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Iron Ore

Rio Tinto to Halve Capital Spending by 2015 in Focus on Cash – by Elisabeth Behrmann (Bloomberg News – December 3, 2013)

http://www.bloomberg.com/

Rio Tinto Group (RIO), the world’s second-biggest mining company, will cut capital spending to about $8 billion in 2015, less than half its outlay last year, as mineral producers conserve cash after prices fell.

“Our capex is reducing, and will come down further,” Sam Walsh, chief executive officer of London-based Rio, said today in a statement. “From where I stand, we continue to see market fragility and volatility.”

Rio’s cutback underlines efforts by the world’s largest mining companies to rein in spending as a decade-long boom in metal prices wanes. Vale SA (VALE5), the biggest iron ore producer, yesterday slashed its investment budget for a third straight year to $14.8 billion, the lowest since 2010.

“It’s quite a substantial drop and it does suggest that right now Sam Walsh is concentrated very, very hard on affordability,” Evan Lucas, a Melbourne-based markets strategist at IG Ltd., said by phone.

Rio fell 0.6 percent to A$65.49 at the close in Sydney. BHP Billiton Ltd., the world’s biggest mining company, declined 1.2 percent.

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NEWS RELEASE: Rio Tinto unveils breakthrough pathway for iron ore expansion in Australia

28 November 2013

Rio Tinto has set out its breakthrough plan to optimise the growth of its world-class iron ore business in Western Australia. Mine production capacity will rapidly increase towards 360 million tonnes a year (Mt/a) at a significantly lower capital cost per tonne than originally planned.

A series of low-cost brownfield expansions will bring on early tonnes to feed the expanded infrastructure currently being developed. From a base run rate of 290Mt/a by the end of first half 2014, mine production capacity will increase by more than 60 million tonnes a year between 2014 and 2017. The majority of the low-cost growth will be delivered in the next two years with mine production of more than 330 million tonnes in 2015.

This will be achieved primarily through a combination of expanding production at existing mines and securing further low-cost productivity gains, such as those delivered by Rio Tinto’s pioneering Mine of the Future™ programme, together with the proposed future development of the greenfield Silvergrass mine. Work continues on various further expansion options to optimise the next stage of the 360 programme.

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Vale to Pay $9.6 Billion to Settle Decade-Long Tax Fight – by Juan Pablo Spinetto – (Bloomberg News – November 28, 2013)

http://www.bloomberg.com/

Vale SA (VALE5), the world’s biggest iron-ore producer, agreed to pay 22.3 billion reais ($9.6 billion) to settle a decade-long tax dispute with Brazil over profits of its foreign units, ahead of a deadline tomorrow.

Vale will pay 5.97 billion reais at the end of this month and 16.4 billion reais in 179 monthly installments, plus interest, after its board decided to join a settlement program offered by the government, the Rio de Janeiro-based company said in a filing late yesterday. Shares jumped.

Brazil’s biggest exporters including Vale, brewer Cia. de Bebidas das Americas and steelmaker Gerdau SA (GGBR4) have been fighting a combined 75 billion reais in tax claims on profit of their foreign subsidiaries, according to the country’s tax agency. The net present value of Vale’s liabilities is $6.6 billion, below the $10 billion that was being anticipated by investors, according to JPMorgan Chase & Co. estimates.

“We view this announcement as positive for Vale,” JPMorgan analysts including Rodolfo Angele wrote in a note to clients. “We now can turn the page on the uncertainties surrounding this legal imbroglio to focus on industry and company fundamentals.”

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NEWS RELEASE: Vale will participate in income tax settlement

11/27/2013

Our Board of Directors has approved its participation in the federal tax settlement (REFIS) for payment of amounts relating to Brazilian corporate income tax and social contribution on the net income of its non-Brazilian subsidiaries and affiliates from 2003 to 2012, as established by Brazilian Law No. 12,865/2013 of October 9, 2013 and Provisional Measure 627 (MP 627) of November 11, 2013.

Participating in the REFIS will result in income tax payments of R$ 5.965 billion at the end of this month and R$16.360 billion in 179 monthly installments, adjusted by the Central Bank of Brazil policy interest rate (SELIC). Vale estimates that the net present value of the tax payments is R$ 14.425 billion.

“The proposed terms have allowed for a considerable reduction in the amounts in dispute, and the decision to participate in the REFIS is consistent with our goal of eliminating uncertainties and directing managerial focus on Vale’s businesses,” CEO Murilo Ferreira commented. “The tax payment will be funded by our operating cash flow, not requiring additional indebtedness, and not causing significant changes in our financial planning, which will continue to support our growth and value creation initiatives, the distribution of dividends to shareholders and the maintenance of a solid balance sheet,” Ferreira said.

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Vale Tax Appeal Suspended as Justice Requests Revision – by Mario Sergio Lima & Juan Pablo Spinetto (Bloomberg News – November 26, 2013)

http://www.bloomberg.com/

Vale SA (VALE5), the world’s biggest iron-ore miner, had its appeal of a 30.5 billion-real ($13.3 billion) government tax claim suspended by Brazil’s Superior Court as the deadline approaches for an out-of-court settlement.

Justice Ari Pargendler, one of five presiding judges, asked to revise the case in a session today in Brasilia. The request followed Justice Napoleao Maia’s proposed approval, Justice Sergio Kukina’s rejection and Justice Benedito Goncalves abstinence. Vale shares fell the most since July.

The case, in which the Rio de Janeiro-based miner is arguing that earnings from foreign operations can’t be taxed in Brazil if they were paid abroad, probably will resume next week, Roberto Duque Estrada, a lawyer for the company, said from the tribunal. That would be after a Nov. 29 deadline for companies to accept a government proposal to scrap fines, interest and legal charges if they agree to pay in one tranche or reduce taxes and interest if they settle in installments.

“The market already priced in this dispute and just wants it to be over,” Leonardo Brito, an analyst at hedge fund Teorica Investimentos, said by telephone from Rio before today’s suspension. “This and the new set of mining rules that Brazil is establishing are pending like swords over the company’s head.”

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BHP Billiton confident of Chinese demand – by Peter Ker (Brisbane Times – November 20, 2013)

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

Chinese demand for Australia’s natural resources may prove to be stronger than currently believed, according to BHP Billiton chief executive Andrew Mackenzie.

Speaking at the opening of the mining giant’s new headquarters in Melbourne, Mr Mackenzie said early indications from the Chinese government’s recent economic policy summit were positive for Australia and its mining industry.

”If you read the small print – and no doubt we will hear more about this in a couple of weeks – from the third plenum that has just happened in China, I think even more than we might think they are going to require us to supply the resources to continue to develop not just China but much of north Asia as well,” he said.

”These resources are going to be fundamental to them securing the economic prosperity they crave for themselves and their citizens.”

The speech was delivered to a high-powered audience of current and former political leaders, including former prime minister Paul Keating, former treasurer Peter Costello and current parliamentary secretary to the Treasury Steve Ciobo, who read a message from Prime Minister Tony Abbott.

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[Australia’s] Port Hedland growth faces difficult berth – by Paul Garvey (The Australian – November 15, 2013)

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

IT MUST surely represent one of the most valuable pieces of undeveloped port real estate anywhere in Australia – an otherwise non-descript stretch of mangroves that stand to generate more than $US12 billion a year in revenues.

South West Creek has been earmarked as the site of two new berths at Port Hedland, Australia’s key iron ore export hub. Spare capacity at the port is becoming more and more scarce, and the South West Creek site represents one of the last remaining locations capable of squeezing in new berths.

Each berth is expected to allow for some 50 million tonnes of iron ore exports. With the benchmark price of iron ore currently sitting comfortably above $US120 a tonne, that’s a huge potential source of income for both the miners allocated capacity at the site, and the state government hungry to grow its pie of iron ore royalties even further.

But the will of both the state government and the parties allocated the space far from guarantees the development of the strategically important site. Despite iron ore prices continuing to dangle a very lucrative carrot for the parties, finding a path to the port’s development remains a major challenge.

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Iron ore is hot right now – by Bloomberg News (National Post – November 11, 2013)

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

Iron ore is extending a bull market on record sales to China that are spurring forecasters from Morgan Stanley to the World Bank to increase price predictions.

Shipments from Australia’s Port Hedland, the biggest iron- ore export terminal, to China jumped 43 percent to a record last month, port data show. The Asian nation already imported the most ore ever in September, according to customs data. Standard Bank Group Ltd. and the Bureau of Resources and Energy Economics, Australia’s state forecaster, also increased price estimates in the past several weeks.

Prices reached a two-month high in China last week after data showed Asia’s largest economy accelerated. While supply expansions led by Australian producers will push the seaborne market into surplus next year for the first time since 2010, it won’t happen until the second half, said Joel Crane, an analyst at Morgan Stanley. Iron ore is the biggest source of revenue for Rio Tinto Group, BHP Billiton Ltd. and Vale SA and the largest seaborne commodity cargo after crude oil.

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Iron ore miners in $65bn upswing – Matt Chambers (The Australian – November 07, 2013)

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

MORE than $65 billion has been added to the value of the nation’s iron ore miners this financial year — $2.3bn of it into Andrew Forrest’s share portfolio — as confidence grows in the strength of prices of Australia’s biggest export.

Iron ore prices remain above $US130 a tonne, outlasting expectations, as Chinese steel mills continue to buy ore and build stockpiles.

But the price increase pales in comparison to the gains of the Australian miners whose revenue depends on the steelmaking ingredient.

Since June 30, the best performing top 200 Australian stocks have been Mount Gibson Iron, up 111 per cent, Arrium, up 93 per cent, and Andrew Forrest’s Fortescue Metals Group, up 92 per cent. In the same period, Australian iron ore prices have risen just 13 per cent, illustrating the surprise around the sustained price strength.

In dollar terms, Rio Tinto and BHP Billiton will be reaping the most benefits, but their size and diversity have diluted the effect on their share prices. Since June 30, BHP is up 21 per cent, or $33bn, and Rio is up 25 per cent, or $21.7bn.

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Vale Delivering More Profits on Reduced Costs: Corporate Brazil – by Juan Pablo Spinetto (Business Week – November 04, 2013)

http://www.businessweek.com/

Vale SA (VALE5) is poised to deliver its first quarterly profit increase in more than two years after costs declined and iron-ore prices beat analysts’ forecasts.

The world’s largest iron-ore producer on Nov. 6 will post third-quarter net income of $2.8 billion, data (VALE:US) compiled by Bloomberg show. That would be 70 percent more than a year earlier and the first increase since the second quarter of 2011. Vale’s 96 percent estimated increase in year-on-year earnings per share is the most among 14 global peers, according to Bloomberg Industries.

Vale, a supplier of iron-ore for steelmakers from ArcelorMittal to China Steel Corp., cut $1.65 billion of costs in the first half and is benefiting from rising demand from steel mills in Asia. Iron-ore prices averaged $132.5 a ton in the third quarter, 18 percent more than last year and above the $121 a ton forecast expected by analysts when 2013 started.

“There are better realized prices and an improved performance in terms of costs,” Goldman Sachs Group Inc. analyst Marcelo Aguiar said by telephone from Sao Paulo. “We expect an increase in the production of the company’s three main businesses: iron-ore, nickel and copper.”

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Stop-work orders common at mine sites – by Ashley Fitzpatrick (St. John’s Telegram – November 04, 2013) (Part 1 of 4)

http://www.thetelegram.com/

Safety officers also issued 696 safety directives to IOC and Wabush Mines in last year

Three years on with no occupational health and safety (OHS) officers in Labrador, and the two positions available remain unfilled. Not that Labrador worksites require close supervision, because major employers don’t often violate the province’s OHS regulations.

Except that they have — repeatedly.

Two of the largest employers in the province are in Labrador West — the iron ore mines at Wabush and Labrador City. The Wabush mine is operated by Cliffs Natural Resources and the Labrador City mine is operated by the Iron Ore Co. of Canada (IOC).

According to ServiceNL, the mines have collectively been given 696 directives from visiting provincial government OHS officers in the last year, from Oct. 1, 2012 to Sept. 30, 2013.

Supervisors at the mine in Wabush were handed 235 directives. The Labrador City mine received 461. There were also regular stop-work orders at both sites.

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Iron ore rally boosts miners – by Peter Ker and Brian Robins (Sydney Morning Herald – November 6, 2013)

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

The four-month rally in iron ore stocks shows no sign of abating, with some miners hitting their highest share prices in more than a year this week.

Shares in BHP Billiton and Rio Tinto were on Monday fetching their highest prices since February and March respectively, while Fortescue Metals Group has not been this valuable since May 2012.

The strong rally in the sector has come after a four-month period that was supposed to be its weakest of 2013, yet saw the benchmark iron ore price refuse to slip below $US130 per tonne.

A further rise in the benchmark price to $US135 per tonne over the past 48 hours fuelled further buying on Tuesday, and pushed Fortescue shares to $5.53 for the first time in 18 months.

Fortescue shares have rallied so strongly since they were below $3 in late June that Deutsche analyst Paul Young downgraded the stock to a sell last week on the basis that it had become over-valued, particularly when compared with BHP and Rio.

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Having a [mining] blast – by Kelly Grinsteinner (Hibbing Daily Tribune – October 30, 2013)

http://www.hibbingmn.com/

EVELETH — Do not call mine blasting an art. Mike Indihar will tell you that it’s not, and give you several reasons why.
“The public thinks that what we do today is the same way we did it 30 years ago, but that’s not true,” said Indihar, senior mine engineer at Cliffs Natural Resources’ United Taconite in Eveleth. “It is so different today.”

And he’d know.

Indihar has been in the mining industry since 1979, and worked in various capacities within both operations and engineering. He’s been at United Taconite since 2006, and from that time on has focused solely on drilling and blasting.
The 56 year old calls himself a geek, and admits the job is still fun.

“I’m still challenged every day, and that’s what makes it exciting,” said Indihar. For those who like status quo, mining isn’t the ideal industry. “What’s really fun in engineering in mining is that it’s always changing,” he said. “You do a blast, and then it’s gone. Now you do a different one. You build a road, mine it down and then move on to build a new road. Things change all the time.”

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BHP’s outlook optimistic, AGM hears – by Matt Chambers (The Australian – October 24, 2013)

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

BHP Billiton says the global economy is picking up, with positive signs in the US and Japan, boding well for plans to drive an 8 per cent increase in overall production over the next two years and for shareholders hoping for capital returns.

In the company’s annual general meeting in London tonight, BHP chairman Jac Nasser and recently installed chief executive Andrew Mackenzie gave an optimistic outlook for global growth and the demand for the iron ore, petroleum, copper and coal that BHP produces.

“The (2012-13) period was challenging, with slowing global growth and weaker commodity markets,” Mr Mackenzie told the first BHP annual general meeting he has fronted as chief executive since taking over from Marius Kloppers this year.

“However, we are already seeing signs of recovery in the global economy.” Mr Mackenzie said a productivity drive pursued by the miner in the wake of shareholder calls for restraint as Chinese growth slowed last year was paying off.

BHP was now confident of boosting production by 8 per cent, based on converting all its production to copper equivalent, over the next two years, he said.

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COLUMN-BHP, Rio Tinto show commodity game has changed – by Clyde Russell (Reuters U.S. – October 23, 2013)

 http://www.reuters.com/

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

LAUNCESTON, Australia, Oct 23 (Reuters) – The latest production reports by Anglo-Australian mining giants BHP Billiton and Rio Tinto show just how much the commodity market has changed in the past year.

BHP and Rio’s quarterly statements underline that mining is now a game of producing the highest volumes at the lowest costs, while at the same time scaling back on spending.

This seems like a logical response to concerns over slowing demand growth from top consumer China, whose appetite for commodities drove a decade-long boom in developing projects to boost supply.

The jury is still out on whether the major resource companies stopped spending in time to avoid a major bust in commodity prices, or whether new supply still in the pipeline will deliver a crashing end to the China-led boom. Certainly both BHP and Rio made much of their efforts to boost volumes at lower costs, while scaling back capital expenditure.

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