Miners move from construction to production

Mining juggernauts Rio Tinto and BHP Billiton both announced record iron ore production rates this week, signalling miners are moving into a production and productivity improvement phase.

Rio announced record iron ore production for the first six months of the year, achieving the milestone despite a conveyor belt breakage which caused one of the company’s five ship loaders to be sidelined for almost three weeks, and extensive flooding in the Pilbara.

Production output at the company’s WA Pilbara mines jumped six per cent in the second quarter compared to the same time last year.

“Our iron ore operations continue their impressive performance, with period on period productivity improvements,” Rio CEO Sam Walsh said.

Iron ore production guidance for 2013 remains unchanged at about 265 million tonnes.

Rio also announced its Oyu Tolgoi mine in Mongolia has begun shipping copper concentrate to China.

BHP this week revealed it exceeded market expectations, surpassing its iron ore production target and lifting production guidance for this financial year.

The recent reprieve in the Australian dollar, dropping below parity with the US, has also helped to lift miners’ revenues.

But Walsh warned while the company is making progress with cost reduction measures, there are still tough decisions ahead, The Australian reported.

"We're seeing significant progress against our cost-saving imperative," Walsh said in comments due to be posted in an internal magazine on Rio's website today.

"The journey isn't going to be easy," he said.

"We are having to take some tough decisions and actions. We've still got some way to go but we're heading in the right direction."

With resource exports overtaking construction imports stage three of Australia’s mining boom has arrived.

Mineral exports rose 11 per cent in the March quarter, while imports of construction machinery used for mining investment plunged.

According to the Australian Bureau of Statistics the country experienced a $5.6 billion trade balance lift in the March quarter.

Rising exports and falling imports delivered a $367 million surplus, up from a $5.2 billion deficit in December.

Exports of iron ore and other metals rose by $2.2 billion and imports of miscellaneous capital goods nose-dived 26 per cent or $1.1 billion, after seasonal adjustments.

The ABS estimates that in the six months to March, construction machinery imports, the majority of which is used in mining development, dropped 44 per cent year on year.

Seasonably adjusted metal ores and minerals export figures from the March-quarter last year dropped 13 per cent.

Using Professor Bob Gregory’s resources boom model, the numbers signify that Australia is transitioning from the second to the third stage of the resources boom, moving from mining investment to mining exports.

Despite volatile commodity prices, Australia’s exports remained strong, rebounding to $14.85 billion, the best month in almost a year.

And with previous year's investment slowly trickling down the pipeline, resource exports are expected to grow 28 per cent over the next five years, the Bureau of Resource and Energy Economics forecasts.

Miners are shifting trackRio and BHP are highlighting cost cutting agendas and moving to put underperforming assets up for sale.

Both have also cut exploration and capital expenditure budgetsputting major projects on hold in favour of working existing assets harder.

Mining contractors are also feeling the brunt of the transition, with mass layoffs and mining construction projects drying up.

In April Australian Mining reported mining contractor Leighton took a $260 million hit when BHP replaced the contractor with a smaller company as it moved to cut costs.

The company expects to lose more than $260 million of work over the next two years as a result of the decision.

As the mining boom slows, companies continue to reassess their expenditure, and it seems they have contractors in their sights.

"Against a backdrop of increasing costs and falling commodity prices, BMA continues to focus on reducing its overheads and operating costs across the business," a spokeswoman for BHP said at the time.

In what many claim was the first sign mining contractors were to bear the brunt of expenditure slashing by resource companies, late last year Macmahon Holdings cut its earnings estimate in half for 2012-13, with CEO Nick Bowen resigning as a result.

Earlier this year major miners BHP Billiton and Rio Tinto both inferred they plan to cut as much as $US10 billion from operating costs over the next two years.

The cost cutting measures come as the miners attempt to deal with stabilising commodity prices, and increased investor demand for larger returns.

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