Australia | May 22 2007
By Greg Peel
Rumours circulated London last night (our time) that the Preston Chiara appearing at Rio Tinto’s (RIO) uranium seminar was not in fact Preston Chiara at all but a very clever hologram delivering a pre-recorded message. Interested parties had flown in from around the globe to hear Rio’s Chief Executive of Energy speak, but all they got was a rehash of the same presentation of April 30 made in Australia.
Merrill Lynch analysts, among others, were ruing the cost of air tickets and English "food" when their expectations of a grand revelation of Rio’s uranium mine expansion plan soon dwindled to a realisation that not only was the beer tepid, but the seminar too.
Readers wishing to know what Mr Chiara had to say last night are directed to "Rio: The Forgotten Uranium Miner" (Australia; 01/04/07) published by FNArena as a summary of the earlier presentation.
The only information that can be added to that summation is that Rio could (as opposed to will) increase its overall uranium production capacity across its various mines from 7-8kt in 2007 to 10-13kt by 2010, 13-17kt by 2012, and plateau at 14-19kt by 2016.
There was one piece of new news – or least previously unrevealed information – and that is the levels of the legacy contracts still on the books. Pre-2006, Rio’s uranium sales contracts, including those from its 67% owned subsidiary Energy Resources Australia (ERA), were locked in at prices below US$20/lb and held static for some years. It has always been a source of consternation among analysts that those prices and amounts were only ever revealed in hindsight as each year’s results were tabled. Analysts were unsure how to value ERA into the future, particularly as uranium spot prices were taking off.
Without giving the entire game away, Chiaro did advise that all the so-called "legacy contracts" would be gone by 2012. 75% are left in 2007, 30% by 2009, and 5% by 2011. Contracts being signed now are still not, however, at spot rates, but are at significantly higher prices than pre-2006. As to what these prices were, Chiaro (or his hologram) would not be drawn. Nice try, said the hologram.
At the end of the day Merrills is now presuming the announcement on the actual expansion plans and their details will probably not come in this calendar year. The analysts are now on their way back again.