have a read of the article below and then ask yourself why a Chinese Steel mill has been buying AXO stock (5% so far) over the past 3 weeks.
the think about the part where the once in 100 yrs is mentioned and then look at AXOG.
Mining industry freezes capital expenditureFont Size: Decrease Increase Print Page: Print Sarah-Jane Tasker | November 01, 2008 RESOURCES spending is set to collapse.
Mincor's Peter Teasdale and Adam Cameron at a Kambalda nickel mine. Picture: Lynn Webb Analysts say $US50 billion ($75 billion) in planned expenditure is at risk of being delayed next year, as miners bunker down to survive the global financial turmoil.
The last time the mining industry froze capital expenditure, in 1998, it took five years for it to return with any confidence.
Credit Suisse metals and mining equity research analyst Jeremy Gray said the China growth story was three years old before miners started raising capital to expand projects and build new mines. But with commodity prices plunging and the credit crisis drying up funding options, some mines would close, projects would be delayed and production targets cut, and it could take two years for miners to regain their confidence.
"It will take commodities to reach new highs before chief executives will have the gumption to go back into the market," Mr Gray said.
The Credit Suisse UK mining team has estimated that about $US50 billion of the $US75 billion of mining capital expenditure planned for next year could be delayed, and that a further $US150 billion scheduled for 2010-12 could be delayed.
This represents about 66 per cent of next year's spending plans and may materially delay production of some 300 million tonnes of iron ore (35 per cent of current seaborne market), 5 million tonnes of copper (29 per cent), 10 million tonnes of aluminium (25 per cent) and more than 1 million ounces of platinum (14 per cent).
Mr Gray said this could plant the seeds for the next bull market, especially given that the recent five-year bull market did not see large-scale capacity additions, with the exception of iron ore.
Most of the growth planned was scheduled for 2010 and beyond, which was now increasingly unlikely.
The most affected miners are likely to be those with excessive debt, such as Xstrata, and the juniors, which have limited access to financing.
Industry experts have argued that many of the emerging iron ore projects in Western Australia, which have been bidding to grow at a frenzied rate to cash in on China's increasing need, may not eventuate.
"Iron ore is being acutely affected. A lot of these projects need large capex numbers to get moving," Mr Gray said.
"We think 300 million tonnes of iron ore, which is 37 per cent of global supply, may now be put on ice -- surely, the Chinese don't want that."
It has been estimated that mining capital expenditure from the iron ore juniors will fall from around $US15 billion to just $US2 billion next year.
Fortescue Metals Group, the main new player in the sector, announced this week it would delay its $2 billion expansion.
The Pilbara-based miner said it would put off large costs for its increase to 80 million tonnes a year and reduce contractor staff on the project.
Its target of 80 million tonnes is now likely to be in June 2010, six months after the original plan.
"We still have a strong, confident business and while it is tough out there, we are already in the starting blocks and it will be easier to be first off the blocks when the market returns," executive director of operations Graeme Rowley said.
Ord Minnett analyst Peter Arden said that Australian companies had expected about 1 billion tonnes of new iron ore capacity to come on stream in the next five years, but a high percentage of that would now not make it.
Pilbara iron ore miner Atlas Iron is reviewing its mining schedule, as well as demand forecasts for the short and medium terms because of softened demand, saying its customers had "taken their foot off the pedal a bit".
Nickel has been one of the hardest hit commodities on the London Metal Exchange, collapsing since the start of the year from more than $US30,000 a tonne to below $US10,000 last week.
Mincor Resources announced this week that it would cut its nickel output for the financial year to conserve costs. The company originally planned to produce 19,500-20,500 tonnes of nickel but is now targeting 16,000-19,000 tonnes.
Managing director David Moore said the company could slow production at two of its mines but still maintain full production at three others. The slowdown would move about $15 million of expenditure out of the miner's budget.
Copper has been highly volatile and while prices have risen more than 13 per cent this week, as investors covered short positions, prices are still down 30 per cent for the month.
Credit Suisse said it had identified 15 of the future 70 copper projects that would almost certainly not go ahead, not including others that could be deferred.
In all, it said, some 5 million tonnes of the expected 8.8 million tonnes by 2015 would be affected by the credit crisis.
Xstrata, which has a net debt of $16.5 billion, had plans for eight copper projects, which could add a million tonnes of capacity over this period, but most of them would probably not go ahead until credit markets stabilised.
Copper and zinc miner Kagara is reviewing its spending and operations, with the $35 million expenditure to finalise the Mungana base metal treatment plant in north Queensland to be deferred. Executive chairman Kim Robinson said Kagara would also scale back $9 million in exploration expenditure.
It is not just the juniors that is feeling the pinch. The majors -- except for BHP -- have all pointed to the need to review operations. Rio Tinto said earlier this month that it would delay planned divestment of assets, review near-term spending on growth projects and curtail some higher-cost aluminium production.
However, BHP has denied it needs to review operations or cut back on production to address the volatile climate. Instead it tells the market it is in a position to keep investing in the cycle and cash in on opportunities.
Chief executive Marius Kloppers told investors in Sydney this week that a lack of liquidity in mining was taking out a substantial amount of investments that had been mooted or predicated. BHP, however, could capitalise on opportunities as others faltered.
Australia's miners are not alone in feeling the effects of the credit crisis.
Africa, which was once a new frontier, has effectively been wiped out.
Mr Gray said there were about five or six projects in Congo and South Africa that were permanently on hold.
Aim Resources was one of the first miners to review operations, announcing in July it would place its zinc project in Burkina Faso, which needed more than $50 million, on care and maintenance.
Chief executive Scott Lowe said the Australian-based company was one of the first miners, along with Xstrata, to realise zinc prices were heading in the wrong direction and could not sustain projects. "We did not anticipate the depth of the financial crisis and are pleased we made that decision when we did," he said.
With the juniors now desperate for cash, there are potentially some great buys in the market. Mr Gray said when the previous bust happened, China was not powering commodity demand.
"This is why the sell-off in the junior miners is likely to be a one in 100-year buying opportunity for the brave at heart," he added. "I have many of the best copper juniors in DR Congo trading at just 5c in the dollar and the crash in many of the WA iron ore start-ups like Giralia is just another example of why supply is now likely to be materially affected by the current credit crunch."
AXO Price at posting:
23.0¢ Sentiment: Buy Disclosure: Held
