Archive for Ore

Bloomberg Commodities Index hits a year 2002 low

The Bloomberg Commodity Index, a basket of 22 raw materials including crude and gold is trading at a 2002 low.

It has slumped 14 percent this year.

To read the entire article, go to http://bloom.bg/1TRmDVF

Clearly more bad news for global rail to port new projects.

Sent from my iPhone

Anglo may cut one third of its jobs as steel industry market demand drops prices

What has taken senior iron ore – steel industry leadership so long to adjust their strategic plans? What are rail and port companies that provide logistics services to Anglo doing to resize their transport service assets?

From Reuters sources http://www.iol.co.za/business/companies/anglo-to-shed-50-000-jobs-1.1890299#.VbJDREr3arV

Headline reads: Anglo to shed 50 000 jobs (over the long term) July 24 2015

Reporter is Silvia Antonioli

Anglo American, the fifth-biggest diversified global mining group by stock market capitalization, announced on Friday that it will move towards the elimination of as much as one-third of its work force. This appears to be a belated recognition of the strategic lower market steel demands and the consequences on iron ore prices in the face of an over supply of resources like iron ore.

It also admits it “might put up more assets for sale”…

It’s Board appears to finally reacting after the accelerating slump in metals prices that seen its stock shares decline to a 13-year low.”

MIGHT GET WORSE

The company posted a steep fall in first-half profit after a rout in prices of metals from platinum to iron ore. The company said “the next six months could be even worse.” “Quite frankly we didn’t expect the commodity price rout to be so dramatic… … CEO Mark Cutifani said during a presentation to market analysts. In the short term, management says it “would cut about 6 000 of its almost 13 000 office-based and other non-production job roles globally”…

If market conditions soured further the company would consider putting up for sale more of its underperforming assets than currently planned, Cutifani said.

Anglo employs 151,000 staff worldwide. I

N ITS PR NEWS RELEASES the company puts a best “spin” on the current financial results as it is about half way through its three year strategic change previously announced to investors. The economic interpretation from the analysts meeting is that they are going to have to move much faster in making changes and/or make bigger changes

REPORTED RESULTS:

Anglo American Interim Results for 2015 include the following cited on the Internet. “Improved operational performance and accelerated cost and capex reductions to mitigate price weakness” says the company in its financial reporting. Group underlying EBIT of $1.9 billion, a 36% decrease due to sharply weaker commodity prices ($1.9 billion underlying EBIT impact), Partially offset by weaker producer country currencies and cost reductions ($0.6 billion underlying EBIT benefit), Commodity price-driven impairments of $3.5 billion after tax, including $2.9 billion at Minas-Rio

FUTURE LOOKING PROJECTIONS include: $1.5 billion of operating and indirect cost reductions and productivity gains targeted in H2 2015 and 2016 (operating costs $800 million, productivity gains $400 million, indirect costs $300 million) Additional company capital expenditure reductions of up to $1.0 billion by end 2016 $1.6 billion of “disposal proceeds” delivered in July 2015

A railway freight traffic rally? // Not with this 13 year record drop in Commodity Prices

Published by Bloomberg, Jul 20, 2015

Oil has been reeling for about a year; now gold is getting slammed—

Commodities are at a 13-year low.

How will this affect your strategic plans?

To read the entire article, go to http://bloom.bg/1MDRHk3

The Bloomberg Commodities Index dropped to a 13-year low Monday…

That is weaker than after the banking meltdown of 2008 and the euro-zone crisis of 2012.

From wheat, to copper, to natural gas, little has escaped the rout.

If your waiting to start your new commodities based railway, it is time to review your strategic assumptions..

Mining stocks // Valuation strategic drop is huge

The Big Three iron ore producers havebbeen particularly hard hit.

World number one BHP Billiton (NYSE:BHP) fell again in New York, bringing its losses since Friday to more than 8% before some late buying limited some of the damage. Melbourne-based BHP stock value is down 45% over the last year.

BHP total market worth dipped briefly below $100 billion last Tuesday. BHP peaked at a market cap of $280 billion in 2011.

The cumulative $180 billion loss in that one company’s value is almost impossible to comprehend.

HOW MUCH? In railroad terms that is about the equivalent as a loss in value to the total current value of about two BNSF railroads.

The BHP loss in value is about three to four times the assumed infrastructure investment that all of Africa says that it needs over the next two decades.

In South Africa the recently spun off by BHP named South32 is trading nearly 20% below its May 2015 listing value.

The drop in the shares of Vale continued with the Brazilian company tanking 4% to a decade low on Tuesday. Vale as the world’s top iron ore miner has lost 34% of its market value in 2015.

The globe’s second largest miner based on revenue Rio Tinto (which relies on copper and iron for nearly 80% of its earnings) dropped 4% in heavy volume. The Anglo-Australian giant’s stock is down more than 18% since February.

For more, read http://www.mining.com/china-panic-crushes-mining-stocks/

Miners’ focus shifts from investor returns to maybe survival

July 10 (Reuters) –

Hit hard by the accelerated downturn in metal prices, most global mining companies preparing to report results are likely to announce another round of austerity measures to cut costs and thereby convince investors to remain committed to the mining sector.

Outside of BHP and Rio Tinto, credit ratings and dividends are being pressured by a rout in prices on any commodity from iron ore to platinum. Directors are pressured by major stock holders to force reductions in capital expenditure, operational costs and jobs. Firing top managers is not out of the question.

Collectively, miners have been among the worst performers on London’s FTSE 100 index of blue-chip companies so far this year. The FTSE 350 mining index has fallen by about 15 percent since the start of the year. That is after a bad year in 2014.

“The picture has shifted to survival”… says Nik Stanojevic at British wealth manager Brewin Dolphin. High dividend yields and a boom in metal prices boosted mining shares from the turn of the century (2001 to 2011 with one interruption…

The downturn in prices since 2011 has exposed companies’ failure to allocate capital effectively and to shore up balance sheets, prompting many investors to take flight. Planners for ports and railways to support the old boom year should take note. New strategies need to emerge “or more heads may role” and investors walk away.

http://www.reuters.com/article/2015/07/10/mining-results-preview-idUSL8N0ZM22720150710

Commodity Global Surpluses Persists — means weak demand for rail services

A Bloomberg report on Jul 8, 2015

The analysis of the demand for port and rail freight always begins with an examination of the market supply/demand at the buyers level. China and India are the major demand markets. But the long term surplus of supply means tough times ahead for suppliers in the emerging nations.

According to a Bloomberg report, the world is still mired in a surplus of most commodities, which means tough years ahead for prices and shipments of added materials. The actual source is from analysts at Goldman Sachs Group Inc. led by Jeff Currie.

“Long-term surpluses in most commodity markets require prices to remain lower for longer,” the Currie team wrote. The markets are contending with declining costs, a strengthening dollar and slowing growth in emerging economies like China that use a lot of raw materials, the bank said.

Patrick Pouyanne, the chief executive officer at French oil giant Total SA, told a parliamentary commission in Paris that the oversupply of oil will last into 2016. A sustained long term recovery this year isn’t likely, Societe Generale said in a report today.

Despite the long term slide in prices and the lowered market demand, most emerging nations have still not adjusted their strategic plans for rail,and port growth. Their current tactics seem to be “damn the torpedoes, and full speed ahead”. That kind of thinking over the past decade resulted in Greece’s economic headache.

Who will step up and change investment strategy first? Who is going to be that leader?

To read the entire article, go to http://bloom.bg/1Hbu7HR Sent from my iPad

Mongolia premier pledges to end Tavan Tolgoi coal mine & railroad delays

From the Financial Times news report comes this upbeat news from Mongolia.

The headline:

Is this just more public relations political hype? Another “junk” rated bond issue to please voters? Is this necessary? Probably a bad idea. Again.

More long delayed plans for the east-west low margin financial feasibility railroad towards Japan? These sound more like a belief in Santa Clause than a sound strategic recovery for the nation.

I would wish more then this for my many Mongolian friends I have worked with.

The good news is that there is a way to make Mongolians strategic winners” if they pull together on tactics and engineering that are sound best practices.

Cheers!

For the FT report, log onto: http://www.ft.com/intl/cms/s/6e7a241a-20c7-11e5-ab0f-6bb9974f25d0,Authorised=false.html?_i_location=http%3A%2F%2Fwww.ft.com%2Fcms%2Fs%2F0%2F6e7a241a-20c7-11e5-ab0f-6bb9974f25d0.html%3Fsiteedition%3Dintl&siteedition=intl&_i_referer=#axzz3erCpC6bE

Here are a few of the reported public relations statements in the news report. ——- Saikhanbileg Chimed indicated that “Mongolia planned to launch another sovereign bond as the country seeks to get “back to business” following two years of slowing growth in gross domestic product, plummeting foreign direct investment and rating agency downgrades of its junk-rated “Chinggis” bonds.”

“Official approval for investors to start work on the Tavan Tolgoi (TT) coking coal mine in the Gobi desert should follow soon after a review of the investor agreement in parliament this month, Mr Saikhanbileg told the Financial Times in an interview.”

Investors in the project include China’s Shenhua Energy and Japan’s Sumitomo Corp. “TT will be unlocked in the very near future,” he said.

HOWEVER—

“Several members of Mongolia’s parliament have raised objections to financial and legal aspects of the TT investor agreement, raising the possibility that the mine… …could suffer a similar fate to that of Oyu Tolgoi, a $5bn copper mine, where an expansion project was unblocked in May only after two years of wrangling. This year, Mongolia resorted to a mobile phone referendum to shore up public support for the project…

The minister still believes in 220km rail line from the mine into China — delayed now for more than three years.

Mr Saikhanbileg also told the FT reporters that he also believes in a second potential rail project that would run east-west about 1,300km to reach coal markets in Japan and the US, a Mr Saikhanbileg said.

BEWARE:

This E-W rail line is a much higher investment risk according to my due diligence research on Mongolia rail options dating back to 2006.

Investors need to carefully reexamine these projects with updated due diligence.  Mongolia needs a real heavy haul big train design to make their expectations a reality.  That means trashing most of their prior rail designs.

It also means a fresh due diligence review of the feasibility options. In particular, it is a bad idea to depend upon a due diligence feasibility report that is prepared by the builders.  They are not exactly Independant.

Is price signaling subject to future anti-trust prosecution risk?

These news reports about iron ore present an open economic question as some mining companies use the news media to signal “Market Supply” changes to their competitors.

Might come back to haunt them later in when attorney generals in the EU, the US, or China consider the tangled web of supply and demand.

The Future accusation could be that they are signaling their competitors as to supply based pricing shifts. Eventually may result in a massive due diligence regulatory hunt for irregularities.

The claim will be that suppliers used the new releases to signal a collusion to economically try and drive prices up by collectively reducing supplies.

Here is a current “supply change” news report as an example circulating this week.

As for rail companies, the signaled message continues to project much lower resources traffic like iron ore and met coal than is probably in your current strategic rail traffic plans.

See: http://m.miningweekly.com/article/metals-investors-look-for-miners-to-cut-supplies-to-lift-prices-2015-07-03

A few points reported include these commodity alerts.

On April 30, Brazil’s Vale, the world’s top iron-ore producer, said it was considering reducing forecast iron-ore production by up to 30 million tonnes over the next two years. Rio Tinto is the second-biggest producer of the raw material for making steel.

Among base metals, the main focus will be on aluminium and zinc, analysts said. “Aluminium tops the list in terms of potential and much needed production cuts in the Western world”

“Top producer Rusal of Russia said in April it might idle 200 000 tonnes of capacity.”

“US group Alcoa said the month before it was reviewing 500 000 tonnes of smelting capacity.” “On Tuesday, Alcoa said it would permanently close its Pocos de Caldas smelter in Brazil, which has capacity of just below 100 000 tonnes per year.”

Botswana – South Africa heavy-haul rail project almost ready | reports IRJ

This railway news report is focused on the expected physical construction of new railway. That is the SUPPLY side story.

The rest of the technical story will be found in the depth of the awaited economic feasibility study.

Is the shifting global market DEMAND going forward going to require the added transport supply? Reports from Independant market analysts like Goldman Sachs suggest a much lower market demand for coal.

Can this new Botswana project compete in a slowing growth market and still pay off the railway future debt?

On the supply side, the report says: The new railway line would ultimately be part of a new 560km heavy-haul railway linking Botswana and South Africa’s Waterberg coalfield with Lothair, near Ermelo, where it would meet the planned 146km Swazilink line. This would create a new route via Swaziland for coal traffic and general freight to both Richard’s Bay and Maputo in Mozambique.

The expected market demand is for about 100 million annual coal tons?

Is that a realistic market forecast based on current economic due diligence? Let’s see what the promised feasibility report says when it is released.

http://www.railjournal.com/index.php/africa/botswana-south-africa-heavy-haul-study-nearly-complete.html?channel=538

Competition for met coal sales to China in the summer of 2015

Reuters data http://mobile.reuters.com/article/idUSL3N0Z823E20150622?irpc=932

China’s imports of coking coal fell 24.2% to 14.7 million tonnes in the first four months of the 2015 from the same period last year.

Australia has about a 50% share of China’s imports Yet, shipments dropped 26.2 percent in the first four months as China’s steel production has fallen.

China’s imports from Mongolia increased by 9% to 4.5 million tonnes. It could have been higher if only Mongolia had a working export railway by now.

The next two largest coke coal suppliers are Canada and Russia. This year their shipments to China fell 14% and 39% respectively.

My technical observations.

MONGOLIA FUNDAMENTAL PROBLEMS as a COMPETITOR

The Mongolia customs price in northern China is about $46 a tonne as of April 2015. To that has to be added the rail cost to reach eastern Chinese steel producing markets. That adds a lot to the price given Mongolia’s poor rail infrastructure. It has zero heavy haul rail capability.

The quoted price from competing sources are $105 to $106 from Australia ~ $110 from Canada, ~ $93 from Russia mines Price to Japan Third quarter contracts for delivery from Australia to Japan were settled at $93 a tonne for premium hard coking coal, according to two people familiar with the negotiations says Reuters.

Back in 2012, the price was $330 a tonne.

The contract price tends to influence the spot price.

However, sellers need to price to a more reasonable long term contract rate to survive periodic economic down cycles.