Iron Ore
Is the global boom in commodity prices finally over? – by Linda Yueh (BBC News – July 2, 2013)
Like Graham Greene’s The End of the Affair, it is hard to believe it is over and let go. But, it has been an extraordinary run, a decade of what has been called the commodity super-cycle.
It started, and perhaps will end, with China. The global integration of an economy that has grown at double digits since China joined the World Trade Organization (WTO) in December 2001 perhaps marked the start. Will China also now mark the end?
Until the last decade, the real price – so, taking off inflation – of commodities had fallen for 150 years. It was the reason why developing countries wished to diversify out of natural resources and into manufacturing.
Because agriculture prices fall over time, countries like Brazil, where more than 90% of exports were coffee during the immediate post-war period, would experience worsening incomes. This is why.
Mining in Brazil: Time to dig deep (The Economist – June 22, 2013)
FOUR years after Brazil’s government said it was planning a radical rewrite of mining laws, on June 18th the industry, which accounts for 4% of GDP and almost a quarter of exports, finally learned its fate. Maximum royalties on mineral wealth are to rise from 2% to 4%, with iron ore and gold probably attracting the top rate, and will be levied on turnover rather than profit. Future licences will come with minimum-investment conditions and licensing will be simplified.
The announcement was met with resignation by mining firms, which had been braced for worse. The government had been keen to squeeze the sector until it squealed, but falling commodity prices and a deteriorating trade balance seem to have made it moderate its plans. A feared new federal levy did not materialise.
The only surprise was that the proposals came in the form of a draft bill to be approved by Congress, rather than presidential decree. Approval will probably take the rest of the year. But there was relief that an end to the wait, which has played havoc with business plans, is in sight.
The new rules will raise total royalties from 1.7 billion reais ($0.8 billion) to 4.2 billion, estimates Murilo Ferreira of Vale, Brazil’s largest mining company and the world’s biggest iron-ore producer.
Pullout ‘disappointment’ for mining firm – by Staff (Thunder Bay Chronicle-Journal – June 23, 2013)
Thunder Bay Chronicle-Journal is the daily newspaper of Northwestern Ontario.
A Vancouver-based mining company looking to reopen the Griffith Iron Ore Mine near Ear Falls is temporarily scaling back operations after losing a potential partner in the project.
Ontario Iron Mining Inc. has notified Northern Iron Corp. that it will not conclude the purchase of Northern’s El Sol and Whitemud iron ore properties at this time.
Ontario Iron spokesman Jonas Struthers cited “difficult market and trading conditions in China’s steel industry” as the primary reason for pulling out of the proposed deal, despite satisfactory due diligence on the property.
“We believe in the location and established infrastructure of this project as being ideal for export to Asia in general and China in particular,” he said, adding that “there is still significant interest in the properties and in Northern Iron’s business plan, but the timing is not right for us to conclude the purchase.”
Northern Iron president Basil Botha noted that “this announcement is a disappointment for Northern and it’s shareholders.
“Fortunately, we have established good relationships with several other parties with whom we are discussing options ranging from direct investment to joint ventures and we continue to be well positioned to bring in an interested party in the not too distant future.
Chinese Mining Giant Eyes Rio Assets in Canada – by Chuin-Wei Yap (Wall Street Journal – June 18, 2013)
http://online.wsj.com/home-page
BEIJING—In a sign that China hasn’t lost its appetite for global iron ore assets despite an economic slowdown, state-controlled mining giant China Minmetals Corp. said Tuesday it is considering a bid for Rio Tinto RIO.LN +0.32% PLC’s $4 billion Canadian iron-ore operations.
Minmetals, one of Beijing’s favored vehicles for cross-border mining deals, is interested in the asset and is “watching” the deal’s development, Assistant President Wang Jionghui told The Wall Street Journal on the sidelines of an industry conference. A more active pursuit of a bid would “depend on various factors, such as partners,” he said.
“We have invested in the neighborhood before and we are familiar with the area,” Mr. Wang said. He was careful to characterize Minmetals’ interest as being merely preliminary so far, adding that Rio’s assets are only one of many the company is monitoring.
The Anglo-Australian miner declined to comment Tuesday on Minmetals’ disclosure and other aspects of the impending sale.
If it materializes, such a bid would add to a string of Chinese acquisitions of Canadian resources, the largest of which was Cnooc Ltd.’s $15.1 billion purchase 0883.HK +0.29% of oil and gas producer Nexen Inc., completed in February.
Vale Sees China Slowdown Blunted by Brazil Real Depreciation – by Juan Pablo Spinetto & Laurie Hays (Bloomberg News – June 17, 2013)
Vale SA (VALE5), Brazil’s largest exporter, said further local currency depreciation could counter cost rises and a slowdown in Chinese iron-ore demand as it seeks to regain market share from Rio Tinto Group and BHP Billiton Ltd. (BHP).
The real, the worst-performing emerging-market currency in the past three months, probably will weaken to about 2.40 from 2.15 per U.S. dollar, bolstering Brazil’s competitiveness, said Jose Carlos Martins, Vale’s executive director for ferrous and strategy. China’s iron-ore and steel demand growth is set to slow to about 5 percent from 10 percent in the first five months of the year, he said.
“The Brazilian currency will devalue further,” Martins, 63, said in a June 14 interview at the company’s Rio de Janeiro headquarters. “The slowdown in China is negative, devaluation is positive because not only our costs in dollars will be reduced but also investments will be lower.”
Vale is seeking to return to profit growth and boost investor confidence by cutting costs, selling assets and focusing on the iron-ore business, its most lucrative unit. The company, the worst-performing major mining stock this year, posted first-quarter profit that surpassed analysts’ expectations for the first time in eight quarters.
The real lost 7.8 percent against the dollar in the past three months through yesterday to the weakest level in four years as faltering economic growth and speculation the U.S. Federal Reserve will pare back monetary stimulus lures money away from Latin America’s biggest economy.
Is China backtracking on attempts to control iron ore? – by Clyde Russell (Reuters India – June 17, 2013)
Clyde Russell is a Reuters market analyst. The views expressed are his own.
LAUNCESTON, Australia, June 17 (Reuters) – It may be too early to start beating the drums of victory for free-market capitalism, but there are signs that China is stepping back from attempts to control the iron ore market.
Just three months after accusing major iron ore producers of manipulating prices, China plans to scrap it’s decade-old import licensing system, a move that may eliminate middlemen in the market, lower costs for steel mills and improve transparency.
It also looks like a strategic retreat for the world’s biggest buyer of iron ore in its battle to win pricing control from the big three producers, Brazil’s Vale and the Anglo-Australian pair of Rio Tinto and BHP Billiton .
The planned end of the licensing system will happen in the second half of the year, according to a Reuters report on June 13 that cited a source with knowledge of the matter. The current system requires import qualification licences to be granted by government-backed industry bodies like the China Iron & Steel Association.
It was designed to eliminate speculative traders from driving up prices and force the steelmaking industry to present a united front against the producers.
Sam Walsh: no ‘bazaar sale’ at Rio Tinto – by Emma Rowley (The Telegraph – June 16, 2013)
In his first interview since taking over at the mining giant, Rio Tinto’s CEO talks about cutting costs and why he won’t launch a ‘bazaar sale’
He may be giving his first interview as Rio Tinto’s chief executive, but Sam Walsh has his elevator pitch well honed.
“A sudden appointment for someone who was running Rio’s largest business, the iron ore business. An operations background, both within Rio and the car industry before that. But a very heavy focus on delivery, on strategically positioning the business,” he rattles off.
It is understandable that he is keen to map out the story clearly. His predecessor, Tom Albanese, under whom he worked as iron ore chief, was forced out in January by vast $14bn (£9bn) writedowns on purchases gone bad.
Walsh, a genial Melbourne man, takes over at the FTSE 100 mining giant – the world’s biggest after BHP Billiton – at a time when falling commodity prices, ballooning costs and project overruns have left shareholders clamouring for better from the industry.
Now in situ in offices high above London’s Paddington station, he is keen to show he knows what matters to investors: “Shareholder value. That’s what drives business. That’s what it’s all about. They deserve returns.” He talks of strengthening checks and balances within the business and spending money as if it’s your own.
Miner [Anglo-American], Billions Over Budget, Slogs Ahead in Rural Brazil – by John W. Miller and Paul Kiernan (Wall Street Journal – June 9, 2013)
http://online.wsj.com/home-page
CONCEIÇÃO do MATO DENTRO, Brazil—The hills surrounding this isolated rural town contain a rich lode of iron ore and the seeds of one of the biggest cost overruns in mining history.
Anglo American AAL.LN -3.52% PLC is spending $8.8 billion on a massive mine project here—more than three times what it initially projected, and not a single ton of iron ore has been mined. The project, conceived by some of the best geologists and engineers in the world and currently employing 12,000, is three years behind schedule.
“I think all the time about what we could have done differently,” Cynthia Carroll said in an interview. Mrs. Carroll, who still believes the mine will be profitable, stepped down as CEO in April after shareholders complained about cost overruns, especially at this mine, baptized Minas Rio.
Anglo American knew mining iron ore under cattle farms crisscrossed by strips of red dirt roads—then processing and shipping it—would be a logistical challenge. And it isn’t the only one under pressure. With coastal areas tapped out, global mining companies are having to dig in increasingly remote areas, often in countries with unstable currencies, volatile economies, and uncertain legal systems.
$3bn hit for WA’s biggest mine moguls – by Paul Garvey (The Australian – June 10, 2013)
http://www.theaustralian.com.au/business
ALMOST $3 billion has been wiped off the net worth of some of Perth’s most prominent mining executives this year, underscoring the pain being felt at the top end of a West Australian economy that appears to be cooling rapidly.
An analysis of data by The Australian has found that the average value of the shareholdings held by 10 of the biggest names in WA’s resources-dominated economy has fallen by more than 38 per cent from the peaks of the past six months.
The biggest fall in dollar terms has been felt by Andrew Forrest, whose major shareholding in Fortescue Metals Group has shed almost $2.1bn since the iron-ore miner reached its 2013 peak of $5.39 a share on Valentine’s Day.
In percentage terms, those hardest hit have come from the mining services sector.
Ron Sayers, the founder of drilling contractor Ausdrill, has seen his stake in the company plummet by 61.7 per cent in less than four months. Ausdrill stock has come under particular pressure in recent months, as investors bet on mining companies cutting back on discretionary spending on exploration drilling in an effort to rein in costs.
BHP Billiton CEO ANDREW MACKENZIE – SPEECH TO THE MELBOURNE MINING CLUB
Above video from the Brisbane Times website: http://www.brisbanetimes.com.au/
BHP Billiton CEO ANDREW MACKENZIE – SPEECH TO THE MELBOURNE MINING CLUB
CHECK AGAINST DELIVERY
London – 6 June 2013
Tonight I amhere to talk about our global industry: where we have come from; where we are today; and where we are going.
Mining was a low-growth businessfor much of the 20th century so we were caught off-guard by the pace of China’s early-21st century urbanisation and industrialisation. It has changed our industry:
Contractors rush to Roy Hill as projects dwindle – by Andrew Burrell (The Australian – June 10, 2013)
http://www.theaustralian.com.au/business
GINA Rinehart’s $9.5 billion Roy Hill iron ore project has emerged as the potential saviour for scores of contractors and suppliers hit hard by the mining slowdown, with almost 2000 of them set to attend briefings this week to discuss opportunities from the huge development in Western Australia’s Pilbara region.
The turnout expected at meetings in Perth, Port Hedland and Newman starting today dwarfs the 800 who attended similar briefings just 10 months ago, before the deep anxiety over weaker commodity prices infected the sector.
The slump has forced mining companies to slash costs and defer or abandon some projects, leading to a string of profit downgrades by contractors including Transfield, WorleyParsons, Ausdrill, Calibre and Emeco.
Amid talk in WA that the state’s once-booming economy is headed for a recession, mining contractors desperate to fill their order books will clamour for work on Roy Hill, which is shaping up as one of the biggest mining projects in the west for several decades.
It is believed the main construction contractor, South Korean giant Samsung, will deliver contracts worth at least $4bn to local companies, providing a crucial injection into the economy.
Least-mined Bushveld SA’s biggest iron-ore resource: Paul Jourdan – by Martin Creamer (MiningWeekly.com – June 4, 2013)
http://www.miningweekly.com/page/americas-home
CAPE TOWN (miningweekly.com) – South Africa’s Bushveld Complex was the country’s largest but least-mined iron-ore resource, independent South African mineral policy analyst Paul Jourdan told the International Mining and Metals third African Iron Ore conference here on Tuesday.
While the Bushveld hosted between 25-billion tons and 27-billion ton of iron-ore, it was the Kalahari basin with 3-billion tons in the Northern Cape where most of the mining was under way.
“The future resources are very much in the Bushveld Complex,” said the former Department of Trade and Industry (DTI) deputy director-general and former Mintek head, who is currently working with the DTI, the Department of Mineral Resources, the Department of Science and Technology and the State-owned Industrial Development Corporation (IDC) on mineral value chain development.
Kumba Iron Ore was by far the largest miner, followed by Assmang, Evraz Highveld Steel and Vanadium and smaller start-ups. South African production was now at some 55-million tons a year, with plans for expansion.
Liberia wants neighbours to cooperate to boost mining hopes – by Clara Ferreira-Marques (Reuters India – June 4, 2013)
LONDON, June 4 (Reuters) – West African neighbours Guinea, Sierra Leone and Liberia should work together to resolve a dire lack of rail, port and power infrastructure that has held back the region’s mining ambitions, a senior Liberian government official said.
Sam Russ, deputy minister of operations at the ministry of mines in Liberia, said the region should collaborate on export links to make the most of major iron ore deposits, pointing to potentially lucrative cooperation with Guinea to the north.
The billions of dollars required to build rail or road have frozen many West African iron ore projects and rendered others all but impossible in an environment of uncertain prices and tough access to cash. Russ told an investor conference in London that cooperation could help resolve that.
“Our economies are certainly too small to take on these massive investments. If we think about collaborating, we can do a lot,” Russ said, pointing to the proximity of some deposits.
Key for Liberia – an emerging iron ore producer but also one of the region’s least explored destinations – would be cooperation with Guinea. That could, he said, help unlock the potential of Guinea’s giant Simandou mine and benefit Liberia.
Billionaire Rinehart Builds Rails as Iron Ore Plunges: Freight – by Elisabeth Behrmann & Sungwoo Park (Bloomberg News -June 4, 2013)
Gina Rinehart, Asia’s richest woman, built her fortune by heeding her own counsel. Now she’s testing that acumen by building her own iron ore railroad in Australia’s remote north — just as prices enter a bear market.
Samsung C&T Corp. (000830), South Korea’s second-largest builder, has started initial work after winning a A$5.6 billion ($5.4 billion) contract in March to build the railroad, plant and port for Rinehart’s Roy Hill mine. The 340-kilometer (211-mile) line to Port Hedland, the world’s biggest bulk terminal, will run parallel to two other rail networks and one planned route.
While Rinehart could cut costs by sharing infrastructure with competitors, according to UBS AG, she’s proceeding with her own railroad after passing on a potential investment accord with one of them: rival iron ore mining billionaire Andrew Forrest. The 59-year-old heiress, the world’s 35th-richest person, is seeking funding for her project, including the line, as costs peak and prices drop amid forecasts of a global supply glut.
“She’s taking on a lot of risk in terms of market outlook and the amount of capital that she’d going to need to build it,” Tom Price, a Sydney-based commodity analyst at UBS, said by phone. “It just seems like a very expensive path.”