Cost-conscious major miners look to agility of junior explorers

Wed Sep 21, 2016 4:39am EDT
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(This version of the Sept. 20 story has been refiled to change name to "Barings" from "Baring Asset Management" after company changed its name, in paragraph 11)

By Zandi Shabalala

LONDON (Reuters) - Tight budgets and nervous investors have convinced major miners that a cheap, timely way to ensure a strong pipeline of quality assets is to team up with junior, more nimble exploration firms.

Miners have slashed costs by delaying projects, sold assets and cut exploration budgets to free up cash to pay down debt, much of it acquired during and after the commodity price supercycle, which started in 2002.

Now, with prices of commodities such as copper and iron ore at multi-year lows, capital expenditure is expected to remain subdued and investors reluctant to sanction large acquisitions or projects.

One option is to buy profitable, low-cost so-called "tier 1" good quality mines, but few are up for sale. A viable alternative is to own mines with small explorers.

"Partnering allows us to complement our strengths in big data, technology and research alliances with what juniors can bring…ideas and projects, boots on the ground and acreage," Stephen McIntosh, Rio Tinto's (RIO.L: Quote) head of growth and innovation, said. "It will help all of us to accelerate and enhance the discovery of Tier 1 assets."

Rio's 2016 capex budget is $150 million, down 74 percent from last year, most of that will be aimed at copper.

A favorite with miners and investors, the copper market faces shortages from 2018 onwards.   Continued...

Mining operations can be seen at the Rio Tinto alumina refinery and bauxite mine in Gove, also known as Nhulunbuy, located 650 kilometers (404 miles)east of Darwin in Australia's Northern Territory in this July 16, 2013 file photo.  REUTERS/David Gray/Files