The receding iron ore price will have strong impacts on growth in Australia. The market shifts were noted in the Federal budget Papers and it is vital that policy settings take into consideration the shifting focus of Australia’s economy.
The proposed takeover of the coal and iron ore explorer Aquila resources has progressed, with Baosteel and Aurizon sending an official bidder’s statement. In other consolidation news PanAust confirmed it is the target of a takeover bid from Guangdong Rising Assets Management; and Northern Star resources will become the second largest listed gold miner on the ASX having bought the Jundee Gold Mine in WA from Newmont Mining.
Kimberley Diamonds had less luck with their negotiations after its pricing talks with Tiffany fell through and it was forced to downgrade its guidance.
BHP Billiton has offered a ferocious warning to possible strike action by tugboat workers at Port Hedland. Fortescue Metals echoed the cries that the industrial action would lead to major losses.
Commentary
As part of the coalition government’s first budget, the Budget Papers made explicit comment about the potential impacts that a reduction in mining investment would have on growth in the Australian Economy.
“Investment in resources projects has passed its peak and is expected to detract significantly from growth over the next three years. While there is some confidence about the size of the decline in resources investment, the precise timing of the fall remains less certain.”
Economic news
The Budget Papers have forecast the continuation of the downward trend in iron ore prices.
The iron ore price has been in decline since the highs of late-2011 and government modeling see prices for the key commodity falling to below $90 in 2016.
“After holding up during the second half of 2013, iron ore and coal prices have fallen sharply since the beginning of 2014. The decline has been due to weaker demand for steel, a period of negative sentiment around China's economic growth prospects, as well as rising global supply, in particular due to recently built capacity coming on line from Australia.”
“Iron ore prices are expected to fall further in 2014-15 and 2015-16, reflecting further growth in global supply and slower growth in demand for steel.”
Falls in the iron ore price is only going to add to consolidation activity as smaller players unite and also merge with the major miners to survive in a post-boom environment.
The Budget Papers were more optimistic about coal prices.
“Metallurgical coal prices are expected to rise slightly over the forecast period as global supply growth slows, while thermal coal prices are forecast to remain.”
Consolidation continues
Aquila Resources Limited
(ASX:AQA) has received a bidder’s statement from Chinese steel giant Baosteel and Aurizon Holdings Limited
(ASX:AZJ). The release is part of a takeover bid by the two-companies for the coal and iron ore explorer, it is estimated to be worth $1.4 billion.
Mining and exploration company PanAust Limited
(ASX:PNA) has today confirmed it is the target of an off-market takeover offer. Chinese state owned trading house Guangdong Rising Assets Management already owns a 23 per cent stake in the miner and firstly pitched a cash price of $2.20 per share inclusive of all dividends for a minimum 50.1 per cent acceptance. Guangdong then upped the offer to $2.30 per share.
Northern Star Resources Limited
(ASX:NST) is set to become the second largest listed gold miner on the ASX the company announced today. Northern Star has agreed to pay Newmont Mining $82.5 million in cash for the Jundee Gold Mine in Western Australia in a deal which will lift Northern Star’s expected production from 350,000ozpa to 550,000ozpa in 2015. The purchase comes on the back of recent acquisitions of the Plutonic, Ka-now-na Belle and and Ku-dana gold mines in WA for $100million.
Shares in Metals X Limited
(ASX:MLX) have risen after inking a $7.7 million deal to buy assets from Reed Resources Limited
(ASX:RDR). The diversified minerals developer will acquire the assets that make up Reed’s Meekathara Gold Operations in Western Australia.
Kicking goals
White Energy Company Limited
(ASX:WEC) has won a cold exploration permit in Queensland. The tender was one of seven up for application and by applying White Energy has committed to a 4 year exploration program to identify coal resources in an area within the central Queensland coalfields. White Energy’s BCB technology upgrades low value coal through a process of dehydration and compaction and is used to add value to mine revenues.
Rio Tinto Limited
(ASX:RIO) says it has achieved landmark Pilbara iron ore operational performance ahead of schedule. The global miner reports its Pilbara iron ore system of mines, rail and ports have reached a run rate of 290 million tonnes per year two months ahead of schedule. Looking ahead the company is focused on the next phase of its expansion towards 360 million tonnes per year with infrastructure set to be completed in the first half of next year.
Shares in Papillon Resources Limited
(ASX:PIR) have firmed after announcing it has started early construction site works at its Fekola Project in south western Mali. The explorer says it has identified a number of key areas to advance its flagship project to production prior to making a formal financial investment decision.
Room for growth
Explosives company Orica Limited
(ASX:ORI) has reported a subdued half yearly report. Net profit after tax came in at $242 million compared with $236 million for the previous corresponding period. Earnings dropped by 7 per cent. Overall sales revenue was 1 per cent better than the same period in 2013 and cash flows lifted by 11 per cent. The company reported global explosives volumes were down 2 per cent but Australian volumes were up by 5 per cent driven mainly by high demand from the Pilbara.
Kimberley Diamonds Limited
(ASX:KDL) has today announced that its pricing negotiations with Tiffany & Co have been unsuccessful. Kimberley was seeking a price increase in its supply of premium fancy yellow diamonds to the cutting and polishing arm of Tiffany to finance developments at its Ellendale Mine in Western Australia. Therefore the company is down-grading its guidance to revenue of circa $20 million with Q4 earnings of $1.5 million. Kimberley
Strike Warning
BHP Billiton Limited
(ASX:BHP) has issued a warning over a possible strike of tugboat workers at Australia’s largest port, Port Hedland in Western Australia. The global miner has described the potential industrial action as irresponsible and estimated it will cost suppliers who ship out of Port Hedland about $100 million per day. BHP says it is not able to make up lost volume of this nature and governments cannot recover these lost royalties and taxes. Fortescue Metals Group Limited
(ASX:FMG) CEO Nev Power has added to the warnings and called for reform to what he describes as outdated industrial laws.
