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Released September 24, 2012 | PERTH, AUSTRALIA
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Researched by Industrial Info Resources (Perth, Australia)--The combination of the high Australian dollar, falling commodity prices, and ever-increasing cost pressures are finally taking their toll on the "booming" Australian mining sector, with almost all of the major Australian producers announcing some form of cost reduction strategy over the past month. BHP Billiton (NYSE:BHP) (Melbourne, Australia), Rio Tinto Iron Ore (NYSE:RIO) (Melbourne), Fortescue Metals Group (PINK:FSUGY) (Perth), Vale Australia (Brisbane, Australia) and Xstrata Coal (ASX:FMG) (Sydney, Australia) currently seem to be engaging in a race to see who can delay or cancel the most projects and lay off the most workers in the shortest timeframe possible.
The warnings began to sound a number of months ago, but the starter's gun was fired late in August with BHP Billiton's announcement that the Olympic Dam copper/uranium mine expansion would be reviewed and delayed. This announcement sparked media frenzy with speculation rife that it signalled the end of the mining boom in Australia, forcing the current Australian Labour government to jump on the defensive to ensure the public that the announcement had nothing to do with the recent introduction of the Mineral Resources Rent Tax and Carbon Tax. For more information, see June 29, 2012, article - BHP Billiton and Rio Tinto Send Conflicting Signs on Investments, and August 23, 2012, article - BHP Billiton Puts the Brakes on Olympic Dam Expansion.
Despite all of the reassurances from various parties, including the mining companies themselves, the Olympic Dam announcement has proved to be merely the tip of the iceberg, with a slew of announcements over the past month, only adding to the concern of the general public. BHP Billiton shelved its $20 billion "Outer Harbour" iron ore terminal expansion plans at Port Hedland, barely hours after the Olympic Dam news. They also have plans to cut jobs across their coal operations and already have announced the ceasing of open pit operations at the Gregory coal mine.
Not wanting to be outdone, Rio Tinto has announced job cuts at multiple Australian operations, including Argyle diamond mine, Clermont coal mine and Gove bauxite mine, as well at its New Zealand Aluminium Smelter. Rio Tinto also has flagged further job cuts over the coming months. Xstrata Coal and Vale Australia have commenced reviews of their Australian operations, with the former already declaring that at least 600 jobs will be lost across various areas, and the latter terminating a small number of positions.
Fortescue Metals, which is the only non-diversified miner in the group and therefore heavily exposed to price fluctuations, has been hit the hardest by the recent drop in commodity prices. The company's shares have been in steady decline for a number of months, basically tracking the drop in iron ore values over the same time period. Earlier in September, Fortescue informed the market that it would be cutting staff, deferring development of two expansion projects and selling its Solomon power station, which is still under construction. Less than 10 days later, Fortescue shares were placed into a trading halt after they dropped 14% in a matter of hours amid speculation that they were in discussions with lenders requesting extensions to existing debt financing arrangements. Fortunately for Fortescue, it was able to secure the refinancing that it required, which caused its share price to surge back up above where it had been before the trading halt, but still 40% below the highs seen earlier in the year.
While the price of iron ore has rebounded slightly over the past week, the price of coal remains depressed, which does not bode well for those companies relying on its value to return to the highs of the past 12 months. Iron ore is also well below the historic highs of the past few years, and while this may result in further pain for the existing operations and expansion plans of the large miners, it may create much more significant pain for the multitude of smaller miners who are attempting to push their, as yet undeveloped, projects into production in the coming years.
Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, and eight offices outside of North America, is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. Industrial Info's quality-assurance philosophy, the Living Forward Reporting Principle, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities.
The warnings began to sound a number of months ago, but the starter's gun was fired late in August with BHP Billiton's announcement that the Olympic Dam copper/uranium mine expansion would be reviewed and delayed. This announcement sparked media frenzy with speculation rife that it signalled the end of the mining boom in Australia, forcing the current Australian Labour government to jump on the defensive to ensure the public that the announcement had nothing to do with the recent introduction of the Mineral Resources Rent Tax and Carbon Tax. For more information, see June 29, 2012, article - BHP Billiton and Rio Tinto Send Conflicting Signs on Investments, and August 23, 2012, article - BHP Billiton Puts the Brakes on Olympic Dam Expansion.
Despite all of the reassurances from various parties, including the mining companies themselves, the Olympic Dam announcement has proved to be merely the tip of the iceberg, with a slew of announcements over the past month, only adding to the concern of the general public. BHP Billiton shelved its $20 billion "Outer Harbour" iron ore terminal expansion plans at Port Hedland, barely hours after the Olympic Dam news. They also have plans to cut jobs across their coal operations and already have announced the ceasing of open pit operations at the Gregory coal mine.
Not wanting to be outdone, Rio Tinto has announced job cuts at multiple Australian operations, including Argyle diamond mine, Clermont coal mine and Gove bauxite mine, as well at its New Zealand Aluminium Smelter. Rio Tinto also has flagged further job cuts over the coming months. Xstrata Coal and Vale Australia have commenced reviews of their Australian operations, with the former already declaring that at least 600 jobs will be lost across various areas, and the latter terminating a small number of positions.
Fortescue Metals, which is the only non-diversified miner in the group and therefore heavily exposed to price fluctuations, has been hit the hardest by the recent drop in commodity prices. The company's shares have been in steady decline for a number of months, basically tracking the drop in iron ore values over the same time period. Earlier in September, Fortescue informed the market that it would be cutting staff, deferring development of two expansion projects and selling its Solomon power station, which is still under construction. Less than 10 days later, Fortescue shares were placed into a trading halt after they dropped 14% in a matter of hours amid speculation that they were in discussions with lenders requesting extensions to existing debt financing arrangements. Fortunately for Fortescue, it was able to secure the refinancing that it required, which caused its share price to surge back up above where it had been before the trading halt, but still 40% below the highs seen earlier in the year.
While the price of iron ore has rebounded slightly over the past week, the price of coal remains depressed, which does not bode well for those companies relying on its value to return to the highs of the past 12 months. Iron ore is also well below the historic highs of the past few years, and while this may result in further pain for the existing operations and expansion plans of the large miners, it may create much more significant pain for the multitude of smaller miners who are attempting to push their, as yet undeveloped, projects into production in the coming years.
Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, and eight offices outside of North America, is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. Industrial Info's quality-assurance philosophy, the Living Forward Reporting Principle, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities.
