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Posts Tagged ‘iron’

Recycling & the Future of Mining

April 15, 2012 7 comments

For thousands of years the mining industry has supplied the world with the raw materials the growing population needed for ever increasing consumption. However, mining is not the only supplier of these raw materials. Next to the primary mining industry a secondary mining industry is growing: ‘urban mining’. The existing stock of materials in the urban environment is recycled more and more. 38% of iron input in the steel making process comes from scrap. The average ‘new’ copper cable contains some 30% recycled material. The more we recycle, the less we need to mine. As mining costs increase because ‘easy’ mineral deposits are becoming scarcer and as technological improvements make recycling more competitive, the impact of urban mining on the traditional mining sector grows. How does this change the perspectives of the mining industry in the long term? And which factors will play an important role in shaping this future?

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African Minerals in $1.5bn China pact

July 14, 2010 Comments off

“The scramble for west Africa’s iron supplies gained pace on Tuesday when a Chinese steel mill agreed to pay $1.5bn for a minority interest in a single non-producing iron ore project in Sierra Leone. …

Shandong Iron and Steel Group, one of China’s largest state-owned mills, has agreed to pay African Minerals $800m followed by two other cash payments totalling $1.5bn. The proceeds will help build African Minerals’ flagship mine at Tonkolili, a rich iron ore deposit in Sierra Leone, as well as the rail and port infrastructure required to make Tonkolili viable.”

Source: Financial Times, July 13, 2010

Observations:

  • Shandong’s money will mainly be used to build the infrastructure (railway and port) required to ship the ore to China.
  • Shandong will gain access to 10mln tonnes of iron ore per year at a price 15% below spot benchmark price.
  • Final agreement on the deal should be sealed in September.

Implications:

  • Total investments in iron ore projects in Sierra Leone, Guinea and Liberia this year are over $6bln already. Shared infrastructure for the various projects might create large synergies (like Rio Tinto and BHP Billiton are trying to achieve in Western Australia). Obviously, national governments are trying to force the companies to invest in the infrastructure of the deposit’s country.
  • Other Chinese companies might be interested in buying shares of the Tonkolili project. It will be up to mr. Timis to decide if he wants to run the project or wants to move on to new ventures.

©2010 – thebusinessofmining.com

ACCC decision on Rio-BHP JV due July 22

June 22, 2010 Comments off

“Australia’s competition watchdog has set a July 22 deadline to review a proposed $US116 billion ($A132.8 billion) iron ore joint venture between BHP Billiton Ltd and Rio Tinto Ltd.

The Australian Competition and Consumer Commission, which began its probe in December, had been due to rule on the joint venture on May 27 but postponed its decision to seek more information from the miners without giving a timeframe for a ruling.

The commission’s website said on Monday that July 22 was now a ‘proposed date’ for an announcement on its findings.”

Source: Business Spectator, June 20 2010

Observations:

  • The Joint Venture is planned to achieve $10 bln in synergies (NPV, thus spread over a long period), a large part of which is achieved by combining transportation infrastructure from the remote Pilbara mines to the iron ore port.
  • Although the Australian watchdog will come with a decision this summer, the European Commission will take much more time to decide on the effects of the JV for the European market.
  • The most likely result from the negotiations of the miners with the government will be an approval of the JV with the condition of a royalty increase.

Implications:

  • Both of the miners are strongly committed to getting the joint venture operational quickly, as they need the additional capacity from the mines in order to retain their market share in the coming years. The proposed increase in resource tax has further increased the necessity of reducing fixed costs in a joint venture agreement.
  • The joint venture between Rio Tinto and BHP Billiton would further increase the risk of implicit pricing arrangements in the iron ore industry. In order to please the regulators, the miners have decided on individually marketing the iron ore. However, organizational ties among the oligopolic producers reduce the transparency of the market. This might be a reason for the European watchdog to impose stricter constraints on the deal.

©2010 – thebusinessofmining.com

Liberia says signs $3 bln iron deal with BHP

June 14, 2010 Comments off

“Mining giant BHP Billiton has signed a deal with the government of liberia to go ahead with a $3 billion iron ore project, an official in the west african country said on monday.

The mineral development agreement (MDA) will allow BHP Billiton to continue exploring for iron ore at Goe Fantro, Kintoma, St. John River South and the Tolo Range, National Investment Commission chairman Richard Tolbert said.”

Source: Reuters, June 14 2010

Observations:

  • According to the newspaper the Australian the mineral-development agreement covers taxes, duties and other trade terms to develop four iron-ore deposits.
  • BHP’s announcement comes days after announcing $12 bln investments in the Canadian potash business. However, for both announcements the actual cash to be spend is still very much uncertain.
  • BHP has not yet confirmed the deal on its own website.

Implications:

  • Iron ore miners are stepping up there efforts to gain access to deposits outside Australia, which is threatening to significantly increase mining taxes.
  • Liberia and neighbouring Guinea host some of the best iron ore deposits yet to be mined. The unstable political situation in the countries have long kept the large diversified miners from pursuing investments in the area. However, current government seems to be willing and able to close long term deals.

©2010 – thebusinessofmining.com

Norsk Hydro buys Vale assets

“Norsk Hydro has agreed to buy the aluminium assets of Vale, the Brazilian metals and mining group, in a $4.9bn deal that will secure the Norwegian company’s raw material supplies for decades. The move will give Norsk Hydro control of Paragominas, the world’s third-biggest bauxite mine, as well as Vale’s alumina refining and aluminium production facilities in Brazil.
Norsk Hydro, Europe’s third largest aluminium maker, said the deal would boost its competitiveness by providing a long-term supply of high-quality, cost-efficient raw materials. The Oslo-based company, 43.8 per cent owned by the Norwegian government, will pay Vale $1.1bn in cash, with the remainder in new Norsk Hydro shares and $700m of assumed net debt.”

Source: Financial Times, May 3 2010

Observations:

  • Norsky Hydro ensures access to large resources of bauxite, thus reducing the risk of price volatility between miners and processers.
  • Vale’s cash position has improved after the combination of this transaction ($600 million cash now + $200 million in 2013 and $200 million in 2015) and last week’s acquisition of the Simandou assets, for which it had to pay only $500 million immediately.
  • Vale gives as a rational that “its participation in the primary aluminum metal industry is small, and has no growth potential due to the lack of access to low-cost sources of power generation, as energy is a key factor for the competitiveness in this business. “ (Source: Vale press release, May 2 2010).

Implications:

  • Vale transfers the risk of electricity costs (and potential associated carbon emission costs) to Norsk Hydro.
  • Vale appears to be focusing more on the iron and steel market. However, in order to reduce dependency on the iron ore price targeted acquisitions of companies with good resources of zinc, chromium & nickel or precious metals (given the current operating margins) are likely.

Australia unveils resources tax

May 3, 2010 Comments off

“Australia’s government plans to reap billions of dollars more in tax from the country’s booming resources industry and use the extra revenue to cut company taxes to a more globally competitive level while offering more generous tax concessions for smaller firms.”

Source: Wall Street Journal, May 2 2010

Observations:

  • A federal royalty charge of 40% on resources profits will increase Australia’s GDP by 0.7%.
  • Rio Tinto share price decreased by over 4% on Friday as the royalty could decrease corporate profit by 27% (FT May 1 2010).

Implications:

  • As mining companies are not flexible in their choice of the mining location, companies with a strong production base in Australia will suffer from the tax changes.
  • The new iron ore pricing system will to a large extent prevent prices to be increased to make up for the decrease in profit.
  • Other countries might follow Australia’s example, trying to reduce deficits by taking a larger part of the mining profits.

Mittal says rise in ore price will cause steel ‘volatility’

April 30, 2010 Comments off

‘Laksmi Mittal warned yesterday that the impending large rise in the cost of iron ore would lead to “new volatility” in the steel industry by pushing up prices of the metal – a development, he said, that could harm the competitiveness of some ArcelorMittal European plants.’

Source: Financial Times – April 30 2010

Observations:

  • The benchmark system for iron ore pricing is being replaced by a more flexible quarterly pricing mechanism linked to the spot market. The reduced certainty on iron ore purchase prices for steel makers will cause similar uncertainty in the price of their output.
  • Steel makers are looking for various ways to reduce the new risk they are encountering. The most important will be to pass price increase on to customers, increasing steel prices globally.

Implications:

  • Reduced certainty on price of iron ore will impact investment decisions for both iron ore miners and steel makers, forcing them to adjust the time value of money in project valuation.
  • Steel makers will increasingly opt for vertical integration, trying to secure a stable raw material base.