August 25, 2014
Iron ore miners’ dirty PR war swamps media
PR or not, MMX of Brazil shows what is coming to the Pilbara in the next twelve months as it restructures into the abyss:
The Brazilian market reacted negatively to MMX’s decision to review its iron ore business plan and halt production at its Serra Azul unit.
The value of MMX’s common shares – called MMXM3 – fell by 8.5% on the São Paulo stock exchange on Tuesday August 20, before declining by a further 3.1% on Thursday August 21 to trade at 0.94 Reais ($0.41).
The Brazilian miner announced Tuesday that it will once again revise its iron ore business plan.
With this move, it aims to “prioritise the initiatives for cash generation, taking into account the current market conditions, the company’s short- and mid-term cash needs and the economic and financial perspective of its business model”.
But Goldman Sachs analyst Marcelo Aguiar believes that MMX’s balance sheet risk continues to get worse…
ㅡㅡㅡㅡㅡㅡ
This morning The Australian is reporting (or thinks it is) that:
… in a declaration largely lost amid BHP’s plans for a $US14bn spin-out of non-core assets, the world’s biggest miner says it is looking to expand its Pilbara iron ore mines and ports to annual capacity of 290 million tonnes a year.
This is up from a previous target to grow to 270 million tonnes and at a forecast capital cost that is dramatically lower than guidance given to analysts a year ago.
“We would say it is quite unlikely that we would see prices north of $US100 a tonne, so our forecasts are obviously based on something below that,” Mr Mackenzie told British media when asked if there might be a price floor around current price levels.
This is not reporting anything new. In fact, it’s not really reporting at all. It’s channeling BHP’s PR strategy, which is an integral part of its business plan. BHP is furiously talking down the iron ore price to ensure all of its little competitors struggle to raise capital. It’s all a part of the big two’s plan to restore their supply share dominance.
Meanwhile, at the Australian Financial Review, which is part-owned by aspiring iron ore junior Gina Rinehart, neither the BHP story nor the collapsing iron ore price registers as newsworthy at all. Ain’t no iron ore problem here!
There need not be any conspiracy. The weight of ownership exercises its own moral suasion, as decades of Murdoch “non-interference has proven handsomely.
At Business Spectator, Alan Kohler sticks his hand in the PR blender and gets slashed to pieces:
BHP Billiton and Rio Tinto are in a fight to the death with Chinese iron ore producers, the latest manifestation of which is BHP chief executive Andrew Mackenzie’s weekend declaration that he will dramatically expand Pilbara production.
Growth in Chinese demand for iron ore is slowing – from 9 per cent last year to 5 per cent this year – and the profitability of China’s steel mills has collapsed. China’s iron ore miners are also underwater. Research house GaveKal Dragonomics estimates the average cost of production of the Chinese miners at $US125 per tonne. The spot import price is currently at $US91.90.
…Says Michael Komesaroff of GaveKal: “The basic reason seems to be that this time, Chinese mine-owners know that if they shut down, it will not be just for a few months but forever. With their backs to the wall, Chinese miners are looking for any way possible to keep operating for just a while longer.”
…But if, or perhaps when, they eventually close, the price will go well above $US100 a tonne and stay there.
Christ, where do I start:
Chinese steel mills margins are very good right now but demand stinks
the iron ore major’s war is with all other producers not just Chinese, most obviously Australia’s juniors
the spot iron ore price is $90.10
some Chinese mines will close but the protection will continue
the price forecast is laughable, even if the major’s win, the best case outcome is $80 with the FMG the marginal cost producer
Meanwhile, as the iron ore price collapses once more, Fortescue is undertaking its own PR push to ensure it’s not seen as the next domino with Nev Power turning up at AFRTV and across the metros arguing higher prices are coming (with Godot). And Andrew Forrest scored himself another panegyric, this time at the usually more skeptical Financial Times.
These misinformation campaigns appear to be having some effect. Despite what is a patently weak iron ore price with much worse to come ($70 by this time next year I reckon), “analysts” are on the hustings looking to pick bottoms. At Seeking Alpha, one brave soul likes Atlas Iron: