BHP – Page 38 – Republic of Mining

Iron ore strategy the road to ‘self-destruction’, warns Cliffs chief – by Paul Garvey (The Australian – March 12, 2015)

March 12, 2015

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

AUSTRALIA’S big iron ore miners are on a path towards “self-destruction” and could leave the country with a case to answer before the World Trade Organisation, the head of North America’s largest iron ore miner has warned.

Lourenco Goncalves, chief executive of US iron ore miner Cliffs Natural Resources, yesterday told the Global Iron Ore and Steel Forecast conference in Perth the surge in iron ore supply from producers such as BHP Billiton, Rio Tinto and Fortescue Metals could send the price of Australia’s most important export to permanently lower levels.

Iron ore prices have more than halved in the past year as surging production swamped cooling demand, although the key iron ore index rebounded slightly yesterday to end a six-day losing streak.

Mr Goncalves said the price of seaborne iron ore shipped by Australian miners could halve again from about $US60 a tonne to as low as $US30 as a result of the major miners’ expansion strategy. “You call that strategy? I call it self-destruction,” Mr Goncalves said.

On Tuesday, Rio Tinto iron ore chief Andrew Harding and his BHP counterpart, Jimmy Wilson, defended their companies’ roles in the creation of the supply glut, arguing that each tonne of supply they did not deliver would have been filled with lesser-quality ore from elsewhere.

COLUMN-Who benefits from the iron ore supply glut? Nobody? – by Clyde Russell (Reuters U.S. – March 11, 2015)

March 11, 2015

http://www.reuters.com/

PERTH, March 11 (Reuters) – One question that skulks like an elephant in a room where the iron ore industry has gathered is who has benefited the most from bulging global supplies.

The Anglo-Australian pair of BHP Billiton and Rio Tinto are happy to tell you how they have successfully ramped up output at costs low enough to still rake in profits.

That was very much their message at this week’s Global Iron Ore & Steel Forecast conference in the Western Australia capital city.

The smaller miners suffering from the collapse in Asian spot iron ore prices are only too willing to speak of their battle to survive amid what they see as the destruction of the value of an industry that is Australia’s largest export earner.

The price of iron ore .IO62-CNI=SI hit its lowest on record on Tuesday, at $58 a tonne, with this year’s decline of 19 percent compounding last year’s slump of 47 percent.

Steel industry officials in China, the destination of two-thirds of the world’s seaborne iron ore, will also tell you how their industry suffers from overcapacity, poor profits and the economy’s shift to consumption-led growth.

BHP Sounds Warning as Casualties Mount in Iron Ore Price War – by Thomas Biesheuvel and Jesse Riseborough (Bloomberg News – February 24, 2015)

February 27, 2015

http://www.bloomberg.com/

(Bloomberg) — The first fractures are appearing in an escalating iron ore price war that’s putting more producers out of business.

The biggest mining companies led by Rio Tinto Group, BHP Billiton Ltd. and Vale SA have persisted with multi-billion dollar expansion plans, citing still-healthy earnings even in the wake of a price collapse. Now, for the first time, one of the big three has voiced concern they may have gone too far.

“I do fear that other competitors have an awful lot more capital waiting in the wings to invest in expanding,” Andrew Mackenzie, chief executive officer of BHP, the world’s largest mining company, told analysts on a conference call on Tuesday after reporting a 35 percent decline in underlying profit from his iron-ore division. “We do look to the future and see a degree of pressure downwards on iron-ore prices.”

BHP, Rio and Vale have been squeezing smaller rivals in their quest for market share, while demand growth in China, the biggest consumer, slows. From Sierra Leone’s jungle to Sweden’s Lapland, abandoned mines are beginning to dot the global landscape.

“They wanted to make sure no one else entered the market and to maximize their own market share,” said Seth Rosenfeld, an analyst at Jefferies International Ltd. in London. “They’ve now done that as they’re expanding and no one else is.”

BHP in race between cost-cutting and commodity prices – Clyde Russell (Reuters U.S. – February 25, 2015)

February 25, 2015

http://www.reuters.com/

LAUNCESTON, Australia, Feb 25 (Reuters) – The jump in BHP Billiton’s shares after profits plunged shows a mindset akin to buying tickets for the Titanic’s second voyage because the gash in the hull from striking the iceberg isn’t as bad as feared.

BHP’s Australian-listed stock jumped almost 3 percent on Tuesday to close at A$33.06, and extended gains to A$33.54 in early trade in Sydney on Wednesday, a three-month high.

The world’s biggest mining company posted a 31-percent drop in half-year underlying attributable profits to $5.35 billion, but this was ahead of the consensus forecast of $5.1 billion. An increase in the interim dividend to $0.62 a share was also ahead of market forecasts, and this goes a long way to explaining the boost in the share price.

But delve deeper into BHP’s results for the half-year ended Dec. 31 and the impact of the rout in commodity prices becomes more apparent, as does the prospect of even lower profits in coming reporting periods.

Even Chief Executive Andrew Mackenzie adopted a sombre tone, telling a call with analysts that the price of iron ore, the miner’s main commodity, was likely to remain under downward pressure as more supply comes to market.

BHP Billiton spin-off a bright spot in commodities gloom – by Sonali Paul (Reuters U.S. – February 23, 2014)

February 24, 2015

http://www.reuters.com/

MELBOURNE – (Reuters) – When global miner BHP Billiton reports its half-year results on Tuesday, the only parts of the company that are likely to report profit growth are some of the unloved assets it aims to spin off by June.

Commentators had dubbed the company BHP plans to hand to shareholders “DudCo” before it was christened South32, as the aluminum, manganese, nickel, some coal and silver businesses barely contributed to BHP’s earnings.

But now those businesses are looking rosier as prices for aluminum and manganese are improving in a world where prices for BHP’s four biggest products, iron ore, petroleum, copper and coal, have all collapsed to near six-year lows.

Despite the improvement, BHP wants to shed the smaller assets so it can focus on its four core commodities, and still believes that shareholders will gain more if South32 is freed to develop assets that were starved of capital amid an iron ore and coal boom.

The world’s biggest miner is expected to report a 34 percent slide in half-year underlying attributable profit to $5.1 billion, but within that, Deutsche Bank sees earnings from aluminum nearly tripling while manganese earnings are seen improving by around 45 percent.

BHP’s iron ore outlook holds little cheer for small miners – by James Regan (Reuters India – February 24, 2015)

February 24, 2015

http://in.reuters.com/

SYDNEY, Feb 24 (Reuters) – Global miner BHP Billiton on Tuesday batted away suggestions of a turnaround in iron ore prices anytime soon – a bad omen for smaller producers struggling close to the break even point.

Chief Executive Andrew Mackenzie, releasing BHP’s half-year results, said iron ore demand in the all-important Chinese market was flat, although imports have increased by displacing higher-cost domestic supply.

But as supply costs have fallen, the price – around $62 a tonne – is now “more reflective of the medium-term fundamentals”, he said.

That’s a hefty enough price to keep BHP, the world’s third-biggest iron ore miner, and fellow mega-producers Vale and Rio Tinto in the black but is borderline for smaller rivals.

Atlas Iron, which plans output of about 14 million tonnes in fiscal 2015 against BHP’s 245 million tonnes, posted an underlying net loss of A$139 million ($108 million) for the half-year, against a A$61 million profit a year earlier.

COLUMN-Iron ore can’t go back to the future to annual pricing – by Clyde Russell (Reuters U.S. – February 23, 2015)

February 23, 2015

http://www.reuters.com/

LAUNCESTON, Australia, Feb 23 (Reuters) – Iron ore should go back to the future and reinstate annual contract pricing, according a former executive of top miner Rio Tinto. He’s wrong.

Mal Randall, who spent more than 25 years at Rio Tinto and also helped set up an Australian iron ore miner, said the move to iron ore spot pricing from 2010 onwards was a disaster, the Australian Financial Review reported on Monday.

Up to a few years ago, iron ore had been priced through annual talks between steelmakers and their largely Australian suppliers. This changed, largely at the behest of former BHP Billiton chief executive Marius Kloppers, who wanted to take advantage of a shortage of supply to generate higher returns for his iron ore mines.

“It was orchestrated and brought in by a guy that has no responsibility now, Kloppers who used to run BHP,” the newspaper quoted Randall as saying. “It’s great to make these changes and then he’s gone.”

Randall, who now chairs mineral sands company MZI Resources, is correct insofar as the spot market pricing is no longer working in the favour of the big miners.

Barrick Gold Chairman’s Shakeup Keeps Investors Guessing – by Liezel Hill (Bloomberg News – February 17, 2015)

February 18, 2015

http://www.bloomberg.com/

(Bloomberg) — On an icy late-January evening in Toronto, more than 30 Barrick Gold Corp. mine managers and country heads gathered in the basement of a pub to hear their executive chairman’s vision for the world’s largest gold producer.

In town for year-end meetings, the group listened intently as John Thornton outlined a plan to give them the authority they needed to run their units like their own businesses, according to a person present. Barrick’s Toronto headquarters would shrink in size and reach.

To outsiders these are eye-opening words, coming from a leader known within Barrick for a detail-oriented style which has placed him at the center of decision-making at different levels of the company.

While his comments suggest he’s trying to return Barrick to its nimble roots, questions remain within the investment community about what that may mean over the long run. Will Thornton, an ex-Goldman Sachs Group Inc. banker, keep Barrick focused on gold, or diversify further into other metals such as copper, as he has hinted in the past?

“I have no idea what’s going on,” said David Christensen, chief executive officer of ASA Gold & Precious Metals Ltd, a San Mateo, California-based investor that holds Barrick shares. “I feel like I’m looking into a black hole.”

Rio Tinto to defy mining pain with big payout while rivals suffer – by Sonali Paul and Silvia Antonioli (Reuters U.S. – February 10, 2015)

February 10, 2015

http://www.reuters.com/

MELBOURNE/LONDON – (Reuters) – Rio Tinto is expected to star among the top five global miners with a return of billions of dollars to shareholders at its annual results, even as the firm is set to report its worst half-year profit since 2009.

It will likely be all downhill for investors in the megaminers after Rio Tinto reports on Feb. 12 as they are all tipped to report sharp slides in earnings, gutted by weaker prices for almost everything they produce.

Iron ore will be the biggest source of pain, even though it remains the most lucrative product for Brazil’s Vale, Rio Tinto and BHP Billiton, and investors’ main concern is how the big miners are going to shore up cash flow. The top three producers have wounded the industry by flooding the market with new supply, knocking iron ore prices down nearly 50 percent in 2014, a steeper slide than anyone anticipated.

While boosting output, Rio has bolstered its cash flows by slashing costs, cutting capital spending and reducing debt, putting it in the best position to return cash to shareholders. BHP took the same steps, but has been whacked by plunging oil prices.

“In our opinion Rio has significantly greater flexibility (than BHP) at this point in time to pursue short-term capital management initiatives,” said Ben Lyons, a portfolio manager at ATI Asset Management.

Currency conspiracy theory wide of the mark with iron ore – by Clyde Russell (Reuters U.S. – February 5, 2015)

February 5, 2015

http://www.reuters.com/

LAUNCESTON – Some people love conspiracy theories and the latest is that the Australian central bank is deliberately weakening its currency to save the country’s big iron ore miners.

That’s the opinion of Lourenco Goncalves, chief executive of U.S.-based iron ore and coal miner Cliffs Natural Resources but, like virtually all such theories, it fails the test of logic and credibility.

Goncalves argues that the Reserve Bank of Australia (RBA) has manipulated its currency to help his much bigger rivals, the Anglo-Australian pair of Rio Tinto and BHP Billiton.

In comments made on Tuesday, the same day Australia’s benchmark rate was cut by 25 basis points to a historical low of 2.25 percent, the outspoken CEO said the RBA was “taking no prisoners” with the Australian dollar.

“They want to help BHP, they want to help Rio Tinto, they want to help that lady over there, Gina whatever,” Goncalves said, a reference to Australia’s richest person, Gina Rinehart, whose company is due to start up the 55 million tonne a year Roy Hill mine in Western Australia later this year.

Iron Ore Extends Rout as China Slows, Banks Reduce Forecasts – by Jasmine Ng (Bloomberg News – January 26, 2015)

January 26, 2015

http://www.bloomberg.com/

Iron ore retreated to the lowest level in more than five years as a slowdown in China hurt the outlook for demand in the world’s biggest user while the largest mining companies add to supply, boosting a surplus.

Ore with 62 percent content delivered to Qingdao, China, tumbled 4.3 percent to $63.54 a dry metric ton, according to data by Metal Bulletin Ltd. That’s the lowest price on record going back to May 2009, and was the biggest one-day fall since Nov. 18. The commodity is 11 percent lower this year.

The raw material has been in a bear market since March after Rio Tinto Group (RIO), BHP Billiton Ltd. and Vale SA spent billions of dollars to boost low-cost output even as China slowed. Goldman Sachs Group Inc. joined global banks on Friday in cutting price forecasts for 2015, predicting a return to a bull market is probably more than a decade away. The love affair between China and iron ore is cooling, the bank said.

The decline in prices is mainly due to “slower demand growth for steel in China, together with the expected new iron ore supply,” Vanessa Lau, a Hong Kong-based analyst at Sanford C. Bernstein Ltd., said before the figure was released. Steel mills in China are also cutting output before the Lunar New Year, putting further pressure on prices, she said, referring to the national holiday next month when industrial activity slows.

Goldman Joins Banks Cutting Iron Ore Outlook on Global Glut – by Jasmine Ng (Bloomberg News – January 23, 2015)

January 23, 2015

http://www.bloomberg.com/

First Citigroup Inc., then UBS Group AG, now Goldman Sachs Group Inc. For iron ore, which plummeted 47 percent in 2014, the cuts to price forecasts from global banks just keep coming in the opening weeks of the year.

The steel-making ingredient may average $66 a metric ton this year from an earlier estimate of $80, Goldman Sachs said in a report dated Jan. 23. This is the first time the New York-based bank has reduced its 2015 prediction since March 2013, and it’s at least the fifth bank this month to lower estimates, citing rising seaborne supplies and weaker demand growth from China, the biggest user.

The iron-ore surplus emerged last year after the largest miners including Rio Tinto Group (RIO), BHP Billiton Ltd. and Vale SA (VALE5) invested billions of dollars to boost output and as China grew at the slowest pace in more than two decades. Cheaper energy costs and depreciating currencies may delay supply cuts needed to rebalance the market, causing prices to extend losses, said Citigroup and UBS, which pared estimates for the commodity by as much as 22 percent.

“Significant overinvestment to date will ensure that the market is well supplied, while demand from the Chinese steel sector is maturing,” Goldman analysts including Christian Lelong wrote in the report. “A painful war of attrition awaits” the iron ore industry as less competitive mines shut, the analysts said.

COLUMN-BHP, Rio production show scale of commodity price challenge – by Clyde Russell (Reuters India – January 21, 2015)

January 21, 2015

http://in.reuters.com/

LAUNCESTON, Australia, Jan 21 (Reuters) – The latest production reports from mining giants BHP Billiton and Rio Tinto hammer home an uncomfortable truth: No matter how much output increases and costs are cut, falling commodity prices triumph.

Both BHP and Rio Tinto released reports this week that met market expectations and re-affirmed production guidance for the world’s top two mining companies.

While it’s no doubt positive for the Anglo-Australian miners that they are successfully executing plans to boost output while containing costs, the numbers make for some sobering reading.

Rio Tinto, the world’s second-largest iron ore producer after Brazil’s Vale, said it expected to mine 330 million tonnes of the steel-making ingredient at its Western Australia mines in 2015 on a 100 percent basis, up from 280.6 million tonnes last year. (www.riotinto.com)

The average price achieved in 2014 was $84.30 a tonne, Rio Tinto said, which would yield revenue of about $23.65 billion, on a 100 percent basis from the Pilbarra region. Rio Tinto’s actual share of that would be about $18.95 billion, as some of its mined output accrues to partners.

And given the structural oversupply in the market and muted demand growth from top importer China, it seems unlikely that the price will rally significantly in 2015.

BHP’s Spinoff Offers Glencore an Alternative to Rio: Real M&A – by Brett Foley, David Stringer and Angus Whitley (Bloomberg News – January 21, 2015)

January 21, 2015

http://www.bloomberg.com/

Rebuffed by Rio Tinto Group (RIO) last year, Glencore Plc (GLEN) will soon have another acquisition target to consider for expanding its mining empire: the company formed from the biggest spinoff in the industry’s history.

BHP Billiton Ltd. (BHP) plans to split off assets including its silver, manganese and aluminum operations to focus on larger businesses such as iron ore. The newly formed company — Perth, Australia-based South32 Ltd. — may appeal to Glencore because it’s being spun off near the bottom of the commodity cycle and it produces many of the same metals as the Swiss giant, said Aviate Global LLP.

South32 could command a market value of about $15 billion when it lists in coming months and earnings are set to surge in the next five years with prices of its materials poised to rise, said Macquarie Group Ltd. As his biggest rivals such as Vale SA and Anglo American Plc hunker down to ride out plunging prices of bulk commodities, Glencore Chief Executive Officer Ivan Glasenberg is looking for undervalued acquisition targets.

“He’s got a free pass into these assets,” Paul Gait, a London-based mining analyst at Sanford C. Bernstein & Co., said by phone. “Looking at it from Ivan’s perspective, I’d be thinking the current downturn isn’t going to last. It never does.”

Representatives for Glencore and Melbourne-based BHP declined to comment.

COLUMN-Big iron ore miners supply strategy working partially – by Clyde Russell (Reuters U.S. – January 13, 2015)

January 14, 2015

http://www.reuters.com/

LAUNCESTON, Australia, Jan 14 (Reuters) – China’s record imports of iron ore in December capped a year of strong growth, while also proving that the strategy of the big miners is at least partially working.

China brought in 86.85 million tonnes of the steel-making ingredient in December, bringing the total for 2014 to 932.5 million tonnes, a gain of 13.8 percent over the previous year.

The jump in iron ore imports isn’t because China is producing more steel, with output of crude steel rising a mere 1.9 percent in the first 11 months of 2014 over the same period in 2013, according to official figures.

It’s also not because huge stocks of iron ore are being built up in warehouses, with inventories monitored by the Shanghai Futures Exchange SH-TOT-IRONINV dropping to 99.85 million tonnes in the week to Jan. 9, the lowest in 11 months.

The most logical explanation is that the 47-percent decline in the Asian spot iron price in 2014 .IO62-CNI=SI is displacing some high-cost Chinese domestic output.

This has been the strategy of the big three iron ore miners, Brazil’s Vale and the Anglo-Australian pair of Rio Tinto and BHP Billiton.