Mining’s old guard needs strong medicine
A new report details subpar investor returns in the mining industry over the last decade, particularly big cap diversified companies which have not adapted to new realities.
Rio Tinto, the world’s second- largest mining company, said third-quarter iron ore output and coking coal production reached record highs after recovering from disruptions caused by flooding in Australia earlier in the year and continued strong demand from Asia.
Iron ore production increased to just shy of 50 million metric tons and hard coking coal production was 55% higher than the second quarter. Analysts say iron ore prices may climb above $200 a ton on the back of supply shortages while metallurgical coal have been trading at record highs of $330 during 2011.
The Australian quotes Credit Suisse analyst Paul McTaggart: “We see potential upside to our full-year iron ore production guidance while copper guidance has been revised down 3%.”
Businessweek quotes Clarke Wilkins, a Sydney-based analyst at Citigroup: “Rio remains our preferred diversified exposure for iron ore leverage and balance-sheet flexibility.” The investment bank maintained a “buy” rating on the stock and a target price of A$100 a share.
We have re-examined all upcoming iron ore projects. We have analysed cost curves, the Economics of Supply model for long-term price forecasts, and supply/demand. The conclusion is clear – do not expect cheap iron ore in the future. • We expect severe shortages of global seaborne supply to continue until at least 2014, as delays in iron ore projects increase near-term missing capacity. • Supply/demand will likely begin to balance from 2015, but rising production costs should provide long-term support to iron ore prices. • We expect the spot price to reach USD 200/t C&F China towards the end of Q4-2011. Supply shortage will likely support an average price of USD 181/t between 2012 and 2014. We expect the long-term price to remain above USD 120/t between 2015 and 2026 on rising costs.
MINING.com reported two weeks ago BHP Billiton unveiled plans to increase its iron-ore production in the Pilbara region – the heart of Australia’s iron ore mining – to 450-million tons a year by adding infrastructure and building new mines.
BHP’s current iron-ore production capacity is 155 million tons a year in the Pilbara, while rival Rio Tinto’s capacity is 225 million tons a year. Rio Tinto announced earlier in September that it wants to grow output to 333 million tonnes by 2015.
