LONDON BRIEFING: Rio Tinto in deal to start Mongolian mine operations

(Alliance News) - Rio Tinto on Tuesday said it has reached agreement with the government of Mongolia over the massive Oyu Tolgoi copper mine.

Rio said the agreement will allow the start of underground mining operations at the project, which is expected to be the fourth largest copper mine in the world by 2030. Rio said underground operations, exploiting the most valuable part of the mine, are expected to begin "in coming days", with first sustainable production in the first half of 2023.

Rio owns a majority stake in Turquoise Hill Resources, which in turn owns 66% of the Oyo Tolgoi project. The Mongolian government owns the rest. The companies have been in negotiation with the government for the past two years over funding and power supply.

Rio said on Tuesday that Turquoise Hill will waive a USD2.4 billion loan owed by government-owned firm Erdenes Oyu Tolgoi, which represented the amount of investment funded by Turquoise Hill on behalf of the government firm to build the project to date, plus accrued interest.

The capital forecast for the Mongolian project is USD6.93 billion, with remaining underground capital spending estimated at USD1.8 billion.

The partners in the project also have signed a long-term electricity supply agreement to draw from the Mongolian grid.

"This agreement represents a reset of our relationship and resolves historical issues between the OT project partners," said Rio Chief Executive Jakob Stausholm. "We strongly believe in the future of this country and I am personally committed to ensuring that the people of Mongolia benefit strongly from OT along with our shareholders."

Rio shares were up 1.0% early Tuesday.

Here is what you need to know at the London market open:

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MARKETS

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FTSE 100: up 0.7% at 7,349.53

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Hang Seng: down 1.7% at 24,243.61

Nikkei 225: closed down 1.7% at 27,131.34

S&P/ASX 200: closed down 2.5% at 6,961.60

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DJIA: closed up 99.13 points, or 0.3%, at 34,364.50

S&P 500: closed up 0.3% at 4,410.13

Nasdaq Composite: closed up 0.6% at 13,855.13

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EUR: soft at USD1.1309 (USD1.1312)

GBP: up at USD1.3477 (USD1.3451)

USD: down at JPY113.75 (JPY113.88)

Gold: up at USD1,841.88 per ounce (USD1,833.82)

Oil (Brent): up at USD86.90 a barrel (USD85.51)

(changes since previous London equities close)

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ECONOMICS AND GENERAL

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Tuesday's key economic events still to come

US Federal Open Market Committee meeting starts

1000 CET Germany Ifo business climate index

1100 GMT UK CBI industrial trends survey

0855 EST US Johnson Redbook retail sales index

0900 EST US house price index

1000 EST US consumer confidence index

1630 EST US API weekly statistical bulletin

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The UK government borrowed less than expected in December, figures from the Office for National Statistics showed, as the Treasury strives to contain the pandemic-fuelled rise in national debt. UK public sector net borrowing - excluding public sector banks - was estimated to have been GBP16.8 billion in December, higher than GBP14.7 billion in November. The latest figure was lower than the market forecast of GBP18.5 billion but was the fourth-highest December borrowing since monthly records began in 1993. "Public sector net borrowing in December was broadly in line with the Office for Budget Responsibility's forecast from last October. But, with inflation set to keep pushing higher until April, borrowing is likely to return to overshooting the OBR's forecast in the coming months," said Capital Economics economist Bethany Beckett.

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BROKER RATING CHANGES

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ODDO BHF cuts WPP to 'neutral' (outperform)

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RBC raises THG Holding to 'outperform' (sector perform) - price target 500 pence

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RBC cuts boohoo to 'sector perform' (outperform) - price target 150 (330) pence

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COMPANIES - FTSE 100

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Package and letter delivery firm Royal Mail said its performance in the October to December, its financial third quarter, was in line with expectations. It said staff absences peaked at 15,000 within the UK domestic operation in early January, hurting service levels in some areas of the country and slowing the realisation of planned cost efficiencies.

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COMPANIES - FTSE 250

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TI Fluid Systems expects 2021 revenue of EUR2.95 billion with a 7% adjusted earnings before interest and tax margin. It posted revenue of EUR2.81 billion and an adjusted Ebit margin of 6.2% in 2020. TI Fluid Systems also said Chair Manfred Wennemer has decided to retire and step down immediately following the company's 2022 annual general meeting on May 18. Wennemer will be succeeded by Senior Independent Director Tim Cobbold who joined the board in November 2019 and has over thirty years of experience in a variety of sectors, TI Fluid said. The company also said it was looking to recruit two new independent non-executive directors. The Oxford, England-based firm makes brake fluid systems and fuel tanks for cars and trucks.

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Capricorn Energy said it was encouraged by the initial operating performance of its newly acquired Western Desert assets in Egypt, with production growth ahead of expectations. The company, formerly known as Cairn Energy, said that with the tax refund from the government of India due and active management of its asset portfolio, it is well positioned to continue delivery of its business model of returning value to shareholders, whilst building sustainable cashflow generation and growth. Capricorn plans to return up to USD700 million of the India tax refund proceeds to shareholders. Of this, USD500 million will be returned to shareholders by way of tender offer, while USD200 million will be returned via an ongoing share repurchase programme. In Egypt, 2021 production following completion of the acquisition in September, averaged 36,300 barrels of oil equivalent per day net to Capricorn's working interest. This was within the guidance range for working interest production of 33,000 to 38,000 boepd announced in March. For 2022, Capricorn working interest production in Egypt is anticipated to average 37,000 to 43,000 boepd, with production growing throughout the year and 2022 exit rates forecast to exceed the top end of guidance range.

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COMPANIES - MAIN MARKET AND AIM

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Pub chain Marston's said the emergence of the Omicron variant and subsequent UK government guidance to work from home temporarily hurt consumer sentiment. For the 16-week period to January 22, like-for-like sales were down 3.9% compared to the same period in the 2019 financial year. "From a geographic perspective, the group's pubs in Wales and Scotland were more significantly impacted than those in England by the tighter restrictions that were enforced during the period," Marston's said. "Costs remain in line with the guidance provided at the preliminary results in November," it added.

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Tuesday's shareholder meetings

Auction Technology Group PLC - AGM

Greencore Group PLC - AGM

Marston's PLC - AGM

Mitchells & Butlers PLC - AGM

Rutherford Health PLC - GM re withdrawing shares from AQSE

Scotgold Resources Ltd - AGM

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By Tom Waite; thomaslwaite@alliancenews.com

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