November Newsletter – 18.11.19
- BHP’s New Boss Shows Mining Is Still Nervous
- China-backed consortium wins $14 billion Guinea iron ore deal, pipping Australia’s
- China’s Chalco to ship first bauxite from Boffa mine by early-Dec
- Corruption, child labour risk in Congo’s cobalt industry, OECD warns
- Public consultation launched on global tailings dam standards
- Australia launches office to boost rare earth projects
- Australian rare earth miners to access defence funds
- Rio Tinto to pay $221 million to fund Ranger uranium mine closure
BHP’s New Boss Shows Mining Is Still Nervous
By David Fickling | Bloomberg
When times are good, focus on the top line and the bottom line will look after itself. When times are bad, you should do the reverse.
That looks a lot like the strategy the world’s biggest miner, BHP Group, has followed over the years in appointing its chief executive officers. The question the resources sector should ask in looking at Thursday’s appointment of Mike Henry to succeed Andrew Mackenzie is whether his focus is the top line, or the bottom.
Henry has spent the last three years as the operations chief for BHP’s Australian assets, where he’s focused on improving efficiency and bringing down costs — resolutely bottom-line work. The bulk of his experience, however, is in the top-line marketing side of the business — finding ways to get the best possible prices for the minerals BHP digs and pumps.
That resume harks back to Mackenzie’s predecessor.
With an upswing in prices for its key commodities of iron ore, coal and oil under way in 2007, BHP appointed Marius Kloppers, a South African veteran of its manganese business, to the chief executive role. Kloppers pushed hard to shift the pricing of first manganese, and then iron ore and coal, toward spot markets that more closely track supply and demand.
That helped BHP and its competitors extract additional revenues from their customers as spot prices surged in the years before and after the 2008 financial crisis — but when the market started to turn six years later, the emphasis started to look misplaced. After the demand growth that had supported the capital spending boom of the Kloppers era started to ebb, BHP’s operations looked bloated and wasteful.
Mackenzie, with a background running petrochemicals for BP Plc and mines for Rio Tinto Group and BHP, was brought in as an operational wizard to fix the rot. He slimmed down the business, spun off the less attractive assets as South32 Ltd., and reduced expenditure to a level that could survive in the new, leaner environment.
At first blush, Henry looks like a swing of the pendulum from Mackenzie’s operations focus back to Kloppers’ marketing background.
He sold first coal, then energy and freight and petroleum for BHP before being appointed as Kloppers’ marketing president and then chief marketing officer in 2010. Only after Mackenzie took over the top job and Henry was entering the frame as a potential eventual successor was he shifted over to round out his experience on the operations side.
There’s reason to think that a more bullish focus is finally due. The resources sector has never really climbed out of the slump it entered around 2014, but the S&P 500 breaks new records on a daily basis. Forecasters could be underestimating the potential of a strong economic rebound in 2020, according to Goldman Sachs Group Inc.
Bloomberg’s indexes of energy and industrial metals are still at subdued levels, but the run-up in iron ore prices this year put Australia & New Zealand Banking Group Ltd.’s index of bulk materials such as iron and coal at its highest level since 2013. That should be good news for BHP, since its share price tends to track that benchmark closely.
At the same time, it seems to have been as much Henry’s recent experience managing mines that’s recommended him for the top job. He’s been responsible for rolling out autonomous trucks at the Jimblebar iron ore mine in northwest Australia and for setting up operations centers in Perth and Brisbane to run the company’s iron and coal mines remotely. Costs of late have been sharply lower in both divisions, although those for Queensland coal are creeping back up.
If anything, it’s a sign of how things have changed for the mining industry that even scions of the marketing business like Henry have turned into born-again operations experts. BHP still has Elliott Management Corp. hanging around as a major shareholder. While its activist campaign will have been quiet for almost two years by the time Henry assumes the top job in January, it remains a constraint on any chief executive in a bullish mood.
China-backed consortium wins $14 billion Guinea iron ore deal, pipping Australia’s Fortescue
CONAKRY (Reuters) – A consortium representing Chinese, French and Singaporean interests won a $14 billion tender to develop part of Guinea’s Simandou iron ore project, sources familiar with the talks told Reuters, edging out Australia’s Fortescue Metals Group.
The consortium – which includes Société Minière de Boké (SMB) and Singapore’s Winning Shipping as well as Guinean government interests – has committed to develop blocks 1 and 2 of the largest known deposit of its kind, holding more than 2 billion tonnes of high-grade ore.
Guinea has sought to develop the Simandou deposit for decades, but the project has been mired in protracted legal disputes and the high costs have curbed interest.
The government required bidders to build a 650 km (400 mile) railway and deepwater port to transport the ore from the remote southeastern corner of Guinea to the coast for export, deterring some miners from bidding.
SMB-Winning put $14 billion on the table to develop the blocks and build the infrastructure, according to a government source who asked not to be named because they are not authorized to speak on behalf of the mining ministry.
SMB-Winning chairman Fadi Wazni on Wednesday confirmed the figure.
“The Simandou Project will be crucial for Guinea’s future. This mega deposit is an opportunity in terms of employment and wealth creation for the whole country,” said Sun Xiushun, the consortium’s chief executive.
Fortescue had offered $9 billion for the blocks but did not formally promise to build the railway dubbed the “Transguinéen”, two government sources told Reuters on Wednesday.
Transguinéen was pivotal in the decision to grant the blocks to SMB-Winning, mines minister Abdoulaye Magassouba told Reuters.
On Thursday, Fortescue confirmed in a statement that it had lost the bid.
China’s Chalco to ship first bauxite from Boffa mine by early-Dec
- Sees first shipment from Guinea mine to China in early Dec
- To finish first phase of alumina plant in Guangxi in 2020
- China to add 4.7 mln tonnes alumina capacity in 2020 -Antaike (Adds Antaike forecasts)
By Tom Daly
QINGDAO, China, Nov 14 (Reuters) – Aluminum Corp of China Ltd , known as Chalco, is set to make its first shipment from Boffa’s bauxite mine in Guinea by early-December, an official from parent and state-owned company Chinalco said on Thursday.
A Chinalco official said last month at the China Mining conference in Tianjin that the Boffa launch had been delayed until 2020. Operations at the mine are now expected to be underway by early-December and it will eventually produce 12 million tonnes of bauxite a year.
“The mining operation has already started and the first output will be shipped to China at the beginning of December,” Chen Qi, deputy general manager of Chinalco said at an industry conference.
Corruption, child labour risk in Congo’s cobalt industry, OECD warns
KINSHASA – Companies mining and buying copper and cobalt from the Democratic Republic of Congo must do more to fight corruption and child labor in the country, the Organisation for Economic Cooperation and Development (OECD) said.
Congo is the world’s largest cobalt producer and fifth-largest producer of copper, according to the US Geological Survey. As demand for the two minerals has soared with the growth of the electronic and electric-vehicle industries, so have worries about the conditions under which they are mined. Cobalt is a key component in lithium-ion rechargeable batteries, and Congo has almost half the world’s known reserves.
Child labour and human rights abuses are common in small-scale mining sites in Congo, where independent, artisanal miners dig by hand, the OECD said in a report published Friday. While companies have been trying to address these concerns, they should also mind reports of corruption among the country’s biggest mining firms, the Paris-based organization said.
Several of the Congo’s biggest miners, including Glencore and Eurasian Resources Group, are under investigation in the US and UK for allegations of corruption in their Congo operations.
LEGAL AND REGULATORY
Public consultation launched on global tailings dam standards
LONDON – A Swiss environmental expert launched on Friday a six-week public consultation as he spearheads efforts to create new global standards next year following the Vale dam disaster in Brazil.
The safety of dams used to store mining waste, known as tailings, gained prominence after the collapse of Vale’s dam at Brumadinho, Brazil, in January that killed an estimated 300 people.
The International Council on Mining and Metals (ICMM) said in March it was working on new standards with the UN Environment Programme (UNEP) and ethical investors’ body the Principles for Responsible Investment (PRI).
It chose Bruno Oberle, a former Swiss minister who worked for Switzerland’s environment agency, to head the initiative, saying it was important to have someone from outside the mining industry.
Oberle, chair of the global tailings review, said the consultation aimed to gather feedback to inform and enrich the global standard, which should be published next year.
A statement on Friday from the ICCM, UNEP and the PRI said the public consultation would take place in two parts: an online survey that has been translated into seven languages and consultations across a range of mining jurisdictions.
The draft standard focuses on six main areas.
Mine operators will have to develop knowledge about the social, economic and environmental context of a proposed or existing tailings facility.
A requirement on affected communities will focus on those living and working nearby.
The standards will review design, construction, operation and monitoring of tailings facilities.
They will examine management and governance of tailings facilities, as well as emergency preparedness and response in the event of a disaster, the re-establishment of ecosystems, and the long-term recovery of affected communities.
Lastly, a focus on public disclosure and access to information will aim to ensure all concerned at kept informed of the risks and impact, management and mitigation plans, and performance monitoring.
Australia launches office to boost rare earth projects
Australia’s Minister for Resources and Northern Australia, Matt Canavan, announced this week the launch of the Critical Minerals Facilitation Office, aimed at helping miners secure investment, financing and market access for critical mineral projects.
The office will open on January 1, 2020, and its main focus will be on rare earth projects.
“The Australian Government will secure the future of rare earth and critical mineral projects, including those strategically important to defence end-use, with new financial options and a dedicated project facilitation office within the Department of Industry,” Canavan said in a media statement.
According to the minister, projects which boost the country’s ability to extract and process critical minerals will be eligible for financial support through Export Finance Australia or EFA, including the Defence Export Facility.
He said that changes will also be made to allow projects to access dual funding through the EFA as well as the Northern Australia Infrastructure Facility (NAIF).
“We are determined to develop our rare earth and critical mineral assets for the benefit of Australia and our technology-driven industries,” Canavan added. “By allowing proponents to secure financing through both EFA and the NAIF, we are enhancing opportunities for our critical mineral sector. This opens up new opportunities in trade and manufacturing, creating the jobs of the future for thousands of Australians.”
Australian rare earth miners to access defence funds
Canberra will announce a package of measures to support its rare earth mining sector as it works closely with the US to secure the supply of critical minerals for defence.
Australian rare earth mining projects will become eligible for financial support, including low-interest loans, from the A$4.4bn ($3bn) Defence Export Facility, which was set up last year to support the defence industry. The government will also set up a dedicated office to support Australian companies trying to secure investment for critical mineral projects.
Federal resources minister Matt Canavan will fly to Washington today for a series of meetings with senior US government officials. An escalation of trade tensions between the US and China has focused attention on the lack of a supply chain outside China for rare earths that are critical to defence, automotive, electronics and renewable energy.
Australia is the only large rare earth supplier outside China. Lynas produces around 8-10pc of global supply of light rare earths from its Mount Weld mine in Western Australia, which is processed and separated at its plant in Malaysia. And Northern Minerals has launched pilot production of heavy rare earths at its Browns Range project. But an extended period of low prices has created barriers for other large Australian projects, such as Arafura Resources’ Nolans project in the Northern Territory, Alkane Resources’ Dubbo in New South Wales and Hastings Technology Metals’ Yangibana in Western Australia.
Rio Tinto to pay $221 million to fund Ranger uranium mine closure
MELBOURNE (Reuters) – Rio Tinto said it will subscribe to $221 million rights shares of Energy Resources of Australia Ltd (ERA), which has been desperately seeking funds to close and rehabilitate a controversial uranium mine.
The world’s second-biggest listed miner, which has a 68.4% stake in ERA, also said it will fully underwrite ERA’s A$476 million ($326 million) equity fundraising, after the uranium miner failed to secure someone else willing to do so.
Shares of ERA slumped 22.5% to A$0.190 on Friday, their lowest in almost five months, in a broader market that was up around a percent.
ERA has been looking to raise money to fund the closure and rehabilitation of the Ranger project in Australia’s Northern Territory after it ran into controversy due to its proximity to the Kakadu National Park – the country’s largest.
The Australian Government has documented more than 200 environmental incidents at the mine between 1979 and 2003.
ERA said it has been working closely with Rio for a funding solution after flagging, earlier this year, a higher-than-expected rehabilitation provision for the Ranger project which it could not cover.