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BHP reveals corruption probes by U.S., Australian authorities – by Dorothy Kosich (Mineweb.com – August 19, 2013)

http://www.mineweb.com/

A slow-moving investigation of BHP Billiton’s business practices, which began in 2009, is heating up.

RENO (MINEWEB) – U.S. and Australian authorities are cooperating on an investigation into “possible corruption” within Australian über miner BHP Billiton, stepping up a probe that began four years ago concerning BHP’s Olympic sponsorship, hospitality and gifts given to top Chinese officials, and now reportedly involves the company’s attempts to secure a bauxite project in Cambodia.

The allegations are being investigated by the U.S. Department of Justice and the Australian Federal Police as well as the U.S. Securities and Exchange Commission.

In a statement released on Friday by BHP Billiton, the company disclosed it had commenced an internal investigation when it received a request for information in August 2009 from the SEC. “As a result, the Group commence an internal investigation and disclosed to relevant authorities including the U.S. Department of Justice (DOJ) evidence that it uncovered regarding possible violations of applicable anti-corruption laws involving interactions with foreign government officials,” the company said.

“As has been publicly reported, the Australian Federal Police has indicated that it has commenced an investigation,” the company confirmed.

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Iron ore prices moving higher as China steel production rises – by Lawrence Williams (Mineweb.com – August 15, 2013)

http://www.mineweb.com/

After a bit of a dip, iron ore prices are on the rise as Chinese steel production begins to increase again and the world’s top diversified miners will be the likely principal beneficiaries.

LONDON (MINEWEB)  – It should not have escaped anyone who follows the global mining sector’s attention that the world’s three biggest mining companies by a long way, BHP, Rio Tinto and Vale, are also the three biggest miners of high grade iron ore.

There had been much discussion of how these would fare in a Chinese downturn, given that China is by far the world’s largest importer of iron ore and there was comment that iron ore prices would fall dramatically, thus decimating the big three’s revenues and profits – exacerbated perhaps by the fact that they are all growing production with the inevitable additional costs that involves.

What the observers seemed to have failed to take into account is that China, in a recession, is still the equivalent of anyone else in a mega growth phase! Growth falling perhaps from 10% plus per annum to maybe 6 or 7% – figures western economies would give their eye teeth for!

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EDITORIAL: Industrial policy gone wrong (South Africa Business Day Live Editorial – August 13, 2013)

http://www.bdlive.co.za/

REPORTS that Eskom stands to lose as much as R11.5bn in revenue as a result of its controversial preferential power agreement with BHP Billiton is a brutal lesson in the pitfalls of ill-conceived industrial policy. It will also hopefully provide a learning opportunity for Eskom as it completes the process of negotiating the present round of renewable energy agreements.

In its annual report last week, Eskom said it expected its liability as a result of an agreement signed in 1992 to provide cut-price electricity to BHP Billiton’s aluminium smelters, Mozal and Hillside, to more than double from the R5.9bn reported in last year’s financial statement. While the potential for revenue losses as a result of the agreement is regrettable, the biggest error in the agreement was failing to build in a stop-loss clause. The extent of the liability is calculated as the opportunity cost of supplying electricity to BHP Billiton on the present special pricing formula compared with the revenue that would be generated if it was to sell that power at regular industrial customer tariffs.

When the agreement was signed in 1992, it was hoped it would serve the dual purpose of utilising the power utility’s excess capacity and developing South Africa’s industrial capacity. However, during the first decade of democracy in particular, economic growth and Eskom’s failure to invest sufficiently in new capacity has meant that excess capacity has been eroded, to the point where there are now other industrial users willing to pay more than BHP Billiton — hence the potential for loss.

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Australian Broadcasting Corporation Interview with BHP Billiton CEO Andrew Mackenzie (Australia Broadcasting Corporation – August 8, 2013)

http://www.abc.net.au/

Click here for extended interview: http://www.abc.net.au/7.30/content/2013/s3820498.htm

Transcript

LEIGH SALES, PRESENTER: You may recall last night that during a discussion with the Prime Minister, we ran a brief excerpt of an interview with the head of the world’s biggest mining company BHP chief executive Andrew MacKenzie. We had to hold over the full interview because of the need to make time for Kevin Rudd.

So as promised last night, here’s more of what Mr MacKenzie had to say when he joined the program.

Mr McKenzie, I’d like to start by getting your views on some broad economic questions. Do you think that Australia is transitioning out of the resources boom?

ANDREW MACKENZIE, CHIEF EXEC., BHP BILLITON: Not at all. I think maybe some of the best days are ahead of it. I believe, obviously as you’re hinting, that the resources industry has been pivotal to Australia, but as we go forward, demand continues to increase and everything is for Australia to play for.

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BHP’s CEO Sees U.S. Shale Expansion as Mineral Demand Grows – by Elisabeth Behrmann (Bloomberg News – August 7, 2013)

http://www.bloomberg.com/

BHP Billiton Ltd. (BHP), the world’s biggest mining company, signaled it will expand in the shale oil and gas industry in the U.S., forecasting global commodity demand will jump 75 percent over the next 15 years.

“It’s my intention to make us hugely proficient, if not one of the leaders in the shale gas and oil business,” Andrew Mackenzie, chief executive officer of the Melbourne-based company, said today in an interview. “Which means if there are opportunities elsewhere we’ll be able to consider them with a lot of precision and interest.”

China, the biggest consumer of metals and energy, will continue to fuel demand for commodities as 250 million people move into cities, said Mackenzie, 56, who succeeded Marius Kloppers in May. BHP spent $20 billion in 2011 on shale assets in the U.S., joining rivals including Exxon Mobil Corp. and China Petrochemical Corp. in seeking to tap surging energy demand that’s driving an industrial revival.

BHP slipped 2.0 percent to A$34.90 at the close of trading in Sydney. It’s dropped 5.9 percent this year.

Premier Li Keqiang is driving reform of the Chinese economy in a bid to maintain growth while reining in financial risks and controlling local government debt.

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BHP Billiton CEO, Andrew MacKenzie Speech to the Asia Society on August 7, 2013

http://www.bhpbilliton.com/home/Pages/default.aspx

For a detailed interview of BHP Billiton CEO Andrew MacKenzie by Australia Broadcasting Corporation, click here: http://www.abc.net.au/7.30/content/2013/s3820498.htm

I am delighted that so many of our shareholders and friends from business, government, the media and elsewhere have joined us today. Welcome to you all.

I would also like to mention two individuals in the audience. First, one of BHP Billiton’s longest serving employees – Eric Gray. Eric is a maintenance supervisor at our Illawarra coal operations and is celebrating 45 years with the company. And second, Martin Ferguson, who needs no introduction. A special welcome to you both.

I am honoured to lead this tremendous, Australian company and pleased to be making my first Australian speech here in Melbourne; a city my wife, Liz, and I are delighted to now call home. We recently purchased a house in Richmond and I have adopted St Kilda as my AFL team. Richmond, anyway, has proved to be a terrific choice.

Melbourne is a city with a rich mining history, a history of which BHP Billiton is proud to be a part. Our global headquarters have been in Melbourne since 1885 and next month we will relocate to Collins Street, where our company first began.

Now speaking of our history, one of my fellow Scots, George McCulloch, was vital to BHP’s formation in the late 19th century as manager of the Mt Gipps station in New South Wales. George organised a group of pioneers to sink the first shaft at Broken Hill, which led to the development of BHP’s first and famous ‘Big Mine’.

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BHP CEO says taking long view on potash – by Sonali Paul (Reuters Canada – August 7, 2013)

http://ca.reuters.com/

MELBOURNE (Reuters) – BHP Billiton’s new boss on Wednesday shrugged off Russian potash producer Uralkali’s exit from one of the world’s two big potash cartels, saying BHP (BHP.AX: Quote) (BLT.L: Quote) was taking a long-term view on its planned entry into the industry.

In the wake of Uralkali’s (URKA.MM: Quote) surprise move, there has been speculation it may make more sense for BHP to take over U.S. potash producer Mosaic Co (MOS.N: Quote) instead of building a $14 billion potash mine in Canada, up for a decision this year.

“We think very long term. This is something that’s happened short term,” BHP CEO Andrew Mackenzie told reporters, when asked whether the company may delay development of Jansen with potash prices expected to slump.

“We’ve always said that potash is a business which will lose some of its cartel-like structure and become in time globally traded like everything else, so we, to some extent, predicted what’s happened,” he said. Mackenzie said he would have more to say about the outlook for potash and Jansen at the company’s results on August 20.

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Falling profits for Vale – by Reuters and Star Staff (August 6, 2013)

The Sudbury Star is the City of Greater Sudbury’s daily newspaper.

Battered by falling iron ore and nickel prices, Vale on Wednesday is expected to report a 30% drop in second-quarter profit to $1.85 billion US from a year earlier, analysts are predicting. If so, it would be Vale’s eighth consecutive quarterly profit fall, according to the average preliminary estimates of seven analysts surveyed by Reuters.

Most of the decline is due to a 12% drop in average iron ore prices and a 38% decline in nickel prices, more than offset-t ing increases in volumes shipped by the world’s No. 1 iron ore miner and No. 2 nickel producer.

Its shares have been the worst performer among the world’s big five mining companies, down 27% this year, despite a rally from nearly four-year lows in July. Of the big five, Rio Tinto, Brazil’s Vale, Glencore Xstrata and Anglo American are expected to report sharp drops in profit.

They have been slammed by weaker copper, iron ore and coal prices as they struggle to sell off assets. Anglo — the first of the diversified majors to publish results — said last week underlying operating profit fell in the six months to $3.3 billion, ahead of a consensus estimate of $3.12 billion.

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BHP and Rio fork out $3.7 billion for water in Chile – by Brian Robins (The Age – July 26, 2013)

http://www.theage.com.au/

BHP Billiton and Rio Tinto are being forced to spend $US3.4 billion ($3.67 billion) on a water plant at their copper project in Chile, at a time when mining companies globally are curtailling capital spending.

The two miners will lose access to most of their water supply at the Escondida project, the world’s largest copper mine, in 2017.

BHP’s share of the new round of investment is estimated at $US1.97 billion and Rio’s at $US1.03 billion. Construction on the planned desalination plant is to start immediately, with completion planned for 2017.

The partners are in the middle of a $US4.5 billion round of spending which is to be completed next year, primarily on a new ore concentrator at the project, together with ancillary upgrades.

When completed, these upgrades will enable the production of more than 1.3 million tonnes of copper a year from 2015.
When the partners in Escondida disclosed the $US4.5 billion upgrade early last year, they signalled this was the first in a series of programs that could substantially expand capacity at the mine.

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Seeing Upside in Iron-Ore Miners – by Diana Kinch (Wall Street Journal – July 25, 2013)

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

Some Investors Say Stocks Have Fallen Too Far, and News Isn’t All Bad

LONDON—Mining stocks are among the worst performers this year, with those exposed to iron ore down sharply amid concerns about overcapacity and sluggish demand from China. But some investors believe the rout could be overdone, with share prices of miners falling much further than market prices for iron ore.

“Right now, we’re moving into the low and everyone’s twitchy; the market’s focused on the third quarter, when we’ll have shutdowns in the Chinese steel industry and a seasonal downwards [move],” said Clive Burstow, manager of Barings’ Global Mining Fund, which holds some $15 million in mining stocks.

Capacity to produce iron ore is set to boom in the next few years as expansion programs planned before the financial crisis start to come on stream. By 2018 there will be an extra 419 million tons of capacity, according to estimates compiled from producers’ data, around 40% above 2012’s seaborne traded levels of just over one billion tons.

About half of the new capacity is expected to come on stream by late 2015, including from new projects by Rio Tinto RIO.LN +0.17% PLC and BHP Billiton PLC in Australia, and from Vale SA VALE5.BR -0.31% in Brazil.

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COLUMN-BHP, Rio gamble on iron ore, but they’ve stacked the deck – by Clyde Russell (Reuters U.S. – July 18, 2013)

http://www.reuters.com/

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

LAUNCESTON, Australia, July 18 (Reuters) – Ramping up output in the face of an expected easing in demand growth may seem like an odd tactic for a miner, but it’s exactly what Rio Tinto and BHP Billiton are doing in iron ore.

The world’s second- and third-ranked producers both said this week that their expansion plans are on track, notwithstanding the expected slowdown in China, which buys about two-thirds of global seaborne iron ore supply.

But there is method in the seeming madness of increasing production when the demand outlook is less than rosy. Both Rio and BHP are effectively betting that their low-cost operations in Australia will be able to dominate the market, squeezing out both Chinese domestic production and higher-cost mines elsewhere in Australia and around the globe.

They are also betting that the fears of a slowdown in Chinese demand growth are being overstated, and that import volumes will remain healthy. While these may look like risky assumptions for the two Anglo-Australian mining giants, they stand a good chance of being correct.

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Copper: The metal that will build our future? – by Cole Latimer (Australian Mining – July 16, 2013)

http://www.miningaustralia.com.au/home

As we slowly come off the back of the mining boom, a number of questions are starting to be asked. Has the boom been played out, where to next, what will happen to iron ore? But what all are asking is what will be the metal of the future? What should we be digging that will provide the greatest return?

Perhaps the future is a metal which is a major part of humanity’s past – copper. Iron ore has been the metal that really drove Australia’s mining boom. It was the hero of the hour.

On the back of seemingly unending demand from Asia to fuel the growth of China we saw commodity prices skyrocket and essentially drag our nation out of the Global Financial Crisis.

Coal was also surging head, as both China and India required the energy needed to turn them into first world nations. As
a background to this gold prices also spiked, reaching never before seen heights.

But now the good times are over for these metals and the prices have steadily dropped, stabilising at more reasonable levels, or in some cases plummeting to just above cost levels.

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UPDATE 3-Big iron ore miners go for volume even as glut looms – by James Regan (Reuters U.S. – July 17, 2013)

http://www.reuters.com/

SYDNEY, July 17 (Reuters) – Record iron ore output from BHP Billiton and other mining giants appears to defy logic, with demand for the steel-making raw material cooling in top customer China and a price-eroding supply glut looming.

But the sector’s heavy guns are digging more for less to tighten their stranglehold on the world’s second-biggest commodity market, as competitors struggle.

In mining parlance, this is known as a “rebalancing” strategy, designed to improve the operating margins of the majors to such an extent that smaller competitors or new projects may be all but squeezed out.

“The majors want to maximise those economies of scale,” said MineLife sector analyst Gavin Wendt. “As long as they keep margins well ahead of a declining iron ore price, they are winning.” BHP Billiton, Rio Tinto and Fortescue Metals Group, with their iron ore operations in Australia, and Brazil’s Vale are leading the charge.

Seaborne-traded iron ore prices, which have lost 10 percent so far this year, are forecast to hit their lowest in four years by the end of 2013 as these big miners dig deeper and faster.

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Mettle of big miners’ austerity to be tested – by Matt Chambers (The Australian – July 15, 2013)

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

THE nation’s biggest resource companies release quarterly reports this week in the first chance for investors to gauge progress in the big miners’ self-proclaimed new era of spending restraint and productivity.

BHP Billiton, Rio Tinto, Woodside Petroleum and Santos will report production, and energy firms revenue, from what has been a weaker quarter than it could have been from the nation’s resource-rich Pilbara in Western Australia. Rio and BHP experienced a very wet dry-season month of June in the Pilbara.

This is understood to have affected production from Rio, which reports tomorrow, and is likely to drag down its regional production, including minority partners’ interests, by a couple of million tonnes from the 61 million analysts had forecast.

Data from Rio’s Dampier and Cape Lambert ports in the Pilbara compiled by Credit Suisse backs this up, showing June exports this year were at their lowest in four years for the traditionally strong month. BHP, which reports on Wednesday, is said to have been hit to some extent.

While any impacts will be unwelcome, they are unlikely to worry investors and will be seen as one-offs that have a good chance of being compensated for over the rest of the calendar year.

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Environmental headwinds buffet BHP in Colombia – by Brian Robins (Sydney Morning Herald – July 1, 2013)

 http://www.smh.com.au/

In the wake of heightened environmental sensitivities to the activities of mining companies in Latin America, BHP Billiton’s plans to expand a nickel mine in Columbia have been blocked.

Governments in the region from Chile to Argentina have forced several global mining companies to rethink mine applications in response to growing criticism over the industry’s rising incursions.

Late last week, Colombia’s environmental licensing authority, Autoridad Nacional de Licencias Ambientales, turned down a request from BHP Billiton’s Cerro Matoso nickel mine to expand the site, according to wire reports. Cerro Matoso is the second largest producer of ferro nickel globally.

The request was denied because existing environmental permits cannot be modified to enable mining projects to be expanded, the environmental authority said.

The BHP Billiton project, which has operated for many years, produced more than 47,000 tonnes of nickel last year. The mine taps a laterite nickel deposit that is used as feedstock at a ferro-nickel smelter nearby. Most nickel is used to produce stainless steel.

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