Flash News! Update on U.S Coal, Mongolia & [lots of other things]

16 02 2010

I’ve been falling behind schedule but still let me update on recent posts in order to all keep you freshly informed.

Iron Ore. The survival of the benchmark system (i.e. annual price setting process) has been questioned since last year as painful negotiations has led the Chinese to purchase iron ore on spot markets. BHP Billiton has been pushing in favour of an overhaul of the benchmark system to better reflect spot prices and its chief executive Marius Klopper previously stated that the miner would not sign any new volumes to contracts set through annually produced pricing. BHP’s quest is gathering speed as Brazilian giant Vale also concurred saying it, too, was open to spot-market trading especially as spot prices are twice the current benchmark prices. In the interim, BHP has approached Japanese steel mills with the possibility to shift to quarterly pricing.

In the last steel update, I have reported on market research foreseeing a 40% increase in iron ore prices. It seem a 40% rise would only be a provisional arrangement and an annual price agreement, if any, would be closer to a 80% for the 2010-2011 delivery period.

Coal in the U.S. In the entry on the U.S. Budget proposal, I have warned of the backlash that the decision to repeal corporate income tax exemptions for the coal, oil and gas industries would unleash. Shortly after the publication of the Budget, Senator Jay Rockefeller of West Virginia complained about the inconsistency of such message regarding the future of coal and warned that this announcement could lead producers to reduce their output. He based his critique on the absence of wording related to other measures already established in support of coal production and recent US EPA action regarding mountain-top removal.

Mongolia. Last week the country cancelled the Tavan Tolgoi auction and decided to retain 100% of the deposit. As mentioned in a post in October, Tavan Tolgoi is the world’s largest undeveloped coal deposits. Intense pressures from China and Russia to acquire stakes in the deposits have influenced Mongolia’s decision. It has been reported that the company could be considering hiring a contract mining company to develop the deposit. The Tavan Tolgoi project has historically been considered too big for a single company to develop and mine. Still the Financial Times suggested Australian contract miner Leighton may be hired to develop Tavan Tolgoi while retaining full state ownership of the huge coalfield.

OSISKO has recently provided an update reserve and resource estimate for its Malartic project. This new estimate is based on the combined, previously-reported resources of the Canadian Malartic and South Barnat deposits. The resource estimated at 6.28 million onces in proven and probable reserves when I first wrote about Osisko has been increased to 8.97 million ounces which has for effect of increasing the mine life by 25%. The press release is available here.

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