MAC/20: Mines and Communities

Money miasma means mixed messages

Published by MAC on 2008-11-10

"Things which worked eight weeks ago do not work today at all."

That was one mining executive's comment a fortnight ago, as his company contemplated its dimming prospects. Another spokesperson was even more dramatic - declaring that the very "planets are aligned against us"!

Overall, most mining companies have been cutting back on near-future plans, and some junior outfits (even mid-tier ones) are limiting or completely curtailing exploration activity. As pointed out by Mineweb on November 5th: "[M]any now have market capitalisations that reflect only their cash backing, or worse."

Of course this doesn't mean we're close to seeing the collapse of global mining. (Nor that we would wish this precipitously on millions of ordinary workers dependent on it).

Doubtless many early-term projects (especially in exploration) will gather cobwebs over the coming months - perhaps even years. Hopefully these casualties will include many parlous and potentially damaging ventures which shouldn't see the light of day. Now - when the industry is on its back feet - is the time to push through radical changes in mineral- related legislation (see this week's commentary by our Peruvian editor, Jose de Echave, posted this week).

Nonetheless, not all companies are having financial problems and some are undoubtedly looking for cheap acquisitions (if the commodities stock market has indeed "bottomed" - which is by no means certain.) Profits haven't necessarily fallen - it's too soon to predict that overall demand for key metals won't recover over the coming year.


BHP sees softening China demand

22nd October 2008

LONDON (SHARECAST) - Resources group BHP Billiton said it expects volatility and uncertainty to continue in the short term as Chinese growth softens and reported mixed production results across its commodity range during the first quarter.

"Macroeconomic indicators show that Chinese growth has softened during the quarter, albeit from very high levels," BHP said.

"We expect volatility and uncertainty to continue in the short term."

However, BHP remains confident on the long-term outlook, with continued industrialisation and urbanisation in China and other markets likely to keep driving demand.

"Our uniquely diversified portfolio of low cost and high quality assets places us at a competitive advantage in the current uncertain environment and we are well positioned to capitalise as markets recover," BHP said.

"Our strong cash flow and balance sheet allows us to re-invest throughout the cycle, in our growth projects that are focused on lower risk brownfield expansions in high margin commodities."

While the company ramped up output of petroleum products, driven by a 31% rise in production of crude oil, condensate and natural gas liquids, results were more varied across its base metals portfolio.

Copper production was flat at 309m tonnes, lead and silver output declined by 5% and 7% respectively while zinc and uranium production climbed by 12% and 19% respectively.

Alumina output fell by 4%. Nickel production fell 31%, but iron ore output climbed by 15%.

Coal output was 4% lower.


Freeport reviewing projects. El Abra copper mine expansion under the microscope.

Major copper miner, Freeport, says it is reviewing all its expansion projects in the light of the current tight financial situation.

Reuters

3rd November 2008

SANTIAGO - Global miner Freeport-McMoRan Copper & Gold (FCX.N) said on Saturday it is considering delaying an expansion project aimed at extending the life of its El Abra joint venture with Chile's Coldelco.

Freeport-McMoRan and Codelco, the world's No.1 copper producer, said in July they would invest around $450 million in the so-called Sulfolix project to mine sulfides at El Abra after oxides run out in 2010, thereby extending its life by 10 years.

But with global recession fears swirling and copper prices down sharply from all-time highs of over $4 per pound in July, Freeport is reviewing its expansion projects.

"The company is studying costs and expansion projects, but no decision has been taken," a Freeport spokesman told Reuters in Santiago.

"Globally we are looking at all expansion projects. Sulfolix is an expansion project, and so we are obviously looking at it."

The El Abra mine, 49 percent owned by Codelco and 51 percent owned by Freeport, produced 166,000 tonnes of copper in 2007.

The mine, in Chile's rich northern mining district, has some 600 million tonnes of copper-rich mineral in reserves.

Freeport operates mines in the United States, Indonesia, Peru and Chile.

Including El Abra, Codelco's copper output for the first nine months of the year was 1.107 million tonnes, compared to 1.201 million tonnes during the same period in 2007. (Reporting by Simon Gardner, editing by Patricia Zengerle)

© Thomson Reuters 2008. All rights reserved.


Vedanta rethinks India plans

Press Trust of India

6th November 2008

Global mining major Vedanta Resources Plc today said it may reduce its investment in India by $5.1 billion and resort to cut in production in response to falling metal prices and slump in demand as it had an over 9 per cent dip in profit for the first half of FY '09.

NRI billionaire Anil Agarwal-led company has taken several initiatives to lower the size of investment lined up for a number of projects in India, including its aluminium and alumina project in Orissa, the company said in a statement.

The company had planned to invest about $14 billion in the country for over four years.

"We have reviewed our capital expenditure programme and believe that we have the opportunity to reduce the announced investments by $5.1 billion through various initiatives," Agarwal said.

The company may reduce capital expenditure by 20 per cent on the alumina, aluminium and zinc-lead expansion projects in India, amounting to $1.5 billion.

"We have cut the cost of our projects by reducing our capital expenditure without impacting the size of our projects including the 2.6 million tonne aluminium plant or one million tonne zinc and copper projects," Vedanta Resources Executive Vice-Chairman Naveen Agarwal told PTI.

The mining major has also deferred its $2 billion investment in the 1,980 MW captive power plant at Jharsuguda, the statement said.

The company may also lower the capital expenditure in the $2.1 billion Talwandi Sabo power project in Punjab to $500 million, it added.

Moreover, the company said it would also resort to temporary cuts in production to bolster the falling prices of metals, which have plummeted due to the slump in demand.


Spending under review at Anglo American

23rd October 2008

LONDON (SHARECAST) - The impact of the economic downturn on commodity prices has prompted miner Anglo American to conduct a review of its project pipeline to assess capital expenditure on a project by project basis.

Anglo blamed volatility and uncertainty in global markets and the global slowdown for sharp price falls. It is "intensively driving its asset optimisation programme and related cost discipline across the businesses".

?The mining industry has already seen the curtailment of some high cost operations and the credit environment is expected to limit the funding and expansion capabilities of many of the junior mining companies,? it said.

Jonathan Jackson, an analyst at Killik Capital, says: "The shares are likely to remain very volatile in the short term, driven in part by the technical unwinding of hedge fund positions."

Anglo reported an increase in production of iron ore, metallurgical coal, manganese alloys and steel products during the third quarter from a year ago.

Platinum remains on target for full year refined production of 2.4 million ounces, but output dropped 11.1% in the third quarter from a year ago and by 5.1% from Q2 2008 due to the planned downtime for maintenance at Waterval of the Number 2 Furnace, the slag cleaning furnace and the ACP plant.

Copper production was 12.7% lower than a year ago and 7.7% less than the second quarter of this year, mainly down to lower production at Collahuasi, following pipeline and filter constraints and a mill motor stator failure on SAG mill 3.

Iron ore production from Kumba Iron Ore jumped by 29.1% in the third quarter from a year earlier to 10.1 million metric tonnes (Mt).

Results for the full year to 31 December 2008 will be announced on 20 February.


Xstrata ramps up output, prices slip

21st October 2008

LONDON (SHARECAST) - Diversified miner Xstrata lifted production across its commodity portfolio in the third quarter, but suffered the effects of lower prices for some of the raw materials it produces.

It ramped up output of ferrochrome, thermal coal, platinum, mined nickel, zinc in concentrate and lead compared with the same period a year ago, helped by improved efficiency at its operations.

Coal production increased by 12% to 23.5m tonnes, with thermal coal volumes climbing 19% but coking coal and semi-soft coal output slipping slightly.

The ramp up of the Elandsfontein mine in South Africa increased platinum volumes by 158% during the third quarter of 2008 compared with the same period in 2007, Xstrata said.

While average platinum prices rose to $1,542 a tonne from $1,292 between the two quarters, palladium, also a platinum group metal, fell to $331 a tonne from $348.

The average nickel price fell to $18,961 a tonne from $30,205, while the average price of a tonne of copper slipped to $7,680 from $7,713.

Lower commodity prices and higher input costs, prompted Xstrata to suspend its Falcondo ferronickel operation in the Dominican Republic and close its Lennard Shelf zinc mine in Western Australia

Xstrata said it has no significant debt refinancing requirements until 2011, having secured a new three-year revolving facility of $5bn to refinance existing debt and for general corporate purposes on October 1.


Xstrata Says Financing for $3.8 Billion Mine Is Safe

By Rebecca Keenan

Oct. 27 (Bloomberg) -- Xstrata Plc, the world's fourth- biggest nickel producer, said funding for the $3.8 billion Koniambo project in New Caledonia isn't at risk after partner Societe Miniere du Sud Pacifique chose to stop contributing.

SMSP's ``recent indication that it would not be in a position to continue participating does not put project financing at risk since Xstrata has committed to fully fund the project,'' Peter Fuchs, a spokesman for the nickel unit of Zug, Switzerland-based Xstrata, said by e-mail today.

The worst economic crisis since the Great Depression is curbing demand for metals and the price for nickel has more than halved since June 30. Cia. Vale do Rio Doce said last week it's delaying start up and limiting output from the $3.2 billion Goro nickel project in New Caledonia and the $2.3 billion Onca Puma mine in Brazil.

The Koniambo mine will be funded through a combination of equity and debt, Fuchs said. Xstrata is funding the debt and SMSP was entitled to participate, he said.

The Koniambo mine is expected to start producing 60,000 metric tons a year of ferronickel in the first half of 2011 and reach full output in 2013. Xstrata, the manager of the project, gave approval to build the mine in October last year.

New Caledonia is a French-controlled Pacific territory located 746 miles (1,200 kilometers) east of Australia. Calls to SMSP's office in New Caledonia were unanswered.


Anglo-Russian iron ore miner Aricom reviewing capital programme.

Aricom looks to cut substantially its capital spend at K&S, Garinskoye projects. Company had previously sought $1 bln in external funding. The company is planning review to cut all non-essential spending.

Eric Onstad

Reuters

4th November 2008

London - Anglo-Russian miner Aricom Plc is reviewing its iron ore projects to cut funding needs because of the global economic crisis, the company said on Tuesday.

Aricom, which launched production at its first mine this year, had been seeking $1 billion in financing, but analysts said a scaled down project could be done with $150 million.

"We believe the statement that the company is looking at alternatives to the current development plan should be taken positively," Cazenove said in a research note.

Aricom shares, which have shed 87 percent since touching a peak on May 19, gained 3.7 percent to 14 pence by 0906 GMT, outperforming a 4.9 percent drop in the UK mining index .

"The company and its advisers are undertaking a review of alternatives to the current development plan with respect to the K&S and Garinskoye projects with a view to significantly reducing the external funding requirements whilst maintaining the projects' underlying value," a statement said.

The firm released a feasibility study on the projects on Oct. 8 confirming it needed $1 billion in external funds to contribute to the $2.3 billion cost of building two mines, a processing mill and a plant.

"A slower ramp up schedule, with staged introduction of the various units, is feasible and will result in significantly lower initial capital expenditure, while still eventually producing the same scope of integrated process," Tuesday's statement said.

HEALTHY CASH BALANCE

Aricom had been planning by 2012 to launch a plant at its Kimkan & Sutara (K&S) deposit in the Jewish Autonomous Region to process up to 18 million tonnes of ore annually from mines at K&S and Garinskoye, a deposit in neighbouring Amur region.

Analysts said it was likely that the firm will initially choose to develop the K&S deposit, which could be done with financing of $150-$200 million.

The firm also planned an overall budget review to cut all non-essential spending and expected to conclude the reviews in the "near future", it added.

The firm reaffirmed its projection of a year-end cash balance of $254 million.

"Any resulting rescheduling would allow Aricom to ride out the current financial storm utilising our significant cash balance," Chief Executive Jay Hambro said.

Aricom, a member of the UK's FTSE 250 midcap stocks index, also said in its Tuesday statement that its Kuranakh mine commenced regular shipments in October and the mine's 2008 production was on track to meet targets.

"Work at the mining operation and at the crushing and screening and beneficiation plants is progressing well," it said.

(Reporting by Eric Onstad; Editing by Chris Wickham and Victoria Bryan)

© Thomson Reuters 2008. All rights reserved.


Rio Tinto bullish on mining prospects in India Press Trust of India

4th November 2008

Australian mining major Rio Tinto today said it was bullish on mining prospects in India and is looking into opportunities in eight states in the country. "The company is exploring prospects in eight states," Rio Tinto India Managing Director Nik Senapati said.. To a query, he said the company was open to exploration of all minerals, including iron ore and bauxite, in India. When asked, the company would be able to start mining operations, Senapati said he was hopeful that it would not take long. The company has already lined up as investment of up to Rs 10,500 crore for setting up an alumina refinery and aluminium smelter in India. It has also entered into an agreement with state-owned NMDC to explore domestic and international mineral reserves, primarily iron ore. Rio Tinto is one of the several Australian mining companies participating in the International Mining & Machinery Exhibition (IMME) 2008 starting here tomorrow.


Sherritt profit rises, but projects slowed down

Reuters

29th October 2008

TORONTO - Sherritt International Corp posted a sharply higher third-quarter profit on Wednesday, but said it would cut expansion work at two projects and put its Ambatovy nickel project in Madagascar under review due to weak nickel prices.

The Canadian miner and energy producer said it will suspend about C$270-million in spending at its Moa nickel operations in Cuba and at its Fort Saskatchewan nickel refinery in Canada as part of plan to conserve cash flow until financial and economic conditions stabilize.

Sherritt's early 2010 start date for the mine at Ambatovy will almost certainly be pushed back, as the company tries to renegotiate labor and equipment contracts that were entered into when prices for both were much higher, Sherritt CE* Jowdat Waheed* said on a conference call.

"Our view is that the contracts that we have entered for labor rates, for... pricing of things such pipelines for instance or engineering procurement and construction management services, things which worked eight weeks ago do not work today at all," he said.

Ambatovy is projected to yield 60,000 tonnes of nickel and 5,600 tonnes of cobalt a year. Sherritt is 40 percent owner of the project and its operator. Its partners on the project are Sumitomo Corp, Korea Resources, and SNC-Lavalin.

The company is also targeting a 15 percent cut in forecast controllable operating costs, and a "significant reduction" in forecast sustaining capital spending in 2009. It will also scale down oil and gas spending to bring them in line with oil and gas cash flows.

Sherritt is just the latest of several base metal producers that have slowed projects or suspended mines to deal with commodity prices that have plunged in recent months. Sherritt's average realized nickel price was 35 percent lower in the third quarter than it was in the year-before quarter, and has fallen another 35 percent since then.

Waheed said prices for several inputs have fallen dramatically of late, with the cost benefits likely to be felt next year.

Sulfur, for instance, which is used in the mining process, was going for $800 a ton in the third quarter, but is now down around $300 a ton, he said.

PROFIT BOOSTED BY ENERGY

The company earned C$133-million, or 45 Canadian cents a share, in the quarter, up from C$65,4 million, or 28 Canadian cents a share, a year earlier.

Stripping out one-time gains, its profit was 33 Canadian cents a share, ahead of the profit of 22 Canadian cents a share expected by analysts.

The company's stock rose 13 percent, or 53 Canadian cents to C$4.60 on the Toronto Stock Exchange on Wednesday, outperforming other base metal producers.

Revenue rose 58 percent to C$477,2 million, boosted by strong results from its coal and oil and gas operations.

Fourth-quarter results are expected to be hurt by lower prices for nickel, cobalt and oil, and only partly offset by higher prices for thermal coal and potash, Sherritt said. It did not provide details for the forecast, citing price volatility.


Glencore Credit Risk Soars on Mining `Fear'

By Brett Foley

Oct. 27 2008 (Bloomberg) -- The cost of protecting against a default by the world's largest commodity trader Glencore International AG has risen fivefold in two months as investors run ``scared'' from mining companies, said Jonathan Pitkanen, a credit analyst at Aviva Investors in London.

Glencore is the largest shareholder in Swiss copper and nickel producer Xstrata Plc, which has plunged 74 percent on the London Stock Exchange in the same period. Credit default swaps for Baar, Switzerland-based Glencore's five-year bonds climbed to 1,240 basis points, according to data compiled by Bloomberg.

The CHART OF THE DAY shows how Glencore's credit default swaps jumped while shares of Xstrata fell. ``It is all fear at the moment,'' Pitkanen said in an interview. ``People are scared and they are running scared from this sector. The market's reaction has been completely overcooked.''

Standard & Poor's on Oct. 14 cut its outlook for Glencore to stable from positive and affirmed its ``BBB'' rating. ``The movement in the spread doesn't seem to bear any resemblance to their credit fundamentals at the moment,'' Pitkanen said.

A basis point on a credit-default swap contract protecting $10 million of debt from default for five years is equivalent to $1,000 a year. The contracts rise as investor confidence deteriorates and fall as it improves.

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