ECONOMIC OVERVIEW April 2017
US & China Start to Tighten

Both China and the US tightened monetary conditions over the past month. The US Federal Reserve acted first, raising official interest rates for the second time in 3 months, lifting the benchmark Fed Fund rate rates by 25bps to 1%. China quickly followed, leaving official rates unchanged at 4.35%, but lifting the cost of 7-day, 14-day and 28-day reverse repurchase agreements (repo rates) by 10bps each to 2.45%, 2.6% and 2.75%, respectively.

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ZINC April 2017
Capital Intensity of New Zinc Mines

Zinc concentrate shortfalls over 2016 and 2017 are prompting renewed interest in new zinc mines. No greenfield zinc project of more than 100ktpa has come on line since Goldcorp’s Peñasquito mine was commissioned in 2009. Poor zinc prices and excess capacity have held back the development of long-known large projects. This is now changing with an influx of investment in new and idled zinc mines..

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COPPER April 2017
The Copper Mega Mines

Three of the top five copper mines experienced disruptions in early 2016. BHP Billiton’s Escondida and Freeport’s Cerro Verde were impacted by strikes in the March Quarter. Freeport’s Grasberg is in dispute with the Indonesian government and was unable to export concentrates. These three mines supply 10% of global copper in concentrate. Drawn out returns to normal output at Escondida and Grasberg and potential disruptions at other major mines may push copper prices higher.

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METALLURGICAL COAL April 2017
The Best New Coking Coal Projects

Higher prices and growing demand has seen more interest in new coking coal projects. AME looks at three projects with great potential; Mezhegey, Jan Karski and Red Hill. Overall, these projects could add 25.4Mtpa of product, requiring around US$7–8bn of funding.

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IRON ORE April 2017
Haulage Distances at Open Pit Mines

The haulage distance from the pit to the primary crusher or the waste dump is typically the single largest contributor to operating cost in the mining segment of an open cut operation and is a major factor in determining mobile fleet numbers and configuration. AME’s assessment of haulage costs in the Pilbara places them in the range of 20%-60% of the total mining cost. AME has incorporated detailed analysis of haulage distances over time into the new EVO engineering model for costing mining operations. Detailed examination of pit layouts during haulage distance estimation also provides insights into mine planning.

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THERMAL COAL April 2017
Vietnam: The Benefits of a Falling Coal Price

Vietnam to consume 220Mtpa of thermal coal by 2030. Vinacomin has high production costs, cannot complete in export market if prices below US$80/t. If thermal coal prices remain around or below US$80/t in the future, Vietnam could become a huge importer.

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LNG April 2017
Shifts in the LNG Trading Structure

LNG trade is rapidly changing. Strengthened buyer positions are reducing contract length and volumes, and increasing the penetration of hub-pricing. These changes create attractive market conditions for trading houses, better prepared to optimise portfolios, manage risk and deal with price fluctuations. The latest Egyptian tender in Nov 2016 (96 cargoes) was dominated for the first time by large intermediary players including Glencore, Trafigura, Vitol and Gunvor.

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STEEL April 2017
The Coke Connection

LVPCI supply disruptions as a result of North Korean sanctions could result in Chinese steelmakers looking for alternate sources of PCI suitable coals. PCI is a proven means of increasing blast furnace productivity and decreasing operating costs. Coke performs a fundamental role within the blast furnace, high volume blast furnaces require high strength coke in order to provide support to the burden.

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NICKEL April 2017
Trends in the Nickel Intermediate Market

Trade in intermediate products forms a significant part of the nickel value chain, one which is often overlooked in favour of mined and finished nickel. Nickel intermediate products consist of nickel contained in matte, mixed sulphide precipitate (MSP), mixed hydroxide precipitate (MHP), and other intermediate nickel products including salts and oxides which require further processing before being classed as a finished product.

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ALUMINIUM April 2017
Chinese Smelting Technology Triumph

The massive increase in Chinese smelting capacity to pass 50% of world production by 2015 has seen the emergence of homegrown technology exceeding technical metrics of established Western technology providers. The reduction in energy consumption has been a major focus in the competitive aluminium smelting landscape. The technology advances and cost of implementation has seen Chinese technology providers leverage their experience to gain foreign sales.

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GAS March 2017
Argentina Taps its Vast Shale Resources

The Argentine government announced plans to develop its vast shale gas resources and eliminate LNG imports in five years. The country is the third in the world, after the US and Canada, to commercially develop tight oil and shale gas.

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STEEL March 2017
Burden Blends

When tight supply hit both the iron ore and coking coal seaborne markets, the ability to maintain a stable burden blend determines the extent to which steel producers are able to capitalise on favourable market conditions. Variations in feed availability means that burden blending and charging practises will differ. This month, AME looks at the blending opportunities in ferrous feeds where the sweet spot is to limit phosphorus and alumina content, minimising the premiums paid and allowing for maximum flexibility on procurement.

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ZINC March 2017
India's Zinc Mines Heading Underground

India’s mine production is going through significant change. The world’s largest zinc mine, Hindustan Zinc’s 750ktpa Rampura Agucha will see its share of total Indian zinc production decline from approximately 90% to 50%. The fall comes as part of Hindustan Zinc’s US$1.5bn plan over six years to expand existing underground operations and move underground at Rampura Agucha as it targets a mined metal capacity of 1.2Mtpa by FY2019. Progress towards the target has not been smooth sailing as shaft construction issues, and water ingress, ventilation and geotechnical problems, have limited the advancement.

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METALLURGICAL COAL March 2017
Mongolia Reloaded

In 2016, as global metallurgical coal imports increased 3.7% and China’s imports increased 24%, Mongolia exported 23Mt of metallurgical coal—its largest ever annual volume. Market undersupply in the December Quarter led to the premium hard coking coal contract price of US$285/t for the March Quarter of 2017, and prompted the re-start of three idled mines. While future export volumes depend on China’s domestic production, AME forecasts Mongolian metallurgical coal exports to rise around 18% in 2017.

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THERMAL COAL March 2017
The Pick of the Crop

Import demand growth of 3.7% in 2016, plus December Quarter prices averaging ~35% higher quarter on quarter, have caused a reassessment of undeveloped coal projects. Three promising thermal coal projects are Boikarabelo, Mount Pleasant and Buck Creek. A combination of coal quality, established customer bases and infrastructure synergies gives these prospective greenfield operations an advantage, with a strong potential to post positive cash margins if they are developed.

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ALUMINIUM March 2017
Seaborne Bauxite

Seaborne bauxite related to China’s huge demand has seen nearly a 200% increase in the past decade. With developments in Guinea, and to underpin the major mine development in Australia and offtakes from Australia and South America, AME foresee a further increase possible to support coastal and near coastal refineries. Chinese alumina producers may continue to exploit this pathway of raw material supply, while shipping costs remain near multi-decade lows.

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IRON ORE March 2017
Price Not Yet Enough

The iron ore price was unexpectedly resilient over 2016 and into 2017. The monthly average price reached US$80/t in December 2016 and maintained that level into January 2017 compared with a monthly average low of US$40/t in December 2015. A price over US$80/t was last achieved in October 2014. In response to the price rebound over 2016 and early 2017, are there any signs that new projects are being approved?

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COPPER March 2017
Sea Water to the Rescue

Copper operations in Chile are at significant risk of disruption whilst securing sufficient, reliable water supply for ore processing. This risk is increasing due to fresh water scarcity, drought susceptibility and increasing water demand and restrictions on its use. Chilean copper mines are increasingly moving to the use of desalinated sea water and direct use of raw sea water to meet their needs. Use of sea water, particularly desalinated water, increases capital and operating costs.

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NICKEL March 2017
The DSO Market in Flux

The seaborne laterite market has been thrown in turmoil with the recent announcement that Indonesia will relax its ore export ban. This will see the once dominant player in the DSO market return after a three-year hiatus. Furthermore, the Philippines Department of Environment and Natural Resources delivery of its Final Mining Audit Report, has resulted in the DENR calling for even more significant closures than anticipated by the industry. The uncertainty in DSO supply will provide significant volatility to the nickel market in 2017.

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LNG March 2017
America and the Great Gas Glut

An oversupplied market, under-utilisation, and an upcoming surge of LNG. Is there any hope for what was once the fuel of the future? The past few years has seen demand growth lag behind increases in liquefaction capacity, forcing operators to reduce utilisation rates as markets dry up. AME expects liquefaction capacity to increase at 8% year on year until 2020, easily outpacing demand as growth from major consumers such as Japan and Korea flatline.

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2016