Big miners regaining favour

Tony Featherstone is a Morningstar contributor and a former managing editor of BRW and Shares magazines. This article was originally published by Investor Weekly, a Sterling publication.

What a difference a few weeks makes. In September, newspaper headlines screamed about the meltdown in iron ore prices, and resource stocks tumbled. Commentators called an “end” to the mining investment boom amid fears that China’s economy was heading for a hard landing.

After tanking to US$88 a tonne last month, the iron ore price has rebounded to US$120 a tonne. Fortescue Metals Group (FMG) this week said it expects the iron ore price to stablise at current prices; Macquarie Equities Research sees a floor of US$115 over the next few years.

The big mining stocks have followed the iron ore price higher. Australia’s third-largest iron ore miner, Fortescue, has stunningly rallied from below $3 in September to $4.07. Macquarie has an outperform recommendation on it.

Rio Tinto (RIO) has jumped from a 52-week share price low of $48.37 to $56.05, and BHP Billiton (BHP) has rallied from an annual low of $30.09 to $33.45. Their prices are still well down on peak levels over the past 12 months, but sentiment has improved markedly from a few weeks ago.

Macquarie has outperform recommendations on Rio and BHP. Its 12-month share price targets of $76 and $39 respectively for Rio and BHP suggest considerable upside and a catalyst for a sharemarket rally in 2013 given the high weighting of these stocks in the S&P/ASX 200 index.

Several small and mid-size resource stocks are also starting to rally, after heavy falls this year.

Solid quarterly production reports from the big miners have also buoyed investors, and reports last week of better-than-expected Chinese export data led to calls that its economic slowdown may have bottomed.

A resumption of stronger Chinese growth would support higher commodity prices and potentially higher share prices of leading ASX-listed resource stocks.

Mining services stocks with heavy iron ore exposure, such as NRW Holdings (NWH), also rallied this week after sharp falls in recent months. Tumbling iron ore and coal prices raised fears that more mining projects would be cancelled or deferred, in turn leading to less work for service providers.

Conditions are not as strong as a year ago, but fears about some mining services stocks may have been overstated.

New coal mine in QLD set to create 400 jobs

A new coal mine to be built in Central Queensland is expected to create more than 400 jobs when construction starts next year.

Carabella Resources major open-cut Grosvenor West development project, west of Moranbah , is expected to make a final decision about the $500 million investment late next year, The Observer reported.

Once underway, Carabella expects to export up to 3.8 million tonnes of coal.

The company is yet to finalise its power, water, rail and port services but it is believed it will want to access part of the planned Abbot Point coal terminal expansion.

An environmental impact study will now be comprised for the Queensland Government and is due by October 2014 but the company says it hopes to have all approvals finished by then and for construction to be underway.

In the company’s 2012 annual report, chairman Andrew Amer said that the company was looking at ways to reduce that capital cost of the new mine.

“The project proposes the use of bucket wheel excavator systems and truck/ excavator units. This configuration along with contractor mining resulted in a significant reduction in the capital required for the project and competitive operating costs,” he said.

Managing director Anthony Quinn said the location of the mine held many advantages.

“They key attractions of Grosvenor West are its high quality coking coal, attractive geology and strategic location within one of the world’s best coking coal basins”.

http://www.miningaustralia.com.au/news/new-coal-mine-in-qld-set-to-create-400-jobs

Terms of reference released for proposed Qld mine

A Queensland-based company says it is looking to establish a new mine in the state’s Central Highlands.

Carabella Resources is developing the proposed Grosvenor West project, about 15 kilometres north-west of Moranbah.

The company says its initial investigations show both underground and open-cut mining are feasible.

The mine is expected to be operational for about 20 years.

The State Government has released the final terms of reference have now been released for the environmental impact statement (EIS) of the project.

The company will have to provide information on a number of issues, including how it plans to handle waste management, noise and vibration issues, and undertake flora and fauna and cultural heritage studies.

It will include justifications of the economic and social benefits of the project, as well as the positive and negative social implications, if the mine is approved.

The company also has to outline its workforce requirements.

Carabella Resources already says a mix of fly-in, fly-out workers and local residents will be used, with up to 400 staff likely to be needed once the mine is operational.

About 100 staff are expected to be needed during the construction phase.

Carabella Resources has until October 2014 to complete the EIS.

http://au.news.yahoo.com/latest/a/-/latest/15197641/terms-of-reference-released-for-proposed-qld-mine/

Mining towns start to suffer

One mining area has seen drops of $25,000 over the September quarter, according to recent sales results.

On the back of negative media publicity and resulting subdued buyer sentiment, the Pilbara saw the average median price plummet to $825,000, according to latest sales figures from Crawford Realty.

This correct has, however, been “expected”, according to Ryan Crawford, director of Crawford Realty.

He pointed to a similar trend in 2008 when negative publicity about the GFC resulted in a temporary decline in the Pilbara’s prices. They then saw a rebound in 2009.

“The reality is that there will continue to be huge investments in the state’s resources sector, but the decision making process of property investors is influenced in the short term by negative media sentiment,” Mr Crawford said.

“We expect a similar trend [to that seen in 2008] to occur during the coming term with market conditions to remain subdued in the Pilbara property market for a number of months until new resource infrastructure projects begin construction in early 2013 resulting in an upswing in the local property markets.”

Sales numbers also dropped, from 75 on Crawford Realty’s books over the June quarter, to 69 over this quarter. Median weekly rents have also stabilised after a rapid growth phase in both Hedland and Newman.

http://www.spionline.com.au/home/11122-mining-towns-start-to-suffer

Arrow Energy moves CGS venture at Moranbah in top gear

In Moranbah, about 200 kilometres inland from Mackay, the fourth of the Australian coal seam joint-venture companies is shifting its plans to export coal seam gas to emerging world markets into top gear.

Moranbah, with a population of 7300 — of which about one-third are fly-in, fly-out workers — sits in typical cattle grazing country, surrounded by brigalow scrub.

It is on the western edge of the Bowen coal basin and

Arrows’ Moranbah gas compressions supervisor Mark McGuire.Arrows’ Moranbah gas compressions supervisor Mark McGuire. Photo: Supplied

home to the Goonyella coalmine and former rugby league stars Josh Hannay, Travis Norton and Clinton Schifcofske. Contrary to earlier reports, the town’s main shopping centre is not characterised by empty shops and lonely, discouraged people.

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However, the housing heat has largely gone off the boil for mine staff, many of whom work two weeks on and two weeks off. Seven years ago, mining companies were subsidising the $2500-a-week rents for the scarce houses as the population boomed. Today mine workers can find three-bedroom houses for between $500 and $1000 a week.

It is from here that Arrow Energy, formed in 1997 to explore for coal seam gas in the Northern Territory, will push ahead with its plan to build a $20 billion export processing facility to liquefy natural gas and ship it to the world.

Since August 2010, Arrow has been wholly owned by two global energy giants: Royal Dutch Shell and PetroChina. Arrow has major reserves in Queensland’s Surat and Bowen basins.

Its joint venture company rivals Santos/Petronas, Origin/Australia Pacific and British Gas/Queensland Gas Corporation are further down the complex project path to building pipelines to a liquification plant at Curtis Island, near Gladstone, to cool the natural gas to a liquid so it can be shipped. Arrow does not mind finishing the race fourth.

In Moranbah on Thursday, Arrow chief executive Andrew Faulkner gave the strongest indication to date that the company was planning to go it alone and ship gas from 8000 planned wells from its own plant.

Faulkner said rising drilling and exploration costs were a fact of life for mining companies approaching a final investment decision from shareholders. For Arrow, that decision would be made in late 2013, he said, and the shareholders were global companies.

The former Shell vice-president said he remained confident about Arrow’s plan to export from its own Curtis Island facilities.

“And I guess the only credible fact I can give you is that the shareholders will spend about a $1 billion a year,” he said. “Now we are pre-FID, but that sure doesn’t mean that we are not spending money and standing still. And our budget for the year is larger than that. So again, assuming that they approve next year’s budget — and I don’t doubt that — there is evidence of two shareholders that will spend $5 billion acquiring Arrow Energy.

“And roughly $3 billion over the last couple of years and next year maturing the project. Clearly they have high expectations that this is the right way to spend their money.”

Rising production costs had not changed the minds of Arrow’s shareholders, Faulkner said, standing beside a gas wellhead that has provided 400 cubic metres of gas an hour since 2004. Concentrating purely on domestic gas supply — Arrow provides 20 per cent of Queensland’s gas needs — is not a long-term answer.

“The domestic demand in the relative sense is extremely small,” Faulkner said.

Contracts with Townsville Power Station, to Daandine, Braemer and Kogan North power stations and to Queensland Nickel are dwarfed by the potential for natural gas for export, he said.

Arrow’s initial advice statement for the pipeline indicates that Australia’s LNG exports are predicted to grow from 19 million tonnes in 2010-11 to 41 million tonnes by 2015-16, according to Australian government statistics. New markets are emerging in India, Thailand, Taiwan and Singapore.

Faulkner said some Arrow gas would be sold to competitors but only before Arrow finalised its own Curtis Island plant.

“I would emphasise that our base case, which remains unchanged, is for our own project …”

Arrow estimates it has about 48,000 petajoules of gas in its Bowen and Surat basins. It is possible to provide roughly all the electricity for a city of 1 million for three weeks on one petajoule of natural gas.

Arrow has submitted the environmental impact statement for its Bowen Gas Project to the Queensland government and is running stakeholder and community sessions.

Tony Knight, the company’s vice-president of exploration, spoke with the Gasfields Commission recently about Arrow’s plans. He and Faulkner know companies need to find a solution to the salty water waste that comes from coal seam gas mining.

Methane trapped in coal seams is captured when water is pumped into the seams under pressure. In some coal seams, hydraulic fracturing, or fracking, “excites” the seam and increases the flow of gas in the water that comes from the seam. Fracking means pumping water and sand, and in some cases chemicals, into the coal seam. The concern for farmers is that it could impact on their groundwater supplies.

The Queensland Water Commission has ordered drilling companies to purify the water they extract, which they in turn offer to local councils, farmers and other companies. Santos has already developed a recycling scheme for its coal seam gas water.

Faulkner says Arrow does not use fracking in its Bowen basin gas fields because the gas is easily accessible.

The company is also exploring ways of using the salty brine from its eventual 8000 wells for dust suppression, irrigation and coal washing. The brine is classed as a controlled waste by the Department of Environment and Resource Management, but testing to allow it to be reused is under way.

Isaac Regional Council, which covers 58,000 square kilometres including the towns of Clermont, and Middlemount as well as Moranbah, has asked to be able to use the brine after it is treated.

“You will eventually have a portfolio of solutions,” Faulkner said. Water treatment is a sizeable component of Arrow’s costs, he said. He sees tremendous opportunity for Arrow in this area.

“So it is actually a tremendous opportunity to use a resource that otherwise wouldn’t be usable to a populace that generally cries out for water in some form or another. “If we can get this one right then that is a tremendous attribute of the industry rather than a threat from the industry.”

Arrow cleans the brine – with about one-eighth of the salt concentrate of seawater — through a reverse osmosis system. The water is being set aside in a “treated water” dam while the company waits for advice from the state government on how it can be sold to third parties.

That testing is being negotiated now, Faulkner said. After further testing, the water could even be used for drinking.

Rent rises today mean capital growth tomorrow for next property hotspots:Terry Ryder

Rents rise first and prices follow.

That simple formula provides a clue to investors in choosing where to buy property for future growth.

Anyone following that recipe a year or so ago would have had solid capital gains in Gladstone and Mackay in Queensland.

We’ve seen it start to happen in Darwin as well.

The locations now poised to follow suit include Perth and Townsville.

Some 18 months ago I was scratching my head wondering why there had been little in the way of price growth in the nation’s number-one boom town, Gladstone.

Gas projects and other enterprises were bringing thousands of new workers into the place, and everything that mattered was in short supply – but the only reaction from the property market had been a massive hike in residential rents.

Then, almost belatedly, prices followed the rental trend. In the past 12 months, the median price in most Gladstone suburbs rose 17-18%. Mackay is a little behind Gladstone in the cycle but is now exhibiting similar patterns.

Darwin has been leading the state and territory capital cities on price movements, by a considerable margin. It, too, experienced big lifts in rental levels before prices started to follow.

Australian Property Monitors records a 27% lift in Darwin’s median house rent in the year to June, with the median weekly asking rent for apartments rising 15%. In the September quarter, Darwin recorded the biggest increase in home values among the capital cities.

Perth is set to follow this trend. It’s had a 15% rise in its median house rent in the past 12 months, according to Australian Property Monitors. The median rent for apartments has climbed 11%.

Perth prices so far have moved little, but that is soon to change. Strong demand for accommodation has led to a 0.5% vacancy rate, according to the latest figures from SQM Research, and WA housing finance commitments by owner-occupiers are up 18% in the 12 months to the end of August (the biggest jump in the nation). Loans to investors have risen solidly, as well.

WA has the nation’s strongest economy and leads on population and employment growth. The projects that really matter in the WA resources sector – the mega gas projects, not the iron ore ones – are now starting to crank up their construction phases.

Against that background, price growth is inevitable in Perth, particularly with rents strongly leading the way.

Townsville is another significant market where rents have been pressured by high demand, but prices remain in the doldrums.

That will change. Townsville gets my vote as the strongest regional economy in Australia, with not only diversity but considerable muscle in all its multi-faceted economic sectors. It’s a city that doesn’t need the resources sector, but gets considerable oomph from it anyway.

Queensland is Australia’s most decentralised state, with numerous strong regional centres, but Townsville is undoubtedly king of the regions. Despite being impacted by the state government’s manic cost-cutting, job-shedding and plot-losing, Townsville is experiencing expansion in many other key sectors, particularly its already-substantial military economy.

Its spinoffs from the resources sector include an expanding port, processing facilities and lots of fly-in fly-out workers who reside in Townsville.

People want rentals in Townsville but can’t get them. Prices will react sooner or later.

Terry Ryder is the founder of hotspotting.com.au and can be followed on Twitter.

Surat Basin Evolution

The population in the Surat Basin last year was 209,000 and it is tipped to rise to 301,000 by 2031 as Liquid Natural Gas (LNP) exports quadruple and Australia takes the mantle of the world’s largest gas exporter.

The regional towns of Dalby, Roma, Chinchilla, Roma, Miles, Injune and city of Toowoomba are poised to experience phenomenal growth as the planned energy resources projects come online.

Queensland’s resources industry workforce is forecast to increase by a total of 30,000 additional workers in the next five years and many of these will be employed in the Surat Basin.

The small regional towns with populations ranging from 1200 and up are set to explode as, unlike more remote resources sector hot spots where workers camps have sprung up, new workers will move with their  families to these established communities because of their location (relatively close to Brisbane)  and the lifestyle they provide.

Also differentiating the Surat Basin from some other resource rich centres which experience ups and downs based on coal demand and pricing the LNG industry is based on 20-year, long term agreements that are underpinned by the world’s desire for cleaner energy.

Apart from direct involvement in the LNG sector via employment there is also a significant wealth creation opportunity for savvy investors who can recognize the long term status of this sector and the demand that is starting to grow for accommodation in the Surat Basin.

The Surat Basin Property Group, headed by a group of Chinchilla locals, is spearheading the wave of new residential and industrial development that is currently underway in an attempt to keep up with the demand.

SBPG’s CEO Jason van Hooft said : “  We offer three things that astute investors want, low risk, good yields and strong growth.”

“The growth that is underway in this region is staggering and investors Australia wide have already recognised the opportunity and purchased quality residential and industrial property from us.

“The workforce in the Surat Basin was about 85,000 in 2009 and by 2016 it will have reached 110,000 and is headed for 158,000 by 2031.

“All  those people have to live somewhere and they all require goods and services which means that businesses have to gear up to cater for them. “ This is rolled gold for investors.”

Mr van Hooft said that the region’s reserves of coal, coal seam gas and liquid natural gas combined with the traditional economic base of agriculture guaranteed its economic future.

“Unlike places in remote Western Australia where the resources boom has seen massive workers’ camps spring up in the Surat we have active thriving small towns where people enjoy the lifestyle and where they have existing services and infrastructure,” he said.

“These towns are set to swell in size and as a result more city style services and facilities will become available. “When you see McDonalds and KFC target towns like Chinchilla you know that the word is getting out.”

SBPG has a limited number of tailored house and land investment packages currently available from a little over $400,000. Properties in the Surat basin rent for up to $1000 a week.

Early adopters to the Surat story have enjoyed 18.1 percent annual growth in values (in the 12 months up until June 2012) and yields of around eight percent. They are riding the biggest and most diverse resources boom in Australia’s history and it is showing no signs of abating.

There are more than 200 new projects across 13 different industries currently underway and demand for housing is far out stripping supply. You don’t have to be a resources sector or mining worker to capitalize on this phenomenon growth – you just have to seize the investment opportunity.

Fortescue Metals Group – Pilbara mining jobs revealed

Keeping a watchful eye over the activities of the biggest mining companies in Australia is important if you want to know where the mining jobs are in the Pilbara. For people looking to get into the mines, the financial reports produced by the big mining companies reveal clues and insights into their current and future mining activities. This information is very handy for people looking to get into the mines, because reading between the lines can uncover some real mining job opportunities.

Here are the highlights from Fortescue Metals Group for the period ending September 2012…

  • Quarterly shipments of 16.1 million tonnes (mt) slightly above guidance;
  • Liquidity and maturity profile enhanced with a US$5.0 billion (bn) Senior Secured Credit
  • Average realised CFR sales price of US$98 per dry tonne (dt), reflecting the decrease in global iron ore prices
  • Average C1 cost of US$49.44 per wet tonne (wt), up 7% from the prior quarter
  • Commissioning of the second train unloader, increasing overall port capacity to 115mt
  • First ore processed through the second ore processing facility (OPF) at Christmas Creek, marking the ramp up to more than 50mtpa from Christmas Creek and the expansion of the Chichester operations to 95mtpa by the end of the December 2012 quarter
  • Approval received to develop the fifth berth at Anderson Point; and
  • Total expansion expenditure as at end September 2012 of US$6.1bn for infrastructure and US$0.7bn for mine fleet with cash on hand as at end September 2012 of US$2.4bn.

Pilbara Iron Ore Mining Developments

Christmas Creek phase 2 expansion
The September 2012 quarter also saw the completion of much of the infrastructure associated with the expansion including the new Christmas Creek Airstrip, expanded Christmas Creek power station, key stockyard upgrades and power distribution. Early mining works for the expansion have progressed well and stocks are ready to ramp up production in line with the OPF. Delivery of heavy mobile equipment to support the ramp up continues with additional Cloudbreak resources reallocated to support this activity.

  • US$1 billion project budget
  • Committed contracts US$0.8bn

Solomon 60mtpa

  • US$3.2 billion project budget
  • Committed contracts US$2.9bn

A key feature of the Solomon development is the extensive use of modules and all modules for the crushing hubs have been received and installed. In addition, half the modules for the Firetail OPF have arrived in Port Hedland, with 269 of them now delivered to site. Modules are being successfully installed, conveyors are being completed and the train loading system has been installed in the stockyard.

In September, Fortescue awarded Leighton Contractors the mining and operations contract for the Firetail deposit. The US$1.5 billion five-year contract will deliver whole-of-mine management at Firetail, including operating and maintaining the mining fleet, ore handling plants and associated infrastructure.

View a list of Leighton mining jobs on SEEK.com.au

This includes a commitment by Leighton’s to engage graduates of Fortescue’s Indigenous training and employment program VTEC, and to support Fortescue’s commitment to provide opportunities for Aboriginal contractors and joint ventures to further expand Indigenous employment opportunities.

Fortescue has also committed US$2.1 billion to its port expansion project at Port Hedland in Western Australia, as well as committed contracts worth US$1.9 billion for its rail expansion project.  The Rail project remains on schedule to deliver the two key components of the track duplication along the existing mainline track and the rail spur to the new Solomon iron ore mine.

Rio Tinto logs record iron ore output in the Pilbara

Diversified mining giant Rio Tinto (ASX:RIO) has raised iron ore output 5% year-on-year in the third quarter on the back of record production levels in Western Australia’s Pilbara.

According to the company’s latest quarterly operations report Rio Tinto is maintaining a production target of 250 million tonnes this year following the output increase.

Most of the iron ore output came from Rio’s mines in Western Australia’s mineral rich Pilbara region, which posted a quarterly production record to push Q3 output to 67 million tonnes and output for the nine months through September to 177.1 million tonnes.

The Australian reports that the company is now forging ahead with plans to raise production capacity in the Pilbara from 230 million tonnes at present to 283 million tonnes by the end of 2013 and 353 million tonnes by the middle of 2015.

The vigorous output gains and ambitious expansion plans stand in stark contrast to the general state of the Australian resources sector, which is pursuing a raft of retrenchments and cost-cuttings in the face of heavily adverse conditions.

Operating costs have risen, the Australian dollar is riding high due to its new status as a safe-haven purchase, while tepid demand from a slowing Chinese economy has triggered precipitous declines in commodities spot prices.

Rio has nonetheless expressed optimism with respect to iron ore, believing that the recent price rebound and the widespread exit of Chinese suppliers from production bodes well for the near future.

Rio says Pilbara ramp-up on track

Mining giant Rio Tinto says its planned ramp-up of iron ore production in the Pilbara to 353 million tonnes per annum by 2015 remains on track despite “volatile markets”.

Reporting another record quarterly iron ore production figure of 63 million tonnes in the three months to the end of September, Rio Tinto chief executive Tom Albanese said the company remained resilient to fluctuating demand and prices because of it strategy of running large, long-life, cost-competitive operations

Pilbara iron ore production was up 5 per cent on the third quarter of 2011 while global iron ore production was also up 5 per cent to 67 million tonnes.

Year to date global iron ore production of 187 million tonnes was up 4 per cent on the same period of 2011.

Pilbara production for the nine months to September was 177.1 million tonnes, also 5 per cent higher than the corresponding period in 2011.

“Production continued to exceed sales as the business prepared itself for the expansion to 283mtpa (by the end of 2013), with a measured build-up of stocks at the mine sites,” the company said.

“Third quarter sales of 61 million tonnes were 3 per cent higher than the third quarter of 2011, and year to date sales of 170 million tonnes were 4 per cent higher than the corresponding period in 2011.”

Rio Tinto said it expected to produce about 250 million tonnes of iron ore from its global operations in Australia and Canada, subject to weather constraints.

At Argyle diamond mine, rough diamond production for the third quarter was 7 per cent higher than the previous corresponding period, as marginally lower tonnes processed were more than offset by higher grades, the miner said.

Production was 46 per cent higher than the second quarter of 2012 because of a combination of access to a high grade region of the pit and increased plant reliability.

Construction of the underground mine was proceeding and production was scheduled to begin in the first half of 2013, with ramp up to full operation by 2015.

Third quarter production of 1.8 million tonnes at Dampier Salt was 2 per cent higher than the third quarter of 2011.

Year to date production of 5.2 million tonnes was 10 per cent higher than the corresponding period in 2011, due to the impact of adverse weather during the first quarter of 2011.

Mr Albanese said copper, bauxite, alumina and titanium dioxide production were all higher than in the same quarter of 2011.

Rio shares were off 70 cents, or 1.3 per cent, to $55.12 at the close.