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Day: December 8, 2014

Mining’s ‘Cash Machine’ Promise Fades as Prices Crater – by Jesse Riseborough (Bloomberg News – December 8, 2014)

http://www.bloomberg.com/

BHP Billiton Ltd. (BHP) and Rio Tinto Group run the risk of taking on additional debt as a plunge in commodity prices threatens their ability to keep a promise of returning more cash to shareholders.

As the world’s two biggest mining companies reiterate pledges to bolster returns, a near five-year low in iron ore and coal prices raises the specter both will need to borrow to meet their dividend commitments. Along with rivals Glencore Plc (GLEN) and Vale SA (VALE5), the two companies are largely responsible for the supply glut that’s putting downward pressure on prices.

While investors demanded higher industry returns after $1 trillion was spent on acquisitions and new mines in the past decade, the prospect of companies “robbing Peter to pay Paul” doesn’t sit well with Clive Burstow, an investment manager at Baring Asset Management, which oversees $60.5 billion.

“If they start leveraging up the balance sheet just to give investors back some money, I’m not a great fan of that,” said Burstow, who has been reducing holdings of BHP and Rio this year.  “That effectively means they are banking on there being higher commodity prices in the future.”

If current commodity prices prevail, BHP faces an estimated $5.4 billion shortfall to meet a forecast $6.6 billion dividend payout for the fiscal year ending June 30, according to Liberum Capital Ltd. mining analyst Richard Knights.

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The 2015 Energy Outlook Series: Coal – by Vicky Validakis (Australian Mining – December 8, 2014)

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

Coal has had a tumultuous 12 months but will 2015 be any better? Coal prices declined steadily in the first months of 2014 in response to a combination of in-creased supply and lower import demand from China.

Australian benchmark contract prices for high-quality metallurgical coal settled at $US120 in the September quarter, a price that left many coal operations unprofitable.

Thermal coal fared even worse, with Newcastle free on board spot prices averaging US$73 a tonne in the first eight months of 2014, down 16 per cent year on year. The price glut mean something had to give, and 2014 was the year the coal industry decided to restructure its workforce leading to massive job cuts.

Australian Mining estimates that more than 2500 jobs in the coal sector were cut as mining companies either downsized their operations or shut them down completely.

The Integra coal complex in the Hunter Valley was an early victim of coal’s fall from grace, as Vale announced in May that it would close the operation, taking 500 with it.

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Vale London media briefing a virtual charade – by Lawrence Williams (Mineweb.com – December 8, 2014)

http://www.mineweb.com/

A briefing in London will not have earned Vale many media friends, given few questions generated any concrete answers.

LONDON (MINEWEB) – After much exhortation this writer attended the Vale Day annual media briefing in London and really wished he hadn’t bothered. The world’s No. 2 or 3 diversified miner, depending on whose figures one takes, might just as well not set this kind of thing up given the paucity of actual fact delivered.

Firstly the whole event was conducted in Portuguese with simultaneous translation. Now maybe I’m an arrogant Brit thinking that perhaps such an event should be conducted in English given that it was being held in London, but when one knows that most of the Vale executives who participated probably speak better English than the translator, the logic for conducting the whole media briefing in Portuguese perhaps falls away, or smacks of yet another degree of obfuscation.

Indeed a couple of the Vale execs did start to answer questions in English, but were quickly reminded to continue in Portuguese instead. Given that apparently an earlier investor briefing involving many of the same executives had indeed been handled in English, perhaps emphasises the point.

Vale’s CEO, Murillo Ferreira, should have been a politician. He was very adept at ‘answering’ questions, often at considerable length, without actually dealing with the precise query involved – or maybe it was just the simultaneous translation that didn’t convey what he was saying correctly.

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BHP Billiton spin-off named South32 – by Jamie Smyth (Financial Times – December 8, 2014)

http://www.ft.com/intl/companies/mining

BHP Billiton ended speculation about the name of its new spin-off company that will hold up to $15bn in non-core assets, calling it South32.

The Anglo-Australian resources group said the name of the new company reflected the fact that most of its assets are located in the southern hemisphere linked by the 32nd parallel line of latitude. It was chosen following the suggestion of an employee, said the company.

“Our heritage and the places in which we operate are an important part of our identity,” said Graham Kerr, chief executive elect of South32.

“While South32 is grounded in the southern hemisphere, we will retain our global reach and ambition as we seek to exceed the expectations of a global shareholder base.”

South32 will have a primary listing in Australia as well as a secondary listing in South Africa and a standard listing in London.

BHP is in the midst of a major corporate restructuring designed to simplify the group and boost profitability. It is bundling a swath of non-core assets into a separate diversified mining company, the “newco”, which it initially proposed to list only on stock exchanges in Australia and South Africa. But following protests from UK investors it changed course.

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Ruble Drop Helps Russian Metal Companies Skirt Selloff – by Yuliya Fedorinova and Ksenia Galouchko (Bloomberg News – December 8, 2014)

http://www.bloomberg.com/

Russian metal and mining companies are winning back investors’ favor this year, avoiding a broader selloff in equities as the weakening ruble helps boost their profits from exports.

Eight of the 10 best performers in the RTS Index (RTSI$) in 2014 are producers of raw materials from steel and nickel to diamonds and soil nutrients. While the dollar-denominated gauge sank 37 percent, United Co. Rusal, the world’s largest aluminum company that touched a record low in November 2013, led the rally in non-oil commodity stocks with an almost fourfold advance.

While stocks from lenders to utilities and airlines have tumbled as Russia’s economy headed for the first recession since 2009, the slumping ruble has lifted metal and mining companies that have costs in the local currency and make sales abroad. Crude, the country’s top export, has sunk into a bear market, driving a 38 percent decline in the ruble and exacerbating the impact that international sanctions linked to the Ukraine conflict have had on gross domestic product growth.

“The stocks of metal and mining companies are turning from ‘l’enfant terrible’ into the best performers,” Alexander Losev, the chief executive officer of Sputnik Asset Management in Moscow, said by e-mail on Dec 4. “Serious ruble devaluation is benefiting metal producers since their costs are in rubles and revenue from exports is in dollars.”

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Waterloo-based inventor hopes to mine riches with Gold Sniffer – by Terry Pender (Waterloo Region Record – December 6, 2014)

http://www.insidehalton.com/halton/

KITCHENER — Inside a Conestoga College lab, Jim Kendall is building a device that could revolutionize mineral exploration — a camera that detects gold in rock samples.

Kendall calls it the Gold Sniffer. He co-founded a company, Kendall Technology, to bring his remarkable idea it to market. If all goes well in the coming months, the first Gold Sniffers will be ready next May and a more sophisticated version will come out next fall. Each will sell for about $55,000.

Kendall’s unique background and boundless curiosity led to his idea that a camera could be turned into a small, portable device that quickly and accurately determines if there is gold in the mineral samples collected by prospectors.

Currently, prospectors collect samples in the bush, which are then sent to an assay lab that conducts tests to confirm the presence of gold. It can take a month to get results. Between 50 and 90 per cent of the samples tested in the assay lab contain no gold.

Kendall believes the Gold Sniffer could quickly change all that. “The exploration geologist then in a couple of minutes right there on the site has the information about whether the sample has gold, how big the particles are, and the minerals associated with it,” he says.

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NEWS RELEASE: Teck Trail Operations Recognized with TSM Leadership Award

TRAIL, BC, Dec. 8, 2014 /CNW/ – For its outstanding performance in the Towards Sustainable Mining (TSM) initiative’s three focus areas—environmental stewardship, communities and people, and energy efficiency—Teck Trail Operations in British Columbia has been awarded with a special TSM Leadership Award.

The TSM Leadership Award is granted only when a facility meets or exceeds a level “A” ranking in their results across all of the six protocols of the TSM initiative – Aboriginal and community outreach, crisis management, safety and health, tailings management, biodiversity conservation management, and energy use and greenhouse gas (GHG) emissions management. (As Trail Operations do not have tailings facilities, they do not report on the tailings management protocol.) A facility’s TSM results must be externally verified to be eligible for this recognition.

“The TSM Leadership Award recognizes Trail Operations’ success in implementing best practices in the mining and smelting industry,” said Pierre Gratton, MAC’s President and CEO. “This is Teck’s third operation to have received this distinction in the past two years – a remarkable achievement unmatched in Canada’s mining industry.”

Teck Trail Operations was honoured with TSM Performance Awards for each of the five applicable performance areas, as well as the TSM Leadership Award for its 2013 results.

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‘Plan B’ puts Vale back in the driving seat – at a cost – by Samantha Pearson (Financial Times – December 2, 2014)

http://www.ft.com/home/us

For Vale, the world’s largest producer of iron ore, its location in Brazil has always been both its greatest strength and its biggest challenge.

On the one hand, its proximity to high-grade iron ore mines such as Carajás in the north of the country has turned it into a world leader in the industry and Brazil’s most international company.

Between January and October this year, iron ore ranked as Brazil’s second-biggest export just behind soyabeans, accounting for about 12 per cent of total shipments in value terms.

However, on the other hand, with its biggest mines more than 10,000 miles away from the key Chinese market, its geographical position has been its Achilles heel in its battle with rivals BHP Billiton and the Rio Tinto Group, located in Australia, much closer to Asia.

While demand from China is slowing, the country still accounts for 49.6 per cent of Vale’s total iron ore sales and Asia as a whole represents 65.4 per cent, according to the company’s third-quarter results.

As such, finding ways to reduce the logistics costs of these vast delivery routes has always been one of Vale’s top priorities. As the global commodity supercycle ends, pushing down iron ore prices worldwide, these cuts have become even more important.

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Mining group wants Ottawa to raise tax incentives for exploration (CBC News Thunder Bay – December 8, 2014)

http://www.cbc.ca/news/canada/thunder-bay

Prospectors and Developers Association of Canada proposes 30 per cent mineral exploration tax credit

A group that advocates for Canadian mining companies is calling on the federal government to increase tax breaks for investors who put their money into mining exploration.

The Prospectors and Developers Association of Canada wants the government to raise the mineral exploration tax credit from 15 to 30 per cent for three years.

It’s asking its members to send letters of support for the proposal to Finance Minister Joe Oliver and to copy Natural Resources Minister Greg Rickford.

“Right now there’s a real crisis in the global financing landscape,” said Nadim Kara, the association’s senior program director. “And the capital flows that we depend upon to come into our industry to finance exploration are starting to dry up and have really started to evaporate.”

The vice-president of exploration and development for KWG Resources agreed. 

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Mining and corruption: Crying foul in Guinea (The Economist – December 6, 2014)

http://www.economist.com/

Africa’s largest iron-ore mining project has been bedevilled by dust-ups and delays

“AN emblematic tragedy” is how Sir Paul Collier, an adviser to the British government, describes the situation in Guinea—referring not to the Ebola outbreak (awful though he considers that to be) but the saga of Simandou, a mining project mired in allegations of corruption, expropriation and corporate espionage.

Simandou, a mountainous area in southern Guinea (pictured), has been called the El Dorado of iron ore. It is the world’s largest known untapped deposit of the stuff, with enough ore to sustain annual production of 200m tonnes—7% of global iron-ore output—for more than a quarter of a century. Better still, the ore there has unusually high iron content. The potential project cost for the mine, and the railway and port that would be needed to get ore on to ships, is $20 billion, making it Africa’s largest ever proposed mining venture.

Guinea could do with the investment: it ranks 179th out of 187 countries in the UN’s human-development index. Wags, alas, have taken to calling Simandou “Simandon’t”. Exploration rights were first granted in the 1990s, yet the earliest anyone expects production to begin is 2019.

The saga oozes intrigue. Among its cast of characters: two of the world’s biggest mining groups, the Anglo-Australian Rio Tinto and Vale of Brazil; Beny Steinmetz, an Israeli diamond tycoon; George Soros, a billionaire philanthropist; Mark Malloch-Brown, a former deputy head of the UN; the wife of Guinea’s former leader; and, possibly, members of South Africa’s elite and security services. It is, as one lawyer involved in the case wryly puts it, “a slightly Hollywood story”.

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Has the environmental movement ever seen a collapse it didn’t want to be on the brink of? – by Rex Murphy (National Post – December 6, 2014)

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

The most important thing to understand about an environmental concern is that it is infinitely malleable. It has Play-Doh’s or putty’s wonderful power of accommodation, to take whatever shape, for the moment, might be called for.

Because the environment is, by definition or tautology, everything that is around us — there will always be something “in” the environment on which to hang an objection, mount a protest or, as Samuel Johnson, ever elegant, put it, “to point a moral, or adorn a tale.”

Thus I was not surprised that when the debate on pipelines recently shifted from oil flowing west to oil flowing east, someone raised the fate of the “endangered beluga whale.” We may not have known specifically that it was going to be the beluga, but we surely knew that something was going to be endangered — smelt, toad, turr, or the infamously myopic blundering owl.

The precise animal doesn’t matter; we knew it would be something. I think, in fact, it was probably — there is a batting order, so to speak, in this business — the beluga’s turn.

I should be explicit, I suppose, and declare there was no intention of putting belugas in the actual pipeline, a self-defeating project for all concerned. (Check Wiki, under “plugs.”) Rather, the alarm was raised over the building of a terminal for the pipeline at Cacouna, Que., and immediately on hearing that siren the company proposing the pipeline, naturally, stood down.

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Breaking up is easy to do: Potential ‘Inco’ IPO highlights mining sector’s new reality – by Peter Koven (National Post – December 6, 2014)

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

Speaking to an audience of mining industry professionals in Toronto, Tom Albanese made his message loud and clear. “The consolidation we are seeing heralds a new era that we have not seen before and probably won’t see again,” Mr. Albanese, then the chief executive of Rio Tinto Ltd., told the crowd. “We’re on the cusp of something huge.”

That speech was made in March 2008. It was highly appropriate at the time, as the global mining industry was in the midst of the biggest round of consolidation in its history. Just a few months earlier, Rio Tinto paid US$38 billion for Alcan Inc. In 2006, Inco Ltd. and Falconbridge Ltd. were acquired in twin deals worth around $20 billion each. And two years after that speech, BHP Billiton Ltd. tried and failed to buy Potash Corp. of Saskatchewan Inc.

But today, his remarks just seem silly. The great consolidation wave of the past decade, which so many experts said was permanent and irreversible, is being reversed in a big way. This week, Brazilian mining giant Vale SA said it may spin off its base metals unit in an initial public offering in Toronto, effectively bringing Inco back to life. BHP is spinning off (some would say dumping) US$15 billion of assets into a new company.

Other big consolidators such as OAO Severstal, Barrick Gold Corp., Kinross Gold Corp. and Cliffs Natural Resources Inc. are unloading assets for far less than they paid. And there are always rumours that Rio Tinto could shed its Alcan-led aluminum business as well.

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Why the bottom falling out of oil isn’t all bad – by David Rosenberg (National Post – December 6, 2014)

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

It’s been quite a while since the cartel has sat idly by in the face of a collapse that knocked almost 40% off the price of oil, but that is exactly what happened at last week’s meeting in Vienna. It had been widely assumed that OPEC would need to cut output by between 1 and 1.5 million barrels per day to establish a floor under the price; some were hoping for it to ride to the rescue as it did in fashion at the 2009 lows — different price, different time.

Basically, Saudi Arabia has intimated that the first production cuts in support of the price are going to have to come from somewhere else — as in, the U.S. shale operators, and it will no longer shoulder the burden of adjustment alone (indeed, after a month in which U.S. shale production surged more than 3%).

The UAE’s oil minister, Suhail Al Mazroui, didn’t exactly mince words after the meeting: “There is oversupply, but this is not an OPEC problem,” with the hint being America’s role in pushing prices down to new four-year lows.

This is a serious change in the cartel’s reaction function and it would be dangerous to underestimate the repercussions of OPEC relinquishing its traditional role as the rebalancing mechanism for the oil market.

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Schefferville, Que., says it’s not ready for a mining boom – by Marika Wheeler (CBC News Montreal – December 8, 2014)

http://www.cbc.ca/news/canada/montreal

Town administrator warns costly work needs to be done now and remote settlement of 230 can’t afford it

The town of Schefferville, Que., said the mining boom is straining the remote northern community’s infrastructure, and it needs help from the provincial government to support the sudden influx of temporary workers.

Schefferville is in northeastern Quebec — a fly-in community due north of Sept-Îles, just a few kilometres from the Labrador border.

It was built near rich iron deposits along what’s known as the Labrador Trough. The mine pits were abandoned about 30 years ago, but a spike in iron prices in 2011 sparked interest in the old sites, and mining companies have returned to the region.

The town population has doubled with “fly-in/fly-out” workers — mining employees who don’t live in town, but fly in for several days, then return home when they get time off. Province should pay for new infrastructure, said town

Schefferville administrator Paul Joncas wants provincial money to pay for major infrastructure investment. “We have work to do on the drinking water system, the sewage system, the infrastructure,” he said. “When the price [of ore] goes up, the mining companies are coming back and they want to go fast.”

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Long road back for Ontario economy – by Christina Blizzard (Toronto Sun – December 6, 2014)

http://www.torontosun.com/

TORONTO – Economic Development Minister Brad Duguid was putting a happy face on gloomy job figures Friday, saying it was all a question of, “two steps forward, one back.” I’m not so sure.

After two months of increases in employment, this province saw a drop of 34,000 jobs in November. That pushed the unemployment rate up to 7%.

While Duguid was optimistic about the future of manufacturing in this province, there are some stubborn, worrying signs that things just aren’t coming back.

This is the same government that’s always blamed a high Canadian dollar for the “hollowing out” of this province and blamed the loss of so many manufacturing jobs on a world-wide economic downturn.

Well, the Canadian dollar has dropped and the U.S. economy is showing strong growth. The rest of this country is chugging along at a better rate than Ontario. So what’s down the road?

“I think it’s always better for us when the Canadian dollar is down,” Duguid told reporters.

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