As the iron ore price slides below $US80 we’ve seen the government’s resources forecasting unit downgrade their estimate of the price level for the next 18 months. The news is most dangerous for Australia’s smaller miners who’s slim margins leave them far more exposed to a fluctuating commodity price. The big players on the other hand are driving supply ever higher and it is fast becoming a matter of attrition.
As competition escalates BHP Billiton has announced a raft of job cuts and implied its top executives haven’t seen their multimillionaire pay packets grow this year. The mining giant has also said it is considering listing a new company, to come from a demerger, in London. Lower coal prices have been blamed for New Hope Corporation Limited
(ASX:NHC) reporting a lower full year profit as compared to the previous period.
Commentary
This week FNN spoke with Gerard Minack from Minack Advisers about the long term prospects for the miners as volume competition drives cost cutting.
“The problem there is they’re bringing on more supply which initially gets their volume up as you said they’re taking out costs. They can only take out so many costs as we see more supply come on I think the price declines will accelerate.”
“I don’t think the quality miners will lose a lot I don’t think they’ll go backwards a lot. It’s the marginal cost providers that face the biggest risk. I think that’s a story for the next two years. That’s on the back of, first, structurally lower Chinese growth and I’m not saying China will blow up, I’m just saying it’s slowing. And secondly, this global increase in a lot of commodity supply.”
“So; price down, demand down, you’ve got a problem if you’re a marginal cost producer.”
Economic News
The Bureau of Resources and Energy Economics (BREE) added their own tip for the iron ore price this week. The government’s resources analysis group lowered its forecast for the iron ore price in terms of this year and next.
BREE sees an average price of $US94 a tonne across 2015. This comes in a week where the iron ore price slid below $US80. The group cited a glut of supply and dwindling demand from China as being the key drivers of the contraction.
Doing deals
Lynas Corporation Limited
(ASX:LYC) has struck a deal to renegotiate a $US225 million loan with two Japanese groups. The rare earths producer says the rearrangement will enable it to take the final steps to fully commercialising a sustainable integrated supply chain from mine to customer.
As part of its much discussed demerger BHP Billiton Limited
(ASX:BHP) is considering listing its new company in London. The global diversified miner says the listing would be in addition to the previously announced primary listing on the ASX and secondary listing in South Africa.
Shares in Arrium Limited
(ASX:ARI) have slumped more than 25 per cent as it completes the institutional component of a $754 million capital raising. The diversified miner says the institutional portion raised about $465 million as part of its $754 million equity raising which was announced on Monday.
Iron ore miner BC Iron Limited
(ASX:BCI) is moving in on Kerry Stokes' Iron Ore Holdings Limited
(ASX:IOH). BC Iron has now secured a 71.97 per cent stake in its target, rising from a 59.5 per cent relevant interest last week. Iron Ore Holdings now plans to start an active campaign recommending shareholders accept what it describes as a compelling offer.
M&A action
US based Alacer Gold Corp (ASX:AQG, TSX:ASR) has acknowledged it’s been approached by a third party regarding a possible transaction. OceanaGold Corporation
(ASX:OGC) has responded to media speculation confirming its made a number of approaches to Alacer seeking to explore potential business combination. OceanaGold says the company has made clear that it’s not willing to engage in discussions regarding a business combination.
Directors of Robust Resources Limited
(ASX:ROL) have recommended shareholders accept a takeover offer from Stanhill Capital Partners and Droxford International. The offer of $0.49 per share for the gold and metals explorer represents a 56 per cent improvement over the current proposal from Stanhill.
Project progress
Whitehaven Coal Limited’s
(ASX:WHC) Vickery coal project in New South Wales’ Gunnedah Basin has scored a regulatory milestone. The coal miner says its project application has been approved by the NSW Department of Planning and Environment, and Federal Government approvals are not required.
New Hope Corporation Limited
(ASX:NHC) has reported a full year net profit of $58.4 million, 21.2 per cent down on last year. The weak result is blamed on lower coal export prices and the high Australian dollar.
Cost cutting
BHP Billiton Limited
(ASX:BHP) is putting an axe to costs and set to cut about 700 workers from its Queensland metallurgical coal mining business. The jobs represent about 7 per cent of the mining giant’s joint venture with Mitsubishi, the BHP Billiton Mitsubishi Alliance (BMA). BMA believes the coal industry continues to face challenging market conditions and had to act to ensure the long-term viability of the business.
Also this week the miner has shown its top executives are on a pay freeze just days after revealing more job cuts from its operations. The global diversified miner’s CEO Andrew Mackenzie took home almost $US8 million after his first year leading the company.
