Port record undone by poor sentiment

Resources Corner

Amid all the doom, gloom and angst of a resources sector headed on an apparent nosedive toward the end of its boom, it seems the Pilbara region is producing at all time high levels. Port Hedland Port Authority, the largest bulk export port in the world, has revealed it increased throughput by 17 per cent to 288 million tonnes in fiscal 2013. This is a record figure, coming in a climate of boosted miner output despite seemingly endless concerns over weaker commodity prices and the always uncertain beast that is China’s economic direction. With the record tonnage comes steepling value; the value of iron ore exported through Port Hedland in the last financial year is estimated to be around $35 billion. This data confirms that mining activity was very strong in the Pilbara region, with major miners such as BHP Billiton Limited (ASX:BHP), Rio Tinto Limited (ASX:RIO) and Fortescue Metals Group Limited (ASX:FMG) pushed ahead with expansion plans. The region’s other major port, Dampier, also saw a 5 per cent boost to its output over the first three quarters of fiscal 2013. The majority of traffic for that port comes from Rio Tinto and Woodside Petroleum Limited (ASX:WPL), whose LNG shipments are indicative of a diverse base of exports over the surveyed period.
 
However, reality can be unkind, and unfortunately the strong export figures of the past financial year don’t measure up to the expectations of businesses or provide a good barometer of what lies ahead. The West Australian Chamber of Commerce has released a survey that shows the number of businesses expecting economic conditions to deteriorate over the coming 12 months has increased from 27 per cent to 53 per cent in the last three months. Respondents expecting conditions to improve went from 29 per cent in March to 12 per cent. Figures such as these burst the bubble of Port Hedland’s robust throughput figures and are representative of the afore mentioned doom, gloom and angst throttling optimism out of the sector. The big miners responsible for ramping up the Port’s throughput in the past 12 months are now reluctant to commit to further expansion as confidence across the sector continues to decline, despite some economists retaining a degree of excitement about the potential of a boisterous production phase to follow the mining construction boom we’ve seen. If this eventuates, high exports might just stick around, otherwise, the record levels seen by Port Hedland might not be broken for some time. 
 
Commentary
 
FNN asked St George’s Chief Economist Hans Kunnen for his take on the much vaunted decline of Australia’s mining boom:
 
“We’re going through a transition phase in the mining cycle. It is probable that there wont be any huge projects- or as many large projects- down the track. So in a sense it’s come off the boil. We’ve finished building some of the projects that were started a few years ago, so the construction phase is coming to an end, the construction phase has likely peaked. We’ve now gotta turn on to the production phase, where you build it, then you turn it on, then the exports surge. That’s the next phase of the mining boom.”
 
Cutback corner
 
Mining services provider Boart Longyear Limited (ASX:BLY) has cautioned that its full year earnings are set to be weaker amid difficult market conditions. Boart says market conditions have continued to soften since its AGM in May, particularly in its Drilling Services business. 
 
Kingsgate Consolidated Limited (ASX:KCN) has announced a $300 million writedown against its Challenger gold mine in South Australia to cope with the slumping gold price. Operations at the mine have also been hit by a series of operating issues restricting output and earnings.
 
Gold producer Troy Resources Limited (ASX:TRY) has announced a range of cost cutting initiatives in the face of continued and increasing volatility in gold and silver prices. Changes include cuts to executive salaries and fees, a reduction to the exploration budget for its Casposo project in Argentina as well as job cuts. 
 
Rio Tinto Limited (ASX:RIO) has suspended coal shipments from northwest Mozambique following threats from the opposition Renamo party to disrupt the Sena railway, the ‘coal corridor’ to the Indian Ocean. Rio says production at its Benga mine, currently in a ramp up phase, is continuing.
 
Production tidbits
 
BC Iron Limited (ASX:BCI) posted record annual production at its Nullagine iron ore joint venture and predicting output will increase by 20 per cent in fiscal 2014. 
 
Mirabela Nickel Limited (ASX:MBN) cut its production guidance for 2013 because of the impact of maintenance work and disruptions to its explosives supply. 
 
OceanaGold Corporation (ASX:OGC) will put off production at its Reefton mine in New Zealand amid a slump in gold prices. 
 
Sundance Resources Limited (ASX:SDL) is still seeking partners for the development of its iron ore project in central Africa, and aims to reach the final negotiations stage by years end.

By Joel Spreadborough