Monsters of Rock: Rio sinks the miners and diamantes from Sierra Leone

Rio down as June production disappoints
Sierra Rutile investors could be betting on an improved bid in three-corner contest for mineral sands producer
Tidbits on Adriatic, IGO, Perenti and AIC Mines

The materials sector copped a 0.92% hit today, heavily influenced by the big stocks in the wake of a disappointing June quarter report from the world’s biggest iron ore miner Rio Tinto (ASX:RIO).

Its iron ore shipments from the Pilbara came in at 80.3Mt in the June quarter at average prices of US$105.8/dmt, against guided costs for 2024 of US$21.75-23.5/t.

RBC’s Kaan Peker said that was broadly in line with expectations, while lower grade SP10 product continues to make up 20% of equity shipments for Rio, which is hoping to bring its higher grade Rhodes Ridge mine online by the end of the decade to curb its reliance on low quality product sales.

Iron ore guidance of 323-338Mt remains in place despite a weak first half, but copper guidance is expected to be at the low end of its 660,000-720,000t range for 2024 against consensus of 710,000t due to geotechnical issues at the Kennecott mine in the USA, while alumina guidance has been curbed from 7.6-7.9Mt to 7-7.3Mt due to gas supply issues.

“The June Q was generally in line with our estimates but below consensus. However, CY24 guidance updates are likely to lead to consensus EPS reductions, with mined copper production guidance now expected to be around the bottom end of the range driven by Kennecott, and alumina production guidance lowered on gas supply issues,” Peker said.

“Also, Pilbara 1H24 costs are expected to be toward the top end of the full-year guidance range. On development projects, Simandou is advancing, and the ramp-up of the Oyu Tolgoi underground is on track. We maintain our Sector Perform rating.”

The decision to press ahead with Simandou, where Rio disclosed it had spent US$985m in two tranches to cover 2023 and H1 2024 expenses in recent weeks, was also a significant one, while there are hopes that Rio could settle issues at its Jadar lithium project in Serbia after a court decision that the now supportive government’s decision to revoke a licence in 2022 amid community opposition was unconstitutional.

Rio fell around 2.5%, with its peers BHP (ASX:BHP) and South32 (ASX:S32) down 1.35% and 1.38%, though Fortescue (ASX:FMG) and Mineral Resources (ASX:MIN) were relatively stationary.

The former three’s attachment to copper was likely a distinguishing feature, the commodity sliding last night after China’s GDP growth came in 0.4% behind expectations for the June quarter at 4.7%.

Sierra Rutile investors prep for fresh bids

Bets seem to be on from small shareholders that we’ll see at least one more improved bid in a three-cornered contest to take control of Australian mineral sands producer Sierra Rutile (ASX:SRX).

Three major shareholders who have only entered the fray at the struggling pigment feedstock supplier in West Africa in the past few months are now duking it out.

SRX has accepted a bid of 16c from Gemcorp valuing the former vestigial organ of Iluka Resources (ASX:ILU) at around $68 million.

But near 20% stockholder Leonoil, a local fuel station operator and bulk fuel supplier, has indicated it will offer 18c – crucially without a minimum acceptance condition – an offer that will likely be considered superior by SRX’s board unless it’s matched by Gemcorp by Thursday.

Both are leagues ahead of a 9.5c on-market offer from Craig Dean’s PRM Services, tangentially linked to a Sierra Leone iron ore producer and commodity trader run by the businessman called Gerald Metals, which remains open but was placed at a time when a squabble over tax concessions led SRX to pause its Area 1 mine.

SRX’s share price is up ever so slightly to 19c today (valuing SRX at $80m), suggesting retail holders think another, improved bid is coming, though its fate is very much in the hands of the warring parties who between themselves and a fourth large holder now control over half of the miner’s stock.

Area 1 restarted on July 1 (after a series of safety checks following a fatality at the mine) under Stage 3 tax concessions, without which SRX has warned the operation is uneconomic.

It has weathered weak rutile prices and would need to be able to generate cash to build the equity component for the funding of its longer life Sembehun deposit, which will cost $301m to build and produce 175,000tpa of natural rutile (a titanium dioxide pigment feedstock) over ten years from 2028.

The Gemcorp takeover, and potentially an improved bid from Leonoil or Gemcorp, could put the operation in richer hands and provide an exit point for investors still left over from SRX’s Iluka spinoff in 2022.

Finance director Martin Alciaturi told Stockhead SRX is recommending shareholders take no action at the moment.

“Gemcorp is still to release its bidder’s statement and Leonoil’s offer remains a proposal at this point,” he said.

While weak rutile prices have impacted SRX, Alciaturi says the company remains positive they will turn around and support the Sembehun development.

“Macroeconomic factors have resulted in reduced pigment demand and rutile prices for the past year or so. While short-term headwinds remain, a longer-term global natural rutile supply deficit is emerging,” he said.

“Area 1 is nearing the end of its mine life and there are not enough first-tier resources coming into development to maintain rutile supply at historical levels.

“As well as being of great significance to the country, Sembehun is critical to meeting the world’s rutile needs as global rutile production falls.”

Elsewhere in the materials sector IGO (ASX:IGO) sunk another blow on the beaten up WA nickel sector, flagging a near $300mn impairment on the value of its exploration assets including the Silver Knight and Mt Goode nickel deposits, previously viewed as growth options for the Nova and Cosmos nickel complexes respectively.

Perenti Global (ASX:PRN) business unit Barminco signed a $240m, one year extension to its five year contract at the Khoemacau copper mine in Botswana, recently acquired by China’s MMG, and AIC Mines (ASX:A1M) was down despite producing 13,412t of copper at all in costs of $5.39/lb from its Eloise mine in Queensland in FY24, the most at the project since 2017.

AIC delivered 3185t at all in costs of $5.96/lb in the June quarter, making $9.5m in new mine cashflow and $23.8m in operating cash flow.

Adriatic Metals (ASX:ADT) was hit for more than 10% after warning a court ruling demanding the repeal of a law permitting the removal of state forest could impact the construction of a tailings facility at its Vares silver mine in Bosnia and Herzegovina, where a current facility only has capacity until Q1 next year.