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Posts Tagged ‘export’

ICMM: Trends in the Industry

October 21, 2012 Comments off

The International Council on Mining and Metals (ICMM) published 2 new reports this week:

Trends in the Mining and Metals Industry

This 16-summary of where the industry is coming from and where it is going mainly gives an interesting perspective on geographic developments in the mining industry. The report shows how center of mining activity has shifted from Europe, via the US, to the BRIC countries and new frontiers. At the same time the report illustrates how a large part of processing capacity still is located in the developed world, though China’s processing surge is instrumental in changing this situation.

The report in summary:

  • Center of mining is shifting to new frontiers, including BRIC countries;
  • Iron ore, gold, and copper continue to account for roughly two-thirds of value of global mined metals;
  • Large companies are responsible for an increasing share of global production;
  • With lower average ore grades, bulk open-pit mining is more and more the mining method of choice;
  • Human resource challenges are becoming restrictive;
  • China-led nationalized mining is leading to a global increased in state participation in mining companies.

The role of mining in National Economies

This report presents a Mineral Contribution Index (MCI), ranking countries’ dependency on the mineral industry. The index includes:

  • The percentage contribution of the mineral industry to export value;
  • The change in this contribution over a 5 year period;
  • The mineral production value as percentage of GDP.

The top 25 countries according to the ranking with their respective scores are displayed below.

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Indonesia’s Indika to Expand Coal-Mining Capacity

June 15, 2011 Comments off

“Coal miner PT Indika Energy will expand capacity at least 25% in the next three years to meet the growing demand for fuel in expanding Asian economies, the company’s chief executive said. Indika plans to boost the capacity of the mines it controls through PT Kideco Jaya Angung to 50 million metric tons in the next two to three years from 40 million tons, said Arsjad Rasjid, Indika’s CEO and president director. The company hopes to lift capacity at least in part through acquisition.

The Jakarta-based company, which had revenue of around $440 million last year, is seeking to keep up with rising demand for thermal coal to fuel the power plants of India, China and in Indonesia. Indika is Indonesia’s third-largest coal miner, behind PT Adaro Energy and PT Bumi Resources.”

Source: Wall Street Journal, June 14 2011

Observations:

  • Indonesia is located close to China and India, both of which depend on thermal coal imports. At the same time the economic development in Indonesia (with over 240 million inhabitants) is driving the domestic demand. As a result the coal mining sector in the country is recently getting strong international attention.
  • The Indonesian coal mining industry was strongly reshuffled last year after Vallar combined the assets of domestic champions Bakrie and Bumi. Part of the this deal, which results in a FTSE-listed Bumi plc., is executed this week by Vallar issuing convertible bonds to Bumi resources.
  • Coal India is also looking to invest in Indonesian coal mines, using part of the funds raised through last year’s IPO, which had the company enter the global mining top 10 in terms of market capitalization.

Implications:

  • Indonesian coal reserves are rather small compared to Chinese and Indian reserves. With the strong rise of domestic demand it is foreseen that Indonesian exports are not going to be much higher than current levels. However, as most of the reserves are located on the island Kalimantan and demand is mainly on Java and Sumatra export facilities will be built anyway, linking the Indonesian market to the global seaborne coal market.
  • Indonesian government is trying to find a balance in regulating production and exports, looking at the conflicting perspectives of energy requirements for own development and income from coal exports. High export tariffs and/or production caps could possibly hurt the international investors.

©2011 | Wilfred Visser | thebusinessofmining.com

Rio Tinto signs agreement with Guinean government

April 25, 2011 Comments off

“Rio Tinto’s most troubled mining project appears poised for multibillion-dollar development after the company agreed to pay $700m to the government of Guinea and grant it a 35 per cent stake in its iron ore mine. The deal was reached on Friday ahead of plans by Guinea, a west African country rich in iron ore and bauxite, to review all mining licences as part of its push to secure bigger returns from its mineral wealth.

Vale and other multinational miners active in Guinea now have a precedent for their negotiations with the government. Vale, the Brazilian company that is the biggest iron ore miner, paid $2.5bn for a stake in a Guinean deposit last year. Rio’s deal allows Guinea to move towards a 35 per cent stake in Simandou, the iron ore deposit – located in a remote corner of the country – that is thought to be one of the world’s best untapped lodes of the ore.”

Source: Financial Times, April 23 2011

Observations:

  • Last month Guinea announced a review of mining licenses, including the demand to get minority stakes in all major mining projects in the country.
  • Rio Tinto controls blocks 3 and 4 of the Simandou deposit, with Brazil’s Vale controlling blocks 1 and 2. First shipment of iron ore by Rio Tinto is expected by mid-2015.

Implications:

  • The agreement of Rio Tinto to construct a railway through is a major blow for the government of Liberia, which hoped to convince the miners to export the ore with a shorter route via Liberia. The decision on the export route will further trigger challenging negotiations with Vale about using the same infrastructure to export ore from the area.
  • The 35% government stake can be build up over time, with the final 10% to be bought at market value in 15-20 years time. Tax rate is set at 30% after the first 8 years, with additional 3.5% royalties. The $700mln payment is only made conditional on granting the concession and approving the Rio Tinto / Chalco joint venture. Based on these conditions it appears Guinea intends to be a friendly host to international mining companies in the long term, but requires strict payment and infrastructure development contribution in the short term.

©2011 | Wilfred Visser | thebusinessofmining.com

Guinea: Mining Fight Shows Pressure on Multinationals

January 28, 2011 Comments off

“Alpha Condé, the new president of Guinea, pledges to do what none of his predecessors have: Harness vast iron-ore reserves contained in the Simandou mountain chain to give the West African country one of the continent’s most prosperous economies.

To succeed where others have failed, Mr. Condé is revisiting an existing Simandou mining contract with Anglo-Australian miner Rio Tinto, as well as other pacts signed by his predecessors. Foreign investors, no matter how big, will have to follow rules or leave Guinea, he says.

In Guinea, the Simandou contracts are just some of several that are under review in disputes with companies from Russia, China and the U.S. And the outcome of the Simandou dispute is likely to rattle at least one powerful international investor: either Rio Tinto or rival Vale SA of Brazil. Aluminum Corporation of China also has a dog in the fight.”

Source: Wall Street Journal, January 27 2011

Observations:

  • Rio Tinto has teamed up with Chinalco to develop its part of the Simandou deposit (although it is still unclear which part it is exactly entitled to). The Chinese pay $1.35bln for infrastructure development, giving it the right to buy the ore from Rio Tinto.
  • The Guinean government is keeping a close watch on the development plans, pressuring the companies to file plans and start investments, threatening to revoke licenses granted in earlier stages.

Implications:

  • The export of the Simandou iron ore is an interesting case of shared responsibility of corporates and government in infrastructure development. The shortest route to the sea would be a direct link through Liberia, but the infrastructure development to ship the ore through a Guinean port is one of the main benefits the Guinean government could achieve from the involvement of the foreign companies. The government will therefore have to find a balance in pressuring the companies to invest and investing itself to convince the companies to skip the Liberia-alternative.
  • Vale smartly managed its transaction of BSG’s share of the Simandou asset by making 80% of the $2.5bln payment conditional on achievement of specific milestones, limiting the country risk it is exposed to. These types of conditional deals are likely to be the way to move forward in order to limit risk in many countries that are struggling to become more stable and attract investment.

©2011 | Wilfred Visser | thebusinessofmining.com

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