Vale confident, able to obtain the greatest benefit with the smallest budget of the three producers with the greatest cost. It indicate that vale can became the most profitable of world mining franchise company (though not the largest).

During 2010, Brazilian supergroup Vale generated nearly USD 33.7bn in revenue from its ferrous division, overwhelmingly from seaborne iron ore, where it ranks as the world leader. For Vale, this business produced EBITDA (earnings before interest, tax, depreciation and amortisation) of USD 24bn, indicating the astonishing margins available from what ranks as the world's most profitable (though not biggest) franchise.

Vale's revenues for 2010 as a whole were USD 45.3bn; leaving aside the ferrous division, the extra revenue generated just USD 2.1bn in EBITDA. Most of these profits were sourced from Vale's mining of nickel and copper.


USD m 2010 2009
Ferrous minerals 23,976 8,395
Coal 21 -1
Base metals 2,294 1,159
Fertilizer nutrients 176 255
Logistics 345 295
Others -696 -938
Total 26,116 9,165
Iron ore also comprises the single most profitable divisions for transnational miner Rio Tinto, and BHP Billiton, the world's biggest diversified resources stock. The three stocks, which have an aggregate market capitalisation (value) of USD 576bn, dominate seaborne iron ore. Demand for the product is led by China, which now consumes just over 60% of all new steel milled in the world.

Global seaborne iron ore prices are essentially set at effectively the marginal cost of the highest cost producer of seaborne iron ore. For the big, low cost, established miners of iron ore, this means boom times, a "purple patch" that is now extending into years.

A report by the UNCTAD Trust Fund on Iron Ore Information, in cooperation with the Sweden-based Raw Materials Group, put world production of iron ore at 1.588bn tonnes in 2009. (Vale sold just under 300m tonnes of iron ore and iron pellets in 2010).

Chinese production figures for 2009 -- re-evaluated and reduced in the latest study -- came to 234mt (million tonnes), on a "comparable grade" basis, by "upgrading" Chinese grades to the same magnitude as the world average of 63-64%.

China has in recent years fallen to fourth globally in production, after Australia (394mt), Brazil (300mt), and India (257mt). Global recession or not, iron ore trade climbed to a record level of 955mt in 2009, up 7.4% from the previous year.

Australia (which houses the main iron ore activities of Rio Tinto and BHP Billiton) ranks as biggest exporter: in 2009 it sent 363mt overseas (a 17% increase); Brazil fell by 3% to 266mt, and India was at 116mt. India's Sesa Goa (part of the Vedanta group) has big growth ambitions; state-controlled NMDC, also an exporter, seems to be crying out for full privatisation.

Crucially for miners of seaborne iron ore, China surrendered self-sufficiency (from Chinese iron ore mines) starting around six years ago. China not only uses all of its iron ore, it is also by far the largest importer of the mineral, accounting for two-thirds of world imports. Despite the 2008 "recession", China's intake of ore climbed by 41% in 2009, to 628mt. Vale, Rio Tinto, and BHP Billiton together controlled 35% of total iron ore production and 61% of total seaborne trade in iron ore in 2009.

Fresh iron ore mining capacity streamed in 2009 was nearly 75mt globally, says the UNCTAD report. More than 685mt of new production capacity may come on stream between 2010 and 2012. Competition is broadening; steelmakers such as ArcelorMittal increasingly invest in "captive" iron ore and also coking (metallurgical) coal operations.

Tightness in iron ore remains a potent theme. As Vale put it today; "The quality of Chinese iron ore has been deteriorating continuously, requiring an increasing amount of run-of-the-mine to produce iron ore to be used in blast furnaces and failing to accelerate production as envisaged.

"A clear indication of the tightness in the global supply of iron ore is the fact that in order to meet its growing demand for imports China has been widening its base of suppliers, adding small scale non-traditional suppliers as well as overland suppliers, since the traditional seaborne suppliers - Brazil, Australia and India - have not been able to satisfy its appetite for the raw material".

For the three established kings of seaborne iron ore, this is a theme that could remain in place for years to come. There are a number of smaller established players in the seaborne trade, such as South Africa's Kumba Iron Ore, but the entrance costs for new players are expensive.

Perfect timing would have been about eight years ago. In its 2002 annual report, Australia-listed Allied Mining & Processing said it was considering an "entry contribution for an investment in an operating gold business in Peru". Much time and effort had been put into evaluating the opportunity, and the board was confident that within 12 months it would be successful in securing a project on which it would be able to put its principal assets to use.

The board decided to divest its non-core businesses, including Allied Medical, and the Mt Nicholas iron ore project. In 2003, The Metal Group acquired Allied Mining & Processing. Going beyond substantial tenements at Mt Nicholas, the new owners promptly acquired Iron Ore Australia - along with its Mt Lewin tenements - and went big on iron ore. The acquiring group bought with it a new CEO, Andrew "Twiggy" Forrest, and a change in name to Fortescue Metals, which today boasts a market value of just over USD 22bn.

For the Big Three, expansion is available, and is happening, both on a brownfields and greenfields basis. Rio Tinto and BHP Billiton are expanding from traditional iron ore strongholds in the Pilbara, Australia, and Vale is growing production from its Carajás system in Brazil.

All three groups are busy with projects in West Africa, generally speaking the main general focus of the new global rush into iron ore. Vale has every intention of holding its position at the front of the pack, in anticipating growth in its iron ore output from around 300m tonnes to more than half a billion by 2016.

Vale: projected output, 000 tonnes
2011 2015
Iron ore 311,000 522,000
Nickel 295 381
Copper 332 691
Coal 11,600 42,000
Potash 800 3,400
Phosphate rock 6,400 12,700
While each of Vale, Rio Tinto and BHP Billiton are diversified, iron ore, to reiterate, remains the strongest single cash flow engine. Beyond that, the most profitable mining subsectors can be identified as coking coal (a crucial ingredient in reducing iron ore) and copper, and separately, for BHP Billiton, its high margin petroleum division.

The three groups have over the past four years spent an aggregate of close to USD 100bn on capital expenditure; Vale alone is budgeting for USD 24bn during 2011. These are confident mining companies, with cash to pay for big tickets for some of the biggest rides in the world.

USD m 2010 2009 2008 2007 2006 2005
Operating cash flow 62,591 27,585 55,380 35,942 28,494 21,589
Capital expenditure -27,122 -22,237 -26,696 -19,442 -14,365 -10,938
Free cash flow 35,469 5,348 28,684 16,500 14,129 10,651
* Vale, Rio Tinto and BHP Billiton
BHP Billiton
Calendar year, USD m 2010 2009 2008 2007 2006 2005
Operating cash flow 24,645 11,237 23,383 16,439 13,186 9,485
Capital expenditure -9,884 -8,753 -9,150 -7,791 -6,014 -4,409
Free cash flow 14,761 2,484 14,233 8,648 7,172 5,076
Stock buybacks -387 -246 -204 -7,617 -3,534 -130
Net debt 200 -7,915 -4,168 -12,004 -7,206 -8,724
Dividends -4,842 -4,564 -3,893 -2,694 -2,159 -1,684
* The group's fiscal year end is 30 June
Vale 2010 2009 2008 2007 2006 2005
Operating cash flow 19,669 7,136 17,114 11,012 7,232 5,161
Capital expenditure -12,647 -8,096 -8,972 -6,651 -4,431 -3,977
Free cash flow 7,022 -960 8,142 4,361 2,801 1,184
Net debt -15,966 -11,840 -5,606 -17,978 -18,108 -3,906
Equity raised 12,190
Rio Tinto 2010 2009 2008 2007 2006 2005
Operating cash flow 18,277 9,212 14,883 8,491 8,076 6,943
Capital expenditure -4,591 -5,388 -8,574 -5,000 -3,920 -2,552
Free cash flow 13,686 3,824 6,309 3,491 4,156 4,391
Net debt -4,393 -18,769 -38,577 -45,224 -2,775 -1,606
Dividends -1,754 -876 -1,933 -1,507 -2,573 -1,141
Equity changes 92 14,877 23 -1,616 -2,339 -777

For more information please access the source of this news

0 komentar