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Iron Ore

COLUMN-For Rio Tinto, it doesn’t matter being right on iron ore – by Clyde Russell (Reuters U.S. – September 16, 2015)

http://www.reuters.com/

(Reuters) – There’s been considerable debate over who is right on the outlook for China’s vast steel sector – the bullish iron ore miners or the bearish analysts and steel producers.

Rio Tinto, the Anglo-Australian miner that’s likely to claim top spot among iron ore producers, has resolutely stuck to its view that China’s steel output will top out at 1 billion tonnes per annum, around 2030.

There’s been no shortage of people lining up to challenge that position, and even number three miner BHP Billiton has rowed back slightly from the 1 billion tonne forecast, to expecting peak output around 935 to 985 million tonnes in the mid-2020s.

The Chinese steel sector thinks peak steel was already achieved with last year’s total of around 823 million tonnes, and is forecasting that output will slip slightly in coming years.

There are more bearish forecasts about, with one research house saying in a recent report that steel output will retreat to 650 million tonnes by 2017 as property demand falls back to levels before the stimulus prompted by the 2008 global recession.

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Fortescue Metals inks deal with Australian Aboriginal Mining – by Anne Lu (International Business Times – September 16 2015)

http://www.ibtimes.com.au/

Fortescue Metals Group Limited inked an Iron Ore Sale and Purchase Agreement with Australian Aboriginal Mining Corporation Pty Ltd on Monday, the companyannounced in a statement.

The five-year deal will allow the indigenous-owned AAMC to transport up to two million tonnes of iron ore yearly from its Pilbara mining operation through Fortescue’s world-class port or rail facilities. Fortescue can then purchase the iron ore or sell it on behalf of AAMC.

The agreement will help create Australia’s first Aboriginal owned and operated iron ore mine.

“Today’s agreement underlines very clearly Fortescue’s commitment to provide meaningful opportunities for Aboriginal business development. The company is focused on building up Aboriginal communities through full economic participation rather than passive welfare,” said Fortescue CEONev Power.

Indeed, the company’s Billion Opportunities program has awarded more than AU$1.8 billion in contract value to Aboriginal businesses and joint ventures. Fortescue’s workforce is 13 percent Aboriginal.

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UPDATE 1-Sierra Leone economy to shrink one-fifth amid mining crisis- IMF (Reuters India – september 15, 2015)

http://in.reuters.com/

(Reuters) – Sierra Leone’s economy will contract by 21.5 percent this year, following growth of 4.6 percent in 2014, due to a crisis in the mining sector triggered by a collapse in iron ore prices and the impact of the ongoing Ebola epidemic, the IMF said.

A shortfall in government revenues due to a halt in mining production will push the budget deficit to 4.8 percent of gross domestic product (GDP).

The International Monetary Fund said the near- and medium-term outlook for Sierra Leone was challenging, with the economic situation in 2016 to remain relatively unchanged.

“Sierra Leone continues to battle the adverse impact of two severe exogenous shocks: the Ebola epidemic and the crisis in the mining sector that began with the collapse of iron ore prices and culminated in the cessation of production in April 2015,” the Fund said in a statement after its staff completed a visit to Freetown.

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Vale Rules Out Following Glencore Path as Mining Pain Deepens – by Juan Pablo Spinetto (Bloomberg News – September 15, 2015)

http://www.bloomberg.com/

The world’s top iron-ore miner is betting that cost cuts and growing market share will be enough to endure low prices, shunning the path of equity sales and halted dividends taken by rival Glencore Plc.

Vale SA, the Brazilian mining giant which is also the largest nickel producer, is focused on reducing expenses further as the start of its lowest cost producing project approaches, Chief Executive Officer Murilo Ferreira told reporters in Belo Horizonte, Brazil, during an industry gathering.

“We aren’t studying a model like the one taken by Glencore, because we don’t consider it necessary for Vale,” Ferreira said, adding that he only has “superficial” knowledge of the operations of the Baar, Switzerland-based trader.

“The Vale team did the diagnosis of the end of the supercycle at the right moment. There was an expressive reduction in Vale’s costs and there is a lot still to come.”

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Batista Miner Counting on Trafigura to Emerge From Debt Woes – by Juan Pablo Spinetto (Bloomberg News – September 15, 2015)

http://www.bloomberg.com/

A year ago, former billionaire Eike Batista’s iron-ore unit was halting output and battling creditors as prices plunged. Now it’s planning to reemerge with the help of commodities trader Trafigura Beheer BV.

MMX Sudeste Mineracao SA is selling its mining assets to Amsterdam-based Trafigura as part of a restructuring plan approved by creditors representing about 800 million reais ($207 million) in debt, Ricardo Werneck, who heads the parent company MMX Mineracao e Metalicos SA, said in an interview.

The unit also expects to obtain about 70 million reais from the sale of logistics assets and farmlands, allowing creditors to recover about 30 percent of the value of their claims, he said.

“There is no better option; the alternative is the failure of the company,” Werneck, 44, said. “Trafigura is a big part,” of the recovery plan, he said. MMX, which Batista listed in 2006 when the commodities super-cycle was in full swing, stopped operations at its only producing unit in August 2014 as the value of the steelmaking ingredient plunged and debt mounted.

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UPDATE 1-Petrobras chairman to take leave, to focus on job as Vale CEO – by Stephen Eisenhammer and Rodrigo Viga Gaier (Reuters U.S. – September 14, 2015)

http://www.reuters.com/

(Reuters) – Murilo Ferreira will take a leave of absence as chairman of state-run oil firm Petrobras, turning his full attention to his job as chief executive of Vale SA as the mining giant grapples with a downturn in the sector.

Petroleo Brasileiro SA, as the company is formally known, did not give a reason for Ferreira’s leave, which it said would last until Nov. 30. A company source told Reuters he had requested time off to focus on Vale as it navigates a slump in iron ore prices and a slowdown in China.

Ferreira, 62, who has been CEO of Vale since 2011, was appointed chairman of Petrobras in April as it looked to send a market-friendly signal after a giant corruption scandal resulted in billions of dollars in writedowns.

At the time some mining executives criticized the move, saying Vale was going through a difficult patch and needed the full focus of its CEO. Ferreira shrugged off concerns, saying the double job would only eat into his “leisure time.”

But the world’s largest producer of iron ore has continued to struggle. Shares in Vale have lost nearly 40 percent over the past 12 months and touched their lowest in a decade last month.

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Rio Tinto CEO Sam Walsh still a China bull – by John Kehoe (Australian Financial Review – September 12, 2015)

http://www.afr.com/business/

The chief executive of global mining giant Rio Tinto, Sam Walsh, has expressed strong confidence in the Chinese government pulling “levers” to keep the economy on track, as he revealed that Rio’s internal economic measures for the nation were broadly in line with Beijing’s official estimates.

Mr Walsh admitted the world economy had become far more “volatile” and that potential “shocks” are in store for commodity markets, but was overall upbeat on China in the face of growing unease about its prospects.

Speaking in Washington on Friday, Mr Walsh pointed to reassurance from Chinese Premier Li Keqiang at the World Economic Forum on Thursday that China would avoid a hard landing and that Beijing will meet its 7 per cent growth target this year.

“Rio Tinto endorses that. We believe it will be around that,” Mr Walsh said, after delivering a speech at the US Chamber of Commerce.

“I am positive about China and I am positive about the Chinese leaders and what they can do in relation to pulling the levers they need to pull to keep the economy motoring,” he added.

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Western Australian resources worth nearly $100 billion – by Cole Latimer (Australian Mining – September 11, 2015)

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

New figures from the WA Department of Mines and Petroleum have highlighted the value of the state’s resources industry.

In statistics released today, the WA DMP said the industry was valued at $99.5 billion in 2014-15. Iron ore was the highest rated commodity, worth $54 billion in sales to Western Australia. This was despite falling Chinese demand for the metal.

“Western Australia produced 719 million tonnes of iron ore in 2014-15, a 15 per cent increase compared to the previous year, however the low iron ore price resulted in a decrease in the total value of sales,” WA DMP general manager for policy and co-ordination Richard Borozdin said.

Gold brought $9 billion worth of sales into the state, an increase of 1.5 per cent year on year.

Alumina was the third most value commodity to WA, reaching more than $5 billion in value, a 20 per cent jump compared to the previous corresponding period, which was buoyed by the weak Australian dollar.

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Robots Will Help Iron-Ore Miners Survive Price Rout – by Luzi-Ann Javier (Bloomberg News – September 10, 2015)

http://www.bloomberg.com/

When the rout in prices ends for the world’s iron-ore producers, those left standing probably will have more robots on their side.

Automated drills and driver-less trucks are among the new tools employed by the four biggest companies, including BHP Billiton Ltd., in a bid to preserve profit margins during a bear market that began more than two years ago. Using more technology helped reduce costs at Rio Tinto Plc by 8 percent since 2013, even as it boosted output by 5 percent, according to Paul Young, an analyst at Deutsche Bank AG in Sydney.

Improvements by top producers is defying a productivity collapse for the rest of the mining industry, which consultant McKinsey & Co. says declined as much as 28 percent in the past decade, forcing smaller operators to shut.

With demand for iron-ore slowing in China, the world’s biggest user, prices are probably headed lower as major suppliers expand output by tapping low-cost reserves, mostly in Australia, according to Citigroup Inc. The top four companies will see their share of the global market jump to 79 percent in 2018 from 64 percent in 2010, the bank said.

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Atlas MD David Flanagan optimistic about outlook for iron ore – by Jasmine Ng (Australian Financial Review – September 10, 2015)

http://www.afr.com/

Iron ore’s prospects for the rest of the year aren’t that poor as supplies from less efficient mines dwindle, according to Atlas Iron.

Chinese buyers are also replenishing inventories, boosting demand, said David Flanagan, managing director of the Perth-based company. Global supplies from high-cost mines will continue to shrink, he said in an interview on Wednesday. Atlas operates mines in Australia’s ore-rich Pilbara region.

The commodity’s been on a roller-coaster in 2015, sinking to a six-year low in April on rising low-cost output and weaker growth in China, the biggest buyer, before rebounding into a bull market the same month.

Ore then fell to a new low at the start of July as some banks forecast that prices would tumble below $US40, before rallying into another bull market and reaching a two-month high on Wednesday.

“There’s more opportunity for an uptick in iron ore prices than there is for a downward tick,” Flanagan said by phone. “There’s opportunity for more mines to close and there’s also opportunity for a buying rally leading into December.”

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First Steel, Now Copper: Rio Stays Optimistic on Chinese Growth – by Jasmine Ng (Bloomberg News – September 7, 2015)

http://www.bloomberg.com/

Rio Tinto Group isn’t just bullish about China’s steel demand, it’s also upbeat about copper use in the world’s biggest consumer.

Signs of improvement in China’s property market are boosting prospects for the metal, Jean-Sebastien Jacques, head of Rio’s copper and coal operations, said in an interview in Singapore. The government will also implement more stimulus measures if the world’s second-largest economy slows too much, he said.

Rio’s optimism stands out amid views from Glencore Plc that mining companies were wrong-footed on a slowdown in China, with demand getting tough to call. The country’s grappling with overcapacity, a downturn in property investment and a volatile stock market that threaten Premier Li Keqiang’s growth target of about 7 percent for this year.

Rio has a direct insight into the Chinese market through its Oyu Tolgoi operations in Mongolia, located north of the Chinese border, Jacques said.

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Vale CEO still upbeat on China, iron ore market -paper (Reuters U.S. – September 4, 2015)

http://www.reuters.com/

SAO PAULO – China’s stock market crash and currency devaluation have not dampened the optimism of mining giant Vale’s chief executive, who said he is most upbeat on the iron ore market in two years, according to a newspaper interview published Friday.

China’s stock markets have little relation to its real economy and a new foreign exchange policy has been misinterpreted as stimulus for exports, Vale CEO Murilo Ferreira told newspaper Valor Economico.

“The outlook for iron ore in recent weeks is much better than we saw four months ago. Of the last 24 months, I’m most upbeat right now,” said Ferreira.

The sharp Chinese sell-off in recent weeks rattled global markets, but Ferreira played down those fears and said the devaluation of the yuan was a step toward making the currency convertible.

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Rio Tinto shows Glencore’s Ivan Glasenberg who knows China best – by James Thomson (Australian Financial Review – September 4, 2015)

http://www.afr.com/

Finally, a little relief for Glencore chief Ivan Glasenberg, who watched the miner’s stock climb 6.6 per cent on Thursday night after two horror days of trading that saw it fall 6.7 per cent and then 8.4 per cent.

Glencore stock has hit record low after record low since Glasenberg delivered the company’s results on August 19. Obviously this has been a period of extreme volatility for global markets, and a global commodities trader with a debt pile of $42.7 billion won’t win any awards for defensive stock of the month. But a 26 per cent fall in 12 days isn’t pretty.

Thursday night’s jump came despite Standard & Poor’s revising its outlook on Glencore to “negative” from “stable” after lowering its price assumptions for aluminium, copper, and other metals, “reflecting a change in market conditions and uncertainties about China’s economic outlook.”

But it did take a little financial show of strength to get the shares moving in the right direction again. On Wednesday Glencore said it would pay back $US350 million ($500 million) of perpetual bonds next month, at the earliest possible date. It was a clever way of showing the company has cash to pay debt as it battles the commodity price slump.

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Rio Tinto drags Ernst & Young into Vale case – by Matt Chambers (The Australian – September 3, 2015)

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

Rio Tinto has dragged big four audit firm Ernst & Young into a bitter conspiracy and theft case against fellow mining giant Vale, with Rio alleging EY altered an initial assessment of corruption risk in a Guinea iron ore deal after pressure from Vale.

Rio is chasing billions of dollars in compensation from Vale after two of Rio’s four Simandou mining tenements were stripped from it by the government in 2008.

The northern Simandou tenements were given to BSG Resources, a company run by Israeli diamond merchant Beny Steinmetz, who Rio alleges was acting in tandem with Vale as BSGR bribed Guinean officials to take the Simandou tenements from Rio. Rio wants to see EY’s due diligence for a 2010 report on BSGR that was commissioned by Vale on bribery and corruption risk.

“Information showing that Ernst & Young informed Vale that BSGR had engaged in illegal and corrupt practices is relevant to Rio’s allegations regarding the conspiracy involving Vale and BSGR … because Vale did nothing to pull out of the deal,” Rio’s lawyers said in an August letter filed in the southern New York district of the US Federal Court and obtained by The Australian.

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Clive Palmer launches $10 billion lawsuit against estranged Chinese partner – by Amy Remeikis and Peter Ker (Sydney Morning Post – August 31, 2015)

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

The legal war between Fairfax MP Clive Palmer and his estranged business partner Citic Limited has gone to another level, with Mr Palmer’s company Mineralogy seeking $10 billion in damages from the Chinese giant.

In the latest of many lawsuits between the two companies over the past three years, Mineralogy is suing Citic over what it claims to be a lack of royalty payments from Citic’s Sino Iron magnetite project in WA, which was built on Mr Palmer’s leases.

The two companies have previously argued over the royalty issue, which has been complicated by the agreement signed between the two companies in May 2006 which relies on the annual benchmark iron ore prices struck by BHP Billiton and Brazilian miner Vale to calculate one of the royalties owing to Mineralogy, known as “Royalty B”.

With iron ore now traded on daily market terms rather than on annual contracts, there is no way to calculate Royalty B. The two companies have since fought over numerous things, including access to the port used by the loss-making Sino Iron project and the shifting of millions of dollars out of certain accounts, but they now appear set to return to the original issue of royalties.

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