Energy & Resources Talking Points | 03/08/2017

In today’s talking points: Rio to pay record interim dividend to shareholders after posting strong profits; Bright future ahead for Onslow as Wheatstone project nears production phase; Positive Chinese data sends iron ore prices soaring; China’s diamond industry slowly turning for the better.

Rio to pay record interim dividend to shareholders after posting strong profits

Rio Tinto will pay a record interim dividend of $US 1.10 per share to shareholders after strong earnings of $US 3.94 billion in the first half of 2017. Rio’s bumper earnings were released after the Australian stock market closed on Wednesday afternoon, showing a huge 152 per cent increase in earnings compared to the first half of 2016. Rio chief executive JS Jacques was optimistic when discussing the results with the media, and stressed that Rio would continue to focus on producing higher returns in the future by optimising productivity.

Read more at: The Sydney Morning Herald

Bright future ahead for Onslow as Wheatstone Project nears production phase

Onslow, a community on the coast of Western Australia’s Pilbara Region, is in the middle of a transition from sleepy coastal town to liquefied natural gas (LNG) hub. Construction of the hub began in December 2011, shortly after Chevron Australia made the decision to invest in the gas field. The Wheatstone Project – the second largest resource in Australia to date – is expected to come online in late 2017, with the vast majority of LNG produced to be sent to North East Asia under long-term contracts.

Much investment has been poured into the town as part of the project, including financing for a new hospital and airport, as well as construction of a basketball centre, skate park and swimming pool. These community benefits are only expected to snowball as the Wheatstone Project develops and other potential projects in the region are explored.

Read more at: The Australian Energy Review

Positive Chinese data sends iron ore prices soaring 

Iron ore prices jumped to their highest in eight months this Monday, following the release of Chinese data, which showed China’s construction sector grew the most in almost four years in July. According to the data release, the outlook for iron ore prices is fairly positive, especially considering that producers have reduced mining costs substantially over the past years. The mining industry as a whole now spends $22 less per tonne than it did in 2013 due to tightened capital controls, renegotiated contracts and the exit of high cost supply. Despite the overall positivity, some iron ore traders fear that the tougher and more frequent environmental inspections by Chinese regulators might disrupt production.

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China’s diamond industry slowly turning for the better

The China market, the second largest market for the diamond industry, is seeing an increase in demand but the market is not thriving. Market leader Chow Tai Fook is showing encouraging signs. In the three months ending on June 30th, same store sales were up 11% year-over-year in Mainland China and up 5% in the Hong Kong and Macau market. Part of the growth can be attributed to Chinese consumers purchasing more jewellery at home rather than abroad. Early last year, the Chinese government took steps to encourage more domestic luxury spending, which has consequently impacted revenues of downstream participants in the U.S., Europe, and Japan that have generated a significant portion of revenue from Chinese tourists in recent years.
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