Base Metals Weekly Round-Up: Iron Simmers on Vale Optimism

Iron ore futures on the Dalian Commodity Exchange (DCE) ebbed and flowed this week as major producer Vale (NYSE:VALE) got a mixed bag of news on operations at its various dams and mines.

While the base metal started the week strong — potentially lifted by last week’s news that Vale had been forced to pause operations at its Timbopeba mine, shutting out 12.8 million tonnes of iron ore production — Tuesday (March 19) quickly brought the gains to a simmer.

The mining company received word from Brazilian officials that it had been granted one of two necessary green lights to restart operations at its Brucutu mine, a 30-million-tonne-per-year operation that had been halted since early February.

Though the news was positive for Vale, the softening in supply concerns sent iron ore futures tumbling by Wednesday (March 20), with the DCE’s most-traded iron-ore contract dropping as much as 5.65 percent. The contract eventually settled at 613.5 yuan that day; by Friday (March 22), it was at 612.5 yuan.

As for fellow base metals copper and lead, both commodities saw downward trends leading into Wednesday, dropping 0.08 percent and 0.74 percent from Monday (March 19) respectively. However, both managed to rally on Thursday (March 21), making leaps and bounds to US$6,518 per tonne and US$2,035 per tonne respectively on the London Metal Exchange (LME).

Meanwhile, nickel made confident steps forward on the LME as it grew from Monday’s US$12,805-per-tonne price point to Wednesday’s US$13,190 mark, only to simmer to US$13,140 by Thursday.

Zinc started the week slow and steady as it made minimal gains between Monday and Tuesday, but eventually leapt from Tuesday’s US$2,840-per-tonne price point to US$2,901 by Thursday.

Top news stories

1. Aeris Bids US$575 Million for Glencore’s CSA Copper Mine

Aeris Resources (ASX:AIS) has put forward a US$575-million bid for Glencore’s (LSE:GLEN,OTC Pink:GLCNF) CSA copper mine in New South Wales, Australia.

The offer for CSA currently consists of approximately US$525 million in cash and US$50 million in Aeris shares, along with a royalty payable to Glencore. According to Aeris, late-stage negotiations surrounding the offer are currently ongoing, but nothing is finalized at this time.

Also unfinalized is the company’s funding for the acquisition, though Aeris stated it is exploring a variety of options — including a combination of debt between US$250 million and US$300 million, an equity capital raising between US$185 million and US$240 million and a silver stream between US$35 million and US$40 million.

2. China’s Iron Ore Prices Slip on Vale’s Brucutu Reopening

While Vale received a green light to resume operations at its Brucutu mine on Tuesday, Chinese iron ore prices took a tumble as supply concerns lightened.

After a deadly dam disaster at Vale’s Córrego do Feijão mine in Brazil in late January, the company hit several blockades affecting its production capabilities. In early February, Vale was court ordered to halt all activities at Brucutu, a mine that produces 30 million tonnes of iron ore annually.

On top of that, the company was also ordered to pause all operations at its Timbopeba mine just last week, taking an additional 12.8-million-tonne chunk out of Vale’s iron ore production.

3. Luminex Signs LOI with BHP for Tarqui Copper Concessions

Luminex Resources (TSXV:LR) has entered a non-binding letter of intent (LOI) with a BHP (ASX:BHP,NYSE:BHP,LSE:BHP) subsidiary regarding the company’s Tarqui 1 and 2 mining concessions in Ecuador.

The LOI, laid out for an earn-in and joint-venture agreement, entails BHP having the right to earn up to 70-percent ownership in Tarqui by investing up to US$75 million in exploration. Additionally, the company will have to pay up to US$7 million in cash to Luminex for the ownership.

“Luminex is excited to advance Tarqui with an organization like BHP that has the opportunity and commitment to supplying future global copper demand and a strong focus on responsible development in Ecuador,” Luminex CEO Marshall Koval said in a statement.

Also in the news

Though the company made some positive moves forward this week, the pain train continued for Vale on Wednesday when it suspended operations at its Alegria mine. The miner cited an inability to guarantee the mine’s stability under stress conditions for the temporary closure; the maximum-expected production impact is 10 million tonnes per year.

Also halted this week were operations at Sierra Metals’ (TSX:SMT,NYSE:SMTS) Yauricocha mine in Peru after unionized workers went on strike. The move from 66 percent of Yauricocha’s workforce came as part of a protest against contractor changes being made at the precious- and base-metals mine.

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Securities Disclosure: I, Olivia Da Silva, hold no direct investment interest in any company mentioned in this article.