Top miners saw positive FY2018

Large diversified miners saw another 12 months of consistently increasing profit margins and cash flows in FY2018.

According to Fitch Solutions, the positive numbers are a result of miners streamlining their operations, cutting debt and expenditures, increasing production efficiencies, and incorporating advanced technology in operations to further enhance productivity and reduce costs.

"Building on their recovery in FY2016, and stellar results in FY2017, top mining companies reported commendable FY2018 results yet again, including Rio Tinto's 56% y-o-y increase in net income and shedding of all of its debt, Freeport-McMoRan and Anglo-American's offloading of about half of their net debt levels from 2017, and Vale's 17% y-o-y increase in profit margins," a report released by the market intelligence firm reads.

Fitch cites the fact that Rio is not only free from debt and in a net-cash position now, but also gave shareholders a return on equity ratio of 31% in FY2018, one of the highest in the industry. "We expect continued outperformance from Rio due to strong management and good governance, as displayed by the company's consistent capital discipline and strong balance sheets," the document reads.

In Fitch's view, one of the keys to such positive results for Rio and others has been the decision to divest from non-core assets and implement stringent spending programmes that have allowed them to reduce debt-loads consistently.

"Anglo American's drastic restructuring plan announced in 2015 lowered the firm's net debt-to-EBITDA ratio from a staggering 11.1x in 2013 to 0.3x by 2018," the report recalls. "The company has transformed the quality and performance of its portfolio over the past five years by halving the number of assets."

Similarly, the market researcher quotes big strides made by Vale after management decided to sell non-core assets. The Brazilian giant was able to reduce its heavy debt load from over $25.1 billion in FY2016 down to $9.7 billion as of FY2018.

The report states that, despite high price volatility, generally supported metal prices also drove the strong performance last fiscal year.

What's a miner to do with all this cash?

"Despite tempting times for miners to resume aggressive acquisitions amid better performance and a pickup in commodities prices since 2017, mining companies will continue their restraint over capital and supply over the coming years," Fitch's report reads.

According to the market researcher, while healthier balance sheets have encouraged a slight increase in CapEx budgets since 2017, the increase has been modest.

The analysis presents Vale's plans as an example. The iron ore miner has budgeted to spend $4.7 billion per year in 2019 and 2020, while back in 2013 the company spent $13.3 billion.

Rio Tinto is on the same boat with plans to spend $6 billion in 2019 and $6.5 billion in 2020 compared to $13 billion in 2013.

Freeport-McMoRan, on the other hand, spent $5.3 billion in 2013 and expects to spend only $2.3 billion per year in the next two years.

For Fitch, big miners are not planning to increase production either, even though prices of most commodities are predicted to go up over the coming years.

"For instance, Rio Tinto has adopted a 'value over volume' approach and expects minimal increases in production in 2019. Anglo American's production guidance for the years ahead shows most of its output levels for the coming years at or minimally above FY2018 levels. Glencore is a step further, cutting its 2019 production targets for all commodities," the report reads.

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Australian junior Aurelia forgoes Glencore copper mine buy

Australian exploration and development Aurelia Metals (ASX:AMI) said on Thursday it was no longer discussing with miner and commodities trader Glencore (LON: GLEN) a possible acquisition of the Swiss company’s CSA copper mine.

The New South Wales-based miner is the second one since April to back off from plans to buy the operation.

Fellow copper junior Aeris Resources (ASX: AIS) had offered Glencore $575 million in March for the operation, but the parties were unable to reach an agreement.

The miner is the second one since April to back off from plans to buy the underground copper operation, in New South Wales.

News of Aurelia abandoning the plan to buy the underground CSA mine comes on the heels of managing director and chief executive Jim Simpson sudden exit last month.

His last public comments were on an April 23 investor call, where he said his company was not interested in buying CSA at the price tag offered by Aeris Resources.

"We saw the price that was put up by Aeris as well over what we would pay," he said as quoted by AFR.

Shortly after the company issued a statement saying the mine was "strategic fit" for Aeris and that talks with Glencore were ongoing.

Two days later, Aurelia said Simpson had "agreed" to "step down".

The CSA mine, located in the state of New South Wales, produced 48,000 tonnes of copper concentrate last year. It has a productive life of five years and ore reserves to last around ten, according to Glencore’s reserves and resources report.

The Swiss firm is looking to raise $1 billion from sales of non-core assets this year to boost its $2 billion share buyback program.

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Australian junior Aurelia goes after Glencore’s copper mine

Australian exploration and development Aurelia Metals (ASX:AMI) said on Friday it has begun discussions with miner and commodities trader Glencore (LON: GLEN), which it hoped would lead to the acquisition of the Swiss company’s CSA copper mine.

“The company’s high-level assessment is that CSA mine could potentially be a strategic fit for the company, consistent with our general view that further consolidation in the Cobar is potentially attractive,” Aurelia said in a statement.

The underground CSA mine, located in the state of New South Wales, produced 48,000 tonnes of copper concentrate last year. It has a productive life of five years and ore reserves to last around ten, according to Glencore’s reserves and resources report.

The underground CSA copper mine, located in the state of New South Wales, produced 48,000 tonnes of copper concentrate last year.

Aurelia, which is developing the nearby Hera-Nymagee project in western New South Wales, is not the only company that has expressed interest in CSA.

Last month, fellow copper junior Aeris Resources (ASX:AIS) offered Glencore $575 million for the operation, but the parties were unable to reach an agreement.

News of the talks between Aurelia and Glencore comes at a time when companies are scrambling to grab copper assets amid expectations that bigger power grids around the world and an electric-vehicle boom will boost demand, while supplies will remain constrained.

However, industry analysts at CRU say the coming online of major projects — Anglo’s Quellaveco (2022), Teck’s Quebrada Blanca expansion (2021) and First Quantum’s Cobre Panama (already in production) will momentarily eliminate the gap between supply and demand.

The research group, in fact, has cut its forecast deficit and now expects the market will be in a small surplus this year and next, but short again by 250,000 tonnes by 2023.

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Glencore under CFTC investigation for possible violations

Glencore has been informed by the United States Commodity Futures Trading Commission (CFTC) that the CFTC is investigating whether the company may have violated certain provisions of the Commodity Exchange Act and/or CFTC regulations.

The CFTC’s investigations are at an early stage and have a similar scope in terms of subject matter as the current ongoing investigation by the US Department of Justice (DOJ), according to the company.

In April 2018, two Glencore subsidiaries were hit with a $2 million fine by the CFTC for multiple violations between January 2013 and November 2015.

Shares of Glencore were down nearly 4% on the London Stock Exchange on Thursday.

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XPS, Frontier Lithium partner to pilot LiOH process

Frontier Lithium Inc. has entered into a strategic partnership agreement with XPS Expert Process Solutions (a Glencore company) and Dr. Ahmad Ghahreman, a Queen’s University professor, to develop a process to refine spodumene concentrate into lithium hydroxide. The partnership reflects Frontier’s commitment to lay the foundation for a regional, vertically integrated battery ecosystem energizing Ontario’s drive to prosperity.

The joint project will be conducted in Canada and has commenced with a phase one bench-scale study that includes single stage dense media separation (DMS), flotation, pyrometallurgy and hydrometallurgy. Phase one is evaluating the potential purity and recovery of lithium from concentrates to ultimately improve commercial understanding and provide data for generation of a continuous pilot process. The test work is expected to take six to eight months.

“Preliminary results show promise for being able to produce lithium hydroxide at a higher purity and at a lower cost compared to the industry average,” said XPS VP Dominic Fragomeni.

“Leveraging expertise through partnerships echoes Frontier’s approach to foster research and sustainable innovation.” said Trevor Walker, Frontier president and CEO. “This alliance will spearhead the production of high quality battery grade lithium products in Northern Ontario and help establish our region as a significant Canadian contributor to clean energy technology.”

Frontier Lithium owns the PAK lithium deposit 175 km north of Red Lake, Ont. The deposit is a lithium-cesium-tantalum type pegmatite containing high purity spodumene with less than 0.1% iron oxide. It is amenable to open pit mining.

(This article first appeared in the Canadian Mining Journal)

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Miners challenged to urgently reveal tailings safety records

A group of ethical investors working on a global standard for tailings dams has requested over 600 resource companies, including major miners, to reveal the safety records of their waste storage facilities, following the collapse of Vale’s Brumadinho dam in Brazil in January, which killed hundreds.

The companies addressed, including major names in the mining industry such as BHP, Rio Tinto, Anglo American, Glencore and Vale itself, have been given 45 days to publicly disclose their dams’ size, construction methods and safety records.

Move is aimed at providing a tool for institutional investors to assess the risk from their holdings in mining companies.

About 100 investors, led by the Church of England Pensions Board and Sweden’s public pension fund, expect the companies to publish the answers to 20 questions sent, covering issues such as the height and type of dams they have, their capacity, engineering records and safety checks.

Industry group the International Council on Mining and Minerals (ICMM) said in March it was working with the United Nations Environment Programme (UNEP) and the Principles for Responsible Investment (PRI) to develop new standards.

Currently there are no set of universal rules defining exactly what a tailings dam is, how to build one and how to care for it after it is decommissioned.

There are about 3,500 tailings dams around the world. Unlike the ones used to build reservoirs or hydroelectric projects, tailings dams are not usually made from reinforced concrete or stone. They are mostly constructed from the waste material left over from mining operations, which — depending on the type of mine — can be toxic.

Only three countries in the world ban upstream dams — Chile, Peru, and now Brazil. Chile, the world’s No.1 copper producer, also regulates the minimum distance between dams and urban centres. But the nation still has 740 tailings deposits, only 101 of which are active, with the rest abandoned or inactive, according to data from mining agency Sernageomin.

Click here for complete coverage of the dam burst at Vale's Córrego do Feijão mine. 

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