It has been a week for mining and resource company reports as oil led other commodity prices lower for a second day, and major mining groups reported solid quarterly or full year production figures (and half year in the case of Rio Tinto and Woodside).
Oil is now down $US16 a barrel after another fall Thursday night in northern hemisphere markets. Its now around $US129 a barrel. Gold and most metals fell, but copper rose a touch in a surprise.
Slowing growth in China and more poor news about the US economy were the main factors.
In Brazil a big share offering by the giant Vale mining group (also known as CVRD) fell short of expectations as the slump in metal and oil prices this week took their toll.
We will get a major test of sentiment when BHP Billiton revealsl its 4th quarter and full year production figures on next Wednesday, July 24.
BHP fell more than 4%, or $1.74 to $37.55 yesterday. Rio fell $3.44 to $118 at the close. The BHP 3.4 for one offer is now worth $127.60 per each Rio share. The bid remains under water.
Strategists at Merrill Lynch and Morgan Stanley said investors should sell commodities stocks because demand may decline for raw materials such as copper, nickel and corn.
Minara Resources, Australia’s second-largest nickel producer, fell as much as 6% to $2.03 and Oxiana fell 10 cents, or 4% to $2.05.
The uncertainty in metal prices this week and the instability in credit markets had probably trimmed around $US3 billion from what Brazilian mining giant, Vale (CVRD) was expecting from a share sale that was being watched around the world.
When the timing was confirmed a week ago, Value was expecting to get around $US15 billion at the top of the range in the offering. The issue was first announced in June.
But market reports yesterday said around $US11.5 billion had raised from the issue, before a possible supplemental offering, or over-allotment of shares.
Including the so-called green-shoe option of preferred shares, Vale is raising 19.4 billion reais, but the offering only raised 18.4 billion reais.
Value shares have fallen 16% since the offering’s first announcement in June, so the market isn’t confident the company will spend the money wisely.
But as we have seen in Australia, the prices of all leading miners have weakened in the past month as metal prices have come off.
Even BHP Billiton and Rio Tinto have seen their shares prices retreat, despite big ore price settlements, strong coal prices, and the as yet unresolved takeover offer from BHP.
Vale sold 256.9 million common shares for 46.28 reais each and 164.4 million preferred shares, excluding the over-allotment option, for 39.9 reais each, according to a filing yesterday reported by Bloomberg and the FT.
The share offering was the largest ever by a Brazilian company, but the shortfall in the expected amount raised will come as a disappointment to many.
Vale still has cash rolling in from its higher priced iron ore sales (although BHP Billiton and Rio Tinto have done better in the Chinese and other Asian markets.
Vale won price increases of around 71% and will now receive less in Asia because of the discount being applied to its remoteness from the region. Australian producers have successfully argued for a premium in their pricing because of their proximity and cheaper shipping charges.
The share sale had started speculation Vale is preparing to launch another takeover after walking away from a $US90 billion deal with Xstrata.
With metal prices lower (but coal prices higher), Xstrata might be a bit cheaper in coming months.
Newcrest Mining fell 3%, or $1.10, to $32.20 despite gold trading around a three month high of $US963 and the Papua New Guinea joint venture with South Africa’s Harmony Gold being confirmed
Newcrest and Harmony said yesterday that the PNG Government had given its approval for a gold joint venture between Harmony and Newcrest.
The approval paves the way for the two companies to pursue the development of their joint venture interests in the country.
These include the Hidden Valley gold mine, which is expected to commence production mid-2009, and the highly prospective Wafi Golpu copper and gold deposit.
Newcrest will bring its technical skills to the joint venture in exploration, project delivery and large scale mining.
Harmony chief executive Graham Briggs said in a statement the ministerial approval allows for the conclusion of all conditions precedent to the joint venture, including regulatory and statutory approvals.
”Not only does the joint venture augur well for both companies, but it will also provide broader employment opportunities and corporate social investment for Papua New Guinea.”
In April, the two companies announced that they had signed an agreement which will allow Newcrest to earn a 50% interest in Harmony’s Papua New Guinea (PNG) gold assets.
The joint venture includes: The Hidden Valley mining operation, a gold and silver project, expected to produce over 250,000 ounces of gold and 3.6 Moz of silver p.a. over a 14 year mine life, peaking at over 300,000 ounces of gold p.a. in 2011. Production is scheduled to commence around mid 2009; and the highly-prospective Wafi-Golpu gold/copper deposit and its surrounding exploration tenements.
Located approximately 65kms southwest of Lae in Morobe province, Papua New Guinea, Wafi-Golpu is a highly prospective region with two advanced staged exploration projects – the Wafi gold project and the Golpu porphyry copper/gold project.
Wafi-Golpu comprises two separate mineralised systems i
