##{"id":62163,"date":"2013-07-15T14:00:04","date_gmt":"2013-07-15T04:00:04","guid":{"rendered":"http:\/\/www.fnarena.com\/index.php\/2013\/07\/15\/expectations-for-resource-sector-production-reports\/"},"modified":"2013-07-15T14:00:04","modified_gmt":"2013-07-15T04:00:04","slug":"expectations-for-resource-sector-production-reports","status":"publish","type":"post","link":"https:\/\/staging.fnarena.com\/index.php\/2013\/07\/15\/expectations-for-resource-sector-production-reports\/","title":{"rendered":"Expectations For Resource Sector Production Reports"},"content":{"rendered":"

\n\t-Focus on maximising<\/span> margins and efficiency
\n\t-Majors' iron ore production bounces in June qtr<\/span>
\n\t-Gold price correction exposes high cost miners
\n\t-Uranium producers still need higher prices<\/strong>
\n\t <\/p>\n

\n\tBy Eva Brocklehurst<\/span><\/p>\n

\n\tThe Australian dollar slumped in the last months of the financial year and this should help the Australian-based miners although the impact is softened by commodity prices denominated in US dollars, which remain under pressure. So how will resource production figures play out for the June quarter and ultimately influence FY13<\/span> earnings?<\/p>\n

\n\tMorgan Stanley has applied a review of commodity prices and quarterly production expectations and reduced earnings across the board, while noting the softer Australian dollar is a positive for domestic operators. In this mix, operating efficiency is seen critical for maximising<\/span> margins. The largest reductions in expectations are, of course, for precious metals. Gold price<\/span> forecasts have been reduced 5-16% and silver 14-29%. Copper prices<\/span> were downgraded more modestly, by 1-2%. In nickel<\/span>, the weaker Australian dollar has softened the impact of the falling price. Overall, Morgan Stanley still has a positive rating bias for the mid-cap miners under coverage.<\/p>\n

\n\tThe major resource shipments of iron ore<\/span> from Port Hedland in the June quarter were up 22% on the seasonally weak March quarter, which usually sustains at least one cyclone interfering with production. Monthly shipments rose to a record 27.9m tonnes in May. Both Rio Tinto<\/span> ((RIO)) and BHP Billiton<\/span> ((BHP)) are expected to report stronger iron ore volumes in the June quarter. Offsetting an increase in iron ore will be flat volumes for BHP and weaker volumes for Rio Tinto in copper. JP Morgan notes, after a jump in grades at BHP's Escondida, a slightly softer June quarter will result as grades trend back to reserve levels.<\/p>\n

\n\tFortescue Metals<\/span> ((FMG)) is not expected to surprise on production or guidance and Goldman Sachs will be on the look-out for any update on the TPI sale process and variations in the Kings expansion in terms of timing and budget. UBS notes Fortescue recently lowered FY13 guidance to 80-82mt because of adverse weather in the June quarter, which has also had an impact on the ramp up of the Fire Tail mine. Nevertheless, the broker does not think any potential miss on production at this stage will unsettle investors. Key to Fortescue sentiment in the September quarter is the iron ore price, which is expected to have its seasonal low point during that quarter. Morgan Stanley will be taking an interest in Atlas Iron's<\/span> ((AGO)) product mix, which is crucial for realised prices of shipped volumes. The broker forecasts the realised price on the company's standard product to increase slightly quarter-on-quarter as grades have been below nominal specification and this should continue.<\/p>\n

\n\tGoldman Sachs has slated improvement for BHP in the quarter with productivity gains and cost cuts and looks for further improvement in US shale values and higher coking, or metallurgical, coal volumes. Rio Tinto is expected to sustain further gains in iron ore and expansions are on track to achieve 290mtpa by the third quarter of 2013. Reduced copper production will continue at Rio's Kennecott after the landslip. JP Morgan expects more detail on the copper outlook from Rio Tinto in the quarterly report with an update on Kennecott, Oyu Tolgoi and Grasberg. The broker expects BHP's copper production to be up 5% in the quarter and 3% year-on-year. PanAust<\/span> ((PNA)) could surprise on the upside and exceed forecast copper volumes after the commissioning of the Phu Kham increased recovery project, in Morgan Stanley's view.<\/p>\n

\n\tGold corrected sharply during the quarter and is likely to expose both high cost gold miners and the copper miners with large by-product contributions. Of interest to Morgan Stanley will be OZ Minerals<\/span>' ((OZL)) outlook on strip ratios and costs. Strip ratios are forecast to halve in 2014, and unit costs are forecast to decline by 17% in 2014 and 10% in 2015 due to increased ore access and lower mining costs. The broker likes Sandfire Resources<\/span> ((SFR)) as DeGrussa high grade ore potentially offers cash costs that are low on the global cost curve. Keys to success are delivery of a fully ramped-up underground mine and exploration extending the current mine life. UBS expects additional impairments across the gold sector and will be looking for production of 598,000 ounces for Newcrest Mining<\/span> ((NCM)), 16% ahead of the previous quarter. Lihir commissioning and Cadia East ramp up are key here. The broker considers the biggest risk to Newcrest from this point is the highly variable nature of Lihir production.<\/p>\n

\n\tOn UBS' radar is Independence Group<\/span> ((IGO)), which could outperform. The broker is forecasting production of 193,000 tonnes nickel in concentrate from the Long Complex, a drop of 25% over the previous quarter. UBS admits this could be overly conservative as, up until the end of March, the company was on track to beat guidance. At the Bentley mine, zinc production is expected to be lower and copper production higher. However, zinc and silver grades have shown a strong positive reconciliation since the Bentley mine was commissioned and a continuation of this trend could lead to UBS' numbers being on the low side.<\/p>\n

\n\tOn the energy<\/span> front, petroleum volumes BHP are expected to rise after the cyclone season (WA) and maintenance in the Gulf of Mexico. UBS expects BHP will be stretched to achieve production guidance of 240mmboe in FY13. JP Morgan has updated earnings estimates to reflect actual spot Brent oil prices and currency rates. Brent oil prices averaged US$103\/bbl during the June quarter and forecast revisions put the Australian dollar at US97c for 2013. JP Morgan has reduced earnings forecasts for Woodside Petroleum<\/span> ((WPL)) as the Pluto operation costs are revised up. The company recently cut production guidance for 2013 and now estimates 85-89mmboe.<\/p>\n

\n\tPaladin Resources<\/span> ((PDN)) is expected to benefit from cost cutting and optimisation but UBS suspects getting back into the black is still likely to require higher uranium<\/span> prices. The broker estimates an all-in cash break-even price of US$53\/lb. Energy Resources Australia<\/span>'s ((ERA)) June quarter production was down 10% quarter on quarter. Uranium production in 2013 is expected to be between 270,000t and 330,000t. ERA expects the last of the high grade stockpiled ore to be exhausted in the June quarter and UBS forecasts grade in the quarter of 0.17% uranium, down from 0.19% uranium in the March quarter.<\/p>\n

\n\tLastly, coal. UBS has noted that Whitehaven Coal<\/span> ((WHC)) should deliver FY13 coal sales of 7.1m tonnes. Heavy rain in NSW could weigh on production and the market will be looking for commentary on the moisture issue at Narrabri and an update on the change out of the first long wall. UBS expects a solution to the moisture issue is close. JP Morgan notes the ramp-up of Australian metallurgical coal shipments, as they recovered from flooding and industrial action last year, has led to a well-supplied market. BHP is forecast to increase metallurgical coal production by 9% quarter on quarter and thermal coal by 28%.
\n\t <\/p>\n

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