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Iron Ore

Fat profit margins make iron ore the apple of miners’ eyes – by James Regan (Reuters.com – January 24, 2013)

http://www.reuters.com/

SYDNEY – Jan 24 (Reuters) – Australian miners like to say iron ore is the new gold. How about the new iPhone?

Iron ore, needed to make steel, long ago replaced gold as the most profitable mineral to mine in the Australian outback. And while sales of iPhones have become a disappointment for Apple Inc, mega-mining companies such as BHP Billiton are projecting strong growth in iron ore sales for decades to come – at margins even an Apple or smartphone rival Samsung Electronics would drool over.

BHP and rivals Rio Tinto and Fortescue Metals are seeing profit margins often exceeding 100 percent on sales of hundreds of millions of tonnes of ore. Apple Inc earned gross margins of 49 to 58 percent on its U.S. iPhone sales between April 2010 and the end of March 2012, according to court filings obtained by Reuters.

Apple on Thursday missed Wall Street’s revenue forecast for the third straight quarter as iPhone sales came in below expectations, although earnings topped forecasts.

Production costs under $40 a tonne mean margins at Rio Tinto and BHP are comfortably above any of their other businesses with iron ore selling for nearly $150 a tonne, explaining why they continue to invest to expand their operations in Western Australia’s vast Pilbara iron ore belt.

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Is the iron ore rally overdone? – Northern Miner Editorial (January 10, 2013)

The Northern Miner, first published in 1915, during the Cobalt Silver Rush, is considered Canada’s leading authority on the mining industry.

Spot prices for iron ore fines delivered to China touched a three-year low in September 2012 of US$87 per tonne before rebounding to US$119 per tonne in December and to the US$158-US$160 per-tonne level of recent days. The question is, where will prices for the metal move from here?

John Goldsmith, deputy head of equities at investment management firm MontruscoBolton in Toronto, says they have nowhere to go but down. “Iron ore has had an absolutely phenomenal rally but I think it’s time to take money off the table,” he says. “The rally has been long in the tooth.”

In Goldsmith’s view, GDP growth in China over the next three years will average about 6%, down from the 7.8% the country clocked last year and the 9.2% of 2011. That estimate, he explains, is a function of the average 7% GDP growth rate set out in China’s last five-year plan in 2010. And a growth rate of 6%, he says, will have an impact on iron ore demand and prices, given that the economic juggernaut produces nearly 50% of the world’s steel and makes up more than 60% of global demand for seaborne iron ore.

“People are realizing that China will not grow to the moon, it will not have GDP growth north of 8% for the next ten years, and people that think that are dreaming,” he continues. “The risk for the iron ore trade right now is that there is a slowdown in infrastructure spending in China and it will have an impact on steel consumption usage and that will cascade down to the iron ore price.”

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Fallen mining CEOs scapegoats rather than villains – by Lawrence Williams (Mineweb.com – January 22, 2013)

http://www.mineweb.com/

The idea of a board of directors is one of collective responsibility for major decisions, but it is those unfortunate to be at the head of a company at the wrong time who carry the can.

LONDON (MINEWEB) – Among the spate of CEO changes we have already noted, many observers had remarked that Rio Tinto’s CEO, Tom Albanese had effectively been fired as a consequence of the huge write-down of the company’s investment in major aluminium producer Alcan, coupled with the smaller write down of its Mozambique coal assets acquired from the takeover of Riversdale coal last year.

The Riversdale acquisition was obviously down to an extent to Albanese, but a company CEO has to rely on his management executives and board for pursuing, and approval of, major decisions of this type.

It’s not just a case of the CEO pushing through an investment of the type without receiving plenty of advice first. In this case the acquisition appears to have been pushed through on the advice of a technical team led by Doug Ritchie who lost his job at the same time as Albanese.

Now, under normal circumstances, Albanese might have survived the Riversdale debacle on its own but one suspects that the Rio Board, faced with deciding to take the Alcan and Riversdale write downs at the same time, also decided that a high profile head would have to roll –

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Company Returns Assured by Government in [Brazil] Rail Expansion – by Christiana Sciaudone – (Bloomberg.com – January 11, 2013)

http://www.bloomberg.com/

Brazil’s $45 billion railroad expansion is targeting ALL America Latina Logistica SA (ALLL3) and Vale SA (VALE)’s duopoly by guaranteeing returns for companies that create train lines and transport cargo.

Highway operator TPI-Triunfo Participacoes & Investimentos (TPIS3) SA and logistics group JSL SA (JSLG3) have said they may take part in the April auction for the rights to operate lines or handle cargo on 10,000 kilometers (6,200 miles) of new railways. The government says the nation’s biggest rail expansion since the 1930s will lure 91 billion reais ($45 billion) of investments.

President Dilma Rousseff, seeking to stimulate the economy and upgrade infrastructure after a decade without investment, will auction off ports, airports and roads to ease bottlenecks in Brazil, the world’s largest exporter of iron ore, orange juice and sugar. The government ran the 28,000 kilometers of railways until it privatized the lines in 2007. ALL and Vale now control 84 percent of the network.

“There is a lot of space for this sector to grow,” Roger Oey, an analyst at Bes Securities, said by telephone from Sao Paulo. “If there is any uncertainty, the government will try to diminish this for the projects to be successful, especially in the beginning.”

As part of the plan announced Aug. 15, the government vowed to sign contracts for all of the new capacity, Transportation Minister Paulo Sergio Passos said. Companies will either operate the rail lines or transport cargo, but not both. Additional terms will be released in March.

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The Real Losers at Rio Tinto – by Dan Denning (The Daily Reckoning Australia – January 21, 2013)

http://www.dailyreckoning.com.au/

A currency war isn’t the same thing as a shooting war, at least not at the beginning. But there are certainly casualties. In today’s Daily Reckoning, we take a look at the winners, losers, and the next stage of the great battle of all against all, in which the sides aren’t really what they appear.

Former Rio Tinto CEO Tom Albanese is a casualty. But don’t you worry about him. He’ll land on his feet and be just fine. The real losers from Rio’s strategic failure over the last few years are the shareholders. It will be interesting to see if the shareholders put pressure on Rio’s board, which is every bit to blame for the company’s performance as the CEO.

We’re not just trying to assess blame, though. That’s all too easy and all too common. Instead, we reckon Rio’s changing of the guard signals that the easy money – and probably the big money – from the commodity boom is over. Like the whole commodity sector, Rio was able to ride the boom in commodity prices and then export volumes to make easy money.

But record sales aren’t necessarily an indication that directors are doing a good job managing the company’s capital. Rio ran a 33% return on capital in 2011. It was just 16.7% in 2012, according to Goldman Sachs. The company wasn’t able to take shareholder money and generate consistently high rates of return.

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Mining world sees seismic shifts at top as tumult forces old guard out – by Pav Jordan (Globe and Mail – January 19, 2013)

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.

The ouster this week of one of the world’s captains of mining underscores a breaking dawn in the industry as it sheds its old guard and discards a mantra of growth at any cost.

After six years at the helm of the world’s third-largest diversified miner, Rio Tinto PLC chief executive officer Tom Albanese said Thursday he was resigning the post by “mutual agreement” with his employer of three decades, amid a writedown of $14-billion (U.S.).

“While I leave the business in good shape in many respects, I fully recognize that accountability for all aspects of the business rests with the CEO,” said Mr. Albanese, who is also forgoing his bonus for this year and last.

Mr. Albanese joins a long line of former CEOs who have been replaced in recent months at some of the world’s largest miners, including Canadian giants Barrick Gold Corp. and Kinross Gold Corp.

The shift from an old guard, bent on rapid growth via expensive acquisitions, to one focused on preserving share value comes as miners face some of the most tumultuous times in decades, including massive cost increases and overruns, a scarcity of new discoveries and an uncertain demand outlook.

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Let the Iron Ore Wars Begin! – by Dan Denning (The Daily Reckoning Australia – January 10, 2013)

http://www.dailyreckoning.com.au/

The iron ore price is quickly becoming a focal point in the dispute between resource bulls and bears. It’s kind of like a Rorschach blot test for investors. What you see in the price may tell you more about yourself than it tells you about iron ore.

But the objective facts are the same no matter who perceives them. At $150.90 per tonne, the spot iron ore price is at a 15-month high. It’s up 70% from the August lows last year. Those are the facts.

Another fact is that Fortescue Metals Group (ASX:FMG) is up almost 60% since closing at $2.97 on September 6th. It even closed at $5.04 on January 3rd. Andrew Forrest’s little darling requires high iron ore prices to be viable. The recovery in the spot market came just in time.

Deutsche Bank analysts aren’t convinced, though. They slapped a ‘sell’ recommendation on the shares earlier this week. Analysts hardly ever tell investors to sell anything, so this must be serious. And sure enough the DB boys say the current share price is factoring in a spot price of $150/tonne until 2015, which is a long time from now.

A lot can happen in a couple of years. But the real debate here is over the long-term, big-picture outlook for China and commodities. If China’s steel boom is over, Australia’s iron ore boom is over.

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Tom Albanese out at Rio Tinto as Alcan bet goes awry – by Pav Jordan and Jacquie McNish (Globe and Mail – January 18, 2013)

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.

It was a wrong bet on China that crushed Tom Albanese’s dream for Alcan Inc. When the chief of Rio Tinto PLC took out the Montreal-based aluminum maker in Canada’s largest-ever takeover deal in 2007, aluminum prices were at 35-year highs, and he believed they could go quite a bit higher.

The decision proved costly. Mr. Albanese resigned Thursday, along with another senior executive, as Rio Tinto announced a $14-billion (U.S.) writedown attributed mostly to its aluminum assets. The charges included some $3-billion in impairments on coal assets acquired in Mozambique in 2011 and about $500-million in smaller asset writedowns.

For the aluminum business, it was the second writedown in as many years, bringing the total impairments on Rio Tinto’s Alcan acquisition to $20-billion, or more than half the $38-billion price tag.

The huge hit is arguably the deepest wound yet on a global mining industry facing the harshest headwinds in decades, from huge cost runups to a murky outlook on demand and a scarcity of new resources. It’s an environment that has been so difficult to navigate that many of the the world’s largest mining companies, among them Canada’s Barrick Gold Corp. and Kinross Gold Corp., have changed their top executives.

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Rio Tinto chief Albanese’s downfall a cautionary tale of bad acquisitions – by Peter Koven (National Post – January 18, 2013)

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

When Tom Albanese made the rounds in 2007 to promote his US$38-billion takeover of Alcan Inc., the chief executive of Rio Tinto Ltd. always told a good story.

He talked about the phenomenal growth rates of emerging markets, and his belief that China would transition from a being a net exporter of aluminum into an importer as its domestic production could not keep up with demand. As that happened, he was confident aluminum would outperform other commodities.

Despite his best efforts, Mr. Albanese was never able to convince the many skeptics among his shareholder base. They worried that Alcan was a classic example of the debt-fueled, top-of-the-market acquisition that always comes back to haunt the CEO who makes it. Of course, they were right.

Mr. Albanese lost his job on Thursday as London-based Rio announced up to US$11-billion of writedowns on its aluminum business and a US$3-billion writedown on recently acquired coal assets in Mozambique.

Rio Tinto has now taken a mind-boggling US$30-billion (give or take) of Alcan-related writedowns, which is more than three-quarters of the total acquisition value. The deal is, if nothing else, a cautionary tale for executives to avoid getting carried away during a bull market.

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How Will Vale Do In 2013? – by Ahmed Ishtiaq (Seeking Alpha – January 15, 2013)

http://seekingalpha.com/

Vale SA (VALE) is one of the stocks that was most severely hit by the slowdown in the global economy. Over the past two years, the stock has lost almost half of its value. Vale was trading close to $40 at the start of 2011. However, at the end of 2012, the stock closed at around $20. The end of the year was encouraging for the company as the stock gained substantially due to the expected increase in demand from China.

Vale is the second largest mining company in the world, as well as the largest producer of iron ore and pellets. The company focuses on production, exploration and sale of basic metals in Brazil and internationally. Vale is also engaged in logistics, fertilizers and steel businesses.

Due to its position as the second biggest mining company in the world, the company suffered heavily from a decrease in demand. However, global economic conditions are expected to recover in 2013, which has caused some positive movement in the stock price.

Dividend Profile

Vale announced $3 billion in cash dividends at the end of the last quarter, which translates into $0.5821 per share. Increase in dividends took dividend payments to $6 billion for 2012, and per share dividend to $1.1771. The biggest iron-ore producer in the world is one of the best dividend paying stocks in the market.

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Rio Tinto produced, shipped record iron ore in 2012; aluminum drops 10 per cent – by Ross Marowits (The Canadian Press/Victoria Times Colonist (January 15, 2013)

http://www.timescolonist.com/

MONTREAL – Global mining giant Rio Tinto expects to enhance its “competitive edge” by continuing to cut costs this year after achieving record iron ore production and shipments in 2012 while suffering a 10 per cent drop in aluminum output related to its lockout of employees in Alma, Que.

“This was another year of strong operational performance across the group…as our expansion program continues on schedule, delivering industry leading returns for our shareholders,” chief executive Tom Albanese said in a statement accompanying production results for the fourth quarter and full year.

The miner shipped 247 million tonnes of iron ore in 2012 despite weather disruptions and a significant maintenance shutdown during the year. Production increased four per cent to 253 million tonnes. Rio Tinto’s share of production was 199 million tonnes, led by its operations in Australia.

Production in the fourth quarter grew two per cent to 66 million tonnes, with Rio’s share reaching 52 million tonnes. The London-based miner said thermal coal production increased 16 per cent last year, while copper output increased six per cent and bauxite and alumina production grew 11 and 12 per cent respectively.

“Markets remain volatile, but our business continues to perform well. Across the group we are taking action to roll back unsustainable cost increases. This further enhances our resilience and competitive edge as we enter 2013.”

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Baffinland Iron Mines sharply scales back Mary River project – by Pav Jordan (Globe and Mail – January 12, 2013)

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.

Plans to build Baffin Island’s massive Mary River iron ore project, a key driver of Canada’s northern development, have been scaled back to a much smaller proposal as its owners fall victim to global financial tumult.

In a letter to Nunavut authorities, operator Baffinland Iron Mines Corp. said it is replacing a mine plan to produce 18 million tonnes a year of iron ore with one that will produce just 3.5 million tonnes. A planned railway for the project will be deferred, and the iron ore will instead be trucked to an existing small port instead of a building a new one.

The original project had a development cost of about $4-billion, but the scaled-down plan would keep spending to an estimated $740-million.

“In the current global financial environment, the large development cost for the Mary River Project is difficult to finance,” said Baffinland, a joint venture between global steel giant ArcelorMittal and Iron Ore Holdings LP, its private equity-backed partner, in a letter to the Nunavut Impact Review Board. “The same effect is being felt by many major projects around the world.”

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RIO TINTO ON LEAN MANUFACTURING IN THE MINING SECTOR – by Paul Smith (Shinka Management.com – December 20, 2012)

http://shinkamanagement.com/

In November following the completion of our 2012 Lean Japan Tour I was fortunate to attend the 40th Anniversary of the establishment of the Australian and New Zealand Chamber of Commerce in Japan. It was an enjoyable night in Tokyo’s beautiful Peninsula Hotel, with the Australian Food and Beverage Manager treating guests to a superb meal, and singer Sarah Àlainn entertaining us early in the night with a number of songs from her recent debut album.

The highlight of the evening for myself was the keynote address from Sam Walsh AO, Executive Director of Rio Tinto. Sam opened his address by talking about the trade relationship between Australia and Japan and the growth and development of the broader Asia Pacific region.

Sam then turned to his own background with Japan and Rio Tinto’s iron ore business. To my pleasant surprise Sam focused his talk on his 20-year experience in the automotive industry and how lessons learned from lean manufacturing have been critical to Rio Tinto’s mining operations.

Sam began by addressing the seemingly unrelated industries of automotive manufacturing and large-scale mineral resource extraction.

“To the uninitiated, the two industries might seem worlds apart. One manufactures highly engineered, precision vehicle components to exacting specifications. It’s an extremely competitive industry. It requires complex, hugely sophisticated and wherever possible automated plant and equipment. It demands first rate forecasting and scheduling, tight inventory and costs control and a keen customer focus. It depends upon top-flight engineering, electronics and technical expertise and lean, high performance business practices.

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Asian-led group takes $1.1-billion stake in Canadian unit of ArcelorMittal – by Josh O’Kane (Globe and Mail – January 2, 2013)

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.

A consortium that includes South Korea’s biggest steel maker is buying a $1.1-billion (U.S.) stake in Montreal’s ArcelorMittal Mines Canada Inc., the latest sign of international enthusiasm for Canada’s resource sector.

A person familiar with the deal said South Korea’s Posco is “one of the more important players” in the consortium, which also includes Taiwan’s China Steel Corp. The consortium is taking a 15-per-cent stake in ArcelorMittal Mines – the second time in as many years that Posco has bought into a Canadian mining firm.

While Prime Minister Stephen Harper clamped down on foreign acquisition rules in December, it is expected that the minority-stake investment is among the types of transactions he was hoping to encourage in order to fund the expansion of Canadian businesses.

Paul Boothe, a past Industry Canada senior associate deputy minister, said that in the case of a resource-sector portfolio investment such as this, “the administration of the Investment Canada Act appears unchanged,” meaning such a deal should not face any harsh setbacks in the form of an economic review.

ArcelorMittal Mines Canada, among the country’s leading suppliers of iron ore for steel markets, would increase Posco’s access to its essential commodity. The Montreal company, which has two large open-pit mines in Quebec, says it produces about 15 million metric tonnes of iron ore concentrate annually, as well as nine million tons of iron oxide pellets.

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Aboriginal prosperity must be earned – by Brian Lee Crowley and Ken Coates (Troy Media – December 28, 2012)

http://www.troymedia.com/

Brian Lee Crowley (twitter.com/brianleecrowley) is the Managing Director of the Macdonald-Laurier Institute, an independent non-partisan public policy think tank in Ottawa (http://www.macdonaldlaurier.ca). Ken Coates is the Canada Research Chair in Regional Innovation at the Johnson-Shoyama Graduate School of Public Policy, University of Saskatchewan.

OTTAWA, ON, Dec. 28, 2012/ Troy Media/ – Recent protests organized by the Idle No More movement and angry statements by some Western Canadian Aboriginal leaders reflect real frustration among Indigenous Canadians.

At the same time, several impressive agreements between Aboriginal groups and businesses reveal a burst of job creation, joint ventures and revenue sharing the likes of which Canada has rarely seen.

Which model – anger or cooperation – provides the best window on the future of Indigenous relations with other Canadians?

The answer is “both”. The collaborative arrangements are very real. The recent agreement between Pinehouse First Nation and uranium companies Cameco and Ariva are truly impressive. Cameco, a leader in engagement with First Nations and Metis communities, has a workforce that is 50 per cent Aboriginal and contracts 70 per cent of the supply work to Indigenous firms.

Comparable developments with Syncrude and Suncor in the oil sands have shown great promise. On an even larger scale, Inuit participation with the huge Baffinland (Mary River) mine is truly precedent setting.

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