Three Iron Ore Stocks - BHP Billiton Ltd, Rio Tinto Ltd and Fortescue Metals Group Ltd.

BHP Billiton Limited

BHP Details

BHP has approved a total of US$250 million (BHP Billiton Brasil) in financial support for the Renova Foundation and Samarco Mineração S.A. (Samarco) until 31 December 2017. The amount of US$174 million will be used to fund the Renova Foundation for remediation and compensation programs identified under the Framework Agreement (described in the Note below) (Programs). This amount will be offset against the Group’s provision for the Samarco dam failure. A short-term facility of up to US$76 million (BHP Billiton Brasil’s share) will be made available to Samarco to carry out remediation and stabilization work and to support Samarco’s operations. Funds will be released to Samarco only as required, and subject to achievement of key milestones. On 18 January 2017, Samarco and its shareholders, Vale S.A. (Vale) and BHP Billiton Brasil entered into a preliminary agreement with the Federal Prosecutors’ Office in Brazil (Federal Prosecutors) in relation to the Samarco dam failure (Preliminary Agreement). The Preliminary Agreement outlines the process and timeline for negotiation of a settlement of the BRL 155 billion (approximately US$47.5 billion) and BRL 20 billion (approximately US$6.1 billion) Public Civil Claims relating to the dam failure. The Preliminary Agreement also provides for the appointment of experts to advise the Federal Prosecutors in relation to environmental and socioeconomic impact assessment and review of the Programs being implemented by the Renova Foundation under the terms of the Framework Agreement. Given the ongoing projects progress, cost controls measures, and improving outlook for iron ore prices, we maintain a “Buy” recommendation on the stock at the current market price of $25.10
 

BHP Daily chart; (Source: Thomson Reuters)

Rio Tinto Limited

RIO Details

Rio Tinto Limited (ASX: RIO) has reported a solid quarter for production, including record output at bauxite operations. Iron ore production was in line with last year, although iron ore shipments were impacted by an acceleration in its rail maintenance program following poor weather in the first quarter. Pilbara operations produced 157.0 million tons (Rio Tinto share 128.7 million tons) in the first half of 2017, 2% lower than the same period of 2016 reflecting adverse weather conditions in the first quarter. Second quarter production of 79.8 million tons (Rio Tinto share 65.0 million tons) was slightly lower than the same quarter of 2016 and 3% higher than the first quarter. At the Silvergrass project, earthworks for the plant have been completed, installation of the conveyor is underway, and full commissioning remains on target for the fourth quarter of this year. Rio Tinto expects Pilbara shipments to be around 330 million tons in in 2017 (previously between 330 and 340 million tons) on a 100% basis.

RIO Q2FY17 production summary; (Source: Company reports)
Record quarterly bauxite production of 12.9 million tons was 7% higher than the corresponding quarter of 2016, driven by strong production at Weipa and Gove. Third party shipments of 8.0 million tons were achieved in the second quarter. Further, Mined copper production recovered compared to the previous quarter, however was 6% lower than the second quarter of 2016 as Escondida continued to ramp up following a labor strike. Titanium dioxide slag production increased by 34% compared to the second quarter of 2016, reflecting higher market demand. Given the robust balance sheet, improving production efficiencies and world class portfolio,we maintain a “Buy” recommendation on the stock at the current price of $64.94


RIO Daily chart; (Source: Thomson Reuters) 

Fortescue Metals Group Limited

FMG Details

Fortescue Metals Group (ASX: FMG, Fortescue) has updated the exchange referring to some media report about the terms of the environmental approval being sought for the future Eliwana mine development. The environmental approvals referenced are based on estimated annual production of 30 Mtpa with infrastructure to be constructed to accommodate annual production rates up to 50 Mtpa. This is consistent with normal approval processes, and does not reflect Fortescue’s production guidance. Recently, FMG has updated on its continued investment in projects to improve safety, productivity and efficiency. The company has successfully deployed CAT autonomous haulage technology at the Solomon Hub since 2012 with 56 AHS trucks now operating, achieving a 20% improvement in productivity. The implementation plan for the rollout of AHS at the Chichester Hub from FY18 is now underway, including commencement of commercial negotiations with suppliers as well as upgrade of the IT network at both the Cloudbreak and Christmas Creek mines. The investment will occur over the three-year period FY18 to FY20 and benefits will be partially delivered during FY18 and fully during the following fiscal years. We maintain a “Expensive” recommendation on the stock at the current price of $5.36


FMG Daily chart; (Source: Thomson Reuters)

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