Category: Mines and Quarry

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Anglo American’s Callide and Dartbrook coal mines are for sale as the miner announces a massive transformation that will see it shed 35 per cent of its workforce.

Chief of Anglo’s coal business Seamus French said the assets are “available for sale now,” in an investor presentation.

The company is also reviewing its coal operations in South Africa as part of the shakeup.

It comes as Anglo announced it would further reduce capital expenditure by $US500-800 million in 2014 and by up to $US1 billion in 2015 to $US5.2-5.5 billion.

By 2017 Anglo is targeting productivity to improve by 80%, with 35% fewer people, through growth and restructuring.

Chief executive of Anglo Mark Cutifani said the company had delivered on major commitments to shareholders.

The company said 71% of Anglo’s priority assets are now performing above plan versus just 21% in 2012.

It also said its coal unit costs in Australia had been cut by 21%, with longwall productivity up 120%.

2014 production guidance increased further for iron ore, met coal, thermal coal, copper and nickel, to enhance margins, Anglo said.

However Cutifani said further changes need to be made.

“We must be disciplined with our deployment of physical and financial resources to focus on those assets that will provide us with the greatest returns and potential upside,” he told investors.

“We are committed to maintaining a robust capital structure which balances long term business value growth with sustainable capital returns to shareholders.”

Anglo said due to falling commodity prices it will have to find an extra $US2 billion, on top of an earlier planned $US4 billion, to reach its 15% return on capital employed target for 2016.

“There is certainly no doubt that we don’t want to pull any punches,” Cutifani said.

“Prices are what they are. Our job is to adapt and continue to improve.

“We’re already outlining improvement programs two or three times more aggressive than our competitors. We’ve got to deliver what we said we’d do by 2016. That would mean 7 to 8% better than we were when we started.”

Anglo said its net debt is expected to peak in 2015 to between $US13.5 – 14 billion and said its dividend is expected to be funded by cashflow from 2016 onwards.

“Our revised operating model is delivering strong results and we are building on those foundations to complete the next phase of the transformation process in line with the strategic objectives for 2015,” Cutifani said.

South32 is the name BHP Billiton has chosen to call its new company.

Under demerger plans, BHP will create a new company that will take its aluminium, manganese, nickel and silver assets.

The majority of South32’s assets are located in the southern hemisphere in Australia and South Africa which are linked by the thirty-second parallel south line of latitude.

The company’s new logo has also been revealed.

Graham Kerr, CEO elect of South32, said the naming was a “major step” for the company.

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

“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’s head office will be located in Perth and the company is expected to inherit 25,000 employees.

The company will have a primary listing on the Australian Securities Exchange, a secondary listing on the Johannesburg Stock Exchange and a standard listing in London.

BHP shareholders will vote on the demerger plans in May

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Overall Forge is a major supplier to the Australasian and South East Asian mining and quarrying industries, retaining a continuing high profile in the world wide gas and oil exploration industry, as well as supplying componentry to the defence, electricity generating and a variety of other industries. For details, please view the website.

The mining industry has experienced a dire 12 months.

There have been mass layoffs, write downs, and projects being stalled or delayed, whilst exploration has basically come to a standstill.

From the Global Financial Crisis, which seemed to act as the ignition point for this apparently unstoppable boom, commodity prices continually tracked an upwards trajectory, and would do so for a number of years.

For all of the major metals, such as iron ore and gold, there have been huge falls recorded off the back of historically high prices.

Prior to 2014 new ceilings were broken in both these metals, which combined with a skyrocketing coal prices since 2008, essentially created the mining boom bubble, buoying up Australia’s economy as it rode on the back of unbridled growth in China.

These good times – commodity price-wise – occurred as the industry was in its massive development stage, moving their deposits from exploration projects and through feasibility into a construction stage which was an investment and new capital equipment heavy period.

It was a golden age for the industry: one that came to a screeching halt in 2012.

Prices fell, quickly and surely.

Whilst iron ore held out and rescinded slowly, gold tumbled from its high point of almost US$1800 per troy ounce to just short of US$1100 per oz.

Coal, on the other hand, fell off a financial cliff, as thermal coal began its spike in August 2010 from US$ 96.19 to US$ 141.94 in the space of six months after which it just began a constant downwards movement.

Coking coal has also suffered, with ANZ’s head of Australian economics – corporate and commercial, Justin Fabo, stating that the sector “looks oversold” with the market awash with oversupply pushing prices to multi-years lows.

In terms of all coal mining “major producers are showing no sign of supply discipline and demand growth is either waning of under pressure from alternative supply,” Fabo said.

This was echoed by the Bureau of Resources and Energy Economics, which said global commodity supply had grown significantly over recent years, placing pressure on prices in the medium term.

It said producers will need to continue to focus on managing costs and improving their competitiveness in order to survive downturn in price cycles.

“We believe the situation is unlikely to improve in the near to medium term,” Fabo added.

However despite it all there is still optimism for the next financial year.

According to IBISWorld, while the end of 2014 and the start of 2015 will see an overall decline of 1.1 per cent in Australian mining revenues to approximately $232 billion, the 2015/16 financial year is pegged to quickly ratchet up, growing 7.1 per cent, with expectations for this upwards trend to continue into the following financial year with 2016/17 predicted to record an 8.4 per cent increase in revenues as recovery continues.

Fabo added that commodity markets have already entered the second half of 2014 on a mildly positive note, “but it’s likely to be a far more gradual recovery than in the past as it will be tempered by lower liquidity and stronger US dollar as the US Federal Reserve edges closer to raising interest rates”.

“At the same time, the lack of sustainable uplift in commodity prices on the back of increasing geopolitical risks around the world suggest the market is dismissive of their impact on commodity markets.

“But this view looks a bit too complacent and overall we see the risks skewed modestly to the upside for commodity prices in general.”

IBISWorld’s reports into the next few years have outlined how “growing output is forecast to support division growth in the next five years, which is forecast at a compound annual rate of 4.2 per cent, to reach $285.4 billion in 2019/20”.

BREE expects Australian economic growth to moderate to 2.5 per cent in 2014/15, from 3.1 per cent last financial year.

It said mining was the key con-tributor to Australia’s economic growth in 2013-14.

“Capital expenditure, par­ticularly in resources and energy projects, has been a key contributor to Australia’s economic growth over the past several years. As these projects are completed and Australia transitions to a period of higher commodity production, exports of resources and energy commodities and sustained high levels of residential construction activity will be the key drivers of GDP growth over the medium term.”

Overall, there is a positive trend expected.

In the following pages we break down how the commodities have tracked, and how analysts are laying out their future movement, metal by metal.

Because as Grant Thornton stated in its recent JUMEX report “not all commodity markets are the same, despite the uncertain global backdrop”.

“So; while the overarching global factors are certainly very important for each commodity market, each market often has its own bespoke factors that can influence actual and expected prices.

“A key lesson from recent years, however, has been that some of these factors can be anticipated but some cannot: Factoring in the potential for unexpected development is vital,” Grant Thornton said.

Read on to find out what lies ahead for our metals market.

The Iron Ore Outlook

The Copper Outlook

The Gold Outlook

The Silver, Lead, Zinc Outlook

The Nickel Outlook

Sedgman has won the EPC contract for Groote Eylandt Mining’s (GEMCO) manganese mine expansion.

The $133 million contract will see Sedgman provide the design, supply, fabrication, construction, and commissioning of a sands benefication plant, port stockpile expansion, and associated infrastructure at the site.

The work will increase the facility’s capacity by 500 000 tonnes per annum by re-processing manganese ore stored in tailings stockpiles.

Sedgman CEO Peter Watson said the contract was directly negotiated with GEMCO after a period of close collaboration over the last two years.

“Our involvement in this project commenced at the early feasibility study stage and we are excited that we have been chose to delivery the project,” he said.

“This is another example of the strength of our ‘Create and Build’ model as we were able to develop a strong relationship with and demonstrate value to GEMCO from concept through to execution.

“The sands benefication plant utilises process technologies that we have proven in other commodities and we have been able to leverage this experience together we our track record of project delivery in remote locations.

“It also marks another important milestone in our diversification strategy, with over 50% of our current order book in commodities other than our traditional coal market.”

This latest win comes only two days Sedgman was awarded the $59.8 million EPC contract for Alcoa’s Kwinana filtration plant.

The GEMCO operation was previously part of BHP, but will be spun out into the as yet unnamed company, which will also contain BHP’s Illawarra Coal assets, TEMCO, the Cannington mine, and the alumina refinery at Worsely.

The copper price has fallen to a new four year low.

Last week the metal recorded a steady slump on the back of strikes and weak oil prices, according to Bloomberg.

It joined other metals in a slump downwards on Friday, with iron ore dropping below US$70 per tonne and new forecasts pinning a potential US$50 per tonne price low on the ferrous metal.

In New York on the Comex copper tumbled from the US$3 per pound mark it has sat around to US$2.85 per pound, the lowest point since mid-2010.

It fell six per cent in a single week, which is the largest decline since December 2011.

It is little surprise the metal is seeing poor performance, with investment in mining at 10 year lows and massive strikes at copper mines in Peru harming perception of the industry.

The forecast for the metal in the coming years is unlikely to be brighter.

According to IBISWorld re-search “industry revenue is forecast to grow at an annualised rate of 1.5 per cent over the next five years to US$7.1 billion in 2019/20”.

“This reflects the combination of higher output levels, a weaker Australian dollar and higher US dollar prices.

“If the Australian dollar de-preciates against the US dollar, export demand increases and contracts will earn domestic players more revenue.”

Speaking to BNP Paribas managing director energy and natural resources – investment banking Asia Pacific, David McCombe, he explained in the short term “copper will be coming off over 2015 through to 2017, but it will be moving up again to the back end of 2017.”

Much of this is due to the “current imbalance because of higher supply, as there is around 23 million tonnes of supply but only about 22 million tonnes of demand”.

“This will not be a massive move down, but this oversupply will hurt for some time.”

ANZ head of economics corporate and commercial, Justin Fabo, added that “copper looks vulnerable enough to slip back through the US$7000 per tonne mark as we approach the normally quiet northern hemisphere summer”.

“Operating rates at copper tube and pipe fabricators fell below 80 per cent mid-year, an indication that end-user demand is weak; we would be positioned for some further downside in the short-term.”

Nickel and lead also saw a slump.

An analyst out of China has warned the price of iron ore could fall to lows of $US50 a tonne.

Shanghai Jianfeng vice-president Liang Ruian said oversupply coupled with a slowing property market in China could mean the price rout lasts for 10 years.

Speaking to The Australian Liang said the stagnate state of the Chinese real estate market would have a devastating effect on the steel industry.

“The inventory of housing is up to a couple of years, while in China the rapid development of the e-commerce market is having a big impact on the sales and rents for the commercial real estate market. I think the golden ten years that we have had in the real estate market in China is over,” Liang said.

“The crash of the real estate market means the crash of the steel market.”

The comments come as new figures reveal steel consumption in China has fallen by 0.3 per cent, the first decline in 14 years.

It was also revealed that there is 108.4 million tonnes of iron ore stockpiled at Chinese ports.

Last week, Li Xingchuang, president of theChina Metallurgical Industry Planning Association, said steel production would peak at 740 million tonnes in 2017.

The world’s biggest miners, BHP Billiton and Rio Tinto have said Chinese steel production will peak at 1 billion tonnes by 2030.

“I really don’t understand how the big mining companies made that forecast,” said Xingchuang at a steel conference in Shanghai.

As major miners including Rio, BHP and Vale continue with expansion plans that will introduce even more supply into the iron ore market, analysts say a further crash in prices in inevitable.

Expansions will add around 94 million tonnes of new supply from 2015, 75 million tonnes in 2016, and 81 million tonnes in 2017.

GR Engineering has won MZI Resources Keysbrook Mineral Sands mine upgrade and processing contract.
The contract, valued at approximately $54.6 million, will see GR provide engineering, procurement, and construction services for the Keysbrook mine, and upgrade works to the existing mineral sands separation plant owned by Doray Mineral Sands.
GR was first awarded preferred contractor status last year, and since that time have carried out early engineering activities on site.
Speaking on the contract, MZI Resources CEO Trevor Matthews said: “We have a good relationship with GR Engineering and their appointment reflects the confidence we have in their ability to construct the project.”
“Signing the construction contract is one of the final activities prior to start project development and we look forward to commencing soon,” he added.