Grigor Says Talga and MRL are ‘Catalysts for Disruption in the Graphene Sector’

He says MRL is a new player in the graphene space with the ability to use the same single step, low cost graphene recovery technology

First he singled out Talga, now Warwick Grigor says he has found the other key player in the low cost graphene space.

The Sydney-based resources analyst who runs Far East Capital made headlines in Australian newspapers earlier this year when he proclaimed that he was putting his money where his mouth was and investing a large chunk of his own cash into Talga Resources (ASX:TLG) because of its single-step graphene process.

Now he has picked out another Australian company, MRL Corporation (ASX:MRF) and – again – invested his own money. He says there is room for both in an investor’s portfolio as they are operating in different fields. Talga is looking at a European hub (it is building a pilot plant in Germany and plans to supply European companies from its Swedish project) while MRL (whose deposit is in Sri Lanka) is looking to Asia and Australia as its markets.

As I have said before, Grigor is one of the most experienced Australian analysts of mining companies and, also this year, issued a detailed paper on graphene.

He says MRL is a new player in the graphene space with the ability to use the same single step, low cost graphene recovery technology that Talga “has been holding close to its chest”. His client note is advising taking up shares in MRL because of the differences in valuation: Talga’s market capitalization is A$54 million while that of MRL is A$12.2 million.

There are other differences: Talga’s orebody is much larger and wider, offering long life and technically simple mining conditions. MRL’s orebodies are narrow vein and underground with less amenability to drilling out to prove the size of the resource, but this is offset by the lower costs of working in Sri Lanka.

Another difference is the grade, says Grigor. Talga’s is around 25% whereas MRL’s is over 90%. According to his figure, Talga will need about A$30 million to get into production, MRL less than A$10 million.

He says at this junction Talga is knocking on the door of becoming an institutional-grade stock but has to kick a few more goals to get there, the obvious one being the successful commissioning of the pilot plant. “I don’t think there is much risk here, but the box still needs to be ticked,” write Grigor. By contrast, at A$10 million, MRL is still a private client stock at present; it is difficult to deploy sizeable sums of money into a company with such small capitalization.

Grigor’s second point, arguing that Talga needs to beef up its management team with respect to commercial operations, seems to have been satisfied. Last week Talga signed a non-binding term sheet with Haydale Graphite Industries, based in Britain, which would see the two companies collaborate on the development of finished graphene composite and ink products. [As Roger Bade, at London brokers Whitman Howard noted, “although there is no certainty that this collaboration will come to anything, it could give credibility that both companies – although going along separate routes – are amongst the best graphene plays out there”.]

Grigor draws comfort from the fact that his two picks are essentially non-competitive because of their separate regional focus.

“As each of these companies make progress, sentiment will rub off on other players in the sector as the graphene story becomes more credible,” he says. “Both companies will offer the lowest cost, purest forms of graphene available, so they will both be catalysts for disruption in the graphene sector.”

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Rio Tinto Goes Full Ore Ahead

Rio Tinto has revealed it shipped 72.5 million tonnes of iron ore from its Pilbara mines during the three months to March

CYCLONE season and a train derailment have slowed Rio Tinto’s iron ore business but the mining titan’s expansion plans remain firmly in place.

The Anglo-Australian miner has revealed it shipped 72.5 million tonnes of iron ore from its Pilbara mines during the three months to March.

The result, revealed in a production update on Tuesday, was 12 per cent lower than the previous quarter but 9 per cent higher than the same period a year earlier.

Rio produced 74.7 million tonnes of iron ore for the March quarter with the difference going into stockpiles.

Production was down 6 per cent on the previous quarter but up 12 per cent year-on-year.

The result missed market expectations but analysts were unfazed as Rio maintained its full-year production forecast at a record 350 million tonnes and said it would draw down on inventories to maximise cash flow throughout the year.

Rio said its operations had been impacted by tropical ­cyclone Olwyn, which battered the West Australian coast last month, and a train derailment that temporarily blocked ­access to Dampier port.

Smaller competitors such as Fortescue have been deeply critical of Rio and rival BHP Billiton for continuing to bring on new supply as the price of the key steelmaking ingredient tumbles.

Chief executive Sam Walsh said Rio’s push to milk as many low-cost tonnes from its iron ore business as possible was in the best interests of shareholders over the long term.

“By making best use of our high-quality assets, low cost base, and operating and commercial capability our aim is to protect our margins in the face of declining prices and maximise returns for shareholders throughout the cycle,” he said.

The price of iron ore rose 1.3 per cent to $US51.57 a tonne early on Tuesday after hitting a decade low of $US47.08 a tonne in early April.

Rio produced 144,000 tonnes of copper during the March quarter — a 9 per cent drop on the same time a year earlier due to mining lower grades.

Rio shares closed up 1.5 per cent on Tuesday at $55.50

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Metal Prices Aid Glencore’s Chances with Rio Tinto

The biggest, most complex mining deal ever broached could boil down to a simple ratio: the price of copper versus the price of iron ore.

Glencore PLC, the Swiss mining giant with massive copper holdings, last year proposed a roughly $US150 billion merger with Rio Tinto PLC, among the world’s biggest producers of iron ore. Glencore’s announcement that Rio rebuffed the bid on October 7 set off a six-month moratorium under UK law from another approach.

That cooling-off period ends tomorrow, potentially opening the door to more talks. The two miners had never publicly disclosed potential terms, and Rio (RIO) executives haven’t encouraged new talks.

But two factors have swung in Glencore’s favour that could encourage a deal creating the world’s largest mining company and give investors exposure to every major commodity.

Glencore’s shares are up more than 15 per cent since mid-January, when they briefly hit their lowest level since the company went public in 2011 amid a decline in copper prices, while Rio’s have dipped 3 per cent.

A big reason for the divergence: Ironore prices have continued their long decline from highs of $US190 a tonne reached in 2011, recently hitting a 10-year low below $US50 a tonne. Copper prices, meanwhile, have rebounded by about 5 per cent to just north of $US6,000 a tonne in the past month.

Industry experts also don’t expect to see a recovery in the price of iron ore, a primary steelmaking ingredient, anytime soon. Caroline Bain, senior commodities economist at Capital Economics Ltd. in London, last month forecast that iron-ore prices are likely to hit $US45 a tonne by year-end as large surpluses of iron-ore continue to flood into the market and Chinese demand cools.

Such declines have been driven by unrelenting increase in iron ore production from Rio Tinto and its competitors such as BHP Billiton Ltd. and Vale SA. If production isn’t curbed, prices could continue to fall, analysts say.

“Sooner or later either (Rio is) going to have to back away from the volume-growth strategy, or they’re going to have to face the prospect that their earnings are going to fall through the floor,” said Sanford C. Bernstein mining analyst Paul Gait. If Rio’s earnings keep falling and its share price suffers, “they’re going to be vulnerable to Glencore, “ he said.

Rio Tinto chief executive Sam Walsh has repeatedly said he isn’t interested in a deal with Glencore. At a February event in London, Mr Walsh said bluntly the merger “isn’t going to happen,” indicating he thought Glencore couldn’t pay a high-enough price.

Glencore’s shares have lost about one-fourth of their value since last July, when its chief executive, Ivan Glasenberg, placed a call to Rio Tinto Chairman Jan du Plessis to discuss a potential merger. Since Glencore would need to offer shares as part of the deal, the math has become significantly more daunting for Mr Glasenberg.

Glencore also is heavily exposed to the price of coal, which has stumbled for similar reasons to iron ore. Plus, any deal would face strict scrutiny from antitrust authorities in the UK and Australia, where Rio Tinto is based.

One of Glencore’s main hurdles in executing a Rio Tinto deal is its debt-heavy balance sheet. Glencore had $US30.5 billion in net debt at the end of 2014, compared with Rio’s $US12.5 billion in debt. That puts Glencore’s leverage ratio — net debt divided by the sum of debt and total equity — at about 40 per cent, roughly twice the leverage at Rio Tinto.

That could put a cap on how much more debt Glencore can take on to fund a Rio bid. More debt could threaten its credit ratings, putting pressure on its trading arm, which relies on leverage to fuel its operations.

In Glencore’s favour are rebounding copper prices, which could help push its share price higher. Mr Gait of Sanford C. Bernstein expects copper and other factors to help lift Glencore’s share price to nearly double where it currently stands.

Perhaps the biggest wildcard is China. China’s state-owned aluminium company, Chinalco, is Rio Tinto’s biggest shareholder. It has seen the value of its 9.8 per cent stake in the company cut roughly in half since it made the investment in 2008. Rio in 2009 rebuffed a bid by Chinalco to double its stake, which would have given it a seat on Rio’s board.

Those factors have brewed tensions with Chinalco, potentially leaving Beijing open to new leadership at Rio Tinto, said Michael Komesaroff, a long-time analyst of China and natural-resource trends.

A person who picked up the phone at Chinalco’s Beijing office said nobody was available for comment over the weekend, which was also a holiday in China.

Glencore in its 2013 merger with Xstrata proved it could bargain with the Chinese, getting Beijing’s approval for the deal in part by agreeing to sell its Las Bambas Peruvian copper project to a Chinese consortium.

China, the world’s biggest consumer of copper, is unlikely to have lost its appetite for ownership of copper mines, analysts say. One option for Glencore would be to offer to sell one of Rio’s prized copper mining assets, such as its 30 per cent stake in Chile’s Escondida mine.

“If the Chinese want to make it happen, it’s more than likely going to happen,” said Mr Komesaroff said.

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BC Iron to Cut Costs as Iron Ore Prices Tumble

BC Iron to Cut Costs as Iron Ore Prices Tumble

Australia's smaller iron ore miners are struggling to keep their heads above water as the price of the steel-making commodity hits a fresh post-global financial crisis low.

The price of Australia's biggest export fell more than two per cent to $US52.90 overnight following a four per cent fall the previous day.

Junior and mid-tier miners are having to reassess their costs as the world's biggest iron ore miners continue flooding the market despite a softening in Chinese demand.

Morgan Ball, the chief executive of junior Pilbara producer BC Iron, says his company is planning more cost reductions after recently meeting with Chinese steel mills.

"Clearly there is a significant supply influx still to come primarily out of Vale and Roy Hill in the short-term and that's why we're setting our business up for a couple of years, but we think we can operate through that," Mr Ball told AAP.

"We have more costs to take out of the business that will help us through this period."

Mr Ball said there were no plans to make further cuts to staff as he keeps a close eye on how many Chinese domestic mines re-open after winter.

Still, there could be some support for the iron ore price after China's central bank eased restrictions on down-payments for second homes and cut taxes to boost its housing market.

"It all helps," Mr Ball said.

"I think we'll see more of those kind of initiatives."

He added that mills and traders in China, India and Indonesia would prefer to deal with more than two or three companies.

Fortescue Metal's chairman Andrew Forrest last week called for a cap on iron ore production, sparking an investigation by the competition watchdog the Australian Competition and Consumer Commission.

ACCC chairman Rod Sims will focus on cartel conduct in government procurement and in the commodities market, particularly iron ore in the year ahead.

"Mr Forrest has helpfully made that an important issue for us," Mr Sims told a business briefing in Perth.

"As someone who has been watching the mining industry for 40 years, I'm staggered that people don't realise that prices go up, people invest, production comes on, prices go down."

But he said it was hard to prove an attempt to illegally cap production.

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Iron Ore Won't Rebound Any Time Soon

Why Iron Ore Won't Rebound Any Time Soon

Economists may teach that low prices and declining demand encourage producers to decrease supply, but the iron ore industry appears to have skipped class that day.

"The combination of a further increase in global iron ore supply this year and only subdued demand growth suggests iron ore prices will continue to drift lower," said Caroline Bain, an analyst at Capital Economics, in a note Monday. She forecasts iron ore prices at $60 a tonne by year-end, with risks to the downside. Iron ore touched a more than five-year low Monday of around $63.30 a tonne, although some forward contracts are already pricing it under $60.

Output has picked up over the past few years, encouraged by expectations China demand would continue to post strong growth and by low production costs in Australia and Brazil, she said. She noted Rio Tinto and BHP Billiton put their average production cost in Pilbara, where most of Australia's iron-ore production is located, at around $25 a tonne, compared with 2010-13 average market prices at $145 a tonne. Even at current prices, these producers are still profitable, Bain noted. Australia is the world's second-largest iron-ore producer after China.

Despite 2014's around 50 percent decline in iron ore prices, the big four producers -- Vale (Sao Paulo Stock Exchange: VALE'A-BR), Rio Tinto, BHP Billiton and Fortescue (ASX:FMG-AU) - continue to expand production and other companies are also bringing projects on line this year, she said, forecasting Australian production will rise 6 percent this year, although that's down from 2014's 20 percent rise.

Don't count on China

At the same time, despite China producers' higher costs and lower ore grades, production there isn't likely to see much slowdown, especially as many steel plants have "vertically integrated" operations, owning mines nearby, Bain said. Closures on the mainland are likely to focus on less efficient operations, leading to a leaner and meaner industry there, she said.

"The multinational producers will be only partially successful in their bid to oust higher-cost producers globally and oversupply will continue to weigh on prices," she said. At the same time, China's iron ore usage will stagnate at best, hit by a combination of high inventories and lower demand to use the metal as part of financing deals, she said.

Goldman Sachs also expects iron ore producers won't be able to count on China for growth, noting it's become a mature market.

"The decade-long love affair between China and iron ore is cooling. Chinese steel consumption has increased to unsustainable levels and is bound to decline," it said in a note Friday. "Significant overinvestment to date will ensure that the market is well supplied."

It expects a "long war of attrition" will be needed to balance the market, cutting its long-term price forecast by 25 percent to $60 a tonne.

The Oil Effect

Falling oil prices are also set to weigh on iron ore prices, as they result in "substantial cost reductions", and commodity prices are likely to fall to meet these new lower levels, Citigroup said in a note Monday.

It's also concerned about oil-fueled deflationary pressures affecting commodity demand. 

"Falling prices increase the real cost of debt repayments and could see increased defaults. This not only affects direct commodity demand, but also drives lower inventories and threatens commodity financing trade," it said, noting that falling commodity prices also leave companies with little incentive to build up inventories.

In a note earlier this month, the bank cut its 2015 iron ore price forecast to $58 a tonne from $65

Bullion Miners Facing Tough Challenges

A new report from the world's largest gold producer Barrick Gold provides yet another illustration of the problems facing gold mining companies.

In South Africa, extraction of gold from depths of more than 6,000 meters has almost become the rule rather than the exception. Mining costs are being pushed up by the logistical challenges of drilling at great depths, as well as an increasingly militant work force which is demanding higher wages. Add exploration costs to this mix and it’s little wonder that companies’ profits are being squeezed, despite the high gold price. According to Barrick, total production costs for all mining companies exceeded the $8 billion mark last year.

While 1991 saw the discovery of 11 new gold mines, in 2011 only three mines with production potential were found. Aside from the drop in gold ore and rising production costs, a third factor is increasingly hindering gold production: producing countries' tedious licensing processes and sluggish bureaucracy. According to Barrick Gold, this is being exacerbated by increasing environmental regulations that could jeopardize many mining operations.

Many companies are also facing increasing hostility from residents in mining areas. This has been particularly evident in Peru, Bolivia or Ecuador – where there have been violent clashes between local people and police.

This is a  tricky set of factors for many companies. But given the gains in gold many expect in the coming years, great fortunes could still be made in the right gold mining investments.

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S.Africa should brace for a mining revolution: Malema

South African politician Julius Malema, a vociferous opponent of President Jacob Zuma, warns the country's mines should brace for a revolution unless workers' conditions improve.