Home > Mining Week > Mining Week 15/’12: Coal in Mongolia, no coal in Australia.

Mining Week 15/’12: Coal in Mongolia, no coal in Australia.

April 9, 2012

Top Stories of the Week:

  • Chalco bids for Mongolian coal miner
    • Chalco (holding company = Chinalco) made a tentative $930mln offer for 57.4% ownership of SouthGobi Resources, a Canadian listed company, currently owned by Ivanhoe resources.
    • Sources: Financial Times; Wall Street Journal
  • Coal production issues in Australia
    • BMA, the coal JV between Mitsubishi and BHP Billiton in Queensland, declared force majeure after a week long strike in some of its mines. The labor conflict has been going on for almost a year, with workers campaigning for better contract rights for contracted workers and to retain the union’s power in recruiting decisions.
    • Sources: Financial Times
  • Alcoa again cuts production
    • Alcoa, the largest aluminium producer in North America, announced it would cut alumina production by 2% to support prices.
    • At the start of the year Alcoa cut aluminum production, at that time by 12% and mainly in the USA. The 2% alumina cut is said to be aligned with this 12% ‘final product’ cut.
    • Sources: Wall Street Journal; Financial Times; Alcoa press release

Trends & Implications:

  • The potential Chalco – SouthGobi deal appears to be engineered by or via Rio Tinto. Chinalco owns a significant stake of Rio Tinto, which became the majority shareholder of Ivanhoe recently with the key objective of quickly developing the Oyu Tolgoi gold-copper mine (also in Mongolia).
  • Despite a general demand boom which has not passed aluminum many major aluminum producers are posting losses. Profit margins over the past 10 years average below 10%. The key reason for this situation is an overcapacity resulting in oversupply and high inventory levels. Aluminium is currently one of the very few mined natural resources that could be seen as a ‘demand-driven’ market rather than a ‘supply-driven’ market for price setting. However, as more and more producers cut investment, the demand growth fundamentals should invert this situation in the next couple of years.

Alcoa's long term demand outlook as presented end of 2011

©2012 | Wilfred Visser | thebusinessofmining.com

Advertisements