Big miners rein in costs while strapped juniors face wilderness

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#1
Sentiment on ASX mining stocks are a better barometer given the presence of big name miners. If the following article is a good reflection on the actual rumblings of established mining companies, we can easily forget about our rubbish mining concerns listed on SGX...

Big miners rein in costs while strapped juniors face wilderness
BARRY FITZGERALD THE AUSTRALIAN MAY 06, 2014 12:00AM

Big miners rein in costs while strapped juniors face wildernessThe recent weakness in iron ore prices is looking overdone, according to ANZ, which predicts a price rebound to $US115-$US120.

MARCH-quarter exploration and production reports from the resources sector flooded in last week to meet the end-of-April deadline. And as is normally the case, the reports contained the usual mix of the good, bad and ugly.

The good news was around the industry’s success in reining in costs in response to lower commodity prices, and the absence of wet season-related impacts that have dogged the industry in past years.

The bad news was pretty much limited to some ongoing shortcomings at operations where the lower price environment, or specific operational difficulties, were at play. But nothing too serious, except perhaps the concern with the Pacific island operations of gold producer St Barbara.

The ugly news was the alarming growth on the ASX in the number of “zombie’’ exploration companies — those that have had to stop exploring because they are running low on cash.

And because their chances of being able to tap the market for fresh funding are next to nothing in the current climate — one where investors have an aversion to risk and a preference for yield — they face a prolonged time in the wilderness.

Analysis of the last 200 March quarter cash reports that were to be lodged by the pure explorers ahead of the ASX deadline last Wednesday showed that more than 50 per cent of them do not have sufficient cash to cover their administration costs beyond six months, let alone actually conduct some exploration.

The solution for companies inside Joseph Gutnick’s stable has been to get by with personal loans from the mining entrepreneur, one who it was said back in the roaring mining market in the 1980s could make share prices “dance’’.

Mr Gutnick told The Australian that for four years it had been “tough, tough, tough” for juniors seeking to raise equity funds. “I have never seen it like this. It is ­almost like a graveyard,’’ he said.

But ever the optimist, Mr Gutnick said things wouldchange. “It is a cycle.” And as for his stable, diamond company Merlin is turning to Asia to support a planned $10 million capital raising to get things moving.

His advice to the cash-strapped explorers is to “keep on fighting because eventually the market will turn.’’

Today the Resources Team at The Australian dissects the March quarter reports, identifying the key themes to emerge, and where to next for an industry in transition from super-cycle to one where the productivity agenda dominates.

COAL: ‘Surprisingly strong’

THE short-term pain being felt by Australia’s coal miners grappling with high costs and low commodity prices was surprisingly not the theme of the March quarterly reports.

While most warned of continued tough conditions in the short term, production levels remained strong with minimal seasonal weather impacts hitting output levels.

Deutsche Bank analyst Paul Young said results from the major miners’ coal divisions were “surprisingly” strong.

“Part of that is we didn’t have a big wet season in Queensland in January and February, or in NSW,” he said.

The senior resources analyst said BHP was one of the standouts with its results from its coal division following its Daunia mine in Queensland reaching full capacity and Caval Ridge starting its ramp-up.

“BHP has done a great job at maximising utilisation rates across their big coal mines,” he said.

“They lifted their production guidance. They are doing a great job in Queensland and are running above their target and have been for the last six months.

“The fact that Caval Ridge has come on six months early and under budget means its volumes will increase further.”

He added that Rio Tinto was doing a good job in NSW’s Hunter Valley region, with robust production.

China-backed Yancoal and Whitehaven are both also pushing to expand production given they have take or pay contracts, meaning they pay for infrastructure capacity even if they do not use it. Continuing to ramp up volumes is their best strategy in a market of depressed prices and higher costs.

Mr Young said it is a two-part market in the coal sector.

“There is the take or pay market, where miners that are running at losses would run at even bigger losses if they stopped producing, so they have to keep running,” he said.

“And then there is the part that is new production and that is the majority of the growth, which is the ramp up of new low cost mines.”

He added that the general perception in the market is that exports out of Australia have to decline considering the prices are under pressure but he outlined that wasn’t the case.

“It is actually the opposite. Exports will continue to decline because the number of big, low-cost mines are being brought online,” he said.

Mr Young said given the next quarter will not be hit with any seasonal weather impacts, production results should continue to remain strong.

SARAH-JANE TASKER

IRON ORE: ‘BHP a standout’

THE March quarter is traditionally the trickiest time of year for Australia’s iron ore miners as cyclones and the wet season play havoc with mines and ports in Western Australia’s Pilbara.

And this year was no different, with most iron ore miners battling to cope with the conditions.

The standout performer from the space was mining giant BHP Billiton, which managed to defy the weather conditions and post a record quarter. So good was the quarter that the heavyweight upped its annual iron ore guidance by 5 million tonnes to 217 million tonnes. That increased guidance will add an estimated $US250m to the company’s earnings.

In contrast, Rio Tinto served up its worst quarter of iron ore production in a year, with output down six per cent from the December quarter. Expansions carried out over the past year, however, meant the 66.5 million tonnes produced by it and its minority partners was 8 per cent higher than a year earlier.

Andrew Forrest’s Fortescue Metals Group also battled to cope with the tough seasonal conditions, and now faces an uphill battle to meet its full-year production target.

After only managing to ship 31.5m tonnes in the March quarter, Fortescue now needs to produce almost 42m tonnes in the current quarter if it is to meet its full year guidance of 127m tonnes.

Fortescue chief Nev Power admitted the target would require the company to run its operations at sprint capacity but insisted the guidance was still realistic.

Of the smaller iron ore players, the quarter’s star performer was Atlas Iron.

Atlas’ record shipments for the quarter, coupled with the potential upside from its recent Corunna Downs discovery, caught the attention of the market and sent its shares upwards despite worsening investor sentiment towards the sector.

Production figures aside, the key driver of the share prices in the sector continues to remain the iron ore price. The benchmark spot iron ore price is now down more than 21 per cent since the start of the year.

ANZ’s commodities desk said on Friday that the recent weakness in iron ore prices was looking overdone.

“Reports of a crackdown on Chinese iron ore inventory financing activity and the partial reinstatement of iron ore exports from India has seen iron ore prices fall

10 per cent or $US13 a tonne in the past two weeks.’’

“However, our analysis suggests the volume impact will be modest and that the market has reacted too negatively to the news. We think, together with the onset of stronger seasonal demand and additional Chinese stimulus, prices should rebound back up to

the $US115-120 a tonne range over the coming months,’’ the analysts said. The share price beaten-up iron ore producers will be hoping that proves to be the case.

PAUL GARVE Y

GOLD: Producers bulk up

Gold producers had another busy quarter adjusting to the lower gold price environment.

And according to James Wilson, Morgans’ senior resources analyst in Perth, the hard work has been paying off.

“From what I saw, everyone seemed to be punching above their weight. The overall theme was all of the companies are under-promising and over-delivering,’’ Wilson said.

“There was no one coming in and saying that they will be at the lower end of guidance – everybody was at the middle to the top of their forecasts. That’s what the market wants to see,’’ he said.

“Everyone is out to impress at the moment on costs. Cash costs have been tracking sideways, or downwards. But all in sustaining costs are much the same,’’ Wilson said after reviewing the reporting period.

“That suggests that there is still a lot of capital being deployed. So the gold producers are still having to invest to achieve outperformance of their guidance. So money is being thrown in to get these results.’’

The March quarter reports confirmed an all-in sustaining cost for the local industry of about $A1,050 an ounce, with cash costs generally knocking around $A800 an ounce. So despite the smashed equity values in the sector, the industry is still enjoying about a $A300 an ounce margin.

Wilson identified a move by producers to bulk-up in an effort to extract economies of scale as an offset to on-going gold price pressure.

“It is not about being a 60,000 ounce-a-year producer any more, it is about being a 300,000 ounce producer. That’s where investors want to be because of the ability to maximise cash flow through economies of scale.’’

The push became more evident after the end of the quarter with the since aborted merger talks between North American gold giants Newmont and Barrick. It was suggested that as much as $US1 billion in savings could be made.

A huge gap continues to exist in the local market between Newcrest with its 2.3m ounces of annual gold production and the next biggest producers. So while there has yet to be merger and activity on the scale seen in North America, M & A activity has picked up.

Examples were Northern Star and Saracen buying assets, and the Chinese-backed Norton making a takeover bid for Bullabulling. More activity is tipped as the pressure to bulk-up from investors intensifies.

BARRY FITZGERALD

OIL & GAS: Smooth going

AS the Australasian region’s raft of LNG projects under construction heads toward completion, making us the world’s biggest LNG exporter, more and more focus is being put on quarterly updates from their owners.

For investors and those hoping boom-time delays and cost-blowouts are over, March quarter results provided good news.

The Papua New Guinea LNG plant, run by Exxon and in which Oil Search and Santos also have an interest, performed the rare feat of flagging an early start, potentially this month, which will provide extra 2014 production and cashflows for all involved.

There were also no signs the three LNG projects being built to export coal seam gas through Gladstone from the December quarter of this year at a combined $70 billion cost were having any problems, despite a huge amount of market scepticism.

BG Group, Santos and Origin Energy all said their plants were running on time and budget and that drilling of the thousands of CSG wells needed to fill them was going as or better than expected.

If that is the case, it’s welcome news. But Shell provided some hints there may be struggles filling the plants without more deals, which its chief financial officer indicating there is time pressure on other parties to buy gas from Shell’s Arrow venture, which is no longer planning its own separate plant.

MATT CHAMBERS
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#2
PUBLISHED MAY 27, 2014

Biggest miners face tough Aussie situation
Govt taxes, strong currency, high costs, putting on pressure

Long, difficult road: Even heavyweights such as Rio Tinto whose operations at its Yandi mine in Western Australia are shown here, feel the pinch. - PHOTO: BLOOMBERG

[SYDNEY] Three of the world's biggest miners have warned that government taxes, high costs and a strong currency are putting pressure on their Australian operations, reports said yesterday, as they battle falling commodity prices owing to a supply glut.
Heavyweights BHP Billiton and Rio Tinto said the high costs were placing a "vice-like grip" on the coal industry and could lead to more mine closures and job cuts, The Australian Financial Review reported.
Their warnings came as the world's biggest aluminium producer, Russia's Rusal, said that domestic investment conditions in the sector were "extraordinarily difficult".
The Australian mining sector has been going through a period of belt tightening, winding back or shutting operations and slashing thousands of jobs as the Asia-led mining investment boom cools.
Swiss giant Glencore Xstrata said last week it would close its Newlands underground coal mine in central Queensland state with the loss of almost 200 jobs by the end of 2015, adding to previous cuts in 2013.
The slide in coal prices also saw Integra, a subsidiary of Brazilian mining powerhouse Vale, announce in mid-May a suspension of work at two mines in New South Wales.
Rio's chief executive for energy Harry Kenyon- Slaney said his company's leadership team was "prepared to kill sacred cows", such as freezing salary rises as part of its cost-cutting drive.
"Quite a lot of projects that had considerable noise around them over (the) last three or four years have gone quiet," he told the Financial Review.
"The economic reality is that it is going to be quite hard to find financing for big coal projects."
Rusal said Australia's high cost of construction and a stubbornly high exchange rate were putting future investment at risk.
"The industry in Australia is faced with development hurdles that pose significant obstacles for investment," Rusal's Australian chairman John Hannagan told The Australian broadsheet.
He added that frustration with Australia's investment climate had prompted the firm to turn its attention to Indonesia, where it is looking into bauxite and alumina opportunities despite the country's recent ban on exporting unprocessed bauxite.
"While there is still some uncertainty around aspects of the new policy we would expect greater clarity after the 2014 Indonesian elections are completed," said Mr Hannagan.
Indonesia holds its presidential election in July.
"This new development means that Australia will compete directly with Indonesia as their bauxite/alumina policy matures." - AFP
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#3
Project pipeline tumbles by $29bn as cuts kick in
SARAH-JANE TASKER THE AUSTRALIAN MAY 29, 2014 12:00AM


THE continued decline in exploration expenditure has flowed through to the number of new projects being announced, with a $29 billion drop in potential mining and energy projects.

The latest Bureau of Resources and Energy Economics report outlined that at the end of last month the number of projects at the “publicly announced stage” had fallen to 78, with a combined value of between $96bn and $122bn. That represented a drop of 14 projects, at a value of up to $29bn, on the last report, in Oct­ober last year.

The decrease was on the back of 21 projects being removed from the “major projects” list after ­extended periods of inactivity or announcements that they were on hold.

The BREE report follows an 18-month downwards trend in exploration expenditure. Spending on new exploration recorded a 14 per cent decrease in the December quarter to $547 million, which represented a 34 per cent decrease year on year.

Quarterly minerals exploration expenditure has now declined nearly 50 per cent since it peaked at $1.1bn in June 2012. The BREE report said commodity markets and general economic conditions had not supported ­exploration activity as they did during the height of the boom.

Lower commodity prices had pushed many established companies to curtail exploration ­activities to save costs while the quarterly activity reports of ­aspiring producers indicated they were having difficulty arranging finance for exploration programs, the report found.

Simon Bennison, chief executive of the Association of Mining and Exploration Companies, said given the shift in Australia’s mining cycle to the production phase, it was essential to encourage investment in mineral exploration to discover the mines that would sustain the industry and government revenue for the future.

AMEC has long advocated for government incentives to encourage exploration and was encouraged by the Coalition sticking to its pre-election commitment to introduce an exploration development incentive (EDI), which was outlined in the budget. The EDI, which will be formally announced by Industry Minister Ian Macfarlane at the AMEC convention in Perth in July, will allow investors to deduct the expense of exploration from taxable income.

“The government’s commitment to implementing an exploration development incentive will go a long way towards addressing low discovery rates of new mines,” Mr Bennison said yesterday.

“It will help to reverse the ongoing reduction in Australian greenfield exploration activities and the low number of initial public offerings for mineral projects.”

Mr Bennison also said the government’s commitment to working with the states and territories to implement the recommendations of the Productivity Commission report into mineral and energy resource exploration was a step in the right direction.

He said AMEC’s recommendations to the inquiry included a tax credit for exploration, increasing transparency and accountability, and reducing the regu­-latory approval times.
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#4
Juniors stop exploring as cash dries up

PUBLISHED: 0 HOUR 14 MINUTES AGO | UPDATE: 0 HOUR 0 MINUTES AGO

Juniors stop exploring as cash dries up
The percentage of junior explorers in Australia’s 800-strong sector who have stopped exploring rose to 10 per cent (or 85 companies) in the March quarter, according to accounting firm BDO. Photo: Rob Homer
JAMES THOMSON
A growing number junior mining explorers have stopped exploring altogether, as falling commodity prices and difficult funding conditions hit the small end of Australia’s mining sector.

According to research provided exclusively to The Australian Financial Review by accounting firm BDO, the percentage of junior explorers in Australia’s 800-strong sector that have stopped exploring hit 10 per cent (or 85 companies) in the March quarter, up from 7 per cent (or 71 companies) in the June quarter of 2013.

The data also shows that the median spend on exploration during the March quarter dropped 27 per cent from the June quarter in 2013, to $178,000.

BDO Partner and natural resources specialist, Bruce Gordon, said: “Neither of these factors bodes well for the future supply side of the natural resources industry.

“This quarter’s update points to a continuation of the tough conditions we’ve seen over the last year or two for junior explorers.”

While the growing propensity for junior explorers to cease exploration activities underlines how tight cash is, the juniors do at least appear to be battening down to be able to withstand a longer period of tough conditions.

The proportion of companies that have enough cash to cover two quarters of operating expenditures has risen from 54 per cent to 58 per cent, while the 76 per cent of companies have enough cash to cover two quarters of administrative expenses.

While 14 per cent of companies – around 123 firms – raised more than $1 million in capital, Mr Gordon raised questions about how this cash was used and suggested that instead of spending the money on exploration, the capital might have been raised for “lifestyle” reasons, such as salaries for executives.

The BDO analysis – which is based on Appendix 5B quarterly cash flow statements that have been lodged with the ASX by mining, and oil and gas exploration companies – shows the difficulties faced by Australia’s next generation of mining companies.

Iron ore and copper prices have fallen sharply since the start of the year, largely on concerns about the state of the Chinese economy and banking system. This has added to the usual difficulties small explorers have raising funds.

Steve Gemell, chief executive of copper and gold explorer Golden Cross Resources, says his company is focused on having a smaller portfolio of better quality targets, rather than taking a scattergun approach.

The company recently launched a $1.5 million drilling program at its Copper Hill project in central NSW.

“In the past having a large portfolio of diverse exploration assets would have been seen as prudent risk management, but in the current market it’s increasingly difficult to manage,” Mr Gemell said.

“The reality is that despite the difficulties faced by the mining sector at the moment, quality projects will always attract investment.”
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#5
Signs of hope as market sentiment turns in favour of smaller explorers
THE AUSTRALIAN JULY 24, 2014 12:00AM

Paul Garvey

Resources Reporter
Perth
THE hundreds of small mining and exploration companies that call Perth home are finally starting to see some fresh signs of hope after the best part of two years in the post-boom wilderness.

Investors appear to be returning to the speculative end of the market, boosting confidence among companies that a fresh round of desperately needed equity funding could be on its way.

The recent surge in share prices at junior explorers such as Thundelarra and Lucapa Diamonds in the wake of exploration success has shown a willingness among investors to reward companies making progress with early-stage projects, a feature that had been absent in recent years.

The subtle shift in sentiment has also been reflected in the share price of minnows such as Segue Resources. Its share price has more than doubled in recent weeks as investors anticipate a start-up in drilling at one of its key projects.

And the market has once again found an appetite for boutique metal of the moment — a phenomenon witnessed numerous times during the mining boom in commodities such as uranium, tungsten and rare earths. This time around the market has found an appetite for graphite, with shares in graphite explorers surging dramatically this year as investors bet that graphite’s use in so-called “green energy” applications could drive up demand.

Morgans analyst James Wilson told The Australian it was clear that sentiment towards the junior end of the resources sector was starting to improve.

While fresh equity funding may finally be starting to flow, Mr Wilson warned that it may come with a down side.

“There’s more risk money about, and that’s a good and bad thing,” he said. “It could be detrimental (to the junior sector) in that those companies who had been forced to think about consolidation, who were being squeezed out of existence and who probably never should have listed in the first place, are possibly hanging on just long enough to get capital to hang around for the next five years.”

The number of listed exploration companies trebled over the past decade to more than 900, and Mr Wilson said there was a need for that number to reduce in order to concentrate the quality of assets on offer to investors.

KPMG head of mining Carl Adams said it had been a tough few years for the sector, but improving prices for several commodities had offered encouragement for smaller miners and explorers.

“That end of the market has been a little bit of doom and gloom but there’s some shoots there. We’re seeing good movement in some prices, be it nickel, aluminium and copper and some other ­alternative ones as well, so sentiment is getting a bit better,” he said. “My view would be we’ve seen the worst of it.”
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#6
High costs hurting mine investment, says Gina Rinehart

CLIVE MATHIESON THE AUSTRALIAN JULY 29, 2014 12:00AM

Gina Rinehart and her youngest daughter Ginia tour Hancock Prospecting’s new iron ore export facilities at Port Hedland in WA. Picture: Darryl Peroni Source: News Corp Australia
MINING magnate Gina Rinehart says the high cost of doing business in Australia is driving some multinational companies to pursue overseas projects that have the potential to further damage the country’s export revenue.

Mrs Rinehart, the chairwoman of ­the privately owned Hancock Prospecting and the nation’s richest person, lamented the decision by some companies to invest in lower-cost offshore projects that could drive down commodity ­prices and undercut Australian projects. “Sadly, too many multinational companies, even Australian companies, are focusing and preferring to invest in overseas countries with lower costs,” she told The Australian.

“For instance, Rio Tinto, which has been in Australia for decades, and made most of its revenue from Australia, is now arranging multi-billions of dollars of investment for a major resource project with substantial infrastructure in ­Guinea in Africa.

“When that’s operating, it will bring billions of tonnes of ore on to the market to compete against Australia, and push down commodity prices. Too few seem to recognise the impact this will have when we are competing with lower-cost countries and how it will hurt Australia for decades.”

Mrs Rinehart said Rio Tinto, Hancock’s partner in the giant Hope Downs iron ore project in Western Australia, should not be singled out, saying the nation must do more “to lower its costs and compete for investment”.

McKinsey & Co analysis released yesterday by the Business Council Australia ranked mining and energy as one of only three sectors of the economy where Australia enjoys an international competitive advantage.

However, the BCA warned the competitiveness of the nation’s resources sector had “declined over the last decade … soaring costs of inputs, relatively low labour productivity and regulatory delays have caused capital costs to blow out and projects to be delayed,” the council says in a landmark ­report, Building Australia’s comparative advantages, released ­yesterday.

Mrs Rinehart welcomed moves by the Abbott government to reduce “some costs and investment deterrents by eliminating the carbon tax and endeavouring to eliminate” the mineral resources rent tax. “These actions are so important and should be supported. Regrettably the critics are at it again, without any regard to the realities Australia faces, and the needs to ensure sustainable jobs and revenue in the future.”

Mrs Rinehart was talking as Hancock marked the halfway mark of the construction phase of its $10 billion Roy Hill iron ore project in the Pilbara region of Western Australia. Roy Hill, about 270km south of Port Hedland, is currently the biggest construction project on mainland Australia, employing about 3800 people. When fully operational, it will employ 2000 and ship 55 million tonnes of ore a year, making it one of the biggest single iron ore mines in the country.

Mrs Rinehart said Roy Hill had never been a “get rich quick” project. “We started the journey with Roy Hill approximately 20 years ago with substantial obstacles blocking our project for years along the way, and we don’t ship (until the) last quarter next year. There is an enormous amount of risk in mining but the critics conveniently leave that out.”

She said Hancock and its Roy Hill partners, South Korea’s POSCO, Japan’s Marubeni and China Steel Corp, were committed to making it a low-cost operation that could compete with other projects. “One of the things Australia has to learn and appreciate is that for us to export, people aren’t going to buy products because they like Australians — forget it,” she said at the Roy Hill site on Friday night.

“They’re only going to buy the products if we remain commercially competitive, cost-competitive. And this is a really big challenge for Australia because we’ve got very high costs and we’ve really got to work hard on that if we want to sustain our future, and a good future.”

The BCA report recommends regulatory reform to remove ­delays and uncertainty for resources projects and reduce costs. “A national approach to assessing and approving major resource, energy, infrastructure and industrial projects should be established,” it says. “This would recognise the significance of these types of projects to national productivity growth.”

It calls for urgent changes to workplace agreements, particularly on greenfields sites, to help mining companies “control cost and timing risk for the full duration of major capital projects”.

Mrs Rinehart said mining’s contribution to the economy, employment and standards of living remained under-appreciated, particularly as a revenue generator when the nation faced rising debt levels. She warned its critics should think of a world without the end products created using natural resources and without the “huge tax receipts and royalties” paid by the sector.

“The Roy Hill investment has been and is great for local related industries, which in turn employ Australians and generate tax revenue in Australia,” she said. “Too often it’s forgotten that the mining industry cannot be separated from the related industries, as both thrive and fall on each other. I may get criticised for doing and saying this, but I am continuing to work and invest in Australia. I am keeping my operations here, unlike other companies.

“(As for) the critics of business, the mining industry and profits, I don’t see them pegging tenements as all Australians can, (putting) their hands up offering to work hard, take significant risks, and pay the salaries of the thousands of employees and those in related businesses I create jobs for in Australia, or pay for the thousands of other jobs the mining industry provides for.

“The mining industry can only do this if it continues to stay cost-competitive and make profits so it can invest and provide for the inevitable overruns.”

Clive Mathieson visited Roy Hill as a guest of Hancock Prospecting
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#7
Olympic expansion years away, says BHP
THE AUSTRALIAN JULY 29, 2014 12:00AM

Matt Chambers

Resources Reporter
Melbourne
Barry Fitzgerald

Resources Editor
Sydney
BHP Billiton is unlikely to ­approve a long awaited expansion of the Olympic Dam copper and uranium mine in South ­Australia’s outback this decade, with the miner revealing it will take four years to trial a processing method it hopes will help make the project profitable.

Under a $30 billion expansion plan shelved in late 2012, BHP was last year to have started construction on the project, which would involve digging the world’s ­biggest open pit.

Yesterday, the company showed how far away any decision to expand was when it fleshed out comments made in September by chief executive ­Andrew Mackenzie that expansion would need a technological breakthrough.

In documents filed with the federal Environment Department yesterday, BHP kicked off the approvals process for a trial plant to test heap-leaching of copper and uranium ores as a lower-cost ­alternative to the previous ­expansion plan.

If all goes to plan, the earliest a demonstration plant would start construction is July next year, with a three-year operation period targeted to start in October 2016.

“While the application is for a trial, a successful trial will not necessarily lead to a full-scale heap-leach project,” BHP said.

“Further, the extent and ­nature of any potential full-scale project is not known at this stage.”

The application is only to study processing the ore, with no mention of how BHP would ­access the deep orebody.

Heap-leaching of ores from the massive deposit could do away for the need to duplicate the costly smelting and refining ­operations at Olympic Dam, which is at present producing at an annual rate of 220,000 tonnes of copper and about 4000 tonnes of uranium.

The process involves extracting copper and uranium by dripping a sulfuric acidic solution on a pile, or heap, of ore.

Under previous government-approved plans, BHP had been planning a staged increase in annual production to a world-class 750,000 tonnes of copper and 19,000 tonnes of uranium, the latter being problematic given the collapse in prices and demand for the nuclear material in the wake of the 2011 Fukushima disaster.

The big-bang approach to expansion was abandoned by BHP in August 2012 in line with the new era of capital austerity that swept the industry in response to weaker commodity prices.

It involved the development of a super pit which would have taken more than five years to complete, with the Olympic Dam orebody sitting under 400m of overburden. The lack of cash flow during the time it would take to develop the open-cut mine ­spooked both BHP and the ­market, where agitation for greater shareholder returns over more big expansions has been become the new mantra.

South Australia had been banking on the original $30bn plan to underpin an economic surge for the struggling state.

Mr Mackenzie undertook in September to update the state on the way forward for Olympic Dam inside of a year. The investigation of the heap-leach option has been an open ­secret, with laboratory test work at Wingfield in suburban Adelaide under way since the expansion was canned.

“Laboratory and pilot-scale trials of heap-leaching as an alternative process for extracting metals from ore mined underground have shown promising results to date,’’ BHP said yesterday.

In order to test the processing method at a larger and more integrated scale, BHP has lodged an application for assessment by the federal and South Australian governments to build and operate a demonstration plant on the existing mining lease at Olympic Dam.

“Should approval be granted, and subject to BHP approvals, construction of the demonstration plant is expected to commence in the second half of (calendar) 2015, with a projected trial period of 36 months which is expected to commence in late 2016,’’ the company said.

The heap-leach trial is only part of the thought process BHP has to go through to determine the best, and lowest-cost, way to maximise returns from Olympic Dam, one of the world’s biggest deposits of copper and uranium.

The initial plan was supported by a mine-life capability from the underlying resource base of more than 40 years.

BHP has yet to elaborate on what the move towards a heap-leach operation would mean for the end products produced at Olympic Dam.
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#8
Bluestone Global closes as rights issue fails

THE AUSTRALIAN AUGUST 05, 2014 4:48PM

Matt Chambers

Resources Reporter
Melbourne
RECRUITMENT firm Bluestone Global has gone into administration after shareholders failed to back a $4 million rights issue but the 3500 workers on its books should largely be looked after.

Bluestone, which had a market value of about $5 million before it appointed KordaMentha as administrators today, employed about 180 staff at 16 offices around Australia. Those workers have been retrenched.

Tthe positions of the workers on its books, mainly in labour hire, mining services and professional recruitment, will still exist, it is just a matter of which recruitment firm takes them on.

Despite the liquidation of Bluestone’s ResCo mining services unit in the Hunter Valley, KordaMentha said deals struck today with Skilled Engineering and WorkPac meant 95 per cent of the 350 ResCo jobs had already been saved.

Melbourne-based Bluestone issued a statement saying it was “unsuccessful in securing the necessary shareholder support to repair its balance sheet” and has been left with no option but to go into administration.

The rights issue came after a restructure earlier this year that raised money to pay off a tax debt.

While the parent company goes into administration, the majority of its subsidiaries, including hire firm ResCo, will be liquidated.

ResCo is a major provider of mining services in the NSW Hunter Valley region.

KordaMentha was appointed administrators and liquidators late on Monday.

Liquidator Craig Shepard says every step is being taken to find new jobs for the 3500 contract workers and 180 full-time staff who have been retrenched from Bluestone and its subsidiaries.

“Because of the nature of their on-hire employment contracts, the Bluestone workforce should find it easier to be re-engaged to do the same work,” he said.

KordaMentha is also arranging the payment of all employees’ entitlements, including unpaid wages and statutory severance entitlements.

Bluestone had been seeking merger opportunities to improve its profitability as well as additional investor funds to repair its balance sheet since May.

However, the company says these efforts failed and the board had no choice but to appoint administrators.

With AAP
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#9
Moody’s warns juniors face higher default risk
THE AUSTRALIAN AUGUST 06, 2014 12:00AM

Sarah-Jane Tasker

Reporter
Sydney
RECENT defaults by Mirabela Nickel and Midwest Vanadium highlight key risk factors for small Australian mining companies, Moody’s has warned.

Saranga Ranasinghe, a Moody’s analyst, said the rating’s agency believed that small mining companies were at heightened risk of default.

His comments came as Moody’s released a special report on the sector which outlines that St Barbara has the highest risk of default among high-yield Australian miners rated by Moody’s.

Moody’s cited Mirabela Nickel and Midwest Vandium and said challenges with project execution, unpredictable nature of ore bodies, customer concentration, volatile markets and thin liquidity buffers were some of the risk factors.

Referring to St Barbara, Mr Ranasinghe said it had the highest risk of default because it faced most of the risks Moody’s had outlined.

“In particular, it is grappling with execution challenges with its assets in Papua New Guinea and the Solomon Islands, which have weakened its margins and liquidity,” he said.

West Australian miner Atlas Iron was better positioned, Moody’s said, but the company still exhibited some of the key risks.

Moody’s views the ­
Perth-based miner’s plan to expand its Mount Webber mine in Western Australia to six million tonnes a year as moderate-to-low risk and cited the company’s track record in developing new mines, the low technical complexity of its mining operations, its capital-light contracting strategy and the progress to date on its expansion projects.

Fortescue Metals Group was listed as the least affected by the risk factors. “It (Fortescue) is a good example of a company delivering major greenfield and brownfield projects on time and on budget,” Mr Ranasinghe said.

“This strong track record has been the key contributor to several rating upgrades.”

The Moody’s report highlighted that project execution challenges was one of the main reasons behind the initial low ratings it had placed on Mirabela Nickel and Midwest Vanadium.

Although projects at both companies were in advanced stages compared with a typical greenfield project, the report outlined that they faced delays and cost overruns beyond Moody’s expectations at the time the companies were first rated.

“These problems weakened the companies’ credit quality and led to multiple rating downgrades and the companies’ eventual defaults,” the report says.

The issue of product diversity is also raised, the report pointing to the difficulties a company faces in times of price volatility when it only produces one commodity.

“Single-commodity producers relying on cashflow generated from operations to carry out expansions and modifications, along with miners facing high operating costs brought on by project execution challenges, are particularly vulnerable to the volatility of product prices,” it says.

On St Barbara, it outlined that the volatile market conditions had impacted the miner, given gold prices were about 25 per cent lower than the highs seen in 2012.

“Price volatility and the company’s elevated cost base have added to St Barbara’s margin pressure.”
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#10
How many more con jobs would be costing investors on sgx their blood and sweat $?

Western Desert bites the dust as ore prices plunge
THE AUSTRALIAN SEPTEMBER 08, 2014 12:00AM

Andrew Main

Wealth Editor
Sydney

WESTERN Desert Resources has become the second junior iron ore miner to collapse in two months due to the plunging price of the resource.

The Darwin-based miner, which floated in 2007, appointed Korda Mentha as administrators late on Friday after Macquarie Group decided not to extend a debt facility that was already drawn down by just over $80 million.

The first junior to go under was near-neighbour Sherwin Iron in July.

Macquarie is understood to have appointed Darren Weaver of Ferrier Hodgson in Perth as receiver to protects its interests. A spokesman for Macquarie declined to comment.

The administration will be managed by Stephen Duncan of Korda Mentha’s Adelaide office and by Mark Mentha in ­Melbourne.

Representatives of the administrators and receivers are reported to have travelled to the mine at the weekend along with the company’s chief executive, Norm Gardner, who drove the project originally.

Western Desert’s Roper Bar mine, near Boorooloola in the Northern Territory, relies on a fleet of 17, 150-tonne capacity road trains, a 165km dedicated haul road and a system of barges at Glencore Xstrata’s underused port of Bing Bong to fill shallow-draught freighters waiting offshore.

Barging is a much more cumbersome system than the rotary railcar dumpers and stacker-­reclaimers the big miners use, which can fill a 180,000 tonne Capesize ship in half a day.

Western Desert was pleased in June to report it had loaded a 55,000-tonne ship in five days.

Western Desert has been hit by barging and weather problems, but the biggest factor in the collapse has to be the price of iron ore, which is now almost 40 per cent below the level it was at when mining started at Roper Bar last December.

The ore price is now at $US83.60 a tonne, its lowest level for five years, having broken through the $US86.90 low that it hit in September 2012.

The collapsed company has a contract to supply Noble Resources, which also handles shipping, at spot prices.

Western Desert shares have been on a slide since peaking at just over $1 in early 2012, before the ore price fell. The shares were put in a trading halt at the company’s request at 14.5c on Wednesday.

The biggest shareholder is hotels king Bruce Mathieson, who lifted his stake to 21.5 per cent earlier this year by taking up $21m worth of shares at 50c each.

Western Desert recently hit its nameplate ore output of three million tonnes a year but had less luck finding a joint-venture partner, ­despite having hired Ord Minnett and Somerley International in recent months to conduct a search.

Back in 2012, Chinese group Meijin Energy made a conditional $1.08-a-share bid for Western Desert, valuing the company at $435m. Rick Allert, the former Coles chairman who also chairs Western Desert, said at the time he did not understand why the bidder had pulled out.
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