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Rio Tinto looks to beef up trading operation

Mining News - Published on Tue, 02 Jan 2018

Image Source: Rio Tinto
Financial Times reported that Anglo Australian mining company Rio Tinto has moved into physical commodities trading to get better prices for the metals and minerals it produces and sharpen its commercial focus. In an interview with the Financial Times, Rio chief executive Mr Jean-Sébastien Jacques revealed the company was buying and selling bauxite, alumina and aluminium from a marketing and procurement hub in Singapore that employs more than 500 people.

Mr Jacques said that “We are already trading in the aluminium space. Not big volumes? and there is a long, long way to go before we become a big trader.” He added that “But at some point in time, over the medium and long term, we could increase our trading activities.”

Unlike their peers in the oil industry, mining companies have traditionally shied away from trading physical commodities, put off by large working capital commitments and volatile markets. But some are now joining the market, using the sophisticated strategies employed elsewhere in commodities trading.

BHP Billiton, the world’s biggest natural resources company, has built a large trading business, while Anglo American also has a commercial division.

Mr Jacques said that there was also a need for Rio to better understand its markets and how it could generate higher returns from its key commodities, which include copper and steelmaking ingredient iron ore.

Mr Jacques said that “Rio is a very strong operator but not always the best in class in terms of commercial acumen. What we want is to change that.” He continued “We have invested a lot of time and money building our sales and marketing operation with Singapore as a control centre.” In November, Rio appointed Simon Trott as its first chief commercial officer.

Commodity trading is part of a wider “mine-to-market” strategy at Rio that aims to raise as much as USD 5bn in cash by 2021 by working the company’s assets harder and in different ways.

Under the hard driving Mr Jacques, who took the helm 18 months ago, Rio has focused on generating cash and returning as much of it as possible to investors through dividends and share buybacks.

Over the past year, it has announced USD 8.2 billion of cash returns, putting the company ahead of many of its peers. Mining companies are under pressure from big shareholders to boost cash returns, having spent billions of dollars on ill-timed acquisitions and over-ambitious projects during the commodities boom of the 2000s.

Mr Jacques said that “Lots of people are talking about creating value and sending money back to shareholders but very few people are doing it,” whose work shirt bears the red Rio Tinto logo. “If you look at the first six months of the year, 40 % of the cash we generated went back to shareholders. Most people didn’t do that.

He added that “We’ve delivered what we said and the market is giving us credit for that.”

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Posted By : Rabi Wangkhem on Tue, 02 Jan 2018
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