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Big miners kick the empire building habit – by James Wilson (Financial Times – October 26, 2015)

http://www.ft.com/

BHP Billiton and Rio Tinto are being forced to curb their spending amid China’s economic slowdown

When the chief executive of one of the world’s biggest mining groups had to find words to describe his industry’s litany of problems, he turned to a US country song with an apt title: If You Are Going Through Hell.

“If you’re goin’ through hell keep on going,” were the lyrics recited by Freeport-McMoRan’s Richard Adkerson at a London reception this month, as his Arizona-based company battles a plummeting copper price and burdensome debts. “Don’t slow down, if you’re scared don’t show it . . . you might get out before the devil even knows you’re there.”

Forget the devil: mining investors are only too aware that the sector is a long way from paradise. The industry’s fortunes have deteriorated significantly since the end of the commodities “supercycle” — a big upward shift in demand driven by China’s post-2000 emergence as a manufacturing superpower.

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BHP First-Quarter Iron Ore Output Jumps 7% to Meet Estimates – by David Stringer (Bloomberg News – October 21, 2015)

http://www.bloomberg.com/

BHP Billiton Ltd., the world’s biggest mining company, said first-quarter iron ore output rose 7 percent, joining rivals Vale SA and Rio Tinto Group in reporting increased supply amid falling prices and a global glut.

Production was 61.3 million metric tons in the three months ended Sept. 30, Melbourne-based BHP said Wednesday in a statement. That compares with 57.1 million tons in the same period a year earlier and with a median of 61.9 million tons of three analysts surveyed by Bloomberg.

Benchmark iron ore prices have fallen more than 70 percent from a 2011 peak amid slowing economic growth in China and as the largest suppliers raise output to boost savings and squeeze out higher-cost rivals. BHP reported a 4 percent drop in petroleum output and flagged a 6 percent decline in the unit’s capital spending this fiscal year.

“The iron ore result is as expected and is a good result, though we’d expected petroleum to be higher,” said David Lennox, a resource analyst at Fat Prophets in Sydney.

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Glencore’s Zinc Rationale Defies History – by Liam Denning (Bloomberg News – October 15, 2015)

http://www.bloomberg.com/

“You shut up!/No, YOU shut up!” is how schoolyard scuffles kick off. Miners tweak it slightly to: “You shut down!/No, YOU shut down!”

Ivan Glasenberg, the chief executive of Glencore, has long bemoaned miners’ tendency to literally dig themselves into a hole with too much supply. As concern about Glencore’s swollen debt has hit the stock price, Glasenberg has recently taken himself at his word, ordering a temporary shutdown of some of the company’s zinc output. That caused the price of the metal to jump 10 percent last Friday.

But history suggests Glencore’s fight to raise zinc prices sustainably could be a tough one. Taking yourself out of the market in order to reduce excess supply can be a great strategy— but primarily for those rivals who keep producing and benefit from higher prices while your own reserves stay in the ground.

Sure enough, this week the marketing chief at one of said rivals, BHP Billiton, confessed himself “quite intrigued” about all the talk of cutting production, as he hadn’t seen any capacity being shut-in that was making cash.

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BHP says shutting down mines won’t help commodity prices – by James Chessell (Australian Financial Review – October 15, 2015)

http://www.afr.com/

A senior BHP Billiton executive has played down the impact of production cuts by miners such as Glencore, arguing that commodity prices will not be affected because most of the mines being shut down are unprofitable.

Asked if prices of key commodities such as copper would benefit from higher-cost “marginal” producers cutting back production, BHP marketing president Arnoud Balhuizen said it would not make a significant difference.

“I am quite intrigued by all the conversation about cutting down production because I haven’t seen any production being shut which is making cash,” Mr Balhuizen told journalists in London on Wednesday.

“So for me it is just a normal rational economic decision. If you have a cash negative operation you shut it but it doesn’t do anything for price. You should have done it anyway.”

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LMEWEEK-BHP gloomy on iron ore price, but cautiously optimistic on China – by Maytaal Angel and Eric Onstad (Reuters U.S. – October 14, 2015)

http://www.reuters.com/

LONDON, Oct 14 (Reuters) – BHP Billiton, the world’s largest miner, was downbeat on Wednesday about iron ore prices as low-cost producers continue to swamp the market and as the intensity of China’s demand for the steel making raw material ebbs.

However, there were some positive signs on the economic outlook for top commodity consumer China, BHP officials told a briefing during the LME Week industry gathering.

A global glut and falling Chinese steel demand have dragged spot iron ore prices .IO62-CNI=SI to less than $60 a tonne from a high of nearly $200 in 2011. The price is forecast to drop to $50 over the next two years, a Reuters poll showed.

“By the end of this year, there will be additional iron ore coming from Australia, from Brazil,” Arnoud Balhuizen, president of the group’s marketing unit, told a media briefing. “Our expectation is that the iron ore market cost curve will continue to flatten and continue to come under pressure.”

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BHP Billiton exec talks up Nickel West prospects – by Barry Fitzgerald (The Australian – October 9, 2015)

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

BHP Billiton has served up a surprise by talking up the prospects of its Nickel West division in the face of depressed prices for the stainless steel ingredient.

Nickel West is the price-challenged division BHP withdrew from sale last year after failing to attract reasonable offers, and it is the division that was not good enough to be included with the other non-core assets spun off by BHP into South32 earlier this year.

Because Nickel West was seen internally as doubly non-core to BHP, it was to be run for cash and would not receive new investment, raising fears that the once proud business — spawned during the Poseidon nickel boom and a cornerstone of BHP’s 2005 acquisition, WMC — would be left to wither on the vine.

But at the Australian Nickel conference in Perth, Nickel West’s new asset president, Eddy Haegel, said there was a now sense of “nervous excitement’’ in the division. He said Nickel West had embarked on a journey to reinvent itself by adopting a junior miner mindset, while remaining inside the world’s biggest mining company.

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BHP Billiton’s split may have lessons for Alcoa – by James Regan (Reuters U.S. – September 29, 2015)

http://www.reuters.com/

SYDNEY – In what could be a cautionary tale for Alcoa Inc, global miner BHP Billiton’s decision to spin off non-core businesses into a separate company is yet to pay off for shareholders.

Alcoa announced on Monday it will break itself in two, separating a faster growing plane and car parts business from traditional alumina and aluminum production as shareholders seek higher returns amid a commodity slump.

BHP used a similar rationale for ring-fencing select operations in Australia, southern Africa and South America into what became South 32 last May to concentrate on its most profitable commodities.

South32 shares fell to a record low on Tuesday of A$1.38, more than a third below its listing price. BHP stock, at A$21.61 at Australia’s Tuesday close, is the lowest in seven years.

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BHP Billiton sees strong earnings growth even in low carbon world (Reuters U.S. – September 29, 2015)

http://www.reuters.com/

MELBOURNE – BHP Billiton, the world’s largest miner, said on Tuesday it sees its earnings doubling over the next 15 years, even in a world where carbon emissions are cut to limit global warming to 2 degrees Celsius.

Under pressure from UK investors who fear fossil fuel assets could become worthless under tough climate policies, BHP released analyses of its copper, coal, oil, gas, potash, uranium and iron ore assets showing the company will hold up well under what it considers the most realistic scenarios.

Even with the 2 degrees C limit – equivalent to a rise of about 3.5 degrees Fahrenheit – that has been set for UN climate talks later this year, demand in 2030 for all of BHP’s commodities except thermal coal would be higher than in 2014.

Uranium would be the biggest winner as more nuclear power would be needed, BHP said. “In this scenario, our portfolio remains resilient, and our analysis indicates that margins remain strong and even increase in some commodities,” Chief Commercial Officer Dean Dalla Valle told reporters ahead of an investor briefing in London.

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Rio Tinto and BHP Billiton to keep dividends despite pressure, says Macquarie – by Stephen Cauchi (Australian Financial Review – September 28, 2015)

http://www.afr.com/

BHP and Rio Tinto would have to trim their dividends in coming years due to crashing commodity prices, according to research released on Monday by Macquarie, with Rio tipped to be the better performer of the two.

Both companies remain committed to progressive dividend policies, in which dividends rise in line with earnings per share. The dividends would continue, said Macquarie. But the bank nevertheless trimmed its forecasts for both companies.

For BHP, “we now only factor a flat payment of $US1.24 a share for the next three years, a payment of $US6.5 billion”.

For Rio, “we have reduced our dividend growth assumptions … with our dividend compound annual growth rate reducing from 4 per cent to 2 per cent over the next three years.”

BHP’s dividend per share in 2015, averaged over 12 months, was $1.68. Rio’s interim 2015 dividend per share was $1.44.

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BHP Billiton in climate caucus as China joins carbon war – by Matthew Stevens (Australian Financial Review – September 25, 2015)

http://www.afr.com/business/

BHP Billiton’s membership of a new coalition of high powered commerce with the lofty aim of assisting the transformation of emerging nations into low carbon economies says much about the gathering pressures of climate change on those who make money in the fossil fuel cycle and just as much about the Global Australian’s radically changed view of its place in the world.

BHP was formally invited to become a foundation member of an “energy transitions commission” in a letter to chief executive Andrew Mackenzie penned by Royal Dutch Shell boss Ben van Beurden.

The Shell initiative, which will be formally announced in Houston on Monday, has been made all the more timely by China’s confirmation that it is contemplating the imminent introduction of a cap-and-trade carbon trading scheme and of stricter limits on the level of public funding for “high carbon projects”.

This is patently a deeply worrying development for big coal. China’s economic development is powered by electricity and that means it sits front and centre to any and all the optimism that the miners can muster about the medium and long-term outlook for coal.

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Potash Pessimism Clouds Prospects for BHP’s Jansen Project – by David Stringer (Bloomberg News – September 21, 2015)

http://www.bloomberg.com/

BHP Billiton Ltd.’s prospects of building potash into the fifth pillar of its portfolio of big-ticket businesses is looking a long way off. That’s the view of Macquarie Group Ltd., which has a “very pessimistic view” of the market.

The world’s biggest miner’s Jansen project in Canada, which has already consumed about $3.8 billion in capital, is unlikely to be developed unless prices rise, according to Macquarie. The bank has cut its long-term price forecast by 16 percent to $280 a metric ton.

“Our base-case scenario for BHP assumes the indefinite deferral of Jansen’s development,” Macquarie analysts wrote in a note to clients dated Sept. 21. The company will probably favor development of less capital intensive petroleum and copper projects, they said.

Mosaic Co., the largest U.S. producer of potash fertilizer, said Monday it plans to reduce output as low crop prices continue to erode farmer demand for agricultural products.

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BHP’s Andrew Mackenzie more bullish on China – by John Kehoe (Australian Financial Review – September 17, 2015)

http://www.afr.com/business/mining/

BHP Billiton chief executive Andrew Mackenzie has signalled that China may have turned a corner, saying he had shifted from a slight “bear” on the world’s second largest economy three months ago to once against siding with the China “bulls”.

Mr Mackenzie, speaking in Washington, said BHP’s key commodities including iron ore, coal, copper and oil were “still flowing” through Chinese ports and there was no inventory build-up.

“If we compare to three or four months ago, things are a little better, not worse,” Mr Mackenzie said after delivering a speech to the US Chamber of Commerce.

BHP’s business activity offers a sneak peak into key sections of the Chinese economy, because the miner is a large supplier of commodities used to construct buildings, bridges, cars and other metals-intensive objects.

A range of recent disappointing economic data suggests Australia’s biggest export market may be slowing faster than most economists had anticipated.

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Robots Will Help Iron-Ore Miners Survive Price Rout – by Luzi-Ann Javier (Bloomberg News – September 10, 2015)

http://www.bloomberg.com/

When the rout in prices ends for the world’s iron-ore producers, those left standing probably will have more robots on their side.

Automated drills and driver-less trucks are among the new tools employed by the four biggest companies, including BHP Billiton Ltd., in a bid to preserve profit margins during a bear market that began more than two years ago. Using more technology helped reduce costs at Rio Tinto Plc by 8 percent since 2013, even as it boosted output by 5 percent, according to Paul Young, an analyst at Deutsche Bank AG in Sydney.

Improvements by top producers is defying a productivity collapse for the rest of the mining industry, which consultant McKinsey & Co. says declined as much as 28 percent in the past decade, forcing smaller operators to shut.

With demand for iron-ore slowing in China, the world’s biggest user, prices are probably headed lower as major suppliers expand output by tapping low-cost reserves, mostly in Australia, according to Citigroup Inc. The top four companies will see their share of the global market jump to 79 percent in 2018 from 64 percent in 2010, the bank said.

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WA chills as BHP Billiton, Rio Tinto and Fortescue cut $20b spending – by Julie-anne Sprague (Australian Financial Review – August 30, 2015)

http://www.afr.com/

A dramatic $20 billion cut in operational spending by the nation’s three biggest iron ore miners is chilling a West Australian economy already under stress from falling investment in resources-related construction.

Analysis by The Australian Financial Review reveals that since 2012, BHP Billiton, Rio Tinto and Fortescue Metals Group have cut the amount they spend on extracting resources by $US14.3 billion ($19.9 billion).

While this figure includes BHP and Rio’s global operations, the majority of the cuts have been generated from their West Australian iron ore operations.

This excludes massive cuts to capital expenditure. With laser like precision the miners are tightening the cost screws beyond cutting staff and salaries.

They’re cutting meals served on flights to remote mine sites, pulling biscuits from the tea rooms and reducing the number of uniforms issued to staff.

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Iron and Steel: BHP’s big admission – by Kip Keen (Mineweb.com – August 26, 2015)

http://www.mineweb.com/

Steel demand in China is expected to be what BHP once thought.

HALIFAX – Just a couple of weeks ago I argued BHP and Rio should defend – in detail – their bullish steel demand forecasts in China given the growing number of forecasters that say the peak has already past.

Recall that Rio Tinto and BHP have long stuck to forecasts putting peak steel demand in China at, or over, a billion tonnes a decade or so from now. Others see it behind us already.

Well, I haven’t seen that defense, yet. We got a major revision of steel demand announced to the market instead.

In outlining its year-end financials August 25, BHP slashed its forecast of Chinese demand a decade or so from now by some 100 million tonnes steel.

A half year ago BHP argued peak demand would come in the mid-2020s somewhere around 1 billion to 1.1 billion tonnes.

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