The Times - UK (2022-01-19)

the times | Wednesday January 19 2022 2GM 41

Business

The risks for creditors of BT Group
could increase after Patrick Drahi
raised his stake in Britain’s largest tele-
coms group, experts have warned.
The billionaire increased his control
over BT last month, building his stake
up to 18 per cent, from 12.1 per cent.
Drahi, 58, the founder of Altice, the
French telecoms group, and the owner
of Sotheby’s, reiterated his support for
BT’s board and strategy and has com-
mitted to not making a bid for another
six months, under City takeover rules.
However, there is uncertainty over
the intentions of the tycoon, who has a
reputation for snapping up telecoms
assets Europe in leveraged buyouts.
Some analysts think he could seek to
raise BT’s equity value via a sale or par-
tial divestment of Openreach, BT’s
broadband network, which bosses and
some investors believe is undervalued.
Infrastructure assets are fetching

8 million tonnes in the last quarter, and

reduced its annual forecast for the com-

modity to 38 million to 41 million ton-

nes due to the impact of wet weather

and Covid-related labour constraints.

BHP produces commodities includ-

ing iron ore, copper, nickel, oil and coal.

It had profits of $11.3 billion in the year

to June 2021. It is dual-listed in the UK

and Australia, but shareholders vote to-

morrow on whether to unify its struc-

ture, with a primary listing in Australia.

The miner is also investing more in

“future-facing commodities” as it di-

vests its oil business to Woodside Petro-

leum and targets opportunities in nick-

el, used in electric-vehicle batteries.

Rio Tinto forecast slightly weaker-

than-expected 2022 iron ore ship-

ments, citing tight labour market con-

ditions and production delays from a

new mine at the Gudai-Darri project.

Rio Tinto braces

for further decline

in iron ore output

Emily Gosden

Creditors ‘at risk’ from Openreach split

Alex Ralph higher valuations, whilst the value of
telecoms companies have been under
pressure from competition, regulation
and weak financial returns. There is
speculation that private equity firms
are examining Openreach, with a valu-
ation of as much as £40 billion, more
than double the BT group’s present
market valuation.
Jan Frederik Slijkerman, a sector
analyst at ING, the Dutch bank, said
that shareholders preferred to receive
the proceeds from asset sales via a spe-
cial dividend, but when they were not
reinvested “this leaves the company
with less assets or more debt, and a
weaker credit profile”.
He pointed to the recent leveraged
buyout of TDC, the Danish telecoms
operator, by Macquarie, the infra-
structure investor, and also to Telecom
Italia, which attracted a €33 billion of-
fer from KKR, the giant US fund.
BT’s credit default swaps — deriva-
tives contracts that protect against a

company’s default — could widen as a

result of the concern, he said. There are

also potential risks for bondholders, al-

though BT has increased protection for

holders of its $500 million hybrid bond

with a change-of-control clause.

Drahi is active in his dealmaking.

Last year he took the Amsterdam-listed

Altice Europe private, in September

launched a €2.8 billion unsolicited

takeover bid for Eutelsat, the French

satellite company, and last month was

reported to be considering an initial

public offering of Sotheby’s, barely two

and a half years after acquiring the auc-

tion house for $3.7 billion.

BT, led by Philip Jansen, its chief ex-

ecutive since 2019, is investing heavily

in expanding BT Openreach’s full-fibre

broadband network in Britain. A weak

share price, depressed by competition,

capital expenditure and a pension

deficit, has left BT vulnerable to a take-

over. Shares in BT rose 5½p, or 3.1 per

cent, to 186½p yesterday.

LUKE MACGREGOR/BLOOMBERG/GETTY IMAGES

Miner reports production

rise ahead of listing vote

Times Business Reporter

The world’s largest miner last night

reported a 5 per cent rise in iron ore pro-

duction for the second quarter, driven

by strong performance at its Jimblebar

mine and increased production at

South Flank, both in Western Australia.

BHP produced its first iron ore in

May last year at the $3.6 billion South

Flank project, which is expected to

eventually produce 80 million tonnes a

year. Along with Mining Area C, it will

form the largest operating iron ore hub

in the world and produce 145 million

tonnes a year. Iron ore production in

Western Australia was 73.9 million ton-

nes in the three months ended Decem-

ber, up from 70.4 million a year ago.

The miner, which is trying to offload

some thermal coal assets, said metal-

lurgical coal output fell 7 per cent to

The world’s biggest iron ore producer

has warned that its output could

fall again this year if it is hit by Covid-

related disruption, labour and supply

chain shortages or measures to protect

Aboriginal sites in Australia.

Rio Tinto reported a 4 per cent

decline in iron ore production from its

operations in Australia’s Pilbara region

in 2021, to 319.7 million tonnes. It

blamed a combination of “above

average rainfall in the first half of the

year”, delays in new projects and “cul-

tural heritage management”.

The Anglo-Australian miner is

adapting its plans to try to avoid a

repeat of 2020’s Juukan Gorge debacle,

when it caused outrage by blowing up

two ancient, sacred rock shelters. Iron

ore shipments fell by 3 per cent to

321.6 million tonnes for the year.

Rio said that it expected to ship

between 320 million and 335 million

tonnes of iron ore from the Pilbara this

year. Its guidance “assumes develop-

ment of the pandemic does not lead to

government-imposed restrictions and

widespread protracted cases [of Covid-

19] that could result in a significant

number of our production-critical

workforce and contractor base being

unable to work”. It also warned of “tight

labour markets and supply chain

delays”.

Rio’s guidance remains subject to

commissioning and starting up new

mines and managing cultural heritage

after changes to legislation passed in

the wake of Juukan Gorge. “We con-

tinue to engage with Traditional Own-

ers regarding current and proposed

plans for mining activities, adjusting

mine plans where required,” Rio said.

Analysts at Jefferies said: “We believe

the bottom end of the guidance range is

most likely as supply constraints [la-

bour and the pandemic] in the Pilbara

are worsening.”

Rio derives the majority of its income

from mining iron ore, but it also pro-

duces copper, aluminium and other

metals. It reported record interim net

profits of $12.3 billion in the first half of

2020 thanks to record iron ore prices.

The Juukan Gorge debacle led to the

exit of Jean-Sébastien Jacques, 50, as

chief executive and has prompted the

early departure of Simon Thompson,

62, the chairman, to be replaced by

Dominic Barton, 59, this year.

Jakob Stausholm, 53, who succeeded

Jacques, said: “In 2021 we continued to

experience strong demand for our

products while operating conditions

remained challenging. Despite this, we

progressed a number of our projects.”

Shares in Rio Tinto rose by 50p, or

0.9 per cent, to close at £54.43.

Opposition and problems with

permits in Serbia have forced Rio

Tinto to delay one of the world’s

biggest new lithium mines less

than six months after committing

to the $2.4 billion project.

Rio said that it would proceed

with the Jadar lithium borates

mine in July.

At the time Jakob Stausholm,

chief executive, played down fears

of opposition in Serbia, but the

mine has had permits to allocate

land for the mine refused and the

project has attracted protests over

environmental issues.

Rio said that it had put back

expectations for first production

by a year to “no earlier than 2027”.

It said that it “fully understand the

concerns amongst some Serbian

stakeholders about environmental

impacts and we will continue to

engage” to show how the project

would deal with those problems.

The setback for the Anglo-

Australian group comes amid

tensions between Australia and

Serbia over the handling of Novak

Djokovic, Serbia’s world No 1

tennis player, who was deported

from Australia over a visa row.

Djokovic appeared to back the

protests against the mine in an

Instagram post in December.

Setback for

lithium mine

Emily Gosden

A

foul-up on a
secret project
will cost
QinetiQ
£14.5 million in
losses, the defence
technology company has
confirmed (Robert Lea
writes).
With QinetiQ already
troubled by the
withdrawal from
Afghanistan by American
and British forces, who
use its bomb detection
technology, as well as by
issues in its supply chain,
the company warned in

the autumn that it

expected material losses

on “a large, complex

project”. Yesterday it

confirmed that these

would reach the

£14.5 million that it had

indicated previously —

equivalent to more than

10 per cent of the profits

QinetiQ typically would

make in a year.

Steve Wadey, 52, its

chief executive, had said

earlier that the problem

involved a “technology

issue in system

development” with a

contractor in its own

supply chain. Fears that

the project may cause

reputational damage with

QinetiQ’s main clients,

the Ministry of Defence

and the Pentagon in the

United States, led him to

say that the contract was

not with a “Middle

Eastern or inappropriate

customer”. He has

committed to giving

details on the nature of

the project when the

contract is formally

closed.

In a trading statement

for its third quarter to the

end of December,

QinetiQ said its other big

issue of pandemic-related

problems in its American

supply chain had abated

and that the final tally for

its full-year profits —

down 20 per cent on a

comparable basis at the

half-year — should be no

surprise. News that the

fallout from the mystery

contract had been

contained continued a

recent rally in the shares,

which rose by 18½p, or

6.9 per cent, to 289½p.