Coal price slides and glut talk grows

Resources Corner

Coal hasn’t had an easy time of it lately and it’s set to get worse as Norway’s sovereign wealth fund gets set to divest its coal assets and CitiGroup forecast a sharp dip in the price of one of Australia’s major commodity exports.
 
Norway’s fund is worth some $US900 billion and the country’s parliamentary finance committee has said the fund will be required to sell shares in firms that derive more than 30 per cent of their income from coal. The move has been on the cards for some time and comes after Norway’s major pension fund  moved away from coal assets selling its stake in Whitehaven Coal.
 
Australia’s biggest miners BHP and Rio Tinto will be spared as their coal exposure is below the 30 per cent threshold. AGL however, has major coal assets and could be in the firing line. 
 
Meanwhile BHP Billiton has flagged a fall in capex over the following financial year and shares in Cardno have sunk more than 25 per cent after issuing a profit warning for the full 2015 financial year and flagging a $200 million write-down.
 
Economic news
 
Citigroup hasn’t helped coal’s fortunes and it further lowers its forecast for the price of metallurgical coal as part of a research package that suggests threats are coming at coal from a range of angles.
 
Citi cited Australia’s role as a key coal supplier will continue but supply will drop in line with demand and price. China’s slowing dependence is key but other developing countries are likely to pick up some of the slack. 
 
Gold + copper
 
Gold miner Newcrest Mining Limited (ASX:NCM) has inked an exploration deal with Mungana Goldmines Limited (ASX:MUX). The agreement will see Newcrest explore for copper-gold at Mungana’s Chillagoe Project in North Queensland. Newcrest will spend up to $20 million over eight years through an initial commitment payment and an option to sign a farm-in agreement.
 
Evolution Mining Limited (ASX:EVN) says it will buy the Cowal Gold Mine in NSW from Barrick for just over $700 million. The long-life mine produces around 240,000 ounces of gold annual and is one of the best gold assets in Australia. Evolution say they will raise $248 million in a pro rata entitlement offer with the remainder of the purchase price to funded by refinanced corporate credit facilities.
 
Mining company OZ Minerals Limited (ASX:OZL) has affirmed a positive long term outlook for copper amid uncertain and volatile commodity market conditions. While the company says it will remain a copper-focussed company it plans to now also look at opportunities in other base metals or gold.
 
Growth
 
Aurizon Holdings Limited (ASX:AZJ) has unveiled plans to inject $180 million into a fleet upgrade for its operations in Central Queensland. Australia's largest rail freight operator says the funds will be put to 40 high-tech track machines and specialised wagons. Aurizon advises this fleet is expected to underpin the delivery of ever increasing export coal tonnages for Queensland miners.
 
Rio Tinto Limited (ASX:RIO) has advanced plans to expand its partly owned underground Oyu Tolgoi copper and gold mine in Mongolia. The global miner says the mine’s development has taken a significant step forward with its shareholders agreeing on the next steps. The plan addresses the key outstanding shareholder issues and sets out an agreed basis for the funding of the project. 
 
Setbacks
 
Shares in Cardno Limited (ASX:CDD) have sunk more than 25 per cent after issuing a profit warning for the full 2015 financial year and flagging a $200 million write-down. The infrastructure and environmental services consultancy expects to report an operating net profit after tax of between $48 million and $51 million, after reporting a profit of $78 million the year before.
 
BHP Billiton Limited (ASX:BHP) has been fined $US25 million following an investigation by the US Securities and Exchange Commission which started in 2009. The investigation centred around hospitality provided by the diversified mining giant to government officials at the 2008 Beijing Olympic Games. While there were no findings of bribery or corrupt intent BHP was found to have failed in devising and maintaining sufficient internal controls over its global hospitality program. 
 
BHP Billiton Limited (ASX:BHP) has flagged a fall in capex over the following financial year. The diversified mining giant expects its capital and exploration expenditure to decline to $US9 billion from $US12.6 billion in the current financial year. CEO Andrew Mackenzie says the reduction has been made to further improve the returns of the company’s growth portfolio. 
 
BHP Billiton Limited (ASX:BHP) spin-off South32 Limited (ASX:S32) starts trading at midday today. The stock is expected to debut in the ASX Top 50 and could even make it into the Top 20. The mining spin-off should create one of the 20 largest mining companies in the world with assets across Brazil, Columbia, South Africa, Australia and Mozambique. 
 
Rio Tinto Limited (ASX:RIO) says it is generating value through the cycle and adjusting to the ‘new normal’ following a period of weakening commodity prices. This environment has been described as a period of economic adjustment with developed markets recovering and China transitioning to major developed economy. Rio Tinto has also noted rising demand from other emerging market economies and says the industry is focussed on costs and productivity to improve efficiency. 
 
Poseidon Nickel Limited (ASX:POS) says a Banking Feasibility Study has confirmed that a restart of the Lake Johnston nickel project is economic at the current nickel price. The mine was operational until 2 years ago. The start-up would cost around $14 million with an initial mine life of around 30 months. All the required operating licences for the re-start are in position.