Monsters of Rock: Buy or build? Rio's Stausholm is taking the road less travelled

BHP may be chasing M&A to bolster its copper production, but Rio Tinto boss Jakob Stausholm still thinks its biggest rival has greenfields prospects in the wings
Stausholm is ‘not afraid’ of M&A, as market watchers wait to see if it or another BHP rival tries to run interference in its Anglo battle
Rio remains bullish on lithium, but focus is on proving up Rincon brine project in Argentina

Amidst the increasingly complicated BHP (ASX:BHP) approach for Anglo American, the $64.5b plus price-tag attached to the deal has been explained by experts, such as BlackRock’s Evy Hambro, who say it’s cheaper to buy than build in mining at the moment.

That goes against conventional wisdom, which suggests historically that major M&A almost always seems to disappoint.

Need a reminder?

READ: As M&A premiums soar, let’s cast our eyes over some of history’s s**ttest mining deals

BHP is less than a week from needing to make a formal bid under UK takeover laws, but is still hoping Anglo American comes to the table to negotiate after a rejected second bid of £27.94/sh (admittedly in scrip) on Monday.

It paid $9.6bn in cash just last year for copper producer OZ Minerals.

Rio Tinto (ASX:RIO), however, appears to be committed to its internal options for now, with its recent M&A initiatives largely focused on early stage investments or consolidations of assets it already owns.

That includes its takeover of the minority holders in Oyu Tolgoi copper mine owner Turquoise Hill, purchase of speccy lithium brine co. Rincon Mining and some minor investments in scandium, metals recycling and lithium/rare earths exploration farm-ins.

CEO Jakob Stausholm has regularly commented that it would be sad to ruin the turnaround process he has led Rio Tinto on operationally since taking over in 2020 with major M&A.

One of many mining big wigs to present at the Bank of America conference in Miami this week, Stausholm said it was not a need but a choice for Rio whether it engaged in M&A.

“We are not afraid of M&A. The best thing is we don’t depend on M&A,” he said.

“And as I have just spoken, we have a lot of growth options organically, and we have strengthened our capability to execute projects.

“It’s really a pleasure for me to see how we execute projects now versus how we used to. That means that it’s not a need, it’s a choice.

“And I think we have done some good M&A deals. We took TRQ private, we bought the Rincon project, we sold some gold streams.

“I think they have all been good deals, but they’ve been small deals, and it hasn’t derailed our overall transformation of the company. There’s still so much potential on that path.”

Is Rio’s own grass greener?

Part of the reason copper, currently fetching more than US$10,000/t on the LME benchmark – New York futures hit a record yesterday of more than US$5/lb – is so in demand is because new mines are taking forever to come to fruition.

One of those is Rio’s own Resolution – partly owned by BHP – which Stausholm says can provide 25% of the US’ own copper needs and plug in to a domestic smelter in Rio’s Kennecott.

Held up for years due to negotiations and opposition from Native American tribal groups and a bureaucratic land swap, Stausholm says the decision for the US Government to consider is whether it wants to be self-sufficient or import its copper metal.

“It’s not 10 years away,” he rebuffed when BofA’s Jason Fairclough pressed him on the project’s lack of progress. Resolution was discovered in 1992.

“And isn’t it amazing how much we have in copper, you being an analyst for so many years. And yes, it’s one of the best copper ore bodies in the whole world, and it’s placed in the US. We also have a smelter at Kennecott where we can process it, and we can make 100% American-made copper.

“We are totally committed to FPIC (free prior and informed consent), but that’s not really the issue right now.

“The issue is right now to get the land swap from the government, and we have gone through an impeccable process with the government on the environmental impact study. Then it’s been held up a little bit with some legal issues. We then have to see the land swap happening.

“And then, of course, and I think we actually basically are there with 10 out of 11 tribes. There’s one tribe, the San Carlos Apache, and they have refused to enter into a dialogue. FPIC means dialogue, and at some stage I hope that dialogue will start, and we’ll see where it takes us.

“It’s ultimately a societal choice and the government’s choice, and they haven’t pushed it that hard.”

Stausholm said the focus in lithium wasn’t on having mines that operated today, but on developing processing technologies and deposits which would withstand ESG scrutiny once lithium production is a more mainstream industry.

“We actually really have to have some pace-setting technology in place, not just for being on the right place on the cost curve, but also have something that’s socially acceptable because the lithium industry has until now basically been a very, very small industry, and it’s going to be an industry of scale, and, therefore, there will be more scrutiny about what are the solutions to extract lithium,” Staushholm said.

“We will always have to look at the prices. I think what is interesting with the lithium industry is it consists of a lot of miners, and entrepreneurs have got many amazing capabilities, but it’s not companies that has kind of deep experience and deep technical skills. I think we can provide something to the industry.”

A 3000tpa starter plant using direct lithium extraction technology is anticipated to be up and running at the end of this year, though costs have scaled up significantly from an initial US$140m to US$335m. Rio’s Jadar lithium project in Serbia remains on pause after it was scuttled by local community opposition.

A day at the markets

Despite a couple crummy days for iron ore prices all the majors rose today as Singapore futures reversed, up almost 3% to more than US$116/t.

Gold stocks were also in favour, with the commodity sub-index up 2.44% at 3pm AEST.

Chief among the gainers was Catalyst Metals (ASX:CYL), which enjoyed a near 8% bump on drill results at the Trident deposit, part of its consolidation play around the historic Plutonic gold field near Meekatharra.

The drill hits included a strike of 38m at 2.9g/t on a true width basis, as well as another of 35m at 7.6g/t (though the latter was only 8.8m in true width).

Catalyst is aiming to roughly its annual output to 200,000ozpa, with the latest results seen as adding the potential of a small open pit from which to access a deeper underground resource at Trident — which currently contains 508,000oz at 3.7g/t.

That includes 257,000oz of indicated at 5g/t.

The materials sector was up a hefty 1.5% at 3.30pm AEST.