From the SMH:
Commodities giant Glencore Xstrata has promised to achieve $US2 billion worth of synergies across its newly merged, global portfolio, in a move that is set to prevent at least one new Australian coalmine from going ahead.
The newly merged Swiss company unveiled the dramatically increased $US2 billion target during an investor day in Europe late on Tuesday, and promised to achieve the goal by 2014.
Glencore mines coal, zinc, lead, nickel and copper in Australia. Its most bearish sentiments on Tuesday were reserved for thermal coal, which has been struggling under low prices and high costs.
‘‘Current price levels are unsustainable in the medium term, with close to 30 per cent of seaborne thermal production being cash-cost negative,’’ the company said.
The pessimism will result in the Wandoan project, a greenfield thermal coal development in Queensland, being frozen or divested, after it was listed as one of seven Australian coal prospects that were now ‘‘on hold’’.The $7 billion project had been going through feasibility studies and government approval processes, but its future has been clouded ever since a coal export terminal was axed in May.
In my view these few paragraphs tell you all you need to know about the future of the mining boom. It will not be rebooted by cutting taxes, as the Coalition hopes (at least publicly). The problems are far deeper: waning Chinese demand growth is hitting massive new supply; markets are not reacting rationally and production is remaining high far longer than anyone expects; and the result is price tumbles and capex collapses. The same is in store for iron ore and, to a lesser extent, LNG.
The third phase of the mining boom is not some genteel stroll up the volumes ramp to Nirvana. It’s a staged bust and long march into cost deflation.
