Strong China GDP figures have come in at the same time as broadly positive production results are drip-fed to the market. It’s good news for resources stocks despite the slide in the iron ore price. FNN spoke to Shane Oliver who sees strong demand from China offering plenty of potential for further growth.
A range of production figures came in this week; Mineral Resources Limited hit record iron ore sales of 10.4 million tonnes, Mount Gibson Iron Limited reported record ore sales and revenue to a record year end total of $520 million and Northern Star Resources Limited beat its quarterly production guidance.
The gold price jumped $17.10 last night to hit $US1,317 an ounce as a major sell-off in US and Europe following the crash of a Malaysian Airlines flight in the Ukraine and the escalation of aggression into Gaza. Investors have dumped equities in favour of the safe haven of gold.
Economic News
China, Australia’s largest trading partner, has reported positive GDP growth in the second quarter of 2014 with a 7.5 per cent annualised rate coming in slightly above the 7.4 per cent figure that was forecast.
The reaction on the Australian share market was restricted to the miners with shares in BHP Billiton up 0.3 per cent and Rio Tinto up 1.2 per cent, hitting a recent high of $63.84 in the middle of this week.
Forecasts by the Bureau of Resources and Energy Economics (BREE) suggest that in the next four years iron ore shipments will increase by about 30 per cent. This is positive growth but it’s smaller than the 60 per cent growth that was seen since 2009/10. While iron ore accounts for 37 per cent of Australia’s total resource exports there is an expectation that LNG shipments will grow strongly – there is an estimate that exports will jump 230 per cent over the four year forecast period. LNG currently makes up 6 per cent of total resource exports.
Commentary
Finance News Network spoke with AMP Capital Investors Head of Investment Strategy and Chief Economist, Dr Shane Oliver. Ever the optimist, Oliver sees a slight reprieve for the iron ore price but concedes it’s going to be tough for the smaller players to whether the slimmed-down margins.
Where do you see the iron price trending over the next 12 – 24 months?
“The iron ore price has fallen a bit recently, it’s gone below $100 a tonne, I think it’s now in the process of starting to stabilise on greater confidence the Chinese economy is not going to collapse after all. It’s probably going to settle somewhere around $100-$110 a tonne, going forward. That’s way, way down on the $180 we saw several years ago, but not going back to the $20 or $30 that we saw in the last decade. So still a pretty good environment for mining related exporters, particularly at a time when their volumes are picking up.”
Is there a risk of the price heading lower?
“The risks are probably more on the downside, rather than the upside. The reason I would say that is if you think about the last decade it was the other way around. You had Chinese growth surprising on the upside against constraints on supply, now it’s very different. You’ve got Chinese growth settling down from 10 per cent plus to in the 7’s and you’ve got a risk that it could go below that over the years ahead. And of course we’ve got the supply picking up so the risks are probably more skewed to the downside than the upside for the iron price.
What would that mean for Australian exporters?
“Well on the one hand the bigger exporters will be happily churning out their extra volumes because they’ve got the new mines open, the real risk I think is for the smaller producers, who largely run mines that are less economic, than some of the BHP and Rio’s of the world, so that’s where the real risk lies. I don’t think it’s with the big producers it’s with the smaller producers.”
Production results
Mineral Resources Limited
(ASX:MIN) hit record iron ore sales of 10.4 million tonnes in 2014.The diversified mining company says export volumes were up 88 per cent for the year and that the June quarter saw a 14 per cent increase on the previous period. The result came in 4 per cent above guidance.
Northern Star Resources Limited
(ASX:NST) surged to the best performing stock in the S&P/ASX 200 index last week after beating its quarterly production guidance. The gold producer says it exceeded June quarter guidance by a substantial margin on the back of strong results across it operations.
OZ Minerals Limited
(ASX:OZL) says it has achieved higher than expected production in the June quarter. Strong mining rates from Malu Open Pit, good contribution from Ankata Underground and high mill availability have combined to yield year-to-date production of 40,363 tonnes of copper and 64,528 ounces of gold.
Whitehaven Coal Limited
(ASX:WHC) has reported record full year coal production at its minesat Narrabri, Tarrawonga and Werris Creek. Total coal sales lifted 22 per cent on the previous year whilst production of saleable coal was up by 26 per cent.
Atlas Iron Limited
(ASX:AGO) has beaten full year guidance to ship a record 10.9 million tonnes of ore in FY2014. The iron ore miner boosted production by 47 per cent on the previous year with more than 30 million tonnes shipped since its operations started. The company says the result includes 9.6 million tonnes of standard fines and 1.3 million tonnes of value fines.
Gold production byResolute Mining Limited
(ASX:RSG) has come in at 342,773 ounces for the 2014 financial year. The company’s guidance hoped for 345,000 ounces in 2014 and its cash costs came in at $922 per ounce. Guidance for 2015 was expected to be slightly lower at 315,000 ounces due to the conclusion of the Golden Pride mine in Tanzania and lower grade ore from the Ravenswood mine.
OZ Minerals Limited
(ASX:OZL) says it has achieved higher than expected copper production in the June quarter. Record mining rates and high mill availability have combined to yield year-to-date production of over 40,000 tonnes of copper and 64,000 ounces of gold.
Positive progress
Fortescue Metals Group Limited
(ASX:FMG) achieved a record run rate for June. The iron ore producer shipped 38.7 million tonnes in the quarter and 13.3 million tonnes in June to achieve a record 160 million tonne annualised run rate in the month.
Atlas Iron Limited
(ASX:AGO) has welcomed the official opening of its Mt Webber mine in the Pilbara region of Western Australia. The iron ore miner says the opening follows the start of mining activity in December last year and crushing and screening operations last month.
Metal explorer Cassini Resources Limited
(ASX:CZI) says its recently acquired West Musgrave Project is showing promising signs of delivering high grade copper and nickel. The Nebo & Babel deposits are showing a 20 km long mineralised corridor but the Succoth prospect has now taken priority. The sparsely drilled area about 13 km east of Nebo-Babel is showing high grade copper zones close to the surface.
Rocky road
Boart Longyear plunges 35% on debt fears. Boart Longyear Limited’s
(ASX:BLY) stock lost more than a third of its value this week amid fears for its debt load. The supplier of drilling services and equipment went into a trading halt around noon following reports restructuring specialists had been called in to prevent bankruptcy. Emerging from the halt before the market’s close Boart Longyear confirmed it’s held talks with restructuring advisers as part of its strategic review but denied any material developments.
