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Not quite so Diversifieds pin hopes to iron ore and China

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Publish time: 9th October, 2013      Source: ChinaCCM
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Mineweb reported that record export figures from Western Australia's Port Hedland suggest iron ore miners BHP Billiton, Fortescue Metals and Atlas Iron are set to report strong quarterly earnings in the coming two weeks.

The port authority published figures last week showing September volumes of 29 million tonnes up 6% on August and 46% higher than September last year. Rio Tinto, which pushes its Australian shipments through its own facilities at Dampier and Cape Lambert is also at record iron ore capacity, having completed an expansion program last month that lifted output to 290 million tonnes per annum.

Mr Colin Hamilton metals analyst of Macquarie said that "Rio, BHP and Fortescue are all running at record levels. It shows the lagged impact of investment that we've seen over the past three years yielding some results.'

Driven by restocking, the Pilbara's export figures paint a buoyant picture of Chinese demand which accounts for 80% of shipments from Port Hedland, the world's largest bulk port by tonnage. Current Chinese import prices of USD 131 per tonne represent 20% improvement on levels this time last year.

Bumper volumes flowing from the Pilbara, however, also reveal the increasing dependence by once diversified majors on seaborne iron ore markets. Rio Tinto's iron ore division generated USD 11.8 billion in the first half of this year, equal to 44% of total group sales. Over 90 per cent of that came from its share in eleven mines in Western Australia. By comparison, 5 years ago, its iron ore unit only accounted for 27% of first half sales.

BHP Billiton similarly generated USD 20.2 billion from iron ore in its last full year, equal to 31% of its group wide total revenue. Five years ago that figure was 16%.

Growing efforts to strengthen their balance sheets and minimise capital commitments has encouraged both Rio and BHP to increasingly slim-down their portfolios, divesting non core assets to concentrate expenditure on their largest and longest life assets.

Whilst BHP exited its diamond business in April, Rio has sold-off its Eagle copper and nickel project in Michigan and its idle Blair Athol coal mine in Queensland, announced last week.