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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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Glencore CEO Slams BHP’s Iron-Ore Plan – by Alexis Flynn (Wall Street Journal – October 6, 2014)

http://online.wsj.com/home-page

Ivan Glasenberg Claims Expanding Output Will Hurt One of Africa’s Poorest Countries

LONDON— Glencore PLC Chief Executive Ivan Glasenberg on Monday criticized rival miner BHP Billiton PLC, saying its plans to further expand iron-ore output will hurt the development of one of Africa’s poorest countries.

Mr. Glasenberg said the huge amount of iron-ore being produced by the world’s three biggest miners Vale SA, Rio Tinto PLC and BHP Billiton, was already having a clear impact on prices, and that further expanding output, as BHP Billiton said on Monday it intends to do, would make investing in African iron-ore a less appealing prospect.

“If you look at the statement put out today by BHP Billiton, one of the world’s biggest iron-ore producers, saying they are going to expand production—it has already had an impact on prices—that is going to hurt Africa,” said Mr. Glasenberg, who was addressing a panel discussion in London.

Iron-ore prices have plunged 41% this year to below $80 a ton, their lowest level since 2009, exacerbated in large part by the world’s three top iron-ore miners ramping up production in the hope that they can profit from economies of scale.

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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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Supply a critical issue for suitors of Nickel West – by Tess Ingram (sydney Morning Herald – October 3, 2014)

http://www.smh.com.au/

Possible buyers for BHP Billiton’s Nickel West business are scrutinising the sector’s junior miners as they weigh up the potential for long-term supply for one of its key assets, the Kalgoorlie smelter.

The sale of the Nickel West business has been under way for some months and industry sources suggest interested buyers have been narrowed down to resources giants Glencore and Jinchuan Group.

Any buyer of the West Australian assets would have to work with local nickel producers to secure supply for the smelter, which has run about 10 per cent under capacity and at a high cost for BHP, with industry suggesting that either a secure offtake agreement or an acquisition of a local player is highly likely.

Fingers appear to be pointing towards both Western Areas and Sirius Resources due to the quality of their nickel concentrate and their relative freedom to sign a deal.

Western Areas managing director Dan Lougher confirmed that the company had been in talks with prospective buyers, including Glencore and Jinchuan, but had not yet been approached in regards to an acquisition.

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End of the Iron Age – by James Wilson and Neil Hume (Financial Times – September 29, 2014)

http://www.ft.com/home/us

A collapse of ore prices throws miners’ strategies into doubt and threatens an industry shakeout

Iron is one of the most abundant elements on earth but pulling it out of the ground efficiently can be a daunting undertaking. Snaking through the low, green hills of southern Brazil is a 530km pipeline, the decisive link in Anglo American’s $8.2bn Minas-Rio project to extract iron ore in the Brazilian interior and ship it from a new Atlantic port. Way over its original $3.6bn budget and two years late, Minas-Rio is finally close to the point of “first ore on ship”.

For years, huge mining projects such as these have formed the backbone of global economic expansion. The world’s most important commodity after crude oil, iron ore has been devoured by Chinese steel mills, emerging as the raw material for an infrastructure-led growth spurt.

But Minas-Rio is about to deliver its first ore into a much less welcoming world. The price of iron ore has plunged more than 40 per cent this year, the worst performance across metals and bulk commodities in 2014. From an average price of $135 per tonne last year, the benchmark iron ore contract sank last week to less than $80 for the first time since the global financial crisis.

“The iron ore market is in the midst of a transition without precedent in recent commodity history,” says Macquarie, the Australian bank.

Behind the change is a big increase in iron ore exports – and not just the 26.5m tonnes that Minas-Rio will bring to market when fully operational in 2016.

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BHP Billiton Dispatches Top Manager to Much-Watched Potash Project – by ALISTAIR MACDONALD, RHIANNON HOYLE and ELENA CHERNEY (Wall Street Journal – September 29, 2014)

http://online.wsj.com/home-page

Industry Will Watch Closely for Clues to Company’s Next Move for Massive Mine

BHP Billiton BLT.LN -0.32% PLC. has sent its top project manager to run the giant Jansen potash development in western Canada, a move the potash market will scrutinize for clues to BHP’s plans for its Canadian mine. BHP Billiton’s Phil Montgomery, its head of group project management, last month arrived in Saskatchewan from Australia, a spokeswoman said.

At stake is a mine that—if producing today—would increase global supply of the key fertilizer ingredient by almost 15% according to Scotiabank. That would worsen an oversupply problem for potash. The price of potash, which is fixed through long-term contracts, has rallied by as much as 17% this year on better-than-expected demand, according to analysts. Analysts, though, and some BHP executives, believe that this rally will fade as the increase in demand fizzles.

BHP has already committed some $3.8 billion to a project that it says has no fixed completion date. Last December, work was halted for several months amid technical trouble.

“Jansen has become almost mythological in the industry,” said Matthew Korn, an analyst at Barclays, BARC.LN +0.64% said of the project and the prospects of it being finished. “We know it is there, we know it represents a load of volume, but in terms of timing I don’t think anyone believes this will happen before 2020, if at all,” Mr. Korn added.

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BHP Billiton Considering Secondary Listing in London for Spin-Off Company – by Andrew Peaple and Rhiannon Hoyle (Wall Street Journal – September 24,2014)

http://online.wsj.com/home-page

NewCo to Consist of Noncore Assets in Commodities and Could Be Worth $17 Billion

LONDON—Mining giant BHP Billiton Ltd. BHP.AU -0.74% is considering a secondary listing in London for a new company it is spinning off containing its noncore mining assets. BHP has been under pressure from shareholders unhappy with its original plan to list the spinoff only in Australia and South Africa.

The world’s largest miner by market capitalization said in August that it would spin off some of its aluminum, manganese, coal, nickel and silver assets into a new company, as yet known only as NewCo, so that it could focus on its more-profitable, large-scale businesses, such as iron-ore mining. Analysts estimate NewCo could be worth around $17 billion.

BHP, which is listed in both London and Sydney, had planned to carry out the spinoff in the first half of 2015 by distributing shares in NewCo to its existing shareholders. But many of BHP’s London-based institutional investors would likely be forced to sell any NewCo shares distributed under the original plan because their mandates require them to invest only in equities listed in the U.K. The original plan called for NewCo to have a primary listing in Sydney and a secondary listing in Johannesburg.

BHP’s London-listed shares have fallen 13% since it announced its spinoff plan, amid a sharp fall in commodity prices. The company said Wednesday it has been “pleased” by the level of support for the proposed spinoff so far.

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COLUMN-Will the Big 3 iron ore miners have enough time to win price war? – by Clyde Russell (Reuters India – September 24, 2014)

http://in.reuters.com/

LAUNCESTON, Australia, Sept 24 (Reuters) – The recent debate over iron ore has tended to be whether the three mining giants who dominate seaborne supply will win their massive bet that they can drive high-cost producers out of the market.

But a more relevant question is whether they will have the time to achieve their aims. The Anglo-Australian pair of Rio Tinto and BHP Billiton, as well as Brazil’s Vale have flooded the market with their low-cost iron ore, with supply from Western Australia ramping up dramatically in the past year.

This has led to a collapse in the Asian spot price .IO62-CNI=SI to a five-year low of $79.40 a tonne on Tuesday, down 41 percent from the end of last year and 58 percent from the record $191.90 a tonne reached in February 2011.

The main question for the big three is not whether they can drive higher-cost competitors to the wall, but how long their own investors will tolerate the lower earnings as a result of the weak iron ore price.

While the chief executives of the big three haven’t exactly said so in public, they are clearly hoping for a relatively short war and a quick victory, after which iron ore prices will once again rise and stabilise at a higher level. Again, that price level hasn’t been clearly spelt out, but I would imagine the big three have a number in mind somewhere above $90 a tonne, with $110 likely viewed as a ceiling.

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UPDATE 2-Workers to strike at Chile’s Escondida copper mine next week – union (Reuters U.K. – September 16, 2014)

http://uk.reuters.com/

(Reuters) – The union at the world’s largest copper mine, Chile’s Escondida, has called a strike for Sept. 22 and 24, aiming to paralyze activity to win improved working conditions, the union said on Monday.

In a surprise announcement on Monday evening, the Sindicato No. 1 union said it would call on its 2,800 members to stage two 24-hour strikes at the mine, which is controlled by global miner BHP Billiton Plc .

The union, which represents the vast majority of workers at the mine, said the stoppage would affect mining and port operations. Escondida, in northern Chile’s copper belt, produced 1.19 million tonnes of copper last year, about 20 percent of the output from Chile, the world’s top copper producer.

The union carried out a similar 24-hour stoppage over pay and conditions last year, without causing any long-term impact on copper production. However, it stunned the copper market in 2011 by staging a two-week strike that sent the mine’s output tumbling.

Escondida “systematically infringed on labor norms,” the union said in a statement on Monday, citing overtime, holidays, hygiene and safety issues. It said on its blog that it held a series of meetings with company representatives on Thursday.

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Iron ore giants eating little guys now, but cannibalism looms – by Clyde Russell (Reuters U.S. – September 3, 2014)

http://www.reuters.com/

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

LAUNCESTON, Australia – (Reuters) – There was maybe more than a touch of hubris in Rio Tinto boss Sam Walsh’s recent comment that it’s time for other iron ore producers to “really feel the consequences” of the current low price.

The chief executive of the world’s No.2 iron ore miner was speaking after his company’s first-half results last month, basically delivering the message that Rio Tinto is going to keep going full-steam ahead on its iron ore expansion plans.

Walsh, along with the bosses of top iron ore miner Vale and No.3 BHP Billiton, is betting that their low-cost, high volume model will force smaller competitors to the wall, leaving them the undisputed kings.

Perhaps he should have a word or two with the chief executives of coal miners, which, oddly enough, includes himself given Rio Tinto’s extensive coal assets.

When the price of both thermal and coking coal started to decline in mid-2011, the word from the industry was that this wasn’t too big a surprise, but no need to worry as Chinese demand will ensure prices don’t fall too far, and all the new capacity brought on and planned will be profitable.

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BHP Billiton set to expand Pilbara iron ore operations – by Matt Chambers (The Australian – August 25, 2014)

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

BHP Billiton chief executive ­Andrew Mackenzie says iron ore prices are unlikely to climb back above $US100 a tonne but the company is readying to spend an extra $US3.25 billion ($3.5bn) to bring more ore on to the market in a bigger-than-expected expansion of its West Australian mines.

As iron ore prices last week slid to about $US90 a tonne and approached five-year lows, Mr Mackenzie said he was not counting on a price floor forming.

At the same time, in a declaration largely lost amid BHP’s plans for a $US14bn spin-out of non-core assets, the world’s biggest miner says it is looking to expand its Pilbara iron ore mines and ports to annual capacity of 290 million tonnes a year.

This is up from a previous target to grow to 270 million tonnes and at a forecast capital cost that is dramatically lower than guidance given to analysts a year ago.

“We would say it is quite unlikely that we would see prices north of $US100 a tonne, so our forecasts are obviously based on something below that,” Mr Mackenzie told British media when asked if there might be a price floor around current price levels.

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Nickel region on edge as BHP looks for exit – by Paul Garvey (The Australian – August 23, 2014)

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

AS a lifelong resident of the Kambalda region, shire president Mal Cullen has watched the fortunes of the town wax and wane in line with the price of the nickel that has been pulled out of the ground there for almost 50 years.

The residents of Kambalda, in Western Australia’s Goldfields, have become accustomed to the volatility of the nickel price and the impact it can have on their lives. But just as the nickel price appeared to be starting to emerge from years in the doldrums, BHP’s decision to get rid of its assets in the region has brought a new level of uncertainty to the town.

BHP surprised the market when it opted to exclude its Nickel West division from the spin-off it announced this week, with BHP chief executive Andrew Mackenzie instead saying the group would push ahead with a long-running trade sale that is yet to flush out a deal. The assets were deemed to be too mature and too marginal to be lumbered into the spin-off. The failure to find a new owner so far, coupled with their exclusion from the spin-off, leaves the assets looking like the orphan that nobody wants.

For the people of Kambalda and the smaller nickel miners that feed ore into the Nickel West concentrator and smelter, the idea the operations could be shut down ­altogether is difficult to comprehend.

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Ex BHP chairman says cycles move and he’s a happy shareholder – by Simon Evans (Sydney Morning Herald – August 21, 2014)

http://www.smh.com.au/

Former BHP chairman Jerry Ellis, who led the miner during one of its darkest periods in the late 1990s before it pursued a merger with South Africa’s Billiton, says the company is performing well and maintains the 2001 merger was a good move.

Mr Ellis says BHP needed its cash flows strengthened at the time, but the situation had now changed and the “cycle has moved on”.

He was chairman of BHP from 1997 to 1999 after joinng the board in 1991. He was also a former boss of the BHP ¬Minerals division and an active promoter of a decision by BHP to pay $3.2 billion for Magma Copper in the United States in 1996.

It ultimately proved to be a disastrous purchase when copper prices slumped dramatically and heavy writedowns were needed. Many analysts blame that acquisition for weakening the company to a point where it needed to pursue a merger.

“I’m a shareholder and very pleased with the way the company is travelling,’’ he said on Wednesday. BHP Billiton on Tuesday officially confirmed a $14 billion demerger plan where it is spinning off many of the assets Billiton brought to the table in the 2001 merger.

“I think [former chairman]Don Argus summed it up very well. At the time BHP needed the cash flow from the Billiton assets,’’ Mr Ellis said.

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RPT-COLUMN-Reliance on cost-cutting the real BHP story – by Clyde Russell (Reuters India – August 20, 2014)

http://in.reuters.com/

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

LAUNCESTON, Australia, Aug 20 (Reuters) – BHP Billiton’s plans to spin-off unwanted assets may have received a tepid welcome from investors, but the real news from the mining giant’s results is the limits to cost-cutting.

Delving into BHP’s results presentation on Tuesday shows the company has been successful in cutting expenses, with a 12 percent cut in cash costs at the flagship Western Australian iron ore operations, while the Queensland coal business recorded a 24 percent drop.

BHP said its productivity-led volume and cost efficiencies were $2.9 billion in the year to end June 2014, beating its target by $1.1 billion. Given the company’s net income for the period was $13.4 billion, the $2.9 billion in savings represents about 22 percent of the profit, which certainly looks impressive.

The problem comes when you start to look at the savings achieved, the potential for further cost-cutting and the likely trajectory of commodity prices.

BHP said it produced a record 225 million tonnes of iron ore in the 2014 financial year, which resulted in revenue of just under $23 billion, or roughly 34 percent of the group’s total revenue.

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Diversified mining giants becoming less so – by Lawrence Williams (Mineweb.com – August 19, 2014)

http://www.mineweb.com/

Confirmation that BHP Billiton is planning to demerge what it considers its non-core assets into a new company continues the trend for the world’s biggest miners to simplify their structures.

LONDON (MINEWEB) – The big post 2008 fallout in the global mining sector has been a major influence on corporate policy since. It has already seen the culling of the chief executives who had the misfortune to be in place as metal prices slumped and profits collapsed. They had previously been exhorted by their institutional shareholders to go for growth almost at any cost.

But once it became apparent that some of the huge capital programmes involved were actually having a negative impact on the bottom line, helped by the fact that the concentration on growth had led to management’s eyes being taken off controlling costs at existing operations, then institutional pressures changed and heads started to roll. CEOs became an endangered species

Now it looks as though there is something of a different tack coming into play. For the single commodity players – e.g. those in the precious metals sector there has also been a move to demerge, or just sell what are considered to be non-core assets – those that had appeared to be taking up too much management time and effort, but without complementary returns. A typical example of this has been Barrick Gold’s floating off of African Barrick which now at least seems to be turning itself around, but still probably falls short of its parent’s return requirements. Others have been divesting of so-called non-core projects piecemeal.

But while the gold miners were relatively quick to act – the big diversified miners perhaps took a little more time over their moves to do likewise.

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