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Mining Week 48/’11: Change in Brazil & Tax in Australia

November 27, 2011 Comments off

Top Stories of the Week:

  • Australia’s Mineral Resource Rent Tax approved by lower house
    • The new 30% tax on profits above A$75mln for coal and iron ore projects has been approved by the lower house and is now only to be approved by the senate. The tax has been debated for approx. 2 years. Initially proposed by Kevin Rudd, the former premier, the regime has been tuned down and now includes arrangements to stimulate and protect investments.
    • Sources: Wall Street Journal; Financial Times; Australian Treasury MRRT explanation
  • Vale appoints new CFO: Tito Martins
    • Tito Martins, Vale’s head of base metals, has been appointed as the new CFO of the company. Several executive management positions changed in the first major move of the new CEO to strengthen control. Mr. Martins was involved in the acquisition of Inco, which turned into Vale’s base metals division which was led by Mr. Ferreira.
    • The change of top management of Vale was started by appointing Murilo Ferreira CEO in the place of Roger Agnelli after the presidential elections in Brazil. One of the reasons of conflict between government and Vale was the building of a fleet of iron ore carriers in Asia rather than domestically. This fleet was in the news this week as Chinese ports are refusing to host them, trying to protect the interest of incumbent shipping lines.
    • Sources: Vale’s press release; Financial Times
  • Rio Tinto bids for uranium explorer

Trends & Implications:

  • The changes at Vale should prepare the company for further changes to the business environment for the major iron ore producers. The introduction of the MRRT mainly hits Rio Tinto and BHP Billiton, but all three majors are figuring out how to react to increasing uncertainty about demand. Asian steel producers are pushing for adaptations to the recently changed pricing mechanisms, moving the pricing system to shorter term contracts. At the same time various Asian players are starting to buy iron ore assets in the price range of hundreds of millions to several billions of dollars; threatening the dominance of incumbents.
  • Rio Tinto is trying to buy into uranium at a moment where industry shares are depressed because of the nuclear disaster in Japan last year. The bid for Hathor signals Rio’s management still believes in the potential of the industry. The company says it accounts for 16% of the world’s uranium production from mines in Australia and Namibia.

©2011 | Wilfred Visser | thebusinessofmining.com

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Uranium Miner Expects Profit Hit

October 14, 2010 Comments off

“Energy Resources of Australia Ltd., the uranium arm of mining giant Rio Tinto, on Wednesday downgraded its annual production guidance for the second time this year, and said a strong Australian dollar is hurting its bottom line.

The production shortfall means ERA will have to cover some supply requirements with purchases, further eroding its earnings.

ERA owns Ranger, a major mine that provided 9% of the world’s uranium oxide last year. The company, 68%-owned by Rio Tinto, said the fall in output was caused by disappointing ore grades. Without expansions, Ranger’s ore body is due to run out by 2012. “

Source: Wall Street Journal, October 13 2010

Observations:

  • Energy Resources of Australia also owns the undeveloped Jabiluka Deposit, close to the Ranger mine. However, development of this deposit is subject to the cooperation of indigenous people.
  • Rio Tinto is planning to increase its presence in uranium production through the Kintyre development (operated by Cameco) and Rössing Uranium mine in Namibia. BHP Billiton is the only competitor active in uranium production through the Olympic Dam mine.

Implications:

  • According to the World Nuclear Association, Australia accounted for 16% of global uranium production in 2009. Ceasing of operations at Ranger would more than half this share.
  • The global demand for uranium is likely to increase rapidly as safer small-scale nuclear power generation facilities become mainstream. Given the location of current reserves, Australia will be one of the major producers that will be able to facilitate increases of supplies. The Olympic dam reserves in Southern Australia are the world’s largest reserves.

©2010 | Wilfred Visser | thebusinessofmining.com

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