Stock Preacher

Rio Tinto dumped plans for a landmark investment from China last Friday, opting instead to raise US$21B through a rights issue and a joint venture with one-time suitor BHP Billiton. Rio’s US$19.5B deal with Chinese metals group Chinalco was put together in February at the height of the financial crisis in a bid to halve Rio’s US$38B debt. Its collapse last Friday under shareholder pressure left China, the world’s biggest steel-making nation, vulnerable to just two suppliers, the Rio/BHP combination and Brazil’s Vale, controlling 70% of global iron ore trade. “This is a big slap in the face for China,” said Paul Bartholomew at Steel Business Briefing in Shanghai “Rio has effectively been talking to BHP behind Chinalco’s back and Chinalco is entitled to feel like a two-timed lover this morning,” he said. Rio is to pay Chinalco a US$195MM break-up fee.

Popularity: 4% [?]

BHP Billiton Ltd. Pc announced that they would cut 6,000 jobs and close the giant Ravensthorpe nickel mine in Australia, writing off US$1.6 B, as the global resources giant battles a collapse in commodity prices. Until now BHP, the world’s largest miner, had set itself apart by maintaining production and just last month said sales volumes were holding up despite a global downturn.

But as it became increasingly apparent there would be no quick fix to the slump in commodity prices, BHP was forced to close mines and cut jobs.”Clearly their balance sheet is in a respectable position. But they are not immune from the commodity price environment that we’re seeing, and earnings are going to suffer,” said Neil Boyd-Clark, managing partner at Fortis Investment Partners.BHP Chief Financial Officer Alex Vanselow warned last week that more mines could be closed given the uncertainty in commodity markets, with the Australian metallurgical coal mines already slated to reduce output by 10-15%.

Popularity: 10% [?]