BHP Billiton and Rio Tinto Could Capitalize on Falling Iron Ore Prices
The price of iron ore has dropped dramatically, falling 44 percent since its peak in February 2013. And while that suggests bad news for most, it actually means quite the opposite for two of the world’s largest iron ore producers.
Rio Tinto Group and BHP Billiton Ltd. have the ability to take advantage of the mounting pressure low prices is having on smaller rivals in China. Almost $40 billion a year of iron ore is mined in China and the price plunge has caused roughly 30 percent of the mines to shutdown.
Sarah Wang, a Shanghai-based analyst with Masterlink Securities Corp. believes the timing is now.
“Many smaller mines in China have stopped production due to the falling prices. It’s the right time for BHP and Rio to seize the opportunity to boost their market share.”
The price of iron ore is at $89 a dry one, a 21-month low, and financial analysts expect the price to drop as low as $80 in the second half until averaging at about $90 next year. Rio Tinto CEO Sam Walsh said earlier this month a drop to $80 would see a lot of his competitors “disappear.”
“The majors are probably thinking they are well placed to take care of that market, they can increase production if other producers fall by the wayside,” James Wilson a Perth-based analyst at Morgans Financial Ltd., said.
The two mining companies Rio have recently discounted the price of low-grade iron ore.
Vale invests $150mn to extend life of Manitoba operations
Vale has announced a $150mn CAD investment to extend current mining activities in Thompson, Manitoba by 10 years while aggressive exploration drilling of known orebodies holds the promise of mining well past 2040.
Global energy transition is boosting the market for nickel
The Thompson Mine Expansion is a two-phase project. The announcement represents Phase 1 and includes critical infrastructure such as new ventilation raises and fans, increased backfill capacity and additional power distribution. The changes are forecast to improve current production by 30%.
“This is the largest single investment we have made in our Thompson operations in the past two decades,” said Mark Travers, Executive Vice-President for Base Metals with Vale. “It is significant news for our employees, for the Thompson community and for the Province of Manitoba.
“The global movement to electric vehicles, renewable energies and carbon reduction has shone a welcome spotlight on nickel – positioning the metal we mine as a key contributor to a greener future and boosting world demand. We are proud that Thompson can be part of that future and part of the low carbon solution.”
Vale continues drilling program at Manitoba
Coupled with today’s announcement, Vale is continuing an extensive drilling program to further define known orebodies and search for new mineralization.
“This $150mn investment is just one part of our ambitious Thompson turnaround story. It is an indicator of our confidence in a long future for the Thompson operations,” added Dino Otranto, Chief Operating Officer for Vale’s North Atlantic Base Metals operations.
“Active collaboration between our design team, technical services, USW Local 6166, and our entire Thompson workforce has delivered a safe, efficient and fit-for-purpose plan that will enable us to extract the Thompson nickel resources for many years to come.”
The Thompson orebody was first discovered in 1956 by Vale (then known as Inco) following the adoption of new exploration technology and the largest exploration program to-date in the company’s history. Mining of the Thompson orebody began in 1961.
“We see the lighting of a path forward to a sustainable and prosperous future for Vale Base Metals in Manitoba,” said Gary Annett, General Manager of Vale’s Manitoba Operations.