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Posts Tagged ‘production’

Strike Begins at Freeport Indonesia

September 16, 2011 Comments off

“Freeport-McMoRan Copper & Gold Inc.’s Indonesia unit suspended mining operations at its Grasberg mine in West Papua on Thursday, as workers started a strike that could last a month, a labor union spokesman said. ‘All of the mining operations, except for the public facilities, are shut down,’ Juli Parrorongan told Dow Jones Newswires in a text message. All workers at the mine are participating in the strike, which will last until Oct. 15 if the company refuses their demand for higher pay, Mr. Parrorongan said.

Freeport suspended operations during a weeklong strike at Grasberg in July and lost about 35 million pounds of copper and 60,000 ounces of gold output. ‘We are disappointed that union workers decided to implement an illegal work stoppage,’ PT Freeport Indonesia, which is 90.64% owned by Freeport-McMoRan, said in a statement. The company said that since July 20, it ‘has negotiated in a diligent good-faith manner’ with the union toward a collective labor agreement to cover 2011-13.”

Source: Wall Street Journal, September 15 2011

Observations:

  • Grasberg forecasted 2011 total mine sales of 1 billion pounds of copper and 1.3 million troy ounces of gold, representing approximately 3.1% of global copper production and 1.5% of global gold production.
  • Current negotiations started after an 8-day strike in July. Freeport offers a 22% wage increase over 2 years, but unions demand an increase of salaries by more than 100%.

Implications:

  • Copper price has been relatively stable for the year to date, but the news of the strike at Grasberg coincides with reports of falling production in Chile and increased buying by Chinese traders, potentially leading to a new price rally.
  • Several analysts still expect a modest global copper supply increase for the year. However, if strikes spread to other mines supply for the year might actually decrease for the first time in about a decade. Global production has almost doubled in the past 20 years, only experiencing a short stabilization in 2002-2003.

©2011 | Wilfred Visser | thebusinessofmining.com

Newcrest Profit Soars 63%

August 15, 2011 Comments off

“Newcrest Mining Ltd., the world’s third-largest gold miner by market value, said Monday its fiscal full-year net profit rose 63% to 908 million Australian dollars ($940.1 million), as production jumped on its acquisition of Lihir Gold Ltd. and the price of gold soared.

‘The world economic and political issues are supporting a very strong gold price going forward,’ Chief Executive Greg Robinson said in a conference call. He didn’t provide a specific price forecast. The surging gold price, which averaged A$1,409 per troy ounce over the company’s fourth quarter ended June 30 and has since hit successive records up to $1,814.89 per ounce, helped lift earnings at the Melbourne-based company from A$556.9 million the previous year.

On the underlying basis preferred by equity analysts, which excludes one-off and accounting items, net profit came to A$1.06 billion in the financial year, the company said in preliminary annual results. Analysts had suggested an average figure of A$1.05 billion.”

Source: Wall Street Journal, August 15 2011

Observations:

  • Newcrest is the world’s 6th-largest producer of gold, producing approx. 2.5bln ounces in 2010. About a quarter of the production comes from Western Australia’s Telfer mine.
  • A 43% increase in production volume results in 76% higher employee salaries and 87% higher maintenance and contract labour, showing the cost pressures that have led to the current $513/oz production costs.

Implications:

  • Newcrest is working on the integration of Lihir, bought a year ago for $8bln. The lower grade deposits the company is developing change the cost structure of the company and reduce its historically high profit margin. As a result the company will become more similar to large rivals Barrick and Newmont.
  • High gold prices drive gold miners to pay out large dividends, trying to convince investors of the benefits of holding gold miner shares rather than gold ETFs.

©2011 | Wilfred Visser | thebusinessofmining.com

BHP’s Iron Ore Output Rises, But Coal Hit By Rain

July 22, 2011 Comments off

“BHP Billiton Ltd. has paved the way for another year of strong earnings after record production of several commodities including iron ore, although output of metallurgical coal, which is also used to produce steel, continues to be held sharply back by earlier flooding in northeastern Australia.

BHP said Wednesday it achieved an 11th consecutive production record for iron ore, with output up 8% in the year through June 30 at 134.4 million metric tons and 14% higher than a year before in the final quarter. The company shipped ore from its operations in Western Australia state at an annualized rate of 155 million tons a year in the fiscal fourth quarter, it said.

However, metallurgical coal output was 13% lower for the year at 32.7 million tons. BHP said it continues to expect production and sales will be impacted “to some extent” over the remainder of the calendar year by the monsoon rains and flooding that swept Queensland in late 2010 and early this year. Output showed a recovery in the June quarter, up 19% on the prior quarter but down 28% on record volumes in the same quarter last year.”

Source: Wall Street Journal, July 20 2011

Observations:

  • Production for quarter compared to same quarter last year for BHP Billiton and Rio Tinto:
    • iron ore: BHP +14%; Rio +12%
    • metallurgical coal: BHP -28%; Rio -26%
    • thermal coal: BHP +13%; Rio +5%
    • copper: BHP -6%; Rio -17%
  • Credit Suisse expects full year net profit of $23bln for the company. Consensus revenue estimate is around $73bln. This would lift profit margin above 30%; even high than pre-crisis records.

Historic BHP Billiton Revenue and Profit (source: finance.google.com)

Implications:

  • Last year’s production disruptions caused by weather were very severe, but still the large miners manage to achieve record profits. Though double digit year-on-year growth of production for key products is impressive, it will be very hard to retain this growth rate. The miners are certainly not short of cash, but are running out of the large, low cost, development opportunities they are aiming for.
  • The tone of voice of headlines for news on the production reports of BHP and Rio Tinto is striking. While number presented above show that overall results are very similar, the focus of headlines for BHP is on ‘robustness and higher iron ore output’, while Rio Tinto’s results are welcomed as ‘output declines’.

©2011 | Wilfred Visser | thebusinessofmining.com

World Steel Association: World crude steel output increases by 15% in 2010

January 27, 2011 Comments off

“World crude steel production reached 1,414 million metric tons (mmt) for the year of 2010. This is an increase of 15% compared to 2009 and is a new record for global crude steel production. All the major steel-producing countries and regions showed double-digit growth in 2010. The EU and North America had higher growth rates due to the lower base effect from 2009 while Asia and the CIS recorded relatively lower growth.

Annual production for Asia was 881.2 mmt of crude steel in 2010, an increase of 11.8% compared to 2009. Its share of world steel production increased to 65.5% in 2010 from 63.5% in 2009. China’s crude steel production in 2010 reached 626.7 mmt, an increase of 9.3% on 2009. China’s share of world crude steel production declined from 46.7% in 2009 to 44.3% in 2010.”

Source: World Steel Association, January 21 2011

Observations:

  • Annual steel production has increased to a new record, fully recovering from the reduced production in 2009. This reduction was fully caused by production outside China. Chinese production has increased every single year for the past decade.
  • The new iron ore pricing system leads to complaints about higher raw materials costs with many steelmakers (current spot price at $175/tonne). The recent spike in coal costs (currently up to $350/tonne) further reduces the margins of the steel makers. American producers are posting significant losses.

Implications:

  • Focus of the industry is on the new tax policies to be introduced in China to cool down the economy. Increased consumer prices of steel might have a significant impact on the growth rate of the Chinese industry, starting in the second half of 2011.
  • Across the world the increased prices of raw materials will be passed on to customers, as the mining and transportation costs are not likely to return to the levels of early 2009 with global supply conditions.

©2011 | Wilfred Visser | thebusinessofmining.com

Freeport-McMoran profits up on copper demand

January 21, 2011 Comments off

“The accelerating bull market in copper, which is facing a stagnant supply base amid rising demand, lifted pre-tax profits at Freeport-McMoRan 46 per cent to a record $8.5bn last year. US-based Freeport, the largest publicly traded producer of the red metal, offered the first indication on Thursday of the financial bonanza that the big copper miners were enjoying. The New York-listed company published its annual results ahead of Rio Tinto, Anglo American and Xstrata, other copper miners expected to unveil similar windfalls from copper.

Freeport’s earnings per share rose 56 per cent from $5.86 last year to $9.14 in the year to December. The company closed 2010 by declaring a $1 per share special dividend that cleared $472m of excess cash from its books. Copper production slid from 3.35bn pounds in 2009 to 3.14bn pounds last year, continuing long-term stagnation that has hit the industry. Rio this week revealed it mined 16 per cent less copper year in 2010 versus the previous year.”

Source: Financial Times, January 20 2011

Observations:

  • Reuters notes that the share price of Freeport is falling behind on copper future price since February of this year.

    Reuters' analysis of FCX stock vs. copper future

  • FCX currently expects capital expenditures to approximate $2.5bln for the year 2011. Still the company is turning out a special dividend worth almost $500mln.

Implications:

  • The results of the company missed the analysts estimates, resulting in drop of the stock price. The main reason for dissatisfaction is the decrease in production to 3.14bln pounds. Production is expected to increase by over 20% in 2011. The company does not appear to have more growth options at the moment, returning excess cash back to shareholders instead of investing above the planned $2.5bln.
  • Country risk of Congo, where the Tenke Fungurume project is located, will cause the production outlook to remain uncertain. Freeport has signed a deal with the government in October that appears to be promising. However, 2011 will have to prove the stability of the deal.

©2011 | Wilfred Visser | thebusinessofmining.com

The Rise of China in Mining

October 4, 2010 4 comments

China is rising as a global superpower in the mining industry. Ore from mining companies all around the world is shipped to Chinese ports to fuel the growth of the economy. Building relationships with Chinese government and customers is a top priority for many business leaders. However, few people in the industry know that China itself is a major producer of many minerals. This article explores the Chinese rise of production, the rise of demand, the rise of Chinese mining firms and the rise of investment and sketches the implications for the mining industry of the changing role of the country.

 

1. The Rise of Production

China’s mining industry is the world’s largest in many aspects: the country has 200,000 collectively owned mines1, employing over 10 million miners; it is the world’s major producer of coal, lead, zinc, tin and rare earth minerals and also ranks high in output of iron ore, gold, bauxite and other minerals.

The country has been a major producer for decades, but the enormous demand, the opening of the market to private investors and the introduction of modern mining techniques has boosted the productivity and production of the industry. Significant reserves of most minerals allowed China to grow the market share of mining output for all major minerals in the past 15 years (Figure 1). The growth of the iron metal content output share is even more remarkable when considering that Chinese iron ore typically has a very low metal content: while share of iron content grew from 14% to 15% since 1995, the share of gross weight grew from 24% to 37%2.

Figure 1 - Chinese share of world mining output

The largest part of worldwide reserves of rare earths, titanium, tungsten & molybdenum are in China. These minerals are crucial in the production of many high tech products, giving China a powerful position in international trade. Recently the country has demonstrated this power by implementing export quota for rare earth minerals, favoring the domestic high tech industry.


2. The Rise of Demand

China hardly exports any minerals; all domestic mine production is absorbed by the domestic. Value of total mineral exports in 2009 was a mere $0.2bln, 60% of which was molybdenum3. Until a few years ago the country was a net coal exporter, but the growing demand from the utility and steel industry has turned it into an importer. Though the country does not export ores, it has been building a large iron and steel industry, exporting at a total value of $53bln in 2008. In the same year the production of 500Mt of crude steel accounted for 38% of the world production2. In 2009 the imports exceeded exports, as steel companies responded to the crisis by cutting production. Stepping up production will turn the country into a net exporter of steel again.

Read more…

Guinea set to seal fresh iron ore deal

May 11, 2010 Comments off

“Guinea expects in the coming weeks to announce another significant iron ore deal to follow Vale’s $2.5bn acquisition in the west African country, with Chinese investors considered the frontrunners.
Mahmoud Thiam, mining minister, told the Financial Times that he hoped a new joint venture involving Bellzone, an Aim-listed junior miner that says it has a ‘non-binding memorandum of understanding … with a Chinese enterprise’ to exploit its prized Guinean concession, will be announced within a month.

Iron ore has become the hottest of commodities amid voracious Chinese demand and following radical changes in March to the way big miners sell to steelmakers that allowed prices to soar. West Africa – home to some of the largest untapped stocks but also renowned for its volatility – is attracting feverish attention.
‘The [Vale] mine would turn us into the third-largest iron ore exporter in a five to six-year period,’ Mr Thiam said. ‘If the Bellzone mine comes online it will turn us into the largest iron ore exporter if both mines are going full throttle within 10 years.’

Source: Financial Times, May 10 2010

Observations:

  • The (Australian) company will try to set up the mine with $0.9 bln own funds, investing in infrastructure with $2.6 bln Chinese money.
  • The upcoming deal with a Chinese company fits in a continuing trend of Chinese investments in Africa to secure long term natural resource supply.

Implications:

  • The mining market landscape is changing: more and more companies are competing for resources in remote areas that are not in the traditional heartlands of mining, like Guinea. The geographical production base in 20 years time will be significantly different from the current situation.
  • Chinese mining & production companies will grow stronger and stronger in the mining business, as they hold a competitive advantage in securing the funds required to invest in projects like in Guinea.
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