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Iron ore and the dangers of living by the sword – by Andy Home (Reuters U.S. – November 11, 2014)

http://www.reuters.com/

LONDON – (Reuters) – The price of spot iron ore has sunk to $75.50 per ton this week, its lowest level since 2009. The scale of the price collapse has been breath-taking. Iron ore has dropped by over 35 percent since the start of the year, a significantly worse performance than any other industrial metal.

But what’s really shocking is that the price is now at a level that until recently was collectively deemed impossibly low. It was only in April that José Carlos Martins, executive officer of ferrous and strategy at Vale, the world’s largest producer of iron ore, told analysts that “one thing is for sure, the price will not go below $110 on a sustainable basis”.

This was not irrational producer exuberance. Martins was only voicing the prevailing consensus view when he went on to argue that “we have many times seen the price going below this level but recovering very fast”. Well, here we are with the price trading not just below $110 but a lot lower still. And sustainably so.

That tells you that something has gone very wrong with the iron ore narrative. This market is in a place it was not supposed to be.

And while big producers such as Vale, Rio Tinto and BHP Billiton are sticking to that narrative, they are now facing the unpredictable consequences of a pricing war they collectively started.

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Iron Ore Has Biggest Weekly Loss Since May on Supply Glut – by Jasmine Ng (Bloomberg News – November 7, 2014)

http://www.bloomberg.com/

Iron ore capped the biggest weekly decline in more than five months amid expanding global surplus, with Vale SA’s opening of a port in Malaysia highlighting rising supplies and investments by the world’s largest shippers.

Ore with 62 percent content delivered to Qingdao lost 4.7 percent this week to $75.84 a dry metric ton, according to data from Metal Bulletin Ltd. The decline completed three weeks of losses, deepening a bear market. Prices, which rose 0.6 percent today to snap a five-day losing streak, reached $75.38 yesterday, the lowest since September 2009.

The raw material lost 44 percent this year as producers including Brazil’s Vale, the world’s largest shipper, and BHP Billiton Ltd. and Rio Tinto Group (RIO) in Australia expanded supplies and spurred the glut. Data this week showed record exports of the steel-making raw material from Australia’s Port Hedland last month. Mill closures ordered by China this week to curb air pollution for a global summit were also seen hurting demand.

“Demand in China is weak because some mills were asked to stop production before the APEC meeting,” Ben Cheung, head of metals at ABN Amro Group NV in Hong Kong, said before the price data was released. “The major producers are still expanding supply to try to increase market share. The over-supply situation doesn’t look like it will be alleviated next year.”

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BHP offers little hope of revisiting giant copper mine expansion – by James Regan (Reuters U.K. – October 31, 2014)

http://uk.reuters.com/

SYDNEY – (Reuters) – Expansion by BHP Billiton’s giant Olympic Dam mine in Australia, once considered among its prized growth assets, is off the agenda due to low metals prices and productivity inefficiencies, the company said on Friday.

BHP shelved plans for a multi-billion-dollar expansion of the copper, gold and uranium mine in 2012 after a year-long study, citing a need to reign in spending as the Australian mining boom started to fade.

Since then business leaders and politicians, including Australian Prime Minister Tony Abbott, have implored BHP to reconsider its decision, hoping to alleviate job losses caused by the exit of car manufacturing in Australia.

But BHP has stood firm and on Friday reiterated its mothballing of expansion plans for Olympic Dam.

“Our immediate challenge is how we self-fund the required investment by being prudent and creative with our capital and engaging our workforce to not only reduce costs but also accelerate the initiatives that will reduce our costs,” Darryl Cuzzubbo, Olympic Dam assetpresident, said in a business speech emailed to Reuters.

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BHP CEO defends iron ore strategy as best play in gloomy market – by Silvia Antonioli (Reuters U.S. – October 23, 2014)

http://www.reuters.com/

LONDON – (Reuters) – BHP Billiton’s chief executive said its strategy of high-volume iron ore production was the best way to profit in a gloomy market, defending a plan that has come under growing criticism for depressing prices.

Iron ore, the biggest earner for global miner BHP Billiton, has lost about 40 percent of its value this year, reaching five-year lows, as big increases in new supply from top three miners Vale, Rio Tinto and BHP have exceeded lackluster demand.

Analysts expect the price decline to continue in the next few years under the weight of extra supply.

BHP has said it intends to boost production at existing assets by 65 million tonnes to 290 million a year by June 2017 and plans to cut its production costs to overtake rival Rio Tinto as the cheapest iron ore supplier to China.

“The lowest-cost producer has a right to continue to produce at very high margins in a free market,” BHP Chief Executive Andrew Mackenzie told reporters after the company’s annual general meeting in London.

“We have always been of the view that the iron ore market is more likely to decline than rise, and therefore producing the maximum amount we can now is very sensible.”

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Iron ore giants win first round in global battle but knockout unlikely – by Clyde Russell (Reuters U.S. – October 23, 2014)

http://www.reuters.com/

LAUNCESTON, Australia – Oct 23 (Reuters) – There is now no doubt that the big three global iron ore miners are producing record amounts in their bid to dominate the industry. The question remains, what will happen if they succeed?

Anglo-Australian giants Rio Tinto and BHP Billiton both reported record output in their latest quarterly reports, and affirmed they were on track to boost production even further.

Top producer, Brazil’s Vale is also increasing output, with Brazilian trade figures showing iron ore exports rose 16.7 percent in September from August to 33 million tonnes.

These figures show that the output side of the plan to dominate global seaborne iron ore trade is going quite well for the big three.

In the case of BHP and Rio Tinto, they are well-placed to continue to put pressure on competitors based in their home turf of Western Australia state, as well as those in other parts of the world.

With the lowest cash costs, in the region between $20 to $30 a tonne, and plans to strip out even more costs, they can survive and prosper even if iron ore prices remain weak.

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BHP Billiton to pursue demerger with no share listing in Canada – by Barry Critchley (National Post – October 22, 2014)

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

For the second time in four years, BHP Billiton Ltd., the world’s largest mining company — which holds its annual meeting in London Thursday — has announced plans that don’t include a Canadian share listing.

In the summer of 2010, BHP Billiton – the result of the 2001 merger between BHP and Billiton – launched a hostile bid for Potash Corporation of Saskatchewan Inc. It offered US$130 cash a share — a potential US$40-billion transaction.

At the time, BHP Billiton noted it had business interests in Canada dating back almost 40 years.

The most significant interest was EKATI, a diamond mine in which it had invested about US$5-billion since production began in 1998. BHP, which sold the EKATI mine in 2012, had also acquired exploration rights in potash, notably the Jansen mine.

But, perhaps as a reflection of the takeover consideration, BHP Billiton, which at the time had a market cap of US$188-billion, made no plans to list its shares on the TSX. However, late in the game when opposition to its takeover was mounting, it offered a secondary listing on the TSX to complement listings Australia, London, Johannesburg and New York. But its TSX-listing plans were shelved when the takeover was withdrawn after Ottawa nixed the deal after applying the net benefit test.

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All Female E-Mail at BHP Shows Mine Shift From Boys’ Club – by David Stringer (Bloomberg News – October 22, 2014)

http://www.bloomberg.com/

The e-mail Jacqui McGill received from one of her teams at a BHP Billiton Ltd. (BHP) coal mine in northern Australia contained great news: output delays were down 75 percent in a year.

That wasn’t the only reason she let out a whoop of excitement. “I did my little yeehaw, because every single person on the e-mail was a woman in a production role,” said McGill, asset president for two of the world’s biggest mining company’s operations in Queensland’s Bowen Basin.

“That’s the first time that’s happened in my career,” McGill, an industry veteran of more than 20 years, said of the July e-mail. “I have plenty of men in my business in senior roles, but I thought, that’s critical mass.”

Mining remains the most male-dominated business, with men holding more than 90 percent of executive positions. That’s starting to change, as retiring employees help open the $1 trillion industry’s door to female successors.

“It lags behind, it’s historically been male,” U.S. Labor Secretary Tom Perez said Sept. 10 in an interview in Melbourne. “They are missing out on great talent. They are missing out on recruiting some of the best and the brightest.”

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Iron Ore Risks Extending Collpapse on Supplies: Moody’s – by Phoebe Sedgman (Bloomberg News – October 20, 2014)

http://www.bloomberg.com/

The collapse in iron ore prices may have further to run as global supply increases and steel-demand growth slows, according to Moody’s Investors Service, which said it may reduce ratings on producers.

About 300 million metric tons of new and expanded supply will come on stream over the next few years, analysts including Carol Cowan said in an e-mailed report received today. Global steel-production growth in 2014 remains muted with China, the key driver of consumption, continuing to slow, Moody’s said.

Iron ore tumbled 39 percent this year after companies including Rio Tinto Group (RIO), BHP Billiton Ltd. and Vale SA raised low-cost output in Australia and Brazil, spurring a global glut. The market is in the midst of a transition without precedent in recent commodity history as supply surges and some higher-cost mines are displaced, according to Macquarie Group Ltd.

“Iron ore prices have collapsed,” Moody’s said in the report, which was dated Oct. 17. “With slowing global steel-production growth rates, iron ore prices remain vulnerable to the downside and we expect continued volatility.”

Ore with 62 percent content delivered to Qingdao, China, posted a third straight quarterly loss in the three months to September, and dropped to $77.97 a ton on Sept. 29, the lowest level since September 2009.

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BHP won’t rush to follow Rio to automate as its manned trucks beat robots – by Matt Chambers (The Australian – October 20, 2014)

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

BHP Billiton’s mining truck drivers are outpacing their robotic counterparts when it comes to efficiency and loading at West Australian iron ore mines, indicating the miner is a long way from any decision to follow rival Rio Tinto in a large-scale driverless truck rollout.

For a little more than a year, BHP has been trialling Caterpillar autonomous trucks at its newest Pilbara region iron ore mine, Jimblebar.

The trial was recently extended to March and a decision to add three more trucks to the nine-truck fleet was taken.

But despite autonomous Caterpillar trucks making up a little over a third of the 25 trucks at the overperforming Jimblebar — the mine came on early, ramped up quicker than expected and will now produce more than flagged — they are only moving 16 per cent of the dirt and ore.

The fact annual truck hours in the manned fleet across BHP iron ore have grown from 4500 to more than 6000, a one-third improvement, is a big factor.

“We’ve seen a very material improvement in the manned truck productivity level,” BHP iron ore mines boss Eduard Haegel said at the company’s Perth office last week.

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BHP Billiton leads miners’ retreat from supersizing – by James Wilson (Financial Times – October 19, 2014)

 http://www.ft.com/intl/companies/mining

More trucks, more shovels, bigger holes in the ground: the mining sector has been supersizing itself for years, convinced that going large was also the way to earn outsized profits.

But the conviction that size alone matters may no longer hold true, with “diseconomies of scale” a significant factor in mining’s waning productivity, according to a report based on interviews with industry leaders.

The problems caused by growing corporate complexity were among the factors that BHP Billiton, the world’s most valuable mining group by market capitalisation, pointed to when it decided on a big company break-up this year.

Andrew Mackenzie, chief executive, said he was worried by diseconomies of scale at BHP, which is to spin off about $15bn of non-core assets into a separate company. BHP will subsequently run just seven mining projects and five petroleum fields.

However, it is not just unwieldy companies that are a concern, according to the report by EY, the consultancy. It finds that individual mining operations are sometimes getting too large to manage as effectively as companies would like, thereby contributing to the productivity problems plaguing the sector.

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BHP Billiton And Rio Tinto Risking A Monopoly Investigation – by Tim Treadgold (Forbes Magazine – October 14, 2014)

http://www.forbes.com/

Two of the world’s biggest mining companies, BHP Billiton and Rio Tinto , might be attracting the attention of government anti-monopoly and trade regulators in attempts to protect their share of the world iron ore market.

A powerful Australian politician warned earlier today that both miners ran the risk of breaching international trade rules by deliberately expanding to thwart competition.

Colin Barnett, head of the Western Australian state government, said that the directors of BHP Billiton and Rio Tinto should be worried about how European and World Trade Organization regulators might react to recent statements from some of their executives.

Time For The Directors To Be Nervous

“If I was sitting around a board table in one of those big companies I’d be pretty nervous about what the WTO and European regulators would think about this,” he said.

“It’s a precarious area they’re going into.” The problem, as Barnett sees it, is that BHP Billiton and Rio Tinto might be behaving in a monopolistic way — a timely observation given that a day earlier the Nobel prize for Economics was awarded to a French academic who specializes in the behavior of monopolies and oligopolies.

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South Africa considers declaring certain minerals as ‘strategic’ – by Zandi Shabalala and Ed Stoddard (Reuters U.S. – October 14, 2014)

http://www.reuters.com/

JOHANNESBURG – (Reuters) – South Africa’s mines minister Ngoako Ramatlhodi said he was considering declaring certain minerals such as coal and iron ore as “strategic” for the country.

“We haven’t classified any, but it is provided for under the mineral bill, which is before the president. If that bill is signed into law, then it will give the minister the ability to declare certain minerals strategic for purposes of industrialisation in South Africa,” he said.

Under the bill, such minerals “will be sold for production costs excluding transportation. That is the mine-gate price. And the industry is comfortable with that, because they negotiated that formula,” he said.

He would not be drawn categorically on what he will declare strategic but said, “Iron ore is obvious and coal, because coal fires our power stations.”

He added, “There is coal for export and coal of a lesser quality, which stays in the country. That we would want to keep for our power stations.” Companies that could be affected include Kumba Iron Ore, which is a unit of Anglo American, and mining companies Exxaro and BHP Billiton.

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Why are iron ore prices falling so quickly? – by Eric Reguly (Globe and Mail – October 14, 2014)

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.

ROME- Iron ore mines are to Australia what the oil sands are to Canada. The Aussie iron ore business is enormous, capital intensive, profitable and has an insatiable customer – China – just as the oil sands can depend on the United States to consume almost all of its output. The Aussie and Canadian industries share another trait: falling prices.

The value of both iron ore and oil is plummeting. But the similarities end there. Oil is falling because of excess supply and waning demand in the Western world, in good part because zombie Europe is on the verge of a new recession. But global demand for iron ore is still climbing, if at a somewhat slower pace than last year. So why are iron ore prices falling, and why are they falling so much faster than oil?

The price for iron ore in China, the world’s biggest consumer of the material used to make steel for everything from office towers to dishwashers, is down about 30 per cent this year (compared to a 20-per-cent drop for oil). The spot price for iron is off about 40 per cent, though it bounced back a few bucks this week to reach $83 (U.S.) a tonne.

Iron ore is falling even though Chinese demand for steel is up about 5 per cent year on year, while demand for imported iron ore is up 15 per cent or so, outpacing import demand in 2013.

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Chile Seeking to Loosen Major Miners’ Grip on Idle Land – by Matt Craze (Bloomberg News – October 7, 2014)

http://www.bloomberg.com/

Chile’s government will seek talks with large-scale mining companies to make more land available for smaller mineral explorers as it seeks to expand the copper industry, the world’s largest.

Two-thirds of land with potential for discoveries is in the hands of major mining companies and vast areas under concession are lying idle, Deputy Mining Minister Ignacio Moreno told a conference in Santiago today. Chile is falling behind Mexico and Peru in capturing mining investment, he said.

“Everyone knows there is a problem that we have to take on,” Moreno said. “For the exploration companies this topic creates a lot of enthusiasm. For the majors it causes concern.”

The government will seek talks with the industry and act with “prudence” to achieve a consensus before reaching a conclusion next year, Moreno said. One proposal under study is to create a tax for land concessions that are not being explored, he said.

Chile, which produces a third of the world’s copper, says major companies including state-owned Codelco, Anglo American Plc and BHP Billiton Ltd. plan to invest more than $100 billion in new copper and gold mines.

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UPDATE 3-BHP aims to slash iron ore costs to become cheapest supplier – by Silvia Antonioli and Sonali Paul (Reuters India – October 6, 2014)

http://in.reuters.com/

LONDON/MELBOURNE, Oct 6 (Reuters) – BHP Billiton aims to cut its iron ore production costs by more than 25 percent and squeeze more tonnes from its mines as it aims to overtake rival Rio Tinto as the world’s cheapest producer, the world’s largest miner said on Monday.

BHP, the No. 3 iron ore producer behind Brazil’s Vale and Rio Tinto, outlined the cost-cutting and expansion plan even as iron ore prices have slumped 42 percent this year, as it sees demand picking up over the medium term.

“We will continue to squeeze the lemon because at the end of the day it’s just so value accretive,” Jimmy Wilson, the head of BHP’s iron ore division, told reporters in a video conference ahead of an analyst tour of its West Australian mines.

Miners’ focus has shifted to cost cutting as iron ore prices have dropped from about $190 a tonne in 2011 to less than $80 now, sinking to five-year lows as supply growth from the mega producers has exceeded demand growth by more than two to one.

BHP said it aims to cut production costs, excluding freight and royalties, to less than $20 a tonne in the medium term, from $27.50 for financial year 2014. That compares with Rio Tinto’s cash cost of $20.40 a tonne in the first half of 2014.

“The name of the game in the past was volume above and before everything else. Now cost is much more important and we are finding a lot more opportunities,” Wilson said.

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