Mining Update

AngloGold Ashanti Limited and Golden Cycle Gold Corporation announced that shareholders of Golden Cycle Gold approved the merger with a wholly owned subsidiary of AngloGold Ashanti. The merger will be effective at 0:01 on 1 July 2008. As a result, AngloGold Ashanti will acquire 100 percent of Golden Cycle Gold and subsequently, AngloGold Ashanti will own 100 percent of Cripple Creek & Victor Gold Mining Company.

South African Coal Mining to Boost Richards Bay Exports by 500,000t

One of South Africa's front running junior coal companies, South African Coal Mining (JSE: SAH), is investing R400m (US$50.7m) to increase thermal coal exports through the Port of Richards Bay from 207 000t to 707 000t by early next year.

The company is making a substantial investment in its flagship Umlabu mine near Ermelo in Mpumalanga province to increase production capacity and establish transport infrastructure that will make exports more efficient. Production will be increased from 96,000t per month to 150,000t per month with the investment at the company's first coal project to generate stable cashflow and profit for SA Coal.

The expansion process involved the R220m ($27.8m) upgrading of its rail capacity with a rapid loading terminal in order to transport coal more efficiently to the Port of Richards Bay where it is exported through the coal terminal.

The balance of the funds would be invested in the mine's beneficiation plant in order to increase processing capacity from 35 000tpm to 110 000tpm. The investment would mean a significant saving for the company as it will cut out toll treatment at R22/t ($2.79/t) higher than own plant costs and cost of using other rail infrastructure in the area.

The expansion is being financed through a rights offer for R100m ($12.7m) through the issue of 25 million new shares, debt and further equity issues for about R50m ($6.34m).

Ghana Buys Alcoa Stake in VALCO

Ghana's government has bought Alcoa's stake in the inactive 200,000 tonne/year VALCO aluminium smelter and plans to relaunch the industry with a new bauxite mine and alumina refinery, a deputy minister said recently. The deal gives the African state full ownership of VALCO.

The government paid Alcoa $2 million for its 10 percent stake in VALCO, whose smelter has been shut since March 2007 due to low water levels in the Volta dam which powers it.

Deputy Energy Minister Kwame Twumasi Ampofo said the government planned a new bauxite mine and alumina refinery.

"We are about to have on stream an additional bauxite mine at Kibi ... in the next one year or so, as a vital and integral part of the industry, that would include alumina refining, aluminium production, and enhancing the railway sector." Ampofo said.

Rio Tinto, which mines 1 million tonnes of bauxite a year from Ghana's only active bauxite operation, exports the ore directly overseas for refining.

VALCO would smelt imported alumina, as it did previously, until the bauxite mine and refinery were ready.

ASIA

BHP Billiton to File Takeover Documents for Rio Tinto

BHP Billiton is expecting to file documents on its $180 billion bid for Rio Tinto with Chinese competition regulators this month.

The world's biggest miner has already submitted its applications to competition bodies in Europe, the US, Canada and Australia.

"We are intending to file with the Chinese regulators later this month," BHP media spokesperson Sam Evans said.

BHP is filing its application ahead of the introduction of a new anti-monopoly law in China on August 1. At this stage, it is uncertain how the new rules will affect BHP's submission as the final version of the law has not yet been published.

However, Chinese steel mills have been vocal in their concerns that a combined BHP-Rio will wield too much power over iron ore prices.

Analysts say the merged group could control about 35 per cent of the seaborne traded market for the steel-making agreement.

BHP, whose 3.4-for-one all-share bid has been rejected as too low by Rio, expects the review process to run until the end of the year.

The miner is yet to file in Japan, Taiwan and South Korea.

Rio Tinto Hikes Asian Iron Ore Price 97 percent

Rio Tinto has won a 97 percent price increase for its iron ore from Asian customers this year, the mining company said recently.

The increases, ranging from 79.88 percent to 96.5 percent, represent the sixth consecutive annual increase in iron ore prices, as demand for the steel making material soars from China and other developing nations.

The announcement follows recent news that China's biggest steel producer, Baosteel Group, which represents the country's still mills in talks with iron ore suppliers, had agreed to price hikes of up to 96.5 percent with London-based Rio Tinto, the world's second-largest iron ore producer.

Rio Tinto's settlement is higher than the one struck by Brazil's Companhia Vale do Rio Doce SA, the world's largest iron ore producer, which agreed with steelmakers to price increases of between 65 per cent and 70 per cent for its ore in 2008.

The price agreement between Rio Tinto and its Asian customers will apply to the contract year that started on April 1.

Miners to Add 20 million tons Steel Capacity in Five Years

India’s Miners to Add 20 million tons Steel Capacity in Five Years

Merchant miners plan to add 20 million tons of steel capacity in the country within five years at an investment of about Rs 80,000 crore, an article in The Economic Times states.

This comes at a time when the mining industry is fighting against the imposition of 15 per cent ad-valorem duty on export of iron ore, which is likely to hit the revenues of merchant miners by an estimated Rs 8,000 crore.

"We envisage adding 15-20 million tons of steel capacity in the country in five years with an estimated investment of Rs 80,000 crore," Federation of Indian Mineral Industries (FIMI) President and Executive Director of MSPL Limited Rahul N Baldota told reporters.

Among the leading iron ore mining firms that plan to set up steel units include MSPL, Rungta Mines, MEL, BMM Ispat and Brahmi Steel. About 100 sponge iron makers too are in the line for adding addition capacity, he added.

While MSPL and Rungta Mines intend to set up 5 million tons capacity each steel project, BMM Ispat and Brahmi Steel's proposed capacity would be 3 million tons each. The sponge iron producers are expected to add about 2 million tons steel capacity to their existing 3 million tons.

The miners said they have already submitted formal proposals for their proposed projects to respective state governments.

AUSTRALIA

BHP Billiton Expands its Western Australia Worsley Alumina Refinery

BHP Billiton has selected Bechtel to provide engineering, procurement, and construction management for a $1.9 billion expansion of its Worsley Alumina refinery in Western Australia. The project, which will expand mining operations, add refinery capacity, and upgrade port facilities, will increase the refinery’s capacity for producing smelter-grade alumina from 3.5 million to 4.6 million tonnes per year Completion is expected in 2011.

$667 million Pilbara Iron Ore Investment Approved

Pilbara Iron Ore $667 million Investment Approved

Global miner Rio Tinto has approved a $667 million investment in its Pilbara mining region in Australia, under a previously announced plan to boost iron ore output there to 320 million tonnes a year by 2012.

The company is defending a hostile $175 billion takeover bid from BHP Billiton Ltd, which believes the two groups could speed up iron ore production growth by putting their operations together.

Rio said recently its share of the investment in the overall project was $492 million. Its partners, Japanese trading company Mitsui & Co and Nippon Steel Corp, are funding the remainder.

Rio said most of the $667 million approved would be used to fund early infrastructure work, including work at its Cape Lambert port, and buying heavy equipment and construction camp materials amid competition from all miners racing to meet heavy demand for industrial commodities, especially from China.

Rio said $149 million would be used to study a new iron ore mine near its Tom Price operations in Western Australia, aiming to start production in late 2010.

Rio has spent or committed more than $8.5 billion since 2003 on expanding its Pilbara iron ore operations.

AMERICAS

Coal Mine Expansions in U.S. Can't Match Global Shortfall

U.S. coal production has room to grow, but expansion is unlikely to meet surging world demand because miners fear a boom-bust cycle, key reserves are declining, and regulation has tightened, Reuters reports.

Despite soaring prices, the U.S. Energy Information Administration has cut projections of U.S. output rather than raised them, and now foresees a total of 1.166 billion short tons by 2010, barely up from a record 1.163 billion in 2006.

That is not enough to overcome what some coal officials see as a shortage of 25 million to 35 million tons this year in the 6-billion-ton world market and a shortfall of perhaps 70 million tons next year.

Closing the gap with U.S. coal would require spending billions of dollars to expand mines, rails and ports, investment difficult to recover if supply growth exceeds demand and prices fall.

Europe has bid spot eastern U.S. power-plant coal past $110 a short ton, up from $45 a year ago, because booming Asia has bought up other supplies Europe had relied upon. But there has not been much of a U.S. supply response.

Managing energy analyst David Khani of Friedman, Billings, Ramsey & Co sees U.S. output actually down so far this year, at an annual pace of about 1.05 billion tons. And, because low grade Western coal is a growing share of production, average heat or BTU content—the reason people buy coal—is less.

The biggest U.S. growth potential is in the West's Powder River Basin, where reserves are huge and easy to mine. The coal is low-sulfur, which helps utilities meet clean-air standards.

PRB also is lower-BTU coal, so it takes 30 percent more of it than Eastern coal to produce the same amount of power. That means it will take a rise in U.S. coal output just to stay even with U.S. power needs, which continue to grow.

The PRB price curve has recently risen past $20 a ton projected into the next few years, reflecting anticipation of stronger demand as Eastern coal moves to export and utilities increase PRB blending to meet their needs and control fuel costs.

But a complete shift to PRB would require expensive plant modifications, and utilities will not rush to make that decision until more low-cost, long-term Eastern coal contracts start expiring next year, analysts say.

Retrofitting one power plant for PRB can cost $100 million, and many plants already are spending millions to install scrubbers, which reduce the advantage of low-sulfur PRB over coals that emit more polluting sulfur-dioxide when burned.

Some of those high-sulfur coals come from another U.S. region with growth potential: the Midwest's Illinois Basin, where production was hurt by the U.S. Clean Air Act but is being revived by scrubber installation at power plants.

Prices for Illinois Basin coal recently passed $70 a ton, but experts say its upside is limited by high chlorine content which shortens the life of power plant boilers.

Another issue is the relative cheapness of PRB coal, fostered by the railroads, which profit from the longer PRB haul. In the Illinois Basin, unlike the PRB, competing river barge transportation is available.

There could be growth in higher BTU coal from the Southwest, Colorado and Utah. Northern Appalachian coal output also could rise, but it requires underground mining, which takes up to seven years to develop.

In both areas, reserves are limited.

In the historic mother lode of U.S. coal, central Appalachia, reserves are shrinking. The coal is low sulfur, high in BTUs and close to ports. But miners face tighter safety rules and a labor shortage after years of industry decline.

On environmental grounds, a U.S. federal court ruling has stalled permits for surface mining in central Appalachia, the cheapest way to work thinning seams. Even if it is overturned on appeal, the outlook is for slower decline, not rising output.

Domestic Mining Spurred Record GDP Growth in Canada in ‘07

Canadian Domestic Mining Spurred Record GDP Growth in ‘07

Statistics Canada reported recently that mining and oil development spurred the GDP growth of Newfoundland and Labrador well ahead of other Canadian provinces while diamonds helped the Northwest Territories and Nunavut achieve the highest GDP growth in the nation in 2007.

GDP in Newfound and Labrador surged 9.1 percent last year, far outpacing other provincial economics, while real gross domestic product (GDP) for Canada as a whole increased an average of 2.7 percent. The NWT reported a GDP of 13.1 percent in 2007 while Nunavut had a 13 percent GDP growth rate.

"Increased oil and mineral extraction, combined with strong world commodity prices, became the catalyst for growth in 2007, more than three-quarters of which could be attributed to mining activities," Statistics Canada said of Newfoundland/Labrador, "Oil extraction in the province leapt ahead, thanks to a virtually trouble-free year on its many oil platforms. The second full year of production at the Voisey's Bay nickel mine was also a big contributor."

Meanwhile, in the territories, Statistics Canada reported that diamond, gold and copper production surged in the North. "Diamond production jumped in the Northwest Territories as the economy surged 13.1 percent, much faster than the 2.9 percent gain in 2006. Construction activity continued unabated at the Snap Lake mine site. Three of Canada's four diamond mines are located in the Northwest Territories."

Statistics Canada noted that Nunavut's economy expanded by a record 13.0 percent in 2007, up from 3.4 percent in 2006. "Construction work at the Meadowbank gold mine, as well as mineral exploration throughout the territory, benefited from world demand for natural resources. Canada's fourth diamond mine is located in Nunavut. Diamond production was up over 2006."

The economy of the Yukon Territory expanded by 3.8 percent in 2007, up from 2.9 percent in 2006. Statistics Canada said, "A new mine opened, allowing the territory to benefit from high copper and gold prices."

Alberta's rate of GDP growth slowed to 3.3 percent last year, following a 6.6 percent increase in 2006. While oil and gas extraction increased, Statistics Canada reported that "exploration activity was curtailed for the second consecutive year." The province reported the lowest unemployment rate in the country.

In Saskatchewan, GDP grew by 2.8 percent in 2007, an improvement over the 0.4 percent decline in 2006. "Potash mining bounced back on the strength of increased demand from China, while grain production fell slightly," according to Statistics Canada. "Corporate profits got a boost from high world prices for grains, potash and uranium."

Anglo American Expands Copper Facility in Chile

Bechtel will expand a copper concentrator in the Andes northeast of Santiago, Chile, under a $1.2 billion contract with Anglo American SUR S.A. The project will more than double output of the Los Bronces facility by adding a new concentrator and new crushing and conveying equipment, among other improvements. The expansion—the largest mining job currently in Chile—is scheduled for completion in December 2010. Bechtel will perform project management, engineering, and procurement, while direct-hire construction will be executed through a joint venture of Bechtel and Sigdo Koppers, BSK.

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