[Debate] (Fwd) SA mining in freefall after labour push in Feb; with prices down, stupid megamining projects questioned

[Patrick Bond]

*www.miningweekly.com

*
*SA mining output plummets as strike weighs on platinum
*
**
By: Idéle Esterhuizen <http://www.miningweekly.com/author.php?u_id=1096>

JOHANNESBURG (miningweekly.com) -- South Africa's mine production fell 
14.5% year-on-year in February, the biggest monthly drop in nearly four 
years, official data released by Statistics South Africa (Stats SA) 
showed on Thursday.

Compared with a revised 4.9% decrease in January, the February 
production registered the biggest fall since the 16.8% decline recorded 
in March 2008.

In both instances, platinum-group metals (PGMs) made the largest 
contribution to the decline, with -9,8 percentage points in March 2008 
and -12.6 percentage points in February.

PGMs output in South Africa -- the world's largest producer of the 
metals -- plunged by 47.6% year-on-year in February. Output was down 
32.5% month-on-month, following the 17.2% drop in January.

South African banking firm Nedbank stated that this reflected the impact 
of the six-week strike at Impala Platinum's Rustenburg mine, which cost 
the platinum miner 120 000 oz in output and R2.4-billion in lost income.

However, other metals also performed weaker, as gold production was down 
by 11.5 % year-on-year, while nongold production decreased 14.8% 
year-on-year.

The production slump in February confirmed the sector's weak start to 
the year. "The weak trend in January and February reversed the 
improvement that had been observed since October 2011, when the sector 
was recovering from strike-induced output fall during the year," Nedbank 
stated.

Overall mining output during the month fell by a seasonally adjusted 
9.8% month-on-month, exceeding the revised 6.7% drop in January.

Stats SA found that six of the twelve mineral groups and minerals made 
positive contributions, including copper and nickel, with coal leading 
with 1.4 percentage points.

Of the five mineral groups and minerals that contributed negatively, 
iron-ore made the largest impact with -0.9 of a percentage point, 
followed by gold at -0.6.

Nedbank said that mining production was likely to remain weak in the 
coming months, constrained by poor growth prospects globally and slow 
domestic expansion.

"These numbers indicate that mining will probably make a negative 
contribution to the gross domestic product numbers for the first 
quarter," it said.

*SALES*

Stats SA said that the value of mineral sales increased by 14.1% 
year-on-year in January to R29.15-billion.

The value of mineral sales at current prices reflected an increase of 
6.2% for the three months ended January compared with the three months 
ended October 2011.

The organisation attributed the growth of over R6-billion to increases 
in the sales value of coal, which contributed 1.8 percentage points or 
R1.7-billion, as well as gold that contributed 1.3 percentage points or 
R1.3-billion.

Further, the actual value of mineral sales at current prices for the 
three months ended January grew by 23.2% compared with the same three 
months of the previous year.

Stats SA reported that the major contributors to this increase were gold 
that added R6.7-billion; R6.2-billion from coal and R2.6-billion from 
iron-ore.

Edited by: Mariaan Webb

***

Miners to face tough questions over costly projects
<http://www.miningweekly.com/article/miners-to-face-tough-questions-over-costly-projects-2012-04-12#comment-new2> 

By: Reuters <http://www.miningweekly.com/author.php?u_id=99>

LONDON//MELBOURNE -- Rio Tinto and other big miners preparing to meet 
shareholders over the coming weeks will face tough questions over ever 
larger and more capital intensive projects at a time when robust 
commodity prices have cooled.

The top mining stocks have had a troubled few weeks, with the UK-listed 
sector sliding by almost a fifth since the start of February and 
valuations languishing at almost half their 10-year average, hit by 
concerns over cooling demand and the cost of an organic growth pipeline 
totalling some $180-billion.

"Shareholders are desperately concerned about capex inflation. Capex 
inflation without a concomitant increase in the underlying price of the 
commodity is not good and at the moment we are seeing commodity prices 
flat to down," analyst *Des Kilalea* at RBC Capital in London said.

"Every time you spend an extra billion, it is an extra billion that 
isn't there for potential dividends and the average return on the 
investment goes down."

Rio, which meets its London-based investors on April 19, has been in the 
spotlight over rising costs at Oyu Tolgoi, the flagship Mongolian 
copper/gold mine that it controls through its majority stake in Ivanhoe 
Mines.

A 513-page technical report -- published two weeks ago by Ivanhoe but 
not publicised or officially endorsed by Rio -- put the capital costs 
for one of the industry's most anticipated greenfield projects at 
$13.2-billion, up from $9.55-billion.

Costs for both the initial phase and the mine's expansion have risen, 
with the cost for expansion more than doubling to $5.1-billion.

The news hit Ivanhoe shares, but Rio analysts and investors are more 
sanguine, given the scale of Rio's investment to date.

"Whenever there's a capex blowout and delays, it's disappointing," said 
Jason Beddow, managing director of Argo Investments, a top-10 investor 
in Rio's Australian shares.

"But in this environment, if you're not factoring that most of these 
projects are going to take longer and cost more, then you're being 
optimistic."

*GOOD CAPEX?*

The soaring cost of producing an ounce of gold or a tonne of iron ore 
has been the reverse side of the commodity boom, with the rising cost of 
labour, materials and power denting profits.

However, analysts say both Rio and larger rival BHP Billiton have 
signalled they are listening to shareholder concerns over capex and cost 
escalation and could phase or stage their spending -- for BHP that would 
mostly affect its US shale gas plans, while for Rio it could mean slower 
growth in Simandou, Guinea while its focuses on Australian iron ore.

"It seems [Rio are] focusing more in making sure they get the spend in 
the Pilbara right, which I think is the right place to spend the 
capital...The Pilbara's their backyard," said *Michael Bentley*, 
portfolio manager at Northward Capital.

Rio has a projected capital investment of some $20-billion to expand 
iron ore operations in the Pilbara region of Western Australia from 
220-million tons to 353-million tons by 2015.

BHP, meanwhile, has told shareholders it will be "living within its 
means", partly in answer to worries that its four major projects -- the 
Olympic Dam expansion and the Outer Harbour iron ore project in 
Australia, U.S shale gas growth and the Jansen potash project in Canada 
-- would mean frenzied spending.

The four "mega projects" will require more than $120-billion of capex 
over the next 15 years but only increase returns from 2023, according to 
Deutsche Bank estimates.

"You have got to be certain that the quality of the assets you have are 
really good and that they are going to earn good long-term returns over 
20, 30 years. You have to have the capability and the confidence to keep 
investing through all cycles, all the way through," said James Laing, 
deputy head of UK and European Equities at Aberdeen Asset Managers, a 
top 10 investor in Rio and BHP.

"There's a big element of trust and the fact that prices are good at the 
moment, and these projects stack up quite nicely. When they make these 
capex plans, they do ask themselves that if prices came back 25% or 50%, 
will these projects still be viable?"

Anglo American's shareholders will also meet next Thursday, with 
concerns set to focus around its own high-profile growth project, the 
Minas Rio iron ore operation in Brazil, where licenses remain a concern, 
and around a legal battle with Chile's Codelco over key assets there.

Anglo could also face questions over its future, as it has been 
repeatedly named as a potential target for an enlarged Glencore-Xstrata 
, after the commodities trader and miner complete their merger later 
this year.
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