Miners' Margins Growing

Good news for mining suppliers during the past week included confirmation that profit margins are increasing for producers of the major metals, and large capital-expenditure announcements from Vale and Norilsk Nickel.

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Average margins for miners of the major commodities will grow to 37% in 2019, increasing by US$13.7 billion from those expected to be achieved in 2018. A research report from the Metals & Mining team at S&P Global Market Intelligence concluded that iron ore producers will continue to have the highest margins, in both percentage and US dollar terms, at 42% and US$54.5 billion, respectively. Copper miners are forecast to see the biggest increase in margins in 2019, with a year-over-year increase of US$7.7 billion that will push margins up to 40%. On the other hand, metallurgical coal operations are expected to see the biggest drop in margins in 2019 as a result of a forecast 14% year-over-year decline in the benchmark premium hard coking coal price.

PJSC Norilsk Nickel Co., the world's leading nickel and palladium producer, is to invest at least US$10.5 billion over the next four years to raise output. The company will earmark up to US$2.3 billion in 2019, and US$2.3 billion to US$2.6 billion in 2020 to 2022 for base investments, US$2.5 billion for its environmental programme and US$1.3 billion to US$1.5 billion for growth focused on its Polar Division on the Taymyr Peninsula.

Vale SA, which is no longer seeking a joint venture partner for its nickel mine in New Caledonia, intends to invest US$500 million into its struggling operation from 2019 to 2022, ahead of an expected surge in the electric vehicle market. The Brazilian miner has lowered its 2019 production forecast for the metal to 244,000 t.

A proposed increase in Zambia's mining royalty charge could result in over 21,000 job losses, according to the country's Chamber of Mines, with operators cutting US$500 million in capital spending over the next three years.

Sheffield Resources Ltd is raising up to A$19 million to advance its Thunderbird mineral sands project in Western Australia. The funds will be used to evaluate and progress potential strategic partner interest for project development, advance detailed engineering and design, continue key early works, and fund the company's corporate administration costs.

Robex Resources Inc. (through subsidiary Nampala SA) is to receive a €7.6 million loan through a gold stream credit agreement with African Peak Trading House Ltd. The funds will be used for exploration and for improving the efficiency of the Nampala gold mine in Mali.

Two companies last week announced the possible reopening of mines. Foresight Energy LP is considering reopening its Deer Run longwall coal mine in Illinois, and Paladin Energy Ltd will conduct optimisation studies at its suspended Langer Heinrich uranium mine in Namibia before deciding whether to restart operations.

Poland state-owned Polska Grupa Górnicza SP is sinking a new coal mine. The Imielin North project will cost an estimated US$400 million, Reuters reported. The new mine, located 20 km from Katowice with a reserve base of 60 Mt, is expected to take about five years to construct.

Red 5 Ltd is claiming something "potentially very big" at its King of the Hills gold mine in Western Australia. The company is considering an underground bulk-mining operation for the 28.7 Mt initial resource grading 2 g/t gold.

Fertilizer producer Danakali Ltd and Eritrean National Mining Corp. have raised US$200 million to fund development of their jointly owned Colluli potash project in Eritrea. Danakali is looking to raise US$322 million to initiate the first phase of the project — to produce 470,000 t/y of low-chloride potassium sulphate in 2022.

In Western Australia, an updated mine plan for the Gruyere gold joint venture, owned by Gold Road Resources Ltd and Gold Fields Ltd, has increased the life-of-mine average annual gold output by 10% to about 300,000 oz.

Mason Graphite Inc. has announced that an updated feasibility study for its Lac Gueret graphite project in Quebec has defined a net present value of C$278 million at an 8% discount rate, giving the project a payback period of 4.4 years. The mine is expected to produce an average of 51,900 t/y of graphite concentrate over an initial mine life of 25 years.

Shanta Gold Ltd has revealed an estimated net present value of US$31 million, discounted at 8%, for its Singida gold project in Tanzania. The mine is expected to produce an average of 26,000 oz/y for an initial six years with life-of-mine cash costs of US$794/oz. Commercial production is anticipated within 15 months of the project becoming fully funded. Preproduction capital expenditure is estimated at US$16 million, and total capex at US$27 million.

Eurasia Mining Plc's previously granted permit for the Monchetundra palladium-platinum project on Russia's Kola Peninsula has been authorised by the office of Prime Minister Dmitry Medvedev. Eurasia said the engineering, procurement, construction and financing contract with Sinosteel Corp. is for US$150 million, or 85% of the total US$176 million contract value. Sinosteel assigned a US$50 million subcontract to Eurasia's 80% subsidiary, Terskaya Gornaya Kompany, for developing two open pits before the start of mining.

West African Resources Ltd is now fully funded through to production at its Sanbrado gold project in Burkina Faso, which it expects to produce first gold in the September quarter of 2020. Proceeds of a recent fundraising will be used for pre-production mining, development and project financing. West African Resources has awarded a US$110 million underground mining contract to Byrnecut Burkina Faso SARL, and a development contract to Lycopodium Ltd.

Potash miner PJSC Uralkali plans to spend US$3.2 billion on projects, Interfax reported, citing company-co-owner Dmitry Mazepin. The proposed investments, which form part of the framework of the so-called 'Belousov initiative', include a plant at the Polovodovsky mine (previously suspended due to a fall in potash prices), the Berezniki greenfields project and the construction of a new Solikamsk-2 mine.

Fiore Gold Ltd has updated its resource estimate for the Pan gold mine in Nevada. Pan hosts measured and indicated resources of 27.6 Mt grading 0.49 g/t gold, and inferred resources of 7.6 Mt grading 0.45 g/t gold. The company has started work on an updated life-of-mine plan and schedule based on the updated resource estimate. 

Source: All material is taken from S&P Global Market Intelligence's Metals & Mining database.

Chris Hinde

Chief Commentator, Mining Beacon

Previously editorial director of Mining Journal, and more recently head of S&P Global Market Intelligence's metals and mining team, Chris is now Mining Beacon's editor-in-chief and lead commentator. He posts two blogs every week, one on Monday reviewing market conditions over the prior week, and a second on Thursday looking at issues on the global mining scene. There is also a quarterly blog on business opportunities in the sector.