04/06/14 – Australian iron ore producers plan to cut output
Sydney Morning herald reported that some mining executives have warned that iron ore producers are expected to cut or push back non-essential spending until they have clarity about the bottom of the current price fall.
Mr Wayne Bould MD of Grange Resources said that discretionary spending such as training programs; external consulting and equipment upgrades should all be deferred.Mr Bould said that ”When we see the numbers take a dive as they have and you don’t see any clear bottom then a prudent CEO would implement a pretty straightforward plan to curtail any optimistic activity and lock down.
‘He said that ”When it levels out and you understand where the bottom is and what that means in terms of costs of production, then we can reevaluate. The trick for us is to protect our free cash flow and the value of our asset, so we are pretty good at belting the cost down on a short term basis, it’s not sustainable long term, but you can operate pretty cheap for a while.’
‘According to Credit Suisse figures for the 2015 year, a USD 10 movement in the iron price translates to a USD 2.1 billion difference to Rio Tinto’s bottom line, and USD 1.2 billion for BHP Billiton, which is roughly half as exposed as its rival. When applied to earnings, the Credit Suisse figures show a USD 10 price movement had a 20% impact on Rio and 9% on BHP.
Diversified miners are ramping up iron ore production, while single metal miners continue to add to supply, ultimately leading to oversupply and a further slump in the iron ore price.Rio breaks even at about USD 44 per tonne, while BHP comes in at USD 55 per tonne.
Mount Gibson’s cash costs are much higher, at USD 84 per tonne and Atlas’s sit at USD 80 per tonne. Fortescue Metals Group breaks even at around USD 70 a tonne. Despite being the first trading session since the iron ore price fell to USD 91.80, shares in several Australian iron ore miners rose on Monday.