Author: yinghui

Iron ore has finally slipped below the new US$40 per tonne watermark.

This is a worrying new low for the market, as the iron ore futures fell under the US$40 per tonne price point, according to Bloomberg.

The SGX AsiaClear contract price for January slumped to US$39.67 a tonne, and marks a return to prices not seen since before the Global Financial Crisis, in 2007.

The MBIOI-58 Premium Index was even worse, ending the month at US$38.15 per tonne.

Last month independent analyst Andy Xie forecast that the commodity would slip below US$40 per tonne, and will trade just above US$30 per tonne next year.

The former Asia-Pacific head economist at Morgan Stanley previously pointed to the steel industry reaching a crisis point, adding they needed to cut production to drive demand.

This new ‘normal’ comes as the SteelIndex reaches its lowest point since records began nearly a decade ago, after the spot price at the Chinese port of Tinajin fell to just above US$43 a tonne.

The situation is not as dire right across the market, however, with Metal Bulletin recording a spot price of US$42.97 a tonne, which was still a fall overnight.

Conditions are likely to get worse as reports emerge forecasting more than 100 million tonnes of new iron ore supply will hit the market.

According to Fitch ratings, more than 145 million tonnes will be added to current supply levels over the next two years, with Gina Rinehart’s Roy Hill iron ore mine getting closer to export as ships near its port.

These figures from Fitch are an additional 10 per cent on existing levels, and solidifies the likelihood of the iron ore markets lack of recovery in the near term.

“The closure of high-cost iron ore mines has been slower than we previously anticipated, despite the sharp fall in iron ore prices since 2014,” Fitch said in its report.

“Global demand, led by China, has also been weaker than we previously anticipated, and is likely to remain muted through 2016.”

Mining investment in Australia is set to decline sharply over the next three years, resulting in 20,000 job losses.

A new report by BIS Shrapnel – Mining in Australia 2015 to 2030 – predicts the current state of contraction to continue in mining, falling a further 58 per cent over the next three years.

Despite this grim outlook for investment, and the corresponding effect on junior miners and explorers, mining production is actually expected to increase six per cent annually over the next five years, in turn driving an increase in operational activities and export volumes.

“We haven’t hit bottom yet on commodity prices or investment, which will continue to be a key drag on Australian economic growth from here,” Adrian Hart, BIS Shrapnel Infrastructure and Mining Unit senior manager, said.

“While mining production will continue to rise strongly, led by new LNG exports, the facts are that this growth will be far less employment intensive than the investment phase, albeit offering contractor opportunities for maintenance and facilities management.

“Indeed, we are forecasting a further 20,000 job losses in the mining industry over the next three years, on top of the 40,000 direct job losses since the investment peak.”

Previously speaking to Australian Mining, Hart explained the current state – and future – commodities in Australia.

“We’re near the trough for coal, iron ore, and base metals,” Hart, told Australian Mining.

“Coal is still likely to see another 12 to 18 months before stabilisation, but when it comes to oil and gas there is still a way to fall, and it will damage the [Australian] economy for years,” he said.

“The investment downturn will continue in oil and gas, and will hurt the Northern Territory and Western Australia.

“It reached a peak of $40 billion, and is slated to fall to $16 billion at the trough, and we aren’t yet near that point.”

The BIS report aligns with a study by Newport Consulting that found investment is at an all-time low but is showing some very early signs of ‘green shoots in a cold market’.

Built from interviews with 50 mining executives, Newport suggested there was a “slight revival” in attitudes towards the state of the market.

Of those interviewed, 16 per cent of mining leaders said they were cautiously optimistic about growth prospects in the next 12 months, and leaders who showed no signs of optimism fell from 93 to 84 per cent.

Regardless of these minor improvements on the impoverished sentiment of the last three years, capital expenditure continues to plunge, as the number of leaders reporting a reduction in capex jumped from 44 per cent up to “an overwhelming” 78 per cent, which Newport said was the most pronounced capex reduction seen in five years of reporting.

According to one president of a $34 billion company: “No Capex is being approved. As a new business we are seeking to reduce our back office costs. We will become lean and mean while supporting essential Capex spend in production.”

Four out of five mining leaders are planning workforce reduction, in line with BIS Shrapnel’s findings, and up 50 per cent on last year’s retrenchment intent, while none indicated plans increase boots on the ground or administrative and managerial roles.

For junior miners and explorers this dearth of investment may spell doom.

Access to capital, investment, and funding are the number one concerns for junior miners and explorers according to the annual junior mining and exploration (JUMEX) companies report.

“This has been the number one constraint for the past three years,” Association of Mining and Exploration Companies (AMEC) CEO Simon Bennison explained.

According to a recent report by SNL Metals, there has been a 50 per cent drop in the number of financings by companies with annual revenue of less than US$500 million; this represented the lowest number of financings by exploration companies since at least January 2012.

“Things appear most dire in Australia, which attracted 15 per cent of total financings in 2013-2014 but has fallen to only 5 per cent of 2015 financings to date,” SNL stated.

When it comes to actual cash on hand, the situation is grimmer still.

Approximately 30 per cent of Australian juniors have less than $500,000 in capital while close to 10 per cent have less than $100,000.

“With half of our respondents planning a fund raising within six months and 29 per cent having a cash balance of less than $500,000 competition for capital remains extremely fierce and unfortunately there appear to be few positive signs of any improvement in investor interest in the short term,” Grant Thornton’s JUMEX report said.

However the BIS Shrapnel report was not completely pessimistic about the state of mining.

It predicted that the growth in production, as the industry shifts from the investment heavy construction phase into a new era of output, and the growth in maintenance operations aligned with this development, will expand over the next five years.

“Overall, BIS Shrapnel estimates the mining industry represents around 20 per cent of the national economy, given strong growth in production and related services combined with a (falling) level of investment,” BIS stated.

“In terms of production alone, the mining industry represents nine per cent of the national economy.”

“A significant volume of capital that has been injected into the mining industry is still to fully translate into expanded mine production,” BIS Shrapnel economist and report author, Rubhen Jeya said.

“The value of mining production has grown at an annual average rate of 7.1 per cent over the past five years – and there is more growth to come. Mining production is forecast to expand by over one third again over the next five years – around double the pace of the national economy – taking the value of industry output to $186 billion in Gross Value Added terms (GVA) by 2019/20.”

However the continuing oversupply affecting the market coupled with a slowdown in Chinese demand and expected growth in Indian demand not materialising is continuing to choke the market.

Eventually, the current strike in investment will eradicate the oversupply and allow stabilisation and recovery in commodity prices, but this is not expected until towards the end of the decade,” Jeya said.

“Even at sub-seven per cent per annum economic growth, China is still adding the equivalent of another Australia each year to the value of its economy; as China continues to shift its engine of growth from investment to consumption, we will eventually see a staggered recovery across most metals and minerals, particularly those which will service the growth in middle class consumer demand, such as copper, gold, and base metals.”

A $US1.9 billion ($2.64 billion) bauxite mining project has been approved by Rio Tinto in Queensland. Called Amrun, the site will initially produce 22.8 million tonnes per annum of the mineral ore used to produce alumina and aluminium.

The site, located 40km south of Weipa near the top of Queensland, will include construction of a mine, processing infrastructure, a power station, storage as well as a new port containing barge, ferry and ship loading facilities.

Production can potentially be ramped up to 50 million tonnes per annum: Rio Tinto envisions the site as replacing production from the depleting East Weipa mine. On opening, it will increase overall bauxite exports from Queensland’s Cape York by about 10 million tonnes per annum.

Rio Tinto chief executive Sam Walsh called it a tier one asset that would deliver significant benefits to the company’s stakeholders.
“This long-life, low-cost, expandable asset offers a wide variety of development options and pathways over the coming decades,” explained Walsh. “We are establishing Cape York bauxite as the product of choice for the Chinese seaborne market with consistent quality, security of supply and strong technical marketing support. Amrun will be significant in helping to meet growing bauxite demand from China.”
Queensland Premier Annastacia Palaszczuk said the site would support the ongoing employment of 1400 people in Weipa as well as the 2000 or so people at bauxite refineries in Gladstone. During construction, the site would employ an average workforce of 600 people over three years.

Site establishment works are expected to start in December. The first shipment of bauxite is scheduled for 2019.

Cadia mine’s 1 SAG mill is back in operation following a breakdown earlier this year.

The mill broke down in late October, raising some concerns as the 1 SAG mill processes more than two thirds of all throughput at the mine.

According to Newcrest the issue has now been rectified.

“Following repairs and a period of operational testing, Concentrator 1 SAG mill at Cadia is now operating at full capacity,” Newcrest said in a company statement.

This is well ahead of the December target some in the market put forward for eventual repair.

“Engineers have determined that he mill motor will eventually require a full rewind,” Newcrest added.

“The timing of the rewind will be subject to the availability of long lead time parts and will be incorporated into the maintenance schedule when it is considered convenient or appropriate to do so,” it said.

“Installation of the conveyor to bypass the mill, transporting ore from the high pressure grinding rolls to the ball mill circuit, remains on schedule to be completed in early December 2015; this will provide future operating flexibility.”

The stockpiles of ore generated during the mill’s downtime over the last five weeks will reportedly be processed by the end of the current financial year, meaning Cadia’s cost, capital, and production guidance is unlikely to be significantly changed.

Newcrest Mining Ltd Quarterly Report

Mining companies across the world face challenging market conditions including price volatility, rising costs, and a lack of financing.

According to the Australian Government’s recent Resources and Energy Quarterly, a combination of weak growth in consumption and strong supply growth placed considerable downward pressure on commodity prices in the first eight months of 2015.

The downturn in commodity prices has pushed many companies to implement cost cutting programs to remain profitable.

Now more than ever, there is pressure for mining companies to increase value by leveraging new technologies such as the cloud, automation, analytics, artificial intelligence and mobility.

These technologies have created an entirely new ‘As-a-Service’ business model, where the whole is more powerful than the sum of its parts.

This is the ‘Power of AND,’ integrating software, infrastructure AND business processes on demand, providing companies with plug-in, modular, scalable AND consumption-based services.

Adoption of this model is allowing mining companies to receive plug-in, modular, scalable and consumption-based services, which in turn enable more agile, robust and cost-effective business services.

Though the As-a-Service model provides a number of opportunities for larger businesses, it’s largely under-utilised, according to a recent study from Accenture and HfS Research.

Results from a survey of more than 700 enterprise service buyers, advisors and service provider executives revealed that all Asia Pacific enterprises surveyed saw the As-a-Service economy as significant for their organisation, with 23 per cent saying it is critical.

Despite this, only 8 per cent believe their core enterprise processes are currently delivered As-a-Service, and almost half (46 per cent) do not expect their core operations to be delivered via the As-a-Service model for at least another five years.

The research suggests that small and medium sized enterprises are more likely to adopt this model, meaning larger companies may be at risk if they do not look to move away from older models to keep up with evolving business practices.

Rio Tinto is one example of a large mining company adopting an As-a-Service business model solution.

Moving to a new information systems and technology delivery model, Rio Tinto is merging core enterprise information systems and technology to a cloud-based, As-a-Service solution.

The program will include the modernisation of the company’s existing enterprise resource planning and information management platforms, and consolidate and host these applications on the cloud.

Due to the increased business agility – in addition to the cost flexibility and lower infrastructure prices that are inherent in cloud services – Rio Tinto expects to find substantial cost savings with the adoption of the new model.

Costs are also flexible due to the pay-for-use pricing, and services are scalable based on business demand.

Rio Tinto’s move to the modern business model demonstrates the ways in which mining companies drive innovation and value from an As-a-Service model.

Modular designs allow mining enterprises to mobilise and demobilise their services rapidly as necessary, to choose the service levels and create variable cost models inside their own business. By using this approach, mining enterprises can ‘plug in’ to access services quickly in a matter of weeks or even days.

The model is also scalable, so companies can ramp up and down their activities to match actual business volume needs.

Overall cost reduction is another major benefit – for a significantly lower total cost of ownership, buyers can access up to date software platforms, rather than implementing them from scratch. In addition, with this model companies only need to pay for what they actually use, rather than having to commit to functionality and capabilities they may not ever need.

The model operates on a basis whereby both buyer and provider make the commitment to achieve specific business outcomes.

The vendor agnostic nature of the As-a-Service model is another useful feature for many companies.

They benefit from the knowledge and experience of a number of IT providers, and assemble a combination of solutions that work to achieve the desired business and performance outcomes.

The competition ensures providers are committed to innovations in business processes, which protects the buyer from potential problems stemming from upgrades and change.

Procurement is a business process that can benefit immensely from an As-a-Service delivery model. A recent Australian report from Mining IQ identified procurement as a critical area for mining companies to optimise costs in order to survive in the volatile market.

The respondents in the survey ranked the automation and standardisation of procurement processes to improve efficiency as the number one priority for mining procurement activities in 2015. Despite this, only 38.5 per cent of respondents were found to have automated functions in their supplier and purchasing processes, while 34 per cent of respondents indicated automation of procurement processes was not even on their radar for the near future.

The banking and finance industry is an example of a sector achieving greater efficiency and value in procurement through the As-a-Service model.

For example, Deutsche Bank is undergoing a procurement transformation, automating its source-to-pay process, including invoice processing and contract compliance management and migrating the bank’s current on-premise procurement IT platform to an on-demand, cloud based solution.

This update has helped Deutsche Bank demonstrate a 15 per cent savings in both procurement operations and operational IT costs.

As a result, the bank has seen improved cost control, faster procurement processing and a streamlined transaction process. Mining companies could achieve similar value in their procurement process by applying the As-a-Service approach.

Adopting the As-a-Service model is not always an easy task for large companies.

Learning how to buy services piece by piece, creating awareness in the organisation about changes to the overall strategy and addressing talent gaps in areas like analytics and automation are challenges faced by many organisations.

Whilst the As-a-Service model will require strong leadership it is what is needed to drive future cost savings, increase productivity and achieve world class operations. The challenge for miners is when, not if.

*Nigel Court is Accenture’s Asia Pacific Mining Lead.

Hexagon Mining has been contracted to supply its MineSight mine planning software to three European customers.
Hexagon Mining’s London office has won contracts with Turkish companies Alacer Gold and Polimetal Mining, and Ellatzite Med of Bulgaria, who will be using MineSight software for their mine planning needs. All three companies chose Hexagon Mining for its proven technology and customer service.
Baris Cakir, Chief Planning Engineer at Polimetal Mining in Ankara, Turkey said Hexagon Mining’s strong planning tools and very flexible MineSight Implicit Modeler were key reasons behind their decision to choose the software. He added that Hexagon Mining also delivered high quality customer service including using Turkish speakers and providing excellent technical support.
MineSight software is used widely in Europe, especially in Turkey and not only in the country’s mines. Istanbul University has adopted MineSight for mining courses while interest in MineSight-related studies has been so high at Osmangazi University in the northwest Turkish province of Eskişehir that new courses have been added and more licenses dispatched. Dr Mahmut Yavuz and Dr Mehmet Aksoy use MineSight in the school’s undergraduate elective course, Computer Applications in Mining, which covers open pit mine design.
The popularity of the course prompted Osmangazi to introduce a second course for computerised underground mine design. According to Dr Yavuz, MineSight is the best software in the mining industry to design underground and open pit projects.

An equipment supplier recently opened its new headquarters to the quarrying industry to celebrate its 25th anniversary and the launch of several new partnerships.
More than 200 people attended the OPS Group open day event, which was held from 5 to 7 November at the company’s new Jandakot headquarters in Perth, Western Australia.

OPS general manager Craig Lorimer explained that the company had opted to move to the new facility to consolidate its presence in Perth. OPS formerly had three locations in the Kewdale area.

”OPS Group is now operating from one premises,” Lorimer said. “This allows us to streamline our operations so we can be more cost-effective to our clients and, with recent partner agreements, offer a wider range of solutions to our customers.”

As previously reported by Quarry, one of these agreements involved the distribution of Terex Environmental Equipment (TEE) and Kiverco Recycling Plant’s products through the company’s new division OPS Environmental Equipment, which was unveiled at the open day event.

Commenting on the launch, OPS group sales manager Kieran Hawkes said, “We received particularly good feedback [from attendees] on the new environmental equipment division because it really covers two ranges: it includes TEE, which offers a lot of processing – especially screening – products, as well as the Kiverco range of recycling equipment.”

During the event, the company announced an additional distribution partnership with Osborn, a South African-based company that manufactures crushing and screening plant. OPS previously only supplied mobile equipment, and Hawkes said the addition of Osborn to the company’s portfolio meant it could now offer modular and static equipment to its quarrying customers as well.

“As the product is manufactured in South Africa, its suits the Australian market very well because it’s very robust and has to work in similar conditions,” Hawkes stated, adding that the entire comprehensive range of equipment from Osborn would be available under OPS’s mineral processing banner.

Beyond the new developments, the supplier’s existing brand partners were also well represented, with the new Terex Finlay C-1545 tracked cone crusher positioned as the centrepiece of the event’s static display.

OPS was established in 1989 and distributes OEM equipment to the quarrying, mining, construction, earthmoving, recycling, materials handling and materials processing industries nationally from its facilities in Perth, Darwin and Adelaide.

Tropicana is looking to the coal sector for an innovative approach to extend its mine life, in a joint venture with owners AngloGold Ashanti and Independence Group to use “strip mining” principles in open-pit coal mining.

If the concept proved feasible, Tropicana’s two main pits, and other satellite pits could be turned into a singular pit that would rival the size of the Super Pit in Kalgoorlie.

AngloGold Ashanti Australia senior vice president Mike Erickson says the success of the project depends on whether there is enough gold between the two pits to justify linking them up.

“In my mind it is like the Golden Mile [in Kalgoorlie] with the consolidation of all those ore bodies that were owned by different parties,” Erickson said.

“I think it is very much a defining moment [for Tropicana]. You would then be cementing a 20-year mine life, a major centre and it would be very significant. It is a massive step change.”

The study would also seek to determine whether mining costs could be lowered enough to make it feasible and what engineering and equipment would be required, with completion expected by the end of 2016.

Tropicana produced 118,204 ounces in the September quarter at an all-in sustaining cost of $US674 an ounce and was one of the key international operations credited for adding lower-cost ounces to the company’s production base.

At the end of September, AngloGold’s net debt was $2.3 billion compared to $3 billion at June 30 after it used funds from the sale of its Cripple Creek & Victor mine in Colorado to repurchase high-yield bonds.

AngloGold abandoned plans for a $2.5 billion demerger last September after investors fought the move.

Famed Australian economist Saul Eslake has voiced his scepticism about the possibility of another mining boom, saying there may never be another like the last.

Speaking at the International Mining and Resources Conference in Melbourne yesterday, Eslake said the downturn in commodity prices had probably not yet reached the bottom of the trough, SMH reported.

With the last boom tied the economic boom in China, Eslake told the mining business community that there was little prospect of that being repeated in the future, and that despite growth in other nations, none could match the impact of population growth in China.

“The countries that are still to develop are much smaller than China and India are, they are not, in most cases, starting from as far back on the development curve as China was in 1979 or India was in 1991, and most of them are much more self-sufficient in commodities than China or India ever were,” he said.

“So it could well be, in my view, that the commodities boom Australia has just experienced in the last 12 or so years is the last of its kind in human history unless unforeseen technological developments ordain otherwise.”

Eslake predicted that iron ore and coal would continue to experience further downside for the next one to two years.

“In the case of iron ore and coal in particular I don’t think we have seen the bottom of prices yet even though there may be some basis for being a bit more optimistic about the outlook for base metal prices,” he said.

“In the case of coal Australia is not necessarily in the most favourable position in international cost curves, and maintaining Australia’s competitive position in coal and in other energy commodities, LNG among others, will be a major challenge for the boards and managements of Australian companies this year and for the forseeable future.”

Phil Arnall, the new chairman of mining services firm Bradken, recently predicted the mining sector downturn was likely to last until 2018, with the company basing all planning on that outcome.

Bradken shares hit a record low on Tuesday, dropping 4.2 per cent to 91c at close of trade; 12 months ago Bradken was trading at $3.85.