Resources and mining companies dominating the headlines this past week include Lynas reporting a net loss after tax of $59 million, Murchison Metals trimming its full year net loss, Rio insists demand for commodities is holding up despite softer mineral markets and Peabody Energy and ArcelorMittal extend their $5 billion bid for Macarthur Coal.
We speak exclusively to Straits Resources Executive General Manager, Dave Greenwood, about the miner's restructure of its copper offtake agreement and the future of its Tritton mine in New South Wales.
We also hear from Westpac Senior Economist Justin Smirk about the correction in Chinese demand.
Lynas lossesLynas Corporation Limited
(ASX:LYC) has reported a net loss after tax of $59 million for the 2011 financial year, compared with a loss of $43 million the year before, in line with company expectations. The miner has said it doesn't believe the result will have an effect on its securities as it is yet to start production. Lynas intends for rare earths extracted at its Mt Weld mine in Western Australia to be shipped to its Malaysian refinery, currently under construction. The Malaysian plant has faced severe opposition, with critics warning of the threat from radioactive pollution. A group of shareholders is seeking to remove Lynas chairman and chief executive Nick Curtis, with concerns over "risks to corporate governance".
Straits Resources restructures copper offtake dealCopper and gold miner Straits Resources Limited
(ASX:SRQ) has agreed to restructure its copper offtake agreement with investment bank JP Morgan's metal commodities trading arm, JP Morgan Metals & Concentrates.
The Finance News Network speaks exclusively with Straits Executive General Manager, Dave Greenwood about the deal.
Mr Greenwood says, "There is a cost to it, which is the $120 million, but the other side of the coin is that people will be able to see Tritton very clearly going forward, and it does have strong cashflow benefits for the operation."
Australia and Asia focused Straits will pay $US120 million for JP Morgan to terminate the current offtake agreement (which saw Straits pay treatment and refining costs as a percentage of the copper price) at the Tritton mine in New South Wales. JP Morgan will enter into a new deal for all copper concentrates from the mine until the end of 2013, with the product priced to reflect lower prices for the metal. Straits and its Tritton copper mine suffer from the legacy of significantly "out of the money" offtake terms entered into by the previous owners prior to the original Tritton company's initial public offer in 2002.
Mr Greenwood confirmed that the deal has resolved the legacy issues entered into by the previous owners: "It's obviously costing us money to take out that contract, but this was a very onerous contract at high copper prices that was entered into by the previous owners. It's something we were aware of when we took over Tritton, but the continued high copper prices really hurt us."
Looking at the future of Tritton Mr Greenwood says, "[Straits has] increased the reserve base to approximately seven years at Tritton, from three or four years, and we have a resource base that's 10 years plus … Tritton has fantastic exploration upside. We've got a large tenement there and we have a whole host of exploration targets within our exploration permit that look very exciting. Tritton is a reasonable sized mine with a great potential and life ahead of it."
Higher revenue trims Murchison lossMurchison Metals Limited
(ASX:MMX) has trimmed its full year net loss to $16.6 million in the 2011 financial year. The iron ore miner's result was aided by a 38 per cent increase in sales revenue over a period that saw iron ore prices rise to up to $143 per tonne. Perth-based Murchison says higher prices offset a 10 per cent reduction in sales volumes as a result of adverse weather conditions in the March quarter. Over the year Murchison poured $70.2 million into projects, with its primary focus being feasibility studies for its $6 billion Oakajee Port & Rail Project and the Jack Hills expansion project.
Rio says demand not unwindingThe chief of global miner Rio Tinto Limited
(ASX:RIO) has insisted that demand for commodities is holding up despite softer mineral markets. CEO Tom Albanese has told investors that customers are more cautious but demand is not unwinding as some would fear. Mr Albanese also said unless financial markets substantially deteriorate, the impact of current economic concerns on Rio's business will be limited. Rio's head of iron ore operations Sam Walsh said world iron ore prices remain "damn good" despite recent modest declines. He told Dow Jones that speculation about a rapid build-up in supply to the world market is overstated, and demand is still strong for Rio's products.
Macarthur offer period extendedPeabody Energy and ArcelorMittal have extended their $5 billion bid for Macarthur Coal Limited
(ASX:MCC) by more than two weeks. Both companies launched their takeover bid for the Queensland focused coal miner in July and have now extended the acceptance date to October 14, from September 27. PEAMCoal's proposed off-market offer would see Macarthur shareholders receive $16 for every share they own. Macarthur has back the improved share offer.
Resources NewsAustralia has cut its forecast for coking coal production in the 2012 financial year, the Bureau of Resources and Energy Economics revealed in a quarterly report. The recovery from natural disasters is taking longer than anticipated. The forecast for the production of metallurgical coal has been lowered by 6 per cent to 161 million tonnes from its June forecast. The export forecast has also been cut by 5 per cent to 156 million tonnes. But output of iron ore is seen at 470 million tonnes, 0.7 per cent above earlier forecasts. Output of gold remained unchanged.
CommoditiesOil prices plunged as they were hit by the stronger US dollar. And as US gold futures fell their most in a month, the precious metal's validity as a safe haven was questioned.
Copper crashed to below $US8,000 a tonne for the first time in a year as the US dollar strengthened. China's manufacturing sector contracted for the third straight month in September and a gloomy US economic outlook dampened demand.
Westpac Senior Economist Justin Smirk said, "We've been looking for a moderation or correction in Chinese demand for a while, we thought the Chinese economy would be slowing ... what's really driving commodity markets is a realisation there is a recession unfolding in Europe, the US is far from exciting and China isn't going to be totally immune to it."
"The correction in commodity prices that's happening now is more about the unwinding of the speculative surges we saw with the advent of QE2 and the liquidity in the system ... even though China's demand is slowing ... it's probably more of an unwinding of some of the froth in the market from earlier this year ... a return to reality," said Mr Smirk.
Melissa Beaumont Lee
