Archive

Posts Tagged ‘transport’

Mongolia’s future as commodities exporter

May 24, 2011 Comments off

“Mongolia is going to be a major future supplier of commodities from coal through gold to copper – and maybe even crude oil. But how soon will this landlocked country with a population of 3m really begin delivering these resources to the world in a significant, market-moving way?

Although Mongolia is located right next to its biggest customer, China, their history of rivalry makes Mongolia suspicious of its southern neighbour. And capricious politics – parliament has tried to oust Dashdorj Zorigt, minister for mineral resources and energy, twice this year – mean that economic logic is sometimes subordinate to politics or nationalism.

Take the development of Tavan Tolgoi, by some calculations the world’s second-largest coal deposit. The government recently scrapped plans to build a railway directly to the border, less than 300km away, even after feasibility studies and initial permits for the line had been granted. Instead a new line will go east, connecting the mines to the Trans Mongolian Railway that leads to both Russia and China, albeit by a longer route. …

There are some exceptions to this pattern: the Oyu Tolgoi mine, which is co-owned by Rio Tinto, Ivanhoe and the Mongolian government, is ahead of schedule and will come online next year. The copper and gold produced there will be shipped out by truck, posing fewer logistical difficulties than the bulky coal. But still, the investment agreement governing the mine took more than five years to negotiate and remains a source of intense political debate.”

Source: Financial Times – Commodities Note, May 20 2011

Observations:

  • Tavan Tolgoi holds estimated coking and thermal coal reserves of 6.4bln tons. Indian ICVL has expressed interest in buying into the project, which the Mongolian government wants to bring to the stock exchange.
  • Rio Tinto’s development of copper and gold deposit Oyu Tolgoi with/through Ivanhoe is the first major foreign investment project in the country, which appears to go smoothly so far. Rio Tinto’s shareholder Chinalco has repeatedly indicated it would like to take part in the project, but has been kept out by Rio Tinto to date.
  • In October last year Ivanhoe was still hoping to export the products from Oyu Tolgoi by rail. In current plans the transport to the Chinese border (80 kilometers) will initially take place using trucks.

Ivanhoe's Oyu Tolgoi logistics plan

Implications:

  • Western companies will try to tease the Mongolian government into collaborating in the construction of direct rail links to the Chinese rail network in the south. The government’s objective in linking the producing region to the Trans-Mongolian Railway mainly is to stimulate domestic processing industry and to gain political leeway in the relationship with China by having the option to supply to Russia. Most likely the corporates and the government will come to a compromise in which the costs of infrastructure development is shared in some way.
  • The elections in Mongolia next year could create a complicated situation for the western miners in the country, as any new government will try to review and/or renegotiate development and royalty deals currently in place.

©2011 | Wilfred Visser | thebusinessofmining.com

Miners withdraw bid for QR coal network

September 10, 2010 Comments off

“Treasurer Andrew Fraser says the State Government will go ahead with the public float of the Queensland Rail (QR) coal business after a consortium of mining companies pulled out of negotiations. He says the State Government had given the miners until Friday to make a binding offer.

The consortium has released a statement saying it could not satisfy its own requirements or those of the Government. Mr Fraser says the consortium contacted him today and did not ask for an extension. ‘It’s been a genuine effort but agreement hasn’t been able to be reached,’ he said. “

Source: ABC News, September 9, 2010

Observations:

  • A consortium of miners made a $4bln bid in May in order to gain control over the rail network on which they depend to transport their coal to the ports./li>
  • The withdrawal of the bid comes as a surprise, as many analysts did see the bid as superior to an IPO. Expected return was approx. 60% higher than IPO, but it would leave the government with a part of the company that is hard to sell.

Implications:

  • As the reason of the withdrawal has not been specified, this might be a method of the mining consortium to pressure the government into accepting their bid. In this case, a deal is likely to be announced within a couple of weeks.
  • Another explanation of the withdrawal might be that one or more of the miners in the consortium have changed their strategic plans, favouring dealing with a public company rather than an asset owned by a consortium of 13 competitors.

©2010 | Wilfred Visser | thebusinessofmining.com

Bulk shipping groups fear fall in profitability

July 6, 2010 Comments off

“Owners of dry bulk ships and tankers face sharp falls in profitability after rates for the largest ships at least halved since May on fears about ship oversupply and weak global demand.

The fall-off could revive fears about the finances of the weakest companies, some of which are struggling to finance significant orders of new ships.


The average rates paid to charter Capesize ships – the largest dry bulk carriers – on the short-term spot market have fallen from a peak of $60,000 a day in mid-May to $23,012 on Monday.”

Source: Financial Times, July 6 2010

Observations:

  • Shipping costs are typically around 5-15% (Australia on low side vs. Brazil on high side) of the total cost of iron ore for Chinese steel makers.
  • Iron ore bulk shipping is mainly contracted in long term agreements with globally operating shipbrokers.

Implications:

  • The shipbrokers face very high capital costs and long lead times for their investments. They are fully relying on maximizing utilization of the carriers. As demand drops and capacity utilization decreases, transport price competition intensifies.
  • If the demand drop in China leads to a structural overcapacity in the transport industry, this will improve the competitive position of Brazilian and West African iron ore producers in comparison to Australian producers.

©2010 – thebusinessofmining.com