Miners Look to Gold For Stability

Seeking to find greater financial stability amidst turbulent economic conditions, miners of all sizes are investing in gold operations, the Wall Street Journal reports today.

The US dollar's rise in recent months has resulted in lower production costs (in nations whose currencies have dropped against the dollar) and created a favorable seller's market for the metal.

Unlike base metals such as copper and nickel, whose prices have been hit dramatically due to an approaching global recession, precious metals like gold and silver prices still enjoy a positive mid-to-long term outlook.

> Some Miners Expand Efforts in Gold Market [WSJ via metalprices.com]

Vale Cuts Iron Ore Production

Vale (formerly CVRD), the Brazilian mining giant and world's top producer of iron has announced that it will slash its annual production of ore by 30 million tons, which accounts for roughly nine percent of its 2008 forecast.

The reduction comes as the credit crisis has forced steelmakers to cut their own production quotas by 20 percent, on average -- a potent indicator of the economic conditions that are still yet to come.

The company also plans to trim production for aluminum and manganese ore.

> Vale adjusts to the new global economic scenario [official press release]

BHP, Rio Forced to Share Pilbara Railways

It seems as though Fortescue Metals, considered a "third force" in Australia's Pilbara, has succeeded in its bid to secure acceess to the region's strategically-significant railyway lines, currently operated soley by heavyweights BHP Billiton and Rio Tinto.

Australian Federal Treasurer Wayne Swan today opened three key lines to third-party access, forcing the current duopoly to negotiate with other mining firms for entry contracts for the next 20 years.

Fortescue truly entered the big league of iron when it delivered its first shipment of Pilbara ore to China in May of this year.

(For just an idea of how much tonnage the special delivery trains can haul, watch this YouTube video)

> BHP Billiton, Rio Rinto angry on open Pilbara rail line [Herald Sun via news.com.au]

Unconventional "Mines"

MetalMiner, a great blog I started reading recently, carries a fascinating post on "landfill mining".

True or false: U.S. landfills could provide enough steel to equal four full years of American steel production. The surprising answer? True. Already consuming approximately 100 million metric tons of scrap steel each year, the U.S. steel industry recognizes that landfill mining is estimated to uncover more than 400 million metric tons of steel. Further, some experts estimate that there’s more aluminum in landfills than the concentrations in iron ore, and trashed computers could provide more gold, copper and mercury. Landfills, it seems, are evolving into gold mines.

This idea reminds me of a Reuters article from earlier this year about "urban mining" in Japan. What the nation lacks in physical resources, it makes up in recycling efficiency. Firms like Dowa's Eco-System Recycling Co. might be pinched as metals prices fall to earth, but future upswings in commodities markets (perhaps as soon as H2 2009) could prompt greater innovation and growth potential for this promising niche sector.

Flurry of Controversy Surrounds Alaska Mine

The run-up to the US presidential election has highlighted a number of wildly divergent views on how best to make use of America's natural resources.

Alaska has, of course, been a big flash-point in the debate. While hydrocarbon extraction invariably comes up in discussions of Alaska's economy, two of the state's other big industries are presently locked in a vigorous battle over lands that hold great bounties of non-petroleum riches.

The Pebble Mine, located at the mouth of Bristol Bay, is the site of significant interest for both commercial fishing operations and a handful of mining companies, including the US unit of Anglo American. The bay is a major spawning ground for wild salmon; the mine promises access to vast reserves of copper and gold.

If state regulators give their approval, mining companies plan to carve an open pit that would rival the world’s largest mines, descending half a mile and taking as much energy to operate daily as the city of Anchorage. That prospect has ignited a war between Alaska’s two historic industries, mining and fishing.

Scientists and former state and federal biologists warn that toxic residue from the project, known as Pebble Mine, would irreparably harm a centuries-old salmon fishing industry that employs 17,000 and hauls in $100 million annually.

Gov. Sarah Palin has witnessed the simmering tension between the two sides since the start of her term, her position on the matter officially neutral. Yet mining companies have already paid to fly Todd Palin out to tour mines in the area on a fact-finding mission, and several prominent lawmakers have alleged that the state government has been involved with inappropriate arrangements with native leaders who reside in surrounding communities.

Amidst all of the controversy, the fate of the Pebble Mine is uncertain at this point, but as the NYT reports: "Alaska regulators, however, have never rejected an application for a large mine, according to state officials."

> Palin's Hand Seen in Battle Over Mine in Alaska [NYT]
> Pebble Partnership [official site]

Credit Crisis Hits African Projects

The rush to exploit Africa's vast reserves of natural resources is expected to slow dramatically as the current financial crisis forces sharp cutbacks in exploration budgets. A weakening outlook for African oil is already being seen. Major mineral projects on the continent are now expected to be postponed or scrapped altogether as mining firms confront the twin blows of decreasing demand for raw materials and unfavorable financing terms.

The impact of this credit crisis on the leading economies Africa will be enormous, where mining activities have accounted for signifcant recent growth. The downturn is expected to hit mineral-rich Guinea and Congo (DR) especially hard.

> Financing pinch may squeeze Africa mining projects [Reuters]

Financial Crisis Spurs Commodities Slowdown

"Is it the end of the party for natural resources?" This is the question that BusinessWeek poses today, and it's a legitimate one considering all that has happened in the global financial markets in the last couple of weeks.

It might be tempting to abandon all hope in the markets given the current economic climate, but I'm inclined to say no, I don't think that the commodities boom has seen its end yet. It's true that slowing demand for raw materials has resulted in price weakness for many metals, but I think large industrial projects in both China and India will power sustained growth for the sector in the long term.

> Mining Tries to Dig Its Way Out [BW]

BHP-Rio Deal Receives Australian Regulatory Clearance

A major regulatory obstacle to BHP Billiton's takeover bid for fellow Australian mining giant Rio Tinto was removed today by the Australian Competition and Consumer Commission (ACCC).

The announcement to create the world's largest diversified miner, was made last November. The combined entity would have a market capitalization of approximately $360 billion, controlling more than a third of the global iron ore market.

The deal, however, must pass one more antitrust test from the European Commission; the body is due to make its ruling on Jan. 15 of next year.

> Takeover timeline [Guardian]
> Mining Firms Bulk Up, Echoing Big Oil Mergers [WSJ; subscription required for full text]

Norwegian Pension Fund Sheds Rio Stake

Taking issue with serious environmental concerns at the Grasberg gold mine in Indonesia -- the world's largest -- Norway's Finance Ministry has decided to liquidate its $850 million holding in Rio Tinto, a partial owner in the project.

The stake accounted for half of a percent in a fund that invested the country's petroleum wealth in foreign stocks and bonds. The move to remove Rio as a component in the fund is one of the more prominent examples of a major institutional investor withdrawing its holdings over ethical issues in the last several years.

The main souce of concern at the Grasberg mine was the dumping of tailings into a nearby river, which according to Friends of the Earth, has resulted in severe toxicity of the surrounding aquatic life. The mine's main operator, Freeport-McMoRan has also come under fire from shareholders for employing the Indonesian military personnel for security purposes -- controversial because of the military's involvement in human rights abuses in the region.

> Norwegian wealth fund sells stake in Rio Tinto [Times of London]

Steelmakers, Iron Ore Miners Explore New Roles

According to a recent article in the Wall Street Journal, a number of major steelmakers are reverting to the the old industry paradigm of relying on ore from producers by pursuing vertical integration through mine ownership. Conversely, giants like Vale of Brazil are investing in domestic steel-processing facilities in order to grab a share of steelmakers' China-driven profits.

The swing back towards vertical integration is most evident in Brazil, which has vast reserves of iron ore that remain either untapped or up for grabs.

"Brazil is the strategic place for the steel industry," says Lakshmi Mittal, the chief executive of ArcelorMittal, the world's largest steelmaker by production. "It has the raw materials. It has the market. It has the growth."

In the past month, steelmakers and miners have announced major investments in Brazil's fast-growing economy.
...
Steelmakers have focused on Brazil in part because Australia's iron ore reserves are controlled by BHP Billiton and Rio Tinto, meaning there are almost no opportunities for a newcomer to gain a foothold in the market.

> Steelmakers and miners swapping roles as demand grows [WSJ via Australian]

China Skyscraper Construction to Support Commodities Boom

Rejecting suggestions that the global demand for steel and other building materials is headed toward a significant downturn, Rio Tinto has cited recent research on Chinese skyscraper construction to justify continued optimism in commodities markets. Last month, the mining group reported H1 profits of $5.5 billion.

A report by McKinsey & Co. forecasts that China will build 50,000 skyscrapers in the next 20 years -- the equivalent of 10 NYCs.

Some analysts had been forecasting a dip in Chinese investment after the Olympics, but Rio is predicting that there will be a post-games boom. The company cited research from McKinsey, the management consultancy, which said the scale and pace of urbanisation would continue at an unprecedented rate.

By 2025, the report predicts that China will have 221 cities with more than a million inhabitants, compared with 35 in Europe today. As well as the need for huge pending on infrastructure, McKinsey projects that China will build between 20,000 and 50,000 skyscrapers, many of them in less developed interior provinces far from Beijing and Shanghai.

> Chinese skyscraper builders to put up equivalent of 10 New Yorks, says Rio Tinto [Guardian]

Canada Looks to Mine the Far North

The federal government of Canada has unveiled its vision to explore its Arctic territories for natural resources with a $100 million plan to map mineral and petroleum deposits in the northernmost reaches of the country.

The move comes just as climate change studies have renewed Northern nations' interest in mining the Artic for resources.

Launch

In the course of scanning mining-related news articles as part of my research at Factiva, I came across a particularly attention-grabbing lede from the Economist, dated Feb. 7 of this year:

EVERYTHING to do with mining is impressively vast. It is an industry that makes huge holes in the ground and relies on trucks with tyres the size of houses. In recent years, thanks to China's rapid industrialisation and its voracious appetite for metals, mining companies have also produced mammoth profits, boasted gigantic valuations and undergone a series of outsized mergers and acquisitions.

I was struck by the passage because I found its concise assessment of today's mining industry radically different from what it was just five years ago. When I started at Factiva, mining was a scarcely-mentioned topic in the mainstream press (albeit a simmering one, due to China's already apparent rise as a major resource consumer); now, it is at the forefront of attention in newspapers around the world.

As I observed the rapid evolution of the industry in the last couple of years, due in large part to major consolidation and the Middle Kingdom's dizzying rise, I started thinking about creating this weblog; it was this run-of-mill article, however, that prompted me to finally launch this site, which I hope to maintain as a record of this dynamic sector's rapid ascent amidst a global scramble to secure natural resources.

> Some miner concerns [Economist]