LONDON (Reuters) - London bankers are vying for contracts after Rio Tinto said it had set up a new unit, Rio Tinto Ventures, to develop more specialized mining prospects as it seeks to reduce its reliance on bulk commodities, three banking sources said.
The big miners have traditionally relied on producing high-margin commodities, such as coal and iron, for the largest part of their earnings. tmsnrt.rs/1UBlQ67
But, as the commodity price crash of 2015 and early 2016 underlined, that leaves them exposed to violent swings in commodity prices and ultimately the risk of stranded assets if factors such as a shift to greener fuels or an increase in metals recycling fundamentally change demand.
Rio Tinto last month said Rio Tinto Ventures was seeking to identify projects aligned with its analysis of such macro trends.
At least three international banks have pitched for business with Rio Tinto’s new unit, based on developing projects for various products ranging from lithium to soda ash, the sources said.
“We are talking to Rio,” one of the sources said. “They are open to exploring projects in more exotic metals.”
Outlining its plans for Rio Tinto Ventures, Rio has said the arm could produce commodities that have not so far been central to its business, giving as an example its discovery in Serbia of the promising new mineral jadarite, which contains lithium and borates.
“The idea is to capture value beyond our core portfolio with a focus on new and emerging commodities,” Bold Baatar, Rio Tinto’s chief executive of energy and minerals, said at a conference in South Africa in February.
“I see this as an opportunity to build upon our capabilities through commercial partnerships, investing in the future of the company in projects and commodities that will create value.”
Partnerships can also help to maximize exploration budgets that mining companies reduced in response to the commodity price crash and are unlikely to restore to pre-slump levels as the chances of success diminish.
Rio told investors last year it anticipated capital expenditure staying at around $2 billion per year for the next three years, adding that the correlation between exploration spending and discovery rates ceased in around 2005 as finding new, high-quality deposits is proving harder when the best reserves have been depleted.
Editing by Greg Mahlich