Natural disasters, gold price among Top Mining Stories of 2011

2011 will go down as the year when the wind fell out of the sails of economic recovery and serious storm clouds gathered on the horizon.

Those clouds, as everyone now knows, were sovereign debt crises, first in the United States, and then in Europe. Republicans fed up with the Obama Administration’s attempts to kickstart the economy through more economic stimulus threatened to block legislation to lift the US debt ceiling, and in doing so, took the country to the brink of financial disaster. Stock markets, predictably, tanked on the uncertainty.

When a deal was finally reached on the debt ceiling, the markets bounced back briefly, but then attention turned to Greece. The spectre of a Greek default roiled markets again, only this time the crisis threatened to draw in the rest of Europe and put the future of the euro in jeopardy. An $11 billion bailout did little to quell the fear, and now the spotlight is on Italy as that country, whose economy is too big to rescue, looks increasingly vulnerable going into the new year.

A looming recession in Europe, anemic growth in the US, and a slowdown in China – as Beijing deals with rising inflation, including a dangerous real estate bubble, by tightening access to credit – has had consequences for mining. Demand for raw materials, particularly copper, oil and iron ore, has slowed, with the consequent softening in prices.

The exception has been gold. Investors scared off by governments seemingly incapable of dealing with sovereign debt issues ran to the relative safety of bullion, pushing the gold price to $1900/oz in the summer. Gold’s safe haven status was tested in the fall, however, as continued problems in Europe had investors fleeing instead to the US dollar, so that gold has now slipped back to around $1500 – still higher than at the start of the year.

Macroeconomics aside, Mother Nature was to play a huge role in mining this year.  Floods in Queensland, Australia in January inundated coalmining operations there, while in March, an 8.9 magnitude earthquake off the coast of Japan triggered a tsunami that crippled the Fukushima Daiichi nuclear power plant. The consequent radiation leaks and comparisons, however overblown, to the Chernobyl nuclear meltdown, led to Germany deciding to shelve its nuclear program. Uranium mining stocks fell immediately after the disaster, along with the price of the nuclear fuel. It’s anyone’s guess at to when, or if, uranium will recover to pre-Fukushima levels.

Here are our Top 10 Mining Stories of 2011 with selected links:

1/ Flooding in Queensland

Australian mines will need months to pump out flood waters

The year started with a bang not a whimper, with shocking video of cars bumping down a swollen river in Brisbane as record floods hit Queensland in January. The nexus of Australia’s coal mining industry was badly impacted. Over 50 mines were forced to shut, and the price of coking coal jumped 35%. It took months for (mostly) open pit mines to pump out the flood waters.

2/ Japanese earthquake and uranium collapse

Uranium sector could be in for a ‘cruel blow’ after disaster in Japan

Earthquake-prone Japan was hit with the big one in March. An 8.9 magnitude shaker off northeastern Japan sent a wall of water rushing to the islands, inundating coastal areas. It was the fifth largest earthquake since 1900. Adding to the misery was the meltdown at the Fukushima Daiichi nuclear plant. The flood waters damaged the pumps and the reactors couldn’t be cooled down. Eventually radiation began leaking and local populations were evacuated. Up to March, uranium had been enjoying something of a renaissance, as a clean and affordable alternative to fossil fuel-based power. All that changed with Fukushima. Uranium stocks, particularly juniors, got pummelled. Within a month Cameco lost over a third of its stock value. Canadian junior Uranium One saw its stock price halved from just under $7 before the quake to $3.46 after. It continued to decline, closing out the year at $2.16.

3/ Gold’s rise and fall

Gold crashes through $1700 mark

No metal enjoys uncertainty like gold, making 2011 a banner year for the yellow metal. The twists and turns in the European debt crisis made gold a safe bet for investors even as the US dollar strengthened toward the latter part of the year. Gold hit a low of $1319 on January 28, a high of $1896 on September 5, and averaged $1572 throughout the year. Where will the price of gold be in 2012?

4/ Strikes and protests

Sabotage, deadly clashes shut down Grasberg

Peru declares state of emergency over Cajamarca gold mine protests

With the price of copper rising since 2008 and major copper mining companies hauling in huge profits, miners in copper-producing countries have been demanding a greater share of the resource wealth. Workers in 2011 downed tools at mines in Peru, Chile and Indonesia, with some turning violent. At Freeport-McMoRan’s Grasberg copper mine in Indonesia, a pipeline was sabotaged and three miners were killed. In Peru, 11 days of protests against Newmont Mining’s Conga gold mine forced a state of emergency and led Newmont to suspend construction of the $4.8 billion project.

5/ Keystone XL pipeline

TransCanada, Nebraska agree to reroute pipeline away from sensitive aquifer

Calgary-based TransCanada Corp. thought it had secured enough support for an extension to its existing pipeline to ship Alberta oilsands crude to Gulf Coast refineries through Cushing, Oklahoma. But TransCanada didn’t bank on the rising skepticism and public opposition to pipelines in the wake of the BP oil well rupture in the Gulf of Mexico and a couple of high-profile pipeline leaks in the US. Calls by celebrity activists to kill the pipeline, and noisy opposition in Nebraska, where the pipeline would cross an important aquifer that supplies water to millions, forced TransCanada to reroute the line in a bid to save the project. By then it had become a political football, with Obama holding off on a decision until after the 2012 presidential election.

6/ Iron ore pricing

Vale bends to new quarterly iron ore pricing model

An 18% drop in the price of iron ore led steelmakers to pressure iron ore producers to adopt a new pricing model. In October the world’s largest iron ore exporter, Vale SA, bent to a new system that would see lower quarterly prices. But as reported in October, the lower prices don’t worry Big 3 iron ore producers BHP, Vale and Rio Tinto, which thanks to their economies of scale have been flooding the market by building market share rather than maximizing prices (see #7 below). This way the giants drive high-cost producers out of the business and crowd out any new players who want to enter the space.

7/ Pilbara iron ore expansion

BHP and Rio’s output plans for Pilbara reach staggering 750 million Mtpa

Slowdown in China? What slowdown? BHP Billiton and Rio Tinto continued to ramp up production in the Australian Pilbara, the country’s iron ore heart. BHP unveiled plans in September to increase its iron-ore production in the Pilbara to 450 million tonnes a year by adding infrastructure and building new mines. Two weeks earlier Rio Tinto announced it wants to grow Pilbara output to 333 million tonnes by 2015.

8/ PotashCorp’s fall 

Why POT so quickly comes off boil

The Potash Corporation of Saskatchwan has fallen a long way from the heady days of 2008, when the world’s largest potash miner’s stock was nudging $77 and potash was selling for almost $900/tonne. With PotashCorp now trading in the low to mid-40s and the crop nutrient at around $475/tonne, we looked at some of the reasons why – none having to do with the Canadian government’s 2010 rejection of BHP Billiton’s $38 billion hostile bid for the company.

9/ BHP getting out of diamonds and into shale gas

BHP looking at breaking off diamond business

BHP to move deeper into shale gas with $4.5B in acquisitions

It turned out that diamonds aren’t BHP’s best friend after all. The world’s largest mining company announced in November it will review its diamond business, which includes two large diamond mines in northern Canada, for a potential sale of all or parts of the business. A couple of weeks earlier, BHP said it plans to spend about $4.5 billion on developing shale gas assets in 2012, after splashing nearly $17 billion buying Petrohawk Energy and Chesapeake Energy in July.

10/ Caterpillar buys Bucyrus

Cat completes Bucyrus acquisition

Global mining equipment giant Caterpillar Inc. this year completed its $8.8 billion acquisition of Bucyrus International, first announced in 2010. The purchase of Bucyrus, whose product portfolio included draglines, rope shovels, excavators and underground mining equipment, was seen as building on Cat’s strengths in loaders and mining trucks.



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