Rio Tinto Moves Forward with Koodaideri Mine
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Rio Tinto (NYSE: RIO) recently proposed plans for an iron-ore mine in Koodaideri that will yield around 70 million metric tons of iron ore per year. This will benefit the company for a long time to come, as it is expected to produce this amount for a period of about three decades.
Details about the project can be found on the environmental website of the Australian government. This has functioned as the primary source of information regarding Rio Tinto’s planned expansion into Koodaideri.
I feel that this is a significant step moving forward. For the sake of Rio Tinto's investors, I hope this proposal will be approved so that the company can proceed with this ambitious and highly profitable project. Aside from seeking government approval, Rio Tinto also posted the documents on the website in order to give the general public an idea of what it can expect next from the company.
The project is part of a plan on the part of Rio Tinto to address the rising demand for seaborne iron-ore reserves. If Rio Tinto gets approval for its project, it will not only be able to meet this demand, but also to become a significant player in this specific area of mining. If it is not granted approval, a competitor will most likely take the reins and get there first by finding an alternative source for iron-ore. I feel that it is highly likely, however, that the Australian government will approve the project, given that the need is so urgent.
The company has planned a relatively rapid schedule for the project. If the project in Koodaideri is approved, construction will begin in 2014, and production will begin in 2016. Rio Tinto is certainly wasting no time.
I have two concerns about this project, though, and they are related. The prices of iron-ore have failed to stabilize, as they have instead seen recent drops. The other concern is about China, as there has been a major slow-down in demand there. This is a major reason behind the struggling prices of iron-ore and could significantly affect the overall profitability of the Koodaideri mine. Despite these issues, Rio Tinto is investing millions upon millions of dollars into the project. This may be a risk for the company, and it is something to keep in mind if you are an investor in Rio Tinto. In the long-term, the project could be good or bad for the company, depending on how things develop, and depending on how its competitors fare.
Barrick Gold (NYSE: ABX) is a good example of how gold stocks are struggling at the moment, particularly with regards to leadership. Barrick’s CEO was recently ousted, an example of how unenviable the position is. The problem these companies have to face is that it is becoming more and more difficult to maintain and increase production. As a result, mining companies have to focus on geographically dangerous areas to keep up. This is a big risk, but at least Barrick’s competitors are in the same boat. Regardless, this will have a negative impact on Barrick stock.
Vale (NYSE: VALE) has had to quickly come up with a strategy to account for the lowered expectations surrounding the future its mining operations in Brazil. Vale has a significant investment in the country. Luckily, its operations in Mozambique are doing well at the moment, and the company recently opted to invest a substantial sum in a coal railroad in the area. The company is also “selling thermal coal assets and purchasing more stake in steel plants and retaining metallurgical coal assets.” This is a move to realign its business and approach mining from a different angle. Because of the difficulties it still faces, I believe Vale stock will fall, but it is worth keeping an eye on in the future.
AngloGold Ashanti (NYSE: AU) is experiencing a problem that is slightly out of the ordinary. Illegal miners are operating in its mines in Obuasi without any concern for authority. The company stated that the illegal mining problem has reached “alarming proportions,” and it now needs help on a national level to combat the issue. I have to wonder how it is possible that the company allowed the problem to get this serious though. Surely, AngloGold Ashanti should have attempted to put an end to the problem ages ago and not waited until now to request help. I think this will continue to negatively impact the company and the stock.
There has recently been some concern in the minds of stockholders over how the mineral resources rent tax will affect BHP Billiton's (NYSE: BHP) Olympic Dam project. The company, however, has claimed that it is not concerned. This probably has to do with the actions of Opposition Leader Tony Abbott. He has called on the federal government to give BHP Billiton a guarantee that the tax will not be extended to include copper and uranium in the future. These are the main minerals that the Olympic Dam project produces, so a commitment from the government would certainly ease some worried minds. As the situation is beginning to become less of an issue, I think BHP Billiton's stock price will remain stable in the near future.
Compared to its competition, Rio Tinto has the right idea about how to move forward with its business. It is one of few mining companies that are currently making headway in terms of new discoveries. The iron-ore project that the company has proposed is one of the better moves it could make, and it heralds the start of a new era for the company. In my opinion, this is a stock to hold on to, despite the fact that iron-ore prices are depressed. We cannot know what the future holds, but I think the Koodaideri mine is more likely to be a significant source of revenue than a waste of money when considering the project's long term implications.
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