Rio Tinto bets on rapid copper price recovery
The bullish forecast comes as the Anglo-Australian miner steps up talks this week with the Mongolian government aimed at finalising a deal on a $6bn expansion at the Oyu Tolgoi copper mine.
Jean-Sébastien Jacques, Rio Tinto’s head of copper and chairman of the International Copper Association, said decisions by the industry to slow copper production in response to weak prices meant the market could become balanced this year.
“It was expected to be oversupplied but because of disruption in the marketplace and because of decisions made by the industry to slow down some projects we could face a situation where the market is balanced this year,” he told the Financial Times in an interview.
“If you had asked me the question in December last year I would have said the inflection point would be three or four years down the road and today it is likely to be 18-24 months down the road,” he added.
Copper hit a five-month high of $6,479 a tonne last week after rising for nine straight days before slipping to end the week at $6,388.
That is up 18 per cent from January, when hedge funds in China pushed the price down to five-year lows.
Mr Jacques will hold talks with investors about the changing market dynamic over coming weeks, which could unlock funding and investment for copper projects still on the drawing board.
Rio’s more optimistic view of the copper market may help explain a quickening of its negotiations with the Mongolian government over the expansion of the $6bn underground portion of the Oyu Tolgoi mine in the Gobi desert, which had been stalled for months.
A Rio delegation is due to visit Mongolia this week for talks aimed at resolving a two-year dispute with the government over taxes and cost overruns during the first construction phase. The stand off between the two parties has undermined foreign investors’ confidence in investing in the resource rich country.
In April, Mongolia’s prime minister Saikhanbileg Chimed said on national television that Rio and Mongolia had reached an agreement in principle on developing the $6bn underground portion of the Oyu Tolgoi mine.
Mr Jacques said he was optimistic a deal would be achieved to develop the mine, although the timeframe remained difficult to predict as it was as much a political as a business negotiation.
He said the principles of the value sharing agreement signed five years ago with the Mongolian government with 53 per cent of economic benefits flowing to the government remained in place.
Mr Jacques said Rio has kept the consortium of 15 banks involved in financing the expansion informed about developments and he was optimistic this could be put in place in weeks or months. “I am pretty optimistic. It will happen,” he said.
During a visit to the mine in March, Rio Tinto chief executive Sam Walsh reiterated the miner’s “best and final offer” for the second phase of Oyu Tolgoi presented to the Mongolian government late last year — an offer that the prime minister said included unpalatable fees for the mine operator.
Jamie Smyth in Sydney and Lucy Hornby in Beijing