Commodity prices have retreated 3 per cent in August in foreign currency terms, according to the Reserve Bank of Australia's index of commodity prices. The August level was the lowest for the index since December 2010 and 13.8 per cent from its high in July last year. Much of the fall was due to a decline in coking coal and iron ore prices. CommSec analysts have warned at current levels BHP, Rio Tinto and Fortescue Metals Group could expect weaker earnings.
Fortescue Metals Group Limited
(ASX:FMG) has outlined plans to cut staff, spending and its expansion, as a result of plunging iron ore prices. CEO Nev Power says Fortescue is confident in the underlying fundamentals of the Chinese economy and believes iron ore prices will rebound in the medium term, but has moved quickly to strengthen its balance sheet. Immediate staff losses and reduced operating costs are expected to save about $US300 million. The iron ore miner confirmed it has sold its 125-megawatt Solomon power station to TransAlta Corp for $310 million.
Rio Tinto Limited
(ASX:RIO) has welcomed Fortescue’s deferment plans. Addressing an industry conference yesterday, Rio's head of Pilbara iron ore operations Greg Lilleyman said, the scale back will assist in medium term supply and demand. Rio is halfway through expanding its capacity by 60 per cent over three years.
FNN recently spoke with Nev Power on where he thinks the iron ore price will go into 2013 and his thoughts on China’s domestic growth.
To watch the full interview click
here
Resources news Linc Energy Limited
(ASX:LNC) has maintained its full year Gulf Coast production guidance after Hurricane Isaac swept over the region. The energy company says that its Gulf Coast oil fields have survived Hurricane Isaac relatively unscathed. Linc says its Gulf Coast production remains on schedule to reach between 6,000 to 7,000 barrels of oil per day by the end of the year.
Aussie miners are spending less on exploration in the June quarter according to the Australian Bureau of Statistics. Spending dropped by $53 million to $1.02 billion representing the first decline since mid-2009. Association of Mining and Exploration Companies Chief Executive Simon Bennison says, funding exploration campaigns had become a large obstacle particularly for copper, zinc and gold explorers. Mr Bennison expects the drop in iron ore prices to further impact drilling efforts.
''When even the bulk commodities are falling we would expect that a lot of companies would preserve cash and spend less on exploration,'' he said. In addition to soft global prices, Mr Bennison also pointed to the current policy environment that has contributed to almost half the explorers listed on the ASX to search for resources overseas.
Australia’s gold mining output has declined 5 per cent in the first half of the year according to international metals consultancy GFMS. Recovery at Australia’s two largest mines was down with some mining operations nearing the end of their lifespans.
BHP Billiton Limited
(ASX:BHP) is aiming to grow its petroleum business and has outlined plans to boost petroleum production. The global miner expects to invest $US6.5 billion to increase petroleum production by 8 per cent in the current financial year. The plan forms part of BHP’s strategy to grow production by about 10 per cent annually over the next decade. BHP says onshore US shale will be an essential element of its strategy, as the sector provides strong returns, fast payback and multiple upside opportunities.
Rio Tinto Limited (ASX:RIO, NYSE:RIO, LON:RIO) will gain $151 million in cash now it has completed the sale of the North American part of its Alcan Cable business. The global miner sold the business to General Cable Corporation in May 2012.
New contracts and JVs
Downer EDI Limited
(ASX:DOW) has won a $70 million two year contract to work on the Mt Mercer Wind Farm in Victoria. The engineering services company has been awarded the contract from Meridian Energy Australia to design and construct the electrical and civil works of the wind farm from December 2012.
Forge Group Limited’s
(ASX:FGE) wholly owned subsidiary CTEC Pty Ltd has been awarded a $280 million engineering contract from Rio Tinto
(ASX:RIO) as the global miner prepares to expand its project in Cape Lambert in the Pilbara region.
Copper producer Sandfire Resources NL
(ASX:SFR) has formed a JV with Breakaway Resources Limited
(ASX:BRW) and bought a 6.3 per cent stake in the junior explorer. Under the farm-in joint venture Sandfire will join Breakaway in the continued exploration of its Broader Altia Project in north-west Queensland.
