Iron ore price woes continue

Resources Corner

Australia’s export volumes are growing consistently, but a sliding iron ore price is driving cost cutting. Talk continues about what impact a glut of ore will have on smaller operators and the problems are compounded by the Australian dollar staying stubbornly high.
 
With erratic price fluctuations key players in the iron ore game have a variety of outlooks with chief of BC Iron predicting the iron ore price will rebound from a two year low, Fortescue Metals says it has taken another significant step toward reducing costs and BHP Billiton is preparing to slash thousands of jobs from its iron ore division.
 
The gold miners have also been active this week with Newcrest Mining reaching a settlement with ASIC, Resolute Mining is poised to take control of the Bibiani gold project and St Barbara Limited has announced a changing of the guard with Bob Vassie set to take the reins from Tim Lehany.
 
Economic News
 
According to the Bureau of Resources and Energy Economics, Australia's export earnings lifted 11 per cent this year and in 2014-2015 they’re tipped to rise 2.5 per cent to a record $201 billion.
 
The bureau’s Resources and Energy Quarterly for June suggests iron ore prices are set to fall 7.6 per cent in 2015 to settle around US$96.50 a tonne. Current prices are closer to US$93 a tonne. 
 
Key drivers are said to be lower prices alongside a stubbornly high Australian dollar. Despite it all earnings are still tipped for growth with iron ore still in strong demand and the burgeoning LNG export sector set to expand.
 
Commentary
 
Wayne Calder is the Deputy Executive Director of the Bureau of Resources and Energy Economics. He discussed BREE’s report this week confirming market sentiment that as export volumes rise the iron ore price will fall.
 
“Iron ore export volumes have been the main driver of this growth and were 27 per cent higher year on year”.
 
“Looking forward, price pressures will continue to impact domestic producers in 2014-15 with falling commodity prices and a persistently strong dollar impacting on export values. This will draw a sharp focus towards managing costs and enhancing productivity in the sector.”
 
“Australia is continuing to see the transition from the investment phase of the mining boom to the production phase. Throughout 2013-14 the production of key resources and energy commodities has increased, supported by continuing demand growth in key markets.” 
 
“While there are indications of improvements in non-mining sectors of the economy, the mining sector remained the principal source of Australia’s economic growth in the March quarter 2014. In seasonally adjusted terms, mining industry gross value added increased 8.6 per cent and was by far the largest contributor to GDP growth in the quarter.” 
 
Iron ore outlooks are divided
 
The chief of BC Iron Limited (ASX:BCI) has predicted the iron ore price will rebound from a two year low. Managing Director Morgan Ball described the mood in Perth as apprehensive but pragmatic with the steel making commodity now fetching under $US90 per tonne.
 
Fortescue Metals Group Limited (ASX:FMG) could be set for some more reprieve after the price of iron ore gained 1.5 per cent to over $US92 per metric tonne. After a month of falls the iron ore miner was given a boost from its founder’s backing in the stock. Andrew Forrest spent almost $7 million buying up Fortescue’s stock, taking his total purchases of the stock to about $70 million over the past nine months.
 
BHP Billiton Limited (ASX:BHP) is preparing to slash thousands of jobs from its iron ore division. In the wake of the declining iron ore price Australia’s largest miner is understood to be undertaking a review of its operations likely to result in job cuts. Reports suggest up to 3,000 jobs could be shed from the miner’s iron ore division which currently has a workforce of about 16,000.
 
Fortescue Metals Group Limited (ASX:FMG) says it has taken another significant step toward reducing costs. The Pilbara focussed iron ore miner will pay $US275 million for the construction of four specialist iron ore ships by a Chinese shipyard. CEO Nev Power says the vessels are a natural extension of the company’s supply chain and will aid boosting efficiencies and lowering costs at Port Hedland. 
 
M&A for growth
 
Coal haulage company Aurizon Holdings Limited (ASX:AZJ) and Chinese giant Baosteel have welcomed backing from their takeover target Aquila Resources Limited (ASX:AQA). The recommendation comes after Aurizon and Baosteel last week declared their $1.4 billion takeover offer final and warned it will close on July 11. Aquila threw its support behind the bid yesterday and also told the market its 29 per cent shareholder and Executive Chairman of Mineral Resources Limited (ASX:MIN) Tony Poli also plans to back the offer.
 
Speculation is circling iron ore developer Mineral Resources Limited (ASX:MIN) could be preparing to lob a takeover bid for Aquila Resources Limited (ASX:AQA). Both companies entered into a trading halt yesterday pending the details of a potentially material corporate transaction. Mineral Resources bought a 12.78 per cent stake in Aquila after which Aquila’s original suitors said their bid is final. Chinese giant Baosteel and coal haulage company Aurizon Holdings Limited (ASX:AZJ) launched a $1.4 billion takeover bid for Aquila in May and say the offer will close on July 11.
 
Australia’s fifth largest iron ore producer Mineral Resources Limited (ASX:MIN) has bought a stake in takeover target Aquila Resources Limited (ASX:AQA). Aquila Resources is currently developing the West Pilbara Iron Ore Project and only yesterday executed land access agreements for Native Title.
 
Gold news
 
Newcrest Mining Limited (ASX:NCM) has reached a settlement with ASIC in which it will declare two contraventions of disclosure laws and pay penalties of $1.2 million. The gold miner came under investigation from the corporate regulator relating to production guidance being made available to analysts prior to public disclosure. 
 
Resolute Mining Limited (ASX:RSG) is poised to take control of the Bibiani gold project in Ghana. The gold producer says all conditions have now been met to transfer the project from Noble Mineral Resources Limited (ASX:NMG). Resolute Mining will hold a 90 per cent stake in the project with the remaining 10 per cent interest held by the government of Ghana. 
 
St Barbara Limited (ASX:SBM) has announced a changing of the guard with Bob Vassie set to take the reins from Tim Lehany from the beginning of the new financial year. The gold producer has appointed Mr Vassie as Managing Director and CEO from July 1 2014, who comes with almost 30 years international mining experience. St Barbara says Mr Vassie will lead the company through its next phase of development as its focuses on the strategic options for the Pacific Operations and the potential of its Leonora Operations.
 
Clearing hurdles
 
Fortescue Metals Group Limited (ASX:FMG) has scored conditional environmental approval for stage two of its proposed Iron Bridge magnetite project in Western Australia’s Pilbara region. The Pilbara focussed iron ore miner has proposed to develop the North Star Magnetite open cut iron ore mine and associated infrastructure 110 km south south-east of Port Hedland. 

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