Replies to post #3041 on The Rising Influence of Rising Affluence

[DewDiligence]

Thanks, DoA. The exchange you cited from CLF’s webcast makes CLF sound unduly conservative, but such is not the case, IMO. CLF currently has a very full plate with expansion of the Consolidated Thompson production in Quebec, development of chromite in Ontario and coking coal in Queensland, and repairing the US coal operations.

I’m surprised and somewhat concerned that management is taking on so many projects at the same time. CLF is a small company, but management clearly likes to think BIG.

[DewDiligence]

CLF-webcast addendum—A few ancillary items mentioned during the Q&A are worth noting, even though they are do not affect CLF’s near-term sales and profits:

• CLF expects its production cost of Ontario ferrochrome to be less than $0.50/lb, which allows for a wide margin relative to the current market price of $1.30-1.35/lb.

• The JV between CLF and Kobe Steel in Michigan to make a “low emissions” iron product is on hold until the economical viability of the technology is proven by Steel Dynamics Inc. (one of CLF’s customers in Minnesota). The output from this process would be nearly pure (~96% Fe) iron nuggets that could bypass steelmakers’ blast furnaces (backgrounder: http://www.washingtonwatch.com/bills/show/ED_5498.html ).

• CLF has investigated Nucor’s direct-reduced-iron process, which employs (cheap) natural gas rather than coke to reduce the iron ore; however, CLF’s ore has too much silica to meet Nucor’s specs.

• The industry-wide labor contract that governs CLF’s US and Canadian mines is up for renewal in Sep 2012.

• Although the terms of new Australian federal and state mining taxes are not yet pinned down (e.g. it is not yet known whether the taxes apply to magnetite), CLF does not have any projects whose economic viability hinges on the outcome.

General comment: The analysts who follows mining companies such as CLF are a lot sharper, on average, than the analysts I’ve encountered in the drug/biotech sector.

[DewDiligence]

DoA: MON reported a blowout quarter yesterday, and the stock is up 10% this week, which is an unusually big move. Have you thought at all about getting back in?

I’ll have more to say about MON’s quarterly numbers later. Regards, Dew

[DewDiligence]

BHP Begins Work on Indonesian Met-Coal Project

[See the third paragraph of #msg-64756612, #msg-64762810, and #msg-64738025, and #msg-64762346 for related info.]

http://online.wsj.com/article/SB10001424052970203716204577015053729515874.html

›NOVEMBER 3, 2011, 11:37 A.M. ET
By DAVID FICKLING And DAVID WINNING

SYDNEY—BHP Billiton Ltd. said Thursday it plans to begin work on the US$1.34 billion IndoMet coal project in Indonesia within weeks, a move that would open up a new mining area to help meet Asian demand.

Joint-venture companies controlled by BHP and Indonesia's PT Adaro Energy will start building the Haju mine in the jungle around 220 kilometers northwest of Balikpapan port by the end of the year, BHP said.

Haju is the first stage of the IndoMet project on the island of Borneo, which could be producing five million metric tons of coking coal annually by 2017. IndoMet is BHP's fifth-biggest coking coal resource.

"PT Lahai will construct a road and a mine (Haju) and related infrastructure, commencing, subject to approvals, in the fourth quarter of 2011," a BHP spokeswoman said in an emailed statement. This will be followed by investments in mines and infrastructure by PT Maruwai and PT Juloi, two other joint venture companies, she said.

IndoMet mine will produce 500,000 tons of coal annually by 2016, and five million tons the following year, according to a BHP presentation in September. Further expansion would target over 10 million tons of annual production.

But the project—discovered by BHP in the late 1990s—is challenging to develop due to its isolation. Getting the coal to port may require extensive trucking, barging down the Barito river, or even a railway, according to BHP. A presentation in February suggested the project's first stage would cost US$500 million-US$2 billion, with the second stage costing the same amount again.

BHP is the world's biggest producer of coking coal, with mines operated by the company producing a quarter of all coking coal traded by sea last year.

Moves to develop the Haju mine represent a comeback for a project originally scheduled to start production in mid-2009. It was put on hold during the financial crisis, and BHP said in 2009 it was reviewing its commercial options.

Adaro, Indonesia's second-largest coal miner by output, bought a 25% stake in IndoMet in May 2010 for US$335 million, giving the project a total value of US$1.34 billion. Booming steel demand from fast-developing Asian economies and tight supplies have driven up the price of coking coal from around US$50 a ton in 2004 to US$350 a ton earlier this year.

Each ton of steel requires 1.5 tons of iron ore and 0.6 tons of coking coal. Hard coking coals are particularly scarce [see third paragraph of #msg-64756612]. Marcus Randolph, BHP's head of coal and iron ore, recently said coking-coal supplies would be tighter than iron ore over the next decade.

With a resource base of 774 million tons, IndoMet would only rank behind BHP's Peak Downs-Saraji, Goonyella Riverside, Blackwater, and Wards Well complexes in Queensland in terms of size.‹

[DewDiligence]

VALE Approves Increased Coking-Coal Output in Mozambique

[This is an update of the story in #msg-64762346. Moatize is VALE’s most important project outside of Brazil, IMO. Note the offhand quip about a possible coal-to-liquids project at the end of this post.]

http://af.reuters.com/article/investingNews/idAFJOE7AL07T20111122

›Tue Nov 22, 2011 4:26pm GMT
By Agnieszka Flak

MAPUTO (Reuters) - The board of Brazil's Vale has approved a $6 billion expansion of its Moatize coal project in Mozambique to lift output to 22 million tonnes per year from the 11 million tonnes it expects to mine initially, a company official said.

Marcelo Matos, general manager for marketing and sales at Vale's coal unit, told a coal conference in Maputo on Tuesday that first production from the expanded mine is forecast for the second half of 2014.

"Moatize is a great alternative to (supply) the growing seaborne market, it's in a very strategic location and there is a lot of interest (for the coal)," Matos told a conference in Maputo.

Some 70 percent of the coal coming from the expansion will be coking coal, a key steelmaking ingredient, and the remainder thermal coal, along with a similar split in the first phase, which began this year.

Vale has been exporting small amounts of thermal coal since September. First exports of coking coal are expected to start in December and be increased to commercial scale by around March next year.

All export growth plans would have to overcome the woeful state of Mozambique's infrastructure.

The expansion of Moatize will include about $4.4 billion dedicated to the building of a new coal terminal at the northern port of Nacala and a 912 km rail line connecting the coal mine with the port, partially passing via Malawi.

The deep-water Nacala port is seen as more adequate to handle panamax vessels than the shallower one at Beira, from where Vale's first exports have been shipped.

The line and the port will initially have a capacity of 18 million tonnes to meet Vale's rising demand for exports.

The sharing of that capacity with other entities would need to be discussed and would happen under certain conditions, Matos said, but did not give details.

"The investments that are planned are for our own expansion," he said.

Mozambique is planning to establish a framework for how infrastructure projects are planned and who will benefit, to ensure all the projects expected to come online in coming years will get access to ports and rail.

For now, miners such as Beacon Hill Resources have to rely on trucks to get their product to the port and will plan the ramp up of their mines in line with available infrastructure.

"Our mine ramp-up is governed by access to infrastructure," said Justin Lewis, chairman of the AIM-listed miner.

All miners presenting at the conference commended Mozambique for the progress made in the last year and said they were confident the former Portuguese colony would manage to supply them the capacity they need.

Vale's Matos also said the company is planning to build a 600 MW thermal power plant at Moatize, but the company is still looking for international investors to help fund the project.

The company may also develop a coal-to-liquids project at the site, he said, but did not give details.‹

[DewDiligence]

Factoids—Australia accounts for 56% and 21%, respectively, of global seaborne shipments of metallurgical coal and thermal coal.

Source: WSJ (http://online.wsj.com/article/SB10001424052702303665904577449991316993020.html )