SMR July 2013

PROFILES IN MINING

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VP. , New Millennium Iron Corp.

Mr. Rock Gagnon

IRON ORE Iron Mine Stocks Suffer Behind Chinese Reluctance

M I N I N G

MINING INDUSTRY FINANCE New Report On Mining Investor Confidence

R E V I E W JULY 2013 • VOL. 102 NO.7

an c i r e m A t h r t o r p e No R e r O Iron IRON ORE PRICE REPORT MINING INDUSTRY PEOPLE Mining Analyst Roundtable MINING MATTERS STATISTICS

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2 | SKILLINGS MINING REVIEW July 2013

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North American Iron Ore Report....6

CONTENTS

JULY 2013 VOL. 102 No. 7

Global Iron Ore Outlook: Global Iron-Ore Market Predicted To Level Out....26 This month, we take a look at North American Iron Ore Report.

ADVERTISING INDEX.................................................................................30 MINING ANALYST ROUNDTABLE..............................................................30 MINING INDUSTRY PEOPLE.......................................................................30 MINING THOUGHT LEADERS......................................................................4 MINING MATTERS......................................................................................28 STATISTICS/ IRON ORE PRICE REPORT................................................. 24-25 COAL Coal Job Losses............................................................................................5 GVK Hancock Contracts Thiess For Alpha Coal Project.............................5 COPPER Chile Is Among the Top Three Copper-Mining Destinations In the World................................................................................................8 Contingency Plan Improves Output At Copper Mountain.......................9 GOLD China Cooperating With Ghana In Mining Sweep..................................12 Are Diamonds An Investor’s Best Friend?................................................13 IRON ORE Iron Ore Recovery Not Long Term............................................................14 Iron Mine Stocks Suffer Behind Chinese Reluctance...............................15 Iron Ore Prices Continue to Dip...............................................................15 IRON RANGE REGION Taconite Tax to Help Pay For Iron Range School Construction..............16 PROFILES IN MINING Rock Gagnon: Vice-president (Metallurgy and Plant Engineering) Of New Millennium Iron Corp................................................................. 18 MINING INDUSTRY FINANCE New Report On Mining Investor Confidence..........................................10 Haiti Brings Mining Experts Together......................................................10 `New Package of Development Aid For Peru’ Says Harper.....................11 MINING INDUSTRY SHIPPING Some Seas Spell Danger For Shipping......................................................17 Shipping Sinks Reef...................................................................................25 Shipment From Oyu Tolgoi Expected Soon.............................................28 MINING INDUSTRY SAFETY Saskatchewan’s Dedicated To Mine Safety..............................................22 Remote-Controlled Mining To Increase Safety........................................23 NON FERROUS Baiyin List In Shanghai............................................................................. 21 Chinese State-Owned Metal Firm Plans to Raise $489 Million.............. 21 PRESS RELEASE Boost Production And Squash Downtime With The Meyer Monster Double Flapgate Valve ............................................................................ 16 STEEL Chinese Steelmakers Say Iron Ore Too High........................................... 13 Steel Prices Continue to Show Downward Trend................................... 20 Subscriptions: U.S.: $72 annually in U.S. funds. $109 annually in U.S. funds for 1st Class Service All other countries: $250 in U.S. funds for 7-21 day service. $335 in U.S. funds for air mail service www.skillings.net

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Publisher Chas Pitts Chas.Pitts@Skillings.net Associate Publisher John Edward john.edward@cfxnetwork.com Senior Sales Manager Stan Salmi Stan.salmi@Skillings.net Contributing Editors Anna Grant anna.grant@cfxnetwork.com Mary Claire Whitaker MC.Whitaker@cfxnetwork.com Carien Daffue Carien.Daffue@cfxnetwork.com Art Director Mo Shine mo.shine@cfxnetwork.com Circulation and Subscriptions Subscriptions@skillings.net Sales & Marketing Christine Marie Advertising@Skillings.net SKILLINGS MINING REVIEW (ISSN 0037-6329) is published monthly, 12 issues per year by CFX Network, 340 S. Lemon Ave #7197 Walnut, CA 91789 USA Phone: (909) 962-7321 printed in the USA Payments and Billing: PO Box 1184 Venice, FL 34284-1184 Periodicals Postage Paid at Walnut, California and additional mail offices.

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July 2013 SKILLINGS MINING REVIEW | 3

SKILLINGS MINING REVIEW

JULY 2013 | VOL. 102 No.7

Mining Thought Leaders Mr. Rock Gagnon Vice-president Metallurgy and Plant Engineering) of New Millennium Iron Corp.

For the July 2013 issue of Skillings Mining Review, we interviewed Mr. Rock Gagnon [Vice-president (Metallurgy and Plant Engineering) of New Millennium Iron Corp.] The full interview is available on our website www.skillings.net- a summary is reproduced in the current issue.

M

r. Gagnon graduated in 1993 from Laval University, with a bachelor in Mineral Processing. He

4 | SKILLINGS MINING REVIEW July 2013

worked for three years at Matagami Mine in Northern Quebec, where he occupied various positions as metallurgist, process-control engineer and chief metallurgist. He next worked as general foreman at the Troilus Mine concentrator for plant commissioning and ramp-up.

In 1997, he became project manager for Troilus for their capacityexpansion project to improve the plant’s comminution. Mr. Gagnon then moved to Met-Chem Canada for three years, where he was Metallurgical Engineer working on multiple project studies and operation assistance.

Mr. Gagnon started private consult-

Skillings Mining Review publishes comprehensive information on global mining, iron ore markets and critical industry issues via our monthly magazine, weekly E-newsletter, annual mining directory and real time website.

ing in 2005, and worked closely with Met-Chem Canada on various projects and studies with New Millennium Iron Corp., where he was the Lead Process Engineer coordinating process design and testing on both the Taconite and the DSO Projects.

New Millennium Iron Corp. is a publicly-traded Canadian iron-ore exploration and development company which controls an emerging 210 km magnetic iron ore (taconite) belt called the Millennium Iron Range near Schefferville, Quebec. In October 2012, New Millennium offered Mr. Gagnon his current position as Vice-president of Metallurgy and Plant Engineering.

www.skillings.net

CoAL

Coal Job Losses

By Carien Daffue

K

entucky coal miners have been hit hard by job losses. Coal employment has declined 30 percent across the state since last year, and some counties have seen coal jobs plummet by nearly 70 percent.

Many are blaming what they describe as increasingly stringent federal environmental regulations that aim at reducing the country’s use of carbon dioxide-heavy fuels, like coal.

The Kentucky Energy and Environment Cabinet reported that 2012 coal-mine employment and production are down across the state from 2011 levels, in particularly in eastern Kentucky.

The Cabinet found that coal production was down more than 16 percent- the lowest level since 1965 - and coal-mine employment decreased by 22 percent as the state lost more than 4,000 jobs.

Elkhorn City, located in Pike County, saw coal mine jobs decrease by 28 percent since 2011- with only 2,316 still employed by coal mines.

Taylor said that local residents are moving away from coal towns to find work, and cities that depend on mining for tax revenues are finding it hard to pay for basic services, like sewage disposal and police forces.

Eastern Kentucky counties like Knott County and Breathitt County were among the hardest hit. Knott County saw coal-mine jobs decline by more than 63 percent, and Breathitt saw coal jobs fall by more than 68 percent.

Western Kentucky has fared relatively well compared to eastern Kentucky.

Coal production actually increased 2.5 percent and coal-mine employment remained unchanged. However, while some western Kentucky counties have seen huge gains in employment, others have taken serious losses. www.skillings.net

GVK Hancock Contracts Thiess For Alpha Coal Project

By Mary Claire Whitaker

G

VK Hancock Coal has announced the appointment of Australian contractor Thiess to develop its $10 billion Alpha Coal project in the Galilee Basin of Queensland, Australia.

The project, which should go into production by early 2017, is expected to yield 32 million metric tons of thermal coal per year in open-cut operations. The deposit, according to GVK Hancock, also has potential for liquefaction and gasification plus additional underground resources.

Thiess currently mines over 100 million tons per year in Indonesia, India and Australia. For the Alpha project, it expects to finalize its operating strategy by the end of 2013.

The company’s head of Australian mining, Michael Wright, has said he sees part of the project objective as reinvigorating Australia’s mining industry.

“This means resetting the paradigm on everything from plant and equipment, local sourcing to robust employee relations. It’s about setting the tone for what will be Australia’s largest coal mine,” he said.

While coal at the port of Newcastle, New South Wales, was selling at $86.65 per ton in May, approximately 15 percent of coal mines were producing at around $90 per ton; even major producers including Glencore Xstrata, BHP Billiton and Rio Tinto were cutting back. Paul Mulder, Managing Director of Infrastructure and Coal for GVK Hancock, told Bloomberg News that the company would be able to deliver coal at around $55 per ton.

GVK Hancock is a joint venture between GVK Reddy’s GVK Group, of India, and Gina Rinehart’s Hancock Prospecting, of Australia. GVK owns 79 percent of Alpha and the nearby Alpha West coal mine.

July 2013 SKILLINGS MINING REVIEW | 5

COVER STORY

North American Iron Ore Report R

io Tinto has drawn up a list of potential buyers who have submitted bids for Rio Tinto’s 59-percent stake in the Iron Ore Co, which analysts at Bank of Montreal estimate is worth around $4 billion, valuing the entire business at $7 billion. IOC is the largest manufacturer of iron-ore pellets in Canada, with North America, European and Asian steel producers as its customers.

T The shipment consisted of sinter fines largely comprised of stockpiled material at the mine site and some port inventory.

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By Anna Grant and John Edward

he company operates a mine, concentrator and a pellet plant in Labrador City, Newfoundland and Labrador, as well as port facilities in Quebec. It also operates a 418km railroad that links the mine to the port.

IOC has recently spent $800 million in expansion, in order to increase annual iron-ore output capacity to 26 million tons, but even that is nowhere near the 353 million tons that Rio Tinto plans to extract annually from the Pilbara by mid2015. IOC contributed $230 million net profit to Rio Tinto in 2012, compared to $9.2 billion for the whole of its iron ore operations. Rio Tinto, which generates four-fifths of its

earning from iron ore, may be selling IOC for its lower grade of ore, to focus on the higher grade ores at Pilbara in Australia and its underdevelopment Simandou iron-ore mine in Guinea. Rio has promised to focus on its key assets and sell noncore operations as it wrestles with a $19 billion debt burden, sluggish demand and weaker prices.

Early this year, Rio Tinto had hired investment banks Credit Suisse and Canadian Imperial Bank of Commerce to sell its entire majority stake in IOC. Two reliable sources say that after receiving 13 to 15 initial bids in May 2013, the shortlist had been whittled down to five or six. One of the sources said it was unclear when www.skillings.net

Image Courtesy: BHP Billiton Iron Ore.

binding bids were due, as Rio was still seeking additional interest in coming weeks from buyers, including some of China’s largest players, so far absent.

While iron-ore assets up for sale are plentiful at a time of escalating costs and uncertain economic prospects, most are early-stage projects with high infrastructure costs and associated risks. Aditya Birla Group and Vedanta Group are reported to be in talks with bankers to evaluate a bid for the Anglo-Australian mine’s stake. Other stakeholders are Japan’s Mitsubishi Corp and Labrador Iron Ore companies.

Low Operating Costs For Buena Vista According to the key NI 43-101 www.skillings.net

Technical Report released by Nevada Iron, the Buena Vista Iron Project in Nevada has been assigned a pre-tax NPV at 7.5 percent of US$263 million on undiscounted cash flows of US$697 million. The report, which was completed to Pre-Feasibility Study levels, includes FOB operating costs of just US$64/dry metric tonne an estimated operating margin of US$41 per dmt concentrate (39 percent) and a fouryear payback period.

The report is required for obtaining a listing on a North American stock exchange and incorporates all work undertaken at Buena Vista over the past 12 months.

The NI 43-101 uses a simple open pit operation as the basis for the mine, with pits at Section 5, West and East

Deposits. Mining will be via conventional mining methods, with drilling and blasting and using a 100 tonne truck fleet for ore and waste haulage. This will commence at the West Deposit, then move to Section 5 and then to the East Deposit. Ore production is estimated to average 8.8 million tonnes per annum over the life of mine, with a peak of 11.5Mtpa in the fifth year of the project. Iron grades are estimated to average 19 percent. Waste-to-ore ratio is estimated to be 0.46:1, which is among the lowest of the new iron ore developments globally.

Almost all the material within the designed pits is mineralized. The estimated iron recovery is 76 percent of total iron, into a concentrate grading 67.5 percent iron. The plant has been July 2013 SKILLINGS MINING REVIEW | 7

COVER STORY/ COPPER designed and costed for the maximum production rate of 10.44 Mtpa and has significant excess capacity for the majority of the mine life, based on the current mine-production schedule.

This grants the company the ability to treat ore as it produces it, rather than rehandling stockpiled ore later in the mine life.

Anglesey Mining Associate Makes First Iron Shipment Anglesey Mining’s—a 15 percent-

owned associate Labrador Iron Mines— recently made its first shipment of iron ore for 2013. The JK Pioneer, a Capesize vessel carrying 174,360 wet metric tonnes of LIM iron ore, sailed from the port of Sept-Îles, bound for China.

The shipment consisted of sinter fines largely comprised of stockpiled material at the mine site and some port inventory. Grades were 58 percent iron.

Subsequent shipments during 2013 will be sinter fines and lump ore at a planned average grade of approximately 62 percent Fe. Total salable iron

ore production in 2013 is expected to be between 1.75 to 2mln tonnes.

John Kearney, Labrador Iron Mines, stated: “We are happy to report that LIM’s first shipment of 2013 has sailed and that production is ramping up largely on schedule, despite difficult weather conditions that prevailed in the Schefferville area during April and May. Now that the Silver Yards wet plant is operating, we expect to accelerate our production, railing and shipping and look forward to a solid year of operations.”

Chile Is Among the Top Three CopperMining Destinations In the World

By Anna Grant

C

hile is the world’s third-most attractive country for coppermining investments behind Canada and Australia, according to a report from the Chilean Copper Committee.

Chile, which is also the world’s largest copper producer, accounts for roughly one third of the global copper output.

Although this position is not under threat, it does face the challenge of transforming its copper mining industry into social capital for the long term, as well as addressing high energy costs, which have grown sevenfold over the last decade.

“The country’s comparative advantages, in contrast to its production indicators, are somewhat threatened by the upsurge in prices, especially for electricity and supplies,” said Rodrigo Balbontín, an analyst at the Centre for Copper and Mining Studies.

With 36 percent of the global market and 28 percent of known copper reserves, copper accounts for 45 percent of the country’s exports and provides one third of government revenue.

In 2012 the country produced 5.5 million tonnes of copper, three percent more than in 2013, according to the Chilean Copper Commission

8 | SKILLINGS MINING REVIEW July 2013

Smelter at the El Teniente mine, which produces 37 percent of Chile’s copper. Credit:Marianela Jarroud/IPS

(COCHILCO).

The National Copper Corporation (CODELCO), the state mining company, contributed 7.52 billion dollars to state revenues in 2012, maintaining copper as Chile’s chief product.

CODELCO regulates the sector, which includes transnational operators like BHP Billiton, British-based Anglo American, and Switzerland-based Xstrata.

Accordingly, CODELCO plans to inject 27 billion dollars in the period from 2013-2020, mainly to increase

production and improve copper grades, the measure of the metal’s purity. In the immediate term, it plans to increase extraction to 6.3 million tonnes in 2015.

North of the Chilean border, the world’s second-largest producer, Peru, is planning to double its 2012 production by 2016.

Output in 2012 was 141 percent higher than in 2011, reaching three million tonnes.

From 2016 to 2021, Peru forecasts stable copper production at six million tonnes each year. www.skillings.net

Contingency Plan Improves Output At Copper Mountain

By Mary Claire Whitaker

A

fter Copper Mountain Mining Corporation suffered an outage of the generator powering its SAG mill near Princeton, BC, the company was able to interchange a generator that powered one of its two ball mills.

The company ran with one ball mill from May 18, 2013, through June 10, 2013, when supplier ABB was able Copper Mountain CEO and President to repair the failed Jim O'Rourke generator.

Copper Mountain CEO and President Jim O’Rourke commented that the contingency arrangement during the period worked surprisingly well.

The company had expected to process 1,000 tons per hour with just one ball mill, but it managed to process at a final average rate of 1,207, producing 12 percent more copper daily than it had in the two weeks prior to the transformer failure.

“We were very pleased,” he said, “with the operational results of running with only one ball mill. During the period in which the concentrator was operating with only one ball mill, site personnel were able to make modifications to the operation to minimize lost production, which included mining higher-grade material and decreasing the size of the SAG mill discharge screen, to provide a finer size of ore being sent to the ball mill, thus maximizing the ball mill’s capacity.”

“The operation with one ball mill,” O’Rourke continued, “clearly confirms that if we can increase tonnage through the SAG mill, the ball mill circuit will handle it.”

O’Rourke concluded with both ball mills back in operation now that the original transformer has been repaired, Copper Mountain could adjust regular operations to enable a milling rate of 2,000 tons per hour.

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July 2013 SKILLINGS MINING REVIEW | 9

MINING INDUSTRY FINANCE

Haiti Brings Mining Experts Together

By Carien Daffue

H

New Report On Mining Investor Confidence

By Mary Claire Whitaker

aiti brought in mining experts from around the world in hopes of developing precious metals in one of the world’s poorest countries. Until 2012, few knew that Haiti had precious minerals underground. Two mining companies have begun drilling for gold, copper and silver in the country’s northeastern mountains. They say testing indicates the deposit could be worth $20 billion — a lot of money for a country where most of its 10 million people live on just $2 a day.

In recent months, the Haitian government has awarded its first gold and copper exploration permits to SOMINE SA, which is jointly owned by Canadian company Majescor Resources Inc. and Haitian investors, and VCS Mining LLC, a North Carolina-based mining company with offices in Haiti.Haitian lawmakers and others have accused the government and mining companies of giving too little information about contracts and progress. Actual mining is unlikely to happen for years. The World Bank helped organize the two-day conference that drew experts from countries such as Brazil, Canada and Ghana. It’s the first in Haiti to focus on mining. The bank is also helping the Haitian government update mining laws that have not been updated since 1976.

B

usiness management firm PricewaterhouseCoopers (PwC) released a report in June, Mine: A confidence crisis, examining the decline in global investor confidence in mining stocks. According to PwC, traders are selling off mining stocks not just because of declining commodities prices, but also because shareholders don’t like elevated costs and breaches in mining companies’ “goodwill,” the economic term for the intangible value resulting from good business practices. Other factors affecting investor confidence, the report says, are the fear of resource nationalism and a commodity-price collapse.

The PwC report analyzed the performance of the industry’s top-40 producing mining companies. It makes the general recommendation that to successfully channel demand and regain investor confidence, mines must manage productivity and improve efficiencies. It forecasts that demand will remain strong from India, Indonesia, Brazil, and China—where although growth percentage is slowing, the market is now a larger base.

John Gravelle, PwC’s sector leader for mining in the Americas, affirmed that part of the downturn in confidence was related to mining activity in riskier economies.

“Investors are less worried about traditional mining countries such as Canada and more worried about emerging markets such as Africa,” Gravelle said in a webchat. “I think Africa is good for gold investments, but less so for bulk commodities given capital required and infrastructure required to get commodities to market.”

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www.skillings.net

`New Package of Development Aid For Peru’ Says Harper

By Anna Grant

C

anada’s prime minister has announced a new package of development aid for Peru that environmentalists are viewing warily because it is closely tied to Canadian mining investments in the South American country. Canadian mining companies have some major investments in Peru, some of which have drawn protests.

Prime Minister Stephen Harper met with President Ollanta Humala, and told reporters that “responsible development” is vital to creating jobs and economic growth in Peru.

There are numerous controversial gold, silver and copper mining projects driven by Canadian companies in Peru.

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Pedro Cateriano, Peru's Minister of Defence, left, welcomes Prime Minister Stephen Harper upon his arrival in Lima, Peru on Tuesday, May 21, 2013. Following his visit Harper will travel to Cali, Columbia for the Pacific Alliance summit. THE CANADIAN PRESS/Sean Kilpatrick

Ignoring community and Indigenous opposition to these mines, as well as the impact these mines can have on local water resources, Prime Minister Stephen

Harper says that the billions that mining companies pay to governments should go to communities in need.

The Canadian Press uncritically reports, “Canadian mining companies hope that Stephen Harper’s visit to Peru will lead to better use of the billions in royalties and taxes that are sitting idle in a country where poverty is still a large problem.”

Peru has a fast-growing economy and an expanding middle class, but it still has desperately poor outlying regions with bad roads and plumbing. Canadian companies are heavily involved in the country’s rich mining sector, which is mostly in the poorer regions.

July 2013 SKILLINGS MINING REVIEW | 11

Gold/STEEL

China Cooperating With Ghana In Mining Sweep

By Mary Claire Whitaker

I

n June, raids by the Ghana Immigration Service targeting illegal, small-scale mines led to the detention of 162 Chinese, six Russians, and 57 West African foreigners. These follow the March arrest of 125 Chinese nationals, also involved in mining.

Since 2006, Ghanaian law has prohibited small-scale mining by foreigners.

Chinese and other nationals have been operating such mines on concessions belonging to Ghana companies, often with the cooperation of Ghanaians. The Chinese Mining Association in Ghana says that since 2005, more than 50,000 Chinese gold miners, mainly from Shanglin, Guangxi, have entered China and are operating around 2,000 mines.

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China is a major investor in Ghana, and in April, the Ghana Ministry of Land and Natural Resources announced it was working in cooperation with the Chinese Embassy to stop the influx of Chinese nationals entering the country illegally.

Ghana has also implemented a preembarkation visa validation system with commercial airlines, which it says has stopped hundreds with fake visas from boarding Ghana-bound planes. Ghana in June also arrested four senior Ghana customs and excise officials, issuing the statement that it would soon be exposing widespread corruption among port officials.

Other publicized arrests since the beginning of the year include the arrest

of two Chinese nationals and two Ghanaian accomplices, on a Finger Mining Limited concession. One of the Chinese miners was accused of nonfatally shooting three Abodom community youths. The youths had entered the mining camp after confronting community chieftains about the mining activities, alleging that Abodom leaders accepted money from the illegal miners.

The president of Ghana and other officials have issued several statements that the arrests are meant to enforce laws against illegal mining, not to target Chinese. Following the June arrests, a Chinese diplomatic delegation arrived to negotiate the repatriation of its citizens, and over 200 Chinese had volunteered to return home.

www.skillings.net

Are Diamonds An Investor’s Best Friend?

By Carien Daffue

T

he collapse of gold prices earlier this spring seems to have been met with a kind of muted elation from those promoting the idea that diamonds, like the gold, could become a recognized asset class and another form of haven investment.

Year-to-date, gold is lower by 17 percent. But after seven trading sessions where gold prices slumped, gold futures gained 1.4 percent, or $19.40, up to $1,384.10.

Contract prices bounced as much as 2.4 percent after sliding 2.1 percent.

Now technical analysis points to a rebound in the precious metal to $1,500 in June, 2013. A double bottom involves three moves: a drop, a rebound, and another drop to the previous low. Chart watchers deem the pattern as bullish. A classic double-bottom reversal typically marks an intermediate or long-term change in trend.

It’s perfect timing for the diamond industry: With an exchange-traded fund backed by diamonds due to roll out sometime next year, once it has received the stamp of approval from the US Securities & Exchange Commission, supporters of the idea admit that they need to educate investors in North America on the advantages of diamonds as investments. There is room for diamond investing to grow. While about 40 percent of the gold market is dominated by speculators or investors, only about 1 percent of the diamond market is made up of speculative activity.

But speculation isn’t long-term investing. And even if diamond supply does remain static while the number of middle-class households grows worldwide, that isn’t to say that those middle-class consumers will choose to spend their new disposable income on diamonds.

Questions of price transparency and liquidity alone make this a risky bet. It’s telling that Schellhas describes the ETF as the vehicle that will end up creating the first spot market price for diamonds.

Typically, a commodity-related structured investment product makes its debut in the wake of the establishment of a reliable spot market with a history of price transparency. The promoters of the diamond ETF seem to be doing it the other way around, relying on the product itself to generate enough buzz to make it a success.

That’s hardly the kind of risk-free strategy investors want in a safe-haven investment.

www.skillings.net

Chinese Steelmakers Say Iron Ore Too High

By Mary Claire Whitaker

W

hile Chinese imports of iron ore in 2012 reached record levels, climbing eight percent over the year before, China’s steel company profits dropped 98 percent. The Chinese steel market is oversupplied, with mills estimated to be holding 13.7 million tons and traders another 20 million. In early June, prices of rebar reached a nine-month low.

Glyn Lawcock of UBS reported that Chinese steel consumption was “reasonable,” but it was not strong enough to support current production levels. Lawcock said that steel producers he spoke to in China calculated that at current steel prices, 120 USD for iron ore would too expensive for restocking. Hu Yanping of the consultancy Custeel estimated that China steel prices can rebound only if production drops by eight percent.

China has recently raised questions about collusion in iron ore prices. Zhang Wuzong, chairman of Shandong Shiheng Special Steel Group, said, “The vast majority of Chinese steel firms are raising this question about the indexes. The index price is a typical monopoly price.” In response to the need to ease costs for steel mills, the Chinese government is planning to loosen iron ore import-licensing procedures.

July 2013 SKILLINGS MINING REVIEW | 13

Iron Ore

Iron Ore Recovery Not Long Term

By Carien Daffue

C

hina will abandon its old iron ore import licensing system in July, in an effort to further open up the market.

According to a leading industry insider, the move which will bring more business opportunities to foreign producers and traders.

In line with Premier Li Keqiang’s recent statement that China will work on reducing governmental interference in the market and simplify approval procedures in many sectors, the Ministry of Commerce announced on June 7, 2013 that beginning July 1, 2013, companies can apply for iron ore and alumina oxide importing licenses online, in an effort to promote free trade and provide a more convenient procedure.

The industrial insider, who declined to be identified, said the move will provide fairer access to foreign iron-ore resources by middle- and small-scale steel companies, which currently have to pay commission fees to middlemen who have importing rights for the raw material.

He said the ministry’s announcement to change its license approval system is just the first step in a long process, and that the need for importing rights, as well as the license, will be removed.

Data shows that there are currently 118 steel companies and traders in China that have the right to import iron ore. Large metal and steel producers such as Baosteel Group, Ansteel Group, Shougang Group and China Minmetals Co are included in the list of companies.

A small number of traders with importing rights charge a commission fee of between 0.3 yuan ($0.05) and 0.5 yuan per ton to help other companies import iron ore, which can result in more than 10 million yuan in profits annually.

Iron ore prices have extended their recovery from a slump last month, but analysts say further gains may be in doubt. The price rallied 4.2 percent to US$116.60 per tonne recently, after falling 17 percent last month.

14 | SKILLINGS MINING REVIEW July 2013

On June 10, 2013, the Port Hedland Port Authority along the northern coast of Western Australia reported surprising news on an iron-ore shipment: The largest ever shipment of iron ore has left Port Hedland with 256,450 tonnes headed for China. The Fortescue-loaded vessel, PSU Seventh, left on a draft of 18.84 metres on Sunday morning, 9 June 2013. The vessel broke its own record for the largest single shipment of iron ore from Port Hedland, which was set on April 26, 2013, with 255,816 tonnes.

The Port does not report the value of the cargo, so one of two conclusions may be reached: Either the price of iron ore is low enough that Chinese buyers are restocking after increased steel production depleted inventories, or the price of iron ore will soon plunge, and

heavily leveraged miners like Fortescue are eager to sell as much as possible while they still can at current prices.

The benchmark import price of 62 percent iron ore fines at China’s Tianjin port gained 1.4 percent to trade at just under $112 per tonne after falling to 8-month lows recently. The improved price was a positive signal for the market which has feared that any acceleration in the recent sell-off could trigger full-blown panic among traders.

The steelmaking ingredient is still down 30 percent from its 2013 high of $159 in February, and the recent sharp pullback was beginning to resemble the declines suffered in the fall of 2011, and again in 2012. Iron ore hit an all-time record in February 2011, at over $190, and eight months later suffered a $60 drop in 28 days.

www.skillings.net

Iron Mine Stocks Suffer Behind Chinese Reluctance

By Mary Claire Whitaker

T

he oversupplied Chinese steel market has led steelmakers to allow their iron ore stocks to run down, with reports of some mills selling iron ore cargoes back to market.

As destocking continued to play out in mid-June, the iron-ore price benchmark had dropped thirty percent since February, in turn heightening nervousness among mining investors.

Analysts from Bloomberg predicted that destocking could continue through the end of July, which could bring prices up from around $110 per ton at the time of writing to $120 per ton. They said that even if restocking took place only at modest levels, the rebound should still hold.

Commonwealth Bank analysts have suggested that mill restocks will not cause prices to bounce back as strongly as in the past due to seasonal domestic iron ore supply from within China as well as higher global supply. The bank cautioned that because of these two factors, “iron ore prices may be weaker in the second half of 2013.”

In March, iron ore averaged $145 per ton. With the destocking, and subsequent price drop, possibly lasting for at least another month, investors have begun recalculating miners’ earnings forecasts and predicting shortfalls. In Australia’s Pilbara region, for example, producers could together earn up $18 billion less than predicted for 2013.

Fortescue, Rio Tinto, Atlas, BHP Billiton, and Mount Gibson all suffered losses on the stock market.

Ken Brinsden, the president of Atlas, which lost 6 percent at the end of May, told Australian press that iron miners are still getting accustomed to a more volatile, spot-pricing system, as opposed to annual benchmark contract pricing, which the industry used for years.

“It affords an opportunity for volatility to unfold in a way that it hasn’t historically in iron ore markets, so we are www.skillings.net

Iron Ore Prices Continue to Dip

By Anna Grant

I

ron ore is in a bear market, according to Bloomberg, as prices have fallen to their lowest in five months. This is amid a wave of negativity that has led Chinese traders and steel mills to sell down their stocks of the key steel ingredient. The price of benchmark Australian iron ore with 62 percent iron content has fallen 12.5 percent in May 2013, and in June 2013, it dropped to $123 a metric ton, the lowest since December 2012, according to sources.

Perversely, daily steel production in early May rose to 2.19 million tons, on track for a monthly record, data from the China Iron Ore & Steel Association and the National Bureau of Statistics quoted in Bloomberg show; while at the same time, prices for finished steel continue to tumble. The Chinese steel industry appears have several dynamics operating at the same time.

Steel mills are de-stocking iron ore inventory, no doubt conscious of the fact that prices are falling and looking to move higher-cost stocks before prices fall further. In time, this will promote a restocking cycle when inventory levels reach sufficiently low levels and mills feel confident the market has bottomed.

Yet the weakness in finished-steel prices and record production numbers are trends that should run in opposite directions; and either production should slow, or prices stabilize in the short- to medium-term, as demand is not expected to pick up significantly this year. But most sources said the strengthening in spot iron-ore prices was not sustainable as it was merely sentiment-driven and temporal, while steel fundamentals had yet to improve.

getting used to that and positioning our business so we can deal with the volatility,” Brinsden said.

Echoing other executives including from Fortescue and the top three, Brinsden voiced confidence in long-term prospects, based on the expectation that overall demand will remain steady.

“Our view is that elevated pricing will prevail,” he said. Regarding Chinese-driven demand, although mills are experiencing a glut and steel prices are dropping, it is thought that the mills may continue producing at a loss due to high fixed costs that make production stoppages expensive. Some mills also fear that production drops would alter credit available to them from financiers.

Reuters analyst Clyde Russell predicts that Chinese steel output will nevertheless decline for the second half of 2013. He notes that this may not have a severe effect on major mines, however.

“If prices do fall much from current levels,” said Russell, “it’s smaller Chinese producers that will face more pressure to idle mines [rather] than the low-cost giants.” Russell added, “China’s iron ore imports may surprise with their resilience in coming months as steel-makers prefer cheaper imported supplies over higher-cost domestic output.” China’s plan to stop requiring special iron-ore import licenses should also moderate further spot-market price slides.

July 2013 SKILLINGS MINING REVIEW | 15

IRON RANGE REGION/ PRESS RELEASE/ MINING INDUSTRY SHIPPING

Taconite Tax to Help Pay For Iron Range School Construction

By Anna Grant

A

dime-per-ton tax increase on taconite iron ore produced in Minnesota this year will be used to help rebuild and retool Iron Range schools. This provision was included in the 2013 Legislature’s final omnibus tax bill, which was signed

by Gov. Mark Dayton in June.

“We are capturing this amount to build and rebuild facilities for schools within the taconite tax relief area,” said State Rep. Tom Anzelc, DFL-Balsam Township, who served on the House Tax Committee and helped craft the taconite tax changes. “It is something that has been long overdue.”

That money will be made available for school construction and improve-

ment projects through bonds issued by the Iron Range Resources and Rehabilitation Board.

The extra money for school construction projects will not affect other recipients of taconite tax revenue, such as homeowners, counties, towns and city governments, and the Iron Range Resources and Rehabilitation Board.

While lawmakers have allowed the inflationary escalator to go up in some years, freezing it in others, it is the first time since 1992 that they have increased the base tax, Minnesota House research analysts said.

That is not exactly what mining companies want as they look to cut production costs. But it is also not expected to cause major hardships, said Craig Pagel,

President of the Iron Mining Association of Minnesota.

“No one, and no business, likes to have their taxes raised,” Pagel said.

He added, however, that Iron Range lawmakers helped avert other, more onerous costs to mines, such as increased electricity costs from a new solar mandate that mines were exempted from.

“The Iron Range delegation worked very hard for their constituents, and the mines benefited from that,” Pagel said.

Boost Production And Squash Downtime With The Meyer Monster Double Flapgate Valve LIBERTYVILLE, IL—The Meyer Monster Double Flapgate Airlock Valves are engineered and manufactured for extreme operating environments or highly abrasive materials.

The Monster Double Flapgate Valves are specifically designed to control the rate of materials flow through a system and at the same time preventing air leakage by isolating the processing system’s pressures.

The Monster Double Flapgates can be designed to seal completely with pressure differentials up to 15 psi.

They are built for heavy duty service; are highly resistant to abrasive materials; feature

16 | SKILLINGS MINING REVIEW July 2013

long bearing and shaft life for fewer system shutdowns; have access covers to simplify inspection and maintenance and can operate in extreme temperatures – up to 750° F. Actuation can be electric, pneumatic or gravity.

The Meyer Monster can be used in a wide range of applications including; air pollution control, ash handling, clinker cooler, iron ore pelletizing, mining and minerals.

Meyer & Sons, Inc. is a world leader in the manufacture of dry bulk material processing components.

www.skillings.net

Some Seas Spell Danger For Shipping

By Carien Daffue

T

he South China Sea, the eastern Mediterranean Sea and the Black Sea number among the world’s most dangerous seas, according to a new study commissioned by the World Wildlife Fund (WWF).

Though pirates, ravenous predators, or the mysterious Bermuda Triangle may come to mind when one thinks of perilous waters, the WWF study focuses on shipping accidents, highlighting the worst maritime hotspots. These disasters pose a threat not only to a ship’s crew and cargo, but to the environment as well.

“Since 1999 there have been 293 shipping accidents in the South China Sea and east Indies, home of the Coral Triangle and 76 percent of the world’s coral species,” said Simon Walmsley of WWF International in a media release.

“As recently as April this year, we’ve seen a Chinese fishing boat run aground on a protected coral reef in the

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Philippines that had already been damaged by a US Navy ship in January.”

The busy shipping lanes around the British Isles, North Sea, and Bay of Biscay had the fourth-largest number of shipping accidents in the world, with 135 reported incidents between 1999 and 2011, including fires, collisions, and leakage of toxic waste. The North Sea is one of the most intensively sailed seas in the world with over 120,000 ship movements every year.

Researchers say the old age and poor maintenance of some shipping vessels, as well as slipshod enforcement of safety regulations, are contributing factors to accidents.

“Badly maintained and operated vessels have a higher probability of causing loss of human life, loss of vessels and of impacting the marine and coastal environment,” reads the study, released on June 8, 2013 (World Oceans Day).

Not all accidents involve an oil spill:

fishing vessels account for about a quarter of sunken ships, and general cargo ships account for roughly half of lost vessels.

Still, depending on the product aboard, those sinkings can still have dire consequences for fragile marine ecosystems.

Researchers warn that with climate change and increasing ocean traffic, shipping accidents may become more frequent in the future.

To counter that, the WWF says, better governance and oversight at a state and international level is required, as well as an increased responsibility by those in the shipping industry.

Though preventing shipping accidents is a crucial step, the protection and preservation of the world’s marine environments must involve a multipronged approach that includes the tackling of climate change, the better regulation of the fishing industry, and the reduction of water pollution, among other efforts, say conservation groups.

July 2013 SKILLINGS MINING REVIEW | 17

Profiles in Mining

Rock Gagnon Vice-president (Metallurgy and Plant Engineering) of New Millennium Iron Corp.

the mining operation. We have generally very low stripping ratios for our resources. We are contemplating diverse technologies such as in-pit crushing to minimize the mining cost.

Our mine layout is very favorable to this kind of operation. This would help to keep the mining cost relatively constant over the life of the mine, as the operation gets deeper and moves farther away from the plant.

SMR: How has it been working with Tata Steel on the DSO project? In what ways do you collaborate with them directly?

RG: When Tata Steel decided to go ahead with the construction of the DSO project by exercising their option, they became 80% owner of the Joint Venture company. As such, they have put together a construction management team that assumes full responsibility of the construction supervision and control of the DSO project.

At that beginning, the NML team participated in the project implementation by facilitating the transfer of knowledge and information developed during the Feasibility Study stage. I was involved as a Consultant working with the NML and Tata Steel process specialists. In the initial phase of implementation, I was involved in the processplant engineering until Tata Steel Minerals Canada (TSMC) hired its process-plant manager.

At present, the focus of NML is to complete the Taconite Project Feasibility Study. TSMC is 100% responsible for the implementation of the DSO project. The NML team is only used as technical advisors on an “as needed” basis.

SMR: Do you expect to collaborate with them in similar ways on the taconite project? What will be any key differences or similarities?

RG: The Taconite Project (TP) is much larger than the DSO Project.

Certainly, collaborations between both teams will be necessary to make this larger project a success.

As per the current agreement, Tata Steel and NML are jointly responsible to complete the Feasibility Study. Our teams are integrated and focused on the 18 | SKILLINGS MINING REVIEW July 2013

SMR: How will NML compete with the massive iron-ore developers from Brazil and China?

implementation of the second project.

SMR: With the new taconite project, what new plant technologies or innovative uses of existing processing systems do you seek to implement?

RG: After consulting with different specialists, especially those in the US Taconite business and those in Europe, we have integrated the best features of various operating plants as well as improvements made over many years of operation. Since we have integrated the best practices, we expect to be amongst the best performers. There are certain natural advantages due to the characteristics of the ore. We are fortunate that our ore has relatively good liberation characteristics.

Our focus is now to minimize the operating cost, by optimizing comminution requirements at acceptable capital costs in order to maximize the project’s returns.

In such a large low-grade operation, a large proportion of the operating cost is related to

RG: NML’s project is based mainly on producing and selling highquality and value-added pellets.

Most of the Brazilian projects are producing mainly sinter feed fines with declining quality, which is projected to be in oversupply.

China’s orebodies are deep and are of very low grade, declining rapidly. They would be high-cost producers and will be competitive only for smaller domestic steel mills located in the interior.

Our strength is the strategic alliance with Tata Steel, which could use about 40% of the production for its own European operations. We expect to be one of the lowest-cost pellet producers in the world. We will also aim to serve the growing value-added DR-grade pellet section.

We are also seeking other steel companies to become investors in the project and also to secure remaining off-takes. With this strategy in place, we hope to become a highly competitive pellet producer serving mainly our captive customers.

SMR: We understand that you are currently playing a major role in the www.skillings.net

Taconite Project. Your international experience in the development of iron-ore processes and crushing is expected to maximize the potential and economic performance of this project.

Can you share with us some of the best practices that you will be employing to achieve this goal?

RG: An operation like ours requires the largest and most efficient equipment available to-date. The use of in-pit crushing and installation of high-pressure grinding rolls (HPGR) to replace SAG mills are two important examples. We are also looking to thicken the tailings to reduce the footprint and the need to build high dams.

With a weight recovery of less than 30%, the efficient way of handling tailings is a big challenge. We will need flotation to produce low-silica pellets required to supply DRI producers. We will take advantage of the liberating

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characteristics of the ore to minimize the flotation requirement.

NML’s executive team members benefit from their long association with US taconite mines on the Mesabi Iron Range. In addition we have involved the various laboratories and people who have the knowledge in these operations over the last 50 years.

SMR: We understand that the innovative technology used in design will help to make the project among the lowest-cost producers in the world. Will you be able to give us an idea about what these technological innovations are?

• Using High-Pressure Grinding Rolls in place of SAG mills for primary grinding • Transportation of the final concentrate via ferroduct to the port • Using the largest and most efficient pelletizing plants to process a magnetite concentrate which has lower requirements for the pelletizing process fuel • Competitive hydro-power rates • Legacy costs

RG: The main reasons why we expect to be among the lowest cost producers are: • We have a flat (dips 6 degrees) and shallow orebody with an extremely low waste-to-ore stripping ratio in the initial 25 years of mining • Utilization of the largest state-ofthe-art equipment in the operation

July 2013 SKILLINGS MINING REVIEW | 19

STEEL/NON FERROUS

Steel Prices Continue to Show Downward Trend

By Anna Grant

C

hinese steel producers are decreasing their production to more sustainable amounts, putting smaller West Australian iron ore projects at risk of price falls in the chief export commodity.

ANZ global head of commodities research Mark Pervan said the good phase for low-cost companies BHP Billiton, Rio Tinto and Brazil’s Vale has ended.

“We have had a golden era for iron ore producers who have made 150 to 200 percent EBIT (profit) margins,” says Mark, Pervan, Head of Commodities, ANZ Global Research. “In an industry

20 | SKILLINGS MINING REVIEW July 2013

which is consolidating, the top three have kept the market quite tight.”

Seaborne iron-ore prices have seen a decline from over US$150 per ton to about US$110 per ton since February, creating uncertainty on marginal producers and several projects that are in the development stage.

“We have seen a decline in steel prices in China, and that is dragging down iron ore prices,” he said.

“Even at US$110 to US$120 a ton there is little incentive for expanding iron ore production.”

In June 2013, Hong-Kong-based Citic Pacific said its US$8 billion Sino Iron project in northern WA is facing more delays due to the postponement

of the first shipment of magnetite ore to the second half of the year.

“At the moment we are at risk from the worst of both worlds, with volatility remaining high in the near term and new supply driving prices in the medium to longer term,” the company said.

The firm believes large miners should behave in an ‘oligopolistic’ manner by holding back supply when demand is down, instead of selling it in on-thespot market.

The multi-billion dollar Pilbara mine, the Cape Lambert magnetite venture and Sinosteel’s Weld Range project are some of the other ventures that have been postponed or abandoned.

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Baiyin List In Shanghai

By Carien Daffue

A

recent statement from Chinese state-owned metal firm Baiyin Nonferrous Metals Group Co. revealed plans to raise between 3 billion yuan (US$489 million) and 4.5 billion yuan from an initial public offering ahead of a listing in Shanghai.

Based in the Gansu province in northwestern China, the producer of copper, lead and zinc plans to use IPO proceeds on capacity expansion and acquisitions, according to an inspection application to the Ministry of Environmental Protection, which was posted on the ministry’s website.

Chinese companies whose operations affect the environment must get their operations inspected and approved by the ministry before seeking listing approval from the securities regulator.

Separately, traditional Chinese-medicine producer Shandong Buchang Pharmaceutical Co. filed a similar application for an inspection with the environment ministry, which indicated the company is mulling a CNY2.1 billion IPO, with proceeds to be used to build up production bases, expand its marketing network, and boost working capital.

The developments suggest Chinese companies are still keen on initial share sales, even though Beijing suspended IPO approvals since October, based on concerns about the poor performance of local stocks.

Baiyin Nonferrous Metals said it plans to float between 800 million and 1.1 billion yuan-denominated A shares in the planned IPO. The metal firm was set up in 2008, has registered capital of CNY5 billion, and counts state-owned Assets Supervision and Administration Commission of Gansu Province and Citic Group as shareholders.

Baiyin Nonferrous Metals is the second-largest nonferrous metals producer in Gansu province. The company is also the fourth-largest lead and zinc producer, and the seventh-largest copper producer nationally, with the total annual output volume of the three metals reaching 300,000 tons.

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Chinese State-Owned Metal Firm Plans to Raise $489 Million

By Anna Grant

C

hinese state-owned metal firm Baiyin Nonferrous Metals Group Co. plans to raise nearly $489 million from an initial public offering ahead of a listing in Shanghai, per the company’s statement in June 2013. The company was formerly known as Baiyin Nonferrous Metals Corporation, and changed its name to Baiyin Nonferrous Metal Group Co., Ltd. in July 2007.

The producer of copper, lead and zinc, based in Gansu province in northwest China, plans to use IPO proceeds on capacity expansion and acquisitions, according to an inspection application to the Ministry of Environmental Protection, which was posted on the ministry’s website.

Chinese companies whose operations affect the environment must get their operations inspected and approved by the environmental protection ministry before seeking listing approval from the securities regulator.

The developments suggest Chinese companies are still keen on initial share sales even though Beijing suspended IPO approvals since October 2012 because of concerns about the poor performance of local stocks.

Baiyin Nonferrous Metals said it plans to float between 800 million and 1.1 billion yuan-denominated A shares in the planned IPO. The metal firm was set up in 2008, has registered capital of CNY5 billion, and counts state-owned Assets Supervision and Administration Commission of Gansu Province and Citic Group as shareholders.

July 2013 SKILLINGS MINING REVIEW | 21

MINING INDUSTRY SAFETY

Saskatchewan’s Dedicated To Mine Safety

By Carien Daffue

T

he Saskatchewan Mining Association (SMA) has been dedicated to promoting mine safety and emergency-response training across the province. Their mission: “to represent and support a safe, responsible and growing Saskatchewan mining industry.” On June 1, 2013, the 45th Annual Emergency Response and Mine Rescue Competition will be held at Prairieland Park in Saskatoon.

Designed to simulate realistic highstress situations, the competition tests the effectiveness and quality of the emergency-response programs of various mine sites across the province.

The competition, which features both an underground safety event and a surface safety event, not only evaluates safety procedures of the mine sites, but also motivates teams to train intensively

22 | SKILLINGS MINING REVIEW July 2013

and practice their safety training routinely throughout the year.

By providing teams with a simulation that is as close to a real emergency as they can safely get, the competition also allows safety instructors to observe their teams and see how they would handle the stress of an emergency situation.

This type of first-hand experience and observation is crucial to ensuring the success of a real-life emergencyresponse project, explained Steve Wallace, safety director of the Heavy Construction Safety Association of Saskatchewan.

Wallace is also the co-ordinator of the Firefighting Event for the Annual Emergency Response and Mine Rescue Competition. Every year, Wallace and his crew train the mine-rescue teams from all of the various mine sites around the province in fire safety in order to

prepare them for the Firefighting Event at the annual Emergency Response and Mine Rescue Competition. The training also provides the teams with the valuable skills and experience necessary to deal with potential fire outbreaks that may occur during real-life mine-rescue situations. The Firefighting Event is just one of the many ways that the Annual Emergency Response and Mine Safety Competition ensures that Saskatchewan’s miners and its community are safe.

The events test teams’ responses to blazes and other hazards, as well as their ability to perform extrications, search and rescue, provide first aid, secure the site, and recover casualties.

The competition serves as a poignant reminder of the potential dangers in the mining industry, and also of how important proper mine safety and emergencyresponse training area.

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Remote-Controlled Mining To Increase Safety

By Anna Grant

W

ith autonomous load haul dump (LHD) and truck haulage systems in open pit and underground mines there is now a definite shift toward safer mining practices.

Autonomous train transportation can be controlled remotely off-site, and automated underground mining systems allow greater accuracy of cutting sequences in continuous long-wall mining and haulage operations, reducing shift changes and operation fatigue.

Taking technology to the next level, driverless trucks are already a feature of the Australian mining landscape.

Rio Tinto has more than 30 automated trucks operating at its Yandicoogina, Nammuldi and Hope Downs 4 mine sites.

BHP will start using autonomous haulers this year at its Jimblebar iron ore mine in the Pilbara and Fortescue Metals plans to implement automated trucks at its Solomon mine in WA. Caterpillar has a complete line of high-tech autonomous mining equipment, including driverless dozers and

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haulers. Similar to technology for flying drones, a new generation of highly trained employees will operate the autonomous equipment off site. This reduces demand for mine site infrastructure in remote areas and the need for fly-in, fly-out arrangements for large numbers of employees.

The evolution towards autonomous mines is not a question of reducing the mine’s workforce but adapting the style of work and operations to achieve greater productivity at increased safety levels.

“Due to automation and similar stuff most people are pretty well tucked away from the heat. There are not many manual workers,” a miner at Rio’s Dampier operations said.

Automation has long been a part of the mining industry, but advances in satellite, motion-sensor technology and robotics have made the stuff of science fiction a fact of everyday life.

“Process plants have long been managed from a console – it is just as if this task is now performed with a much, much longer extension cord,” says Anglo-Australian miner Rio in its latest

innovations update. “But never before, on anything like this scale, has the huge number of tasks been accomplished in full view and full knowledge of everyone else involved.”

The operations center in Perth is central to Rio’s “Mine of the Future” program, which aims for driverless trucks and trains, and sensor-fitted “smart drills” that can be operated remotely.

Machines which scoop the ore, dump it on a conveyor belt and hose it down are now controlled from the air-conditioned comfort of Rio Tinto’s Perth operations center, 1,930 miles away from the arid mine pit.

Hundreds of specially trained operators who once directed machines from on-site offices watch and direct the action from afar using satellite technology, with surveillance cameras feeding into some 440 monitors.

Once fully operational the operations center will allow all of Rio’s rail, mine and port systems to be coordinated from one place.

It is obvious that mining companies like Rio Tinto are changing the face of mining.

July 2013 SKILLINGS MINING REVIEW | 23

STATISTICS/ MINING INDUSTRY SHIPPING Crude Steel Production, APRIL 2013 Monthly Crude Steel Production in the 62 Countries included in the report, in thousands of metric tons.

Source – World Steel Association

% change April 13/12

By John Edward

A

ccording to the US Geological Survey (USGS) report by Iron Ore Commodity Specialist John D. Jorgenson, US mine production of iron ore was 4.20 million metric tons (Mt) in January 2013, averaging 135,000 Mt on a daily basis, which was 10% less than that of December 2012 and slightly higher than that of January 2012. US iron ore shipments were 3.11 Mt in January 2013, averaging 100,000 Mt on a daily basis, which were 43% less than those of December 2012, and 19% less than those of January 2012. Mine stocks at the end of January 2013 were 1.09 Mt more than those held on December 31, 2013. US exports of iron ore were 1.02 Mt, and US imports were 81,000 Mt. Research by the University of Minnesota Duluth’s Labovitz School of Business and Economics reported that Minnesota’s iron ore industry was responsible for an annual economic impact in excess of US$3 billion.

April 2013

March 2013

Canada

1,160 e

1,200 e

1,165

-0.5

Cuba

20 e

25 e

28

-28.6

El Salvador

8e

9e

6

33.3

Guatemala

25 e

30 e

26

-3.8

Mexico

1,545 e

1,580 e

1,568

-1.5

Trinidad and Tobago

52

35

60

-12.7

United States

7,258

7,291

7,829

-7.3

Total - North America

10,068

10,170

10,682

-5.7

Argentina

429

468

480

-10.6

Brazil

2,965

2,894

3,013

-1.6

Chile

95 e

160 e

141

-32.6

Colombia

90 e

100 e

122

-26.2

Ecuador

40 e

40 e

38

5.3

Paraguay

1e

1e

3

-66.7

Peru

85 e

95 e

79

7.6

Uruguay

7e

7e

7

0.0

Venezuela

235 e

200 e

188

25.0

Total - South America

3,947

3,965

4,071

-3.0

Algeria

49

62

32

54.3

Egypt

532

525

586

-9.1

Iran

1,264

1,215

1,297

-2.5

Morocco

50

55

44

13.8

District

6/15

6/8

6/1

5/25

Qatar

188

201

184

2.2

North East

202

199

190

202

Saudi Arabia

457

468

439

4.1

Great Lakes

665

687

659

675

South Africa Total - Africa /Middle East China

550 e

570 e

648

-15.1

Midwest

262

244

255

262

3,090

3,096

3,229

-4.3

Southern

653

634

654

631

65,650

66,293

61,480

6.8

Western

88

87

86

80

India

6,620 e

6,860 e

6,394

3.5

U.S. Raw Steel Production In Thousands of Net Tons - Source - American Iron & Steel Institute

Country

April 2012

Preliminary USGS Iron Ore Statistics for Dec 2012

IRON ORE PRICE REPORT NORTH AMERICAN MARKET (LTU). Source: CLIFFS NATURAL RESOURCES INC.

Company

Ore Type

Iron Unit

Per Gross Ton Iron Content

Per Ton at 64% Reporting Date

Cliffs Natural Resources Inc

Pellets, FOB Michigan Mines

$ 2.07

$ 132.48

12/31/12

Cliffs Natural Resources Inc

Pellets, FOB Minnesota Upper Lakes Port

$1.64

$104.96

12/31/12

Weekly U.S. Raw Steel Production by district In thousands of Net Tons – Source – American Iron and Steel Institute

Week Ending

Japan

9,170

9,446

9,077

1.0

South Korea

5,497

5,664

5,869

-6.3

Taiwan, China

1,600 e

1,770 e

1,783

-10.3

Total - Asia

88,537

90,033

84,603

4.7

Australia

399

387

405

-1.5

June 15, 2013

New Zealand

68

78

80

-15.0

Total - Oceania

467

465

485

-3.8

TotalEuropean Union (27)

14,066

14,597

14,785

-4.9

Total - Other Europe

3,032

3,138

3,081

-1.6

Total - C.I.S. (6)

8,909

9,419

9,570

-6.9

May 25, 2013

1,850

- 2.8

Total (62 countries)

132,116

134,883

130,506

1.2

Previous Year

1,970

- 6.1

The 62 countries included in this table accounted for approximately 98% of total world crude steel production in 2011. e- estimate r- revised

24 | SKILLINGS MINING REVIEW July 2013

Weekly Production

Year-to-Date Production

Production

Percent Change*

Capability Utilization Rate

1,870

1.0

78.1

Previous Year

1,862

0.4

74.8

47,178

-

78.8

June 8, 2013

1,851

0.4

77.3

42,259

- 6.7

76.7

Previous Year

1,862

- 0.6

74.8

45,317

-

78.8

Week Ending

Production

44,129

Percent Change

- 6.5

76.7

June 1, 2013

1,844

- 0.3

77.0

40,408

- 7.0

76.6

Previous Year

1,954

- 5.6

78.6

43,455

-

79.6

77.2

38,564

- 7.1

76.6

79.2

41,500

-

79.6

* Percent Change is a comparison between a given week and the previous week. The % change figure in the previous year row refers to the change from a given week compared with the corresponding week of the previous year. AISI’s estimates are based on reports from companies representing about 50% of the Industry’s Raw Steel Capability and include revisions for previous months.

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April 2013 Crude Steel Production

By John Edward

W

orld crude-steel production for the 63 countries reporting to the World Steel Association (worldsteel) was 132 million tonnes (Mt) in April 2013, an increase of 1.2 percent compared to April 2012. The crude-steel capacity-utilization ratio for the 63 countries rose to 80.0 percent in April 2013, from 79.1 percent in March 2013—which is 2.0 percent lower than April 2012.

The US produced 7.3 Mt of crude steel in April 2013, down by 7.3 percent from April 2012. In the EU, Germany produced 3.7 Mt of crude steel in April 2013, down by 0.9 percent since April 2012. Italy’s crude steel production was 2.1 Mt, a decrease of 11.6 percent compared to April 2012. Spain produced 1.4 Mt of crude steel, an increase of 10.3 percent compared to April 2012. France’s crude steel production was 1.2 Mt, down 12.3 percent from April 2012.

China’s crude steel production for April 2013 was 65.7 Mt, up by 6.8 percent compared to April 2012. Elsewhere in Asia, Japan produced 9.2 Mt of crude steel in April 2013, up 1.0 percent over April 2012. South Korea’s crude steel production was 5.5 Mt in April 2013, down 6.3 percent compared to the same month last year.

Brazil produced 3.0 Mt of crude steel in April 2013, a decrease of 1.6 percent compared to the same month last year. Turkey’s crude steel production for April 2013 was 2.9 Mt, a decrease of 0.7 percent compared to April 2012.

Statistics based on World Steel Association Report released on May 21, 2013.

Shipping Sinks Reef

By Carien Daffue

M

ining and port development coupled with decreasing water quality along Australia’s north-eastern coast are threatening the continent’s World Heritage-listed tourist magnet, the Great Barrier Reef.

An assessment report of the reef by the United Nations Educational, Scientific and Cultural Organization (UNESCO) and the International Union for Conservation of Nature (IUCN) has said the lack of “firm and demonstrable commitment” by either the Australian federal or the Queensland state government to limit port developments near the reef “represents a potential danger to the outstanding universal value of the property.”

Spread across an area of 348,000 square kilometers, the Great Barrier Reef includes about 2,500 individual reefs and over 900 islands, and is home to breeding colonies of seabirds and marine turtles, snub fin dolphins, and the humpback whale.

According to projections by the Bureau of Resource and Energy Economics, coal exports from Australia, already the world’s leading exporter will roughly double. Australia’s resources boom, combined with increasing demand for coal in Asian markets, is attracting billions of dollars’ worth of investments in mining projects there. About 43 industrial development proposals are under assessment for their potential impact.

Experts are worried about the economic impact of destruction to the reef, which contributes $822 million a year to the national economy and supports about 60,000 jobs. Recent polling shows that 91 percent of Australians think protecting the reef is the most important environmental issue in 2013.

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July 2013 SKILLINGS MINING REVIEW | 25

Global Iron Ore Outlook

Global Iron-Ore Market Predicted To Level Out

By Mary Claire Whitaker and Carien Daffue

M

ajor iron-ore projects from Australia are expected to add over 300 million tons to global supply by 2015, in addition to new supply entering the market from Brazil and Indonesia. By 2020, new iron-ore projects in China could contribute another 435 million tons.

Global supply will likely increase further with the resumption of exports

by Indian mines, with attempts by the mining state of Goa to reverse the widespread suspension of mining activity that was enacted in September, 2012. “We’ve placed all the regulatory measures we have undertaken in front of the Supreme Court so that we can resume mining operations and exports under the strict supervision of the mines department,” said Prasanna Acharya, Goa’s mines director.

“The best-case scenario is resumption of mining, partly or otherwise, in November or December,” Acharya told Reuters.

Abated Growth Meanwhile, China is expected to remain the dominant consumer of iron ore worldwide. Chinese property, infra26 | SKILLINGS MINING REVIEW July 2013

Aerial view of construction of the Minas-Rio project

structure and heavy industry growth continue to drive demand in the industry, and Chinese iron-ore demand growth is expected to continue falling to a more moderate level.

Compared to the last decade of double-digit growth, steel output—and thus iron ore demand—is expected to grow at an average of three percent through 2030. Given that output is currently seven percent over that of 2012, this forecast should mean further slowdown in relative terms. However, in absolute terms, China’s market base is now much more developed than it was in 2000, meaning that even three percent annual growth is still significant.

Nevertheless, projections for global

iron-ore supply-increases in light of China’s lowered output suggest that the market will face a surplus by 2015.

Consequentially, expectations are that prices will continue to drop. The investment firm CSLA Limited has stated $100 as the low-end level for 2013.

One factor that could mitigate the price drop in iron is the Chinese government’s planned elimination of its iron imports licensing system, targeted at helping reduce shipment costs for small- and medium-sized traders as well as increasing transparency in purchases.

Zhu Dingfa, a purchasing head for China Railway Group, praised the change. “This is a significant move, and it will help level the playing ground,” www.skillings.net

Zhu said. “We may not see imports jump, but we will definitely see less manipulation and less hoarding.”

Giant Iron-Ore Mine For Anglo The hills surrounding CONCEIÇÃO do MATO DENTRO in Brazil contain a rich lode of iron ore and the seeds of one of the biggest cost overruns in mining history.

Anglo American PLC is spending $8.8 billion on a massive mine project here, more than three times what it initially projected, and not a single ton of iron ore has been mined. The project, conceived by some of the best geologists and engineers in the world and currently employing 12,000, is three years behind schedule.

The project journey has been a tough learning curve. Among other things, Anglo American didn’t fully anticipate the extent of negotiations with dozens of Brazilian agencies, mayors, and local prosecutors, and close to 1,600 landowners in 32 small towns.

Anglo American announces a Probable Ore Reserve totaling 1.45 billion Run of Mine (ROM) tonnes for the Serra do Sapo area of the Minas-Rio project in Brazil, equivalent to 685 Million tonnes of salable product at an average grade of 67.5 percent iron content.

This sizable conversion from Mineral Resource to Ore Reserve follows Anglo American’s December 2011 declaration of a Mineral Resource totaling 5.77 billion tonnes for the entire Minas-Rio project, representing a more than fourfold increase in resources since acquisition.

The 2011 and 2012 Mineral Resource Statements for the entire Minas-Rio project (Serra do Sapo and Itapanhoacanga) are tabulated below, along with the 2012 Ore Reserve statement for Serra do Sapo.

Anglo American will continue to upgrade the confidence in the Compact Itabirite Indicated Mineral Resource through further drilling, and will work to increase the Ore Reserves through conversion of these resources. Execution of this project remains subject to the nor-

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mal regulatory processes of the Brazilian authorities.

Iron-ore prices will remain strong into 2014 on sustained demand in China, the largest producer of steel, and as an increase in global supply takes longer than expected, according to Morgan Stanley.

The price has averaged $135 a ton this quarter, down from $148 in the first three months, which is still more

than the bank’s estimate of $130 for the April to June period, analysts Joel Crane and Peter Richardson wrote in a report dated yesterday.

Ore with 62 percent iron content delivered to the Chinese port of Tianjin lost 1 percent to $128.10 per dry ton yesterday, according to The Steel Index Ltd. Prices dropped 19 percent from $158.90 on February 20, nearing the definition of a bear market.

July 2013 SKILLINGS MINING REVIEW | 27

mining Matters/ MINING INDUSTRY SHIPPING

Shipment From Oyu Tolgoi Expected Soon

By Anna Grant

C

EO Sam Walsh told Rio Tinto investors at the mining giant’s annual general meeting that approvals for shipment of material from the controversial Oyu Tolgoi mine are expected “in the next couple of weeks.”

Fox Business quotes Walsh as saying, “I think we have moved well down the path in terms of resolving issues the government had tabled with us, enabling us really to move forward with the project.”

However, according to sources familiar with the situation and quoted

by Reuters, Rio cannot go ahead until it gets final clearance from the government, which might happen by the end of June Turquoise Hill Resources, the owner of the massive copper-gold mine in Mongolia, which is controlled by Rio Tinto, has been locked in often bit-

ter negotiations with the government of Mongolia about the future of Oyu Tolgoi for months.

Mongolia owns 34 percent of Oyu Tolgoi in the South Gobi desert, and has taken Rio to task over cost overruns pegged at some $2 billion.

Rio, for its part, threatened to halt construction if an agreement could not be reached, and according to Walsh, a long-term budget for the mine, which has been operating on a month-tomonth basis, has now been agreed upon.

The ongoing talks centered on funding for a $5 billion expansion of the existing open-pit mine, the use of Mongolian contractors and workers, and a new royalty regime, have been called “constructive” by both sides.

Relations between the miners and the government of the Asian nation have gone through rough patches before.

Mining Matters RIO TINTO Rio Tinto seeks bids for its 80 percent stake in the Northparkes copper mine in Australia, with at least two bidders in the running.

CEO Sam Walsh aims to raise “significant cash proceeds” to cut debt and protect Rio’s single-A credit rating.

Vale SA Looking at Vale SA’s trading history in the past 52 weeks, it is evident that the share price suffered a low of $14.20 on June 10, 2013, from a maximum level of $21.88 on January 2, 2013.

BHP BILLITON BHP Billiton finalized the sale of its interest in the $45 billion Browse liquefied natural gas project in Western Australia. It sold its interest to Petro China for $1.7 billion. BHP used 28 | SKILLINGS MINING REVIEW July 2013

Anglesey Makes First Shipment for 2013 In another instance, Anglesey Mining’s 15 percent-owned associate Labrador Iron Mines has made its first shipment of iron ore for 2013. The JK Pioneer, a Cape-size vessel carrying 174,360 wet metric tonnes of LIM iron ore, sailed from the port of Sept-Îles, bound for China. The shipment consisted of sinter fines largely comprised of stockpiled material at the mine site and some port inventory. Grades were 58 percent iron. Subsequent shipments during 2013 will be sinter fines and lump ore at a planned average grade of approximately 62 percent iron. Total salable ironore production in 2013 is expected to be between 1.75 to 2 million tonnes.

John Kearney, Labrador Iron Mines, stated: “We are happy to report that LIM’s first shipment of 2013 has sailed, and that production is ramping up largely on schedule, despite difficult weather conditions that prevailed in the Schefferville area during April and May.”He added, “Now that the Silver Yards wet plant is operating, we expect to accelerate our production, and look forward to a solid year of operations.”

Disclaimer: While every effort has been made to ensure the accuracy of the information supplied herein, Skillings Mining Review cannot be held responsible for any errors or omissions. Unless otherwise indicated, opinions expressed herein are those of the author of the page and do not necessarily represent the corporate views of Skillings Mining Review.

to own 8.33 percent stake in the East Browse Joint Venture and 20 percent interest in the West Browse Joint Venture.

MINING SUPPLY CHAIN Fairtrade jeweler CRED has won the supplychain category of the Lloyds TSB People and Environment (PEA) Business Awards for its work creating a fully transparent supply chain.

CRED has so far concentrated its supplychain efforts on gold, which is supplied by five mines in Bolivia, Colombia and Peru.

Mining Investment Australian Treasury officials commented in June that the economy may face a bump transition when mining investment finally flattens out. David Gruen, Treasury macroeconomics directory, said that despite contraction in the last two quarters in Western Australia, recent capital expenditure data shows investment will

remain high in 2014.

Mining Stocks Of the top 40 mining companies by market capitalization, 37 lost a combined $200 billion in the first four months of 2013, around 17 percent of their total value. Gold miners lost an additional $58 billion due to markettrader reactions over bullion prices.

Mining Policy and Law Reuters recently reported that Zimbabwean President Robert Mugabe’s political party, Zanu-PF, had proposed a new law that would permit the uncompensated expropriation of foreign-owned companies in the country’s mining sector. Several news sources also added that the new policy would reportedly subject foreign mining companies to significant new regulations and higher taxes. www.skillings.net

MINING ANALYST ROUNDTABLE/ MINING INDUSTRY People/ Advertising Index

Mining Analyst Roundtable

we compiled the different opinions of prominent mining analysts on various aspects of mining - a summary of their take on these issues is reproduced below:

Glenn Ives

Geoff Wilson

Chair of Deloitte Canada

Wilson Asset Management

Skillings: Deloitte has reported that a major 2013 trend is high costs. What are the implications?

Skillings: Newcrest Mining, Australia’s largest gold miner, faces a possible shareholder suit due to timing of its Friday, June 7, 2013, $6 billion downgrade announcement, which came after five analyst downgrades.

Ives: Capital projects are being decelerated. You get concerned about costs, you get concerned that you can’t control a project, you pull back, which is interesting, because we actually see demand continuing in Asia at a fairly robust level.

The other impact is mergers and acquisitions.

You’re not going to see the big companies buying; you’re going to see them divesting…to focus on their big, world-class projects. A lot of the medium-sized companies will be able to pick up [the divested projects].

Wilson: It’s incredibly suspicious… It appeared over that over the last week, there had been either winks or nudges that Newcrest might have to downgrade.

I think on Thursday [June 6] there was talk that they were going to close their Brisbane operation, actually before it happened. So I think it’s fantastic that the ASX is onto it. It’s all about the integrity of the Australian market.

Mining Industry People

By John Edward

On June 17, 2013, Zinco do Brasil, Inc., a mine-development company focused on bringing into production an advanced-stage zinc project in Brazil, appointed Mr. Daniel Kunz as the Executive Chairman of the board of directors with immediate effect, and as the Company’s Chief Executive Officer effective September 1, 2013. Mr. Kunz has more than 30 years of experience in the mining industry.

Liberty Mines Inc. has entered into a term sheet for bridge-debt financing with Forbes & Manhattan, Inc. in the principal amount of $500,000. In connection with this financing, Liberty has appointed Mr. Pat Gleeson as a Director and as Liberty’s President and Chief Executive Officer, and Ms. Deborah Battiston as Liberty’s Chief Financial Officer.

Advertising Index Azcon.................................................. 16 Anixter................................................. 22 Barr Engineering.................................. 27 CR Meyer............................................. 21 Eriez Magnetics...................................... 9 Furin & Shea........................................ 27 Global Minerals Engineering................. 14 Golder Associates................................. 19 Hallett Dock Company.......................... 12 Hydro-Klean......................................... 23 Idea International Drilling..................... 25 30 | SKILLINGS MINING REVIEW July 2013

Sources: www.sacbee.com, www.proactiveinvestors.com, www.equities.com

Per the poll results of the Annual General Meeting held on June 14, 2013, United Company RUSAL, PLC—a leading, global aluminum producer— appointed Ms. Alexandra Bouriko and Ms. Ekaterina Nikitina as non-executive Directors. Both these appointments were approved by the shareholders of the Company by ordinary resolution at the AGM pursuant to the Articles of Association of the Company.

Skillings Mining Review is supported by these leading providers of materials, services and supplies to the mining industry. Please patronize them whenever possible and let them know you saw their advertisement in Skillings.

Industrial Lubricant.............................. 19 Jasper.................................................. 20 Krech Ojard & Associates, P.A................ 20 Lake Superior Chapter ISEE................... 25 L & S Electric Inc................................... 13 Lakehead Constructors, Inc..................... 2 Lind..................................................... 10 Malton Electric Company...................... 19 Metso.................................................. 11 Mining IQ............................................... 4 Mielke Electric Works............................ 22

Naylor Pipe.......................................... 32 NBC..................................................... 25 Neo Solutions........................................ 5 Noramco Engineering Corp................... 25 Northern Engine & Supply.................... 25 P & H Minepro..................................... 29 Viant (RJS)............................................. 4 S.E.H.................................................... 14 Zeigler................................................. 17

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June 2013 SKILLINGS MINING REVIEW | 31

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