VZCZCXRO0352
RR RUEHBZ RUEHDU RUEHGI RUEHJO RUEHMA RUEHMR RUEHPA RUEHRN RUEHTRO
DE RUEHSA #2586/01 3311424
ZNR UUUUU ZZH
R 261424Z NOV 08
FM AMEMBASSY PRETORIA
TO RUEHC/SECSTATE WASHDC 6541
INFO RUCPDC/DEPT OF COMMERCE WASHDC
RHEBAAA/DEPT OF ENERGY WASHINGTON DC
RUEHC/DEPT OF LABOR WASHDC
RUEHBJ/AMEMBASSY BEIJING 0886
RUEHBY/AMEMBASSY CANBERRA 0767
RUEHPE/AMEMBASSY LIMA 0208
RUEHLO/AMEMBASSY LONDON 1643
RUEHMO/AMEMBASSY MOSCOW 0897
RUEHNE/AMEMBASSY NEW DELHI 0502
RUEHFR/AMEMBASSY PARIS 1476
RUEHOT/AMEMBASSY OTTAWA 0728
RUEHSG/AMEMBASSY SANTIAGO 0207
RUCNSAD/SOUTHERN AF DEVELOPMENT COMMUNITY COLLECTIVE
RUEHZO/AFRICAN UNION COLLECTIVE

UNCLAS SECTION 01 OF 03 PRETORIA 002586 
 
SIPDIS 
SENSITIVE 
 
STATE PLEASE PASS USAID 
STATE PLEASE PASS USGS 
DEPT FOR AF/S, EEB/ESC AND CBA 
DOE FOR SPERL AND PERSON 
DOC FOR ITA/DIEMOND 
 
E.O.   12958: N/A 
TAGS: EMIN EPET ENRG EINV EIND ETRD SENV SF
SUBJECT: RIO TINTO TAKES A PAUSE FOR BREATH 
 
REF:  A) Pretoria 2250 
B) Maputo 1051 
 
¶1.  (SBU) SUMMARY: Rio Tinto's Africa Office in Johannesburg told 
Minerals/Energy Officer and Specialist that Rio Tinto was well 
positioned to withstand the current global commodity downturn given 
its long-term reserves, technological expertise, and exploration 
prowess.  They were bullish on doing business in South Africa and 
Africa, touting new strategy and projects in Madagascar and Guinea. 
Rio Tinto is developing new mining projects, extending the life of 
old ones, and looking for new projects in Africa, particularly in 
southern Africa.  The Rio Tinto managers claimed that BHP Billiton's 
hostile offer for Rio Tinto did not make sense and would likely 
founder on EU competition concerns.  BHP subsequently withdrew its 
offer due to the recent decline in global commodity prices.  End 
Summary. 
 
------------------------------------- 
Cautiously Positive on Chinese Demand 
------------------------------------- 
 
¶2.  (SBU) Minerals/Energy Officer and Specialist met November 21 
with some of Rio Tinto's Africa team based in Johannesburg.  Rio 
Tinto Vice President - Africa Guy Larin, Exploration Manager - 
Southern Africa Jonte Beswick, and Principal Advisor Community 
Relations Africa Lisa Dean led the Rio Tinto - Africa team that 
described the company's views of opportunities and challenges on the 
continent.  They quoted CEO Tom Albanese's reference to the current 
global and Chinese downturn as a "pause for breath".  Albanese was 
quoted in the press: "Both China and India have large populations 
and significant trends towards urbanization and industrialization 
and will continue to be the main drivers for what we would view as a 
strong, positive story for metals demand in the future."  The Rio 
Tinto team noted that India and China were seeking to acquire assets 
such as coking coal in Mozambique's Tete Province (Ref B), although 
the current downturn has caused a "collective pause for breath". 
Beswick said Rio Tinto's forte is exploration and the company 
expected to continue meeting its goal of garnering one "tier one" 
(world-class) discovery per year.  He noted that Albanese said that 
Rio Tinto was reviewing its projects, but remained in an expansion 
mode, albeit at a slower pace. 
 
------------------- 
BHP's Hostile Offer 
------------------- 
 
¶3.  (SBU) The Rio Tinto staff was dismissive of BHP Biliton's 
hostile offer (since withdrawn) to acquire the company, asserting 
that it under-valued the company's assets and strengths.  They cited 
Rio Tinto's strength in exploration and its control of 
infrastructure associated with iron ore reserves and production. 
Moreover, Beswick cited EU anti-competitive concerns, particularly 
in iron ore.  Again quoting Rio Tinto's CEO, Beswick said, "BHP 
needs Rio more than Rio needs BHP."  Dean said that Rio Tinto had 
reached a decision to be more active in making its case to the press 
and analyst communities.  Industry press widely covered Albanese's 
Qand analyst communities.  Industry press widely covered Albanese's 
upbeat and positive comments made in Madagascar about Rio's staying 
power.  Albanese also noted that biodiversity was poised to become 
the future emerging issue of the global mining community, citing the 
higher expectations mining companies were encountering as they 
sought to attract mine capital of gain access to land for mining. 
 
 
¶4.  (SBU) Rio Tinto is committed to mining production and processing 
in both South Africa and Africa in a diverse number of minerals and 
countries.  Marin and Beswick were bullish on Rio Tinto's projects 
and prospects in Africa.  The company continues to extend the 
life-of-mine at the work-horse Rossing uranium mine in Namibia. 
Dean noted that it was a new strategy for Rio Tinto to operate in 
more difficult environments in developing countries, but this 
recognized that the "low-hanging fruit" elsewhere had already been 
 
PRETORIA 00002586  002 OF 003 
 
 
harvested.  The net present value analysis must still make sense, 
including bearish prices and public service commitments.  Dean cited 
the QIT Madagascar Minerals Sand project, which included working 
with the World Bank and the Madagascar government to develop a 
substantial port.  The Simandou Iron Ore project in Guinea involves 
partnering with the IFC to build a dedicated 900 kilometer rail 
line.  Rio Tinto is now willing to consider power projects as part 
of mining ventures.  Marin said the company was deeply involved in 
discussions for the Grand Inga hydroelectric project in the DRC to 
power a potential associated aluminum smelting project.  In 
addition, Rio Tinto has a 78 percent interest in the Murowa diamond 
mine in Zimbabwe.  Dean said Rio had worked successfully with USAID 
in Madagascar and elsewhere.  She emphasized that commitment to 
social and environmental programs was fully embraced by the 
corporation, noting that she had moved from a long career at social 
NGOs. 
 
------------------------------------ 
South Africa's Operating Environment 
------------------------------------ 
 
¶5.  (SBU) In South Africa, Rio Tinto plans to expand its magnetite 
and vermiculite production at its Palabora mine (Ref A) and is 
looking for coal mining opportunities.  Richards Bay Minerals' 
mineral sands operation and smelter are a 50 percent joint venture 
with BHP.  The Rio Tinto team noted some clear challenges to 
operating in South Africa.  They highlighted infrastructure and rail 
constraints, noting capacity problems at the Richards Bay port and 
rail ingress.  Providing private infrastructure like rail remains a 
challenge in South Africa given parastatal Transnet's resistance to 
competition.  They said implementation of new mining legislation had 
been difficult, but the Department of Minerals and Energy was now 
doing a better job in converting and issuing licenses.  Dean said 
Black Economic Empowerment (BEE) imperatives were a reasonable 
transformation goal and cost of doing business in South Africa. 
They accept the fact that Rio Tinto would effectively never exceed 
74 percent shareholding in South African projects (leaving 26 
percent for BEE partners).  Moreover, South Africa's approach was a 
model for establishing the social license to operate elsewhere in 
Africa. 
 
----------------------------- 
Coega Shelved for Three Years 
----------------------------- 
 
 
¶6.  (SBU) Marin said Rio Tinto's proposed 1000 MW aluminum smelter 
at Coega on the Indian Ocean was on hold for three years to 2011 
waiting for improvement in the power situation.  He described the 
decision as internally mandated from an analysis of inadequate 
uninterrupted power reserve with resolution dependent on some of the 
mega coal power plants coming on line and/or SAG approval to 
proceed.  Marin said that the project now envisioned starting in 
2011 with the first metal from Phase One in 2013 and the first metal 
from Phase Two in 2015.  The new schedule envisions compressing 
Qfrom Phase Two in 2015.  The new schedule envisions compressing 
development of the two phases.  He noted that the aluminum smelter 
(inherited from the AlCan acquisition) would provide competition to 
BHP's aluminum operations in southern Africa, as long as they are 
separate entities.  Marin claimed that Rio Tinto's technology was 
premier for aluminum and titanium processing. 
 
¶7.  (SBU) COMMENT: On November 25, subsequent to the Embassy's 
meeting with Rio Tinto, BHP withdrew its hostile bid to combine the 
two mining giants due to the decline in global commodity prices. 
Rio Tinto's shares subsequently lost 46 percent of their value, but 
this is a natural and perhaps temporary reaction to a major bidder's 
decision to walk away from a substantial block of shares.  It will 
take more time for the market to assess the value of the industry's 
remaining independents in a bearish and volatile commodities market 
environment.  The Minerals/Energy team was impressed with Rio 
Tinto's commitment to social development and being a public service 
 
PRETORIA 00002586  003 OF 003 
 
 
provider in its new African markets.  End Comment. 
 
BOST