Thu, Apr. 16, 7:55 AM
- The iron ore industry is “facing an existential challenge,” Goldman Sachs says as it lowers its iron ore forecast and now sees the price falling to average $52/metric ton this year, $44 in 2016, and $40 in 2017 and 2018.
- First-tier producers will remain profitable although their margins will be squeezed, but as much as half of tier 2 production capacity is at risk, the firm says; tier 1 consists of BHP Billiton (NYSE:BHP), Rio Tinto (NYSE:RIO) and Vale (NYSE:VALE).
- That's not a vote of confidence in the big miners who show no signs of slowing production amid weakening demand, which has sent iron ore prices below $50 this month.
- Goldman cuts Rio and Fortescue Metals (OTCPK:FSUMF) to Sell, and Rio will need to utilize its balance sheet to pay dividends, while shares are expensive at 20x 2016 estimated earnings relative to history, the firm says; BHP is downgraded but only to Neutral, as it is the least exposed to iron ore among the big miners.
- Several others - including J.P. Morgan, UBS and Citigroup - cut their iron ore price estimates earlier this month.
Wed, Apr. 15, 10:58 AM
- Australia’s Treasurer Joe Hockey plans to discuss iron ore demand with his Chinese counterpart after rising output from Rio Tinto (NYSE:RIO) and BHP Billiton (NYSE:BHP) helped drive the metal’s price below $50/metric ton this month.
- "When you have an iron ore price that has dropped as dramatically as it has in the last 12-18 months, we’ve got to build shock absorbers into our system to cope with it,” Hockey says.
- China, which buys about two-thirds of all iron ore transported by sea, grew last year at the weakest pace since 1990 and likely will slow further in 2015, and the country’s consumption of iron ore probably will remain weak as steel demand contracts.
- RIO plans output of 330M tons this year from 295M in 2014, while BHP targets 225M tons this year from 204M; Vale (NYSE:VALE), the world's leading iron ore producer, expects to produce 340M tons this year.
Tue, Apr. 14, 7:58 AM
- S&P places some of the world's biggest iron ore miners on credit watch negative, as it lowers its iron ore price forecasts to $45/metric ton for the rest of this year, $50 for next year and $55 for 2017; the previous forecasts were $65 for this year and 2016, and $70 for 2017.
- The eight iron ore producers being watched by S&P include global giants BHP Billiton (NYSE:BHP), Rio Tinto (NYSE:RIO), Vale (NYSE:VALE), Fortescue Metals (OTCPK:FSUMF) and Anglo American (OTCPK:AAUKF, OTCPK:AAUKY).
- "The revision of our price assumptions and the sharp fall of iron ore spot prices reflect the severe supply and demand imbalance in the market, which we believe could persist for the next two years," S&P says.
Mon, Apr. 13, 10:22 AM
Fri, Apr. 10, 10:19 AM
- Glencore (OTCPK:GLCNF, OTCPK:GLNCY) says it will stop funneling sales from its Australian coal operations through Singapore, a move that comes amid growing concern in Australia about the impact of alleged tax avoidance by big miners.
- The company made the disclosure to an Australian inquiry examining the use of Singapore marketing hubs by BHP Billiton (NYSE:BHP), Rio Tinto (NYSE:RIO) and Glencore to reduce their tax bills.
- Glencore’s disclosure that it will sell its coal direct from Australia follows a clear signal this week from Australia’s treasurer, Joe Hockey, that he would block any formal takeover proposal made by the miner for RIO due to concerns such a move would undermine the country’s tax base.
Fri, Apr. 10, 8:27 AM
- Atlas Iron (OTCPK:AGODY, OTC:ATLGF) says it will shutter all its mines and stop exports to Asia, a victim of iron ore prices that have dropped 60% during the past 12 months to a 10-year low of US$46.70.
- Atlas says while it had reduced its breakeven point to below $US60/metric ton, "the global supply-demand imbalance for iron ore has driven prices down to the point where it is no longer viable for Atlas to continue production."
- Analysts say iron ore prices could fall further in coming months as mining giants such as BHP and RIO continue to increase production; Stan Shamu, an analyst at broker IG, said he expects the market downturn to claim "more victims."
Fri, Apr. 10, 7:52 AM
- BHP Billiton (NYSE:BHP) and Rio Tinto (NYSE:RIO) admit they are under audit by the Australian Taxation Office for allegedly shifting profits through marketing hubs in Singapore.
- At a Senate hearing into corporate tax avoidance, the miners denied arranging their businesses to shift profits through marketing hubs in low-tax Singapore that were set up during a decade-long mining boom to facilitate the sale of minerals to customers across Asia.
- Rio's Australian managing director told the inquiry that its Singapore hub made a $790M profit and paid a 5% tax rate ($44M) in 2014; BHP execs refused to answer questions on how big a potential tax bill the company faced because of its Singapore hub.
- Earlier: Australia pursuing BHP, Rio Tinto on Singapore tax shelter (April 7)
Tue, Apr. 7, 8:34 AM
- Australian tax authorities are pursuing BHP Billiton (NYSE:BHP) and Rio Tinto (NYSE:RIO) for channeling billions of dollars in iron ore profits through marketing hubs in Singapore that pay almost no tax, the Australian Financial Review reports.
- The Singapore arrangements save the two companies more than A$750M/year ($569M) in Australian tax, according to the report.
- The two mining companies report $2.6B/year in profits in their Singapore marketing hubs, where they pay tax rates as low as 2.5%.
- The disputes do not relate to operations in Australia, where BHP paid US$7.8B in taxes and royalties last year, while Rio paid US$6.2B.
Thu, Apr. 2, 5:24 PM
- Iron ore prices plunged below $50/ton this week with no sign of stopping, as the biggest miners are bent on ramping up supply even though demand, particularly from China, appears to be falling short.
- WSJ says the situation raises questions about the survival of the fittest strategy followed by the big three producers - BHP Billiton (NYSE:BHP), Rio Tinto (NYSE:RIO) and Vale (NYSE:VALE) - which have continued to boost production with the goal of squeezing out weaker operations that produce iron ore at a higher cost.
- The strategy is playing out somewhat, but it is not without risk; a $5 dip in iron ore prices would shave $672M in earnings from BHP and $674M from Rio, according to estimates by Liberum Capital.
- In Australia, where iron ore mining is a major driver of the economy, the selloff in iron ore has raised pressure for an interest rate cut by the country's central bank as soon as next week.
Thu, Mar. 26, 3:34 PM
- Rio Tinto (RIO -1.2%) CEO Sam Walsh rejects as “hare brained” a request by a rival miner for the industry to stop the slide in iron ore prices by collectively capping output.
- Mining execs say any attempt to agree a cap on production would leave companies exposed to lawsuits and fines for anti-competitive pricing in multiple jurisdictions, as well as complaints and potential litigation from customers.
- The arguments show the extent to which miners have been hurt by the drop in prices, although the largest producers such as BHP, Vale (NYSE:VALE) and Rio, continue to insist they can withstand the slump.
- Andrew Forrest, CEO of Fortescue Metals (OTCPK:FSUMF) - the world's no. 4 iron ore supplier which earlier this month pulled out of a proposed debt refinancing because of unfavorable market conditions - suggested this week that a production cap by the big iron ore miners would help prices.
Thu, Mar. 19, 11:46 AM
- Western Australia Premier Colin Barnett calls out BHP Billiton (BHP -1%) and Rio Tinto (RIO -1.5%) on the company's decisions to run their iron ore mines in the state’s Pilbara region at full bore and depressing iron ore prices.
- "This has been one of the dumbest corporate plays I think I’ve ever seen,” Barnett says.
- The premier - essentially the two miners’ landlord - has been forced to scramble to deal with the hole in the state’s revenues by a collapse in the price of iron ore to a six-year low of ~$55/ton from $180 back in 2011.
Wed, Mar. 18, 2:57 PM
- Fortescue Metals (OTCPK:FSUMF -7.2%) earlier today pulled a proposed $2.5B debt sale, highlighting an iron ore market in deepening distress as prices closed at six-year lows.
- "Rather than lowering the interest cost, we understand the funding cost for the proposed $2.5B secured note was likely to be 8.5%-9%; hence why the offering was pulled," according to Citigroup analysts.
- Fortescue, the world's fourth largest iron ore miner, made the decision to pull the bond issue as iron ore prices fell by 5% to US$54.50/ton, driven down by a rapid expansion in supply by the miner as well as rivals BHP Billiton (BHP +1.2%), Rio Tinto (RIO -0.2%) and Vale (VALE -0.6%); stock prices had been much lower before today's Fed announcement.
- Analysts expect iron ore prices to fall even further as BHP and Rio press ahead with mine expansions in coming years and China’s economic growth slows.
- Also: CLF -3.9%.
Tue, Mar. 17, 7:40 PM
- Crude oil production at three major U.S. shale oil fields - the Eagle Ford in south Texas, the Bakken in North Dakota, and the Niobrara in Colorado and adjacent states - is projected to fall this month for the first time in six years, the Energy Information Administration says.
- Net production from the three fields is expected to drop by a combined 24K bbl/day, but overall losses likely will be masked by production gains in the Permian Basin in west Texas and other regions.
- It is one of the first signs that idling hundreds of drilling rigs and billions of dollars in corporate cutbacks are starting to affect the U.S. oil patch, but it also shows that drilling technology and techniques have advanced to the point that productivity gains may be negligible in some shale plays.
- Top Eagle Ford producers: EOG, BHP, COP, CHK, MRO, APC
- Top Bakken producers: CLR, EOG, WLL, HES, XOM, OAS, NOG, EOX, MRO
- Top Niobrara producers: NBL, APC, ECA, CHK, EOG, WPX
Tue, Mar. 17, 7:12 PM
- Most of the top 15 shale oil producers in the U.S. are heavily concentrated in basins expected by NavPort to be severely affected by the decline in prices, with one major exception: ConocoPhillips (NYSE:COP).
- COP has the lowest well completion concentration in basins expected to suffer the greatest production cuts this year, implying less disruption than other shale competitors, according to NavPort, which collates oil well and rig data using regulatory reports.
- All 14 of the other top producers tracked by NavPort have at least two-thirds of well completion concentrated in the basins rated with "strong" or "severe" exposure: CHK, APC, EOG, DVN, SWN, MRO, APA, SD, XOM, CLR, PXD, NBL, BHP, WLL.
- Operators concentrated in basins that have been less severely affected - such as the Woodford, Utica and Haynesville basins - should enjoy more production than their peers through a higher volume of well completions, NavPort says.
- The study sees the Mississippi Lime, Granite Wash, Bakken and Permian basins suffering at least a 40% Y/Y reduction in drilling.
Mon, Mar. 16, 5:58 PM
- BHP Billiton (NYSE:BHP) outlines its plan to spin off the new company called South32, saying shareholders will vote May 6 on a proposal to offer investors one share in the separate company for every BHP share.
- BHP says South32 will distribute at least 40% of its underlying earnings as dividends to shareholders, and reiterates it will not re-base its own dividend lower following the de-merger.
- BHP last year announced its intention to spin off nickel, aluminum and other properties that would allow it to focus on fewer resource operations in what would be one of the biggest de-mergers in mining history.
Wed, Mar. 11, 12:41 PM
- Cliffs Natural Resources (CLF -7%) CEO Lourenco Goncalves says global iron ore miners should rethink plans to aggressively ramp up supply of the commodity, believing the consequences for Australia could be especially severe.
- Iron ore prices have been cut roughly in half to US$58/metric ton over the past year because of increased exports from Australia's Pilbara region, and Goncalves says a further fall to $30 could lead to "Australia going out of business as a country, because [iron ore] is the most important commodity."
- Low-cost Australian exporters BHP Billiton (BHP -1.1%) and Rio Tinto (RIO -0.6%) say that if they don't raise production then someone else will, but Goncalves calls the strategy "self-destruction."
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BHP Billiton Ltd is a natural resources company. The Company is engaged in the producing commodities, including iron ore, metallurgical and energy coal, conventional and unconventional oil and gas, copper, aluminium, manganese, uranium, nickel and silver.
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