Industry Trend Analysis - Weekly Mining & Projects Roundup - JULY 2015

  • Australia's seaborne iron ore cost advantage over Brazil will decrease due to Vale's cash cost reductions and increasing shipping economies of scale.

  • The Chinese gold sector will become increasingly consolidated due to the government's push to increase competitiveness. This supports our view that global gold price weakness will increase consolidation.

  • China's steel production growth will moderate due to continued steel price weakness and tightening governmental regulation. However, a global steel surplus will persist up to 2017, in part due to declining Chinese demand growth.

  • Russia's iron ore production growth will slow on the back of continued iron ore price weakness. Price weakness will reduce sector investment and limit new projects from coming online.

Key Developments: Americas

Brazil: Vale's Competitiveness To Increase - Australia's cost advantage over Brazil in supplying iron ore to China will diminish in the coming years for the following reasons:

  • Vale's declining cash costs will increase the firm's production competitiveness. According to Bloomberg estimates, Vale's operating costs will decrease from USD31.4/tonne in 2015 to USD27.3/tonne and USD24.3/tonne in 2016 and 2017, respectively.

  • Vale's shipping competitiveness will be supported by lower shipping costs for the iron ore industry as a whole. Fuel costs make up around 70.0% of total shipping costs and will decrease on the back of lower fuel prices. In our view, lower fuel prices will limit shipping cost's importance in terms of overall costs, as lower fuel prices will decrease the spread between Australian and Brazilian shipping costs in absolute terms.

  • China's removal of the ban on Valemax bulk carriers will reduce Vale's shipping costs through economies of scale. For instance, Valemax carriers can hold up to 400 thousand tonnes (kt) of iron ore, more than 2.3 times that of Capesize carriers, which will reduce the vale's overhead costs. Furthermore, Vale's freight partnership with China Cosco Holdings and China Merchants Energy Shipping will facilitate the use of Valemax carriers to transport ore to China. In May 2015, Vale completed the sale of four Valemax size carriers to Cosco for USD445mn. The increasing cooperation between Chinese national freight carriers and Vale will support Vale's partnership with China over the coming years. The partnership will result in Vale's iron ore being transported via Valemax ships operated by Chinese ship-owners, thereby sidestepping the obstacles the firm previously faced. Previously, in 2008, Vale attempted to reduce Australia's cost advantage through investing USD8bn to construct the world's largest bulk carriers. However, until now the company's strategy failed as the Valemax class carriers were barred by the Chinese government from entering Chinese ports for fears that it would depress freight rates and defer pricing too much pricing power to one company.

Brazil's Share To Grow
Global - Iron Ore Production (Share Of Total, %)

Key Developments: Asia

China: Government To Fuel Domestic Consolidation - The Chinese gold sector will become increasingly consolidated due to the government's push to increase competitiveness, while weak gold prices will force out high-cost producing miners. In our view, the Chinese government will continue to support domestic consolidation through supporting acquisitions, in a bid to reduce operational costs and increase the sector's global competitiveness. This will prolong the trend of China's gold industry becoming less fragmented, with the number of producers declining from 1,200 in 2002 to 700 in 2010. In addition, the country's top ten gold producers have increased their market share through acquisitions and accounted for over 56.0% of China's total gold output in 2014. For instance, Zijin Mining, one of the country's largest gold miners, in a bid to increase market share, bought a 53.0% controlling stake for USD298mn in the Haiyu mine, the country's largest gold project. Furthermore, China National Gold Group, the country's largest gold miner, will account for more than 22.0% of domestic gold production in 2015, up from 20.0% in 2013.

Majors' Share To Increase
China - Total Gold Production (moz, LHS) & Production Share Of Top 10 Domestic Miners (% Of Total)

China: Supply Growth To Moderate, Surplus To Remain - China steel output growth will slow due to continued global steel price weakness and government attempts to consolidate the industry and limit the sector's environmental impact. On March 28, China's Ministry of Industry and Information Technology announced that steel production will be slashed by 80.0mnt, about 10.0% of total domestic production, over 2015-2017. According to China's National Bureau of Statistics, over the first four months of 2015, domestic crude steel production declined by 1.3% y-o-y to 270 million tonnes (mnt). In addition, in April 2015, Hebei, China's largest steelmaking province, saw crude steel production contract by 2.3% year-on-year (y-o-y).

We forecast Chinese steel output to grow from 845.0mnt in 2015 to 912.0mnt in 2019. This would represent an average annual growth of 2.1% y-o-y over 2015-2019, significantly lower than the average of 11.9% y-o-y over 2005-2014. Chinese steel output will still account for more than 51.0% of global steel production over 2015-2019.

Weak Prices And Stronger Regulation To Subdue Output
China - Crude Steel Production By Region (tonnes), Monthly

Key Developments: Europe

Russia: Iron Ore Price Weakness To Subdue Growth - Russia's iron ore production growth will be moderate due to continued global iron ore price weakness, inadequate infrastructure and declining demand growth from China. Russia's iron ore production will by driven by Metalloinvest, as the firm will increase output through innovation at the firm's existing mines. Metalloinvest will remain Russia's largest iron ore producer over our forecast period to 2019. In 2014, the firm produced 38.7mnt of iron ore concentrate and 22.6mnt of iron ore pellets, accounting for approximately 37.0% and 57.0% of the country's production respectively. Due to our downbeat view on global iron ore prices, we expect mining investment to come under pressure in the coming years. We forecast iron ore prices to average USD62/tonne over 2015-2019, significantly lower than the average price of USD137/tonne over 2010-2014. In light of this, we forecast Russia's iron ore production to grow from 107 million tonnes (mnt) in 2015 to 119mnt in 2019, increasing at an average rate of 2.6% per annum

Moderate Growth Lies Ahead
Russia - Iron Ore Production (mnt) & Growth y-o-y (%)
Projects & Announcements This Week
Source: Company Announcements, BMI
Country Company Mine Commodity Update
Australia Paladin Energy, Energia Minerals Carley Bore Uranium Paladin Energy would buy the project from Energia Minerals for USD12.14mn
Australia Caravel Minerals, First Quantum Minerals Calingiri Copper, Molybdenum Caravel Minerals has signed a farm-in agreement with First Quantum Minerals under which the former will earn a 50.1% interest in the project
Australia Yancoal Stratford Coal The New South Wales Planning and Assessment Commission has approved the extension application for the mine which would result in the company extracting up to 21.5mnt of RoM coal over 11 years
Australia Atlas Iron Corunna Downs Iron Ore Has reported a 25% increase in the total mineral resource at the project. The total Joint Ore Reserves Committee-compliant direct shipping ore resource now stands at 65mnt, grading 57.3% iron
Australia Gold Road Resources Gruyera Gold Has reported a 44% increase in mineral resources at the deposit to 137.81mnt, grading 1.24g/t gold for 5.51mn ounces of gold
Australia Dart Mining Unicorn Molybdenum, Copper, Silver, Zinc A project definition study has found that the project could be mined using conventional open pit methods. An average of 10mnt a year would be mined over 20 years
Australia Ramelius Resources Vivien Gold The board of Ramelius Resources has given the approval to start mining at the project
Australia Mincor Resources Horseshoe Lights Copper, Gold Has discovered multiple broad copper mineralisation zones from initial drilling at the project
Australia Segue Resources Plumridge Nickel Has recognised 15 high-priority nickel targets at the project
Australia Metro Mining Bauxite Hills Bauxite The ore reserve has been increased by 398% to 48.2mnt, of which 41.8mnt were classified as proven and 6.4mnt were classified as probable
Australia GME Resources Devon Gold Has completed trial mining at the mine, producing about 16.7kt of ore from the open pit operation
Botswana Botswana Metals Maibele North Nickel, Copper, Platinum Is set to begin an infill drilling programme at the mine
Burkina Faso Golden Rim Resources Korongou Gold Has restarted the reverse circulation drilling at the Guitorga auger gold anomaly of the project
Canada Wolfden Minerals, Votorantim Metals Murray Brook, Manitoba Nickel, Copper Wolfden has cancelled the agreement to buy a 65% interest in the Murray Brook project from Votorantim Metals, settling instead for a Manitoba nickel/copper claim
Canada Thompson Creek Metals Endako Molybdenum Will place the mine on care and maintenance from July 1
Ghana Viking Mines Akoase Gold Has sold the project to a Chinese buyer for USD10mn
Ghana Perseus Mining Edikan Gold The Environmental Protection Agency of Ghana has given the approval to extend mining operations at the mine
Guyana Guyana Goldfields Aurora Gold Has started commissioning equipment at the project, saying the project remained on track for the first gold pour by midyear
Liberia Aureus Mining New Liberty Gold Has successfully completed the first gold pour at the mine, moving the project into the advanced commissioning phase and rendering it on track to reach full-scale commercial production in Q315
Mongolia Guildford Coal, Tsaidam Energy Tsaidamnuur Coal - Thermal Guildford has signed a memorandum of understanding with Tsaidam to acquire an 80% stake in the project
New Zealand Newcrest Mining, Laneway Resources Southern Coromandel Gold Newcrest has signed a farm-in agreement with Laneway that could see the former earn an 80% interest in the project
Papua New Guinea Nautilus Minerals Solwara 1 Copper An independent report on the project has found that the project has the potential to significantly reduce social and environmental impacts commonly associated with large surface terrestrial copper mines
Papua New Guinea Zijin Mining, Barrick Gold Porgera Gold Barrick Gold would sell a stake in the mine to Zijin Mining Group for USD298mn
Romania Eldorado Gold Certej Gold, Silver A new feasibility study on the project has found that the 8,000t/d operation is expected to produce, on average, 140koz/yr gold and 830koz/yr silver
South Africa Rockwell Diamonds Remhoogte/Holsloot Diamond Has completed a substantial portion of the conditions precedent for the acquisition of the project, paving the way to close the transaction and assume ownership
South Africa Impala Platinum Marula Platinum Has decided not to sell the mine and plans to improve the performance of the operation instead
Tanzania Acacia Mining Gokona Gold Stoping operations have started ahead of schedule at the project
United States Newmont Mining, AngloGold Ashanti Cripple Creek & Victor Gold Newmont Mining is in talks with AngloGold Ashanti to buy the latter's mine
United States Uranium Energy Corporation Palangana Uranium Has received all required permits to produce uranium from new resource areas at the mine