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Australia/New Caledonia/Papua New Guinea Mining

Iron ore boom vs. Rudd’s doom – by Barry Fitzgerald and Paul Garvey (The Australian – August 16, 2013)

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

ON the hustings and in his campaign ads, Kevin Rudd has been calling the mining boom over.

“The truth is in 2013 the China resources boom is over,” the Prime Minister said on July 11. At the leaders debate on Sunday: “The truth is, with the ending of the decade-long mining boom, we face new economic challenges.” At almost any media opportunity, the mantra is repeated. But he must have forgotten to tell the Chinese — the world’s biggest buyer of mineral commodities.

Ever since returning as PM on June 26, the price of iron ore — Australia’s biggest export by a big margin — has not looked back as Chinese steelmakers frantically restock on the expectation that while there is a slowdown in the country’s infrastructure and urbanisation boom, an economic growth rate of more than 7 per cent on an already greatly enlarged economy means it still needs to suck in vast amounts of the steelmaking raw material.

Iron ore has surged by 26 per cent, or $US29.80 a tonne, to $US142.80 a tonne since Mr Rudd returned to the Lodge and began mapping a re-election strategy that in part at least, links the claimed end to the mining boom to Australia’s ballooning budget deficits.

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COLUMN-Australia’s coal industry enters the final stage of grief – by Clyde Russell (Reuters India – August 14, 2013)

http://in.reuters.com/

Clyde Russell is a Reuters market analyst. The views expressed are his own.

Aug 14 (Reuters) – Australian coal miners have been in mourning over the rapid loss of profitability and expansion opportunities, but the industry is entering the final stage of the grieving process.

The five stages of grief, as described by Swiss-American psychiatrist Elisabeth Kubler-Ross on how people face events like terminal illness, are denial, anger, bargaining, depression and acceptance.

While not all of the attendees at the annual Coaltrans Australia conference this week have got past the depression stage, most were looking at how the industry deals with the reality of its myriad of issues.

These include an apparent structural shift to lower prices for the foreseeable future, rising public opposition to mining on the back of a well-funded and organised environmental lobby, lack of capital available for new projects, still high labour costs and an increasing burden of government red and green tape.

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Decade-long Australia mining boom turns to bust (The Associated Press/Las Vegas Sun – August 10, 2013)

http://www.lasvegassun.com/

The Australian mining boom built over a decade on Chinese hunger for energy and raw materials is turning into bust for many business owners as China’s cooling growth reverberates through a country accustomed to winning from the rise of an Asian economic giant.

Endowed with vast mineral resources, Australia has been the envy of the Western world for avoiding recession during the global financial crisis while other wealthy countries drowned in debt. But the country now faces a potentially painful transition as it weans itself off a heavy reliance on its two biggest exports, coal and iron ore.

Australia’s dilemma underscores that China’s long run of supercharged growth has given it enough weight in the world economy to create not only winners, but losers too when its own fortunes change.

Trade between Australia and China equaled 7.6 percent of Australia’s $1.5 trillion economy last year, a dramatic threefold increase from a decade earlier, according to an Associated Press analysis of trade data. During that time, mining companies gushed multibillion dollar profits while jobs as mundane as maintenance commanded salaries above $120,000.

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Australian Broadcasting Corporation Interview with BHP Billiton CEO Andrew Mackenzie (Australia Broadcasting Corporation – August 8, 2013)

http://www.abc.net.au/

Click here for extended interview: http://www.abc.net.au/7.30/content/2013/s3820498.htm

Transcript

LEIGH SALES, PRESENTER: You may recall last night that during a discussion with the Prime Minister, we ran a brief excerpt of an interview with the head of the world’s biggest mining company BHP chief executive Andrew MacKenzie. We had to hold over the full interview because of the need to make time for Kevin Rudd.

So as promised last night, here’s more of what Mr MacKenzie had to say when he joined the program.

Mr McKenzie, I’d like to start by getting your views on some broad economic questions. Do you think that Australia is transitioning out of the resources boom?

ANDREW MACKENZIE, CHIEF EXEC., BHP BILLITON: Not at all. I think maybe some of the best days are ahead of it. I believe, obviously as you’re hinting, that the resources industry has been pivotal to Australia, but as we go forward, demand continues to increase and everything is for Australia to play for.

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BHP Billiton CEO, Andrew MacKenzie Speech to the Asia Society on August 7, 2013

http://www.bhpbilliton.com/home/Pages/default.aspx

For a detailed interview of BHP Billiton CEO Andrew MacKenzie by Australia Broadcasting Corporation, click here: http://www.abc.net.au/7.30/content/2013/s3820498.htm

I am delighted that so many of our shareholders and friends from business, government, the media and elsewhere have joined us today. Welcome to you all.

I would also like to mention two individuals in the audience. First, one of BHP Billiton’s longest serving employees – Eric Gray. Eric is a maintenance supervisor at our Illawarra coal operations and is celebrating 45 years with the company. And second, Martin Ferguson, who needs no introduction. A special welcome to you both.

I am honoured to lead this tremendous, Australian company and pleased to be making my first Australian speech here in Melbourne; a city my wife, Liz, and I are delighted to now call home. We recently purchased a house in Richmond and I have adopted St Kilda as my AFL team. Richmond, anyway, has proved to be a terrific choice.

Melbourne is a city with a rich mining history, a history of which BHP Billiton is proud to be a part. Our global headquarters have been in Melbourne since 1885 and next month we will relocate to Collins Street, where our company first began.

Now speaking of our history, one of my fellow Scots, George McCulloch, was vital to BHP’s formation in the late 19th century as manager of the Mt Gipps station in New South Wales. George organised a group of pioneers to sink the first shaft at Broken Hill, which led to the development of BHP’s first and famous ‘Big Mine’.

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Australia and Canada: Two resource-driven economies on divergent paths – by Richard Blackwell (Globe and Mail – August 7, 2013)

The Globe and Mail is Canada’s national newspaper with the second largest broadsheet circulation in the country. It has enormous influence on Canada’s political and business elite.

Australia’s central bank has cut its key interest rate again, to a record low, underscoring concern that a global commodity slump and slower growth in China will weaken its resource-based economy.

The country is trying to kickstart consumer and business spending with the cuts because the mining sector has peaked and capital spending in that industry is falling, while economic growth posted by the country’s key trading partner, China, is slowing.

That’s a cautionary tale for Canada, which has a similar resource-based economy, dependant on exports. Weaker commodity prices help to explain, for example, a near-one-third drop this year in the share price of Vancouver-based Teck Resources Ltd., which ships about 15 to 20 per cent of its coking coal output to China.

Still, there are enough differences between the two countries, economists say, to insulate Canada from the economic turbulence facing our antipodal cousin.

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Miners won’t get a leg-up from state – by Malavika Santhebennur (Mining Australia – August 5, 2013)

http://www.miningaustralia.com.au/home

Gold and nickel miners will not get a lifeline from West Australian premier Colin Barnett, who said he will not be handing out royalty assistance to those affected by falling commodity prices.

Barnett argued modifying royalties due to price variation was not a good idea, saying the cyclical nature of the mining industry is a well known fact. “I know this is a tough time and some of the high-cost producers struggle. [But] at the end of the day the state government owns the minerals and companies pay the equivalent of 10 per cent of the value of the mineral. I think that’s a pretty good price.”

Miners, small and large, have had to cut the fat from their companies as commodity prices fall. They have been curtailing capital expenditure, cutting jobs and slashing operational costs.

BHP recently slashed 100 jobs across its six Nickel West operations in WA in May. The company said many operational roles will feel the brunt. The company also flagged in July it will move service contracts in-house in the Pilbara as it looks to cut contractors to cut costs.

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Barrick looks to cut high-cost mines – by Tim Kiladze (Globe and Mail – August 2, 2013)

The Globe and Mail is Canada’s national newspaper with the second largest broadsheet circulation in the country. It has enormous influence on Canada’s political and business elite.

After its second major writedown in just six months, Barrick Gold Corp. is trying to wooing back shaken investors by focusing on assets closer to home.

The world’s largest gold miner announced a hefty $8.7-billion (U.S.) after-tax impairment charge, leaving the company with a second-quarter loss of $8.6-billion.

Barrick also slashed its dividend by 75 per cent as part of its second quarter earnings. In response to the losses, the Toronto-based company plans to shed, suspend or shut high-cost mines and continue to cut costs.

Chief executive officer Jamie Sokalsky said he is considering changes to his lineup of high-cost mines, most of which are in Africa and Australia. On a conference call Thursday, he said is already “well-advanced in a process to sell certain Australian assets.”

The miner will also continue to slash expenses where possible, having already cut or deferred $4-billion in capital spending over the past year, half of which came in the first six months of 2013.

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Minor miners face major headache from iron ore giants – by James Regan (Reuters U.S. – July 21, 2013)

http://www.reuters.com/

SYDNEY, July 22 (Reuters) – From Africa to Australia, opportunities to develop small iron mines are fast disappearing, as cash dries up and miners are unable to compete with the crushingly low production costs of the sector’s heavyweights.

In Australia alone, a half a dozen or more projects pegged by prospectors in better times sit stranded in the outback with no timetable for development. Most are running short on money and have stripped payrolls and equipment spending to a bare minimum, awaiting a turnaround that forecasters predict is a long way off at best.

Companies such as Aquila Resources Ltd, Flinders Mines Ltd and Iron Road Ltd, which a year ago were leading a wave of new investment in iron ore, have had their stocks gutted as investors turned cold on their prospects.

“This is not the time to be developing a new iron ore mine, the big boys are making sure of that,” said Keith Goode, an analyst for Eagle Mining Research. Global miners Vale, BHP Billiton and Rio Tinto are increasing their supply dominance in the world’s second-biggest shipped commodity market after oil.

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Australia’s Waning Boom Saps Mining Area Housing Demand – by Nichola Saminather (Bloomberg News – July 21, 2013)

http://www.bloomberg.com/

After slashing the price of three planned townhouses by a third in the coal-mining town of Moranbah in remote northeastern Australia, agent Ricardo Baggio still can’t find buyers.

“No one’s got confidence,” said Baggio from broker Ray White Group’s Townsville franchise, about 550 kilometers (341 miles) north of Moranbah in Queensland state. “There are a few mines around the town but they’re not hiring or they’re downsizing.”

Home prices in Australia’s isolated mining towns, which outpaced increases in the rest of the nation over the past decade, are falling as companies such as Glencore Xstrata PLC (GLEN) and Peabody Energy Corp. (BTU) delay projects and lay off workers amid a slowing resources boom. The percentage of homeowners more than 30 days behind on their mortgage payments in Gladstone, a Queensland coastal town near more than $60 billion of gas projects, was 0.94 percent in March, according to Fitch Ratings, a 71 percent increase in six months.

The Moranbah townhouses, which will be built on a flat, sparsely landscaped street about 1 kilometer from the center of town, are on the market for A$525,000 ($478,485) each, down from an initial price of A$750,000, said Baggio. The median price of a home in Brisbane, the state capital, is A$425,000.

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COLUMN-BHP, Rio gamble on iron ore, but they’ve stacked the deck – by Clyde Russell (Reuters U.S. – July 18, 2013)

http://www.reuters.com/

Clyde Russell is a Reuters market analyst. The views expressed are his own.

LAUNCESTON, Australia, July 18 (Reuters) – Ramping up output in the face of an expected easing in demand growth may seem like an odd tactic for a miner, but it’s exactly what Rio Tinto and BHP Billiton are doing in iron ore.

The world’s second- and third-ranked producers both said this week that their expansion plans are on track, notwithstanding the expected slowdown in China, which buys about two-thirds of global seaborne iron ore supply.

But there is method in the seeming madness of increasing production when the demand outlook is less than rosy. Both Rio and BHP are effectively betting that their low-cost operations in Australia will be able to dominate the market, squeezing out both Chinese domestic production and higher-cost mines elsewhere in Australia and around the globe.

They are also betting that the fears of a slowdown in Chinese demand growth are being overstated, and that import volumes will remain healthy. While these may look like risky assumptions for the two Anglo-Australian mining giants, they stand a good chance of being correct.

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Australia’s carbon mess a warning to the world – by Clyde Russell (Reuters India – July 17, 2013)

http://in.reuters.com/

Clyde Russell is a Reuters market analyst. The views expressed are his own.

LAUNCESTON, Australia, July 17 (Reuters) – Any government thinking of introducing policies to limit carbon emissions should look at Australia for an example of how not to do it.

Australia’s efforts to combat climate change have been poison to politicians from all sides of the debate, contributing so far to the demise of two prime ministers and an opposition leader, and there may be more to come. The latest twist has seen Prime Minister Kevin Rudd decide to switch from a straight tax on carbon emissions to a floating emissions trading scheme (ETS) a year earlier than planned.

This has nothing to do with improving the workings of the scheme or limiting carbon emissions and everything to do with trying to win back voters angered by rising electricity prices and industries that have seen their international competitiveness eroded by the tax.

The theory is that power and other prices will decline as the cost of carbon permits is expected to be around A$6 per tonne – the level at which European permits are currently priced – compared to the tax of A$25.40 ($23.09) per tonne that had been planned from July 2014.

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Copper: The metal that will build our future? – by Cole Latimer (Australian Mining – July 16, 2013)

http://www.miningaustralia.com.au/home

As we slowly come off the back of the mining boom, a number of questions are starting to be asked. Has the boom been played out, where to next, what will happen to iron ore? But what all are asking is what will be the metal of the future? What should we be digging that will provide the greatest return?

Perhaps the future is a metal which is a major part of humanity’s past – copper. Iron ore has been the metal that really drove Australia’s mining boom. It was the hero of the hour.

On the back of seemingly unending demand from Asia to fuel the growth of China we saw commodity prices skyrocket and essentially drag our nation out of the Global Financial Crisis.

Coal was also surging head, as both China and India required the energy needed to turn them into first world nations. As
a background to this gold prices also spiked, reaching never before seen heights.

But now the good times are over for these metals and the prices have steadily dropped, stabilising at more reasonable levels, or in some cases plummeting to just above cost levels.

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UPDATE 3-Big iron ore miners go for volume even as glut looms – by James Regan (Reuters U.S. – July 17, 2013)

http://www.reuters.com/

SYDNEY, July 17 (Reuters) – Record iron ore output from BHP Billiton and other mining giants appears to defy logic, with demand for the steel-making raw material cooling in top customer China and a price-eroding supply glut looming.

But the sector’s heavy guns are digging more for less to tighten their stranglehold on the world’s second-biggest commodity market, as competitors struggle.

In mining parlance, this is known as a “rebalancing” strategy, designed to improve the operating margins of the majors to such an extent that smaller competitors or new projects may be all but squeezed out.

“The majors want to maximise those economies of scale,” said MineLife sector analyst Gavin Wendt. “As long as they keep margins well ahead of a declining iron ore price, they are winning.” BHP Billiton, Rio Tinto and Fortescue Metals Group, with their iron ore operations in Australia, and Brazil’s Vale are leading the charge.

Seaborne-traded iron ore prices, which have lost 10 percent so far this year, are forecast to hit their lowest in four years by the end of 2013 as these big miners dig deeper and faster.

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Outlook fails to quell ore appetite – by Arpan Muhkerjee (Dow Jones/The Australian – July 16, 2013)

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

DIRE predictions of slumping iron ore prices and warnings of the end of the commodities super-cycle aren’t deterring some deep-pocketed, long-view investors whose appetite for the steelmaking raw material is driving mining-asset mergers and acquisitions activity from Australia to Canada.

The short-term outlook for iron ore isn’t good.Prices have fallen 12 per cent since the start of the year and are down more than 20 per cent from the high of $US158.90 a tonne in February.

Some see iron ore slumping to $US90 a tonne or less due to rising supplies and slowing growth in top consumer China. UBS expects iron ore to average $117 a tonne this year, while Goldman Sachs has forecast $US80 a tonne in 2015.

“People are looking to buy cheap assets, so this is the perfect time when the downside (in prices) is still there,” said Helen Lau, senior analyst at UOB KayHian in Hong Kong. “Investors are able to negotiate even cheaper prices with miners.” Also weighing on prices is likely future iron ore supply rises.

Rio Tinto, Australia’s biggest iron ore exporter by volume, is pushing ahead with an expansion of output in the ore-rich Pilbara region.

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