September 22, 2023

2 Mining Giants Report Lower Earnings

Glencore Xstrata, based in Baar, Switzerland, also took a $7.7 billion write-down on the value of assets it acquired as part of the merger deal that created the company, which was completed in May. Profit in the first half of this year fell to $2.04 billion from $3.36 billion in the same period a year earlier, Glencore Xstrata said in a statement.

Melbourne, Australia-based BHP, the world’s largest miner, said profit for the year that ended on June 30 fell 30 percent to $10.9 billion from a year earlier.

Uncertainty about the speed of the economic recovery and weakening demand for key commodities forced many mining companies to focus on reducing costs and holding back on investments.

Many companies in the sector are now struggling with relatively high fixed costs after making large investments when metals prices were high between 2009 and 2011. They are also seeking to win back investor trust, which suffered when some shareholders criticized relatively large executive pay and meager shareholder payouts.

Despite plans to reduce costs, BHP on Tuesday said it would invest $2.6 billion in its Jansen potash project in Saskatchewan province in Canada, one of the world’s biggest potash-producing regions. BHP said it might be looking for partners for the potash venture.

Glencore Xstrata, whose merger this year combined a mining company, Xstrata, with a commodity trading house, Glencore International, said the write-down was due to “residual good will” from the acquisition of Xstrata that “could not be supported.”

Some analysts said the write-down was probably the result of a decline in value of Xstrata’s nickel operation after a disappointing performance. Glencore Xstrata said it was “reflecting the broader negative mining industry environment” and the greater risk associated with larger expansion projects.

Ivan Glasenberg, chief executive of Glencore Xstrata, said the company would “remain focused on the disciplined allocation of capital as well as robustly scrutinizing all pre-existing capital plans of the enlarged entity.”

Shares in Glencore Xstrata fell 3.2 percent in early trading on Tuesday in London. BHP’s shares fell 1.35 percent in Sydney.

Paul Gait, a mining analyst at Sanford C. Bernstein, noted that even though the write-off was “pretty large,” Glencore Xstrata was right to take it in one stroke.

“It allows the new management to start with a clean slate,” Mr. Gait said. “There’s a huge incentive to take all the medicine up front.”

The first-half results were the first set of figures the company reported after the merger, which followed a yearlong battle that forced Glencore to raise its offer for Xstrata after a shareholder revolt over the price. The combined company agreed to buy Viterra, Canada’s largest grain handling firm, for $6.2 billion to expand its presence in agriculture.

To reduce costs, Glencore Xstrata has been reviewing its portfolio and has started to sell some projects. It agreed to sell Joe White Maltings, a maker of malt, a form of barley used in the brewing of beer and other alcoholic drinks, to Cargill earlier this month and has put its Las Bambas copper mine in Peru up for sale.

BHP, under its new chief executive, Andrew Mackenzie, has continued with its focus on improving efficiency that started about a year ago. The company said on Tuesday that it expected overcapacity in aluminum and nickel to continue in the medium term but that, over the long term, urbanization and demographics should create demand for commodities in Asia and other markets.

Mark Scott contributed reporting.

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Inside Asia: In Australia, Miners Break New Records

SYDNEY — Despite all the doomsayers predicting an end to the Australian mining boom, the country is continuing to pump out metal, coal and natural gas after an investment bonanza, giving a boost to exports and extending the country’s 21-year run of economic growth.

Since the boom began in 2007, mining companies have poured 268 billion Australian dollars, or $282 billion, into new projects. But long construction times mean that actual output has lagged.

That is changing as the major miners in Australia are breaking production records, with double-digit growth expected this year.

The higher export volumes should help plug any hole left in the Australian economy as the huge investments in mining begin to wind down. The sector accounts for 8 percent of Australia’s 1.5 trillion-dollar economy, four times its long-term average.

“The death of the mining boom has been greatly exaggerated, as the pickup in exports illustrates,” said Paul Bloxham, an economist at HSBC in Sydney. “And this is only the beginning of the export story. In the next few years, Australia is set to become a global energy player as LNG comes on stream,” he said, referring to liquefied natural gas.

With the Australian economy growing 3.1 percent in the year that ended in September, the country overtook Spain as the world’s 12th-largest economy. But it will need that boost in mining output and exports to come about quickly if it is to avoid a subsequent dip.

Given the scale of mining investments, even a modest pullback would hurt growth and could put the country at risk of a recession. Australia is the only developed country that largely dodged recession during the global financial crisis.

The need to offset that danger is a major reason investors believe the Reserve Bank of Australia will cut interest rates to a record low this year, after four similar cuts in 2012.

Yet recent production reports from Australia’s’s biggest miners do offer hope that exports are ramping up just in time.

BHP Billiton , Rio Tinto and Fortescue Metals all dug up record amounts of iron ore in the last quarter as well as for the whole of 2012. Chinese demand has proved strong enough for much of this output, even as prices kept rising.

Shipments of iron ore to China from Port Hedland in Australia climbed by a quarter in December from the previous month. Shipments were up more than 21 percent for the year.

Production from Australia’s main iron ore region of Pilbara is now predicted to rise about 17 percent in 2013, and all of that increase is expected to go to the export market.

The mineral that is essential to steel making already accounts for a fifth of the country’s exports, bringing in over 60 billion dollars a year. A decade ago it was worth just 15 billion dollars.

Likewise, coal output is forecast to expand about 10 percent this year, while shipments of oil and liquefied natural gas are starting to increase sharply.

This month, Woodside Petroleum announced a 46 percent jump in fourth-quarter production, in large part attributed to the strong performance of its flagship Pluto LNG project.

Santos, one of the country’s leading energy firms, reported a 13 percent rise in output, lifting revenue in the quarter to a record $876 million.

Australia has high hopes for liquefied natural gas as 190 billion dollars’ worth of projects are under way, with most of the natural gas already sold under long-term contracts. The government’s official forecaster predicts that export volumes of liquefied natural gas will rise 26 percent this year, and will quintuple by 2020, making it as valuable an earner as iron ore is now.

“L.N.G. will be the game changer,” said Brian Redican, a senior economist at Macquarie in Sydney. “It will be a truly extraordinary boon and a great tailwind for the economy.”

Figures like these have given the Australian treasurer, Wayne Swan, the confidence to scoff at reports of the demise of mining.

“We know that the upswing in actual mining production, output and export volumes is still ramping up, and that this will be a driver of Australia’s economic growth in future years,” Mr. Swan told a Harvard Club luncheon in New York this week.

An increase in output is long overdue. While earnings from all of Australia’s exports have risen by an average of 7.4 percent a year since 2006, volumes in the sector grew at less than 3 percent.

By contrast, import volumes have been running at twice that pace, in part because miners have been shopping for everything from remote-controlled trucks to platforms.

That has an impact, as volumes are what count when measuring real, or inflation-adjusted, gross domestic product.

As a result, net export volumes have subtracted from G.D.P. for no less than 20 of the last 27 quarters, even though the value of those exports rose sharply.

That cycle is expected to turn positive in coming years as shipments expand and miners need to import less equipment as projects are finished.

Wayne Cole is a Reuters correspondent.

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The Champions: Denny Rehberg Gets Mining Industry Backing in Montana Senate Bid

Here in Montana, the penalties affect more than mine operators facing fines or shutdowns. The stepped-up oversight is also helping define one of the most competitive Senate races in the country, with Representative Denny Rehberg, a six-term Republican, trying to oust Senator Jon Tester, a first-term Democrat.

Mr. Tester and other Montana politicians often support legislation that would benefit the coal and minerals mining industry, a big employer here, or oppose federal mandates that mine owners find objectionable. But it is Mr. Rehberg who has been the most ardent advocate, presenting a case study in how a lawmaker can help build his national profile — and campaign war chest — by championing an industry with deep pockets and political clout.

He has repeatedly criticized federal mine safety officials over the past year, charging that many inspection complaints are job killers or ridiculing others as trivial. In justifying their crackdown, though, federal officials point to the October death of a worker here in Nye at the Stillwater Mine, which had accumulated a string of citations this year.

He has used his influence to push Washington to approve deals sought by mining companies, including land swaps the government questions as disadvantageous to taxpayers, or opening up copper mining in northwestern Montana, which environmentalists argue should be left pristine.

He has tried to block initiatives by the Obama administration, with his most recent victory earlier this month when Congress at least temporarily prohibited the Department of Labor from enforcing a new rule intended to combat black lung disease, blamed for 10,000 miners’ deaths in the past decade. And he is also trying to block proposed rules intended to help pay for the cleanup of toxic waste at abandoned mine sites or to prevent strip mines from contaminating streams.

The congressman dismisses the regulatory proposals as excessive. “They put impediments in the way of reasonable development,” he said in an interview. “It is just a fundamental philosophical difference.”

The industry has shown its gratitude for his vigilance. “He has been incredibly valuable to us,” said Bud Clinch, executive director of the Montana Coal Council.

Just in the past two years, mining industry executives and companies including big players like Murray Energy, Arch Coal and Cloud Peak Energy have donated nearly $100,000 to Mr. Rehberg’s Senate campaign, making him one of the top recipients of mining money in Congress and their favorite in the contest with Mr. Tester.

But advocates for miner health and safety see his efforts differently.

“He is more a spokesman for the industry than a lawmaker,” said Robert Guilfoyle, a retired Montana miner who is now an official with the United Mine Workers union. “He is out here trying to cut us in the neck.”

Mining has been a part of Montana’s heritage since its founding, with cities like Helena made famous for its Last Chance Gulch, where gold was discovered in 1864, or Butte, nicknamed the Richest Hill on Earth because of its vast copper reserves.

But it is also home to Glacier National Park and other wildlife refuges, and its well-organized community of environmental activists challenge almost every application for a new or expanded mine. That creates chronic tensions between environmentalists and mining executives, who note that Montana has more recoverable coal reserves than any other state but produces far less each year than West Virginia, Kentucky or neighboring Wyoming.

“There is a reason they are called the Treasure State — they are incredibly rich in coal and minerals,” said Katie Sweeney, the National Mining Association’s general counsel, of Montana. “But you can’t really call it the Treasure State today, because you can’t get it out of the ground. It is frustrating.”

Mr. Rehberg (pronounced REE-burg) has never been shy about his view that the state can benefit by putting more of its open land to productive use. He has pushed for more access to federal lands to drill for oil and natural gas and to harvest timber. He has also worked to repeal rules that might limit access; he and others in the Montana delegation successfully pushed the Obama administration to remove gray wolves in the state from an endangered species list. (The walls of his House office in Washington are filled with stuffed game, including a Canadian wolf, and the huge head of an American bison.)

Practicing what he preaches about utilizing land, he and his wife have set off about 800 acres of their expansive ranch near Billings, which had been in his family four generations, for a housing development.

The congressman has a tangential personal tie to the mining industry. His son, A. J., is an executive at a startup business called Mongolia Forward, which is trying to negotiate with the Asian nation to tap its uranium reserves. If the company succeeds in the deal and seeks to import the minerals to the United States, it is likely to partner with one of the major mining businesses that donate to the lawmaker.

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Caterpillar Surpasses Earnings Expectations and Raises Its Outlook for the Year

Caterpillar, the heavy equipment maker, said Friday that its first-quarter profit soared more than fivefold. It also raised its financial outlook for the year as a growing economic recovery increased demand for its mining and construction equipment.

The results topped analysts’ expectations, and shares rose $2.77, or 2.46 percent, to $115.41.

Its first-quarter profit reflected an industrial sector that is growing again, with most of its sales growth coming from the sale of big machines. When the recession hit in 2007, construction and mining companies cut back their spending on heavy machinery first, Mike DeWalt, Caterpillar’s director of investors, told analysts Friday.

For more than two years, companies held back their investment. But now they appear to have no choice but to replace aging machinery, raising Caterpillar’s sales, Mr. DeWalt said.

That means spending is likely to continue as companies replace more vehicles and even expand on growing demand.

The company said its net income climbed to $1.23 billion, or $1.84 a share, from $233 million, or 36 cents a share, in the period a year earlier.

Revenue rose 57 percent, to $12.95 billion from $8.24 billion.

Analysts had expected earnings of $1.30 a share on revenue of $11.43 billion.

Revenue at Caterpillar’s machinery and power systems division surged to $12.28 billion from $7.55 billion.

Based on its higher-than-expected sales, Caterpillar raised its 2011 outlook, forecasting revenue of $52 billion to $54 billion and net income of $6.25 to $6.75 a share.

It previously forecast revenue above $50 billion and net income of roughly $6 a share.

Caterpillar said its outlook would have been higher if not for the earthquake and tsunami in Japan, which damaged many of its suppliers. Supply disruptions and delays are likely to cost it $300 million in lost sales and $100 million in lost profit.

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