Sign of the Times: Rio Tinto and Fortescue Flex Muscles

Sign of the Times: Rio Tinto and Fortescue Flex Muscles

Aussie companies are using automation in a massive way to save billions in costs.

Take Rio Tinto Ltd [ASX:RIO] as an example.

The company received a required regulatory approval for the autonomous operation of its trains last month.

The trains are already running now, except they have drivers on board.

Those people are going to get the flick by the end of the year. Three million kilometres are already logged in the autonomous testing phase.

This goes along with wider industry trends toward driverless trucks, autonomous drilling rigs and advanced data analytics.

An industry report cited in The Australian says that there’ll be a potential $65 billion boost to annual mining value by 2031 from automation alone.

Jobs are naturally being lost in some areas, but picking up in others.

Apparently 17,000 new roles were created in 2017 in the sector, according to the Australian Financial Review. What’s more, the average advertised salary is over $100,000.

Meanwhile, exploration spending is strong.

Rio announced a new deal to explore in China this week with a local partner. And South32 Ltd [ASX:S32] took out an option over a Mexican silver and zinc deposit that could see it invest up to US$100 million.

But it’s the wheeling and dealing on the ASX that intrigues me most right now.

Copper miner OZ Minerals Ltd [ASX:OZL] is an interesting stock to keep an eye on. It currently has a takeover offer in place for junior Avanco Resources Ltd [ASX:AVB].

OZL needs a 50% stake to be successful. It’s about 5% off the pace with a week to go before the deadline. Not only that, but OZL management says they are on the lookout for more deals.

Then again, OZL might become a takeover target for even bigger fish.

An investment bank named the company as one of five firms most likely to see a bid. The outlook for copper is bright, and OZL is already producing.

The CEO of OZL says he’s not opposed to the idea as long as the valuation is right.

It certainly bolsters my case that we’re going to see more mergers, acquisitions and joint ventures in the industry.

Look no further than Fortescue Metals Group Ltd [ASX:FMG] for the latest on that.

The company announced yesterday that it has agreed to buy a 15% stake in fellow iron ore stock Atlas Iron Ltd [ASX:AGO]. That’s a layout of $55 million.

But here’s the catch: AGO is already subject to a $280 million takeover bid from Mineral Resources Ltd [ASX:MIN].

Fortescue says it doesn’t support this; as a result, it knocked down the price of Atlas on the assumption that Fortescue is going to block the current takeover offer.

The open question now remains whether Fortescue will come in with a takeover offer of its own or whether it’s simply trying to stymie the Mineral Resources bid.

Analysts say that Fortescue might be trying to prevent Mineral Resources from bringing more low-grade iron ore to market when there’s pressure on pricing already.

However, there’s also a chance that Fortescue wants to own the access rights that Atlas has at Port Hedland, as well as the handy $500 million in accumulated tax losses it has on its books.

We can only wait to see what happens here. However, the newsflow just keeps coming thick and fast.

One reason for this is that we have multiple commodities developing high interest at the same time.

Copper, zinc and lead are all showing strength. Nickel is up 75% over the last year. And investor interest in other battery metals like lithium, cobalt and graphite remains strong.

It’s not hard to see why. The newsflow continues to look positive for electric vehicles. Daimler just presented two new electric trucks from its Freightliner brand.

Even long-dead uranium has sprung up into a six-month high. There’s a suggestion that US President Donald Trump is going to order US electricity grid operators to order from struggling coal and uranium power plants in America.

I’ve heard about the uranium price making a massive comeback for as long as I can remember.

It’s never happened. But it is true that the industry is so bad and beaten up that it can seemingly only go up from here otherwise there’ll be no market left whatsoever.

I prefer to build exposure to commodities elsewhere for the moment. But I want to reiterate that the natural resources market is one to keep an eye on right now.

Confidence, cash and sentiment is back here with a vengeance.

It sets the stage for what could be a cracking next 18 months for the ASX.


Callum Newman Signature

Callum Newman,
Editor, The Daily Reckoning Australia