Iron ore’s cascading woes

Resources Corner

The iron ore price pushed back above the $US60 mark this week but the longer-term slide in the price from record highs is still causing major headaches. The iron ore miners have all had to adapt to survive (Atlas Iron shares are still suspended) but so have the mining services companies that depend on healthy supply for their business.
 
Shares in transport contractor McAleese slumped near 50 per cent after exiting an extended trading halt and warning its annual earnings will drop from prior guidance. Engineering group WorleyParsons will stand down over 2000 employees and expects second half earnings to halve.
 
Also in resources news Fortescue metals has launched $2.5 billion in high yield debt and BHP Billiton has boosted its iron ore production and lifted its annual guidance.
 
Economic News
 
While BHP and Vale announce plans to pull back on iron ore production going forward, Rio Tinto appears set on maintaining its production trajectory. The miner has long touted its simple aims of producing the lowest cost ore and with competition unable to keep up it seems they will stick with a winning strategy.
 
Meanwhile Fortescue chairman Andrew Forrest has maintained his distaste over the big miners’ strategy of “flooding” the market with ore. Fortescue has trimmed its work force, taken on high-yield debt and also suggested asset sales may be employed to survive the low price environment. 
 
Mining services woes
 
Shares in McAleese Limited (ASX:MCS) slumped near 50 per cent after exiting an extended trading halt and warning its annual earnings will drop from prior guidance. It has also advised it will recommence haulage services to iron ore miner Atlas Iron at its Abydos and Wodgina mines during May. However, talks continue with Atlas and its other major contractors about the potential recommencement of the Mt Webber mine.  
 
WorleyParsons Limited (ASX:WOR) will stand down over 2000 employees and expects second half earnings to halve. The engineering services company has experienced another downturn in demand since commodity prices started dropping in February and says it has to adjust its business to market conditions. 
 
Aurizon Holdings Limited (ASX:AZJ) say recent severe weather will impact expectations for the June quarter. Severe weather in the Hunter Valley during April saw operations suspended there for 9 days. Damage to track infrastructure north of Newcastle closed certain north-south rail lines causing indefinite delays which resulted in the standing down of Aurizon employees for up to a month. 
 
Contract wins amid challenging conditions
 
Downer EDI Limited (ASX:DOW) looks to have scored a $70 million underground mining contract for services at the CSA copper mine in New South Wales. The engineering company has received the letter of intent from a subsidiary of Glencore plc. 
 
Aurizon Holdings Limited (ASX:AZJ) has secured a new 11 year contract to haul coal for Caldedon Coal. The deal is for haulage of up to four million tonnes per annum from Cook mine in Central Queensland to the Wiggins Island Coal Terminal at Gladstone.
 
Mining services provider Ausdrill Limited (ASX:ASL) has scored a contract from gold miner Perseus Mining Limited (ASX:PRU). The contract is expected to generate about $US223 million in revenue over the following five years. 
 
Gold
 
OceanaGold Corporation (ASX:OGC, TSE:OGC, NZX:OGC) has reported a fall in its first quarter profit and flagged plans to buy the Waihi Gold Mine for $US101 million. The Philippines and New Zealand focussed gold producer’s profit dropped 58 per cent to $US24.5 million in the first three months of this year. 
 
Ore price adjustments
 
Fortescue Metals Group Limited (ASX:FMG) has launched a $US1.5 billion high-yield bond offering.  The iron ore miner says proceeds from the current issue will be used to redeem the 2017 senior unsecured notes and 2018 senior unsecured notes. 
 
Shares in Fortescue Metals Group Limited (ASX:FMG) have jumped more than 10 per cent as it increases its bond offering to $2.3 billion due to high demand. The miner released $1.5 billion in senior secured notes this morning and it was soon upsized. CEO Nev Power says the companies 2017 and 2018 debt will be repaid in full with its 2019 debt to be refinanced.
 
Solid earnings
 
BHP Billiton Limited (ASX:BHP) has boosted its iron ore production in the third quarter and first three quarters of the 2015 financial year and lifted its annual guidance. The diversified mining giant increased iron ore output by 20 per cent to 58.9 million tonnes in the first three months of this year. 
 
Newcrest Mining Limited (ASX:NCM) has boosted its annual copper guidance and expects costs to come in at the bottom end of its prior guidance range. Over its third quarter the miner increased gold production by 5.7 per cent while copper production slipped 4.7 per cent from the prior quarter. 
 
Shares in BC Iron Limited (ASX:BCI) have jumped more than 30 per cent following the release of its third quarter activities report after the price of iron ore gained overnight. The iron ore producer reports output at its Nullagine Joint Venture (NJV) with Fortescue Metals Group Limited (ASX:FMG) rose 68 per cent to 1.77 million wet tonnes of ore. 
 
Mount Gibson Iron Limited (ASX:MGX) says it’s on track to meet full year guidance as it achieved $60 million of iron ore sales revenue in the March quarter. The junior miner has continued its focus on reducing costs and preserving capital and says it retains over $324 million in cash.