The iron ore production touched 125.0 million metric tons over the year and 31.2 million tons in the fourth quarter, level with the third quarter.

Current quarter production was impacted by tie-in activities at Western Australia Iron Ore as Rapid Growth Project 4 continues to ramp up. Following demand related production adjustments, Samarco returned to full production during the year ended June 2010, delivering a record result for the operation.

For the 2010 financial year, 39% of Western Australia Iron Ore shipments on a wet metric tonne basis were priced on annually agreed terms, with the remainder sold on a shorter term basis. During the second half of the financial year, the old benchmark pricing system was substantially replaced by shorter term market based, landed pricing. Our expectation is that future Western Australia Iron Ore shipments will be priced on this basis.

In a solid final production report for fiscal 2010, the world’s biggest resources company also revealed better than forecast petroleum output, with other commodities in line with expectations.

Head of resources research at UBS, Glyn Lawcock, said the miner had exceeded forecasts on shipments of metallurgical coal, used in steelmaking, which was selling at high prices.

“They have absolutely ripped it with metallurgical coal,” Dr Lawcock said.

“We were looking for 30 per cent growth (in shipments) on the quarter and they did 50 per cent growth on the quarter,” he said

“It is a good thing to be doing when you are selling metcoal at $US200 per tonne, so that is a big plus,” he said.

Dr Lawcock said at current forecasts BHP’s annual profit was expected to come in at $US12.3 billion ($13.94 billion), but with new figures that could rise.

The company made 9716 shipments of metallurgical coal in the June quarter, with 32,001 for the year.

Demand for metallurgical coal has been strong following a recovery in steel production in Asia and Europe, causing prices to rise.

Shares in BHP Billiton gained 73 cents, or 1.91 per cent, to $39.03, the highest since June 24, by 11.51am (AEST).

BT Financial Group portfolio manager Tim Barker was also impressed with the metallurgical coal figures, and said the rest of the report was in line with his expectations.

“The numbers (for metallurgical coal) were certainly more than I would have expected,” Mr Barker said.

Petroleum delivered its third consecutive annual production record, with output for the year up 15 per cent.

Dr Lawcock said the petroleum figures were slightly better than he expected, but spending on exploration was higher than forecast.

“The headwinds coming into this result is that they expensed a lot of petroleum expenditure, close to $US500 million for the second half versus $US75 million in the first half, so that is going to weigh on earnings estimates,” Dr Lawcock said.

“Offsetting that will be the positive from more metcoal,” he said.

Iron ore production rose nine per cent for the year, to an annual record, on the back of strong demand from China.

The company told the stock exchange that measures introduced by China to reduce the nation’s growth to sustainable levels meant volatility in commodity end-demand was likely to persist.

The miner also said it was cautious about the short-term outlook on the global economy.

“Uncertainty surrounds the near term prospects for growth in the developed world as governments adjust fiscal policies following a period of significant stimulus and subsequent increase in sovereign debt levels,” BHP Billiton told the stock market.

The impact of an outage at BHP Billiton’s giant Olympic Dam project in October following problems with a haulage unit impacted on the company’s production of some commodities.

Olympic Dam in South Australia is the world’s largest uranium deposit, fourth largest remaining copper deposit and fifth largest gold deposit.

Copper production was down 11 per cent on the previous year, while uranium production fell 43 per cent and gold fell 19 per cent.

Production of alumina was also up for the year despite an unplanned interruption of ship unloading capabilities at its part-owned Alumar refinery in Brazil.

For the year BHP Billiton spent $US516 million on minerals exploration, of which $US467 million was expensed.

It said projects including its North West Shelf life extension works, its iron ore rapid growth project 5 in Western Australia, and its expansion of the Antamina copper mine in Peru were on schedule and on budget.

“We’re not talking about different tax rates,” Ferguson told Australian Broadcasting Corp. radio today. There will be “generous transitional arrangements” for existing projects and “there will be a headline rate of 40 percent.”

Prime Minister Kevin Rudd has seen public support drop since announcing his proposed tax on the “super profits” of resource projects, a levy mining companies say will stall investment in an industry that in April accounted for 57 percent of the value of goods exported.

Australia, the world’s biggest shipper of coal and iron ore, announced the new tax on May 2 as part of an overhaul that includes a phased cut in company tax rates to 28 percent from 30 percent by mid-2014. Rudd’s government is holding talks with resources companies on the plan.

BHP Billiton Ltd., Rio Tinto Group and Xstrata Plc met with Ferguson today in Canberra.

“At present there is no formal acknowledgement from the government” that the mining industry’s tax concerns will be addressed, the three companies said in a joint statement after the talks. Ferguson wouldn’t comment on the meeting.

Consultation Process

The government says 80 companies agreed to join the consultation process that is led by a Treasury panel. A first report outlining the issues under discussion will be released next month and a final document late this year, according to the government. Legislation will be put to parliament in late 2011 if the Rudd government is re-elected at a national ballot due by April.

“Nothing has changed,” Treasurer Wayne Swan said in Canberra today. “We said that our bottom line was a 40 percent rate. We said there would be generous transitional provisions and we said we’d discuss the detail with the industry, and that’s precisely what we’re doing.”

State Resources Minister Paul Holloway in South Australia, home to BHP’s Olympic Dam where a A$20 billion ($17.3 billion) expansion is under review, has called for special consideration for the project. The mine has the largest deposit of uranium in the world, the fourth-largest copper reserve and Australia’s largest reserve of gold.

“The federal government gave us a good hearing and we’re waiting for them to come back to us,” Holloway said in an e- mail last week.

New Investments

Sydney-based miner and steelmaker OneSteel Ltd., Australia’s second-largest producer of the alloy, said on May 26 it wants the proposed levy to only apply to new investments.

“We’ll make sure, as the premier of South Australia has raised with me and as I have discussed for example with OneSteel, that we will take on board the special nature of their operations,” Ferguson said today.

Documents released when the proposed levy was announced said the consultation process will focus on the point at which profits are taxed. Companies are seeking answers how the levy will be applied to processed minerals and raw commodities.

“The issue of the taxing point is central to our considerations,” Ferguson said today without providing details.

In a letter to shareholders, BHP Chairman Jac Nasser said the government has failed to acknowledge problems with the proposed 40% tax on “super profits” and its impact on the mining industry.

Nasser said the tax rate should vary according to the mineral resource being mined and should be applied on the value of minerals alone, excluding infrastructure processing or other support activities.

“Substantive redesign of this proposed tax is necessary and, if this can’t address its fundamental failings, it should be abandoned,” he said.

Clifford was laughing away and the lads could well have been amused to have together amassed a net worth exceeding $50 million courtesy of their exploitation of Australia’s mineral wealth during the China boom.

Indeed, even after all these claims that the proposed RSPT has smashed resource company share prices, the combined market capitalisation of BHP and Rio today is about $400 billion.

That’s more than the market capitalisation of the world’s most valuable company,  Texan oil giant Exxon-Mobil, which is this morning capitalised at $US285 billion ($A341 billion).

Rio Tinto director Sir Rod Eddington last night entered the fray slamming the Rudd government’s policy-making process and failure to consult.

This was a powerful hit given Sir Rod is chairman of Infrastructure Australia and also chaired the long since disbanded business advisory council, which Kevin Rudd established when opposition leader.

However, there is one fundamental problem with the mining industry’s complaints about a lack of consultation — they would never have agreed to such a monumental tax slug anyway.

Like most democracies, a combination of unprecedented stimulus spending and plunging revenues has left Australia structurally in deficit. In our case, the debt-funded government spending by Canberra and the states exceeds revenues by about $80 billion a year, much of which is borrowed offshore.

Rather than sending more than $50 billion a year offshore to the foreign owners of more than $500 billion worth of Australian resources projects, surely it makes sense to tax more of this capital flow given that prices for commodities such as iron ore have increased six-fold over the past decade.

This would improve Australia’s current account deficit and the Budget position of the federal government, which, in turn, is the largest financier of state spending.

If you asked the community who they’d like to see a $10 billion annual tax slug imposed on, then the obvious answer is foreign mining companies, which are making out like bandits.

None of this excuses the incompetent political selling job that Kevin Rudd is doing, prompting Alan Kohler to label its spin a disgrace on Business Spectator this morning.

While Rudd should be flogged for his reckless stimulus spending, backflips and sneaky spin, commentators who are railing against the RSPT should nominate the sector they believe should instead cop a tax slug, or the proposed austerity measures that should be imposed.

Elected officials have a duty to extract maximum value for public assets. A mining concession is like one on-going privatisation program and Australia has the world’s best dowry and the world’s most foreign-owned resources sector, largely due to the incompetence of the Australian Directors Club in squandering the assets over several decades.

Look no further than MIM’s ridiculous sell out to Xstrata in 2003, something Paul Keating, MIM CEO Vince Gauci and even Robert Gottliebsen were in furious agreement about opposing at the time.

Despite what Zug-based Xstrata CEO Mick Davis might claim in his letter to the Financial Times this morning, his company has more than tripled the $18 billion it has invested in Australia over the past decade.

The same goes for Rio Tinto and BHP. When the BHP board gave away 42% of the company to Billiton in 2001, this was only worth about $25 billion at the time.

Today 42% of BHP is worth about $100 billion. No wonder former Billiton and BHP-Billiton CEO Brian Gilbertson claims that he still gets thanked by fund managers whenever he visits Cape Town for giving them exposure to such wonderful Australian assets.

Gilbertson, by the way, has so far collected more than $20 million from his exposure to Australia’s resources dowry and is on an indexed pension for life that is presently running at almost $2 million a year.

If BHP-Billiton has to pay an extra $2 billion a year in tax to Canberra, it will still be valued by the market at close to $200 billion and London-based Gilbertson will still collect his outrageously excessive pension.

In a statement, BHP Billiton has advocated for tax to be levied on the market value of minerals alone, which it said would not discourage investment in Australia.

‘‘The tax should vary by commodity, because the investment characteristics and margins of individual minerals are different,’’ the company said.

The meeting comes after weeks of intense campaigning by the mining industry and a day after Rio Tinto executives criticised the government’s consultation for being too narrow.

As Treasury officials met with the big end of the mining industry, Treasurer Wayne Swan was in his home city of Brisbane negotiating with Queensland Premier Anna Bligh on the tax.

Ms Bligh is understood to have argued for the profit threshold to be raised from 6 per cent to 11 per cent.

Canberra’s threshold proposal is based on the 10-year government bond yield, often considered a safe investment.

‘‘Today’s meeting was very constructive and is part of ongoing discussions,’’ Ms Bligh said in a statement.

Eminent economist Ross Garnaut, who advocated a resource rent tax in the mid-1970s, has criticised the government for not doing enough to win public support for the proposal.

The chairman of Lihir Gold told ABC Television on Thursday night ‘‘small modifications’’ could be made to the resource tax.

‘‘There are a couple of ways of making sure that you don’t take more than the economic rent with a good mineral tax regime … allow a higher return before you start taking anything.’’

The federal government has tried to liken its resource rent tax plan to the 40 per cent petroleum resource rent tax (PRRT) which has, since 1987, taxed the profits of offshore oil and gas projects.

Opposition resources spokesman Ian Macfarlane said the Rudd government’s tax proposal was more punitive than the petroleum resource levy brought in by the Hawke government.

‘‘The PRRT was introduced after an extensive two-year consultation process that was used to design its parameters, while the resources tax has been thrust on industry with little regard for its destructive consequences,’’ he said in a statement. ‘‘The PRRT, when introduced, applied only to new stand-alone projects, but the resources super tax is a retrospective slug on all projects.’’

While Opposition Leader Tony Abbott has vowed to scrap the resource tax, he dodged a question about whether he could guarantee that under a coalition government there would be absolutely no additional taxes on the mining industry.

Prime Minister Kevin Rudd dismissed fears the government’s resource super-profits tax was linked to the Australian dollar suffering a 12 per cent fall in the past three weeks.

The currency has fallen below 81 US cents for the first time since July 2009, after reaching 93 US cents in late April as investors responded to the European financial panic.

BHP Billiton’s vice president of government relations, Bernie Delaney, and his cohorts spent more than two hours with Treasury officials in Canberra today.

BHP Billiton says the 40 per cent super-profits tax could make Australia uncompetitive and result in lost investments.

BHP Billiton’s vice president of government relations, Bernie Delaney, and his cohorts spent more than two hours with Treasury officials in Canberra on Friday.

BHP Billiton says the 40 per cent super-profits tax could make Australia uncompetitive and result in lost investments.

The government has also been lobbied by state governments and an eminent economist who advocates changes to the tax.

In a statement, BHP Billiton has advocated for tax to be levied on the market value of minerals alone, which it said would not discourage investment in Australia.

“The tax should vary by commodity, because the investment characteristics and margins of individual minerals are different,” the company said.

The meeting comes after weeks of intense campaigning by the mining industry and a day after Rio Tinto executives criticised the government’s consultation for being too narrow.

As Treasury officials met with the big end of the mining industry, Treasurer Wayne Swan was in his home city of Brisbane negotiating with Queensland Premier Anna Bligh on the tax.

Ms Bligh is understood to have argued for the profit threshold to be raised from six per cent to 11 per cent.

Canberra’s threshold proposal is based on the 10-year government bond yield, often considered a safe investment.

“Today’s meeting was very constructive and is part of ongoing discussions,” Ms Bligh said in a statement.

Eminent economist Ross Garnaut, who advocated a resource rent tax in the mid-1970s, has criticised the government for not doing enough to win public support for the proposal.

The chairman of Lihir Gold told ABC Television on Thursday night “small modifications” could be made to the resource tax.

“There are a couple of ways of making sure that you don’t take more than the economic rent with a good mineral tax regime … allow a higher return before you start taking anything.”

The federal government has tried to liken its resource rent tax plan to the 40 per cent petroleum resource rent tax (PRRT) which has, since 1987, taxed the profits of offshore oil and gas projects.

Opposition resources spokesman Ian Macfarlane said the Rudd government’s tax proposal was more punitive than the petroleum resource levy brought in by the Hawke government.

“The PRRT was introduced after an extensive two-year consultation process that was used to design its parameters, while the resources tax has been thrust on industry with little regard for its destructive consequences,” he said in a statement.

“The PRRT, when introduced, applied only to new stand-alone projects, but the resources super tax is a retrospective slug on all projects.”

While Opposition Leader Tony Abbott has vowed to scrap the resource tax, he dodged a question about whether he could guarantee that under a coalition government there would be absolutely no additional taxes on the mining industry.

Prime Minister Kevin Rudd dismissed fears the government’s resource super-profits tax was linked to the Australian dollar suffering a 12 per cent fall in the past three weeks.
The currency has fallen below 81 US cents for the first time since July 2009, after reaching 93 US cents in late April as investors responded to the European financial panic.

BHP Billiton has told a Federal Government consultation panel that the proposed resources super tax does not meet sound principles of taxation.

“As previously conveyed to the Government, BHP Billiton believes any new tax on the minerals resources industry needs to be prospective, not retrospective; ensure the overall tax burden is competitive with other mineral rich countries; vary by commodity and be levied on the value of minerals alone,” the company said in a statement.

Woodside chief executive Don Voelte said that although the company was hardly affected by the proposed new resources tax, it still posed “huge implications” for Woodside.

Mr Voelte said the proposed tax has been viewed negatively in international markets.

“We have to be seen as a sovereign, risk-free country, in other words a very stable country,” Mr Voelte said at a business lunch in Sydney.

He said Woodside had to borrow from offshore markets including places such as New York, Japan, Asia and China and that constant tinkering with the tax system had not been received well offshore.

“The thing that bothers me probably the most on this is, this is the third time in three years that we have had a major change to tax,” Mr Voelte said.

“And, if this Government starts to be seen as willy-nilly changing tax any time they want to on this thing, it is going to be viewed very negatively. We have to be a very solid place for these people to invest in. They have to have security of their investment in Australia.”

BHP said it had told the panel the proposed tax did not recognise how investment decisions were made in the resources industry and would place Australia in an uncompetitive position globally.

The company told the panel the government should take time to properly engage with the mining industry on all aspects of the tax rather than pursue selective adjustments.

This morning, BHP representatives met with the government’s panel set up to consult with miners over its proposed resources super profits tax which would place a 40 per cent tax on the profits of Australia’s big miners.

The Federal Government established the tax consultation panel to explain to resources companies the features of its proposed 40 per cent resources super profits tax.

The panel includes Treasury and Australian Taxation Office officials, as well as a representative from the Business Council of Australia and an independent adviser.

Since the government announced the new tax proposal earlier this month in its response to the Henry tax review, a host of resources companies have complained about the proposed arrangements.

The mining companies asked for price gains of between 90 percent and 100 percent for the steelmaking ingredient as global demand recovered this year, Luo Bingsheng, deputy chairman of the association, said today at a briefing in Beijing.

“They adopted a threatening policy,” Luo said. “If you don’t accept iron ore prices before a deadline, they threaten to cut supplies. Is this iron ore negotiations?”

The World Steel Association called on authorities globally to examine the iron ore market after Brazil’s Vale broke with a 40-year custom of selling on annual contracts and won a 90 percent price increase from Japanese mills. The Chinese government this month said it was investigating the possibility that BHP Billiton, Rio Tinto and Vale may be monopolizing supplies of the steelmaking ingredient.

Steelmakers in China have about two months of iron ore stockpiles as of the end of March, enough to ensure “stable production,” Luo said. Some mills have signed tentative agreements with the mining companies to ensure materials for their furnaces, he said, without giving details.

Amanda Buckley, a Melbourne-based spokeswoman at BHP Billiton, declined to comment. David Luff, a spokesman at Rio, wasn’t available for an immediate comment.

‘No Options’

Suppliers cut exports to China during price talks earlier, Angang Steel Co., the biggest Chinese steelmaker traded in Hong Kong, said April 21. Chinese steelmakers have “no options” and have to accept price demands, Jiangsu Shagang Group Co., the nation’s biggest privately held mill, said this month.

Global steel demand may expand 10.7 percent this year, rebounding from last year’s 6.7 percent slump, the World Steel Association said April 20. That’s leading to competing iron ore demands from Europe, Japan and South Korea for the material.

“The global iron ore market is in serious shortage,” Luo said. “Apart from China, steel production increased by 33 percent in the first quarter, while China’s output rose 24.5 percent.”

]]> http://copperprice.in/news/china-says-vale-bhp-threaten-to-cut-iron-ore-supply.html/feed 1 http://copperprice.in/news/crean-hits-at-china-ore-boycott-of-bhp-billiton-and-rio-tinto.html http://copperprice.in/news/crean-hits-at-china-ore-boycott-of-bhp-billiton-and-rio-tinto.html#comments Tue, 06 Apr 2010 04:20:52 +0000 admin http://copperprice.in/?p=1325 A CHINESE group has urged domestic steel companies to stop buying iron ore from the world’s top three miners, including Rio Tinto and BHP Billiton.

The China Iron and Steel association has made the protest gesture over an alleged price monopoly, state media says but it drew a forthright response from Trade Minister, Simon Crean.

Mr Crean said if the report were true, the tactic was “a very blunt instrument”.

“What they have to understand is this is the market at work,” he said today.

“They can’t influence the market by centrally controlled edicts. That will be bound to fail.

“If their demand (for iron ore) is as strong as it is, and they’re having to compete with other countries who are competing for the same resources, then the price effect in the current circumstances is the natural consequence.”

China should address its supply issue through the free trade agreement process, Mr Crean said.

“Our advice is to think medium to long term, to look at the investment climate, look at the opportunities for supporting the expansion of resource availability, particularly here in Australia,” he said. The China Iron and Steel Association has asked domestic steel firms and traders not to import iron ore from Australia’s Rio Tinto and BHP Billiton and Brazil’s Vale for two months, the China Net, a government news website.

China has 75 million tons of iron ore reserves and production of the resource by Chinese mines was up by 18 percent year-on-year during the first two months of 2010, the report said.

“At present our steel enterprises have ample supplies of iron ore to ensure normal steel production for two months,” the report quoted association head Shan Shanghua as saying.

The association called for the boycott on Friday as the most effective means to fight the “monopolistic behaviour” of the three iron ore giants, the report said.

China’s proposed two-month suspension of imports of iron ore from three major mining companies, including Australia’s Rio Tinto and BHP Billiton, was intended to pressure them to drop prices, says a US thinktank.

Stratfor, a private sector intelligence group, said a two-month hiatus would not have much effect on their bottom line as China still required iron ore, as did Japan and South Korea.

It said this move, plus other tensions between miners and China, could force companies to drop their benchmark price and operate solely on the spot market or on short-term contracts reflecting actual market price.

“A Chinese industry group run by the government has asked its steel companies to refrain from importing iron ore from three major mining companies in an effort to pressure them during price negotiations,” Stratfor said in a recent analysis.

“Although two months without iron ore orders may temporarily hurt the miners’ bottom line, China’s demand for imported iron ore nevertheless continues, and the overall impact will not seriously affect the companies.”

Stratfor said China needed iron ore to fuel its economy. Total demand in 2009 was 870 million tonnes and was expected to be close to 990 million tonnes in 2010.

Optimistic estimates of domestic production was 430 million tonnes, although of lower quality ore.

So China still needed to import 560 million tonnes to satisfy demand.

In 2009 the three companies produced 607 million tonnes for export, compared with just 200 million tonnes from all other exporters combined.

“Even if other ore-producing nations such as Canada, India and other South American countries were to sell their entire production to China – which will not happen of course – and China’s own supposed 75 million tonne stockpile is added to the tally, China still needs about 290 million tonnes to meet demand.,” Stratfor said.

“Thus, even though China may be able to suspend imports for two months, it still needs the big three to meet demand.”

Stratfor said the Chinese government believed that as the world’s largest iron ore consumer, it should have a say in the prices although that had done little to reduce prices.

As well, Japan and South Korea had already agreed to prices upward of 90 per cent over last year’s rates.
Stratfor said CISA did not have good form in conducting price negotiations.

“CISA is the organisation responsible for wrecking the 2009 annual negotiations due to its inexperience in corporate negotiations and its bureaucratic intransigence,” it said.

According to press reports, Asian steelmakers like Japan’s Nippon Steel and South Korea’s Posco have already accepted massive hikes in iron ore prices this year of up to 90 percent.

Agreements by the Asian steelmakers in the iron ore talks have previously served as a benchmark in global negotiations.

China’s commerce ministry told reporters last month the state would support domestic steel mills in their thorny iron ore price negotiations even after Canberra bluntly told Beijing to stay out of the talks.

“As the world’s largest iron ore consumer, the interests of Chinese steel mills should be reflected in the negotiations,” commerce ministry spokesman Yao Jian told reporters.

For the first time in decades, China’s steel industry and the mining companies failed in 2009 to hammer out a deal on prices.

Price by
PriceStock pricesCompany name
Last price
Percentage change
BHP BILLITON 2267.50 +30.50
NIPPON STEEL CORP 2.68 +0.06
RIO TINTO 3910.50 +47.50

The Anglo-Australian company said a “significant” number of Asian customers had agreed to the change, which heralds the demise of a decades-old system and shakes up a key market for the region’s dynamic economic growth.

The announcement comes a day after China jailed four employees of rival mining company Rio Tinto for corruption during last year’s collapsed iron ore pricing talks, blaming them for costing the country huge economic losses. Related article: Rio trial raises concerns

“BHP Billiton today announced that it had reached agreement with a significant number of customers throughout Asia to move existing iron ore contracts that were previously priced annually onto a shorter term … basis,” the company said in a statement.

“The agreements reached represent the majority of BHP Billiton’s iron ore sales volume.”

BHP, which has long lobbied for the change and recently unveiled a similar arrangement for coking coal, released its statement a day before the current annual iron ore contracts were due to expire.

Investors reacted enthusiastically to the new arrangement with BHP’s share price rising 1.31 percent to 43.95 Australian dollars (40.40 US dollars) in early trade.

While the biggest Asian mills favoured the certainty provided by annual prices, smaller operators were frozen out by the mining giants — leading to the bribery exposed in the Rio case as they vied to grab a piece of the action.

“We believe this represents a significant win for BHP Billiton over Asian steel mills who have long resisted the move away from annual contract pricing,” said IG Markets analyst Ben Potter.

“BHP Billiton appears to have convinced them that this is a fairer and more transparent way of pricing that eliminates large discrepancies between spot and contract pricing.”

BHP chief executive Marius Kloppers said last month that instead of fixed annual prices, the spot or real-time market was the best indicator to “what expectations should be on where prices are heading”.

BHP’s move may help soothe increasingly fraught relations between miners and China, now the world’s biggest consumer of iron ore used for steel in everything from buildings to roads, cars and appliances.

On Monday, four Shanghai-based Rio employees including Australian national Stern Hu received heavy jail terms for bribery and industrial espionage surrounding the failed negotiations last year.

The talks fell apart when mining companies rejected Chinese demands for steep discounts on the prices already agreed with Japanese and South Korean steel mills.

Analysts said fellow top producers Rio and Brazil’s Vale were likely to follow the BHP move, which had become inevitable after a dramatic rise in spot prices in recent years stoked by insatiable demand from China.

According to Japanese press reports Tuesday, Nippon Steel has agreed in principle to a massive hike in the price of iron ore it buys from Vale.

The new price will be in the range of 105-110 dollars per tonne for the April-June quarter, the reports said. Before falling last year in the global economic crisis, iron ore fetched a record 77-79 dollars per tonne in 2008.

BHP Billiton Ltd. ( BHP | Quote | Chart | News | PowerRating) said Monday the Hay Point coal terminal near Mackay in Queensland state, a key export port for coking coal, remains closed due to bad weather conditions.

The coal terminal, which is part of BHP Billiton’s coking coal alliance with Mitsubishi Corp. (8058.TO), has been closed sine the morning of March 11.

“We will continue to monitor conditions to decide when it is safe to reopen the terminal,” a spokeswoman for the miner said.

The company said it expects to recover any impact from the outage over the course of the fiscal third quarter.

-By Alex Wilson, Dow Jones Newswires; 61-3-9292-2094; alex.wilson@dowjones.com

(END) Dow Jones Newswires

03-14-10 2330ET

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“Objectively speaking, the failure of the merger between Chinalco and Rio Tinto lies in the rapid recovery of the world resources market, including the related stockmarket, which was beyond everyone’s expectations,” Fairfax quoted the Chinese report as saying.

Rio Tinto dumped the proposal last year amid public debate on the growing level of Chinese ownership of Australia’s natural resources and shareholder anger over the terms of the deal.

The Chinese report, written for China’s State Council, according to Fairfax, also said Rio’s rival, BHP Billiton, had played a part in ensuring the deal failed.

“BHP Billiton took full advantage of its skilful mass media propaganda and its lobbying capacity to arouse public emotions and influence the judgements of government policy-makers,” it’s reported to have said.

A BHP Billiton spokeswoman declined to comment on the Fairfax report.

In July, 2009, soon after the deal collapsed, four Rio Tinto staff from its Shanghai iron ore team were arrested, including Australian Stern Hu, who remains in gaol awaiting trial.

At the time, there was speculation the arrests were payback for the failure of Chinalco’s planned investment in Rio Tinto.

But the new report said China’s lack of experience, talent and political acuity were to blame, according to the Fairfax report.

It said the near simultaneous timing of two other big investments by Chinese companies also played a part, as did Chinalco’s strategy of keeping a low profile.

China also lacked communication with Rio Tinto shareholders and experience in engaging its own lobbyists, and wanted too much, too fast, the report is quoted as saying.

In 2009, Australian Treasury official Stephen Joske said BHP executives lobbied Prime Minister Kevin Rudd and Treasurer Wayne Swan about the Chinalco investment in Rio Tinto.

When the Chinalco deal fell through, Rio Tinto announced it had entered a joint venture partnership with BHP Billiton.

At 1019 AEDT, shares in Rio Tinto were up 54 cents at A$76.50 (US$70.24), while BHP Billiton shares were up nine cents at $42.94.

The deal, which would have been the Chinese government’s biggest foreign investment, collapsed in June last year when Rio Tinto walked away from the offer by Aluminum Corporation of China (Chinalco).

Nienaber says that based on the successful operation of the 19 chutes, as well as the company’s innovative approach to transfer point solutions, it was given the go ahead to do the necessary design work for chutes for the port expansion. “The port conveyor site is being upgraded to cater for higher capacities and transfer points are an important part of this upgrade project,” Nienaber says.

An important factor in this particular application will be the need to minimise degradation of the material. The chutes are designed taking factors such as the feed rates, height of free fall and angle of repose into account. Nienaber says that it is also necessary when designing to have access to all relevant data including the location of pulleys and the load requirement. “By determining the optimum head pulley position we are able to provide the best design configuration for each particular transfer application,” he says.

Designed around the principle of conveyed material impacting on surfaces that already contain material, the Weba chutes are configured to control the direction, flow and velocity of the calculated volume and type of material being processed. This level of material control is extended by designing the internal angle of the transfer chute to match the product flow with the belt speed. Nienaber says that by doing this it is possible to either completely eliminate or greatly reduce spillage.

Weba’s systems are custom engineering for each individual application resulting in optimum design configuration. Subsequent advantages include reduced levels of dust and noise pollution as well as reduced production losses due to fewer blockages.

“We’ve not had any reports of any effects at the moment,” said Christina Mills, a spokeswoman in London for Rio Tinto, which has a stake in the Escondida mine operated by BHP Billiton. It’s the world’s biggest copper mine, in the north of Chile.

“The company will pursue investments in overseas mines more aggressively to secure raw materials,” Chief Executive Officer Chung Joon Yang said at a shareholder meeting in Seoul. Posco may buy a stake in a coal mine in Mozambique, it said in documents prepared for the meeting, without details on costs.

Steelmakers globally are facing soaring costs, with analysts forecasting that suppliers of coal and iron ore may ask for as much as an 86 percent jump in prices this year. The global steel market has bottomed and will grow by 9.2 percent in 2010 as demand rebounds in the U.S., Europe and Japan, the World Steel Association said last October.

“Economies at home and abroad are on a recovery path now, but the outlook for a full recovery is uncertain,” Chung said today. “We expect competition among steelmakers to increase.”

Pohang, South Korea-based Posco, which has risen 68 percent in the past year, was unchanged at 530,000 won in Seoul trading today, compared with a 0.5 percent advance in the local benchmark Kospi.

Iron Ore Mine

To meet rising iron ore needs, Posco said it will buy as much as a 15 percent stake in the Roy Hill project in Australia. Last year, Posco bought a 16.7 percent stake in Jupiter Mines Ltd., it said today. The Korean steelmaker purchased a 10 percent stake in Macarthur Coal Ltd., the biggest exporter of pulverized coal, in 2008.

Posco is planning a record 9.3 trillion won ($8 billion) in capital spending for 2010, up from 4.9 trillion won in 2009.

BHP Billiton Ltd., the world’s largest exporter of coking coal, may raise prices to $240 a metric ton this year, up from $129 a ton a year ago, UBS AG said Feb. 18. Prices of iron ore may rise 40 percent this year, Moody’s Investors Service’s analyst Matthias Hellstern wrote in a Feb. 22 report.

Posco is planning $30 billion of overseas expansion in India, Indonesia and Vietnam to regain its spot as Asia’s largest steelmaker.

“We will go ahead with overseas mill plans in countries including India and Indonesia in order to strengthen the company’s status as a global player,” Chung said.

Last August, the company named Nasser, a former chief executive of Ford Motor Co, as its new chairman, saying he would take over early in 2010 but giving no exact date. Nasser will succeed Don Argus, chairman for more than 10 years, who is retiring.

Nasser, whose reputation as a cost cutter at Ford earned him the nickname “Jac the Knife”, joined the BHP board as a non-executive director in 2006 and is a member of the board’s risk and audit committee. When he takes over as chairman, Nasser will give up executive management duties with One Equity Partners, the private equity arm of JP Morgan but stay on in an non-executive and advisory role, BHP said.

He will also remain a director of British Sky Broadcasting and a member of the International Advisory Council of Allianz AG , BHP said. “My priority commitment will be the chairmanship of BHP Billiton, duly recognising the challenges of a dual-listed company structure and the requirements to represent the interests of all shareholders in our key markets,” Nasser said.

BHP aims to raise its prices for the first time in two years, as spot prices for steel raw materials have risen on the back of expanded steel output in China and across Asia, the newspaper said.

Japanese steelmakers have rejected the proposal, the Nikkei said, without citing sources.

Blackthorn Resources Limited (ASX: BTR) is pleased to advise that its joint venture
partner BHP Billiton, as manager and holder of the Mumbwa large-scale prospecting
licence (LPL 374) in Zambia, has been granted renewal of the prospecting licence for a
further two years to allow continuation of exploration activity in the region.
The Mumbwa prospecting licence application submitted to the Mining and Cadastral office
was for an area covering 500 sq km. This area represents a reduction in the former
prospecting licence by 50% which is in accordance with existing Zambian legislation. The
JV partners worked in collaboration to mutually decide on the area retained under the
Mumbwa prospecting licence.
The Mumbwa JV is targeting an Iron-Oxide Copper Gold style of mineralisation and has
been encouraged by exploration efforts since inception of the joint venture in late 2004.
Currently the JV partners have focused exploration over three anomalous regions (the
Kitumba, Mutoya and Mushingashi anomalies) which extend along strike for a distance of
approximately 20 kilometers.
The Kitumba Anomaly extends for approximately 1km along strike and is at the most
advanced stage of exploration being the focus of previous drilling programs. An initial
Inferred Mineral Resource for the Kitumba Anomaly was released in late 2009.
Exploration activity at Mumbwa is now focusing on the Mushingashi anomaly. However,
drilling has been suspended due to the annual wet season although some on-site work is
continuing to improve safety and upgrade the office and accommodation facilities.
In January 2010 BHP Billiton made its election to manage and fund Phase 4 exploration
work including a concept study. A decision has been made to award drilling contract work
to Boart Longyear. The current plan is to establish 2 drill rigs to commence operations
once the wet season is over. Exploration work is planned to recommence in April 2010.

According to documents filed with the Australian Securities Exchange Mr Argus picked up an additional 13,200 shares in the dual-listed group, one tranche at $40.59 on the ASX and another at £19.30 ($33.80) on the LSE for a total of about $497,079.

His stake in the miner is worth close to $14 million at current prices.

Mr Argus has yet to set a date beyond “early 2010″ to hand over to his replacement, Jac Nasser.
Shares in BHP were 68¢ higher, or 1.68 per cent, higher at $41.23 by 10.35am.

The value may rebound to 2006’s levels when $175 billion of deals were done, after halving to $60 billion last year, Ernst & Young’s Global Mining & Metals Leader Mike Elliot said in an interview. Deals peaked at $210 billion in 2007, according to a report by the consulting firm.

Mining companies such as Anglo American Plc and Vale SA sold a record amount of dollar bonds last year to bolster war chests for acquisitions, expansions and buybacks. China, the world’s largest metal consumer, may add to last year’s record $32 billion spending on resource acquisitions.

“Many mining and metals companies are looking for acquisitions to fast track supply pipelines, driven by confidence in ongoing underlying demand in China and India,” Elliot said. “We are seeing a lot larger lists of potential buyers than there are assets available.”

BHP Billiton Ltd., the world’s largest mining company, rose 0.8 percent to A$41.00 at 11:53 a.m. Sydney time on the Australian stock exchange and Rio Tinto Group, the third- largest, gained 1 percent to A$71.29.

China led acquisitions last year, accounting for 24 percent of all deals, compared with 18 percent a year earlier, Ernst & Young said in the report released today. There may be the same amount of interest from China this year, Elliot said.

“The Chinese have learned very quickly how to successfully do these deals,” he said.

Companies making acquisitions may use proceeds from bond sales as an alternative to bank financing, he said.

At 12.01pm AEDT, the benchmark S&P/ASX200 index was up 48.4 points, or 1.06 per cent, at 4593.9 points, while the broader All Ordinaries index had risen 44.8 points, or 0.98 per cent, to 4615.2 points.

CommSec market analyst Juliette Saly said there was robust trading on the local bourse after a lacklustre session yesterday and despite the lack of a lead from Wall Street, with US markets closed overnight for the President’s Day public holiday.

Ms Saly said the European Union had provided some clarity about its plan for Greece’s financial woes, which had helped to boost sentiment, Ms Saly said.

“A very strong trading update from Westpac before market open has helped our banking stocks lead the way,” she said.

Westpac, Australia’s second biggest lender, said first quarter cash earnings had risen by one- third, lifting its shares by $1.14, or 4.89 per cent, to $24.44 by 12.03pm AEDT.

“The fact that Westpac has come out with a good result just a week after a positive Commonwealth Bank result and a few days before the NAB issues its trading update is being seen as a very positive sign for the Australian banking sector and the overall economy,” Ms Saly said.

NAB was up 80 cents, or 3.29 per cent, at $25.11, Commonwealth Bank had added 42 cents at $52.00 and ANZ had gained 84 cents, or 4.1 per cent, at $21.34 at 12.04pm AEDT.

Mining giant BHP Billiton was 33 cents higher at $40.99 at 12.05pm AEDT, while Rio Tinto was up 78 cents at $71.35.

OneSteel rose 19 cents, or 5.9 per cent, to $3.41, after the steel maker posted a better-than-expected 48.6 per cent fall in first half net profit to $117.4 million.

Also making news today, Primary Health Care posted a half year net profit of $76.6 million compared to $11.5 million for the previous corresponding period.

“Primary Health saw its first half profit increase by a massive 500 per cent but the market was looking for a figure of around $80 million, so it has missed expectations,” Ms Saly said.

Shares in Primary Health Care were down 66 cents, or 11.89 per cent, at $4.89 at 1211 AEDT.

Online jobs agency Seek reported first half net profit of $36.55 million, up from $32.5 million in the prior corresponding period, and says it expects to capture a disproportionately higher market share as the economy improves.

Shares in Seek were up 45 cents, or 6.87 per cent, at $7.00 at 12.11pm AEDT.

Drinks maker Foster’s Group posted a 13.5 per cent fall in first half net profit to $355.7 million, but says it expects benefits from a corporate transformation program to show over the next 18 months.

Shares in Foster’s were down 14 cents, or 2.52 per cent, at $5.42 at 12.12pm AEDT.

Among major gold miners, Lihir was up two cents at $2.85 at 1212 AEDT, and Newcrest was 30 cents higher at $32.48.

At 12.14pm AEDT, the spot price of gold was $US1105.50 per fine ounce, up $US13.37 from yesterday’s close of $US1,092.13.

Energy stocks were mixed at 12.15pm AEDT.

Woodside had gained 25 cents to $43.45, Oil Search had fallen seven cents to $5.20 and Santos had backtracked 11 cents to $13.34.

“The raw materials industry is highly concentrated and suppliers in recent years have had significant pricing power,” ArcelorMittal said in its 20F annual report published at the Securities and Exchange Commission.

“Further consolidation among suppliers — for example, the announced iron ore joint venture between mining companies BHP Billiton and Rio Tinto — would exacerbate this trend.”

The world’s three largest iron ore miners — Brazil’s Vale, Rio Tinto and BHP Billiton — accounted for nearly 70 per cent of the world’s sea-borne traded iron ore market in 2008.
Rio Tinto and BHP announced near the end of last year plans to create an iron ore joint venture that would reduce production costs and produce iron ore more quickly by combining mining operations in Western Australia. Sales and marketing would be kept separate from the joint venture.

Steelmakers around the world, particularly those that depend on other miners for a substantial portion of their iron ore requirements, are adamantly opposed to the merger.

The World Steel Association and other regional steel associations have all urged relevant authorities to reject the joint venture on grounds that it would concentrate too much iron ore pricing power in the hands of an even smaller group of mining companies.

Yesterday, Australia’s biggest steelmaker, Bluescope, lashed out at BHP-RIO iron ore merger and BHP’s plan to scrap annual iron ore pricing. Click here to read the story by The Australian’s Matt Chambers.

ArcelorMittal is likely to be less affected by the joint venture than some of its peers since it benefits from substantial captive sources of iron ore and coal. In 2009, ArcelorMittal was 60 per cent self-sufficient in iron ore and 20 per cent self-sufficient in metallurgical coal, another ingredient used in steelmaking.

Nevertheless, the steelmaker still purchases a significant portion of its raw materials under long-term supply contracts, and therefore depends on outside sources such as Vale for iron ore.

The three miners are expected to seek a 40 per cent rise in annual benchmark prices in 2010, according to industry analysts, after agreeing to a 28 per cent to 33 per cent cut in annual prices during 2009 when the global economic demand took a bite out of steel demand.

Vale and BHP have also signalled their desire to push towards a short-term iron ore price system rather than an annual benchmark system where prices are negotiated annually between the world’s three largest miners and Asian steelmakers, the world’s largest steel producers.

ArcelorMittal said in its report that such a move toward spot iron ore sales rather than long-term fixed-price contracts would cause steelmakers to “face increased exposure to production cost and price volatility, which may in turn reduce their access to reliable supplies of raw materials”.

The company said any prolonged interruption in the supply of raw materials or energy, or increases in costs which ArcelorMittal cannot pass on to its customers, could adversely affect its business, financial condition, results of operations or prospects.

“The raw materials industry is highly concentrated and suppliers in recent years have had significant pricing power,” ArcelorMittal said in its 20F annual report published at the Securities and Exchange Commission.

“Further consolidation among suppliers — for example, the announced iron ore joint venture between mining companies BHP Billiton and Rio Tinto — would exacerbate this trend.”

The world’s three largest iron ore miners — Brazil’s Vale, Rio Tinto and BHP Billiton — accounted for nearly 70 per cent of the world’s sea-borne traded iron ore market in 2008.

Start of sidebar. Skip to end of sidebar.
Related Coverage
New chief for BHP iron ore division Perth Now, 7 days ago
Iron prices tipped to soar The Australian, 26 Jan 2010
BHP eyes ore joint venture Herald Sun, 19 Jan 2010
China’s giant iron discovery The Australian, 24 Jun 2009
EU backs China’s ‘monopoly’ call Perth Now, 10 Jun 2009

End of sidebar. Return to start of sidebar.

Rio Tinto and BHP announced near the end of last year plans to create an iron ore joint venture that would reduce production costs and produce iron ore more quickly by combining mining operations in Western Australia. Sales and marketing would be kept separate from the joint venture.

Steelmakers around the world, particularly those that depend on other miners for a substantial portion of their iron ore requirements, are adamantly opposed to the merger.

The World Steel Association and other regional steel associations have all urged relevant authorities to reject the joint venture on grounds that it would concentrate too much iron ore pricing power in the hands of an even smaller group of mining companies.

Yesterday, Australia’s biggest steelmaker, Bluescope, lashed out at BHP-RIO iron ore merger and BHP’s plan to scrap annual iron ore pricing. Click here to read the story by The Australian’s Matt Chambers.

ArcelorMittal is likely to be less affected by the joint venture than some of its peers since it benefits from substantial captive sources of iron ore and coal. In 2009, ArcelorMittal was 60 per cent self-sufficient in iron ore and 20 per cent self-sufficient in metallurgical coal, another ingredient used in steelmaking.

Nevertheless, the steelmaker still purchases a significant portion of its raw materials under long-term supply contracts, and therefore depends on outside sources such as Vale for iron ore.

The three miners are expected to seek a 40 per cent rise in annual benchmark prices in 2010, according to industry analysts, after agreeing to a 28 per cent to 33 per cent cut in annual prices during 2009 when the global economic demand took a bite out of steel demand.

Vale and BHP have also signalled their desire to push towards a short-term iron ore price system rather than an annual benchmark system where prices are negotiated annually between the world’s three largest miners and Asian steelmakers, the world’s largest steel producers.

ArcelorMittal said in its report that such a move toward spot iron ore sales rather than long-term fixed-price contracts would cause steelmakers to “face increased exposure to production cost and price volatility, which may in turn reduce their access to reliable supplies of raw materials”.

The company said any prolonged interruption in the supply of raw materials or energy, or increases in costs which ArcelorMittal cannot pass on to its customers, could adversely affect its business, financial condition, results of operations or prospects.

The traditional annual price negotiation system has become outdated due to wilder fluctuations in steel demand and foreign exchange rates, Chief Executive Marius Kloppers was quoted as saying in an interview with the Nikkei.

Japanese steelmakers are opposed to a shift to a shorter contract period, saying frequent changes in costs would hurt the business of its customers.

Major customers for Japanese steelmakers such as Nippon Steel Corp include auto makers, shipbuilders and electronics manufacturers.

But Kloppers was quoted as saying by the Nikkei on Saturday that it is not acceptable to continue using the existing system just for iron ore and coking coal now that the pricing mechanism for fuel coal has been shifted to a market price-based system.

Macmahon said under the contract extension, it would continue to provide a complete mine service including drill and blast, mining, crushing and train loading at the site.

“Macmahon has been working at Orebody 18 and Wheelarra since February 2006 and this current extension will deliver an increased level of production at the sites,” the company said in a statement.

Macmahon chief executive Nick Bowen said it was a significant award for the company and demonstrated the value that Macmahon provided to its clients.

The company said it expected to boost its workforce at the site from 330 to 380.

Macmahon will release its half year results tomorrow.
Macmahon shares were up one cent, or 1.59 per cent, to 64 cents at 8.20am.

The major policy shift by Vale strengthens expectations that Australia’s iron ore producers will secure big price rises for iron shipments in 2010, perhaps much more than the 30-40 per cent price increase range that the market has been pricing into shares.

Vale said steel customers had to wake up to the fact that contract prices in future must reflect spot market prices. Vale’s move away from the benchmark system is likely to infuriate China, which is already paranoid about the level of pricing power that Vale and the big Pilbara producers – BHP and Rio Tinto – can exert in a tight market for iron ore supplies, as is the case now.

Under the decades-old benchmark system, the first price settlement by either Vale or one of the big Pilbara iron producers became the benchmark against which all other deals were settled in the year. But in recent years, the pricing of iron ore has shifted to a point where more than 50 per cent of the global seaborne trade is done at spot market prices.

While BHP under Mr Kloppers has been pushing for a more transparent and flexible pricing of iron ore by reference to the spot market, Vale has been a staunch defender of the benchmark system.

But that changed on Thursday night when Vale revealed its new attitude, taking the global market for seaborne iron ore trade along in the process.

Vale’s director for ferrous metals, Jose Carlos Martins, indicated that the change was a response to the behaviour of the Chinese steel industry – the world’s biggest – during the global financial crisis, and the huge price difference that has opened up between contract prices set last year and the current spot price. ”The markets that were buying, especially China, decided to buy differently instead of fulfilling their contractual obligations,” Mr Martins said.

During the financial crisis, spot prices fell to levels below the benchmark settlement but spot prices are now more than double benchmark prices at about $US130 a tonne.

”Vale will always keep its policy of selling on a benchmark basis but we believe you can’t keep such a huge difference between the spot and benchmark prices,” Mr Martins said. ”It causes a lot of arbitrage in the system. Everyone is trying to buy on the benchmark to sell on the spot. So it’s really a mess.” It was everything that Mr Kloppers had been saying.

”The spot market is now almost 50 per cent of the total seaborne market and in China it is nearly 70 per cent of the total iron ore market,” Mr Martins said.

”So the spot price is a reality, it has to be seen as the market price today. Our customers will have to accept a different price system.”

Earlier in the week, Mr Kloppers told a media conference on BHP’s December profit report that the spot market was the ”best indicator of what the supply and demand is and is the best indicator of what expectation should be on where prices are heading”.

Final benchmark contract-price agreements for the year may still be settled first by Japanese mills and the ore producers, Hu said in a phone interview, without naming any of the mills. Some of the annual Chinese contracts start from Jan. 1, he said.

Talks to set 2010 benchmark prices have begun between mills and suppliers including BHP and Rio Tinto Group, the China Iron & Steel Association said this week. Baosteel Group Corp. and Rio have named new negotiators, signaling the mills and miners want to start afresh after failing to agree on prices last year.

The steelmakers were asked either to accept the provisional price gain, or indexed pricing, UC361.com’s Hu said. BHP said last month it sold 46 percent of its first-half ore cargoes from Western Australia through a mix of cash, quarterly and index pricing.

Wang Liqun, chief negotiator for Baosteel Group, which represents Chinese steelmakers in annual iron-ore talks, declined to comment. Shan Shanghua, general secretary of China Iron & Steel Association, couldn’t be reached by Bloomberg News. BHP spokesman Samantha Evans declined to comment when contacted by Bloomberg News.

The four-decade annual pricing system was fractured last year after Rio, BHP and Vale SA, who account for three-quarters of traded iron ore, refused to meet China’s demand to cut prices by more than 33 percent during the global recession.

Five Largest

China’s five largest steelmakers proposed to one of the world’s top three suppliers that they pay a provisional 40 percent more for contract iron ore than a year ago, UBS AG said today, citing a Platts report. An agreement may have been reached, said UBS, citing the Platts report.

A 40 percent gain in contract prices would see the price of Australian ore rise to about $84 a metric ton, from about $60 a ton. The cash price, including freight and insurance, was at $128.20 yesterday, according to The Steel Index.

Vale SA, the world’s biggest iron-ore producer, expects to win contract prices this year that reflect a soaring spot market as Chinese demand surges. The spot market is the best indicator of where contract prices are heading, BHP Chief Executive Officer Marius Kloppers said this week.

“We were left in no doubt that BHP would be looking for a 90 percent iron-ore price rise for a 12 month contract,” Goldman Sachs JBWere Pty analysts, led by Neil Goodwill, said Feb. 10.

China’s monthly iron-ore imports fell 25 percent to 46.6 million tons in January, the second-lowest since January 2009, according to the general customs data, signaling slowing demand.

The slowdown in iron-ore shipments could be repeated this month because of the Lunar New Year holiday, which runs through next week, Goldman Sachs JBWere said in a Feb. 10 report. “Evidence of lower import demand could strengthen China’s negotiation position” for 2010 benchmark prices,” it said.

Final benchmark contract-price agreements for the year may still be settled first by Japanese mills and the ore producers, Hu said in a phone interview, without naming any of the mills. Some of the annual Chinese contracts start from Jan. 1, he said.

Talks to set 2010 benchmark prices have begun between mills and suppliers including BHP and Rio Tinto Group, the China Iron & Steel Association said this week. Baosteel Group Corp. and Rio have named new negotiators, signaling the mills and miners want to start afresh after failing to agree on prices last year.

The steelmakers were asked either to accept the provisional price gain, or indexed pricing, UC361.com’s Hu said. BHP said last month it sold 46% of its first-half ore cargoes from Western Australia through a mix of cash, quarterly and index pricing.

Wang Liqun, chief negotiator for Baosteel Group, which represents Chinese steelmakers in annual iron-ore talks, declined to comment. Shan Shanghua, general secretary of China Iron & Steel Association, couldn’t be reached by Bloomberg News. BHP spokesman Samantha Evans declined to comment when contacted by Bloomberg News.

The four-decade annual pricing system was fractured last year after Rio, BHP and Vale SA, who account for three-quarters of traded iron ore, refused to meet China’s demand to cut prices by more than 33% during the global recession.

Five largest

China’s five largest steelmakers proposed to one of the world’s top three suppliers that they pay a provisional 40% more for contract iron ore than a year ago, UBS AG said today, citing a Platts report. An agreement may have been reached, said UBS, citing the Platts report.

A 40% gain in contract prices would see the price of Australian ore rise to about $84 a metric ton, from about $60 a ton. The cash price, including freight and insurance, was at $128.20 yesterday, according to The Steel Index.

Vale SA, the world’s biggest iron-ore producer, expects to win contract prices this year that reflect a soaring spot market as Chinese demand surges. The spot market is the best indicator of where contract prices are heading, BHP Chief Executive Officer Marius Kloppers said this week.

“We were left in no doubt that BHP would be looking for a 90% iron-ore price rise for a 12 month contract,” Goldman Sachs JBWere Pty analysts, led by Neil Goodwill, said Feb. 10.

China’s monthly iron-ore imports fell 25% to 46.6 million tons in January, the second-lowest since January 2009, according to the general customs data, signaling slowing demand.

The slowdown in iron-ore shipments could be repeated this month because of the Lunar New Year holiday, which runs through next week, Goldman Sachs JBWere said in a Feb. 10 report. “Evidence of lower import demand could strengthen China’s negotiation position” for 2010 benchmark prices,” it said.

On the day BHP completed the controversial sale of its loss-making Ravensthorpe laterite project to Canada’s First Quantum Minerals for $US340 million ($388 million), or about 15 per cent of its development cost, BHP was yesterday at pains to highlight a record half-yearly performance by Nickel West, its remaining WA nickel business.

When BHP shut Ravensthorpe a year ago and cut operations at Nickel West’s flagship Mt Keith asset, analysts tipped a wholesale exit from the stainless steel commodity.

Rumours of a Nickel West sale to Canadian or Chinese interests have since resurfaced as BHP chief executive Marius Kloppers yesterday claimed “we like the businesses that we are in”.

A furnace rebuild at the Kalgoorlie Nickel Smelter along with cost cutting enabled Nickel West to report record half-yearly production and earnings before interest and tax (EBIT) of $US65 million for the six months to December 31, compared with a $US506 million loss previously when Ravensthorpe was weighing the division down.

An improved performance by BHP’s stainless steel materials division, which includes Nickel West, was a highlight in the miner’s report of a pre-exceptional attributable profit of $US5.7 billion for the December half.

The result was down 7 per cent on the $US6.1 billion profit achieved in the December 2008 half, when commodity prices were much higher, but easily surpassed analysts’ expectations of about $US5.1 billion.

The December half featured a 17.5 per cent revenue fall to $US24.6 billion because of lower commodity prices. Higher production volumes, including a record performance by its Pilbara iron ore unit, and cost controls helped to limit the profit fall.

But applause for the better-than-expected profit was tempered by a lack of news on capital management initiatives by BHP, which is sitting on about $US8.4 billion in cash.

Net gearing is 15.1 per cent.

Although BHP increased its interim dividend by US1¢ to US42¢ a share, the miner did not announce a resumption of its share buyback.

Instead, Mr Kloppers spoke about “highly profitable growth options” that would soak up BHP’s cash.

BHP has $US8.9 billion earmarked for growth projects this year and $US11.5 billion next year. Only last month it approved a $US1.7 billion investment in the Pilbara.

BHP’s shares, which soared 3.4 per cent when the profit was announced, closed up only 3¢ at $39.88.

Mr Kloppers said he remained confident in the long-term outlook for commodities but “cautious about the speed and strength of the global economic recovery across the developed world despite the positive momentum in the developing countries”.
He also noted China’s attempt to curb inflationary pressures, describing it as another variable in the speed of the global recovery.

At 9am, the benchmark S&P/ASX200 index was up 38.8 points, or 0.86 per cent, at 4552.2 while the broader All Ordinaries index had gained 39.1 points, or 0.86 per cent, at 4572.1.

On the Sydney Futures Exchange, the March share price index contract was 38 points higher at 4519 on volume of 14,294 contracts.

Austock securities senior client adviser Michael Heffernan said better-than-expected unemployment figures and the financial sector had put a sparkle into the local market.

“The banks are really galloping at the moment and Rio is also up strongly,” Mr Heffernan said.

“We also had a disappointing result from Telstra today. Some had been expecting a dividend increase, and that didn’t occur.”

Mining giant BHP Billiton was up 37 cents, or 0.93 per cent, at $40.25, while Rio Tinto had advanced $1.82, or 2.68 per cent, at $69.76.

Among the major banks, ANZ added 49 cents, or 2.43 per cent, to $20.69, CBA was up 75 cents at $52.58, NAB was 20 cents higher at $24.74 and Westpac rose 30 cents to $23.04.

Telstra was 12 cents lower, by 3.54 per cent, at $3.27 after it posted a 3.3 per cent drop in first half profit to $1.85 billion.

In news, pay-television provider Foxtel has posted a 21 per cent lift in first half earnings as subscribers added new services and products to their accounts.

Building materials maker James Hardie Industries has generated a 66 per cent improvement in third quarter operating profit and says it sees some signs of improvement in the US housing market.

Its shares rose 14 cents to $7.81.

Advertising and marketing firm STW Communications Group has posted a 27.9 per cent rise in full year net profit, and says it’s optimistic about 2010 after a challenging first half.

Its shares jumped five cents, or 6.71 per cent, to 79.5 cents.

Gloves and condoms maker Ansell has appointed Magnus Nicolin to succeed Doug Tough as chief executive officer.

Ansell rose 25 cents, or 2.5 per cent, to $10.25.

Oil and gas producer Woodside Petroleum was 94 cents higher, by 2.26 per cent, at $42.60, Santos picked up 24 cents to $13.28, and Oil Search rose nine cents to $5.23.

In the gold sector, Lihir firmed three cents to $2.85, and Newcrest rose 33 cents to $32.14.

At 9.24am, the price of gold in Sydney was $US1076.00 per fine ounce, up 15 US cents on yesterday’s close of $US1075.85.

The top-traded stock by volume was investor Verus Investments, with 199.5 million shares worth $9.4 million changing hands.

Verus shares were 2.5 cents lower, by 35.21 per cent, at 4.6 cents.
Preliminary national turnover at 9.26am was 1.3 billion shares worth $2.1 billion, with 528 stocks up, 275 down and 295 unchanged.

First Quantum Minerals Ltd hopes to get Western Australia’s troubled Ravensthorpe nickel mine up and operating within 18 months, after formally taking control of the site.

The Canadian copper miner took control of the mine on Wednesday, after receiving government approvals.

Over the next year the company will work on modifying the troubled plant and then spend about six months to commission and ramp-up the mine.

It expects the works to cost about $US150 million ($A171.47 million).

Ravensthorpe was controversially closed down by BHP Billiton Ltd (ASX:BHP) in January 2009, amid difficulties in exploiting the nickel laterite deposits and plunging prices of the metal.

The nickel mine cost about $US2.1 billion ($A2.4 billion) for BHP to build and when it closed 1,800 people lost their jobs, a huge economic blow to the town of Ravensthorpe.

The mine is located about 550 kilometres southeast of Perth, and First Quantum expects it will produce 39,000 tonnes of nickel each year for the first five years and 28,000 tonnes annually after that.

The mine’s expected life is 32 years.

Bruce McNally from the Ravensthorpe Hopetoun Media Liaison Group said working with First Quantum was in stark contrast to his dealings with BHP Billiton.

“Their (First Quantum’s) front people have a deep knowledge of the process and a very deep knowledge of how to make that plant a viable proposition,” Mr McNally said.

“BHP are a massive bureaucracy, far more complex than any government bureaucracy and therein lies their incompetence,” he said.

He said now that the mine was restarting he expected businesses that had shut their doors to return.

Marius Kloppers , chief executive, said many economies, notably the US, were still dependent on government stimulus.

He said such measures had helped drive recovery but had not addressed structural issues such as weak labour markets and excess production capacity in developed economies.

“A further variable will be the impact of any measures to control loan growth in China ,” he said.

He added that in the short term Beijing was focused on containment of asset inflation.

“We remain cautious about the speed and strength of the global economic recovery across the developed world.”

But longer-term prospects were “robust” on the back of growth in China and India, Mr Kloppers said.

BHP yesterday reported a rise in net profits from $2.62bn to $6.14bn in the six months to December 31, with profits excluding exceptional items down 7 per cent to $5.7bn, better than analysts’ forecasts.

BHP’s base metals, iron ore and metallurgical coal businesses performed better than expected, while the petroleum division disappointed because of lower oil and gas prices.

Net profit for the six months (ended Dec. 31) was $6.14 billion, more than double the $2.62 billion the miner posted a year earlier. But, when factoring in one-time extraordinary expenses, profits fell 7% from the previous year’s first half – to $5.7 billion from $6.13 billion. That was still good enough to beat analyst guesses of $5.1 billion though. Revenue in the first half of the fiscal fell 17.5%, from $29.78 billion to $24.58 billion.

BHP Billiton Limited said the last six months showed improvement in terms of global economic strength, but the company reiterated caution about the strength and speed of the recovery.

Analysts feel BHP Billiton Limited will earn $3.39 per share (the ADR) for the current year ending on June 10th, and will earn $5.59 per share in the following year.

As the nation’s biggest and second-biggest listed companies, the pair provide a useful snapshot of where we’re heading. And the picture isn’t as cloudy as the recent market gloom suggests.

Posting a 54 per cent rise in interim cash profit to $2.94 billion, CBA chief Ralph Norris came close to declaring the GFC to be over, although being a conservative banker he couldn’t quite bring himself to be so definitive.

“Over the last six months the outlook for the global and domestic economy has improved to the extent that Australia now appears to be on the road to a sustainable economic recovery,” he said.

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“That is likely to bring with it gradual improvement in demand for credit in the 2010 calendar year.”

The recovery is reflected in the key performance measure of the net interest margin, which improved from 216 basis points to 218 bp and has returned to the more normal levels of 2006.

But in case mortgage holders are expecting imminent rates relief, Norris cautions funding costs will continue to climb as banks scramble to attract more deposit funding to skew their books away from the expensive wholesale stuff.

As with wedding speeches, it’s perilous to thank everyone lest you forget to mention mum, but a special mention to the wealth management division and its 59 per cent earnings surge. Of course, the revived sharemarket has more to do with this than management brilliance.

Meanwhile, BHP Billiton more than doubled its headline profit to an eye-watering $US6.13 billion ($6.99bn), thanks partly to flogging off the Ravensthorpe nickel mine and reversing a previous impairment charge.

EBIT declined from $US11.9bn to a better-than-expected $US8.5bn, with a base metals turnaround not quite offsetting coal and iron ore declines. Price reductions and forex movements accounted for all of the decline, so management can plead factors beyond its control.

BHP is even more cautious than bankers when it comes to outlook utterances, but managed to concede that supply and demand was returning to more normalised levels.

Criterion hasn’t rated BHP since last February’s result, when interim operating earnings surged from $US9.4bn to $US13bn on the back of — you guessed it — firmer commodity prices.

We had the CBA as a hold at $53 in October. Our rating on both stocks is under review.

*Disclosure: the author holds shares in BHP Billiton and the Commonwealth Bank.

Kloppers offered a “relatively modest outlook” for shorter-term world economic growth, but also said that “longer-term demand outlook for the products that we produce in the minerals and metals and energy sectors continues to be robust.”

The Melbourne-based miner also declared a dividend of 42 cents a share, up 2.4% from 41 cents a year earlier.

The dividend of 42 cents was “roughly in line with expectations,” said Potter.

Myra P. Saefong is MarketWatch’s assistant global markets editor, based in Tokyo.
BHP said its revenue for the half year fell 17.5% to $24.58 billion from $29.78 billion.

Looking ahead, BHP said that with reduced capital investment in new mining capacity since 2007, “supply may struggle to keep pace with demand in the medium and longer term.”

That comment “will garner a lot of attention as it bodes well for higher sustainable commodity prices,” Ben Potter, a research analyst at IG Markets, said in a note to clients after the BHP results were released.

And the “fact that the result was driven by higher volumes as opposed to higher prices should please the market,” he said.

Shares of BHP Billiton added 1.6% in Sydney’s morning trading.
Demand recovery

The rally in commodity prices and demand was “driven by strong recoveries in China and India — and lately by [the] start of restocks in developed economies,” BHP’s Chief Executive Marius Kloppers said during a news conference, according to a transcript of his remarks.

In the six months ended Dec. 31, net profit for BHP (AU:BHP 40.34, +0.49, +1.23%)
(BHP 71.20, +0.04, +0.06%) , which is among the world’s largest mining companies, more
than doubled to $6.1 billion, or $1.103 a share, from $2.6 billion, or 47 cents a share, in the year-earlier period.

Excluding exceptional items related to the reversal of an impairment charge on the suspension of Ravensthorpe nickel operations, the miner saw net profit of $5.7 billion, down 7% from $6.1 billion from the same time a year earlier.

Still, the results beat out analysts’ consensus expectations for a profit of $5.1 billion to $5.3 billion, according to IG Markets.

“Record sales volumes in three key commodities delivered a sound financial performance,” BHP said in a statement. “However, lower commodity prices and a weak U.S. dollar adversely impacted earnings compared to the prior period.”

But Australian shareholders will not be at the front of the line thanking the company for its generosity.

While the interim dividend has been increased 2.4 per cent from 41 US cents to 42 US cents, it has gone backwards in Australian dollar terms by more than 25 per cent due to the impact of the strong Australian dollar.

Just how far backwards is not yet known as unusually, BHP has yet to nominate the exchange rate that will apply to the payment when it is made on March 23. The rate that will apply will be nominated on March 5 which is also the record date for the payment after the stock goes ex-dividend on March 1.

But if yesterday’s exchange rate is used, the 42 US cents a share interim, which is fully franked, works out at 47.95 cents a share, down from the previous interim dividend that weighed in at 64.95 cents. The difference in local currency terms is some 26 per cent.

There were no apologies from BHP today for the haircut local shareholders will be taking on their dividends. It extolled the virtue of the group’s “progressive” dividend policy, another way of saying its intent is that dividends will always go onwards and upwards, albeit in the group’s “functional” currency – the battered US dollar.

BHP chief Marius Kloppers described the progressive dividend policy as close as investors can get to an annuity without any guarantees. He also softened the blow of the lower Australian currency payout by pointing to the 25 per cent annual compound growth rate in dividends since BHP got together with the London-based Billiton in 2002. But again, that’s all in US dollars.

Perhaps he should have just pointed to the sharemarket where BHP shares were trading strongly in response to the group’s better-than-expected December half profit of $US5.7 billion before exceptional items.

At midday the shares were trading 61 cents, or 1.5 per cent, higher at $40.46.

The market had been expecting about $US5.1 billion, with the difference explained by Mr Kloppers as being the difficulty analysts would have had in dealing with the impact of accountancy translations and finalisation of currency and exchange rate impacts.

The market consensus tips underlying EBIT to fall by as much as 34 per cent to $US7.9 billion.

Attributable profits are seen falling 17 per cent to just over $US5 billion.

Despite the weaker anticipated profits, its balance sheet and cash flow remains strong, and that could mean BHP may engage in some capital management initiatives.

Athabasca owns the Burr potash exploration project adjacent to BHP’s US$240-million development Jansen project 25 km from Lanigan, SK. Environmental and resource studies have been completed for both properties.

BHP Billiton Diamonds & Specialty Products president Graham Kerr said, “Today’s announcement is consistent with BHP Billiton’s strategy of building a strong potash resource position. We continue to pursue opportunities that fit within our portfolio and are aligned with our strategy of developing Tier 1, long life, low-cost, expandable assets. This acquisition fits well with our existing projects and land positions in the Saskatchewan potash basin.”

Perhaps not lost on all investors to date, Western Uranium owns a large tenement portfolio prospective for manganese adjacent to the world’s third largest managanese producer and one of the world’s largest high grade manganese deposits.

Western Uranium has six tenement applications including 1,722km², 57km² onshore including Winchelsea Island and 1,665km² offshore. The tenements are directly adjacent to BHP Billiton and Anglo American Corp’s, Groote Eylandt Mining Company (known as GEMCO) world class manganese mine.

What sets GEMCO apart? It is the 9th richest mine in Australia, mining 1/5 to 1/10 the tonnage of its peers. 2009 profit was ~$1.1bil (for only 2.3mt mined). In short, and in perspective GEMCO is 7x more profitable than BHP’s iron ore mines for tons mined. Groote Eylandt remains one of the most profitable manganese mines in the world.

Hence, Western Uranium’s tenements start to take on real interest, directly adjacent as they are to GEMCO’s operations. The J-Deposit is 200m from Western Uranium’s tenement boundary.

GEMCO immediately pegged surrounding Western Uranium’s tenements.

Western Uranium’s target geology is based on GEMCO. The tenements are Cretaceous sedimentary (stratiform) deposit, and a continuation of GEMCO’s orebody. Strike length exceeds 20km N-S and the ore bed ranges up to 11.5m thick. It averages 3m, with little to no overburden.

A$38 million market-capped (pro-forma) Western Uranium’s prospective areas of offshore tenements are typically in less than 5m water depth. Over 300km² of highly prospective ground are directly down dip of GEMCO’s orebody.

The company has lofty ambitions looking to rapidly grow to a world class explorer/miner, with an exploration target of 50Mt+ grading 35-50% Mn with low impurities. And, a mining target of 2-3mtpa DSO aiming high to become one of the world’s largest manganese miners.

At this level it would be equivalent to $1-1.5B pa in revenue for the company. There is still much exploration to be done by Western Uranium/Groote Resources to get anywhere near that. The company has cash of $3.4 million (post placement) for an exploration program.

Market capitalisation has jumped considerably since the sale and purchase agreement in November 2009 to acquire Reflective Minerals Pty Ltd’s five mineral exploration licenses and an Authorisation under section 178 (“ELA’s”) covering approximately 1723 km² of shallow marine terrain immediately surrounding Groote Eylandt, plus Winchelsea and Connexion Islands in the Northern Territory

With 94% of manganese used as a ferroalloy in steel making, with no known substitute, manganese is a fair barometer of the health of global and in particular Asian economic growth. 75% of Manganese metal is produced from just four countries; South Africa, Gabon, Australia and China.

Australian has four operating manganese mines: BHP Billiton’s (ASX: BHP) Groote Eylandt mine, Consolidated Minerals’ (private company), Woodie Woodie mine, Om Holdings’ (ASX: OMH) Bootu Creek mine and Mesa Minerals’ (ASX: MAS) Ant Hill mine.

Other Australian manganese companies include: Shaw River Resources (ASX: SRR) with the Baramine manganese deposit in WA and Aurora Minerals’ (ASX: ARM) Capricorn South deposit in WA.

Western Uranium has appointed Barrie Bolton as its principal geological advisor to their manganese project near Groote Eylandt in the Northern Territory. Mr. Bolton’s experience with manganese extends over 30 years and includes 18 years either advising on, or managing BHP’s exploration program for manganese, worldwide.

In summing up his appointment he said, “the adjacent land and shallow marine areas adjoining this remarkable deposit (at Groote Eylandt) must represent one of the best areas in the world for the discovery of high grade manganese in a location ideally suited to meeting the rapidly growing demand from China and the other nations of Asia.”

Company insider Chris Campbell has been named Mr Ashby’s replacement as head of iron ore.

Mr Campbell has been with the BHP Billiton group for 20 years and has experience in marketing, business development and project management, the company said.

His appointment will become effective as Mr Ashby’s workload in connection to the Rio Tinto joint venture increases, expecting in coming months.

BHP Billiton is the world’s largest resources company, with the iron ore division one of the main profit drivers.

The president of BHP’s iron ore division is in charge of operations in Brazil, West Africa and marketing of the company’s share of the WA joint venture with Rio Tinto.

BHP’s chief of ferrous and coal, Marcus Randolph, said Mr Campbell’s previous roles and deep history in the group would make him invaluable in his new position.

“I am delighted to have Chris on the team and believe that this structure will give additional focus to our non-Western Australia iron ore assets,” Mr Randolph said.
At 9.09am, BHP shares were up 50 cents, or 1.26 per cent, to $40.50.

“When this year’s iron ore price talks started, Japanese and Korean steel mills agreed to a higher benchmark price for this year, so the key issue now becomes how much the price hike will be,” the report said, citing a mining source close to Rio Tinto and BHP Billiton Ltd.

Rio Tinto officials couldn’t immediately be reached for comment.

Chinese mills led by Baosteel Group Corp. are also holding price talks with the three global miners, the report quoted a purchasing manager at a state-owned iron ore trading house as saying.

“Baosteel has in principal agreed to the price hike, (and) they’re under much pressure in this year’s talk,” said the person.

Chinese steel mills, however, are unlikely to accept an increase of more than 30% from 2009 levels, the report quoted a person close to the negotiating parties as saying. “The (price hike) may be around 20% to 30% for this year,” he said.

According to an Australian mining source cited in the report, Japanese and Korean steel mills may be willing to accept a 40% hike this year although they haven’t formally accepted the offer.

The report quoted Shan Shanghua, chairman of the China Iron and Steel Association, as saying he had no knowledge of the development.

When contacted separately by Dow Jones Newswires, CISA Deputy Secretary General Qi Xiangdong also said he was unaware of any progress in talks.

“When this year’s iron ore price talks started, Japanese and Korean steel mills agreed to a higher benchmark price for this year, so the key issue now becomes how much the price hike will be,” the report said, citing a mining source close to Rio Tinto and BHP Billiton Ltd.

Rio Tinto officials couldn’t immediately be reached for comment.

Chinese mills led by Baosteel Group Corp. are also holding price talks with the three global miners, the report quoted a purchasing manager at a state-owned iron ore trading house as saying.

“Baosteel has in principal agreed to the price hike, (and) they’re under much pressure in this year’s talk,” said the person.

Chinese steel mills, however, are unlikely to accept an increase of more than 30% from 2009 levels, the report quoted a person close to the negotiating parties as saying. “The (price hike) may be around 20% to 30% for this year,” he said.

According to an Australian mining source cited in the report, Japanese and Korean steel mills may be willing to accept a 40% hike this year although they haven’t formally accepted the offer.

The report quoted Shan Shanghua, chairman of the China Iron and Steel Association, as saying he had no knowledge of the development.

When contacted separately by Dow Jones Newswires, CISA Deputy Secretary General Qi Xiangdong also said he was unaware of any progress in talks.

Rio, the world’s second largest iron ore producer, and BHP, the third largest, said they would keep their marketing separate to try to ease regulatory concerns when they unveiled the agreement to combine their Western Australian iron ore operations.

The European Commission, the EU executive, said it would investigate whether the planned joint venture breached EU antitrust rules which prohibit companies from fixing prices and sharing markets and that the case would be a priority.

“The proposed joint venture between Rio Tinto and BHP Billiton would combine the parties’ iron ore assets in Western Australia,” the European Commission said in a written statement.

“The Commission will in particular examine the effects of the proposed joint venture on the worldwide market for iron ore transported by sea (the so-called ’seaborne iron ore’.”

It said worldwide consumption of iron ore was picking up after a slowdown due to the economic and financial crisis, and was forecast to grow steadily in the coming years.

The World Steel Association and European steelmakers’ lobbying group Eurofer have criticised the proposed joint venture.

Investors have said securing regulatory approval could be the main stumbling block to the proposed joint venture.

BHP, which failed in a bid to take over Rio in 2008 after objections from the European Commission, and Rio have said they also plan to seek approval for the joint venture from the Australian Competition and Consumer Commission, and hope to close the deal in the second half of this year.

The companies have forecast annual savings of at least $10 billion in capital and operational costs from the joint venture.

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The bid further illustrates BHP’s commitment to the sector. It bought Anglo Potash in 2008 and plans to invest $240 million in 2010 to develop its Jansen potash project in the province, Reuters reported.

BHP said it agreed to pay 8.35 dollars per share in cash for Athabasca, a 25 percent premium to Athabasca’s closing price of 6.70 dollars on Wednesday.

Potash refers to several naturally occurring compounds containing potassium, which are used in agriculture to make fertilizer, and in industry to make glass and soap.

The company will have seven Australians, including chief executive Marius Kloppers who has dual citizenship, on its board, and five international appointees.

The changes came after Americans Paul Anderson and Gail de Planque announced their retirement from the board today.

Australians Malcolm Broomhead, 57, and Carolyn Hewson, aged 54 are to replace the out-going board members and will be appointed non-executive directors from March 31.

Mr Anderson was formerly chief executive and managing director of BHP Ltd, and will depart the company to become a director of energy giant BP Plc.

He was one of the architects during the BHP’s merger with Billiton in 2001 and stayed in charge of the merged group until July 2002.

Dr de Planque is an expert in nuclear technology and a former commissioner of the United States Nuclear Regulatory Commission.

She is departing the board to seek medical treatment in the United States for Lyme disease.

Mine Life senior resources analyst Gavin Wendt said it was interesting the world’s biggest miner had appointed two Australians to replace retiring board members.

“BHP has a lot going on in Australia, a lot of projects, it is probably a reflection of that,” Mr Wendt said.

BHP Billiton chairman Don Argus said the new appointments would bring a wealth of experience to the company.

“Malcolm has extensive experience in running industrial and mining companies with a global footprint and his experience in the sector will make a very attractive addition to our board,” Mr Argus said.

“He has broad global experience in project development in many of the countries in which we operate.”

Mr Argus said Ms Hewson would also be an asset to BHP Billiton.

“She has 25 years’ experience in the financial sector with extensive financial markets, risk management and investment management expertise,” Mr Argus said in a statement on Friday.

BHP Billiton’s chairman elect Jac Nasser said renewing the mix of skills and competencies of directors would ensure the board was comprised of those best able to govern the company.

Shares in BHP Billiton finished the day down $1.30, or 3.19 per cent, at $39.40.

The appointments follow the retirements of Paul Anderson and Dr Gail de Planque at the end of the month.

BHP to spend $US1.93b on further Pilbara expansion

BHP to buy Athabasca Potash for $357.98m

BHP said Mr Anderson had accepted an invitation to become a director of BP and Dr de Planque would retire because of her immediate need for continuous treatment in the US for Lyme disease.

Mr Broomhead, 57, also held various roles with mining companies Energy Resources Australia, Peko Wallsend and MIM Holdings. He is also a non-executive director of Coates Group.

Ms Hewson, 54, a former investment banker with Schroders Australia, is a non-executive director of Westpac, BT Investment Management and Stockland.

She is the former wife of former Federal Liberal leader John Hewson.

The appointment of Mr Broomhead and Ms Hewson as non-executive directors will bring the number of BHP Billiton directors to 12.
BHP shares were off 94 cents, or 2.31 per cent, to $39.76 at 12.10pm in a broadly weaker market.

Analysts forecast contract iron ore prices under negotiation with steel mills could rise by 40 per cent or more this year as steelmakers crank up mills idled during the financial crisis.

BHP sells about half its iron ore to China where steel output is running at record highs. After a 13.5 per cent rise in 2009 steel output, China now accounts for 46.5 per cent of the global production and is set to be the engine of growth once again in 2010.

“This investment is the continuation of our long-term strategy of adding capacity in our high quality iron ore business to support our confidence in the longer-term demand for iron ore globally,” Ian Ashby, president of BHP’s iron ore division said in a statement this morning.

BHP’s share of the Western Australia iron ore business stands at $US1.73 billion and the funding will help boost installed capacity to 240 million tonnes a year in 2013, the company said.

The remaining $US200 million will come from Itochu Minerals & Energy, Mitsui-Itochu Iron and Mitsui Iron Ore, which hold minority stakes in BHP’s iron ore mines.

The funds will be spent to upgrade rail lines used to haul ore from outback mines in far west Australia and to expand port facilities on the Indian Ocean.

Approval for the balance – yet to be disclosed by BHP – will be considered during the second half of the 2010, BHP said.

Analysts put the total cost at around $US4 billion.

BHP, which is the world’s third largest iron ore producer after Brazil’s Vale and fellow Australian Rio Tinto, is already in the final stage of a separate 50 million tonnes-per-year expansion project in Australia that will take its capacity level to 205 million tonnes by mid-2011.

BHP has signalled a willingness to deploy surplus cash into development projects and acquisitions. On Thursday, it greed to buy Canadian potash explorer Athabasca Potash for $C341 million ($360 million) in cash.
Last week, the company gave its most upbeat outlook for commodities since the global downturn and reported an 11 per cent rise in the December quarter iron ore output from a year ago.

BHP’s continued investment in iron ore comes at a time when it is pursuing a $US116 billion iron-ore joint venture with Rio to combine their Western Australian iron ore businesses.

In Australia and Canada, Rio aims to boost production 6 per cent to 230 million tonnes in 2010 and is strongly considering a leap to 330 million tonnes within five years.

In Brazil, Vale is heading toward record iron ore exports this year as it runs its mines near their 310 million tonnes-per-year maximum capacity.

Also, by the end of 2010, Fortescue aims to lift its annual operating rate by 37 per cent to to 55 million tonnes per year of iron ore.

Athabasca’s flagship Burr project is located next to BHP Billiton’s own Jansen project, in the province of Saskatchewan, and the smaller firm holds one of the largest exploration permit areas in the Saskatchewan basin, covering approximately 6 900 km2, BHP said.

BHP Billiton will offer C$8,35 a share in cash for Athabasca, which represents a 25% premium to its closing price on Wednesday.

Athabasca shares jumped 23,7% on Thursday morning, to C$8,29 apiece by 11:23 in Toronto.

Potash prices and profits surged in 2007 and the early parts of 2008, but demand plunged later that year, as farmers, squeezed by the economic crisis, deferred the use of fertiliser.

Although the market remains weak, producers and analysts expect to see a rebound this year, as farmers are forced to replenish nutrients in their soil.

BHP Billiton has said for several years it plans to become a significant producer of potash, to take advantage of anticipated future demand for the crop nutrient.

In May 2008, the Anglo-Australian group announced it would buy TSX Venture Exchange-listed Anglo Potash for C$284-million, and there has also been speculation that the compay was looking at a potential bid for Canadian potash giant, Potash Corp or US-based Mosaic Co.

Last week, BHP said last week it had approved $240-million for preparation work on its Jansen potash project.

“Today’s announcement is consistent with BHP Billiton’s strategy of building a strong potash resource position,” BHP Billiton diamonds and specialty products president Graham Kerr said in a statement.

“This acquisition fits well with our existing projects and land positions in the Saskatchewan potash basin.”

The Jansen project is being designed to produce about eight-million tons a year of agricultural-grade potash, which will represent BHP Billiton’s first production of the crop nutrient.

Athabasca executive chairperson Dawn Zhou said on Thursday that the company had reviewed and explored a number of potential transactions and concluded that BHP’s offer was in the best interests of shareholders.

The firm first indicated in March last year that it was looking for a strategic partner with which to develop the Burr project.

It then said in July it had held talks and signed confidentiality agreements with a number of parties, and was also considering potential mergers, or a sale of part or all of the company.

Zhou, who also owns a stake in the company, was abruptly ousted as president and CEO in June last year, but, after an acrimonious battle for control, she successfully nominated a new slate of directors, which included herself, at the company’s shareholders meeting in September.

WINDS OF CHANGE

The BHP/Athabasca deal is the second big announcement in the global fertiliser industry in as many days.

Brazilian miner Vale, the second-biggest mining company in the world and number-one iron-ore producer, said on Wednesday it agreed to buy New York-based Bunge’s Brazilian fertiliser assets for $3,8-billion in cash.

Vale also wants to become a major player in the crop nutrient sector, and said on Wednesday it could produce about 3,3-million tons a year of phosphoric acid and 10,7-million tons of potash within seven years.

The Rio de Janeiro-based company acquired potash assets in Argentina and Canada last year from diversified miner Rio Tinto, and currently operates Brazil’s only potash mine.

BHP has agreed to treatment and refining charges of $46.5 a tonne and 4.65 cents a pound, said Nippon Mining’s president, Masanori Okada, also the head of the Japan Mining Industry Association.

The prices represent a 38 percent decline from last year.

“Although there are some negotiations still left with other miners, we think of this as the benchmark (for 2010),” said Okada, who was speaking at a mining association news conference.

Nippon Mining owns 66 percent of Pan Pacific Copper Co Ltd, Japan’s top copper smelter, with the reminder held by Mitsui Mining and Smelting Co Ltd (5706.T: Quote, Profile, Research).

Earlier this month a spokesman at Nippon Mining had acknowledged that an agreement had been reached for the 2010 processing fees with BHP, but he declined to elaborate. [ID:nTOE60E02H]

Copper treatment and refining charges for 2010 were first set at those levels with U.S. miner Freeport-McMoRan Copper & Gold Inc (FCX.N: Quote, Profile, Research) late last year.

Treatment and refining charges were set at $75 and 7.5 cents in 2009.

“Japan’s nonferrous metals firms cannot count on their smelting sectors (to make a profit) any more … and in our case that is why we are putting our efforts in the upstream sector,” Okada said.

He said other copper smelters were strengthening other departments such as recycling or electronic materials to make up for their faltering smelting divisions, once a key source of revenue for Japanese smelters.

Releasing its production report for the six months ended December, BHP said 54 per cent of its Australian ore shipments were sold on annually agreed pricing, with the remainder cent sold on “shorter term referencing pricing”.

That compares with BHP’s statement in July that 30 per cent of iron ore shipments had been sold on shorter term pricing – a mix of quarterly negotiations, spot market pricing and index-based pricing.

Excluding freight costs, spot prices this year have traded more than 90 per cent above the $61 a tonne 2009-10 contract price. That differential has encouraged BHP, which has campaigned for years for more transparent market pricing, to sell more iron ore based on prices tied to the spot market.

Iron ore is a main ingredient for steel manufacturing.

Talks between global miners and China, their biggest customer, on the 2009-10 annual benchmark broke down last year over their refusal to give China a bigger iron ore price discount than the amount agreed with Japanese steelmakers.

The Financial Times this month reported that China had been sidelined from the 2010-11 negotiations because of political gridlock and fears about retribution if the talks were to collapse.

Vale of Brazil, Rio Tinto and BHP are talking instead to Japanese customers to reach a benchmark deal they can present to Beijing on a “take it or leave it” basis.

It also comes as the mining groups are expanding production to service rising China-fuelled demand.

BHP said it achieved record production and shipments of iron ore in the six months ended December as well as the three months ended 2009.

Iron ore output rose 11 per cent to 32.4m tonnes in the three months ended December compared with the same period in 2008, while six-monthly production rose 6 per cent 62.6m tonnes compared with the equivalent period in 2008.

“During the December quarter we saw a strong recovery across the commodity suite driven by demand in China and restocking in the developed world,” BHP said.

The miner also recorded half-yearly production records in petroleum, nickel and zinc.

“Government stimulus measures appear to have supported a gradual return to normalised global trade, albeit from a low base, and most key indicators across the developed economies showed improvement,” it added.

BHP shares were up 0.5 per cent at A$43.51 in Sydney trading

Production was also higher from one year ago “due to an increase in ore processed and the full ramp-up of the Koala underground mine [at Ekati] which contains a larger proportion of higher value carats,” according to the company’s statement. Production continued to be influenced by variability of ore sources due to the mix of open pit and underground mining.

During the second fiscal quarter, specifically, BHP Billiton experienced strong price recovery across its entire commodity suite, which was driven by demand in China and restocking efforts underway from the developed world.

The mining giant concluded that government stimulus measures appeared to have supported a gradual return to normalized global trade, albeit from a low base one year ago, and that most key indicators across the developed economies showed improvement. The speed of economic recovery remains uncertain though, “particularly considering the eventual withdrawal of government stimulus. In China the impact of measures to control loan growth will add another future variable.” BHP Billiton expects some degree of volatility in the short term outlook for its commodities.

In its latest production report BHP Billiton said 54 per cent of iron ore shipments from Western Australia in the December 2009 quarter were sold on annually agreed (benchmark) pricing, with the rest at shorter-term reference prices.

In July last year the company said 30 per cent of its iron ore volumes were sold on a mix of quarterly negotiated pricing, spot prices and index-based pricing.

The latest sales data comes amid ongoing debate about the four-decades-old benchmark pricing system.

Last year four employees of miner Rio Tinto, including Australian man Stern Hu, who were involved in benchmark price negotiations were arrested in China amid spying allegations.

They remain in detention.

Chinese steelmakers, which account for about half of all BHP’s iron ore sales, last year refused to sign up to the benchmark rate, demanding a better deal.

They were ultimately unsuccessful in receiving preferential deals.

West Australian Premier Colin Barnett has said he wants the iron ore contract pricing system dismantled.

Resources analyst with Mine Life, Gavin Wendt, said the move away from selling iron ore at benchmark rates played into BHP Billiton’s strategy.

“BHP in particular has been trying to move away from benchmark pricing,” Mr Wendt said.

“I still think there is a place for benchmark pricing, but it is going to be a smaller proportion of seaborne iron ore trade.

“I think the bulk of it from now on will be sold through the spot market, and index pricing, which will be tied in with the spot price,” he said.

BHP Billiton’s iron ore production jumped 11 per cent to 32.45 million tonnes for the three months to December compared to a year earlier, its latest production report showed.

That took production for the half year to 62.56 million tonnes, a record figure, up six per cent on the previous corresponding half.

Shares in BHP Billiton closed up 10 cents, or 0.23 per cent, at $43.41.

China’s top copper smelter Jiangxi Copper had not signed 2010 fees with BHP as of Friday morning, a senior executive told Reuters.

It has agreed on the fees at $46.5 and 4.65 cents with Freeport.

When asked whether Jiangxi Copper would sign the same fees with BHP, he said: “It is the trend.”

Both Japanese and Chinese smelters had said that the processing fees agreed with Freeport should be the benchmark for 2010.

Treatment and refining charges are fees paid by miners to smelters to convert imported concentrates into refined copper, and are deducted from sale prices, based on London Metal Exchange copper prices.
The fees were set at $46.5 per tonne and 4.65 cents per pound for processing copper concentrate into metal, the same level as those set with Freeport-McMoRan & Gold late last year.

“Japanese smelters have agreed on the level, which is the same as those set with Freeport,” said an industry source close to the talks, but who declined to be named due the sensitive nature of the information.

The levels, down from $75/7.5 cents set for the calendar 2009 contract, are the lowest since the 2008/09 mid-year contract when processing fees were set at $42.5/4.25 cents.

The mid-year contracts provide terms for copper concentrate supplies for the 12 months starting in July.

The fees were set at $46.5 per tonne and 4.65 cents per pound for processing copper concentrate into metal, the same level as those set with Freeport-McMoRan & Gold late last year.

“Japanese smelters have agreed on the level, which is the same as those set with Freeport,” said an industry source close to the talks, but who declined to be named due the sensitive nature of the information.

The levels, down from $75/7.5 cents set for the calendar 2009 contract, are the lowest since the 2008/09 mid-year contract when processing fees were set at $42.5/4.25 cents.

The mid-year contracts provide terms for copper concentrate supplies for the 12 months starting in July.

The talks with BHP were drawn out as the major miner had been seeking an even deeper cut of about 43 percent.

China’s top copper smelter Jiangxi Copper had not signed 2010 fees with BHP as of Friday morning, a senior executive told Reuters.

It has agreed on the fees at $46.5 and 4.65 cents with Freeport.

When asked whether Jiangxi Copper would sign the same fees with BHP, he said: “It is the trend.”

Both Japanese and Chinese smelters had said that the processing fees agreed with Freeport should be the benchmark for 2010.

Treatment and refining charges are fees paid by miners to smelters to convert imported concentrates into refined copper, and are deducted from sale prices, based on London Metal Exchange copper prices.

* Copper fees lowest since $42.5/4.25 cts for 08/09 mid yr (Adds detail)

TOKYO, Jan 15 (Reuters) – Some Japanese smelters have agreed to a 38 percent cut in copper treatment and refining charges (TC/RCs) for 2010 with BHP Billiton Plc/LTD, an industry source said on Friday. The fees were set at $46.5 per tonne and 4.65 cents per pound for processing copper concentrate into metal, the same level as those set with Freeport-McMoRan & Gold Inc late last year.

“Japanese smelters have agreed on the level, which is the same as those set with Freeport,” said an industry source close to the talks, but who declined to be named due the sensitive nature of the information. The levels, down from $75/7.5 cents set for the calendar 2009 contract, are the lowest since the 2008/09 mid-year contract when processing fees were set at $42.5/4.25 cents.

The mid-year contracts provide terms for copper concentrate supplies for the 12 months starting in July. The talks with BHP were drawn out as the major miner had been seeking an even deeper cut of about 43 percent.

China’s top copper smelter Jiangxi Copper had not signed 2010 fees with BHP as of Friday morning, a senior executive told Reuters. It has agreed on the fees at $46.5 and 4.65 cents with Freeport.

When asked whether Jiangxi Copper would sign the same fees with BHP, he said: “It is the trend.” Both Japanese and Chinese smelters had said that the processing fees agreed with Freeport should be the benchmark for 2010.

Treatment and refining charges are fees paid by miners to smelters to convert imported concentrates into refined copper, and are deducted from sale prices, based on London Metal Exchange copper prices. (Reporting by Miho Yoshikawa and Polly Yam; Editing by Joseph Radford) 2010-01-15 05:32:51

VDM said its order book now stood at more than $415 million.
Wylie & Skene will be responsible for the project working closely with another VDM subsidiary Cape Crushing & Earthmoving Contractors.

The contract begins in April and is expected to be completed later in the year.
VDM shares were up 1.5 cents, or 3.19 per cent, to 48.5 cents at 10.10am

VDM said its order book now stood at more than $415 million.
Wylie & Skene will be responsible for the project working closely with another VDM subsidiary Cape Crushing & Earthmoving Contractors.

The contract begins in April and is expected to be completed later in the year.
VDM shares were up 1.5 cents, or 3.19 per cent, to 48.5 cents at 10.10am

BHP Billiton holds 33.75 per cent of Antamina, with fellow miner Xstrata (33.75 per cent), Teck Resources (22.5 per cent) and Mitsubishi Corporation (10 per cent).

All four partners had approved their respective shares of the projects $US1,288 million ($A1.41 billion) capital budget, BHP said.

BHP Billiton’s share of the expansion cost is $US434.7 million ($A476.75 million).

The expansion project will increase the site’s ore processing capacity by 38 per cent to 130,000 tonnes per day.

Higher mineral ore reserves previously reported in combination with the expanded processing capacity will result in a mine life extension of six years from 2023 until 2029.

First production from the expansion is anticipated in late 2011, BHP said in the statement.

BHP Billiton and smaller rival Xstrata both own 33,75% of the asset, Canada’s Teck Resources holds 22,5% and Mitsubishi Corporation owns 10%.

The Antamina expansion project will increase the site’s ore processing capacity by 38%, to 130 000 t/d and annual production of copper and zinc by approximately 30%, Teck said.

In combination with increased mineral reserves, which were increased by around 75% in 2008, the project will boost the mine’s operating life by six years, until 2029.

The expansion project cost will be funded out of cash flow and borrowings by Compania Minera Antamina, which owns the mine, and the first production from the expansion is forecast in late 2011.

Located in the Andes mountain range, 270 km north of Lima, Antamina is one of the world’s largest copper/zinc mines.

“Yesterday BHP reported that it would only divest 25 percent of its stake in the projects. Thus, there is nothing special in this case actually,” Director general for coal, minerals, and geothermal Bambang Setiawan told reporters Thursday.

Bambang said several companies were already interested in acquiring the shares and that BHP would make a decision on this no later than the end of March this year.

“We want them to make the decision faster, because they have no reason to prolong the process as with the 75 percent stake, they will remain the operator of the project,” he said.

The Maruwai coal project consists of seven Coal Contracts of Works (CCoW), locally known as PKP2B, with a total working area of 330,000 hectares. The initially proposed main development was the Haju open cut mine, one of the seven, on which BHP planned to invest about US$100 million in investment. The company had originally planned that the mine should begin coal production by the middle of 2009.

However, in June last year BHP announced that it had stopped the development of the Haju mine, stating that this was not sufficiently in line with the company’s long term investment strategy. The company also announced that it decided to stop a feasibility study of the Lampunut Block, another mine in the Maruwai project and also put its activity in the other five areas on hold subject to further study and a final decision.

“We are reviewing *with a view to* canceling all projects in Indonesia,” Indra had said earlier. “These projects do not fit with the company’s long-term strategy,” Indra Diannanjaya, the Maruwai project’s external relations manager had said on June 9, 2009.

But this earlier threat to drop the proposed Maruwai coal investment, along with the danger of a total disinvestment from Indonesia by BHP Billiton has now been reversed and BHP now remains interested in a huge nickel project, which could also have been dropped.

Earlier in November 2008, BHP had decided to drop its plan to develop a $4.5 billion nickel mining and refining project in the Buli area of North Maluku. Initially, BHP planned to develop the area with Indonesia’s second-largest nickel producer PT Aneka Tambang (Antam).

But, Bambang said that he was now optimistic that BHP would remain operating in Indonesia and not implement the earlier threatened disinvestment.

“They said that they were even ready to build a railway for the coal transportation in Maruwai if no other private investor was interested in doing this,” he said.

Bambang, however, quickly added that the company was still waiting for a recommendation in favor of the proposed nickel project from the governor of Central Kalimantan. The process would take some more time as the governor was still waiting for the completion of the province’s spatial planning framework.

In their second assembly this week, the miners set 5:00 a.m. Monday as the starting time for a strike by the roughly 5,600 workers at Chuquicamata, the world’s second-largest copper mine, located some 1,500 kilometers (932 miles) north of Santiago.

Codelco, the globe’s No. 1 copper producer, told union leaders that because workers did not accept the proposed three-year contract by noon Thursday, the offered bonus was cut from 11.5 million pesos ($23,500) per worker to 6.5 million pesos.

The revised offer retains a 3.8 percent pay hike as well as no-interest loans worth around $6,000 to each employee.

In a statement issued Thursday, Codelco restated its willingness to continue talks aimed at reaching “a mutually advantageous accord.”

But the unions declared negotiations at an end after rejecting the latest offer from the company.

Union officials said the workers want a pay raise of 4.7 percent and a bonus comparable to the 14 million pesos ($28,000) each that BHP Billiton paid out earlier this year to secure labor peace at its La Escondida copper mine, the world’s largest.

Chuquicamata accounts for around 1.6 million tons in annual copper production, more than a third of Codelco’s total output, and a strike would cost the firm around $8 million a day.

This is the first time Codelco workers have voted to strike since 1996 and revealed fissures between union officials, which backed the company’s offer, and the rank and file.

Codelco posted pre-tax profit of $2.06 billion for the first nine months of this year, compared with $4.97 billion for all of 2008.

The company will pay $46.50 a metric ton and 4.65 cents a pound in so-called treatment and refining charges, the two people said yesterday, declining to be identified as the agreements aren’t public. Bill Collier, a spokesman for Phoenix- based Freeport, declined to comment in an e-mail.

The agreements may set a benchmark for talks with smelters in China and India, which are yet to settle with suppliers. The fees for producing metal from semi-processed ore, known as concentrate, were lower than estimates and usually drop when there is a shortage as smelters compete for supplies.

“Chinese smelters can get a bit higher, perhaps around $50 as domestic supplies of copper ore and scrap are improving,” Zhou Qian, an analyst at Shanghai-based commodities researcher CBI China Co. said today. Zhou said Chinese smelters yet to re- start talks with mining companies.

Chinese output of copper concentrate gained 10 percent in the first 11 months to 948,000 tons in metal content, according to the National Bureau of Statistics. A Chinese smelter official who declined to be identified said negotiations were yet to re- start with suppliers.

Talks between Chinese smelter operators and overseas mining companies have stalled amid diverging price expectations, 21st Century Business Herald reported Dec. 21, citing Jiangxi Copper Co.

Price Difference

Overseas miners insisted on $43 a metric ton to have ore smelted whereas Chinese producers asked for $60, the newspaper said, citing Jiangxi Chief Financial Officer Gan Chengjiu. A call to the company today was not immediately answered.

Major smelters in Japan are still in talks with BHP Billiton Ltd., which owns the Escondida mine in Chile, to set 2010 fees, according to the two people. Escondida is the world’s biggest copper mine.

Next year’s fees from Japan are down from $75 a ton for smelting and 7.5 cents a pound for refining for 2009 and from $50 and 5 cents for midyear contracts started July. Midyear contracts typically cover less than 20 percent of the smelters’ needs, according to Atsushi Yamaguchi, a Tokyo-based analyst at UBS AG.

The global deficit of the raw material may rise fivefold to 1 million tons next year, Christine Meilton, an analyst at CRU, said Nov. 9. CRU had forecast the 2010 charges to be about or just less than $50 per ton and 5 cents per pound.

Concentrate Shortage

“The difference between the availability of concentrate and the smelting capacity is still growing and that will continue for the foreseeable future,” Eleni Joannides, copper research manager at London-based research company CRU, said yesterday by phone.

Freeport rose 49 cents to $78.45 in Dec. 22 New York Stock Exchange composite trading. The shares have more than tripled this year.

Copper in London has more than doubled this year as China’s imports rose to a record. The contract for delivery in three months gained 0.1 percent to $6,890 a ton on the London Metal Exchange at 11:28 a.m. in Shanghai.

Treatment fees are expressed in dollars per ton of concentrate received and refining fees in cents per pound of copper contained in the concentrate. The fees are deducted from the price paid by smelters to miners for the concentrate.

Smelter Profits

“Given current foreign exchange rate trends, copper prices and sulfuric acid prices, around 13 cents a pound may be the level at which the Japanese operators can remain profitable,” Yamaguchi said in a note on Nov. 6. The 13-cent-per-pound level is equivalent to $55 a ton and 5.5 cents a pound, he said.

The shortage of concentrate emerged after China expanded smelting capacity, CRU’s Joannides said. “If smelters don’t get enough concentrate, they will have to shut,” she said.

Pan Pacific Copper, Japan’s top copper smelter, is owned 66 percent by Nippon Mining & Metals Co., a unit of Nippon Mining Holdings Inc., and 34 percent by Mitsui Mining & Smelting Co. Sumitomo Metal Mining ranks second ahead of Mitsubishi Materials. Calls to the smelters weren’t answered as it is a national holiday in Japan today.

“There aren’t many profitable steelmakers at present,” Shanghai-based Baoshan told the official Xinhua News Agency in an interview posted on the company’s Web site. “A further rise in iron ore prices would cause more losses.”

Rising steel demand and prices in China, the largest producer, led Macquarie Securities Group to predict a 30 percent gain in iron ore prices next year. Baosteel’s comments underscore the differences to be bridged in annual price talks between steelmakers and the world’s three biggest iron ore suppliers BHP Billiton Ltd., Rio Tinto Group and Vale SA.

“There’s room for prices of raw materials to rise only when mills can pass on the cost pressures,” Baosteel said in the Xinhua interview. “The foundation of Chinese steelmakers’ profitability is not solid as the demand is largely created by the government’s stimulus policy amid a global crisis.”

China’s $586 billion stimulus spending has boosted steel demand from automakers, home-appliance manufacturers and builders. That’s fueled record imports of iron ore, used to make steel, this year. Baoshan Steel raised benchmark steel prices by 8 percent for January delivery, the first increase since September, on Dec. 10.

Ship Plates

“Demand from the auto and appliance industries has been strong since the second quarter,” Baoshan Steel said in the Xinhua story. “We can’t meet our clients’ needs even at full capacity.”

Still, the improving demand and prices for products needed by makers of cars and appliances have been offset by declines in other products, Baoshan Steel said. Ship plates are lossmaking, it said.

Baoshan Steel’s comments come as analysts including Deutsche Bank AG forecasts rising steel demand and as cash prices for iron soared. Steel price increases by Baoshan Steel and rivals signal demand growth in China will outpace supply expansion in 2010, Deutsche Bank said.

Weekly cash prices for iron ore imported by China from India gained 5.2 percent, the biggest gain in six straight weeks, to a record $111.5 a metric ton last week, according to Metal Bulletin. The cash price for Australian ore also reached a record $107.4 a ton as of Dec. 18, according to the Steel Index.

“Cash iron ore prices rose on bets that steel prices will rise over the long term,” said Zhu Limin, an analyst with Shanghai Securities Co.

“We have absolutely no plans to exit nickel,” a spokeswoman for the miner said.

The miner has sold its Ravensthorpe nickel laterite project and its Yabulu nickel refinery in Australia this year and has raised concerns about the emergence of nickel pig iron from China on prices.

* Sale of 40% stake marks BHP’s latest exit from nickel

* Stake bought by Philippine partner (Adds details)

MANILA/SYDNEY, Dec 22 (Reuters) – Global miner BHP Billiton Ltd/Plc (BHP.AX: Quote) (BLT.L: Quote) has pulled out of a $2 billion nickel project in the southern Philippines after selling its 40 percent stake to a local partner.

The project was BHP’s only mining venture in the Southeast Asian country and the move could be part of the miner’s plan to exit the nickel business as early as next year after selling two major nickel divisions in four months. [ID:nSGE5BF02J]

In a statement e-mailed to Reuters, BHP said it signed a sales agreement for the stake with Asiaticus Management Corp of the Philippines, which is controlled by Filipino businessman Peter Tan and already owns 60 percent of the undeveloped nickel mining and processing project in the southern Mindanao region.

BHP and Asiaticus had been at odds over when to start commercial production. Asiaticus pushed to begin as soon as possible, while BHP wanted to wait until 2015 at the earliest, Environment and Natural Resources Secretary Lito Atienza told Reuters in a telephone interview.

In 2007, the Philippine government announced that BHP would invest up to $2 billion in the country.

In a statement, it said, “”This is a monopoly in a disguised form, and it will greatly threaten the development of the global steel industry”.

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China Iron & Steel Association also called for countries to block any attempt at a monopoly by Rio and BHP by taking anti-monopoly measures.

Rio Tinto and BHP Billiton, world’s No. 2 and No. 3 in the iron ore market signed binding agreements early this month to combine their Western Australian iron ore assets, with expected savings of at least $10 billion.

China’s Ministry of Commerce said Wednesday that it hadn’t received regulatory review applications from the two companies.

Tensions between the association and foreign iron ore suppliers were heightened by China’s detention in July of four employees of Rio Tinto Ltd., lead negotiator for global miners in price talks, on allegations of commercial spying and bribery during 2009 price talks.

The four included an Australian, Stern Hu. They were charged in August with paying bribes to obtain confidential information about China’s steel industry.

Australia is a key supplier of iron ore and other resources for China’s fast-growing economy.

China, the world’s largest iron ore importer, failed to reach an agreement with suppliers in price talks this year after the association insisted on a deeper price cut than Rio and BHP had agreed with other Asian countries.

Industrial analysts expect iron ore prices to rise about 10 to 20 percent next year on increasing demand as the world’s economy recovers.

Ahead of next year’s price talks, Brazil’s Vale SA, the world’s biggest iron ore supplier, has signed independent ore contracts with Chinese steel mills for fixed freight charges, the state-run China Daily newspaper reported Wednesday.

Rio and BHP said submissions had been made with both the European Union and the Australian Competition and Consumer Commission, and they expect to complete the deal in the second half of next year.

Last month, European steel makers called for EU antitrust regulators to investigate the project. In 2008, EU opposition to a hostile bid by BHP for Rio Tinto forced it to abandon a takeover attempt.

Production from the mine – the world’s fourth largest copper deposit – may drop by up to 70 000 t before repairs to the main shaft are completed and full production resumes, the Australian Bureau of Agricultural and Resource Economics (ABARE) said.

Its estimate of losses from the mine is up to 40 percent higher that most analysts’ forecasts, and represents more than a third of total capacity of around 200 000 t/y.

Copper prices are already rising – up by around $1 000/t to $6 900/t since the start of October, and more than doubling so far this year – on concerns that global demand could outpace supply next year.

In its latest quarterly outlook, ABARE cut its forecast for refined copper exports by 15,8 percent for the year to June 30, 2010, and its estimate for refined copper output by 13 percent to 408 000 t.

“If realised, this will be the lowest refined copper production recorded in Australia since 1998-99,” it said.

Australia’s Macquarie Bank predicts a global copper supply deficit is looming this year that will take two years to correct, increasing its 2010/2011 copper price forecasts by two to three percent on Tuesday to $3,25/lb to $3,40/lb ($7 166/t to $7 500/t).

The bureau also revised up iron ore exports by two percent and coking coal exports by 16,2 percent, citing strong demand for raw materials by Asian steelmakers.

Chinese imports of coking and thermal coal and iron ore should remain strong into 2010, underpinning higher production from Australia mines as demand shows signs of picking up in other Australian export markets, according to the bureau.

The iron ore export trade is a high stakes business worth more than $80-billion a year.

It is dominated by Australians Rio Tinto and BHP, along with Brazil’s Vale, on the mining side, and China, the world’s biggest iron ore consumer, on the other.

“China will continue to have a significant influence over the demand for minerals and energy commodities in 2010, but consumption is also forecast to increase gradually in OECD economies,” the bureau said.

Organisation for Economic Co-operation and Development (OECD)-based consumers that drew on their own inventories as the global economic slowdown worsened, reinforcing the sharp weakening of underlying demand for industrial commodities, may soon be returning to the market to replenish stockpiles, according to the bureau.

“The rebuilding of stocks in 2010, if it occurs, will provide additional support for minerals and energy commodity demand,” it said.

In October, haulage equipment failed inside the main shaft of Olympic Dam, which transports 75 percent of the mine’s copper and uranium-bearing ore to the surface. It is under repair and is not expected to be fully operational until the first quarter of 2010, according to BHP Billiton.

“I think it’s going to be a positive year, and iron prices are showing a tendency towards increase, but I do not know by how much,” Roger Agnelli told reporters.

Iron spot prices are still some 30% above 2009 contracts on a freight-adjusted basis, a sign of continuing demand for raw materials as the global economy begins recovering from last year’s financial crisis.

Prices for much of the seaborne iron are negotiated in benchmarking talks between consumers currently led by China, the world’s top iron importer, and the world’s top three miners — Vale (VALE5.SA: Quote, Profile,Research), BHP Billiton (BHP.AX: Quote, Profile, Research) and Rio Tinto (RIO.AX: Quote, Profile, Research).

Agnelli said Vale, the world’s largest iron ore producer, had not yet started talks with Chinese steelmakers to determine 2010 benchmark prices.

“If you have contracts that are valid until April, there is no reason to accelerate the negotiations,” he said.

The 2009 contracts are officially still in discussion but in practice are based on a 33% cut from 2008 prices as offered to South Korean and Japanese steelmakers.

Talks fell into disarray after China arrested top officials from Rio Tinto on charges of espionage. The company denies any wrongdoing.

Agnelli said Vale will insist striking workers at its Voisey’s Bay nickel subsidiary in Canada accept a uniform benefits package that links bonuses to merit and not to market prices for nickel — a concession union leaders won several years back.

“We made a balanced proposal that didn’t harm workers rights,” he said. “We’re preparing the company for the future and the future is … a very competitive market.”

Vale said in a statement that the union “was a “no-show” this morning at a negotiation meeting arranged by the Conciliation Officer appointed by the Ministry of Labor which they had previously agreed to attend.”

Reuters was unable to immediately reach union leaders for comment.

Voisey’s Bay workers went on strike on Aug. 1, shutting that operation down in a dispute over bonuses and pension payments.

Last month Voisey’s Bay union leaders said they would not resume talks until Vale opened discussions with workers at Sudbury, another Vale nickel operation in Canada, that went on strike around the same time.

Vale, which has described its Canadian nickel production as the highest-cost operations of its global portfolio, insists the two negotiations are separate.

Agnelli said despite a market consensus for higher iron prices, mining companies are worried about the weakening of the U.S. dollar.

BHP Billiton holds a 57.5% share of the Escondida project. The remainder is held by Rio Tinto (30%) and a Japanese partner.

Xstrata said it would close the Kidd metallurgical operations in Canada next May, though the mine and concentrator would continue to operate.

That suggests the mine’s concentrates, used to feed Kidd’s 125,000 tonnes a year of refined copper production, could be available to other smelters.

Treatment and refining charges (TC/RCs) are fees paid by overseas sellers to Chinese smelters for converting imported concentrates into refined copper, and are deducted from the sale prices, based on London Metal Exchange copper.

Higher TC/RCs arise when supply of concentrate rises or demand falls, which usually cuts the prices of concentrate and could in turn boost refined copper production.

‘The closure will certainly benefit smelters,’ an industry source said.

In October, Chinese smelter officials said top copper producers were seeking TC/RCs of $50 per tonne and 5 cents per pound, respectively, from foreign miners for concentrate shipments in 2010.

Chinese smelters now are looking to receive TC/RCs of around $60 and 6 cents, which will be still 20 percent lower than this year’s $75 and 7.5 cents.

Chinese smelters were worried about a fall in copper prices after prices more than doubled this year, a smelter official said.

‘Cash production costs at global smelters, including Chinese smelters, are over TC/RCs of $55 and 5 cents. We are trying not to make losses, or at least we don’t make big losses,’ he said.

Global miner BHP Billiton has offered TC/RCs of $43 and 4.3 cents to Chinese smelters for 2010. The two sides would hold the second round of the annual talk in the coming week, industry sources said.

Japanese smelters, the world’s second-largest copper concentrate buyer after Chinese, have also indicated their term TC/RC requirements around $60 and 6 cents to overseas miners. Last month, Japanese smelters expected the TC/RCs at $50 and 5 cents in 2010.

BHP has offered term TC/RCs of around $40 and 4 cents to Japanese smelters, the industry sources said.

A senior Japanese official directly involved with the term talks said there was still a price gap of about $20 between Japanese buyers and BHP.

‘There’s still a wide gap in our ideas…and I don’t anticipate an agreement when we meet next week,’ he said.

(Additional reporting by Miho Yoshikawa in TOKYO)

First Quantum said on Wednesday it expects the mine will produce an average of 39,000 tonnes a year for the first five years after operations restart. Overall, production over its expected 32-year life is forecast at 28,000 tonnes a year.

A fund manager said the outcome was good for both companies.

“First Quantum have paid a price where it should be able to make the asset work after additional capital expenditure,” said Tim Schroeders, a portfolio manager at Pengana Capital. “And BHP are able to walk away and pocket a reasonable amount of cash in that transition, rather than have a dormant asset on their balance sheet.”

Engineering work to restart the operation in Australia’s Queensland state could begin as early as mid-2010, according to a First Quantum spokeswoman, Sharon Loung.

“We expect by say mid-next year we can start construction on site and take between six months and a year to start commissioning to ramp up,” Loung told Reuters.

Shares in BHP fell 1 percent in a broader Australian market down 0.8 percent. Sources had said BHP was hoping for as much as $1 billion when the mine was put up for sale in August.

Ravensthorpe was designed to supply around 55,000 tonnes of nickel annually, or close to 5 percent of world capacity, but never came near that rate before closing.

BHP spent about $2.2 billion to build the mine but shut it in January, just eight months into its life, as nickel prices dropped to barely half the current price around $16,100 a tonne ($7.30 per pound).

The mine also suffers from technical glitches linked to problematic laterite-type ore that analysts say could cost hundreds of millions of dollars to fix.

WORLD LEADER

First Quantum said Ravensthorpe, combined with its recent commitment to build a project in Finland, would make it one of the world’s leading nickel producers.

First Quantum did not say how much it would cost to revive the mine, but said its strong balance sheet and cash flows would give it time and flexibility to fix the commissioning and operational issues.

In buying Ravensthorpe, First Quantum is taking on one of BHP’s costliest mistakes at a time when analysts forecast the world needs less, not more nickel.

BHP shut Ravensthorpe last January because low nickel prices meant it was costing more to produce the steel alloying metal than it could sell it for. Nickel has since risen more than 60 percent to near the price BHP said the project needs to make money, partly because Ravensthorpe’s promised 55,000 tonnes per year was out of the picture.

First Quantum used a nickel price of $6.75 per pound ($14,884 a tonne) when determining the price it would offer to pay BHP, according to Loung.

“That’s not a break-even price,” Loung said. “That was a price in our evaluation on the acquisition,” taking into account costs for refurbishment and modification work the operation will require.

Despite nickel’s price gains, the metal remains under pressure due to swollen London Metal Exchange inventories of more than 143,000 tonnes — the highest since January 1995 and less than 10,000 tonnes away from the record 151,254 tonnes in November 1994.

First Quantum and BHP said they expect to complete the sale by end-March 2010, subject to approvals from Australia’s Foreign Investment Review Board and the West Australian state government, which wants the mine to reopen.

BHP said it would reverse previously recognised impairment costs of $441 million post-tax from June 2009 as a one-off in its first-half results for this year.

In February BHP took a $3.4 billion writedown on Ravensthorpe and the accompanying Yabulu refinery. Yabulu has since been sold to Australian mining entrepreneur Clive Palmer.

First Quantum currently produces copper and gold and has mines in Zambia, the Democratic Republic of Congo and Mauritania.

On Nov. 30 it approved the development of its Kevitsa nickel, copper and platinum project in Finland, which it acquired in June 2008 when it bought Canada’s Scandinavian Minerals. It also plans to buy Zambian prospector Kiwara.

BHP and Rio, in June, signed a nonbinding agreement to establish the JV, which would encompass all current and future Western Australian iron-ore assets and liabilities, with BHP expected to pay Rio $5,8-billion to take its interest in the JV to 50%.

The deal was expected to result in more than $10-billion in synergies.

However, the deal had been heavily opposed by steelmakers, which say that the combined BHP/Rio entity and Brazil’s Vale would control 70% of the world’s seaborne iron-ore exports.

There had also been some speculation that Rio wanted to pull out of the deal.

Nevertheless, the parties had met their December 5 deadline to sign a binding agreement.

“Signing binding agreements brings us one step closer to unlocking the full production potential of our Pilbara iron-ore assets and achieving substantial benefits for all our stakeholders,” Rio Tinto CEO Tom Albanese said in a statement.

He emphasised that the completion of the JV was a priority for the diversified miner in 2010.

“We are very pleased to now have formal and binding agreements in place to develop this important JV. With the history of both companies` attempts to join together these two world-class iron-ore operations in Western Australia at various times, this deal has effectively been more than a decade in the making,” BHP Billiton CEO Marius Kloppers added.

The JV was expected to deliver substantial synergies through the combination of the adjacent mines into single operations; reducing costs through shorter rail hauls and more efficient allocations of port capacity; and blending opportunities, which would improve product recovery and provide further operating efficiencies.

Further, the JV would develop consolidated, larger and more capital efficient expansion projects, while also combining the management, procurement and general overhead activities into a single entity.

BHP and Rio said that they had now also filed submissions with the European Commission and the Australian Competition and Consumer Commission for regulatory approval of the JV.

The regulatory and shareholder approvals were expected to be concluded by the second half of next year.

The companies added that the only changes made between the signing of the nonbinding and the binding agreements, had been the decision not to jointly market their Australian iron-ore.

BHP and Rio announced in October that they would separately market all production from the proposed JV, amid growing concern from the steel industry.

The offer has risen to as high as US$700 million, a company source told the newspaper Investor Daily.

Earlier this year, BHP Billiton (ASX:BHP) announced plans to sell all its assets in Indonesia including the Maruwai coal mine, which was priced at US$400 million.

The shutdown of Escondida, which accounts for 8 per cent of the world’s copper output, pushed up the price of the red metal by $180 per tonne to $7,470 on the London Metal Exchange. Chile’s President, Michelle Bachelet, called for talks to resume between the miner and the unions, who are demanding a substantial pay rise and bonuses to reflect the huge profits earned from high copper prices.

In London, the price of nickel gained $300 per tonne as volumes in LME warehouses dwindled further. China’s largest nickel producer expressed concern that the nickel market was being distorted by speculators and urged the LME to improve regulation.

“The LME is no longer a place for fair dealing metals but a paradise of speculation,” said Li Yongjun, chairman of Jinchuan Group, the largest nickel producer in China.

Nickel reached a record high of $29,200 per tonne in the forward market as stocks plummeted to less than a day’s supply. The premium for cash nickel over three-month delivery widened to almost $5,000 per tonne, prompting the LME to introduce emergency rules on Wednesday to allow short sellers to escape the squeeze.

BHP’s tough stance with the Escondida strikers may be supported by the Chilean Government, reckoned some analysts, as Escondida pays its workforce the highest mining wages in Chile, and the state copper company, Codelco, will be anxious to avoid a high settlement with its own workers. “They won’t want to see BHP set a precedent and stoke higher wage claims at Codelco,” said Robin Bhar, metals strategist at UBS.

BHP said that it had shut the mine for safety reasons but Pedro Marin, a spokesman for the strikers, accused BHP of trying to scare the workforce. “This is illegal pressure,” he said.