Mining production reports provide insight to commodity prices

The Australian stock is known for its diverse exposure to commodity stocks – energy and mining companies. The largest stock on the Australian market is BHP Biliton, one of the largest mining companies in the world. It is by no co-incidence that the top five mining and energy companies listed in Australia represent around a fifth of the total market capitlisation. While Australian mining companies are not necessarily relevant for global traders, their production numbers and earnings profile provides good insight into the state of play in commodities, particularly from a supply side analysis.

Below is a list of key Australian mining companies that have reported their quarterly production numbers over the past few days. We provide a summary of each result and the impact on key commodity pricing and supply which commodity and currency traders can look to for future pricing direction.

Rio Tinto – We covered this last week but since our last note Rio Tinto has seen its CEO depart and another $14bn in write-downs relating to its aluminium division. Rio is one of the largest aluminium producers globally following the acquisition of Alcan a few years back now and there seems to be no let up in the fierce pricing environment in aluminium markets. Things are improving, but from a very low base.

BHP Biliton – Announced a world class report this week with around 60 million barrels of oil equivalent production in the three months to December and iron ore production slightly in excess of 42 million tonnes. BHP continues to bunker down and remain conservative in its spending patterns; it sees confidence in energy prices which is positive for US natural gas futures. It continues to develop its iron ore assets in an aggressive but well measured way. Likely to write down aluminium and nickel assets as these two commodity areas are unlikely to see better pricing in the short term. Aluminium perhaps more so than nickel.

Newcrest Mining – Among the top ten global gold producers, announced production within guidance today at just over 2 million ounces for 2013. Newcrest continues to see an elevation in the cost of production – now well over US$700/oz. This is key for the gold price which Ashraf Laidi wrote about yesterday (article link here). All gold producers in Australia have reported a steep elevation in the cost of production even though Australia, with new mines, produced around 7 tonnes less gold in 2012 compared to 2011. Higher production costs and limited supply from the likes of Newcrest should continue to support the gold price.

Oz Minerals – Oz Minerals has one of the most attractive copper and gold deposits in the world in the very low sovereign risk geography of South Australia. Again like Newcrest, Oz Minerals is struggling to grow its production and will see less copper mined in 2013 than in 2012. Costs are also rising when including gold credits. Oz Minerals has echoed the concerns of other key copper producers globally – there aren’t too many groups able to put on new supply consistently and even for those who have managed to see an improvement like, BHP and Rio in Escondida, this has come with significantly higher capital costs.

Fortescue Metals – Pure play Australia iron ore producers realised average prices in the three months to December at around US$111 per tonne which was an improvement from the prior quarter but still a discount to the current spot price above US$140. Fortescue is currently at an annualised production rate of around 100 million tonnes per annum and sees costs falling from around US$50 per tonne to around $30-35 but continues to remain optimistic around Chinese steel mills restocking going into New Year celebrations next month.