RBA signals further reduction in terms of trade

Resources Corner

RBA: The mining evolution
The Reserve Bank of Australia has acknowledged weakening sentiment in the mining sector which has been reflected in the decline of commodity prices. The board noted the spot price for iron ore remained well below levels seen earlier this year. Spot prices for both thermal and coking coal have since declined further while base metal prices have remained broadly unchanged from the middle of this year. 
 
Speaking at the Committee for Economic Development of Australia in Melbourne this week, Governor Glenn Stevens forecast Australia’s terms of trade will fall 15 per cent from its peak in 2011 by the end of this year. 
 
"While a high level of the terms of trade continues to add to the level of national income, we can no longer expect that a rising terms of trade will be adding to growth in living standards," Mr Stevens said. 
 
Mr Stevens believes talk of an end to the mining boom is overhyped and the boom is instead an evolution which is occurring in phases. With the peak of the investment phase of the boom in sight Mr Stevens says, “The question naturally arises as to how the balance between the various types of demand in the economy will unfold.” 
 
IEA: Coal to lead global demand
The International Energy Agency (IEA) has warned electricity prices are set to rise around the world due to rising fuel prices and renewable energy subsidies issued to consumers.  In its latest report the IEA says double digit rises are ahead globally and says coal will remain the leading global fuel for electricity generation given its growing application by China and India. The forecast for global energy demand is expected to grow by about a third.
 
LNG project developments
The Australia Pacific LNG joint venture between Origin Energy Limited (ASX:ORG), US giant ConocoPhillips and Sinopec has confirmed its $US8.5 billion project finance facility has been secured with first drawdown already occurring. The facility will be progressively drawn down throughout the construction period. The financing of the project is the largest ever signed in Australia and is the key component in the development of coal seam gas to liquefied natural gas in the Surat and Bowen Basins. Production is expected to begin in 2015.
 
"Australia is on track to be the largest LNG exporter, but it faces extraordinary challenges due to the tight labour supply and environmental restrictions," Anne-Sophie Corbeau, senior gas expert from the International Energy Agency said. "The LNG operations workforce needs to increase by sixfold within the next three to five years," Keith Spence, chairman of the Western Australia State Training Board said.
 
Japan’s Inpex is expected to secure up to $US20 billion worth of debt financing for its Ichthys LNG natural gas project in Darwin .The financing deal is expected to be backed by export credit agencies and commercial banks including Australia’s big four. The $US34 billion project is 30 per cent owned by French oil giant Total. 
 
 
Santos Limited (ASX:STO) says it has made a “significant” natural gas discovery at its Crown-1 exploration well off the coast of Western Australia. The oil and gas producer says it has found a combined 61 metre gas column up to a depth of 4998 metres and aims to reach a total depth of 5200 metres. Santos’ Head of Exploration says the gas discovery is well positioned and in close proximity to existing and proposed LNG projects. Santos operates the well and owns 30 per cent of the surrounding exploration permit. Chevron and Inpex own the remaining interest.
 
Woodside Petroleum Limited (ASX:WPL) has scored state government environmental approval for its controversial Browse liquefied natural gas development in Western Australia. The oil and gas producer plans to construct a $30 billion gas processing facility in the state’s Kimberley region with its joint venture partners, with a final investment decision expected next year. 
 
Drillsearch Energy Limited (ASX:DLS) has announced it has acquired more than 90 per cent of petroleum explorer Acer Energy Limited (ASX:INP). The acquisition is geared towards consolidating its oil and gas position in the western Cooper- Eromanga Basin in Queensland.
 
Guidance
In an effort to cut costs drilling company Boart Longyear Limited (ASX:BLY) will move its Perth operations to an existing facility in Poland. The company also cut its earnings forecast as margins were not bouncing back quickly enough, due to delays in staff reductions. Boart Longyear revised its full year EBITDA to be in the range of $US310 to $US320 million, down from up to $US390 million. The relocation initiative is expected to cost up to $US20 million, the company offered no insights on the number of jobs that will be lost.
 
Monadelphous Group Limited (ASX:MND) have forecast new construction work contracts that are set to boost its revenue. The engineering and construction company expects revenue to increase by 40 per cent in the first half of the current financial year and to increase by 25 per cent over the full 2013 financial year. Speaking at the company’s annual general meeting yesterday, Managing Director Rob Velletri told shareholders there has been an extraordinary surge in construction activity this financial year. Monadelphous Group has already had $775 million of new work awarded for the current financial year from clients including global mining companies BHP Billiton Limited (ASX:BHP) and Rio Tinto Limited (ASX:RIO).  
 
Annual meetings
 
Takeover target Arrium Limited (ASX:ARI) has narrowly passed its remuneration report at its annual meeting in Melbourne. A 20 per cent no vote against its remuneration package was posted but still below the first strike threshold of 25 per cent. Some shareholders criticised the board and management as executive salaries lifted over the year despite annual profits sliding 75 per cent and its share price diving more than 50 per cent over the last six months. Arrium also announced CEO Geoff Plummer would leave the company next year, with a replacement to be appointed around June.
 
Lynas Corporation Limited’s (ASX:LYC) Executive Chairman Nicholas Curtis says he expects to be moving towards full production capacity by the end of next year, as he addressed shareholders at its annual meeting. Mr Curtis encouraged shareholders to take a long term view of the company despite its share price remaining at two year lows. Some frustrated investors have expressed their anger over the share price by vowing not vote in favour of Lynas’ remuneration report.