BHP Billiton Anticipates 'Decline Over Time' with Iron Ore Prices
The drop in iron ore prices is no surprise to mining giant BHP Billiton. The company’s president of marketing Mike Henry says the dramatic 31 percent fall in price this year wasn’t a shock and the company anticipates further declines in price for the key steel-making ingredient.
“The decline in iron ore prices wasn’t unexpected for us ... what we’re seeing today in the marketplace is within the range of expectations that we’ve had,” said Henry.
The price of iron ore has fluctuated continuously in the last 12 months. The final quarter of the financial year saw the commodity fall to a 21-month low at $89, with the bulk metal plunging by nearly a third this year.
"What we're seeing today in the marketplace is within the range of expectations that we've had," Henry said.
He added, “We’ve been saying for a long period of time now that growth rates in China will begin to slow, that you would see steel intensity slowing at an even greater rate than GDP declines, and at the same time you’d see a lot more low cost supply coming to market that would bring prices down.”
The only good news about sliding prices is analysts remain confident BHP, along with rival Rio Tinto, will still make healthy profits at the $90 level. BHP’s breakeven price for iron ore sits at $45 a ton.
And while Rio Tinto and BHP Billiton can accommodate declining earnings at $90 per ton, companies like Atlas Iron may face short-term pressure.
“Weaker earnings, together with high debt following the term loan B issuance in 2012, could significantly increase its leverage and pressure its credit metrics in the absence of remedial actions taken by the company,” said S&P analyst credit analyst May Zhong.
Last week BHP shipped its billionth ton of iron ore to Japan, marking a huge milestone for the company and for Port Hedland in Western Australia.
BHP, along with Vale and Rio Tinto, are chasing record iron ore volumes following heavy investment in bringing on new mines in recent years. Lower prices in iron ore are allowing the companies to capitalize as other companies continue to cut costs in an effort to improve their margins.
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.