Magnetite ore, long the leading source of domestic iron supply in North America, Europe and China, is now increasingly relevant across the globe. The perception that magnetite ore is an inferior substitute to hematite ore is now firmly changing.

As easily accessibly, economic hematite deposits become rarer, magnetite ore will continue to emerge as an important source of the world’s iron.

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In a televised statement announcing the bill, Rousseff said her government wanted resources companies to have contractual stability and security and for concession renewals to be contingent on them meeting investment and environmental goals, reports Epoca Negocios (in Portuguese).

As anticipated by MINING.com, the new concessions "will run for 40 years, extendable for another 20," and the concession holders must comply with "clear legal obligations, with an emphasis on protecting the environment," she said.

Vale's CEO, Murilo Ferreira, told Valor Economico (subs required) the bill represented a significant increase in royalties at a time when countries overseas were lowering such duties on iron ore and nickel. However the head of the world’s largest iron ore exporter and Brazil’s biggest miner supports the proposed reform, as he believes it "simplifies and modernizes the sector."

Brazil has been drawing up the bills to regulate the mining sector for over four years. Among the changes set by the new code, royalty payments —known locally as the CFEM tax— will be charged on companies' gross sales, rather than on net sales as is currently the case.

What it does not include is a windfall profits tax, which is exactly what drove Canada’s Kinross Gold (TSX:K, NYSE:KGC) to abandon its Fruta del Norte project in Ecuador last week.

The South American nation is one of the world's largest producers of iron ore, bauxite, gold, nickel, manganese and other minerals.

Image of Brazil’s president Dilma Rousseff announcing the reforms. Screenshot from GloboTV News.

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The benchmark import price of 62% iron ore fines at China's Tianjin port gained 2.3% or $2.70 to trade at $117.70 a tonne on Tuesday according to data supplied by The Steelindex.

It was the highest price since May 28 and represent a 6.6% gain from the 2013 low of $110.4 hit at the end of that month.

Most analysts still predict a steady decline in the price of iron ore towards the end of this year and into 2014 on the back of a slowdown in China which consumes more than 60% of the seaborne trade and vast new supplies coming on stream.

But the import price could be supported by new rules being proposed by Chinese authorities to open up the industry to market forces.

RELATED: SLIDESHOW:2-minute history of the iron ore wars.

China plans to scrap its decade-old import licensing system in an attempt to eliminate middlemen in the market who charge commissions for importing ore.

The new rules which according to a Reuters report would be implemented in the second half of the year are designed to lower costs for steel mills which will now be allowed to import directly.

In the long run if the rules were to be implemented it would favour the big three exporters – Vale SA (NYSE:VALE), Rio Tinto (LON:RIO) and BHP Billiton (LON: BHP) – by lowering the cost of imported ore for China's steel industry relative to domestic supplies.

The proposed end to the licensing system marks something of retreat for Beijing which has made many attempts to wrest control over pricing away from the major Brazilian, Australian and South African miners.

The huge swings in the price of iron ore in recent years has one more than on occasion prompted China's national planning agency to allege that Vale, Rio Tinto and BHP Billiton are manipulating the price, but attempts to improve transparency in the industry have met with little success.

The launch of the China Beijing International Mining Exchange (CBMX) in May last year was largely deemed a flop and trading volumes remain very low despite official support from Vale and others.

The Singapore-based globalORE rival to CBMX spearheaded by BHP Billiton handles more trades and iron ore swaps and futures volumes have also grown significantly, but all these systems remain a small part of price-setting within the industry.

At the same time price volatility has only increased.

Iro ore remains down more than 25% from its 2013 high of $159 hit in February and the recent sharp pullbacks and subsequent rallies were beginning to resemble the trading patterns during the fall of 2011 and again in 2012.

Iron ore hit an all time record in February 2011 of over $190 and famously eight months later suffered a $60 drop over the duration of 28 days.

The market suffered a similar shock in August-September last year when the Chinese import price dropped 25% over a month to a three-and-a-half year low of $86.70.

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Guinea enjoys vast gold and diamonds fields, is already the world's number exporter of bauxite, an aluminum ore, but the greatest prize in the country, perhaps the world, is the iron mountains of Simandou.

The UK's channel four takes a look at what has been described as the corruption deal of the century: how Guinea lost out on billions when less than five years ago the former dictator of the country gave away rights to half of the iron ore deposit, said to be worth as much as $50 billion, days before he died.

RELATED: 'Complex' Simandou production date put in doubt

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Minmetals Assistant President, Wang Jionghui, told the Wall Street Journal Tuesday the company has “invested in the neighbourhood before” and that it was “familiar with the area."

In March Rio put its 59% stake in IOC on the block, as part of its several attempts to cut $5 billion worth of expenses from its business globally this year and next.

The company appointed investment banks Credit Suisse and CIBC to lead the sale of most of its shares in IOC. The stake’s sale is estimated to fetch roughly $1.7 billion.

Minmetals is the first Chinese miner to ratify its interest in Rio's Canadian iron-ore operations. Commodities giant Glencore Xstrata (LON:GLEN) and private-equity firm Blackstone Group (NYSE:BX) are also said to be eyeing the stake in Canada's largest iron ore producer.

Meanwhile Rio Tinto is sacking more staff at its iron ore operations in Western Australia. The jobs that are going include executives at the general manager and manager level, reports ABC.

The recent slump on iron ore prices has added extra pressure to Rio Tinto, which relies on iron ore for four-fifths of its earnings, and has been investing heavily to expand mines in Canada and Australia to supply China and other markets.

Image courtesy of Iron Ore of Canada

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The investment bank has moved its position on the mining sector to neutral from underweight and is urging investors not to short mining stocks, reported Barbara Kollmeyer for the Wall Street Journal Monday.

Looking at the sector, which is down 20% in 2013 alone, analysts at the bank cited the following reasons for their change of heart:

Miners have undershot metals prices, which are currently at double the fourth-quarter 2008 levels.

Cost bases are unfavorable, capital discipline is still a problem, but miners are starting to cut capital expenditure aggressively.

Free cashflow yield could turn positive again in 2014. While J.P. Morgan remains skeptical about that, its analysts say “the market could give the sector the benefit of the doubt for a while."

Sector valuations are more attractive — the relative price/book ratio is back to 2009 lows.

The Dollar Index has rolled over recently, closing a gap with metals prices. Unless the dollar index rallies sharply, miners could see a short-term bounce.

Chinese commodity import volumes seem to have bottomed out, suggesting a moderate recovery in metals demand. Mining-equipment sales have inched up.

Chinese commodity inventories are off recent highs.

The team of analysts is especially upbeat about Rio Tinto for its "capital discipline and an attractive dividend yield of 4%," and Glencore Xstrata "for underappreciated long-term free-cashflow-improvement stories."

Unfortunately for mining services companies, J.P. Morgan has left them behind in this new sector outlook. The logic is easy enough to follow: with such drastic cost cutting from the miners, the services companies are likely in for a very dry spell indeed.

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Fighting back against the greenback

The benchmark CFR import price of 62% iron ore fines at China's Tianjin port added more than 1% to $115 on Monday, building on gains notched up last week following a three-day Chinese holiday.

Despite the steelmaking ingredient's fight back from a sharp correction at the end of May, negative sentiment about the outlook for the rest of the year remains amid signs of a slowing Chinese economy. China consumes two-thirds of the 1.1 billion seaborne iron ore trade.

The price of the increasingly volatile commodity fell to three-and-half year lows of $87 in September last year only to come roaring back to hit $160 in February, but current levels are in the danger zone for many miners.

$120 a tonne has become something of a rule of thumb among iron ore producers – when prices stay below this level for long enough high cost mines, particularly those in China, become unprofitable leading to cuts in supply.

Costs at Brazil's Vale (NYSE:VALE) which together with BHP Billiton (LON:BHP) and Rio Tinto (LON:RIO) account for nearly 70% of the global trade, are closer to $50 a tonne, but the world's number one miner of iron ore is nevertheless counting on a real trading at 4-year lows to improve its profitability according to the Washington Post:

The real, the worst-performing emerging-market currency in the past three months, probably will weaken to about 2.40 from 2.15 per U.S. dollar, bolstering Brazil’s competitiveness, said Jose Carlos Martins, Vale’s executive director for ferrous and strategy. China’s iron-ore and steel demand growth is set to slow to about 5 percent from 10 percent in the first five months of the year, he said.

“The Brazilian currency will devalue further,” Martins, 63, said in a June 14 interview at the company’s Rio de Janeiro headquarters. “The slowdown in China is negative, devaluation is positive because not only our costs in dollars will be reduced but also investments will be lower.”

The Anglo-Australian giants, which thanks to the rich easy accessible iron fields of the Pilbara are able to keep the costs of mining iron ore to even better levels than Vale, are likely to receive less help from the Aussie dollar.

While the A$ tanked 10% in May, historically it remains at elevated levels compared to the US dollar and on Monday staged a dramatic comeback, rallying more than 3% to $0.96 to the greenback.

The Wall Street Journal quotes Ray Attrill, the head of currency strategy at National Australia Bank as saying: "Everybody who thinks the Aussie is going to fall “has already got the position." The key technical level of US$0.9380 has held, signaling to many the fall for now is over, he added."

South Africa has taken over from India as the number three supplier of iron ore to China and the domestic currency, the rand, has also depreciated dramatically this year. Ten rand bought you one US dollar on Monday. At the end of last year the currency was changing hands for R8.50 to the US$.

RELATED: Got Jimblebar? Big 4 stack the odds against high-cost iron ore miners

Image of Sydney Opera House during Vivid Sydney festival June 6, 2009 by deb22 / Shutterstock.com

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Reuters reports that this bond issue may have "the perfect structure" with the overall bond markets having been beaten down in recent days.

The company's press release from Friday broke down the terms of the financing:

Rio Tinto has priced an aggregate of US$3.0 billion of fixed and floating rate bonds.

The offering comprises US$1.0 billion of 3-year and US$1.25 billion of 5.5-year fixed rate, and US$250 million 2-year and US$500 million 3-year floating rate SEC-registered debt securities. The bonds will be issued by Rio Tinto Finance (USA) plc and will be fully and unconditionally guaranteed by Rio Tinto plc and Rio Tinto Limited.

The 3-year fixed rate notes pay a coupon of 1.375% and will mature on 17 June 2016.

The 5.5-year fixed rate notes pay a coupon of 2.250% and will mature on 14 December 2018.

The 2-year floating rate notes pay a coupon of 3-month US$ LIBOR plus 55 basis points and will mature on 19 June 2015.

The 3-year floating rate notes pay a coupon of 3-month US$ LIBOR plus 84 basis points and will mature on 17 June 2016.

BNP Paribas Securities Corp., J.P. Morgan Securities LLC, Morgan Stanley & Co. LLC, Credit Suisse (USA) LLC and RBS Securities Inc. acted as Joint Bookrunners.

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The report, the 10th review of global trends in the mining industry by PwC, shows the industry has entered a period where there is a "crisis in confidence" about miners’ abilities to control costs, deliver on promises and successfully cope with resource nationalization demands.

According to Mine 2013: A Confidence Crisis, the growing disconnect between the performance of the mining industry's share prices, commodity prices, and the broader equity markets continued last year.

Net profits dropped to $68 billion, a 49% decrease from 2011. In addition, market capitalization fell for 37 of the top 40 global miners, totalling a loss of over $200 billion.

Mining stocks fell slightly in the last year, but stocks have been hit in the first four months of 2013 with nearly a 20% decline. Meanwhile, shareholders are calling for change from the top, resulting in half of the CEOs at the 10 largest global mining companies being replaced since April 2012.

RELATED: Access to capital the top current challenge for the mining sector

In a statement yesterday, Steve Ralbovsky, US mining leader at PwC, highlighted that capital expenditures are being tightened because mining companies are trying to regain the market's trust.

Forecasted capital expenditures for 2013 have already been reduced by 21% compared to 2012, dropping to $110 billion. At the same time, project hurdle rates have increased with some of the top 40 companies, what leads PwC to forecast that only projects with a return above 25% will be pursued.

“Even with cost containment initiatives well-underway, a strategic, thoughtful approach to rebalancing capital spends should not have a negative impact on miners' ability to meet the continued demand for their products,” added Ralbovsky.

John Gravelle, mining leader for the Americas at PwC Canada, will be hosting a live web Q&A to discuss the confidence crisis miners are currently facing.

You can join the discussion today at 2 p.m. EST here.

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Oakajee was intended to serve stranded iron ore deposits in the state's remote Mid West region as a new iron-ore export hub. Instead, it became the latest —but surely not the last— casualty of a downturn in commodity prices.

According to local media, the company that was managing the project said the reasons it slowed down work at Oakajee in November had worsened.

"Progressing partnership discussions for the mine, port and rail project in the current economic environment for commodities is particularly challenging, and is probably now harder than it was in November 2012 when the decision was made to reduce expenditure on the project," Oakajee Port and Rail CEO, John Langoulant, told The Australian.

Iron ore prices have been hitting historical lows, joining a wide range of commodities suffering from excess supply and slowing demand from China, the world's main iron ore importer.

In February last year, Mitsubishi paid US$312 million to take full control of the long-delayed venture. Since then the firm held talks with Chinese parties get a partner on board for the expansion of the Jack Hills mine and Oakajee. As talks didn’t go anywhere last year Mitsubishi put the port and rail project on hold with a first round of lay-offs last November.

Langoulant is quitting at the end of June.

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The benchmark CFR import price of 62% iron ore fines at China's Tianjin port added 1% to $112 on Thursday, recovering from a sharp sell-off last week.

Stocks of the steelmaking raw material at China's biggest ports rose in April to over 70 million, but are still well below 90 million – 100 million average recorded during the first half of last year.

Analysts at investment bank Macquarie estimates that inventories in China which consumes some two-thirds of the 1.1 billion tonne seaborne iron ore trade are down to 21 days of supply from 30 days a year ago.

Stocks levels will bottom out between last year’s low of a 17-day supply and a "critically low" 14 days over the coming weeks, analysts Jeff Largey, Alon Olsha and Daniel Lurch said according to Bloomberg.

The end of destocking should help iron ore back above $120 a tonne in the second half of the year according to the research.

Other indicators point to a more bearish outlook for iron ore however.

On Thursday Shanghai rebar, the most actively traded steel futures contract worldwide, dropped close to its 2013 low at 3,386 yuan ($552) and within shouting distance of the all-time record low of $550 hit 6 September last year.

Record low steel prices in China then coincided with three-and-half year lows for iron ore of $86.70.

Chinese prices are the most closely watched – the country forges almost as much steel as the rest of the world combined – and is usually closely correlated with that of iron ore.

RELATED:

• The last time Shanghai rebar traded this low iron ore was at $87
• Blasted furnaces: Chinese steelmakers can't be more bearish

Photo by Lars Lentz

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The document also sees a new risk enter the list this year: the threat of substitutes. For single commodity companies, or organizations where one commodity dominates the product mix/profit share, this has become a looming threat.

What’s more interesting, say experts at Ernst & Young, that risk’s ramifications are being felt most acutely across North America.

“Capital dilemmas are at the forefront of mining and metals executives’ minds,” says Bruce Sprague, Ernst & Young’s Canadian mining and metals leader. “Weaker metal prices, labour unrest and cost inflation have put pressure on companies’ earnings. At the same time, high levels of capital expenditure have squeezed margins and challenged the expected rates of return on growth projects.”

These challenges are threatening companies throughout the entire industry — both the majors’ long-term growth prospects and the short-term survival of cash-strapped juniors, adds Sprague.

“Majors now face the challenge of how best to allocate capital amid a new class of yield-hungry shareholders while juniors are attempting to navigate a capital desert — caused by the pullback of investors from riskier investments — not seen in more than a decade,” explains Sprague.

Companies are already reacting to these risks by focusing on greater capital discipline, increasing transparency around capital decisions and committing to maximizing returns and credit rating quality.

A pipeline of divestments is also building as companies seek to optimize their portfolios and recycle capital away from high-cost assets and into high-performing ones. Underperforming, high-cost or high-risk assets are also being marked for disposal as companies seek to remove costs and reallocate capital, as shows a separate study released on Wednesday.

“Today’s miners face the profound risk that their decisions could damage growth prospects, destroying shareholder value over the longer term,” concludes Sprague. “Those with a disciplined approach to capital allocation decisions and a broad knowledge of available funding options and providers — at both ends of the market — will be best positioned for success.”

The report also says junior miners, small firms exploring for mineral deposits worldwide, will continue to be cash strapped for at least another year, as the global mining industry slows down.

Top 10 strategic business risks in the global mining and metals sector in 2013:

1.        Capital dilemma – allocation and access (8 in 2012)

2.        Margin protection and profitability improvement (4)

3.        Resource nationalism (1)

4.        Social licence to operate (6)

5.        Skills shortage (2)

6.        Price and currency volatility (7)

7.        Capital project execution (5)

8.        Sharing the benefits (9)

9.        Infrastructure access (3)

10.     Threat of substitutes (new)

Image by Cybrain/Shutterstock.com 

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The company's affiliate, Cliffs Chromite Ontario Inc., has temporarily suspended an environmental assessment of the Ring of Fire region, where it plans to develop the mine. The project cannot move forward without the assessments, which must be approved by federal and provincial governments.

Problems stem from land rights issues, uncertainty over the federal environmental assessment process, as well as unfinished agreements with the provincial government.

"We will continue our work with the Government of Ontario and First Nation communities and look forward to restarting the work on the EA," Bill Boor, senior vice president of global ferroalloys for Cliffs said in a statement today.

Another company with plans to mine deposits in the Ring of Fire, Noront Resources Ltd. (CVE:NOT), responded to the news by issuing a statement announcing that it will proceed as planned. The company intends to submit its environmental assessment to the government this fall.

The Ring of Fire is a region of the James Bay Lowlands and is potentially the largest mining development of northern Ontario.

Creative Commons image by Mike Beauregard

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Simandou is one of the richest concessions in all of mining with in excess of 26 billion tonnes of high grade ore worth more than $50 billion.

"In 2011, the first date of production agreed with Rio was 2015. Today, the reality is this cannot be respected," Bloomberg quotes the West African nation's mines minister Mohamed Lamine Fofana as saying.

Fofana declined to give a new deadline only saying that "open discussion" are ongoing, while a Rio spokesperson said it is "working hard" at finalizing the investment framework for the project which both sides describe as "complex".

World number two miner Rio Tinto is developing the southern part of the vast mountain deposit and has already spent more than $3 billion building open pits.

The northern area is held by BSG Resources – a division of Israeli billionaire Benny Steinmetz's diamond company – and Brazilian giant Vale.

All work on that section has been halted amid an anti-corruption probe.

BSGR was awarded the rights free of charge after spending more than $160 million exploring the prospect days before the death of Guinea dictator Lansana Conté in 2008.

Conté had not long before stripped the Simandou blocks from Rio Tinto, which had held the exploration rights since the 1990s.

In 2010 BSGR sold a controlling half of its concession to Vale for $2.5 billion, but after forking over the first half a billion dollars, the Rio de Janeiro company halted payments.

Rio Tinto in 2010 brought in Chinese investors for the project and in April 2011 struck a deal with the Condé government, paying $700 million and granting the government a 35% stake to resolve all outstanding issues.

At full production Rio's Simandou mine would export up to 95 million tonnes per year – that's a third of Rio's total capacity at the moment.

Rio has embarked on a $5 billion cost-cutting program under its new leadership amid falling metals and minerals prices.

Fellow Anglo-Australian miner BHP Billiton has already decided to pull out of the country and is in the process of selling its stake in a nearby iron ore project called Nimba.

A posible sticking point is the route of a railway to get the Simandou area ore to port. Rio's plan calls for a new 700km railway across the country to the northern port of Conakry, Guinea's capital.

The blueprint for the BSGR-Vale and the Nimba projects includes a much shorter route to the deep Buchanan port in neighbouring Liberia to the south.

Guinea is the world's number one exporter of bauxite used in the manufacture of aluminum and the Liberia route would limit the economic benefits to Guinea, a country with a per capita GDP of only $492.

The scale and scope of the Simandou development has also been placed in doubt by the fall in the price of iron ore.

The steelmaking raw material is down 30% from its 2013 highs of just under $160 struck in February.

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Former Anglo CEO Cynthia Carroll this week held to her claim that the project, three years behind schedule, will be profitable.

Despite Minas Rio's logistical headaches, including mining "under cattle farms crisscrossed by strips of red dirt roads," Anglo will proceed in the hope that China's "voracious demand for steel" will remain as such.

Newly selected CEO Cutifani says that his company still believes "in a world where iron ore [mining] can be profitable at a cost of 50 dollars per ton.”

Minas Rio represents a real test of Cutifani's ability to manage costs.

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