Miners sit tight amid demand concerns

Resources Corner

Resource and mining companies making news include Sundance Resources Limited (ASX:SDL) and Northern Iron Limited (ASX:NFE) who are in the midst of takeover bids. The Reserve Bank of Australia (RBA) has reported the commodity price index as slightly higher for July, following a 16-month low in May. Mining giants Rio Tinto Limited (ASX:RIO) and BHP Billiton Limited (ASX:BHP) are cutting costs in preparation for the upcoming reporting season.

Resources news
 
The Reserve Bank of Australia has reported the index of commodity prices as slightly up at 1.3 per cent, in foreign currency terms, in July. The RBA says the spike in the prices of wheat and oil was largely responsible for the rise.
 
Gold has been sitting above $US1600 an ounce for most of last week but dropeed back to $US1591 on Friday, a long way off from last year’s highs of $US1925 an ounce. Some analysts have tipped the commodity to advance further later this year or sometime in 2013. South Korea, Asia’s fourth largest economy made its second gold purchase in less than a year, buying 16 tonnes of gold last month giving it a total of 70.4 tonnes of gold holdings.
 
As companies prepare for the upcoming reporting season amid falling commodity prices and slowing demand, Rio Tinto Limited (ASX:RIO) announced it would be cutting some regional jobs and shutting down a Sydney office, as well as scaling back its head office in Melbourne. 
 
BHP Billiton Limited (ASX:BHP) is also taking steps to cut costs and has postponed several projects until conditions improve;
"Against a backdrop of increasing costs and falling commodity prices, we continue to focus on reducing our overheads, operating costs and non-essential expenditures to ensure our assets are well positioned on their relative cost curves," a BHP spokesperson said. The global miner also announced it has been forced to write down the value of its US shale gas assets by $2.73 billion in the wake of short term supply excess in the US.
 
Signs that the world’s second largest economy is slowing was confirmed again last week with the latest manufacturing data released last week. China’s official purchasing managers’ index fell to 50.1 in July from 50.2 the month before, now only slightly above 50 which indicates expansion. July represents a decline for the fourth straight month. 
 
Iron ore prices have fallen about 13 per cent over the last two weeks but signs of a turning point emerged last week with prices rising to $US117 per tonne. Vale’s head of ferrous materials Jose Carlos Martins recently offered his view on the future of the commodity price, “...the iron ore price will range between $US120 and maybe $US180 [a tonne] in the long term.”
 
Asset sales and takeover bids
 
Molopo Energy Limited (ASX:MPO) has entered into an agreement with oil and gas giant PetroChina for the sale of its coal-seam gas assets in Queensland’s Bowen Basin. PetroChina has agreed to pay $41 million as well as a $2.4 million adjustment for working capital. The sale will allow Molopo the ability to focus on its Texas Wolfcamp play.
 
Sundance Resources Limited (ASX:SDL) is in the midst of a takeover deal from Chinese suitor Hanlong Mining. Sundance entered into a trading halt last week pending an announcement relating to Chinese regulatory approval for the takeover which has now been issued. Sundance Resources says it is still in talks with its suitor regarding a reasonable acquisition price. Shares in Sundance Resources last traded at $0.34. The iron ore explorer recommended shareholders vote in favour of the acquisition earlier this year. The proposed offer of $0.57 per Sundance share is based on Hanlong acquiring 100 per cent of the company, giving Sundance a valuation of about $1.7 billion. 
 
Northern Iron Limited (ASX:NFE) has had its $525 million takeover proposal from Prominvest revised, with the Swiss based suitor withdrawing its request for exclusivity. Northern Iron says the revised Prominvest proposal assumes a net debt of $93 million and remains valid for 25 days. The iron ore miner is also currently being pursued by India's Aditya Birla Group who have bid $518 million for Northern Iron.
 
Production reports
 
Beach Energy (ASX:BPT) expects its 2013 profit to rise after the oil and gas producer posted a 15 per cent gain in production in the 12 months to June 30. Annual production was slightly above its guidance thanks to improved weather conditions compared to the same time last year. 
 
AWE Limited (ASX:AWE) has posted a 23 per cent decline in its full year production compared to the same time last year. Quarterly production also descended 42.1 per cent. The oil and gas company says it has a positive outlook for the new financial year with key growth projects underway in Indonesia as well as a shale gas exploration program in Western Australia. AWE says it has secured a $300 million multi-currency loan facility that will assist with its growth initiatives.

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