Now raising intellectual capital

Goodness, now Rio finds it can afford a dividend

Can it really be a mere six months since Rio Tinto agreed to sell its birthright to Chinalco, losing its chairman-designate in the process? Indeed it can, and it shows how fast things change in the whacky world of commodities. In February, the directors panicked that the business might run out of cash; now they are signalling that they should be able to find $1.75 billion, or around $1.15 a share, for a dividend next year.

In hindsight, it looks frightfully clever of them to use the balance sheet of China Inc. (for a mere $195 million break fee) to buy time to find a better way out of the financial hole they dug. After all, the Chinalco deal could not be consummated without shareholder approval, which could not be sought until various regulators round the world had agreed it, a process bound to take many months.

In fact, it looks as though they got the right answer for the wrong reason, allowing the new, post-Chinalco chairman Jan du Plessis to brag about “renewed financial strength and a leaner cost base.” Even so, it’s a bit rich for the directors to boast about “delivering on commitments made in December 2008”.

Thanks largely to last month’s thumping $15 billion rights issue, debt is no longer a problem. All the debt incurred to overpay for Alcan in 2007 has now been repaid, so Rio can get on with the important task of rebuilding its relationship with China, the most important customer for its iron ore. There is much to do here, following the arrest of its negotiating team, but the heat seems to have gone out of the confrontation, and neither side can do without the other.

A White Knight rides to Anglo’s rescue

There may be faint disappointment in Pretoria at the appointment of another white man to chair Anglo American, South Africa’s flagship business, but the blow is much worse in Zug, the head office of Xstrata, the miner that wants to merge with Anglo. Xstrata had sensed weakness at Anglo, and as stories undermining Cynthia Carroll, Anglo’s chief executive, started circulating, her opposite number, Mick Davis, saw his chance. As the Anglo share price wilted following its unwelcome decision to scrap the dividend, he proposed what he disingenuously called a “merger of equals”. The market values may have been equal at that moment, but they are not now, with Anglo valued at 20 billion pounds against Xstrata’s 17 billion pounds. The news that John Parker is to join the board and become chairman next month will reassure Anglo’s shareholders that the company is serious about addressing their concerns about how the business is being run. Parker is a Northern Irishman of great charm whose easy-going manner conceals an ability to encapsulate and get to the kernel of complicated arguments. His arrival changes the dynamics of the international mining business, and makes it much more likely that Anglo will take an active, rather than passive, role in the consolidation that the market appears to be demanding. The appointment probably puts Anglo beyond Davis’ reach, although he should not be underestimated. Michael Rawlinson at brokers Liberium has already remarked on the parallels with BHP Billiton: “BHP shareholders initially resented the terms of the merger, but eight years on it is clear that the cultural renewal…has created a stand out industry leader.” Davis could also promise the South Africans further local involvement, arguing that its record over black empowerment is better than Anglo’s. Yet even that might not be enough, now that a white knight is riding in to take charge at Castle Anglo.

from Neil Collins:

A chink in the Chinalco armour

Xiong Weipeng has been speaking to Caijing magazine. Perhaps he was speaking in Mandarin, which might explain why something seems to have been lost in translation.

 Xiong is president of Chinalco, the Chinese state-owned aluminium group which is trying to muscle in on Rio Tinto, doubling its holding to 18 per cent and taking big minority stakes in its best mines.