Seven Group boss Ryan Stokes expects a turnaround in the performance of Beach Energy on the back of an abrupt leadership change and a renewed focus on completing projects and getting them into production.
Mr Stokes said the Beach results did not meet the expectations of Seven Group and that leadership overhauls had proved successful in other businesses owned or controlled by the conglomerate.
Seven Group reported a big jump in earnings and profit for the full year led by its industrial division, which spans WesTrac, Coates and its interest in building materials supplier Boral, and despite hits from its hefty stakes in Beach and Seven West Media.
Seven Group has a 30 per cent stake in Beach and chief executive Morne Engelbrecht’s exit this month came soon after Mr Stokes joined the board.
Mr Stokes said it was part of Seven Group’s DNA to make sure the right people were in place to deliver results and in the case of Beach that included completing and boosting production via the Waitsia and Otway gas projects.
He’s the richest man in Australia, but when Andrew Forrest walked into the Nickel Bar of the Kambalda Hotel no one could put a name to the face.
It was a quiet Wednesday night with a few locals drinking at a bar once known as the Swinging Arms. It earned the name because a lot of punches were thrown over the years in what may be the roughest and toughest pub in Western Australia.
Publican Steve Cole wasn’t on deck, but got a call from one of his staff saying they thought “someone famous” had called in for a beer.
Forrest stood out in his white shirt and cream jacket and because of his small entourage. Cole, a former Fortescue Metals Group employee, recognised him instantly once he arrived on the scene.
That was back in May as Forrest, through his privately owned Wyloo Metals, inched closer to a $760 million takeover of nickel producer Mincor Resources which was nailed down this week.
He spent the night at the accommodation village attached to Mincor’s Cassini mine, and shared with the workforce his vision for the company to become a launching pad for even grander plans to champion nickel as a key battery ingredient.
The next day, he was underground for the first time in 15 years, where he jumped on a drilling jumbo and received a crash course in an operator’s job that would ordinarily pay nearly $180,000 a year, according to Seek.
Forrest visited both the new Cassini mine and old Long mine, picking up what he called money rocks and looking for the telltale green flecks that indicate high-grade nickel sulphide.
Forrest is betting big on nickel for the second time in his corporate career, and has declared he’s willing to invest whatever it takes to become a globally significant supplier to battery and car makers.
The move comes 22 years after the Anaconda Nickel debacle almost broke him, and more than 55 years after nickel put Kambalda, about 600 kilometres east of Perth on the edge of a giant salt lake, on the map.
Cole, who bought the Kambalda pub a couple of years ago and is president of the local footy club, says the town is ready for a new boom in changing times marked by nickel’s resurgence and paralleling the rise of lithium.
The Mincor ground covering the Kambalda and Widgiemooltha nickel domes is adjacent to Essential Metals’ Pioneer Dome lithium project, and lithium shows up in Mincor’s drill cores.
The Mt Marion lithium mine, owned by Chris Ellison’s Mineral Resources and China’s Ganfeng, the Bald Hill lithium mine, and Liontown’s Buldania lithium project are within 100 kilometres of Pioneer Dome.
And there’s still life in gold discovered around Kambalda back in the 1890s.
No more punching on
Cole says that all stacks up well for Kambalda and his pub, built four years after Western Mining Corporation started mining nickel in the region in 1966.
“From 1970 to the time I bought it, it was very well known as the Swinging Arms,” Cole says.
“I’ve got a zero tolerance to violence, and I’ve changed the name from the Kambalda Hotel/Swinging Arms to the Kambalda Hotel/Nickel Bar, which reflects Kambalda being founded on nickel.
“It had a very chequered past. It wasn’t uncommon to come over here and there’d be 200-300 people punching on back in the heyday. It was a fairly Wild West situation even back in the ’80s and ’90s.”
Cole says the hotel’s 33 rooms are booked solid by mining companies and explorers. He’s about to add 22 rooms and likely to apply to the local council to build nearly 300 more rooms with backing from a mining company.
“This mineral boom hasn’t really taken off yet. We’ve got another level of boom times here,” he says.
“With the way the world’s going, you don’t have to be Einstein to realise that lithium and nickel are the way of the future. You’ve got to have nickel and lithium for batteries, and we’re sitting on probably one of the biggest [nickel] deposits in the world here, so it’s only a matter of time.”
Wyloo started investing in Mincor in 2019 when it was a $40 million company, viewing it as a vehicle to put back together the Kambalda nickel precinct broken up by Western Mining in the 1990s to help pay for Olympic Dam.
Wyloo came on to the register around the same time in 2019 that Mincor acquired the Long mine from IGO Limited.
It was the same year that BHP took its Nickel West business off the chopping block, deciding it offered exposure to the battery boom. The call came after a BHP review of battery minerals where nickel came out on top of lithium and cobalt.
BHP, Mincor/Wyloo and IGO are now all intertwined in nickel.
Mincor and IGO, which acquired another nickel producer in Western Areas for $1.3 billion in a contentious 2022 deal, are major suppliers to BHP. Mincor’s offtake deal with BHP is set to expire in 2025 and, as the new owner, Wyloo will need to sort out quality issues related to arsenic content in the Cassini ore that have earned a red light from BHP.
Under a partnership spawned out of the Western Areas takeover, where Forrest had leverage via a 9.8 per cent stake, Wyloo and IGO are considering building a processing plant at Kwinana, south of Perth, that would mix nickel, cobalt and manganese to make a precursor material for battery cathodes known as pCAM.
The plant would be the first of its kind in Australia and take the nation a step closer to producing batteries onshore. It is slated for a site next door to where IGO and China’s Tianqi produce lithium hydroxide and close to where Wesfarmers and its partner, SQM, have started work on their lithium hydroxide plant.
A Wyloo-IGO precursor plant would have consequences for BHP – which highlights nickel in advertising about its move into “future facing” commodities – as it considers a big ticket upgrade of its ageing smelter at Kalgoorlie and weighs up building a 1000-bed accommodation village.
A greener way
The Mincor operations rely on using the BHP-owned nickel concentrator at Kambalda, but nickel smelting is not required as part of the Wyloo-IGO process to make precursor material.
BHP has nickel mines of its own not too far from Kambalda and picked up the $1.7 billion West Musgrave project near the South Australian border as part of its acquisition of OZ Minerals.
Wyloo chief executive Luca Giacovazzi says it makes a lot of sense to produce pCAM at Kwinana rather than moving around nickel concentrate (about 12 per cent metal) or nickel sulphate (about 20 per cent metal).
“It is a great product to move around because it is 100 per cent pure in terms of nickel units, and you bypass smelting as a greener way of making a nickel product,” he says.
“We think the optimal point [in the battery supply chain] today is pCAM, but it’s great to think WA has all the metals needed so we can go further downstream.
“First you have to bridge the gap and be the first to take the step [into pCAM] that opens up a world of possibilities.”
Meanwhile, Giacovazzi has traders pleading with him not to go downstream and to let them price nickel concentrate produced by Wyloo through the Mincor operations and potentially mines in Canada.
“Traders are in the best position to see where the shortages are, and it is very apparent that the world is short nickel sulphide concentrate,” he says.
Lithium-ion batteries with nickel, manganese and cobalt were fitted into about 60 per cent of the electric vehicles sold around the world in 2022, and it is accepted they store more energy and provide longer range than rival cathode chemistries.
Every company is coming to us asking if they can do an offtake deal.
— Luca Giacovazzi, Wyloo Metals
“Not many people appreciate there is more nickel in a battery than there is lithium. In another world, it would be called a nickel-ion battery, not a lithium-ion battery,” says Giacovazzi.
One big difference is that lithium production started from near zero when demand for EVs started to accelerate whereas nickel could be appropriated from long-established stainless steel supply chains.
“When you think about the world, there is a lot of lithium out there. Every second day someone has found or made some lithium,” says Giacovazzi.
“When you think about nickel, how many times in your day job do you hear of people making high-grade nickel discoveries? They are few and far between.
“It feels like at some point nickel will have its lithium moment when there is just not enough of it. We get to see it first-hand because we talk to car companies a lot. Every company is coming to us asking if they can do an offtake deal.
“The OEMs [original equipment manufacturers] think they have dealt with the issues in lithium and are now turning their attention to nickel. They are looking at the nickel universe and going, ‘my options are BHP and Vale’, whose offtake is all gone, and Glencore, whose offtake is all gone, or to Indonesia or to us.”
Wyloo has a presence in what it considers the three best nickel sulphide belts in the world outside Russia – Kambalda, the Ring of Fire region in northern Ontario and the Cape Smith belt in Quebec – and a long pipeline of projects that will soon require a lot of capital.
On the exploration front, Wyloo believes there is much more nickel and perhaps even the main ore body still to be found around Kambalda.
In Ontario, it is aiming to have the Eagle’s Nest nickel project – a prize won after a bidding war with BHP – in production before the end of the decade.
Wyloo also wants to build a precursor plant in Canada, develop its Blackbird chrome project in the Ring of Fire precinct, and continue exploration work at Cape Smith.
Giacovazzi sees plenty more to come but is pleased the nickel price had more than doubled from about $US4 a pound when he started pitching a return to the sector to Forrest about four-and-a-half years ago.
He’s surprised the Albanese government didn’t add nickel to an updated critical minerals list when it was released last month.
“I know it is something the government is looking at very closely, so I don’t think it stays off the list for long,” he says.
Forrest says his team has done a lot of work to understand that nickel sulphides are the “greenest and cheapest” path to a battery, despite all the Chinese-backed nickel laterite projects springing up in Indonesia.
The Albanese government and the WA government both signed off on critical minerals agreements with Indonesian President Joko Widodo this week in moves that raised eyebrows in the Australian nickel sector and in the Forrest camp.
Indonesia brings little to the critical minerals table except nickel laterite projects that it insists make at least pig iron onshore. The projects carry with them big environmental question marks and are largely wholly or part-owned by China.
Forrest clearly had the Indonesian producers in mind this week in promising to give the world a choice between clean and dirty nickel.
Wyloo estimates a laterite operation in Indonesia has six times the carbon footprint of a similar scale sulphide operation.
Forrest says he wants nothing to do with tropical laterite operations which involve deforestation and where tailings inevitably end up in the ocean, and tips the market will eventually feel the same way.
“People were prepared to turn a blind eye yesterday but tomorrow they may not be,” he says.
However, there’s a non-tropical nickel laterite mine about 300 kilometres north of Kambalda you get the impression he wouldn’t mind owning as part of some unfinished business.
The Glencore-owned Murrin Murrin mine was the scene of his Anaconda downfall, but since then, has churned out a lot of nickel.
Forrest bristles at any suggestion people in the wider Goldfields region, taking in Kambalda, Kalgoorlie and Leonora, and in the nickel sector, might still harbour hard feelings toward him over Anaconda.
Forrest was booted as chief executive in 2001 after falling out with backers Glencore and Anglo American over production delays and processing plant misfires he still blames on the engineering firm then known as Fluor Daniel.
“Under my leadership no one wasn’t made whole, every bill got paid,” he says. “I’m really proud of that record.
“Glencore got hold of it and cut a deal with bond holders and tried to get the company for nothing. I do know that someone stopped them doing that and didn’t get a great deal, but got a hell of a lot better deal than Glencore had on the table for every other shareholder. And that was me.”
Forrest says he never lost interest in nickel even after going on to make his fortune in iron ore.
“I started my corporate leadership in nickel because I believe it is the most recyclable metal in the world and has a huge future,” he says.
“It is not something I’ve ever felt I’ve been away from. I’ve just been waiting for the right opportunity and leadership team to go back in.”
5 Jul, 2023
BHP will spend nearly $6b cutting emissions by the end of the decade
BHP has put a $US4 billion ($5.9 billion) price tag on its decarbonisation efforts over the next seven years, warning its emissions will rise before they fall to meet the targets set by the mining giant in 2030.
The “path ahead of us is not linear,” with emissions rising in line with the miner’s growth plans, before falling again before 2030, Graham Winkelman, the group’s head of carbon management, said in an investor meeting.
He said BHP would spend the bulk of the money budgeted to cut carbon emissions until closer to the end of the decade to invest in higher quality technology to replace “our most diesel intensive” engines and generators.
“The path to 2030 is ... challenging. Our emissions profile is now weighted towards diesel. And while technology solutions for diesel displacement are emerging, many are not yet available at scale,” Mr Winkelman said. “In addition, our business activity is expected to grow to ... 2030, which under the current circumstances, would lead to some growth in emissions.”
Still, the world’s largest miner says it’s on track to cut emissions by 30 per cent by the end of the decade, based on 2020 levels, by actively trimming those generated in mining operations rather than relying on carbon offsets.
“While unlikely to be necessary for the financial year 2030 target, we can anticipate the need for some carbon credits to deliver on our net-zero goal,” Mr Winkelman said.
BHP expects to spend just under $US2 billion, 40 per cent of the pool of cash allocated to decarbonisation on its iron ore operations in Western Australia between the next financial year and 2030. The company said it would spend 31 per cent on its Escondida copper project in Chile.
Speaking on BHP’s Australian mining operations, Anna Wiley, the group’s vice president of planning and technical, said diesel was the second-largest source of emissions after methane.
“We need the [electric] power to displace the diesel,” Ms Wiley told investors on Wednesday, adding that the company uses 1500 mega litres of diesel in over 1000 pieces of equipment.
That means BHP is expected to increase its electricity by three-or- four-fold to drive down the amount of diesel emissions onsite. At its Pilbara operations, which are not connected to an electricity grid, the miner is planning to install 500MW of renewable power to help replace its reliance on diesel, and crucially switch its haul trucks from diesel to electricity.
BHP intends to trial electric Caterelectric trucks in 2024 and Komatsu vehicles in 2025. Full deployment is set for 2028. Electric rail cars are set to be trialled in the same period and deployed by 2029.
Reflecting on the costs of running electric trucks, Ms Wiley said the initial modelling suggests that the cost will be the same or less to operate compared to diesel.
“As we transition from diesel to electricity. We will spend less on carbon exposure, but we will need to spend more on electricity. However, we expect the cost will be less overall given the efficiency of the battery electric trucks and the expected energy price differential,” Ms Wiley said.
Like Fortescue Metals and Rio Tinto, Ms Wiley said BHP doesn’t see a place for hydrogen fuel to cut its carbon emissions in its trucking division during this decade. “Using hydrogen as an example, we see that the greatest losses at this phase are due to generation storage and transmission compared to minimal losses in electricity generation and transmission,” she said.
Methane, a gas released as part of the mining process accounted for 32 per cent of BHP Billiton Mitsubishi Alliance coal mining operations and 15 per cent of minerals in the 2020 financial year, the group said in the briefing.
BMA is Australia’s and the world’s largest supplier of seaborne metallurgical coal, the fuel used in steel-making. The group said it expects 50 per cent of total forecast methane emissions could be extracted and actively managed.
BHP said it will spend 12 per cent of the $US4 billion allocated to reduce carbon on the BMA operations.
22 Jun, 2023
Inflation and cost pressures won’t come down any time soon, Boral says
Construction materials maker Boral is pushing up prices for its key products cement, gravel and asphalt to keep up with inflation, which it says will stay high for at least another two years.
“I don’t see inflation going away. We don’t see that in the next 12 months,” Boral’s chief executive Vik Bansal said. Any moderation is at “least two years away,” he said.
The chief executive’s comments came after the Reserve Bank reacted to “persistent” and “ongoing” high inflation with another interest rate hike on Tuesday, taking Australia’s cash rate to an 11-year-high of 4.1 per cent amid growing risks of a recession.
Boral, a major supplier of construction materials, is at the front line of the building and infrastructure industry. The company operates from more than 300 heavily industrialised sites across the country, making concrete and cement, quarrying stone, recycling construction and demolition waste, and processing asphalt and bitumen for roadworks.
Bansal took the helm at Boral, which is 70 per cent owned by billionaire Kerry Stokes’ Seven Group Holdings, in October last year. He told investors on Thursday that concrete sales at the company had slowed in the past few weeks as higher mortgage payments hit the residential construction sector, softening demand for new homes.
“We’re definitely seeing a drop in residential,” he said.
The industry needs to shift away from fixed price building contracts, he said. In response to the inflationary pressure, Boral is passing on its higher costs by raising prices for all its products, maintaining its profit margins in some sectors and just keeping up with inflation in others.
“We don’t find any part of the country where we’re actually not getting price escalation across the board in cement, concrete, asphalt and recycling. I do want to make the point that the inflation pressure is not going away. From our perspective, the pressure on pricing for the next 12 months is not going away,” Bansal said.
Cartage, labour and energy are the top costs for Boral and the company is trying to manage them. “Cost per tonne needs to come down,” he said. “There’s a fair amount of cost to be managed over the next couple of years.”
Bansal said since taking over at Boral he has changed its operating model to create more “discipline and rigour” among its leadership. Individual leaders are now responsible – down to two levels below the chief executive position – for each profit and loss line. “They are held accountable for volume, price, cost, cash,” he said.
Sales volumes are up year-on-year, although volumes slowed in April. The company is expecting volumes to rise in May, but both months were ahead of last year.
The company is hoping to increase its decarbonisation by focusing on its operating emissions, most of which (78 per cent) are generated by its cement and lime making business, but will avoid “jumping the gun” and investing too early in carbon capture and storage, an unproven technology in which carbon generated during industrial processes is stored underground.
Boral hopes to further dent its emissions by being more efficient and using alternate fuels. It has found success selling low carbon concrete, made using fly ash or blast-furnace slag. “We’re talking about 30 to 40 per cent take-up of low carbon concrete by the customer, so there is an absolute demand for it in the marketplace,” he said.
The company is also trying to keep building customers happy by allowing them to track their concrete trucks to check on delivery times.
“We want to see a world where a builder can watch the truck coming like an Uber, how far they are away. The technology actually exists today. We can link it with a system where builder gets certainty of when the truck is arriving,” Bansal said.
“That, I can assure you, is worth a lot of value to Boral.“
24 May, 2023
Quadrant PE in box seat at electronics maker Circuitwise’s auction
Quadrant Private Equity’s growth arm has hopped to the front of the line at Sydney-based electronics part manufacturer Circuitwise, which was put up for sale in February via E&P Corporate Advisory.
Quadrant’s growth investments has secured a final round of exclusive due diligence at Circuitwise, and could seal the deal in the coming weeks. Sources said Quadrant had outbid rival suitors Five V Capital and Alceon Private Equity, after offering about 8-times current earnings.
Family owned Circuitwise, based in Sydney’s Bella Vista, manufactures printed circuit board assemblies, which go into electronic equipment used by hospitals, aerospace and defence, telecommunications, and power and infrastructure sectors.
Its founders, Roz and Greg Ross, called in E&P to offer a controlling stake in the business after 36 years of ownership. The business was expected to post $33.6 million revenue and $9.4 million EBITDA in the next financial year.
Circuitwise was pitched as an advanced manufacturing facility that made “mission critical” electronics parts. Potential backers were told it had a good line-of-sight on its future revenues, thanks to its customers’ tendency to place orders well in advance.
24 May, 2023
‘BHP is right to fear’ $1.3b hit from workplace rules
The government has acknowledged its planned crackdown on the use of labour hire aimed to drive up wage costs, after BHP complained the policy would cost it $1.3 billion a year and threaten “serious damage to every level of the Australian economy”.
The mining union said BHP had every reason to be afraid of what was coming its way, while Workplace Relations Minister Tony Burke said the whole idea was to drive up wages.
In a sign of the looming industrial relations fight between Labor and some of the nation’s biggest industry sectors, BHP warned of job losses and having to scale back some of is domestic operations.
BHP says the government’s policy goes beyond the stated aim of weeding out “cowboys” who exploit labour hire, and argues it would threaten the company’s creation of another 2000 jobs over the next two-to-three years as well as plans to deliver another 2500 training positions.
BHP says the $1.3 billion in additional operational costs is equivalent to the labour cost of approximately 5000 full-time employees across it operational workforce.
“In order to address a cost impact of this magnitude, we will clearly
need to review its implications for our Australian operations and the workforce that supports it,” the company warned.
Mr Burke accused BHP of jumping the gun while confirming its wages fears.
“It’s unclear how BHP has produced a costing on legislation that has not yet been finalised or written,” Mr Burke said in a statement.
“If you close a loophole to stop workers being ripped off, it will result in an increase in the wages budget of any company that was using the loophole. We make no apologies for that.
“The details of this policy are not yet settled. That is the point of the consultation we’re doing with BHP and others.
”But as a miner said to me in the Hunter Valley this week: ‘How can you have an industry where because of a labour hire loophole, casual workers are paid less than permanent workers who do the same job?’”
‘BHP is right to fear’
Tony Maher, the general president of the Mining and Energy Union, said BHP should be afraid.
“BHP is right to fear that Same Job, Same Pay will lift their wages bill, because they have been exploiting labour hire mine workers for years,” he said.
“BHP has replaced thousands of good, permanent mining jobs with insecure, lower-paid labour hire jobs.
“Along with other big mining companies, they have exploited weak laws allowing them to avoid paying the wages and conditions achieved through genuine enterprise bargaining.
“Same Job, Same Pay laws will close this loophole.
BHP based its cost estimates “on available information and certain assumptions drawn from the consultation paper” the government released in April.
Labor’s attack on the use of labour hire, which is popular in the mining, airline and retail sectors, already has in-principle Senate support and is part of a second wave of industrial relations laws to be introduced in the latter half of the year.
Major business and industry groups, who feel they were hoodwinked at last year’s Jobs and Skills Summit, when the government ushered in the first wave of IR changes, are gearing up for a fight this time.
Business groups to join forces
The Business Council of Australia, the Minerals Council of Australia, the Australian Chamber of Commerce and Industry and potentially the Australian Industry Group and Qantas will join forces in a new campaign to oppose the government’s direction.
MCA chief executive officer Tania Constable said her organisation “consistently develops educational campaigns on behalf of its members on policies that impact the minerals sector and the wider economy”.
“The government’s so-called Same Job, Same Pay will be a backward step for the Australian economy, at a time when we need more investment and more productivity growth. This policy would inhibit both,” she said.
In its submission, BHP argues that the proposed laws would go beyond the original stated intent of protecting workers from exploitative labour hire practices.
“BHP supports targeted policies designed to protect vulnerable labour hire workers from exploitation,” its submission said.
“However, the proposed SJSP policy strays far beyond this objective and, as a result, threatens serious damage to every level of the Australian economy.
“At an economy-wide level, SJSP will compound existing productivity challenges, particularly in the mining sector, where wage growth has consistently outstripped productivity growth.
“By fixing labour costs in any particular location to the highest rates of pay –
without corresponding productivity gains – SJSP will create unsustainable cost pressures that will further erode Australia’s competitiveness as an investment destination.”
BHP argues Australia has some of the highest labour costs of any major mining nation. Average wages for mining workers are about $148,000
a year, compared to $96,800 across all industries.
“SJSP will add to inflationary pressures by ratcheting up wages without any link to productivity, and it will introduce economic uncertainty by
interfering in the competitive labour market.”
BHP says labour hire has a legitimate purpose by enabling the resources sector “to quickly ramp up production to take advantage of demand changes, to respond to unforeseen events requiring additional workforce, and to supplement the existing workforce in case of short-term absences caused by illness or other personal circumstances.”
11 May, 2023
Packaging giant Amcor feels pain of tighter spending
The chief executive of Amcor, the world’s largest consumer packaging company, says consumer spending is being wound back as the full effect of inflationary price rises hits households.
Ron Delia said on Wednesday the cumulative impact of price rises right through the economy was behind the slowdown, which caused Amcor to downgrade its full-year profit forecast by about 5 per cent. Amcor tumbled 7.4 per cent in early trading on the ASX.
Households were “trading down” in some segments, and also looking for more value-oriented options such as buying a slab of soft drinks rather than a single bottle at a convenience store.
“I think inflation in the economy is the thing that has the consumer slowing spending,” he told The Australian Financial Review.
Amcor operates 220 factories in 43 countries making bottles, plastic pouches, wrappers and containers for food, beverages and healthcare products. About 95 per cent of Amcor’s customer base is in consumer staples, such as packaging for meat, cheese, sauces and condiments, beverages, coffee, pet food, healthcare and personal care products.
Mr Delia said de-stocking by retailers had also reduced demand. Retailers had built up extra inventories in warehouses as a safeguard against COVID-19 disruptions in the depths of the pandemic. The opposite was now occurring.
“This is the other side of the stock build,” he said. He said the premium coffee segment was a prime example of where destocking was happening. Shoppers were more inclined to buy in bulk in the beverages sector, generally.
“They might be buying a slab or a 12-pack,” he said.
Europe was the weakest geographic location for Amcor. “It does feel like the consumer in Europe is a bit more stretched,” he said.
Amcor downgraded its full-year forecast for earnings per share to US72¢ ($1.08) to US74¢ a share, replacing a previous forecast at the lower end of a range between US77¢ to US81¢.
The company warned that demand was likely to remain weak and volatile in the June quarter, with volumes likely to decline by a mid-single digit percentage compared with last year.
The company reported a 2 per cent decline in earnings before interest and tax to $US1.2 billion for the nine months ended March 31. Mr Delia said price increases being pushed through by Amcor to its customers were slowing as raw materials costs from inputs such as resin slowed. “It has moderated,” he said.
For the nine months ended March 31, there were total price increases from Amcor of $US750 million from the pass-through of higher raw material costs. But only $US80 million happened in the March quarter.
UBS analyst Nathan Reilly said it was a “soft result” overall from Amcor, with declining consumer demand and retailer de-stocking feeding in to the weaker numbers.
Earnings before interest and tax margins slipped to 10.6 per cent from 11.2 per cent a year ago. Amcor reported a net profit of $US868 million, which included a $US215 million gain on the sale of three plants in Russia announced in February, bought by a local Russian group called HS Investments for $US365 million, after the Russian invasion of Ukraine.
Mr Delia said Amcor had made strong advances in recycled packaging, including a new paper-based wrapper for chocolate bars made by Mars Inc and Nestle in Australia. The Mars bar with a paper wrapper is a pioneer in Australia for a global shift.
Amcor is listed on the New York Stock Exchange but still has Chess Depositary Interests that trade on the Australian Securities Exchange. It spent $9 billion purchasing Bemis Co in the US in 2019 and then shifted its primary listing to the NYSE. A large part of its business is in the United States.
11 May, 2023
Why magnetite matters more to Fortescue in the green iron era
Andrew Forrest says there’s a graveyard somewhere full of failed magnetite projects, but his will be different.
Fortescue Metals Group’s Iron Bridge magnetite mine reached a first production milestone last week after surviving its own near-death experience in early 2021. The Fortescue founder and chairman breathed a great sigh of relief on May 1 when Iron Bridge started churning out magnetite with an iron content greater than 68 per cent.
It has taken other projects years to achieve target grades and some have never got there.
The breakthrough for Fortescue comes at a time when high-grade product from the iron ore industry is seen as the quickest path to greener iron and therefore greener steel. And in a green iron world, magnetite projects make more sense than they did in the past.
However, the carbon emission paradox for magnetite projects is that they require energy-intensive processing of very low-grade material, and until renewable generation becomes an alternative, they rely on fossil fuels.
Iron Bridge will be reliant on power from a 220-kilometre transmission line built to connect it to the gas-fired plant at Fortescue’s Solomon mining hub while the company works away at plans to decarbonise all of its mining operations by 2030.
Forrest says Iron Bridge will be the first operation decarbonised. He also thinks it is a “good result” that Iron Bridge is finally up and running a year later than first planned and that the original $US2.6 billion budget blew out to $US3.9 billion ($5.8 billion).
He says project costs were on a $US10 billion trajectory when he intervened in January 2021 and ordered a review that led to a wipeout of the team in charge of Iron Bridge on one of the darkest days in Fortescue history.
Fortescue appears unlikely to make any shipments of magnetite before June and is not putting a timeline on when it expects the operations to hit nameplate capacity of 22 million tonnes a year, with some construction work still going on at the site about 135 kilometres south of Port Hedland in Western Australia.
When it does hit full capacity, Iron Bridge magnetite will make up about 10 per cent of Fortescue’s exports that now all come from hematite iron ore deposits. The Fortescue hematite mining delivers a product that typically contains between 56 per cent and 59 per cent iron.
New Fortescue chief executive Fiona Hick says the company now has the option to sell the high-grade hematite as a standalone product or blend it with the lower grade hematite ore.
Hick says Iron Bridge could be just the first in a series of magnetite mines in the Fortescue portfolio, with the company also looking to mine a high-grade hematite deposit in Gabon.
Rio Tinto, BHP and Gina Rinehart’s Hancock Prospecting all have incredibly profitable hematite operations in the Pilbara and a close eye on market signals from China. With a squeeze on Chinese steel-making margins, the price of lower grade iron ore like that currently sold by Fortescue has held up well so far this year.
Fortescue product fetched $US109 a tonne in the March quarter, which represented 87 per cent of what Platts said was the average price for benchmark ore with 62 per cent iron over the three-month period.
Rio Tinto hasn’t ventured into magnetite but has noted that an “inevitable structural shift towards green steel is under way” and expects that this will lead to weaker prices for lower-grade iron ore in the long term.
Rio Tinto, which has struggled to keep the grade of its ore near the “benchmark” level of 62 per cent iron in the past couple of years, is looking to the Rhodes Ridge project in the Pilbara and the Simandou project in Guinea to deliver boosts in grade.
Rinehart is set to go down the magnetite path with a potential multibillion-dollar investment but is worried about what impact the safeguard mechanism – the Albanese government’s flagship emissions reduction policy for heavy industry – could have on the Ridley project near Port Hedland.
Hancock Prospecting, through wholly owned subsidiary Atlas Iron, is pushing ahead with approvals for Ridley, which could eventually produce 16.5 million tonnes of magnetite a year.
It is understood Australia’s biggest privately owned company is frustrated with mixed messages from the government on the need to move downstream in minerals processing while at the same time reducing emissions.
In a thinly veiled reference to the safeguard mechanism, Hancock chief executive of projects Sanjiv Manchanda has warned the low iron-content ore at Ridley will stay in the ground unless it can be turned into high-grade magnetite through processing.
“Federal and state governments need to be aware of the Pilbara’s very high costs and cautious about adding further regulatory burdens which could risk such projects and investment, undermining opportunities for many,” he says.
Iron Bridge isn’t the first magnetite project in WA. A difficult trail was blazed by CITIC Limited with its Sino Iron operations at Cape Preston and by the backers of the Karara project on the mid-west coast now owned outright by China’s Ansteel.
Both of those projects had the advantage of a free kick on royalties from the WA government but still struggled. Karara’s original $1.6 billion construction budget blew out by more than $1 billion.
CITIC, which has voiced concern about the impact the safeguard mechanism could have on its operations, ploughed billions of dollars more than first planned into Sino Iron.
Forrest says CITIC, which has been producing magnetite at Sino Iron for a decade, simply stopped counting at $US12 billion and that the cost blowouts would have sent any Australian company broke.
“They were lucky the Chinese government was behind them,” he says.
The CITIC operations have gone on to make Clive Palmer, whose private company owns the tenements and has royalty rights, one of the richest people in Australia.
CITIC reported Sino Iron made a hefty $US475 million profit in 2022 when it shipped 21.4 million tonnes of magnetite concentrate to China. This followed a record $US948 million profit in 2021 when iron ore prices were sky high.
In its annual report issued in April, the conglomerate highlighted carbon emissions savings from using magnetite in its steel mills. CITIC cited independent analysis suggesting using magnetite rather than hematite iron ore resulted in a 180-kilogram carbon emissions saving on every tonne of steel produced.
CITIC maintains it will “take all necessary actions to secure Sino Iron’s long-term future” and, based on a recent court decision, that appears likely to mean striking a deal with Palmer on access to more land for an operation plagued first by cost blowouts and then impairments in its early years.
Fortescue says it de-risked the Iron Bridge project by building a large-scale pilot plant at a cost of $US500 million to make sure key equipment and its production processes were sound.
The pilot plant was built by Fortescue and Taiwanese company Formosa before an April 2019 announcement, which back then committed the partners to spending a further $US2.6 billion developing Iron Bridge.
Fortescue says it is remarkable that Iron Bridge produced a first run grade of greater than 68 per cent iron – the target grade is 67 per cent – and further vindication of its innovative dry crushing and grinding circuit.
The Fortescue process involves grinding and magnetic reduction to the point where the ore is as fine as talcum powder. Water is added as one of the final steps and much later than in other magnetite processing operations.
12 Apr, 2023
Origin suitor Brookfield to soothe ACCC concerns with $20b renewable bonanza
Origin Energy’s suitors are banking on their promise of pouring up to $20 billion into renewable energy investments in Australia to convince the competition regulator to approve their $15.4 billion takeover of the Australian power and gas giant.
ASX-listed Origin’s board has accepted an $8.91 a share bid from a consortium that included Canadian asset giant Brookfield and US-based energy investor EIG, sealing one of the country’s biggest private equity-backed deals.
While Brookfield and EIG plan to split Origin’s assets between them, their bid still needs the approval of the Australian Competition and Consumer Commission (ACCC). The takeover offer is also conditional on the support of Origin shareholders and approvals from Australia’s Foreign Investment Review Board (FIRB).
Brookfield already holds significant stakes in the local energy infrastructure. The investment fund successfully took ownership of Victorian electricity operator AusNet last year as part of a consortium that included Sunsuper and a host of Canadian pension funds. It also holds a 50 per cent stake in the smart metering business Intellihub.
“The ACCC has been contacted by Brookfield and Origin in relation to their announcement and expects to conduct a public review once it has received a submission. The ACCC will carefully consider any likely competitive impacts resulting from the proposed acquisition,” the competition regulator said on Tuesday.
Brookfield, which is seeking to acquire Origin’s domestic energy generation and retail business, has played the national interest card in its bid to allay the ACCC’s concerns, arguing that its investment in replacing Origin’s existing infrastructure with renewables will help Australia meet its stated emissions reduction target.
According to Brookfield, its promised investment would represent one-fifth of the renewable energy capacity needed by the market to meet 2030 carbon reduction targets.
“The acquisition of Origin Energy presents Brookfield with a unique opportunity to invest at least $20 billion and make a material difference to achieving Australia’s net-zero targets,” Brookfield Asia Pacific chief Stewart Upson said.
“Brookfield has the capital, expertise, supply chain strength and global track record that’s needed to transform Origin’s generation fleet to greener sources and accelerate Australia’s energy transition while ensuring network security and reliability,” he said.
One key Origin asset that Brookfield would have to decommission is the company’s Eraring power plant, Australia’s largest coal-fired facility. The investment fund maintains that its investments in renewable energy generation and storage facilities should allow it to shut down Eraring without destabilising the power grid.
Origin last year said it would shut down Eraring by 2025, seven years ahead of schedule, citing the weakening economic viability of the facility. The 2880-megawatt generator on NSW’s central coast is responsible for providing 20 per cent of the electricity needed for NSW. Brookfield has confirmed it plans to stick to Origin’s timetable on closing the power station.
On Monday night, Origin, Brookfield and EIG said they had entered into a binding agreement, which Origin Energy’s board intends to unanimously recommend shareholders support when it is eventually put to a vote. The final offer of $8.91 for each Origin share represents a 53 per cent premium to the company’s share price before the initial offer was made in November.
Brookfield on Monday revealed its co-investors would include Singaporean institutional funds GIC and Temasek.
EIG, which is seeking Origin’s 27.5 per cent interest in the Australia Pacific LNG (APLNG) gas venture, said APLNG had an important role to play in the energy transition and would serve as the foundation for the company’s larger LNG ambitions.
The scheme implementation deed, which Origin released to the ASX on Tuesday, said the parties expected to submit a draft application for merger authorisation by April 14.
“The board is unanimous in its view that this transaction is in the best interests of shareholders,” Origin chairman Scott Perkins said. “The transaction represents a significant premium to the share price prior to the original indicative proposal, and reflects the strategic nature of Origin’s platform, its growth prospects and anticipated earnings recovery.”
As the energy grid’s shift away from coal-fired power continues to gather speed, Brookfield’s chairman, Mark Carney, said Brookfield believed Origin could “lead the way ... at this critical moment for the Australian economy”.“What’s needed is increasingly clear: faster deployment of large-scale renewables, the accelerated, responsible retirement of coal generation, and an interim, supportive role for gas as the dependable back-up fuel,” Carney said.
12 Apr, 2023
Carbon offsets a short-term fix: Fortescue Future Industries boss
The boss of green hydrogen powerhouse Fortescue Future Industries (FFI) has backed the Labor government’s safeguard mechanism as a good start in reducing harmful carbon emissions from heavy industry, but says the policy’s use of carbon offsets is not a viable long-term solution.
The Albanese government this week struck a deal with the Greens that enabled it to pass new laws on Thursday that will force the nation’s 215 biggest greenhouse-gas polluters – including major mining sites, gas processing plants, manufacturing firms and steel mills, to cut emissions and set tougher controls on new fossil fuel projects from July 1.
“It [the safeguard mechanism] is a great first step,” Fortescue Future Industries (FFI) chief executive Mark Hutchinson said, adding that the use of offsets is “debatable” longer term. “It’s necessary now, but eliminating fossil fuels that’s really the goal, not trying to find a way level them.”
To achieve the policy’s targets of reducing emissions by at least 4.9 per cent a year, or 30 per cent by 2030, companies will be forced to either buy carbon credits generated by carbon offset projects such as tree planting, or they can switch old fossil fuel-based technologies to cleaner systems, such as hydrogen.
FFI is in pole position to take advantage of a global push by heavy industries – accelerated by policy shifts like Australia’s safeguard mechanism and America’s Inflation Reduction Act – to switch to alternative energy sources, such as green hydrogen.
Hydrogen, which burns cleanly and emits only water, is considered a growth industry that could eventually substitute coal in steelmaking furnaces or natural gas in electricity and heating systems. Most of today’s hydrogen is limited to “grey hydrogen”, made from gas via a process that emits carbon dioxide into the atmosphere.
Green hydrogen, on the other hand, is produced when a renewable energy-powered electrolyser is used to split water into hydrogen and oxygen.
Hutchinson is the chief executive of a company set up by Australian billionaire Andrew “Twiggy” Forrest to spearhead a multibillion-dollar effort to diversify Forrest’s iron ore mining company Fortescue, which generates 2 million tonnes of greenhouses gases a year, into a clean-energy group spanning renewable energy and zero-emissions hydrogen.
Hutchison said FFI this week signed a power purchase agreement with Norwegian hydropower and renewable energy generator Statkraft to supply hydrogen from a prospective plant in Holmaneset for export to Germany.
“We have committed to do five projects to FID [final investment decision] this calendar year.” They are in Australia, the United States, Brazil, Norway and Kenya, he said. “The demand is absolutely there. The world is waiting to do it at scale, which is what we’re trying to do.”
FFI is aiming to make 15 million tonnes of green hydrogen a year by 2030 – an ambitious goal for an energy source whose current global production is a tiny fraction of that target.
While green hydrogen has gained global attention for its potential future applications as a zero-emissions energy source, other companies building demonstration plants for the fuel are less bullish about its near-term outlook, arguing that it remains a new technology with significant obstacles surrounding its ability to be cost-competitive at scale.
However, Hutchinson said two events have “supersized” green hydrogen’s potential.
The US Inflation Reduction Act will subsidise green hydrogen by nearly $US3 a kilo, making it immediately cost-effective for manufacturers and the war in Ukraine has made Europeans sit up and accelerate their plans, he said.
“Those two things globally, have been a major, major impetus to what we’re doing.”