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Australia/New Caledonia/Papua New Guinea Mining

Strike like it’s 2011? Low copper prices loom large over wage talks – by Josephine Mason (Reuters U.S. – April 20, 2015)

http://www.reuters.com/

SANTIAGO – (Reuters) – When Antofagasta Chief Executive Diego Hernandez took the stage at the world’s biggest copper conference last week, he talked about the growing risks mining companies face from rising worker salaries in South America due to staff shortages and strong unions.

What he didn’t mention at the CRU copper conference in Santiago was the far graver immediate labor threat that many of his rivals face: the biggest round of contract negotiations since 2011, and likely the most contentious in years as falling copper prices and deep cost cutting programs strain relations between workers and operators.

The copper market seems to be perilously indifferent to the threat posed by this year’s contract talks at mines including one of the world’s largest, Grasberg in Indonesia, and Antamina, Peru’s biggest, risking a bullish shock if workers move to strike, analysts said.

“I think people are assuming with the change in the market, it’s going to automatically mean unions will be more flexible.  But it could be a very tough situation,” Juan Carlos Guajardo, executive director of Santiago-based mining consulting firm Plusmining, said. Last year, Antofagasta agreed to four-year contracts, including pay increases and cash bonuses, at its mines across Chile.

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Iron ore price crash erases $74b in market value – by Tess Ingram (Sydney Morning Herald – April 20, 2015)

http://www.smh.com.au/

The plummeting iron ore price has wiped $74 billion from the value of Australia’s key iron ore mining stocks since January 2014, and analysts expect share prices to continue their decline as the price for the commodity slides.

Investors that held on to the stocks while the price for iron ore sank during the past 15 months are now nursing losses in value of as much as 92 per cent.

Together, BHP Billiton, Rio Tinto, Fortescue Metals Group, Mount Gibson Iron, Atlas Iron, BC Iron, Arrium and Grange Resources suffered enormously as ore prices slumped 60 per cent from $US134 a tonne in January 2014 to $US50.93 a tonne on Friday.

A combined $73.7 billion, or 22 per cent of value, has been erased from their market capitalisations since January 2, 2014.

Excluding the diversified big miners, BHP Billiton and Rio Tinto, the combined market value of the six remaining companies has declined 71 per cent or $17.2 billion.

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BHP Spinoff’s Tailspin Is Dream for X2’s Mick Davis: Real M&A – by Brett Foley, Firat Kayakiran and James Paton (Bloomberg News – April 20, 2015)

http://www.bloomberg.com/

The plunging value of BHP Billiton Ltd.’s planned mining spinoff could hardly be better timed for the man who’s thinking of buying it.

Weeks from listing, the valuation of the new company, called South32, has plunged by almost half to as little as $7 billion, based on current prices for its products including alumina, manganese and nickel, Deutsche Bank AG estimated this month. That’s a gift for Mick Davis and his X2 Resources fund, which is weighing an eventual bid for South32, according to people familiar with his plans.

Davis, the former head of mining giant Xstrata Plc, has an untapped $5.6 billion fund that could be bolstered with debt to swallow a larger business. Amid the worst commodity slump in half a decade, South32 is still a target, with some analysts expecting its earnings to rebound when prices recover.

“They are good assets in challenged industries,” said Paul Phillips, a Melbourne-based analyst with Perennial Investment Partners Ltd., which manages about A$18.5 billion ($14 billion) of assets. “They have a lot of attractive features.”

BHP is carving off the business to focus on a smaller group of commodities and South32 is set to start trading May 18 in Australia, South Africa and the U.K. The newly formed company will include an Australian mine that’s the world’s largest silver and lead operation, a nickel mine in Colombia and aluminum assets in three countries.

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World’s Lowest Cost Iron Ore Miner Turns Screw on Rivals – by Jesse Riseborough (Bloomberg News – April 17, 2015)

http://www.bloomberg.com/

Rio Tinto Group Chief Executive Officer Sam Walsh is fast becoming the worst nightmare of rival iron-ore producers starved of cash.

Iron ore prices have slumped by more than half in a year on a deepening global supply glut. That’s pushed some into bankruptcy and left others on life support. News that the lowest-cost producer is mining a ton of ore even more cheaply signals a more protracted price slump.

After achieving an industry-leading $19.50 a ton last year, currency movements and a drop in fuel costs mean Rio Tinto is now producing at $17, Walsh told investors in London on Thursday. The company is still seeking ways to ship it to Asian buyers more cheaply, he said.

“I know there’s a lot of controversy,” Walsh said. “I know that there’s a lot of late entries into the market who have taken advantage of higher prices and they are now feeling the impact of that as prices have come down. ‘‘This is rational, normal economics,’’ he said. ‘‘This is what physically happens across a range of commodities not just iron ore. It’s a process that we and others have got to work through.’’

The strategy, employed by the world’s largest producers, of continuing to expand output in the face of a price rout has earned the ire of some analysts, investors and loss-making rivals. Rio’s main competitor BHP Billiton Ltd. has described the tactic as ‘‘squeezing the lemon.”

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Australia steeled for China slowdown as iron ore prices fall – by Jamie Smyth (Financial Times – April 16, 2015)

http://www.ft.com/home/us

Sydney – The last time Western Australia was engaged in a dispute with Canberra of this magnitude, it threatened to secede during a financial crisis sparked by the 1930s Depression.

The current friction is linked to China’s slowdown — a sign of how closely Australia’s fortunes are tied to Beijing’s appetite for its commodity exports.

“It’s not secession but it is tension and disengagement,” Colin Barnett, Western Australia’s premier, said this week when Canberra and other states rejected a request to help plug a widening hole in the state budget caused by plunging iron ore prices.

Western Australia is a mining state that enjoyed a decade-long boom selling iron ore — a key ingredient in steel — to China. Known by some as “China’s quarry”, the state hosts BHP Billiton, Rio Tinto and Fortescue Metals Group, which have spent billions of dollars building mines, railways and ports to almost double iron ore production to 717m tonnes over the past five years.

But just as global supply hits record levels, China’s economy is slowing and its desire for the reddish-brown ore may have plateaued.

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UPDATE 1-Apart from Big 3, iron ore miners face ‘existential’ threat – Goldman – by Manolo Serapio Jr (Reuters U.S. – April 16, 2015)

http://www.reuters.com/

SINGAPORE, April 16 (Reuters) – Up to half of iron ore output by miners outside the three mega producers in Australia and Brazil is at risk of closure with global demand set to peak at about 1.4 billion tonnes next year, Goldman Sachs said.

Production volumes among top miners – Vale, Rio Tinto and BHP Billiton – was not at risk, the bank said. “However, the rest of the industry is now facing an existential challenge,” Goldman analysts Christian Lelong and Amber Cai said in a report.

“We expect seaborne iron ore demand to peak in 2016 as the displacement of marginal Chinese iron ore production fails to offset a contraction in domestic steel consumption,” they said.

Separately, Moody’s Investors Service said supply reductions were dwarfed by planned increases estimated to exceed 300 million tonnes over the next several years.

Goldman cut its 2015 iron ore price estimate by 18 percent to $52 a tonne. It forecast $44 in 2016 and $40 in 2017 and 2018, down 29-33 percent from previous estimates. The price could drop to $40 this year and next, based on Moody’s estimates.

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Rumbles from the jungle as Bougainville mine stirs – by Rowan Callick (The Australian – April 13, 2015)

http://www.theaustralian.com.au/

Even the long-suffering Bougainville Copper board, which has witnessed cargo cults, wars, and the closure of its own vast mine, was puzzled when its share price soared 50 per cent a week ago.

For this sudden surge of confidence appeared, oddly, to have been triggered by troubling news for the company — the commencement of a new Mining Act passed by the Bougainville autonomous region’s parliament, which hands back control of all resources to landowners.

The future of the Bougainville mine, which still contains copper and gold worth about $50 billion, is tied up with its complex past, with the long geopolitical shadow cast by the 1989-2001 civil war on the island — and with cargo-­cultist hopes held out by local leaders allied to eccentric foreigners constantly seeking to seize control of the resources from BCL.

The ASX issued a “speeding ticket”, asking the company to explain the April 2 share price leap. BCL replied that it couldn’t. The price had slid back down to 28c by Friday.

The directors of the company, which is 53.58 per cent owned by Rio Tinto, 19.06 per cent by the Papua New Guinea government, and 27.36 per cent by other shareholders, are trying to juggle an enormous range of unknowns and variables, without even the compensating benefits of having a mine to run.

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Iron ore in fresh crisis as forward prices crumble – by Henning Gloystein and Manolo Serapio Jr. (Reuters India – April 10, 2015)

http://in.reuters.com/

SINGAPORE – (Reuters) – Iron ore is veering to a new crisis as prices for future delivery of the commodity slide 30 percent in the space of a month, and its outlook is now more bearish than oil and more dire than ever for miners struggling to just stay in business.

Prices of the steel-making ingredient for immediate delivery have slumped 60 percent over the past year as demand particularly from China slowed rapidly.

Despite the crumbling cash market, miners had been able to hedge future production at prices well above spot levels. Indeed, a month ago, miners could still sell 2017 output at close to $70 a tonne even as April 2015 prices fell below $60 for the first time in more than five years.

Forward iron ore prices have since tumbled below $47 for deliveries all the way until the end of 2017, depriving nearly all miners of any chance of establishing hedges at or above breakeven levels during that period.

A combination of factors brought about the recent capitulation in forward prices, most notably news that China plans to subsidise its iron ore sector to protect its flagging steel industry. Subsidies would help keep mines open and keep supplies flowing.

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Australia’s Hockey vs Glencore’s Glasenberg – by Kip Keen (Mineweb.com – April 9, 2015)

http://www.mineweb.com/

Treasurer’s tough comments on Glencore-Rio Tinto merger could be read as a stern warning by Australia’s government.

Taken at face value Australia’s treasurer Joe Hockey has declared Rio Tinto untouchable. As widely reported now by media, Hockey is quoted as saying by numerous sources at a recent meeting including mining executives that there was “no way” he’d let Glencore merge with Rio Tinto “on his watch”. Assuming the reports are accurate, the question becomes, is Hockey serious?

If he is, then Australia truly has a curious way of dealing with possible foreign takeovers. Yes, it’s ultimately up to the treasurer (a political position equivalent to finance minister in other parliaments) to decide on big deals like this where the “national interest”, e.g. major tax revenue, is at stake.

But then the decision is usually taken as part of, or at least after, some due diligence. Australia’s Foreign Investment Review Board (FIRB) usually makes unbinding recommendations on such deals to the treasurer. Then the treasurer decides, however he/she and his/her government want.

Now, if Hockey truly means “no way” on another (hypothetical) attempt by Glencore to merge with Rio Tinto, he would effectively be turning the whole process on its head.

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Australia treasurer would block a Glencore-Rio Tinto merger – by Sonali Paul (Reuters U.S. – April 8, 2015)

http://www.reuters.com/

(Reuters) – Australia’s treasurer has told business representatives he would not allow Glencore Plc to merge with Rio Tinto due to concerns about losing tax revenue, a person familiar with his comments said on Wednesday.

Treasurer Joe Hockey said based on the tax implications he had seen from the treasury, he would not allow a Glencore takeover of Rio, Australia’s second biggest miner and one of its biggest taxpayers, the person said. He declined to be identified due to the sensitivity of the issue.

Treasurer Joe Hockey’s office declined to confirm the comments. Four people said Hockey had spoken at a private meeting on March 30 organized by the Business Council of Australia and including members of the Minerals Council of Australia, but three would not give details.

Glencore approached Rio Tinto about a merger last July that would have created a $160 billion mining and commodities trading giant. Rio revealed in October it had rebuffed the approach, but under UK takeover rules, Glencore is now free to make a new bid, following a six-month breather.

“Any takeover would have to go through the normal processes at FIRB (Foreign Investment Review Board),” a spokesman for Hockey said.

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Lower coking coal contract price shows downward pressure – by Clyde Russell (Reuters U.S. – April 8, 2015)

http://www.reuters.com/

LAUNCESTON, AUSTRALIA – (Reuters) – – Coking coal prices are yet to show signs of bottoming with bearish signals from both contract talks between Australian producers and Japanese buyers as well as Chinese demand.

Hard coking coal for second quarter delivery was settled at $109.50 a tonne free-on-board between producer BHP Billiton and buyer Nippon Steel, Morgan Stanley said in a research noted on April 6.

This was down 6 percent from the previous quarter’s contract and represented a 7 percent premium to the spot price at the time the deal was concluded. The premium to the spot price is in line with prior settlements, with Japanese buyers willing to pay above spot in order to guarantee supplies.

Coking coal, also known as metallurgical coal, is used in steel-making and is traditionally a higher value product than thermal coal used in power generation because it has a higher energy value and fewer impurities.

However, coking coal prices are now down two-thirds from their peak around $300 a tonne in 2011, while benchmark thermal coal prices at Australia’s Newcastle Port have dropped about 55 percent over the same period.

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Gina Rinehart’s Roy Hill mine not relying on China – by David Stringer (Sydney Morning Herald – April 9, 2015)

http://www.smh.com.au/

Asia-Pacific’s richest woman is gearing up to start shipments from her $10 billion iron ore project in Australia. Even with prices at 10-year lows, she’s displaying no lack of confidence in the mine’s success.

Billionaire Gina Rinehart’s ace? Her mine isn’t relying solely on sales to China, the biggest iron ore buyer. This limits the project’s exposure to a market where steel demand is judged to be peaking. Instead, she’s locked in supply contracts with three of the largest iron ore consuming Asian nations outside of China.

“They feel very confident. Roy Hill has a massive advantage in that it has diversified its markets,” Philip Kirchlechner, Perth-based director of Iron Ore Research Pty. said by phone. “They have buyers from three of the other major iron ore importing markets.”

Roy Hill, Australia’s largest single iron ore mine, is on track to commence exports from September, adding 55 million tons a year of output to a market already saturated by a growing surplus. It’s even accelerating the mine’s schedule, seeking to hit its planned capacity at the fastest pace of any project built in Western Australia’s iron-rich Pilbara region.

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Tax office pursues BHP Billiton and Rio Tinto over Singapore tax shelter – by Neil Chenoweth (Australian Financial Review – April 6, 2015)

http://www.afr.com/

Mining giants BHP Billiton and Rio Tinto are being pursued by the Australian Taxation Office for channelling billions of dollars in profits from iron ore sales through companies that pay almost no tax in Singapore.

While BHP Billiton and Rio TInto are Australia’s largest taxpayers, The Australian Financial Review has obtained documents that show the two mining companies report $2.6 billion a year in profits in their Singapore marketing hubs where they pay tax rates as low as 2.5 per cent.

The arrangements save the two companies more than $750 million a year in Australian tax and the ATO regards it as tax avoidance under the transfer pricing rules. The ATO is pursuing multibillion-dollar claims against each company, says a source with direct knowledge of the disputes.

The exact amounts of the potential tax bills are unclear and both companies have fought the ATO for years and argue their Singapore operations were not set up to reduce tax.

With scores of Australian companies rushing to open their own Singapore operations, the BHP Billiton and Rio Tinto cases shape as key precedents for the ATO, which has been warning of compliance problems with marketing hubs since 2010.

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As iron ore slides, China buyers inflict more pain on small miners – by Manolo Serapio Jr (Reuters U.S. – April 7, 2015)

http://www.reuters.com/

SINGAPORE, April 7 (Reuters) – Chinese steelmakers are unwittingly helping the world’s biggest iron ore miners tighten their grip on global production by demanding to pay for shipments of the raw material based closely on depressed spot prices.

The three largest and most profitable iron ore producers – Australia’s Rio Tinto and BHP Billiton, along with Brazil’s Vale – have been happy to sell at or near spot despite plunging iron ore prices, while their smaller rivals struggle to make money.

Smaller producers, including some higher cost Australian miners, want to continue with deals based on longer-term averages of prices, looking to hedge against further falls in the market.

But buyers in the world’s largest consumer of iron ore are having none of it, with many Chinese mills demanding cargoes priced as close as possible to their delivery date.

“Pricing moves around with the steel mills. It used to be all based on a monthly average. Now you find the steel mills and traders perhaps trying to anticipate low points and suggesting quotation periods of maybe two weeks,” said Morgan Ball, chief executive of Australian iron ore miner BC Iron Ltd.

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Deutsche Bank cuts [BHP Billiton] South32 valuation – by Amanda Saunders (Sydney Morning Herald – April 2, 2015)

http://www.smh.com.au/

South32, the company being created in the demerger of BHP Billiton, will be in a “perfect position” to pursue acquisitions of up to $US3 billion ($3.9 billion) in Australian coal, and offshore in base metals and manganese – but its stock is likely to trade at just about $2 a share, well short of market expectations, according to Deutsche Bank.

Deutsche mining analyst Paul Young cut his valuation of South32 from $US13 billion to $US11.2 billion after reviewing the more than 1500 pages of shareholder documents on the spin-off released by BHP last month. His valuation for the spin-off falls to $US7 billion when based on current spot prices for commodities.

While the new company’s growth and savings opportunities will be limited, parent BHP with its strong balance sheet has put it “in the perfect position to pursue [value enhancing] acquisitions up to $US3 billion”, Mr Young said.

Also playing in its favour is the fact that the largest miners are selling non-core assets following the fall in commodities prices, and have all but ruled out acquisitions.

South32 is expected to first eye greenfield mining assets, rather than entire companies, according to the analyst report. High up on its list would be Anglo American’s 40 per cent stake, valued at $US1.4 billion, in the maganese group Samancor.

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