Skillings Mining Review August 2013 by CFX Network, LLC

PROFILES IN MINING

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VP, Mining for BFL CANADA Janet McLean

IRON ORE Local, State Mining Laws Fluctuate With Circumstances

M I N I N G

MINING INDUSTRY FINANCE Canadian Considers RareEarth JVs In Arabian Peninsula

R E V I E W

AUGUST 2013 • VOL. 102 NO.8

IRON ORE PRICE REPORT MINING INDUSTRY PEOPLE Mining Analyst Roundtable MINING MATTERS STATISTICS

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CONTENTS

AUGUST 2013 VOL. 102 No. 8

Environmental Issues In Iron Mining....6 This month, we take a look at Environmental Issues In Iron Mining.

ADVERTISING INDEX.................................................................................26 MINING ANALYST ROUNDTABLE..............................................................26 MINING INDUSTRY PEOPLE.......................................................................26 MINING THOUGHT LEADERS......................................................................4 MINING MATTERS......................................................................................24 STATISTICS/ IRON ORE PRICE REPORT................................................. 22-23 COAL Coal Industry Regulation Delays............................................................... 5 13 Million Tons at New Coal Mine............................................................ 5 COPPER Tension Eased Over $6.6 Billion Oyu Tolgoi Mine.................................... 9 Mining Again At Odds With Ecology, Tourism?....................................... 9 GOLD Gold Mine Stocks Recommended For Bargain Hunters......................... 11 The True Cost of Gold.............................................................................. 11 IRON ORE Record Output from BHP......................................................................... 12 Local, State Mining Laws Fluctuate With Circumstances....................... 13 Iron Ore Price Surge May Be Unsustainable........................................... 14 IRON RANGE REGION Iron Rangeâ&#x20AC;&#x2122;s Copper-Nickel Mining: Opportunity Or Threat?............... 15 Penokee-Gogebic Iron Range.................................................................. 15 PROFILES IN MINING Janet McLean: Vice-President, National Practice Leader Mining for BFL CANADA.......................................................................... 20 MINING INDUSTRY FINANCE Canadian Considers Rare-Earth JVs In Arabian Peninsula....................... 8 Investors Eyeing Mining Stocks............................................................... 10 Hidden Edge Of Junior Mining Companies............................................ 10 MINING INDUSTRY SHIPPING Shipping Industry Suffering As Great Lakes Water Levels Drop........... 19 Shipping Rates Down............................................................................... 19

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

MINING INDUSTRY SAFETY Pilbara Mining Safety Manual Of Concern For Regulators................... 17 Harmony Sponsors Safety Research........................................................ 18 Keeping Iron Mines Productive............................................................... 18

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

NON FERROUS Almalyk Mining Pushes Income Into Facility.......................................... 16 The Debate Over Non-Ferrous Mining Continues.................................. 16

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PRESS RELEASE Metso To Deliver Crushing And Screening Plant In France................... 25 U.S.-Flag Cargo Movement on Lakes Up 2.3 Percent in June................ 25 STEEL Exporter Hesitation Following Dumping Allegations............................ 23 US Steel Asks Government To Help End Lake Erie Lockout................... 23 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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SKILLINGS MINING REVIEW

AUGUST 2013 | VOL. 102 No.8

Mining Thought Leaders Ms. Janet McLean Vice-President, National Practice Leader Mining for BFL CANADA. For the August 2013 issue of Skillings Mining Review, we interviewed Ms. Janet McLean, Vice-President, National Practice Leader - Mining for BFL CANADA. The full interview is available on our website www.skillings. net—a summary is reproduced in the current issue.

s. Janet McLean grew up a prospector’s daughter in British Columbia, where she visited many local mine sites before attending

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university and entering the Risk and Insurance Industry. She then obtained her CAIB designation and Nominee’s level license before choosing the Mining and Energy Industry sector of risk management. She has since been part of the industry’s growth, both in Canada and internationally, for over 30 years. Ms. McLean has worked in both Calgary and Vancouver, Canada, and in Sydney, Australia, in the risk and insurance industry, where she was responsible for a wide variety of mining and mineral-exploration clients, handling business on all continents of the world. Her entrepreneurial spirit attracted her to BFL CANADA, where

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.

she is a vice president and the National Mining Practice Leader. Ms. McLean manages the Mining Specialty Unit in the Vancouver office, and her responsibilities include participation in the Lockton Global Partnership’s Mining Group, client management, new business, and new product development. She brings risk and insurance experience encompassing Agency and Mining Department Management, International Client Management, Marketing Management, and Senior Client Relationships from large international brokerages to her present leadership position at BFL.

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CoAL

13 Million Tons At New Coal Mine

Coal Industry Regulation Delays By Mary Claire Whitaker

lthough the United States federal government has acknowledged need for increased environmental and health regulations at coal mines, two recent regulations have been delayed. Being considered are stricter controls on coal dust, to prevent black-lung disease, and updated methane-emissions regulation. Since 1995, the federal Mine Health and Safety Administration (MHSA) has recommended cutting the amount of coal dust by 50 percent in air breathed by miners, but the agency did not begin formulating and gathering feedback on regulations until 2010. In 2012 the Government Accountability Office endorsed the proposed guidelines, and the final requirements are expected from the MHSA in September, 2013, with implementation to be mandatory within two years of publication. Recent media reports have shown that advanced stages of black-lung disease are four times more prevalent now than in the 1980s. Regarding methane emissions, environmental groups including the Sierra Club and Earthjustice filed a petition with the Environmental Protection Agency (EPA) to control methane emissions by underground coal mines, under the New Source Performance Standards of the federal Clean Air Act. The EPA, however, denied the petition on budgetary grounds. Acknowledging that the coal-mines category contributed one percent of green house gas emissions nationally in 2011, it explained that the main reason for the denial was that agency resources were currently tied up in 45 other projects related to new source regulation. “The EPA believes that a step-bystep approach, starting with these largest sources and sectors, such as transportation and electricity systems, is the most appropriate course to reduce greenhouse-gas emissions,” wrote acting EPA Administrator Bob Perciasepe, in the denial letter. www.skillings.net

By Carien Daffue

ustralia’s Whitehaven Coal has received final environmental approvals for its A$767 million (US$695 million) Maules Creek coal mine in New South Wales. Maules Creek, which has an estimated 320 million tons of semi-soft coking coal and thermal coal, is a key asset for Whitehaven, but approval for its development comes as coal producers are struggling with weak prices and tepid demand from major Asian buyers. Whitehaven said it expected its first coal sales in the second half of 2014, and is targeting production of 13 million tons per annum when the mine is running at full capacity. After extended delays in obtaining approvals, the initial site preparation, including fencing, storage and access roads for the New South Wales project, is expected to kick off. The contract for the design and construction of the rail infrastructure, which was expected to carry up to 12.4-million tons of product per year, was in the final stages of negotiation; while negotiations to finalize other contracts, including power supply and bulk earthworks, were well advanced. Approval for the mine marks the second major development for Whitehaven in the past month. In June, top shareholder Nathan Tinkler handed over his near20-percent stake in the company to creditors. Shares in Whitehaven rose 1.8 percent to A$2.28, having fallen by almost half in the past year due to weak coal markets, uncertainty over the Maules Creek approval process, and the overhang of Tinkler’s stake. So far, $160-million of the capital budget had been spent, largely on the coal handling and preparation plant, and land purchases.

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COVER STORY

Convoluted rocks at the west coast off Tarkine. (Photo: Flickr)

Environmental Issues In Iron Mining By Anna Grant and John Edward

rnst & Young’s 2012-2013 report, “Business risks facing mining and metals,” echoes the sentiments of mining companies across the globe as it says, “there is a proliferation of regulations and standards governing the environmental and social impacts of mining and metals activities. Cliffs Natural Resources for more than 150 years has been in the iron ore business, such as at this processing plant on the Minnesota Iron Range. But the Cleveland Fortune 500 company has plans to develop a huge, rare deposit of chromite in northern Ontario, a project now suspended while Cliffs waits to restart negotiations with provincial and First Nation leaders over an environmental assessment. (Plain Dealer file photo)

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These range from national level legislation and international project finance standards (such as the Equator Principles) to international restrictions on trade in conflict minerals (notably those set by the

OECD), and non-statutory expectations of human-rights impacts (such as the Voluntary Principles on Security and Human Rights). These instruments generally seek to improve the transparency and effecwww.skillings.net

tiveness of the sector, often giving welcome guidance, but can be complex and time-consuming to absorb into operations. As mining and metals companies expand their global footprint, they are exposed to both greater regulation and greater diversity in regulation. The latest Doing Business findings show a high level of coordination and commitment from some developing and emerging market economies to regulatory reform. Economies making the greatest strides in creating a more businessfriendly regulatory environment have been revamping their regulatory and administrative systems in multiple areas to encourage private sector activity. However, in addition to regulation on a national level, companies are battling regulation and reporting requirements regarding climate change and independent verification of conflict-free minerals, among others. Penalties for noncompliance are also increasing, and can result in large pecuniary losses, loss of license to operate, and even criminal sanctions against executives and directors. Cliffs faces the brunt of environmental regulation policy in Ontario Mining and metals companies are experiencing significant fatigue around managing the myriad compliance and regulatory reporting activities, the cost of which is massive and burdensome. This seems to be case with Cleveland-based Cliffs Natural Resources which seized control of a rich chromite deposit in remote northern Ontario three years ago. At that time the company said the deposits marked a strategic new line of business for the iron-ore- and coal-mining giant. From the outset, though, Cliffs said developing the huge find of chromite—by one estimate worth $30 billion in the ground—depended on building a 300-mile road to the ore, approval of its environmental analysis of the mine’s impact, and negotiations with provincial officials www.skillings.net

and impoverished First Nation tribes whose traditional lands sit squarely in the desolate region known as the “Ring of Fire.” But in July this year, Cliffs announced that these issues remain unresolved, and said it is putting the brakes on the chromite project. CLF’s halting of their Chromite project came as a result of numerous environmental and economic issues with the government of Ontario. The concerns came with the delayed approval of the Terms of Reference for the provincial Environment Assessment process, unresolved landsurface-rights issues, and unfinished agreements with the government of Ontario that would put economic viability in jeopardy. As soon as these issues are resolved, CLF said, they would continue with the project. The only problem is that Canada has some of the strictest mining laws in the world, and these issues might prove hard to overcome in the “Ring of Fire” region of Ontario. CLF already has mines in Canada; but these, coupled with American mines, are proving to be the ones with the most long-term environment and mine-closure obligations. The two mines operated in Eastern Canada had obligations of $73.4M, below the $83.1M for the five US mines. “We would like to get back to these discussions so we can move forward, but it is not economically feasible to do these things with a lot of uncertainty,” Cliffs spokeswoman Pat Persico said recently. China tightens its environmental reins on mining companies At another end of the spectrum, the Zhangjiakou city government in North China’s Hebei province has ordered local iron-ore producers to halt all mining operations until further notice, in its attempt to reduce air pollution in the city. Just how many mines are affected by the suspension is unknown, local sources said, nor is it clear for how long the suspension will last.

Tasmanian Mine Battle Headed to Federal Court By John Edward

he fight to stop the development of a mine in Tasmania’s Tarkine region began in the country’s Federal Court with the environmental group “Save the Tarkine” challenging the relevant approvals process. The group is currently seeking a review on former Federal Environment Minister Tony Burke’s decision of approving Shree Minerals iron-ore mine. Campaign co-ordinator Scott Jordan claimed that Burke had approved the mine without taking into account the impact it could have on the endangered Tasmanian devil. “We will argue that Minister Burke has not acted in accordance with the provisions of the Environmental Protection and Biodiversity Conservation Act, and as such, the approvals granted are invalid,” Jordan said. Tasmanian Primary Industries Minister Bryan Green had previously expressed his conviction that the mine would go ahead as planned. “The mine has received all state and commonwealth approvals, and the Tasmanian government is fully supportive of the project,” Green said. Meanwhile, Shree Minerals has been forced to temporarily halt construction at the proposed ironore mine site until the review has been heard. In May 2013, a promining rally attracted more than 2,000 people in Tullah. Premier Lara Giddings said that this rally was “the biggest pro-mining rally ever in Tasmania.” She added that mining was essential for Tasmania’s economy, and reaffirmed her support for new mines by highlighting that the number of mining jobs had increased by 2,000 in the last two years.

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COVER STORY/COPPER/ MINING INDUSTRY FINANCE The Zhangjiakou region is China’s third-largest iron-ore production base, after the Tangshan and Chengde areas in Hebei province, and hosts 16 million tons per year of iron-ore-concentrate capacity. Also, starting this year, Beijing has ordered all local authorities to deal with overcapacity in steel production and unregulated iron-ore mining activity stating the need for enhancing environmental protection. SAIL To Boost Iron Ore Production With SAIL aiming to produce 24 million tons of hot metal by 2015-16, the raw materials division of the steel major is gearing up to increase iron-ore production from its seven mines located in the Indian states of Jharkhand and Odisha. According to sources, the company will require around 39 million tons of iron ore annually to achieve this target, of which around 30 Mt will be met from the iron-ore mines operating

under RMD. SAIL will undertake an expenditure of over 10,000 crore for its modernization and expansion program to enhance iron-ore production capacity of RMD mines from the present level of 18 Mt. As a part of the expansion program, comprehensive studies on Environmental Impact Assessment and Environmental Management Plan have been conducted in all the iron-ore mines of RMD. Major mines of RMD have received ISO 9001 and ISO 14001 certification. The post-expansion capacity of RMD’s existing mines would be 5.5 Mt at Kiriburu, 6.5 Mt at Meghahatuburu, 10 Mt at Bolani, 10 Mt at Gua, 4.5 Mt at Barsua and 2 Mt at Kalta. The company added that it was planning to develop its Chiria mines in phases. SAIL is installing state-of-the-art ore beneficiation technology to minimize the impact of the project on the environment. Modern ore-processing plants are being installed to achieve zero dis-

charge at the tailing dam. Summary “The experience of mining and metals companies at the hands of regulators over alleged violations of environmental and other conditions can leave lasting impressions on foreign companies seeking to do business in a country,” predicts the report, “Business risks facing mining and metals” by Ernst & Young.

Canadian Considers Rare-Earth JVs In Arabian Peninsula By Mary Claire Whitaker

ancouver-based Medallion Resources has entered talks with two Arab companies for potential partnerships in secondary rare-earth production. The company recently announced memoranda of understanding with Takamul Investment Company, a subsidiary of the nationallyowned Oman Oil Company, and the Arab Mining Company, a pan-Arab mining investment company based in Jordan. The ventures involve a proposed rare-earth mineral-extraction facility with Takamul in the city of Duqm, Oman, on the Arabian Sea. With the Arab Mining Company, it will examine possible projects throughout the Arab nations to produce rare-earth oxides, explore and develop heavy-mineral-sands resources, evaluate phosphate and uranium byproduct potential, as well as explore potential rare-earth mineral properties.

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Medallion and Takamul would share the Duqm extraction venture 60-40 with proportional capital contributions. The facility, for which financial and technical feasibility studies will commence “shortly,” according to Medallion, would extract rare-earth minerals from large quantities of monazite, a byproduct of rare-earth heavy-mineral-sands mined in the Indian Ocean basin. Takamul would provide Omanibased support services and government relations and local banking support. Medallion would provide monazite feedstock sourcing, technical support, and sales and marketing services. Medallion would also agree to Omani exclusivity for projects of this type within the Gulf Cooperation Council nations. Rare-earth prices have been increasing recently, as the Chinese government has begun to crack down on illegal rareearth mining within the country. www.skillings.net

Tension Eased Over $6.6 Billion Oyu Tolgoi Mine By Anna Grant

ensions between Mongolia’s government and Rio Tinto Group over the $6.6 billion Oyu Tolgoi mine have eased sufficiently enough to start shipping copper concentrate, the country’s mining minister wrote in a post on Twitter in July 2013. Oyu Tolgoi has produced more than 40,000 tons of copper concentrate, according to a June 28, 2013 press release issued by Turquoise Hill. The stockpiled concentrate is to be delivered by truck 80 kilometers (50 miles) south to the border post at Gashuunsuukhait, and then on to China. “There is no significant problem

with the Oyu Tolgoi mineral export contract,” says Davaajav Gankhuyag, Minister for Mining. Scheduled shipments to Chinese smelters were postponed twice, first on June 14 at the request of Rio Tinto, then on June 21 at the request of the government. Rio runs the operation through its Turquoise Hill Resources Ltd. (TRQ) unit, which holds a 66 percent stake. Mongolia owns 34 percent. Gankhuyag told reporters at a press conference on June 28, 2013, that the two sides were trying to resolve a request by the government that Mongolian banks handle sales revenue from the mine. Mongolia was also

insisting that its representatives on Oyu Tolgoi’s board of directors see Rio Tinto’s sales contracts with Chinese buyers. “Sales revenue will go through Mongolian and OT LLC registered accounts,” Gankhuyag said in another Twitter post, appearing to suggest that the debate over bank accounts had been resolved. A start to copper concentrate shipments would be welcome news as Oyu Tolgoi, the largest mining project ever in the country, is expected to account for a third of Mongolia’s economy by 2020. Delays in shipments scheduled to start by the end of June are costing Mongolia $2 million in lost tax revenue every day, said Dale Choi, an Ulaanbaatar-based independent analyst. “Every day of delay involves loss in millions in lost investments,” added Choi.

Mining Again At Odds With Ecology, Tourism? By Mary Claire Whitaker

wo large copper-development cases in the United States are undergoing negotiations between mining interests and interests concerned about protecting natural resources on federal land. As part of the deal, Resolution Copper—an Arizona venture between BHP Billiton and Rio Tinto—proposes to exchange extensive acreage of its own property for US Forestry Service development. Arizona congressmen and senators have taken up the proposal, and the latest version was approved in May to go to the House floor. The bill was in line for consideration by the Senate Energy and Natural Resources Committee. Among critics of the land swap is Rep. Raul Grijalva of Arizona, who attempted to amend the proposal adding mandatory environmental assessments and a more precise evaluation of the deposit’s copper, to be undertaken before the exchange. www.skillings.net

The amendment was defeated, however, and Grijalva has not signed support for the current version of the bill. Resolution Copper has let go 200 of its 540 personnel since November, citing as a reason uncertainty surrounding whether the federal land will be obtained. In Minnesota, a proposed Twin Metals copper-nickel project faces similar questions. Local business owners say that the area, near Ely, has benefitted recently from tourists and retirees, and they say that a mine would threaten the resources attracting their customers. Bob McFarlin, a Twin Metals Minnesota vice president, says that existing law adequately protects natural resources. “We believe we can protect the environment with our projects,” McFarlin said. “But we’re not the ones that make that decision. We propose the project, and the regulatory agencies at the federal and state level will determine whether our project can move forward.” August 2013 SKILLINGS MINING REVIEW | 9

MINING INDUSTRY FINANCE/GOLD

Investors Eyeing Mining Stocks By Anna Grant

ccording to The Australian, fund managers, bankers, and lawyers are looking over the mining industry, trying to find stocks that the market has unfairly undervalued. Many investors have been trying to do the same thing, but it might be too early to start buying up. Over the past six months pure-play commodity stocks have been hammered. Gold, coal, and iron-ore companies have been hit the hardest, with the likes of Evolution Mining, Atlas and Coalspur Mines dropping more than 50 percent in value. Even Rio Tinto is not impress-

ing the market, and has dropped over 25 percent in value. The amalgamation of low commodity prices, even lower forecasted prices, increased supply, and rising costs, left Rio with a $3 billion deficit. Despite the difficulty investors face with valuing mining stocks, foreign state-owned companies have the ability to take on entire projects, and it seems now is the best time to do so. Rio has already put numerous projects up for sale in the past year, including assets in Canada, USA and WA, which warns investors that it might not be out of the woods just yet. However, as the Australian Financial

Review says, “good-quality shares that have a long history of paying dividends are a real alternative to a term deposit.”

Hidden Edge Of Junior Mining Companies By Carien Daffue

he minerals-exploration business is frequently mistaken for an asset-based business, but it’s really a knowledge-based business. The problem with investing in natural-resource projects is that there’s a very low chance of success for any individual property. In order to play down the low odds of exploration success, juniors have begun to emphasize “market success” instead—the value of their paper instead of that of their projects. One manifestation of this attitude is the juniors’ habit of recycling exploration targets that have failed in the past but can be counted on. Another is their tendency to acquire hyper-marginal deposits and promote the “in situ” value of the resources; without regard to the capital costs of developing these resources, the operating costs of projects, or the net present value of cash flows that might not activate for decades. The industry has been quite successful, during “bull market” cycles, at causing allegedly sophisticated investors to focus on exciting but meaningless criterion. 10 | SKILLINGS MINING REVIEW August 2013

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Gold Mine Stocks Recommended For Bargain Hunters By Mary Claire Whitaker

he US Federal Reserve chairman announced in early July that quantitative easing was still necessary to stimulate the country’s economy, which ticked gold stocks up in July. However, without a more generalized upswing, stocks in gold mines remained low, and market watchers continued to observe that mine stocks in many cases were greatly undervalued. Rick Rule, the chairman of Sprott US holdings, told the business news network CNBC that “some of the miners are simply too cheap on a valuation basis.” He cited the performance of goldmine investment funds—“streaming companies” like Royal Gold and Silver

Wheaton—as an example. “The price response to the cash flow that one would expect at these gold prices is very attractive, particularly on a historic basis. It doesn’t mean in the near term they can’t get cheaper, but if you look at gold company shares, in particular the streaming companies, on a 20-year basis, they’re priced substantially below what market experiences have been over the last two decades,” Rule said. Richard Suttmeier, Chief Market Strategist for equity research firm ValuEngine, noted in The Street that six major miners were trading 40 to 66 percent below value, with price-toearnings ratios below ten. Those companies were Barrick Gold, Anglo Gold, Gold Fields,

IAMGOLD, Kinross Gold, and Newmont Mining. Gold Corp and Agnico Eagle, he wrote, were also particularly undervalued. Juniors, meanwhile, were being viewed as value opportunities for investors able to identify strong company management and favorable business circumstances, such as friendly jurisdictions. Seeking Alpha contributor and editor of Gold Stock Trades Jeb Handwerger noted that “there has never been such a disconnect between the prices of juniors and the underlying commodity.” Handwerger and Rule both expressed that they believed gold is on a cyclical downturn, meaning that decreases are temporary, and that over the long term, they expect the market to carry gold prices upward.

The True Cost of Gold By Carien Daffue

ver the past month there has been a lot of analyzing and posting about the gold industry’s true costs to mine each ounce of gold. They have analyzed all the major publicly traded primary gold producers, which includes close to six million ounces of mined production for Q1FY13. This represents 25 percent of total estimated world production for the first quarter, which is a very large portion of the total worldwide production of gold. Producing an ounce of gold is an extraordinarily expensive achievement. First it takes costly exploration to search for deposits. Miners have to pay for permits, drilling, and labor. Gold deposits are often located in harsh climates like jungles and deserts, which increases equipment attrition. And even after finding gold, it could take a decade or more before profits roll in, after spending hundreds of millions of dollars on infrastructure, including heavy equipment, mine infrastructure, roads, labor, electricity, and fuel. Miners also have to stay in good standing with the local governments, developing community relations and maintaining environmental standards. For gold ETF investors (GLD, SGOL, CEF, and PHYS) this metric is very important because it allows an inside understanding of the true costs associated with producing each new ounce of gold. This is arguably the most important metric in analyzing any commodity because it shows the price where production of that commodity becomes uneconomic. If it costs more to mine a commodity than the market is willing to pay for it, eventually producers will stop producing the commodity and close up shop. These are the type of environments that savvy commodity investors dream of because it allows them to purchase assets that cost more to produce than to buy, because eventually supply will drop, producing scarcity, and then the price will increase. www.skillings.net

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Iron Ore

Record Output from BHP By Carien Daffue

ecord iron-ore output from BHP Billiton and other mining giants appears to defy logic, with demand for the steel-making raw material cooling from top customer China, and a price-eroding supply glut looming. But the sector’s heavy guns are working to tighten their stranglehold on the world’s second-biggest commodity market, as competitors struggle. In mining parlance, this is known as a “rebalancing” strategy, designed to improve the operating margins of the majors to such an extent that smaller competitors or new projects are all but squeezed out. The giants BHP Billiton, Rio Tinto and Fortescue Metals Group in Australia, and Vale in Brazil, are leading the charge. Seaborne-traded iron-ore prices, which have dropped 10 percent so far in 2013, are forecast to hit their lowest point in four years by the end of the year, as these big miners dig deeper and faster. At the same time, forecasters are warning slowing industrial activity in China will result in weaker overall demand for ore. But Rio Tinto and BHP are among the most efficient iron-ore producers in the world. At current prices of about $130 per metric tonne, each enjoys a margin of about $80 per tonne. BHP recently said expansion of its iron-ore division was running ahead of schedule after posting a robust 9 percent rise in ore output to a record 187 million tonnes in the 12 months to June 30. By December it aims to be operating at 220 million tonnes per year. Under the former CE, Marius Kloppers, BHP stuck to a policy of mining at maximum rates as long as profits held up. New BHP CE Andrew Mackenzie is showing no signs of changing tack. It was Mr. Kloppers who, in 2010, almost single-handedly broke the halfcentury-old annual iron-ore price-fixing mechanism and replaced it with spot indexing to weed out weaker producers. 12 | SKILLINGS MINING REVIEW August 2013

Steel mills across Asia and Europe initially resisted the switch but were eventually forced to accept the new terms. Rio Tinto recently pointed to moves to lift its iron ore production capability 35 percent to 360 million tonnes in 2015, estimated by analysts to carry a $5 billion price tag. The firm has already started port and railway work, and is debating whether to dig new mines or simply expand its existing ones. Vale, the world’s biggest iron ore miner, in July was cleared by Brazil’s Environmental Protection Agency to undertake a $19.5 billion expansion of its Carajas iron ore mine, one of the world’s richest and most productive. Fortescue has awarded contractor Leighton Holdings A$2.8 billion in work to expand its mines in Australia by a further 60 million tonnes per year. Such commitment to rapid expansion shows global miners see the risks to rebalancing as manageable. Spot iron-ore prices this week edged up to two-month highs, backed by Chinese steel mills replenishing inven-

tories, although the pace of restocking may have slowed, suggesting a twoweek rally may soon end. Indicating how shipments are holding up, iron-ore exports to China from Australia’s Port Hedland alone, which handles about a fifth of the global trade, were up 43 percent in June from a year ago.Other major export terminals, from Australia to South America, are recording record tonnages. The Australians count almost solely on China for revenue from iron ore. Vale’s ore feeds steel mills in both China and Europe. The strategy of all-out expansion portends a bleak future for projects in early stages of development, including the $10 billion South Korean steel group Posco-backed Roy Hill mine in Australia and Sundance Resources Ltd’s $4 billion Mbalam project in Cameroon and Democratic Republic of Congo. Smaller projects peppering Australia’s iron-orerich Pilbara and mid-western iron belts and Brazil’s interior are also at risk. Some big miners are also rethinking their strategy. Glencore Xstrata is halting production of iron ore in Australia in August, citing deteriorating market conditions and ending a two-year experiment to gain a toehold in the sector.

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Local, State Mining Laws Fluctuate With Circumstances By Mary Claire Whitaker

n a single mining project, a mining companies faces multiple laws enacted by national, state and local levels of government, which are often designed to achieve very different policy aims. Especially with regional and local laws, mines often find that their presence or interest in a region spurs new laws. Gogebic Taconite, for example, is now in permitting phases in Ashland and Iron counties of Wisconsin, for one of the largest openpit iron mining operations in the world. Gogebic benefitted from the passage of the state of Wisconsin’s Act 1 in March 2013, which made state permitting more accessible for ferrous mining. Ashland County has since passed an ordinance requiring additional permitting payments and readily available contingency funds, to cover county infrastructure costs that arise as a result of the mine. Iron County, meanwhile, is creating mining policy for the first time, because no zoning regulation in the county currently addresses mining. “When an ordinance like ours is silent, it basically prohibits that use,” Iron County zoning administrator Tom Bergman told Wisconsin Public Radio. With no authorization process, any Gogebic mining activity in Iron County will technically be unauthorized. Bergman detailed that the county is drafting a permitting ordiwww.skillings.net

nance that would require the mine to provide information on pit size and location, buildings, storm water management and reclamation, and to agree to an impact assessment by a third party. Gogebic spokesman Bob Seitz expressed that the company is willing to fund county legal expenses for negotiation, if necessary. “Our hope is to be mining in both counties. That’s our plan going in,” Seitz told a local paper. In Western Australia, the state government’s Department of Mines and Petroleum has recently spoken of its intention to change permitting procedures. Mining companies, the state says, have been known to stall during the permit process, which prevents competitors from exploring properties while companies avoid concession fees or having to meet exploration spending minimums. The Department told the Australia newspaper West Business that it would recommend changing the state Mining Act to close the exploited loopholes. Also in Western Australia,

the state government and national government are co-funding with BHP Billiton a 4.5-million-dollar study to research water availability in the Pilbara region, where the mine is expanding production. The University of Western Australia’s law school is also conducting research on water use in the region, to focus on possible regulatory tools to control the impact of increased water consumption by mines. Local laws in other cases

even seek to influence macroeconomic conditions. The state of Karnataka, India, formerly responsible for half of the country’s iron-ore exports, is coming under pressure from miners to lift its two-year-old ban on sending iron ore out of the country, as the national government gradually lifts operating suspensions on mines in that state. A proposed policy in the state of Odisha, India would have mandated that 50 percent of its iron be sold locally, but it has also met with resistance and is not expected to pass.

August 2013 SKILLINGS MINING REVIEW | 13

Iron Ore/ IRON RANGE REGION

Iron Ore Price Surge May Be Unsustainable By Anna Grant

nalysts have reaffirmed their views that the recent surge in iron ore prices is unsustainable, with many expecting the resource to fall significantly in value in the September quarter. Analysts at RBC Capital Markets have suggested that the recent gains have been the result of an increase in Chinese credit availability, while analysts at National Australia Bank have stood by their conviction that the surge has been onset by Chinese companies restocking their inventories. James Glenn from NAB stated that “production in China continues to be robust for the year to date, but this has been largely done using existing stocks of iron ore, which have run down, and so they are replenishing.” Since the beginning of July 2013, the commodity has climbed 7.1 percent but still sits significantly below its value. As a result of the climb, shareholders of iron-ore miners have received some much needed relief; however, it is likely that the market will reverse these gains upon the first sign of a fall in value for the commodity. Along with restocking by Chinese companies, mining companies like Rio Tinto have delayed their expansion plans, which could also be a contributor. Although the second-largest global miner has begun building the port and rail capacity, it has not yet committed to the mine expansion, which would delay the iron-ore ramp-up by three years beyond the current 2016 target. Rio, like the other large miners, is reducing spending and costs to adjust for lower demand and commodity prices in the international market. Besides delaying expansions and slashing costs, mining companies are also reducing the compensation packages of their executives.

14 | SKILLINGS MINING REVIEW August 2013

Iron Range’s Copper-Nickel Mining: Opportunity Or Threat? By Anna Grant

fter more than a century in which iron mining has played a central role in the economy and culture of northeastern Minnesota, a new kind of mining is poised to join the taconite industry. Generally known as copper-nickel mining, the process is hailed for bringing much-needed jobs to a region. But opponents prefer to call it “sulfide mining,” for the kind of ore in which the metals are found—and because unearthing sulfide can cause toxic water pollution.

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It is a matter of mere geologic chance that northeast Minnesota could hold world-class deposits of iron ore, copper, and nickel. Geologists have determined the Iron Range formed in what two billion years ago had been a tropical sea. The Duluth Complex, where most of the copper-nickel deposits lie, took form nearly a billion years after that, when the North America continent tried to split apart near present-day Lake Superior. “Those deposits formed when molten rock deep in the earth called magma encountered rocks containing sulfur,” said University of Minnesota Duluth geologist Jim Miller. “Sulfur is the great collector of metals in nature,” he said. “If it was

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not for sulfur, there would be no economic quantities of copper-nickel to be mined. And so, to extract these metals, we are going to have to deal with the sulfur.” Sulfur, specifically a chemical reaction involving sulfur, is at the heart of the controversy over copper-nickel mining. Opponents of copper-nickel mining have plastered graphic pictures on billboards to warn about the environmental risk of this kind of mining. “The copper and the nickel themselves are directly toxic to aquatic life,” an opponent said. Minnesota regulators have known about the environmental risks associated with copper-nickel mining for decades.

Penokee-Gogebic Iron Range By Carien Daffue

ogebic Taconite, LLC, has submitted a plan that outlines five sites where the company proposes to excavate and sample rock, to assess the quality and quantity of the ore deposit. The company also submitted a preapplication notification, including a preliminary description of the potential mining project. The company needs the additional ore sample in order to design the proposed mining project. Less than 10,000 tons of material will be removed from the five sampling sites, with each site averaging just over half an acre in size. The pre-application notification and preliminary project description are the first formal steps in the mine permitting process established in the new ironmining law in the region. Under the law, the pre-application notification must be provided at least 12 months prior to submittal of a mining permit application for a proposed project. The intention of Gogebic Taconite (or GTAC) is to obtain the necessary permits that will allow it to mine and process Penokee ore into enriched taconite pellets. Because the percentage of iron in the formation is low (30 percent or less), the final product must be beneficiated or enriched before it can be used in the steel-making industry. The enrichment process consists of several steps. After the taconite is extracted from the mine it is finely crushed and then floated over powerful magnets in water to separate the magnetic iron particles (magnitite) from the waste silica or cherty component of the host rock. Since only a fraction of the original iron-formation consists of usable iron, it takes about three tons of ore-containing rock to make one ton of finished pellets. According to one recent estimate, some 560 million tons of tailings and 350 million tons of waste rock would be generated from GTAC’s first open pit mine. August 2013 SKILLINGS MINING REVIEW | 15

NON FERROUS METALS/ MINING INDUSTRY SAFETY

Almalyk Mining Pushes Income Into Facility By Carien Daffue

lmalyk Mining and Metallurgical Complex (AMMC), the largest copper producer in Central Asia, will direct 39.4 percent of its total net income for 2012 to the development of the facility, the company said, referring to a decision of the annual general shareholders meeting. According to the audited balance sheet approved by the meeting of the shareholders, the net profit of the plant increased by 6.5 percent compared to 2011—up to about 137.2 billion soms. According to the decision of the shareholders, of the total net income for 2012, 19.8 percent was directed to

repay the loans borrowed for the implementation of investment projects, 16.8 percent for sponsorship on behalf of the government, 8 percent to geological surveys, 4.2 percent for the company’s reserve fund, and the rest parceled out for other purposes. The authorized capital of the Almalyk Mining and Metallurgical Complex JSC is worth 198.2 billion soms, with 97.5 percent of the company’s share capital owned by the state. The Almalyk plant is the only copper producer in Uzbekistan and one of the largest manufacturers of nonferrous metals in Central Asia. The plant accounts for nearly 90 percent of silver production and 20 percent of gold

production in the country. The plant comprises two mining companies, two processing plants, and two metallurgy plants. The plant has the rights to develop copper-molybdenum and lead-zinc ores in the area of Almalyk in Tashkent region. The Almalyk Plant’s resource base includes copper-porphyry ores at the Kalmakyr and Sary Cheku fields in Tashkent region, the lead-zinc-barite ore deposit Uch-Kulach in Djizzak and the lead-zinc ore deposit Khandyza in Kashkadarya region. The total production of the plant is estimated at more than US$300 million a year.

The Debate Over Non-Ferrous Mining Continues By Anna Grant

he "Clean Commerce Forum" held recently brought up issues related to environmental costs and the economic benefits of mining the Northland's rich deposits of copper-nickel. Several companies have staked claims in the Duluth Complex, and scientists say it is among the largest non-ferrous mineral deposit in the world. "Mining produces considerable wealth as we harvest the gift of nature. The jobs associated with mining are among the highest-paid blue collar jobs that exist," says economic researcher Dr. Thomas Power. While it would inject millions of dollars into the regional economy and create thousands of jobs, economists and environmentalists feel there is a downside. "Mining is notorious for a boom-and-bust economy, but even in between the booms and busts there is what economists have come to call flicker, where there is very substantial fluctuations, as has been seen recently in the copper industry," says Power. "What we think we should be focusing on is how do we attract people to communities, rather than how do we build a place that is going to have jobs, then attract people for the jobs," says Aaron Klemz, Communications Director at Friends of the Boundary Waters Wilderness. The fight over the future of non-ferrous mining continues.

16 | SKILLINGS MINING REVIEW August 2013

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Pilbara Mining Safety Manual Of Concern For Regulators By Anna Grant

n an industry that runs 24 hours a day, seven days a week, and 365 days a year, mining does not stop for anyone. While the average miner earns above-average wages, many miners work longerthan-average hours, live away from family, and operate in highly dangerous or remote areas. In this scenario, safety of workers is a prime concern for both miners and regulators. Recently, Western Australia’s main resources safety regulator issued a warning to Pilbara mining operators and workers following a spike in manualhandling injuries. Department of Mines and Petroleum Resources Safety Executive Director, Simon Ridge, said that there were 171 serious injuries at Pilbara mines in 2012, with 107 of those due to manual handling or overexertion when moving objects onsite. “Nine of those 107 injuries were effectively responsible for half of the hours lost, which is staggering,” he said in a statement. Many of the injuries were soft-tissue damage in the lower limbs due to uneven ground on the site. “The fact that the majority of these incidents occurred during manual-handling activities says that people out there may be underestimating the true severity of softtissue injuries that can occur through this type of work,” Ridge said. The DMP said the level www.skillings.net

of serious injuries in 2012 matched the levels of 2009 in Pilbara, but they were much more severe, meaning workers had to take triple the time off work to recuperate. “As the Pilbara workforce has significantly grown since 2009, with 52 percent more hours worked last year compared to three years ago, you would expect to see increases in the actual incident numbers—something that did happen in this case,” Ridge said. “The sting in the tail with this is that there were 78 more incidents in 2012 than in 2009, which resulted in serious injuries.” Ridge is encouraging companies to continue providing comprehensive manual handling and safety training to workers. He is also urging workers to use proper lifting techniques and equipment, and ask for help when needed. The WA mining industry experienced its first fatalityfree year in 2012, after more than a century. But Ridge said the sector was lucky,

considering the number of serious incidents that occurred. “Some people have been

injured badly, and looking at the figures overall and the nature of some of the incidents, we are lucky there were no deaths last year,” Ridge said. The DMP led a crackdown on injuries and near misses in the Midwest mining sector last month after two incidents at Karara mine in the last couple of months. Rio Tinto’s Brockman 2 Mine near Tom Price was the last site with a mining death in WA in August 2011. This was preceded by three consecutive Pilbara deaths within eight months.

August 2013 SKILLINGS MINING REVIEW | 17

MINING INDUSTRY SAFETY/ MINING INDUSTRY SHIPPING

Harmony Sponsors Safety Research By Carien Daffue

ARMONY Gold is sponsoring research in rock engineering in an effort to make deep-level mines safe for the thousands of people working underground. Rock engineering is critical to safety in South Africa’s mines, which are the deepest in the world. “For a long time falls-of-ground contributed to the largest number of people killed,” Chamber of Mines head of safety Sietse van der Woude said recently. “That has changed for the first time this year—this year fall-of-ground fatalities are less than transport and machinery fatalities.”

Among the 12 South African companies in a Chamber of Mines safety group, the number of people killed by falls-of-ground and seismic events halved to 16 last year, from 32 in 2011. The industry as a whole is expected to show a near 10 percent decline in fatalities for 2012. In the first six months of 2013, fatalities are down 31 percent versus the same period in 2012. Harmony is sponsoring a chair at the University of Pretoria for three years at a cost of R4.7 million to fund research into rock engineering and numerical modeling, Harmony’s executive in charge of health and safety, Alwyn Pretorius, said

yesterday. Numerical modeling is used in simulation tools to study stresses in underground rock. “The model is only as good as the numerical model that is the foundation of the simulation software,” Mr Pretorius said. Harmony has reduced the percentage of deaths from falls-of-ground and seismic events at its mines to 10 percent of its annual fatalities, down from 40 percent three years ago. “The specific, practical problem we have is that the simulation tool assumes it is working with an elastic model, but in practice rock is not elastic. There’s a correlation between mining volume and seismicity, but we can’t model it yet to determine the seismic risk … or the frequency of seismicity.”

Keeping Iron Mines Productive By Carien Daffue

ustralian Mining reported that Northern Territory miner Sherwin Iron is on track to move forward with its Roper River iron-ore mine, which will create an extra 400 jobs in the state’s north. The Roper River project comprises three Exploration Licenses and one Exploration License Application, which are contiguous and occupy a total area of 3,444 square kilometers. In May 2013, the company signed an agreement with one of the top-three Chinese iron-ore traders to sell a bulk sample of 200,000 tons of direct-shipping ore from the Roper River tenement. The sample will likely ship within the next four months. Site preparations are underway, with control-panel drilling begun and pre-stripping soon to follow. The agreement allows Sherwin to test all aspects of

18 | SKILLINGS MINING REVIEW August 2013

the proposed mining, crushing and transportation of ore from its project Area C before the start of full production in November 2013. The high-grade JORC resource for the Sherwin Creek C Deposit is 18.4 million tons at 58.3 percent iron, which is mostly of the Indicated category. The first truckload is expected to leave the mine site for Darwin Port later this week, with the initial overseas shipment by Panamax freighter due to take place by mid-August. The deal demonstrates Sherwin’s commitment to a long-term mining operation, while also testing the company’s product in Chinese mills and establishing working relationships with Chinese producers. The opportunity may be just the beginning for Sherwin, as the company holds additional exploration licenses that are prospective for direct-shipping ore,

especially at Mt. Scott and

Yumanji.

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Shipping Rates Down By Carien Daffue

aily charter costs for Capesize vessels, each able to haul at least 150,000 metric tonnes, fell 2.3 percent to $14,866, figures from the Londonbased Baltic Exchange showed on Tuesday. Rates had climbed for 18 sessions, the longest run since August 2006, according to data compiled by Bloomberg.The decrease is likely due to speculation on decreased demand for iron ore. Chinese prices for hot-rolled coil, a benchmark steel grade used in cars and construction, dropped 17 percent this year, data from Metal Bulletin show. Steel reinforcement-bar futures retreated 7.3 percent last quarter in Shanghai trading, the fourth drop in five quarters. Record low water levels on the Great Lakes are costing both shipping industry and economy millions of dollars, say insiders. Water levels are down because warmer air and water accelerates evaporation, and the region has been getting less than normal precipitation in recent years. The International Joint Commission, which regulates shared water uses and recommends solutions to problems on shared waterways, is urging Canada and the US to install water-retention structures to boost lake levels.

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Shipping Industry Suffering As Great Lakes Water Levels Drop By Anna Grant

ecord-low water levels in the Great Lakes are costing both shipping industry and economy millions of dollars each year. Jack Frye, VP of Southwestern Sales, which operates two shipping terminals in Windsor, Ont., estimates the low levels cost shipping companies $20,000 per freighter, or $500 million per year in lost revenue. Ed Dewling, captain of the Algoma Enterprise with more than 30 years’ experience, just passed through the Detroit River loaded with petroleum coke. His 222-meter freighter, which has a 24,494-ton capacity cap, was running 907 tons light.“We are running light all the time now,” Dewling said. Dewling did not, however, mention how much in effect the loss of 907 tons cost, but did say that it was “significant.” Water levels are down because warmer air and water temperatures accelerate evaporation, and the region has been getting less than normal precipitation in recent years. Al Vanagas, Senior Vice President (Technical Operations) at Sterling Fuel says the low levels cost everyone, not just shippers. “It drives the cost of buying product up when you are an end user or shipping cargo because you cannot ship as much as you used to. The cost of fuel and number of crew members remain constant, so fixed costs never change,” he added. “You have to look at the costs municipalities will have to pay for roadwork if the cost of moving products around by water gets more expensive,” Cree said. However, water levels have to drop several more meters before shipping costs more than ground transportation. Saad Jasim, former Director of the International Joint Commission in Windsor, sums up the situation: “Civilization starts around the water sources. We need to look at the challenges that we face and not wait until it becomes an issue.” The International Joint Commission, which regulates shared water uses and recommends solutions to problems on shared waterways, is urging both Canada and the US install water-retention structures to boost lake levels.

August 2013 SKILLINGS MINING REVIEW | 19

Profiles in Mining

Janet McLean Vice-President, National Practice Leader Mining for BFL CANADA

SMR: Mining is a comparatively new area for BFL—what is your personal experience and your vision for BFL in the sector? JM: Actually mining as a client base is not new at BFL. We have had a reasonably good number and variety of exploration and operating mining clients for many years, in all of our large offices across Canada. The creation of a formal Mining Industry Focused Practice on a national basis has been running for about 18 months. My background comes from many years working with larger international brokerages, where I led mining practices and clientservice units, which included working on everything from gold, copper and silver, to uranium exploration and operational mining clients worldwide. SMR: You have 12 types of insurance that you offer mines; which one of these is the most critical for industry and why? JM: Not all exploration or mining clients need all the coverage lines we can offer them. However, BFL’s mining-practice personnel’s expertise in this field, and our deep understanding of the miningindustry’s risk profile—how it changes throughout the many mining stages and varieties of operations—coupled with our extensive knowledge of insurance products, our market relationships, and market clout, give us an edge when negotiating and manuscripting if necessary, and enables us to deliver the right insurance contract for exploration/ mining clients’ requirements. SMR: Do you offer any specially tailored insurance option for mining-industry employees related to on-site safety? 20 | SKILLINGS MINING REVIEW August 2013

JM: BFL’s Engineering Department does design safety seminars for mine-site employees in various specialty areas tailored to each client’s requirements. BFL will also team up with various partners worldwide and with insurers via webinars, to incorporate a consistent educational message and a convenience factor to our clients’ staff safety education. SMR: When you say that BFL provides an outsourced risk-management service, ensuring that your risk management and insurance program addresses every aspect of operations from initial exploration through construction and operation of a mining facility; how is this different from insuring through you directly? JM: Exploration and juniorto-mid-size mining companies are all about tightly managing the cash cost to produce their product profitably, resulting in a good return to their investors and shareholders. BFL is a very cost-effective “outsourced risk manager” that continually stays abreast of the ever-changing

world of risk management, as it specifically relates to the dynamic world of mineral exploration and mining—compared to hiring an employee for the job who would not be as immersed as we are on a daily basis in our world of risk solutions. Result would be a duplication of costs in not all, but in many cases. BFL can reduce the client’s costs by assisting with a review of all types of risk, not just the risk that is typically transferred away from their balance sheet through the purchase of insurance. We have the expertise to assist and coordinate access to a vast array of risk consultants, and in doing so, add our knowledge to managing their utilization cost effectively. Some include enterprise-risk consulting, miningcentric engineering consulting, loss-control solutions, mine-build planning (from a safety and losscontrol perspective), captives and other alternative risk solutions, and many others. SMR: What is the number-one risk for Canadian mining projects, and how do your clients successfully minimize it? JM: There are many risks Canadian mining projects face, but currently, in my opinion, it is the lack of available capital to build a mine or further develop their property’s mineral assets that is one of the top risks. Tightening spending, and thereby reducing their monthly cash burn during this time, becomes a challenge in which BFL can assist in many ways. One of which is utilizing our in-house programs designed to specifically address mineral and energy exploration, and operating mining companies. Another is BFL’s unique process of revamping current insurance programs to redistribute risk among www.skillings.net

stakeholders, thereby reducing costs—sometimes significantly. SMR: What are some of the controls BFL recommends for clients doing business in Mexico and South America, to deal with risks specific to those markets? JM: There are many items BFL highly recommends that our clients consider, but a few are: • Safety protocols for their employees and families that are visiting, living, or working in these countries. • Insuring correctly with properly admitted policies to avoid possible fines or penalties from regulatory authorities. • Building and operating your business using North American codes, standards, and loss-control methods, even though the country’s standards might not demand it. Insurers will refuse to insure inferior risks, or at the very least surcharge premiums to take on those risks. Investing in a little

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extra cost at the genesis of the project will save extra premiums for years to come. SMR: Can you tell us some of the major hurdles you had to overcome to grow BFL to its current level? JM: BFL has quietly gone about their business, growing amazingly over the last five to ten years. In doing so, awareness of BFL as a risk-management service provider has not caught up to our growth in a few industry segments. We are taking strong steps to raise awareness of our expertise and services in these areas. SMR: BFL claims an extremely loyal client base, a 98 percent retention rate, which is far above industry average. Can you share your best practices in customer retention? JM: BFL believes that establishing a clear plan of action, including goals and parameters, is necessary to ensure optimization of effort, resources, and results for both

our clients and our teams. We appreciate regular contact with our clients to ensure our focus is appropriately directed. This is what a true partnership is about, clear and ongoing communication. Our culture has attracted many large well-established organizations into our fold; these organizations consider BFL not only their broker, but their business partner as well. BFL has achieved extraordinary growth because of our consistent ability to perform and deliver, thanks to our high-quality personnel and our entrepreneurial culture. We pride ourselves on our capacity to think outside the box and approach situations innovatively, to the benefit of our clients. Our approach to creativity, quality, professionalism, and focus on clients’ objectives, mixed with a strong entrepreneurial spirit, differentiates us from other large brokerage firms.

August 2013 SKILLINGS MINING REVIEW | 21

STATISTICS/STEEL Crude Steel Production, MAY 2013 Monthly Crude Steel Production in the 62 Countries included in the report, in thousands of metric tons. Source – World Steel Association

% change May – 13/12

By John Edward

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 metric tons (t) on a daily basis, which was 10 percent 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 t on a daily basis, which were 43 percent less than those of December 2012, and 19 percent 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, 2012. US exports of iron ore were 1.02 Mt, and US imports were 81,000 t. 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 $3 billion.

May 2013

April 2013

Canada

1,140 e

1,160 e

1,211

-5.9

Cuba

25 e

20 e

-11.0

El Salvador

10 e

23.5

Guatemala

30 e

25 e

13.1

Mexico

1,460 e

1,545 e

1,524

-4.2

Trinidad and Tobago

-31.2

United States

7,522

7,258

7,913

-4.9

Total - North America

10,229

10,068

10,772

-5.0

Argentina

449

429

458

-2.1

Brazil

3,013

2,965

2,856

5.5

Chile

105 e

95 e

150

-30.2

Colombia

90 e

126

-28.6

Ecuador

40 e

3.5

Paraguay

-71.4

Peru

95 e

85 e

67.7

Uruguay

-15.1

Venezuela

225 e

235 e

243

-7.3

Total - South America

4,025

3,947

3,941

2.1

Algeria

4.5

Egypt

561 e

532

554

1.3

Iran

1,287

1,264

1,242

3.7

Morocco

-13.3

District

7/13

7/6

6/29

6/22

Qatar

192

188

189

1.6

North East

221

206

202

198

Saudi Arabia

479

457

463

3.3

Great Lakes

697

695

655

682

South Africa Total - Africa /Middle East China

570 e

550 e

617

-7.6

Midwest

214

221

233

263

3,202

3,090

3,183

0.6

Southern

647

668

649

651

67,034

65,650

62,489

7.3

Western

India

6,730 e

6,620 e

6,633

1.5

Country

May 2012

Preliminary USGS Iron Ore Statistics for January 2013

Japan

9,622

9,170

9,224

4.3

South Korea

5,530

5,497

5,951

-7.1

Taiwan, China

2,060 e

1,600 e

1,804

14.2

Total - Asia

90,976

88,537

86,102

5.7

Australia

406

399

396

2.6

New Zealand

-3.2

Total - Oceania

485

467

477

1.6

Total - European Union (27)

14,711

14,066

15,441

-4.7

Total - Other Europe

3,227

3,032

3,282

-1.7

Total - C.I.S. (6)

9,448

8,909

9,615

-1.7

Total (62 countries)

136,302

132,116

132,812

2.6

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

22 | SKILLINGS MINING REVIEW August 2013

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

U.S. Raw Steel Production

In Thousands of Net Tons - Source - American Iron & Steel Institute

Weekly Production

Year-to-Date Production

Production

Percent Change*

Capability Utilization Rate

July 13, 2013

1,881

0.3

78.5

51,589

Previous Year

1,823

3.2

73.3

July 6, 2013

1,876

3.0

78.3

Previous Year

1,823

2.9

June 29, 2013

1,822

Previous Year

1,862

June 22, 2013

1,881

1.0

Previous Year

1,862

0.6

Week Ending

Production

Percent Change

- 5.4

76.9

54,549

78.0

49,708

- 5.7

76.8

73.3

52,725

78.0

- 3.1

76.1

47,832

- 6.0

76.8

- 2.1

74.8

50,902

78.8

78.5

46,010

- 6.2

76.8

74.8

49,040

78.8

* 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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May 2013 Crude Steel Production By John Edward

orld crude-steel production for the 63 countries reporting to the World Steel Association (worldsteel) was 136 million ton (Mt) in May 2013, an increase of 2.6 percent, compared to May 2012. The crude-steel capacity utilization ratio for the 63 countries in May 2013, remained nearly unchanged at 79.6 percent, compared to 80.0 percent in April 2013. Compared to May 2012, it is 0.9 percentage points lower.The US produced 7.5 Mt of crude steel in May 2013, down by 4.9 percent from May 2012. In May 2013, Brazil produced 3.0 Mt of crude steel, up 5.5 percent, compared to May 2012. In May 2013, Russia produced 6.1 Mt of crude steel, a slight increase of 0.2 percent, compared to May 2012. In the EU, Germany produced 3.7 Mt of crude steel in May 2013, a decrease of 1.5 percent, compared to May 2012. Italy’s crude steel production was 2.3 Mt, down by 11.1 percent from May 2012. France’s crude steel production was 1.4 Mt, 3.5 percent less than May 2012. Spain produced 1.4 Mt of crude steel, an increase of 4.3 percent, compared to May 2012.China’s crude-steel production for May 2013, was 67.0 Mt, up by 7.3 percent from May 2012. Elsewhere in Asia, Japan produced 9.6 Mt of crude steel in May 2013, an increase of 4.3 percent, compared to the same month last year. South Korea’s crude-steel production was 5.5 Mt in May 2013, down by 7.1 percent from May 2012.

Statistics based on World Steel Association Report released on June 20, 2013.

Exporter Hesitation Following Dumping Allegations By Mary Claire Whitaker

S Steel Corp. and other steel tube companies filed a claim with the US International Trade Commission in July, requesting relief from alleged trade-dumping by nine countries. According to US Steel, products being dumped are casing, tubing, and coupling stock for oil and gas. Imports of these goods, it has said, now make up over 50 percent of the US market. The company won a similar filing in 2009 on Chinese-made products of this class, leading to punitive taxes on the goods. Indonesia recently also made anti-dumping claims over Japanese coldrolled coils and sheets. In light of rising tensions, Japan has taken steps to avoid escalation of the dispute. For example, the country’s second-largest steelmaker, JFE Holdings Inc., has stopped exporting flat-rolled magnetic steel sheets and strips to China. Kaye Ayub, analyst at British steel consultancy MEPS, told Reuters that "mills are likely to cut output, or carry out maintenance stoppages, in the second half of 2013,” to tackle the combined problem of international disputes and domestic oversupply or weak demand. In China, the 21st Century Business Herald reported that China may continue railroad construction to absorb overcapacity in steel.

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US Steel Asks Government To Help End Lake Erie Lockout By Anna Grant

he steel company, which locked the gates of the Nanticoke plant in April, 2013, to enforce demands for a new contract, is asking for a government-supervised vote on its final offer to employees. Details of that offer were given to union leaders, with the demand that the deal be sent to a ratification vote without comment from the union. The union rejected that demand, and the company now claims the rejection amounts to a refusal to hold a vote. “We have no problem putting this to a vote, but the company wanted us to hand this over without any comments,” said Bill Ferguson, president of Local 8782 of the United Steelworkers. “We want our members to have all the facts; it is the company that wants to muzzle us.” Ferguson added the union bargaining committee would not endorse the final offer in its current form. In a news release, US Steel said the new offer includes a $2,000 ratification bonus, the roll-in of $1.01 of accumulated costof-living-allowance (COLA) payments into base-wage rates, increased RRSP contributions by the company, and the removal of an earlier proposal on restructuring job classifications. The company is unbending, however, on demands for changes to the cost-ofliving formula and vacation entitlements. In a letter to employees signed by human resources director Jodi Koch, the company said it will never accept continuing the current COLA clause that “generates outsized payments that bear no relationship to real inflation.” It needs reduced vacation entitlements for future employees in order to be “competitive with other collective agreements …” The only way to ensure the Nanticoke plant’s 1,000 workers have a chance to end the lockout on the company’s terms is to have a governmentsupervised vote, says the press release.

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MINING MATTERS/ PRESS RELEASE

Mining Matters RIO TINTO Rio Tinto energy head lashes coal decision A court decision to block the expansion of Rio Tinto Warkworth coal mine puts more than 150 New South Wales projects and tens of billions of dollars at risk, according to the miner’s energy chief executive, The Australian reports.

Vale Vale announces that it has obtained the installation Environmental License to the ironore project Carajás, the highest-grade and lowest-cost world-class project in the industry. With the issuance of the LI, Vale’s Board of Directors approved the S11D program, including investments in the mine, plant, etc.

BHP Billiton BHP Billiton is hoping that real-time visibility across its Pilbara operations will help it grow

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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.

iron ore production to 220 million tons per year. It is expected the IROC will be used to remotely control a trial deployment of driverless trucks at the company’s Jimblebar iron-ore mine in Western Australia.

Mining Supply Chain Little lumps of rock phosphate scattered across the Chatham Rise offer a potential bonanza for investors, as collection and processing is studied. This is a project with the potential to supply all of New Zealand’s phosphate fertilizer needs, and to export much more to Australia and other Asia-Pacific nations.

Mining Investment Ecuador, recipient of the lowest foreign direct investment per capita of any Latin American country, is attempting to attract mining investment by limiting previously open-ended mining royalties. They will now be capped at

8 percent, and windfall taxes will not be due until companies recover investments.

Mining Stocks Bargain hunters purchasing mining stocks in July appeared to help drive the Toronto Stock Exchange for at least a few days. News that China’s GDP remained on target with predictions for Q2 also appeared to help, but analysts continued to attribute fluctuations in gold to U.S. Federal Reserve statements.

Mining Policy and Law The Maine bill L.D. 1302, designed to add environmental and financial safeguards to open-pit mineral-mining laws that took effect last year, appears to be headed towards defeat. In June 2013, the Senate rejected the amended version of the bill that passed 91-49 in the House.

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Metso To Deliver Crushing And Screening Plant In France

U.S.-Flag Cargo Movement on Lakes Up 2.3 Percent in June

CLEVELAND—U.S.-flag Great Lakes freighters (lakers) carried 10.1 million tons of dry-bulk cargo in June, a virtual repeat of the preceding month, and an increase of 2.3 percent compared to the corresponding period last year. The June float was, however, down 2.9 percent from the month’s long-term average. U.S.-flag lakers moved 4.6 million tons of iron ore in June, 76.1 percent of all ore moving on the Lakes/Seaway that month. The 4.6 million tons represent a 2-percent decrease compared to a year ago, and a drop of 2.6 percent compared to the month’s long-term average. Coal shipments in U.S. hulls totaled 2 million tons, an increase of 18 percent compared to a year ago, but a decrease of 12 percent compared to the month’s long-term average. The 3 million tons of limestone hauled by U.S.-flag lakers in June represent 82.1 percent of the trade month and a repeat of a year ago. Through June, the U.S.-flag float stands at 32.7 million tons, a decrease of 4.6 percent compared to a year ago. Iron ore cargos are down by 6 percent. Coal loadings trail last year by 4.5 percent. Shipments of limestone are 1.6 percent off last year’s pace.

reen field quarry plant will provide efficient, safe and environmentally friendly solutions for road construction. Metso will supply a complete green field quarry plant to the Colas Group in France. The large scale delivery includes primary, secondary and tertiary stations with service maintenance contracts for inspection and extended guarantees. The aggregate produced in the quarry is mainly destined for road construction. The value of the order will not be disclosed. Metso’s solution embraces the customer’s high health and safety commitment with low environmental impact compared to less modern quarry plants. The state-of-the-art crushing and screening system incorporates substantial savings in energy, production, transportation and maintenance costs with safe and environmentally friendly solutions. Responsible partnership throughout the entire process “Tailored solutions for high-end output, reduced costs with energy-efficient machines and automated treatment are the major benefits we are delivering to our customer with this supply. Colas wanted not just a supplier, but a responsible partner for their investment. We’ve set an ambitious target and we’re confident in achieving it” sums up Philippe Portevin, Sales Director, France, Mining and Construction, Metso.

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Mining Analyst Roundtable Phil de Courcey Chief Executive, South Australia Resources and Engineering Skills Alliance

Skillings: The Alliance has released a jobs report for the next seven years. How is the outlook? de Courcey: What is pleasing is that South Australia hosts 34 developing minerals projects, which indicates that there will be a demand for skilled workers of around at least 14,800 personnel. Skillings: In what particular areas? de Courcey: Much of this demand will be from a new wave of employees and advances in mining technology. This will help drive South Australia’s opportunity to evolve and to market

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:

training and skills regimens on a world-class level.

strategic decisions.

Jonathan Barratt

Roger Baxter

Mining Analyst and Editor, Barratt’s Bulletin

Chief Economist, South Africa Chamber of Mines

Skillings: The Chinese company Yanzhou spent 2.1 billion dollars to take over Gloucester Coal last year and form Yancoal. Now that profitability is decreasing with coal demand, they are thinking of taking it private. Why?

Skillings: How badly do you think the gold downturn has hit mines in South Africa, one of the costlier production zones and an area with declining output?

Barratt: You’re basically allowing yourself to have more control without having to go through the rigmaroles of the shareholders. When you are public, it’s a means to be able to get revenue, to get capital in order to expand, but when the industry is in fact contracting, then it makes sense because then you can make those

Baxter: This precipitous fall in price has been the biggest decline since the 1920s. At a 400,000 rand-perkilogram gold price, our estimate is that about 60 percent of the industry is in loss-making territory. That’s a huge fall in the top line of the industry, and that includes the fact that the rand has depreciated. It’s a challenging situation. Sources: www.sacbee.com, www.proactiveinvestors.com, www.equities.com

Mining Industry People Gov. Dennis Daugaard has appointed Mr. Ron Wheeler of Deadwood as a new member to the Board of Directors of the South Dakota Science and Technology Authority, which operates the Sanford Underground Research Facility at the old Homestake Mine in Lead. Mr. Wheeler’s appointment is effective immediately. He fills a vacancy caused last autumn by the death of President Robert Wharton.

Mr. Muqit Teja was appointed as the Director of South American Silver Corp. on July 9, 2013. He brings a background focused on international finance and advisory services to the exploration and mining industry, with a primary focus on precious metals. He was a founder of London-based Zamadini Advisors Ltd. where his geographic focus has traditionally been in East Africa. His appointment is subject to review by the Toronto Stock

Advertising Index Azcon.................................................. 08 Barr Engineering.................................. 15 CR Meyer............................................. 12 Global Minerals Engineering................. 14 Golder Associates................................. 17 Hallett Dock Company.......................... 24 Hydro-Klean......................................... 19 Idea International Drilling..................... 10 Krech Ojard & Associates, P.A................ 09 26 | SKILLINGS MINING REVIEW August 2013

Exchange. SouthGobi Resources Ltd. appointed Mr. Enkh-Amgalan Sengee as the new President and Executive Director of SouthGobi Sands LLC, the Company’s wholly-owned subsidiary, effective July 15, 2013. The Mongolian-registered company SouthGobi Sands holds the mining and exploration licenses in Mongolia and operates the flagship Ovoot Tolgoi coal mine.

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.

Lake Superior Chapter ISEE................... 11 L & S Electric Inc................................... 13 Lakehead Constructors, Inc................... 02 Malton Electric Company ..................... 08 Metso.................................................. 04 Mielke Electric Works............................ 25 Minnesota Power................................. 10 Naylor Pipe.......................................... 28 NBC..................................................... 08

Neo Solutions...................................... 05 Noramco Engineering Corp................... 11 Northern Engine & Supply.................... 11 Viant (RJS)........................................... 16 Richwood............................................. 27 RMS..................................................... 18 S.E.H.................................................... 14 TDS 6................................................... 25 WP & RS Mars/CBS.............................. 21 www.skillings.net

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