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Australia/New Caledonia/Papua New Guinea Mining

Australian Iron Ore Rush – by James Coffman – (The Motley Fool – January 25, 2013)

http://beta.fool.com/

The race is on! The iron rush, in the Pilbara iron district of Western Australia, is in full force. Forget about watching the World Series, a horse race, or Monday night football. This race to increase iron ore production keeps me on the edge of my seat. The stakes are high and the profit potential is great.

There are three main players. We have two very large and very diversified companies; namely Rio Tinto (NYSE: RIO) at the number one spot, BHP Billiton (NYSE: BHP) at the number two spot and the underdog nipping at their heals, namely Fortescue Metals Group (NASDAQOTH: FSUMF). All of the players are exposed to the rise and fall of iron ore prices as a result of the vagaries of the big Chinese steel mills and the Chinese economy. RIO and BHP have diversified mineral plays across the globe, but tend to get the largest piece of their profit pie from iron operations.

Both of the big boys have problems from other operations eating up their cash flow: RIO with its $14 billion dollar mistake in Mozambique and BHP’s inability to act in a forward looking direction. In contrast, Fortescue is a pure iron play and well situated to cash in on the current and future iron needs of China, though it sees much larger swings in its share price with changes in iron prices than its competitors.

Fortescue is motivated and determined in their pace of development. They will see the greatest rise in stock value over the next couple of years. FSUMF has just gotten out of the gate and they are the young purebred challenging the old guard resting on their laurels.

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Fat profit margins make iron ore the apple of miners’ eyes – by James Regan (Reuters.com – January 24, 2013)

http://www.reuters.com/

SYDNEY – Jan 24 (Reuters) – Australian miners like to say iron ore is the new gold. How about the new iPhone?

Iron ore, needed to make steel, long ago replaced gold as the most profitable mineral to mine in the Australian outback. And while sales of iPhones have become a disappointment for Apple Inc, mega-mining companies such as BHP Billiton are projecting strong growth in iron ore sales for decades to come – at margins even an Apple or smartphone rival Samsung Electronics would drool over.

BHP and rivals Rio Tinto and Fortescue Metals are seeing profit margins often exceeding 100 percent on sales of hundreds of millions of tonnes of ore. Apple Inc earned gross margins of 49 to 58 percent on its U.S. iPhone sales between April 2010 and the end of March 2012, according to court filings obtained by Reuters.

Apple on Thursday missed Wall Street’s revenue forecast for the third straight quarter as iPhone sales came in below expectations, although earnings topped forecasts.

Production costs under $40 a tonne mean margins at Rio Tinto and BHP are comfortably above any of their other businesses with iron ore selling for nearly $150 a tonne, explaining why they continue to invest to expand their operations in Western Australia’s vast Pilbara iron ore belt.

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Excerpt from “The History of Mining: The events, technology and people involved in the industry that forged the modern world” – by Michael Coulson

To order a copy of The History of Mining please click here: http://www.harriman-house.com/products/books/23161/business/Michael-Coulson/The-History-of-Mining/

BROKEN HILL, AUSTRALIA – SILVER IS DISCOVERED

The story of Broken Hill began on the NSW state border with South Australia when silver was found at Thackaringa in 1876. Prospectors, excited by the news, pushed west from the copper discoveries at Cobar. The Thackaringa silver deposits, however, did not have a long life and soon petered out.

In due course prospectors found gold in modest amounts at Mount Browne, 200 miles north of Thackaringa, and this started a mini-rush to the new goldfield. Conditions were appalling with temperatures holding steady for weeks at an end at over 100 degrees Fahrenheit. Disease was rife and the cost of supplying food and water so high that Mount Browne never really had a chance of measuring up to other gold fields in Australia and around the world. Interest soon switched back south towards Thackaringa, where prospectors had begun to search for silver again.

The first of these new discoveries was the Umberumberka silver and lead mine and this spawned the town of Silverton, which today – though pretty much a ghost town – is a magnet for tourists and film makers. At the time it was the centre for some highly profitable silver mines and a busy stock exchange.

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The Real Losers at Rio Tinto – by Dan Denning (The Daily Reckoning Australia – January 21, 2013)

http://www.dailyreckoning.com.au/

A currency war isn’t the same thing as a shooting war, at least not at the beginning. But there are certainly casualties. In today’s Daily Reckoning, we take a look at the winners, losers, and the next stage of the great battle of all against all, in which the sides aren’t really what they appear.

Former Rio Tinto CEO Tom Albanese is a casualty. But don’t you worry about him. He’ll land on his feet and be just fine. The real losers from Rio’s strategic failure over the last few years are the shareholders. It will be interesting to see if the shareholders put pressure on Rio’s board, which is every bit to blame for the company’s performance as the CEO.

We’re not just trying to assess blame, though. That’s all too easy and all too common. Instead, we reckon Rio’s changing of the guard signals that the easy money – and probably the big money – from the commodity boom is over. Like the whole commodity sector, Rio was able to ride the boom in commodity prices and then export volumes to make easy money.

But record sales aren’t necessarily an indication that directors are doing a good job managing the company’s capital. Rio ran a 33% return on capital in 2011. It was just 16.7% in 2012, according to Goldman Sachs. The company wasn’t able to take shareholder money and generate consistently high rates of return.

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Mining world sees seismic shifts at top as tumult forces old guard out – by Pav Jordan (Globe and Mail – January 19, 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.

The ouster this week of one of the world’s captains of mining underscores a breaking dawn in the industry as it sheds its old guard and discards a mantra of growth at any cost.

After six years at the helm of the world’s third-largest diversified miner, Rio Tinto PLC chief executive officer Tom Albanese said Thursday he was resigning the post by “mutual agreement” with his employer of three decades, amid a writedown of $14-billion (U.S.).

“While I leave the business in good shape in many respects, I fully recognize that accountability for all aspects of the business rests with the CEO,” said Mr. Albanese, who is also forgoing his bonus for this year and last.

Mr. Albanese joins a long line of former CEOs who have been replaced in recent months at some of the world’s largest miners, including Canadian giants Barrick Gold Corp. and Kinross Gold Corp.

The shift from an old guard, bent on rapid growth via expensive acquisitions, to one focused on preserving share value comes as miners face some of the most tumultuous times in decades, including massive cost increases and overruns, a scarcity of new discoveries and an uncertain demand outlook.

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Let the Iron Ore Wars Begin! – by Dan Denning (The Daily Reckoning Australia – January 10, 2013)

http://www.dailyreckoning.com.au/

The iron ore price is quickly becoming a focal point in the dispute between resource bulls and bears. It’s kind of like a Rorschach blot test for investors. What you see in the price may tell you more about yourself than it tells you about iron ore.

But the objective facts are the same no matter who perceives them. At $150.90 per tonne, the spot iron ore price is at a 15-month high. It’s up 70% from the August lows last year. Those are the facts.

Another fact is that Fortescue Metals Group (ASX:FMG) is up almost 60% since closing at $2.97 on September 6th. It even closed at $5.04 on January 3rd. Andrew Forrest’s little darling requires high iron ore prices to be viable. The recovery in the spot market came just in time.

Deutsche Bank analysts aren’t convinced, though. They slapped a ‘sell’ recommendation on the shares earlier this week. Analysts hardly ever tell investors to sell anything, so this must be serious. And sure enough the DB boys say the current share price is factoring in a spot price of $150/tonne until 2015, which is a long time from now.

A lot can happen in a couple of years. But the real debate here is over the long-term, big-picture outlook for China and commodities. If China’s steel boom is over, Australia’s iron ore boom is over.

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Tom Albanese out at Rio Tinto as Alcan bet goes awry – by Pav Jordan and Jacquie McNish (Globe and Mail – January 18, 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.

It was a wrong bet on China that crushed Tom Albanese’s dream for Alcan Inc. When the chief of Rio Tinto PLC took out the Montreal-based aluminum maker in Canada’s largest-ever takeover deal in 2007, aluminum prices were at 35-year highs, and he believed they could go quite a bit higher.

The decision proved costly. Mr. Albanese resigned Thursday, along with another senior executive, as Rio Tinto announced a $14-billion (U.S.) writedown attributed mostly to its aluminum assets. The charges included some $3-billion in impairments on coal assets acquired in Mozambique in 2011 and about $500-million in smaller asset writedowns.

For the aluminum business, it was the second writedown in as many years, bringing the total impairments on Rio Tinto’s Alcan acquisition to $20-billion, or more than half the $38-billion price tag.

The huge hit is arguably the deepest wound yet on a global mining industry facing the harshest headwinds in decades, from huge cost runups to a murky outlook on demand and a scarcity of new resources. It’s an environment that has been so difficult to navigate that many of the the world’s largest mining companies, among them Canada’s Barrick Gold Corp. and Kinross Gold Corp., have changed their top executives.

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Rio Tinto chief Albanese’s downfall a cautionary tale of bad acquisitions – by Peter Koven (National Post – January 18, 2013)

The National Post is Canada’s second largest national paper.

When Tom Albanese made the rounds in 2007 to promote his US$38-billion takeover of Alcan Inc., the chief executive of Rio Tinto Ltd. always told a good story.

He talked about the phenomenal growth rates of emerging markets, and his belief that China would transition from a being a net exporter of aluminum into an importer as its domestic production could not keep up with demand. As that happened, he was confident aluminum would outperform other commodities.

Despite his best efforts, Mr. Albanese was never able to convince the many skeptics among his shareholder base. They worried that Alcan was a classic example of the debt-fueled, top-of-the-market acquisition that always comes back to haunt the CEO who makes it. Of course, they were right.

Mr. Albanese lost his job on Thursday as London-based Rio announced up to US$11-billion of writedowns on its aluminum business and a US$3-billion writedown on recently acquired coal assets in Mozambique.

Rio Tinto has now taken a mind-boggling US$30-billion (give or take) of Alcan-related writedowns, which is more than three-quarters of the total acquisition value. The deal is, if nothing else, a cautionary tale for executives to avoid getting carried away during a bull market.

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RIO TINTO ON LEAN MANUFACTURING IN THE MINING SECTOR – by Paul Smith (Shinka Management.com – December 20, 2012)

http://shinkamanagement.com/

In November following the completion of our 2012 Lean Japan Tour I was fortunate to attend the 40th Anniversary of the establishment of the Australian and New Zealand Chamber of Commerce in Japan. It was an enjoyable night in Tokyo’s beautiful Peninsula Hotel, with the Australian Food and Beverage Manager treating guests to a superb meal, and singer Sarah Àlainn entertaining us early in the night with a number of songs from her recent debut album.

The highlight of the evening for myself was the keynote address from Sam Walsh AO, Executive Director of Rio Tinto. Sam opened his address by talking about the trade relationship between Australia and Japan and the growth and development of the broader Asia Pacific region.

Sam then turned to his own background with Japan and Rio Tinto’s iron ore business. To my pleasant surprise Sam focused his talk on his 20-year experience in the automotive industry and how lessons learned from lean manufacturing have been critical to Rio Tinto’s mining operations.

Sam began by addressing the seemingly unrelated industries of automotive manufacturing and large-scale mineral resource extraction.

“To the uninitiated, the two industries might seem worlds apart. One manufactures highly engineered, precision vehicle components to exacting specifications. It’s an extremely competitive industry. It requires complex, hugely sophisticated and wherever possible automated plant and equipment. It demands first rate forecasting and scheduling, tight inventory and costs control and a keen customer focus. It depends upon top-flight engineering, electronics and technical expertise and lean, high performance business practices.

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Excerpt from “The History of Mining: The events, technology and people involved in the industry that forged the modern world” – by Michael Coulson

To order a copy of The History of Mining please click here: http://www.harriman-house.com/products/books/23161/business/Michael-Coulson/The-History-of-Mining/

PADDY HANNAN (1840-1925)

The history of gold prospecting in Australia is populated by countless thousands of mostly unlucky and long forgotten men. One of the few whose name still survives is Paddy Hannan, who found the fabulous Kalgoorlie gold field in Western Australia in 1893 and whose statue is still to be seen in the centre of Kalgoorlie today.

Hannan was born in Ireland in 1840, one of five brothers and six sisters. He travelled to Australia in 1862 and worked for several years as a miner in the gold fields of Ballarat in Victoria where his uncle, William Lynch, was a miner. After that he went to work in the gold fields of New Zealand for several years and returned to prospect in New South Wales and then South Australia. He later crossed Australia to prospect for gold in Western Australia around Southern Cross. Hannan was a careful man with an ability to find water as well as gold, something that stood him in good stead in parched Western Australia. It was this skill at finding water that led to Hannan’s discovery of the famous Kalgoorlie gold field in 1892, for it was while he was looking for sources to fill his waterbags that he stumbled over surface gold.

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Calls for New Caledonia’s nickel profits to be shared – Radio Australia (October 18, 2012)

http://www.radioaustralia.net.au/international/radio

But the benefits aren’t reaching many New Caledonians; in particular, young indigenous Kanaks, among whom unemployment is 38 per cent.

Presenter: Geraldine Coutts
Speaker: Professor Catherine Ris, University of New Caledonia

RIS: New Caledonia is a quite rich country, especially compared to other countries in the Pacific Islands, but it’s a very unequal country. Income distribution, experience, [there are] big, huge disparities. Even people, even different ethnic groups and also between areas even, if you are living in the south of New Caledonia you are not living in the same conditions than if you are living in the north, or in the islands province.

And one of the reasons for that is the school achievement already defers according to ethnicity. School achievement, if we split the population between Kanaks – that’s the indigenous people of New Caledonia – and non-Kanak people, we see for example that only three per cent of Kanak people graduate from higher education, compared to 23 per cent from non-Kanak people. And this disparity in school achievement also implies of course disparities in access to employment, labour market outcomes and to income distribution.

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Canadian underwater miner gets sinking feeling in Papua New Guinea – by James Regan (Reuters.com – December 12, 2012)

http://www.reuters.com/

SYDNEY, Dec 12 (Reuters) – A dispute between Papua New Guinea and Canada’s Nautilus Minerals threatens to sink plans to mine gold and other metals for the first time from the ocean floor.

It could also work against efforts by the South Pacific country to restore faith in its vast resources potential and entice more foreign companies to follow the likes of Exxon Mobil , Newcrest Mining and Barrick Gold and invest billions of dollars in resource projects.

The groundbreaking undersea venture hopes to use robots operating a mile (1,600 metres) deep to mine the sea floor near hydrothermal vents that deposit copper, gold and other minerals.

Hungry for foreign investment, Papua New Guinea (PNG), a nation of 7 million spread over an equatorial archipelago the size of California, had agreed in 2011 to pay 30 percent of the costs to build the Solwara 1 project in the Bismark Sea, which Nautilus said amounts to $80 million so far.

But in June, the government’s investment arm, Petromin, said it was terminating the agreement. Without the funds, Nautilus says it cannot afford to proceed and the matter is now in arbitration in Australia under The United Nations Commission on International Trade Law (UNCITRAL).

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Mining costs may be abating but labour worries persist (National Post – December 12, 2012)

The National Post is Canada’s second largest national paper.

It might be minimal, but miners appear to finally be feeling some cost relief.

Despite operating in a relatively healthy commodity-price environment, the past couple of years have been mostly miserable for mining executives, as soaring costs have crimped their margins and frustrated investors. Major projects have been called off or deferred because of low projected returns, and CEOs who couldn’t turn things around got fired. By mid-2012, it was clear that investors had lost all patience with under-performing companies.

Even so, the miners are feeling a bit more optimistic as 2013 approaches. While there are few firm numbers to back it up, anecdotal evidence suggests that cost inflation in the mining sector is beginning to slow down and come under control.

As projects got delayed over the past year and companies slashed their capital spending budgets, the incredibly tight markets for inputs such as equipment and consumables began to ease, experts said. They should soften even more over the next two or three years as the pipeline of projects gets thinner due to the deferrals. Many of the largest projects in the world are on hold, including the absolute biggest: BHP Billiton Ltd.’s US$28-billion Olympic Dam expansion in Australia.

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TOP 10 MINERS: A tough year, for CEOs and for stock prices – by Barry Sergeant (Mineweb.com – December 6, 2012)

http://www.mineweb.com/

The CEO’s of major top miners have faced relentless pressure this year, both from poor metal price performance and, increasingly demanding shareholders.

JOHANNESBURG (MINEWEB) – For listed mining companies everywhere, this year has been all about stock prices facing headwinds, along with relentless pressure on CEOs.

The benchmark stock, BHP Billiton, the world’s biggest diversified resources group, saw its stock price in US dollar terms peak out in the latter stages of 2010. Given the wobbles in the global economy, the fall from there has been relatively modest, from around US$26.00 a share to recent trades around US$19.00. Vale, the world’s No 2 miner by market value, has seen its stock price fall by just over 50%, to current levels around US$17.00 a share.

Over the past 12 months, Vale and Anglo American have underperformed, probably on the back of a heavier exposure to developing markets, where regulatory uncertainty has been on the rise, over the past two years, in particular. This week in Johannesburg, outgoing Anglo American CEO Cynthia Carroll decried a number of factors that had contributed to uncertainty in this country, and appealed, in effect, for improved leadership at all levels.

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Australia investment in new mine projects at record A$268.4bn – by Reuters (Mineweb.com – November 28, 2012)

http://www.mineweb.com/

Recent government figures show that committed investment in major resources and energy projects rose to A$268.4 billion at Oct 31.

SYDNEY (REUTERS) – Investment committed to Australian resource projects rose by nearly A$8 billion in the six months to the end of October, while the number of projects declined, in part underscoring rising construction and labour costs in Australia’s resources sector amid weakening demand.

Committed investment in major resources and energy projects in Australia increased to A$268.4 billion according at Oct 31 from A$260.8 billion recorded at the end of April, government figures released on Wednesday show.

“Looking forward, any substantial net increase to the dollar value of committed projects will require either cost increases to larger, existing projects and/or a new final investment decision on a large project within the coming year,” said Professor Quentin Grafton, Executive Director of Australia’s Bureau of Resources and Energy Economics (BREE).

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