Australia’s miners have been labelled ‘fat and lazy’ by Federal Resources Minister, Martin Ferguson.
Speaking at the Citi conference in Sydney today, Mr Ferguson said that record commodity prices have made our miners fat and lazy in terms of not managing projects as they could have. He added that major mining companies stripping out staff, and focusing on projects that are facing increasing cost overruns reflected that view.
BHP Billiton (ASX: BHP) cancelled two mega-projects earlier this year – the US$20 billion expansion of its giant Olympic Dam copper and uranium mine in South Australia and a US$20 billion project to expand port facilities at Port Hedland – so that the miner could increase its exports of iron ore. Rio Tinto Limited (ASX: RIO) and Fortescue Metals Group (ASX: FMG), along with BHP, cut thousands of jobs across coal and iron ore operations. Australia’s largest listed pure coal miner, Yancoal Australia (ASX: YAL) has halted its expansion plans and was focusing on cost cutting measures.
Mr Ferguson has argued that miners must sharpen their focus on reducing costs and improving productivity, and remain focused on delivering projects that have already been approved.
Despite the falls in iron ore and coal prices, miners are looking to make up the shortfall in revenues by increasing volumes. Rio and Fortescue in particular have ramped up their production forecasts for iron ore. Rio plans to be producing 353 million tonnes of iron ore by 2015, and while Fortescue recently dropped its annual target from 155 million tonnes to 105 million, the recent recovery in iron ore prices may prompt it to restart its expansion plans.
The big Australian iron ore miners have some of the lowest production costs in the world, allowing them to produce a tonne of ore for much less than most of their offshore competitors – in some cases, at less than US$50 a tonne. With iron ore prices currently trading between US$110 and US$120 a tonne, that gives them a decent buffer, should prices fall further.
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Motley Fool writer/analyst Mike King owns shares in BHP. The Motley Fool’s purpose is to help the world invest, better. Take Stock is The Motley Fool’s free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. Click here now to request your free subscription, whilst it’s still available. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.