THE DISTILLERY: Riling Rio

One jotter hones in on tension between Rio Tinto and Ivanhoe, while another predicts a Chinese gold-buying spree.

The Easter break gave the commentariat a good chance to ruminate on a number of big picture topics, ranging from the health of Australia's economy and financial markets to China's seemingly insatiable appetite for local resources. But one long-running issue stands out this morning, and that's Rio Tinto's strained relationship with its newly-acquired Ivanhoe Mines – a partnership that was tested again recently, when a report surfaced about cost blowouts at the companies' shared Oyu Tolgoi mine. One jotter reckons there was more to the report than meets the eye. Meanwhile, ink was also spilled over BHP Billiton's union troubles at its Bowen Basin coal mines, and the one-year anniversary of Singapore Exchange's failed takeover of the Australian Stock Exchange. Plus, we learn of the real lesson that should be learned from infighting at the Health Services Union.

But first, The Australian Financial Review's Chanticleer columnist, Michael Smith, says relations between Rio Tinto and Ivanhoe Mines are under pressure once again, following the release of some gloomy cost estimates for the reluctant partners’ massive Oyu Tolgoi project in Mongolia.

"The problem for investors trying to determine the reliability of these latest forecasts is that Rio Tinto and the company building the project, Oyu Tolgoi LLC, have not signed off on the report. This is despite the fact that Rio owns 51 per cent of Ivanhoe, which released the assessment. While they have not publicly disputed the figures, it is clear Rio is not happy, particularly after the release of a report it never signed off on wiped almost 8 per cent off Ivanhoe’s shares in Toronto last week. It is understood Rio was given a narrow window to comment on the draft report. While Ivanhoe did take some of Rio’s comments on board, it did not send the final report to Rio or the Oyu Tolgoi LLC board for final approval. Rio understandably wants to complete its own assessment of the assumptions made in the technical report."

The Australian's Robin Bromby reckons Zijin Mining Group's bid Norton Gold Fields is just the beginning of a much larger gold-buying program in China, and that there's more to it than simple mergers and acquisitions.

"A very reliable source close to several gold companies tells us Chinese interests are not only taking stakes in explorers and miners, they are also buying gold directly from producers and shipping it home. There is much talk in gold bug circles in the US that the recent purchase by the Bank of International Settlements of more than four tonnes of gold may have been wholly or in part on behalf of the People's Bank of China. Our source is quite clear on one thing: the move on NGF is just the beginning. China wants more gold and it doesn't want to pay full market price for it (as it doesn't for any mineral) so it will be looking to pick up more Australian gold producers and add the yellow metal to its existing central bank gold pile. Not something the Perth Mint will be happy to hear."

In the Fairfax press, Malcolm Maiden used the Easter break to reflect on what's been achieved over the past 12 months and discovers that, from an Australian investor's perspective, the answer is that not much has been achieved at all.

"The S&P/ASX 200 Index is up 6.5 per cent this year as part of a global rally, following the second rescue of Greece, but it is still 10 per cent lower than it was at Easter last year. The banks are 8 per cent lower, industrial shares are 4 per cent lower, and the resources component of the benchmark index is down 21.5 per cent. ... The Australian dollar, always a proxy for global growth and commodity prices, is looking soft at about $US1.03, but is still high enough to be a growth retardant here. My conclusion? The markets are not threatening yet to sell off again, as they did in the final months of last year. But the outlook is less encouraging than it was a year ago, when investors were last enjoying their Easter break."

Also on markets, The Australian's John Durie suspects investors are getting a little too concerned about slowing profit growth in the US, and weaker-than-expected jobs figures there. The bottom line: "the economy is still growing, profits are still increasing and a slowing in the rate of growth is hardly surprising given year-ago numbers were bouncing from a recession."

Meanwhile, in the same paper, David Uren runs through the Reserve Bank's growth downgrade for Australia, casting doubt on the government's assumption that its return to budget surplus will be driven by an expansion of the economy at its long-term rate.

In company news, The Australian Financial Review's Matthew Stevens asks why the coal unions appear to be so keen to avoid a secret ballot of their workers at the heated Bowen Basin site, as proposed by the BHP Mitsubishi Alliance. And his colleague, Tony Boyd, checks in with an upbeat Magnus Bcker, chief executive of the Singapore Exchange, one year after his failed attempt to take over the Australian Stock Exchange.

Finally, as the Health Services Union fiasco continues, The Australian's Judith Sloan argues that workers would be better served by removing unions' monopoly rights, which uncomfortably lump disparate types of workers into fewer, more powerful groups.

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