Juniors: We’re hurting too.

Resources Corner

The ongoing downturn in the mining sector hasn’t only forced the hand of change among Australia’s top tier resources and services companies; there are the oft ignored victims as well. Junior miners have been forced to slash jobs, freeze executive pay and re-arrange their JV agreements in order to stay above water. Much of the attention has been directed toward the austerity pursuits of the likes of Rio Tinto Limited (ASX:RIO), BHP Billiton Limited (ASX:BHP) and Newcrest Mining Limited (ASX:NCM), the majors that have literally stripped billions off their costs column in response to the fading boom. However at the other end of the sector, the smaller players without developed assets are still needing to cut costs further in order to remain in the game. Three recent examples of crippling degrees of cost cutting have come from uranium developer Energia Minerals Limited (ASX:EMX), iron ore explorer Centrex Metals Limited (ASX:CXM) and iron ore/coal explorer WPG Resources Limited. Energia plans to slash costs by approximately $350 thousand annually, not only via reduced operating costs, but also through executive pay cuts. Three directors will forgo 20 per cent of their salary in exchange for shares, while Chairman Tony Iannello has offered to trade up shares in lieu of his entire annual pay packet. A fourth director has voluntarily resigned last week. 
 
Centrex Metals has been forced to renegotiate a JV agreement with China's Wuahn Iron and Steel (WISCO). The new terms will see the company give up as much as $108 million in resource incentive payments from WISCO in exchange for funding support to progress studies for an expansion of one of its projects. Having agreed to move the project back into a pre-feasibility stage over the next 1-2 years, Centrex finds itself in the position of having to find a viable funding option to see out the study period. Funding options include an ASX listing, which will dilute the company’s stake in the JV, or seeking a third partner, which will have a similar effect. Either way, Centrex faces tough decisions to continue along its desired path. 
 
South Australian focused junior WPG Resources Limited reported a $5 million full year loss following write downs on the value of its non-current assets. It faces the prospect of salary reductions for the majority of its employees as well as what it describes in its annual report as a ‘modest reduction’ in head count.
 
Economic news
 
Activity in China's manufacturing sector expanded in August, but fell just shy of expectations, according to a leading survey. HSBC's manufacturing purchasing managers' index printed at 50.1 for the month, recovering from an 11-month low of 47.7 in July. Bloomberg had expected the index to print at 50.2.
 
Rio ironing out the kinks
 
Rio Tinto Limited (ASX:RIO) chief executive Sam Walsh has told its iron ore unit to reduce operating and capital costs in the Pilbara, according to media reports. Planning is reportedly underway to slash cash costs from $US47 a tonne in 2012 to as low as $US35.50 a tonne by 2020. Capex savings are also planned, with Rio targeting to spend $US140 a tonne for each additional tonne of capacity as it pushes towards an annual production rate of 360 million tonnes. Rio has cited easing local inflationary pressures including labour, contractors and services, as factors in the operating cost-reduction forecast. 
 
Rio Tinto Limited (ASX:RIO) has lowered the bottom end of its Australian iron production guidance over the next five years. The global miner told analysts in Perth that the potential production range had widened at its network of mines, railways and ports in the Pilbara. Iron ore development chief David Joyce told analysts that annual exports from WA iron ore could range from 300-375 million tonnes in 2018. This compares with the range of 360-375 million tonnes provided in May by Rio boss Sam Walsh. The change indicates annual mine production in a worst-case scenario would only rise fractionally from the 290 million tonne level it plans to reach next year.
 
Rio Tinto Limited (ASX:RIO) has loaded the first shipment of iron ore from its expanded port, rail and mine operations in Western Australia, the largest integrated mining project in the country. The milestone marks the commencement of commissioning of the expansion programme, which will see overall capacity for Rio’s WA operations increase to 290 million tonnes annually. 
 
Other resources headlines
 
Ramelius Resources Limited (ASX:RMS) will acquire the Vivien gold project in Western Australia from a subsidiary of New York listed Gold Fields for $10 million. Ramelius has announced a share placement to raise $5 million, with funds to be directed towards finalising the acquisition of the high grade Vivien gold project. 
 
Transfield Services Limited (ASX:TSE) has elected independent non-executive Director Diane Smith Gander to succeed outgoing Chairman of the board Tony Shepherd. Smith Gander also holds non-executive directorships on the boards of Wesfarmers and CBH Group, as well as being a Commissioner of Tourism Western Australia. Mr Shepherd says the appointment is ideal and Smith Gander will aptly continue to oversee the board’s turnaround of Transfield. 
 
Woodside Petroleum Limited (ASX:WPL) has announced its Browse joint venture partners will use floating liquefied natural gas (FLNG) technology to commercialise the three Browse gas fields off Western Australia. The move quashes the desires of WA premier Colin Barnett, who had hoped for a job creating onshore project.