oxiana AGM, and the call for him to be CEO of the new group.

Mr Michelmore said his past two years at a Russian energy and aluminium company had given him a “fabulous insight” into the business-driven country and left a lasting impression.

“When an opportunity comes up they make fast decisions, they seize that opportunity,” he said.

“When that window opens, they seize it immediately and it’s certainly something that I have learnt and intend to bring that to working in Australia.”

(Russia though isn’t transparent, disclosure is minimal; it is full of ‘friends’ of the Kremlin who are dispossessed when the fall out with President Putin and his mates, and it can be violent with contract killings and other things happening to business people in Russia and overseas).

The combined group will have four mining operations in Australia and Asia, three near-term projects in development, combined cash on hand of about $2 billion and an organic growth pipeline spanning 10 years.

Among the local projects will be Oxiana’s emerging Prominent Hill in South Australia which is already costing $1 billion, and which could cost another $1 billion in second stage development costs to bring its potential into full scale production.

Zinifex has the Dugald River project in Queensland which is near its Century mine and in which Zinifex has realised the potential after Rio looked at it but couldn’t do anything to develop it. Higher metal prices have improved Dugald River’s potential.

Mr Michelmore said the company had initiated discussions with customers to potentially take “strategic blocks” in future project developments outside of Australia. Zinifex has exploration interests in Canada. Oxiana has extensive interests in Laos and Indonesia.

Zinifex shares fell 25c to $10.25 on Friday and Oxiana was down 12c at $3.33.




	
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