Rio Tinto Drops Sale of Diamond Business

MELBOURNE—Rio Tinto RIO.LN -3.44% PLC abandoned plans to sell or seek a listing of its diamond portfolio after failing to attract potential new investors for a business some analysts estimated could be worth more than $2 billion.

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Major miners like Rio Tinto RIO.AU -2.13% face a challenge as they look to bolster their balance sheets by offloading smaller assets: The prices of many commodities are in the doldrums. Gemstone prices have been held back by sluggish demand for luxury goods in developed markets, although producers hope for stronger sales as disposable incomes rise in populous nations like China and India.

In the diamond market, controlled by only a handful of major producers—notably Anglo American AAL.LN -4.03% PLC’s De Beers unit and Russia’s Alrosa Co.—asset sales can be especially hard. An offer from one of the large companies will face close scrutiny from regulators, while smaller rivals often can’t afford the price.

Agence France-Presse/Getty Images

Argyle Pink Diamonds manager Josephine Johnson holds up the biggest ‘red’ diamond produced by Rio Tinto’s Australian mine

Rio Tinto produces about 12% of the world’s diamonds, from mines including Argyle in Western Australia—the largest source of rare pink diamonds—and Diavik in Canada’s Northwest Territories, in which it has a majority stake. The company put the book value of the diamonds portfolio at US$1.3 billion, but some analysts estimated it could be worth more than US$2 billion.

Alan Davies, chief executive of Rio Tinto’s diamonds and minerals division, said Monday the company decided to keep the business after a yearlong review concluded this was the best way to generate value for shareholders.

The decision signals Rio Tinto Chief Executive Sam Walsh isn’t running a fire sale, despite promising significant cash proceeds from disposals this year as the Anglo-Australian mining company—seeking to protect a coveted single-A credit rating—works to cut costs and reduce its US$19 billion in debt. The company, which has billions of dollars of smaller or weaker assets on the block, had been working toward either selling the diamond assets or listing them separately.

Other miners have also looked to scale back or eliminate their diamond exposure. In April, BHP Billiton Ltd. BHP.AU -3.39% finalized the sale of its Ekati mine in northern Canada for US$553 million to Dominion Diamond Corp., DDC.T -1.77% formerly Harry Winston Diamond Mines, ending its involvement in the diamond interest. Dominion’s other producing asset is a 40% stake in the Diavik mine.

Hit by lower prices and depreciation charges, Rio Tinto’s diamond operations lost US$43 million last year while producing 13.1 million carats for the company—compared with De Beers’s 27.9 million carats and Alrosa’s 34.4 million carats.

“The medium-to-long-term market fundamentals for diamonds remain robust, fueled by growing demand for luxury goods in Asia and continuing strong demand in North America,” Mr. Davies said in a statement.

The U.S. remains the biggest market for diamonds, although emerging markets led by China and India are expected to continue growing rapidly as their economies develop.

Management consulting firm Bain & Co. has forecast world diamond demand will grow at an average 5.9% a year to almost US$26 billion in 2020. Supplies of rough diamonds will grow by about 2.7% a year to almost 157 million carats, it predicts. That would be some 12% below the peak 177 million carats produced by the industry in 2005, before the global financial crisis. It estimated the market for diamonds grew by 32% a year in China and 22% in India between 2005 and 2011, outpacing any other region.

Rio Tinto, which has sold more than US$5 billion in assets since 2009, has accelerated efforts to exit smaller operations and slash costs since Mr. Walsh took over from Tom Albanese as chief executive in January. The company earlier this month agreed to sell a nickel and copper mining project in the U.S. for roughly US$325 million in cash. It is still seeking buyers for billions of dollars in assets including aluminum businesses, iron-ore operations in Canada and coal-mine stakes in Australia.

 

Rhiannon Hoyle in Sydney contributed to this article.

Write to Robb M. Stewart at robb.stewart@wsj.com

China’s smog levels get the cartoon treatment

China News

China SmogIt’s no secret that air pollution is a major problem in China. In fact, in recent years, the problem has gotten so bad that the Environmental Protection Agency, the environmental watchdog in the US, has had to revise its Air Quality Index system. Originally, the AQI had a top rating of 500, which indicates 500 micrograms per cubic meter of air. But due to escalating problems in air quality in major urban centers such as Beijing and Shanghai, that index has been increased to 1000.

To put that in perspective, an AQI of 500 is roughly 20 times what would be considered healthy for the average human being to breathe on a regular basis. At 1000 micrograms per cubic meter, Chinese citizens are being exposed to a whopping 40 times what would be considered healthy for urban inhabitants. And according to the Chinese government, these extreme…

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China’s Central Asia problem

China News

Since the collapse of the Soviet Union, China and its Central Asianneighbours have developed a close relationship, initially economic but increasingly also political.

Energy, precious metals, and other natural resources flow into China from the region. Investment flows the other way, as China builds pipelines, power lines and transport networks linking Central Asia to its northwestern province, the Xinjiang Uighur Autonomous Region.

Cheap consumer goods from the province have flooded Central Asian markets. Regional elites and governments receive generous funding from Beijing, discreet diplomatic support if Russia becomes too demanding and warm expressions of solidarity at a time when much of the international community questions the region’s long-term stability.

China’s influence and visibility are growing rapidly

It is already the dominant economic force in the region and within the next few years could well become the pre-eminent external power there, overshadowing the U.S. and Russia.

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China News

China looks to lower the cost of 3D printing and make large titanium components to build the next-generation fighter jet and self-developed passenger plane.

By using laser additive manufactured titanium parts in its aviation industryChina is looking to become a global leader in commercializing 3D printing technology.

The laser additive manufacturing technology not only lowers the cost of titanium parts to only 5 percent of the original, it also reduces the weight of the components and enhances the strength of complicated parts.

As much as 40 percent of the weight can be reduced if the forged titanium parts on an American F-22 were made using the Chinese 3D printing technology, according to a a report on Chinese Web site, Guancha Zhe.

With funding from the government, especially from the military, the Chinese aviation laser technology team is making headways in making titanium parts for the country’s…

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China Calls in NKorean Ambassador Over Nuke Test

China’s foreign minister called North Korea’s ambassador in for a dressing-down Tuesday and demanded his country’s cease making further threats, in a show of Beijing’s displeasure over its earstwhile ally’s latest nuclear test.

Yang Jiechi delivered a “stern representation” to Ji Jae Ryong and expressed China’s “strong dissatisfaction and firm opposition” to Tuesday’s test, the ministry said in a statement posted to its website.

 

By CHRISTOPHER BODEEN Associated Press
BEIJING February 12, 2013 (AP)

“Yang Jiechi demanded that the Democratic People’s Republic of Korea side cease talk that further escalates the situation and swiftly return to the correct channel of dialogue and negotiation,” the statement said. It did not say if Ji made any response. Calls to the North Korean Embassy rang unanswered Tuesday.

Yang reiterated China’s desire for peace and stability on a nuclear-free Korean Peninsula and said issues should be resolved within the framework of long-stalled denuclearization talks involving North Korea, China, the U.S., South Korea, Japan and Russia.

The appeals were contained in an earlier statement from the ministry calling on North Korea to abide by its denuclearization pledge, and not to “take additional actions that could cause the situation to further deteriorate” — echoing the wording of China’s responses to previous North Korean nuclear tests in 2006 and 2009.

Yang’s meeting with the ambassador shows China’s anger and frustration over North Korea’s actions since the ministry calls in foreign diplomats only in cases of extreme pique, such as U.S. arms sales to Taiwan or Japan’s nationalization of a disputed island group. However, neither statement pointed to any specific actions Beijing would take in response to Tuesday’s nuclear test, the North’s third.

The meeting also followed a warning from North Korea that the test was merely its “first response” to what it called U.S. threats, and that it will continue with unspecified “second and third measures of greater intensity” if Washington maintains its hostility.

Despite being the North’s biggest source of aid and diplomatic support, Beijing has been reluctant to back more severe measures that could destabilize the North’s hardline regime, which serves as a buffer between China and democratic South Korea backed by U.S. forces.

China’s patience appears to be wearing thin, however, and Beijing reacted in unusually strong terms to the North’s December rocket launch by agreeing to tightened United Nations sanctions on the country, a move that brought criticism from Pyongyang.

China had repeatedly called on the North not to conduct a test, and Pyongyang’s decision to proceed anyway will likely strengthen Beijing’s arguments that it has little power to influence its neighbor and that harsh actions against the regime will have only a negative effect.

Although Beijing hasn’t proposed any concrete plans to punish the North, disgust with Pyongyang’s defiance and lack of gratitude is growing in. Tuesday was a public holiday in China, but the nuclear test was widely criticized on the country’s popular Twitter-like Weibo microblogging service, with users calling it inhuman and anti-social and urging the government to reconsider its assistance to the regime.

Many found the test offensive because it took place less than 100 kilometers (62 miles) from the Chinese border and came on the third day of the Lunar New Year, when most work stops for family gatherings.

“We’re all celebrating the new year, but it feels like someone just tossed a hand grenade at my front door. North Korea is just too crazy,” said a Beijing office worker standing outside a downtown McDonald’s restaurant, who would give only his surname, Ke.

Exclusive: Eric Schmidt Unloads on China in New Book

By Tom Gara

dapd

Google GOOG +2.63% executive chairman Eric Schmidt is brutally clear: China is the most dangerous superpower on Earth.

Corporate Intelligence reviewed preliminary galleys of Schmidt’s new book, “The New Digital Age,” (Random House) which debuts in April. And Schmidt’s views on China stand out the strongest amid often predictable techno-utopian views of the future.

Some of these views are both cliched and camera-ready . He imagines that soon an “illiterate Maasai cattle herder in the Serengeti” will use a smartphone to “inquire the day’s market prices and crowd-source the whereabouts of any nearby predators.”

Other parts of the book are a much darker take on how authoritarians, extremists and rogues of all varieties are becoming just as empowered as that Maasai herdsman. And the good guys, whoever they are, have yet to work out how to properly defend themselves.

The new book is co-written by Jared Cohen, a 31-year old former State Department big shot who now runs Google Ideas, the search giant’s think tank.

The Schmidt and Cohen partnership has at least one other impressive credit to its name. The two wrote a long essay,“The Digital Disruption,” published in November 2010. In its opening paragraph, it predicted that “governments will be caught off-guard when large numbers of their citizens, armed with virtually nothing but cell phones, take part in mini-rebellions that challenge their authority.”

A month later, a wave of popular uprisings began across the Arab world. As the Egyptian revolution kicked off in January 2011, Cohen, so the story goes, was not only in Cairo: he shared dinner with Google executive and high-profile activistWael Ghonim just hours before he was snatched from the streets by security forces.

With the Arab uprisings rolling onward, “The New Digital Age” picks up where that previous essay left off, taking a big-picture view on how everything from individual identities to corporate strategy, terrorism and statecraft will change as information seeps ever deeper. And in this all-Internet world, China, the book says again and again, is a dangerous and menacing superpower.

China, Schmidt and Cohen write, is “the world’s most active and enthusiastic filterer of information” as well as “the most sophisticated and prolific” hacker of foreign companies. In a world that is becoming increasingly digital, the willingness of China’s government and state companies to use cyber crime gives the country an economic and political edge, they say.

“The disparity between American and Chinese firms and their tactics will put both the government and the companies of the United States as a distinct disadvantage,” because “the United States will not take the same path of digital corporate espionage, as its laws are much stricter (and better enforced) and because illicit competition violates the American sense of fair play,” they claim.

“This is a difference in values as much as a legal one.”

The U.S. is far from an angel, the book acknowledges. From high-profile cases of cyber-espionage such as the Stuxnet virus that targeted Iranian nuclear facilities, to exports of surveillance software and technology to states with bad human rights records, there is plenty at home to criticize.

And those criticisms will become louder and more politically resonant, Schmidt and Cohen claim, as the distinctions between states that support freedom online and those that suppress it become clearer. The pair even speculate that the Internet could eventually fracture into pieces, some controlled by an alliance of states that are relatively tolerant and free, and others by groupings that want their citizens to take part in a less rowdy and open online life. Companies doing business with the latter could find themselves shunned from the former, the book suggests.

In this roundabout way the pair come close, on occasion, to suggesting western governments follow China’s lead and form closer relationships between state policy and corporate activity.

Take the equipment and software that comprises the Internet. Most of the world’s IT systems were once based almost entirely on Western infrastructure, but as Chinese firms get more competitive, that is changing, and not necessarily for the better, they say:

In the future  superpower supplier nations will look to create their spheres of online influence around specific protocols and products, so that their technologies form the backbone of a particular society and their client states come to rely on certain critical infrastructure that the superpower alone builds, services and controls.

Chinese telecom equipment companies, rapidly gaining market share around the world, are at the front lines of the expansion this sphere of influence, they say: “Where Huawei gains market share, the influence and reach of China grow as well”. And while western vendors like Cisco Systems CSCO +1.26% and Ericsson are not state controlled, the will likely become closer to their governments in the future, Schmidt and Cohen say:

There will come a time when their commercial and national interests align and contrast with China — say, over the abuse of their products by an authoritarian state — and they will coordinate their efforts with their governments on both diplomatic and technical levels.

But for all the advantages China gains from its approach to the Internet, Schmidt and Cohen still seem to think its hollow political center is unsustainable. “This mix of active citizens armed with technological devices and tight government control is exceptionally volatile,” they write, warning this could lead to “widespread instability.”

In the longer run, China will see “some kind of revolution in the coming decades,” they write.

 

http://blogs.wsj.com/corporate-intelligence/2013/02/01/exclusive-eric-schmidt-unloads-on-china-in-new-book/

Oil firms reject smog blame

A Chinese armed police officer passes through Chang'an Avenue during the flag-raising ceremony in Tiananmen Square, as severe pollution hit Beijing on Tuesday. Photo: CFP
A Chinese armed police officer passes through Chang’an Avenue during the flag-raising ceremony in Tiananmen Square, as severe pollution hit Beijing on Tuesday. Photo: CFP

Murky haze continued to shroud large swathes of China on Tuesday, prompting choking residents to point the finger at the country’s top oil firms for allegedly producing substandard gasoline and diesel, an accusation denied by the oil giants. Analysts have proposed an energy structure adjustment as the ultimate solution.

A total of 1.3 million square kilometers of the country was enveloped by dense haze, covering most parts of northern and eastern China, according to the Ministry of Environmental Protection, which graded the air quality of Beijing, Tianjin, Shijiazhuang in Hebei and Jinan in Shandong as level 6, indicating “serious pollution.”

The National Meteorological Center (NMC) on Tuesday issued a yellow warning for the haze, implying moderately smoggy weather.

The Beijing Environmental Protection Bureau on Tuesday noted that unfavorable meteorological conditions, namely a lack of wind, were a direct cause of the heavy haze, which has hit north China for at least the fourth time this winter.

Agitated by the deteriorating smog, many picked out the country’s two major oil giants – State-owned China National Petroleum Corporation and China Petrochemical Corporation (Sinopec) as the main “culprits” for the pollution after reading reports analyzing how the oil Chinese automobiles consume has badly polluted the air.

According to a diagram on sohu.com, the standard of China’s petroleum is greatly inferior to that of the US and Europe. It pointed out that China is the world’s largest buyer of “bad-quality” crude and the gasoline has a high content of sulfur due to insufficient investment in refining technology.  

The report soon triggered a massive online uproar after being forwarded by some Weibo celebrities. Some even blamed the authorities and media for intentionally dodging this serious problem while analyzing the causes behind the smog.

“The smog was caused by diverse reasons. Oil is just one of the factors contributing to the issue,” Lü Dapeng, a spokesperson for Sinopec, told the Global Times Tuesday, adding that starting from May 2012, the firm has been providing the capital with oil products equivalent to Euro V standards.

“It’s the strictest standard in the world, the sulfur content of which is less than 10 ppm,” said Lü. “We are also concerned about the air quality and have been striving to make improvements.”

Han Xiaoping, an energy industry analyst, told the Global Times that the burning of coal in winter, and not vehicle emissions, was the main contributor to air pollution. 

“Last year, the consumption of coal increased by over 20 million tons in Beijing compared with that in 2011, as compared to the 250 million tons nationwide,” said Han, noting that by contrast, the consumption of oil grew by 30 million tons across the nation. He suggested that the restructuring of energy consumption would be an effective way of solving the problem, such as using natural gas and nuclear power as alternatives for coal.

The public also blamed the oil manufacturers’ tardiness in upgrading product quality. 

“We have invested more than 200 billion yuan ($32 billion) in upgrading related facilities during the past years, and the efforts are proceeding in different cities,” said Lü. He said since the upgrading of oil quality calls for large amounts of investment, he hoped the government would unveil some policy stimulus measures, such as preferential tax policies.

The public discontent over the pollution has also alarmed the government.

During recent meetings to solicit opinions for his last government work report, Premier Wen Jiabao said that the recent dense haze had affected people’s lives and health, and vowed to raise hopes among the public by accelerating the adjustment of the industrial structure and promoting energy conservation and emission reduction.

 

Yum’s chicken in China contained excessive levels of drugs – Xinhua

(Reuters) – Chicken sold to KFC’s parent Yum Brands Inc in China contained excessive levels of chemicals, the official Xinhua news agency reported on Friday, escalating a month-long food scare that has hit Yum’s sales in its biggest market.

The Shanghai Municipal Food Safety Committee said KFC’s checks on its suppliers were lax, and that it found excessive levels of chemical residue in some of the fast food chain’s supplies, the report said.

The investigation has now been passed to authorities where the suppliers are based, Xinhua said, without elaborating.

Officials at the Food Safety Committee and Yum in China could not immediately be reached for comment.

Yum and McDonald’s Corp’s have come under intense scrutiny from local media since the official China Central Television reported in late December that some of the chicken supplied to them contained excess amounts of antiviral drugs and hormones used to accelerate growth.

On investigating, the Shanghai Food and Drug Administration found the levels of antibiotics and steroids in KFC chicken were safe, though the watchdog found a suspicious level of an antiviral drug in one of the eight samples tested.

Yum warned earlier in the month that sales in China – where it earns over half of its worldwide revenue and operating profit – shrank more than expected in the fourth quarter, citing bad publicity from a government review of its chicken supply.

Yum has apologized to customers in China over its handling of the food scare.

McDonald’s Chief Executive Don Thompson said on Wednesday the chicken scare “minimally impacted” McDonald’s sales in China during the fourth quarter and continues to hurt business this year.

(Reporting by Kazunori Takada and Shanghai newsroom; Editing by Daniel Magnowski)

Questions and answers about China’s role in UN punishments against difficult ally North Korea

Published January 23, 2013 /Associated Press

BEIJING –  China took a step against longtime ally North Korea on Tuesday by voting in favor of a U.N. Security Council resolution condemning Pyongyang’s long-range rocket launch in December. Beijing is concerned that North Korea’s nuclear ambitions are destabilizing the region, but is willing to go only so far to punish its economically struggling neighbor. Here are some questions and answers about China’s role:

WHY DOES CHINA SUPPORT NORTH KOREA?

Beijing fears a collapse of the North Korean regime could send a massive flow of desperate, starving refugees into northeastern China and lead to a pro-U.S. government setting up across its border. Chinese firms could lose their leading position in North Korea, while South Korean investment in China would be diverted to help rebuild the devastated North’s economy.

WHAT ABOUT NORTH KOREA’S MISSILES AND NUCLEAR PROGRAM?

China wants a stable, peaceful Northeast Asia and doesn’t want the North to provoke retaliation from the South, Japan or the United States. China calls for denuclearization of the Korean Peninsula, though Beijing’s leaders are seen as resigned to the North possessing some sort of atomic weapon.

WHAT APPROACH DOES BEIJING RECOMMEND?

China typically calls for dialogue instead of sanctions, and has hosted successive rounds of talks also involving the two Koreas, Japan, Russia, and the U.S. Pyongyang agreed at the six-nation talks to end its nuclear programs, but discussions broke down over how to verify that.

SO WHY DID CHINA VOTE FOR THE NEW U.N. RESOLUTION?

China wants to register its displeasure with Pyongyang’s missile launch and doesn’t wish to be seen as obstructing the U.N.’s work. At the same time, it has pushed for a watered-down response, agreeing to strengthen existing sanctions while opposing substantially new ones. Beijing also wants to appear cooperative with the second Obama administration.

HOW MUCH INFLUENCE DOES BEIJING HAVE WITH PYONGYANG?

Hard to say. Chinese scholars and officials say not as much as the outside world thinks, and that sanctions have little effect on Pyongyang. That’s despite China being the North’s most important political ally, as well as its biggest source of food and fuel aid to prevent total economic collapse. China’s overriding fear of the North becoming a failed state severely limits Beijing’s options.

WHAT’S THE HISTORY BETWEEN THESE TWO?

Chinese troops fought on behalf of the North Korean regime in the 1950-53 Korean War and relations between the communist neighbors were long described as being “as close as lips and teeth.”