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Posts Tagged ‘Mitsubishi’

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

April 9, 2012 Comments off

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

Mining Week 52/’11: Chinese investment welcome in Australia

December 31, 2011 1 comment

Top Stories of the Week:

  • Australia solicits Chinese infrastructure investment
    • The government of Western Australia is trying to speed up the development of port and rail facilities of the Mid West region’s Oakajee port by stripping the Mitsubishi/Murchison combination of exclusive development rights and inviting Chinese parties to step in. 8 of the 14 projects in development in the region have Chinese investors.
    • Sources: Wall Street Journal; Government statement; Murchison Metals statement
  • Yanzhou teams up with Gloucester coal
  • Anglo and Codelco fight for Minas Sur stake
    • Anglo American launched a range of claims in Chilean court trying to prevent Codelco from being awarded the right to buy a full 49% of the Minas Sur assets. The scope of the option for Codelco to buy 49% has been unclear since Anglo sold a 24.5% stake to Mitsubishi. In response to Anglo’s claims Codelco restated its intention to acquire 49% of the full project.
    • Sources: Financial Times 1; Financial Times 2; Anglo American press release

Trends & Implications:

  • As expected Chinese investments have proven to be a key driver of M&A activity in the mining industry in 2011. It is noteworthy that many Chinese firms are using a foreign based subsidiary or team up with a Western firm to do foreign investments. This structure holds 2 main benefits for the Chinese investors: they obtain an experienced western staff with knowledge of the way of doing business in the target countries; and they are viewed much more favorably by regulators when trying to execute deals.
  • The fight of Anglo American and Codelco over Minas Sur appears to become a long term court fight. The longer this court fight stretches, the more inclined Anglo American will be to find a compromising deal, as the uncertainty about the ownership structure will delay all investment decisions for the company in the mining region.

©2011 | Wilfred Visser | thebusinessofmining.com

Chilean Copper-Mine Strike Continues

July 28, 2011 Comments off

“Escondida, the world’s largest copper mine, declined the Chilean government’s offer of mediation in its labor conflict, Valor Futuro reported Tuesday, citing a company document. The sole union at the mine, representing 2,375 workers, went on strike late Thursday to protest what it says are unmet labor-contract terms.

‘We’ve received an invitation from the government to talk, and in this context we’ve given them our reasons for declining to participate at a negotiations table with union leaders while the illegal strike continues,’ reads the Escondida document as reported by Valor Futuro.”

Source: Wall Street Journal, July 26 2011

Observations:

  • Escondida (translated: ‘hidden’) is majority owned and operated by BHP Billiton. Unions demand higher bonuses, unmet housing benefits, the elimination of shifts lasting more than 12 hours, and protection for sick workers.
  • Daily lost output could add up to 3,000 tons. The company plays tough by refusing to continue negotiations as long as the strikes continue.

Implications:

  • The wave of new labor contracts reached for various copper mines in Chile through collective bargaining has gone relatively smooth so far. Leaders of Codelco have expressed fear that the conflict at Escondida could spread to other companies.
  • High commodity prices and increased resource nationalism have led to a surge in mine operation strikes in the last months: BHP’s Australian coal operations, South African coal mines, and Escondida being the most well-known. Companies try to maximize output and make record profits while prices are high, and in turn workers demand a larger part of this profit then originally agreed upon.

©2011 | Wilfred Visser | thebusinessofmining.com

BHP faces more industrial action at coal mines

June 27, 2011 Comments off

“BHP Billiton Ltd. is facing a third round of industrial action in Australia this week at its coking coal mines, further disrupting output from the world’s largest exporter of the steelmaking material.

Workers at seven mining sites owned by BHP Billiton Mitsubishi Alliance in Queensland state’s Bowen Basin won’t do any “non-rostered” overtime on June 30 and July 1, Stephen Smyth, a division president at the Construction, Forestry, Mining and Energy Union in Queensland, said by telephone today.

Coal mine workers began their second round of strikes on June 24 and they’ll finish on June 29, said Smyth. BHP has been notified about the latest plan and further strikes are possible next week, he said.”

Source: Bloomberg, June 27 2011

Observations:

  • Over 3,000 workers at the BMA coal mines are campaigning for better contract rights for contracted workers and to retain the union’s power in recruiting decisions.
  • BMA is using a contract workforce to minimize loss of production caused by the strikes. Lost production could be up to 130Kt per day, or just over an average ship of export capacity.

Implications:

  • Negotiations are progressing slowly, and will continue to do so as long as production continues. If the unionized staff manages to convince the contract workers (roughly 50% of personnel) to lay down the work the pressure on BMA management would increase.
  • Various other miners in similar situations have shut down operations, fired the staff, and rehired the loyal staff members on own terms. BHP certainly will try to prevent this situation, as it would hurt the company’s reputation as a top employer.

©2011 | Wilfred Visser | thebusinessofmining.com

Sinosteel Freezes $2 Billion Australian Iron Ore Project

June 23, 2011 Comments off

“Sinosteel Midwest Corp. said Thursday it had put one of China’s biggest overseas mining projects on hold due to uncertainty over the more than $5 billion Australian dollar (US$5.3 billion) Oakajee port and rail development in Western Australia state. The halt to Sinosteel’s A$2 billion Weld Range iron ore mine, originally slated to start production in 18 months, is a sign of the stresses in Australia’s energy and mining sectors sparked by an unprecedented resources boom, and a further blow to a project hit with delays and cost overruns in recent months.

‘Sinosteel Midwest Corp. has made no secret of the fact that continuing delays to the Oakajee port and rail project would have a significant impact on our operations—in fact to the tune of A$100 million per year,’ said Julian Mizera, the company’s chief operating officer. ‘Unfortunately, we have now had to draw a line in the sand.’ Brokers believe the Oakajee port and railway, being developed by a 50-50 joint venture of Mitsubishi Corp. and Murchison Metals Ltd., can’t be built without Sinosteel agreeing to send its iron ore over the network.”

Source: Wall Street Journal, June 23 2011

Observations:

  • The 15Mtpa Weld Range project is one of the key projects to turn the Midwest of Western Australia into a significant iron ore producing and exporting region.
  • Shipping the planned production of the Weld Range mine would account for some 15% of the total capacity of the railway. Other potential customers of the Oakajee project would be Karara Mining, Asian Iron Ore Holdings, Crosslands resources, Gindalbie Metals, and Golden West resources.

Implications:

  • It is unlikely Sinosteel really will abandon the project permanently. However, by stepping back and leaving the development decisions to the other parties the company hopes get things moving. The government, which is a big sponsor of the project, might get involved to ensure the project will proceed.
  • Sinosteel mentions a $100mln cost for each year delay in the project. Most likely this number is derived from discounted cash flow analysis, decreasing the current value of the project upon delay, though the actual cash flow of the project once it has started is unchanged.

©2011 | Wilfred Visser | thebusinessofmining.com