Weak home currency keeps Australian mines churning
By James Regan
SYDNEY, Oct 14 (Reuters) - Australia's miners are operating as if a financial meltdown never happened, producing load after load of coal, iron ore, copper and other industrial staples, buffered by an welcome tumble in the Australian dollar's clout.
Even as stockpiles of unused metal swell at ports worldwide, undermining the miners' mantra of a "stronger for longer" commodities boom, plans are afoot to produce more.
"There's a crazy air of sentiment out there right now," said DJ Carmichael & Co mining analyst James Wilson.
Fortescue Metals Group Ltd (FMG.AX) Chief Executive Andrew Forrest, who has amassed a multi-billion-dollar fortune selling ore to Chinese steel mills, this week vowed to lift annual production by 10 million tonnes to 55 million next year, shrugging off concerns demand could be cooling.
Analysts expect world No. 3 mining house Rio Tinto Ltd/Plc to show increases in almost each of the two dozen or so commodities it mines when it releases quarterly output data on Wednesday and outlines expansion plans.
Larger rival BHP Billiton Ltd/Plc (BHP.AX)(BLT.L), which has made an unsolicited 3.4-for-one share offer for Rio, also is running its mines harder than ever.
DIAMONDS FOREVER?
Even diamond mining in Australia, was far from "done and dusted," according to Mark Hutchinson, exploration manager for Blina Diamonds NL (BDI.AX).
"It is still a good time to buy commodities," said Christopher Burton, portfolio manager for Credit Suisse Management, which this week was looking in Australia for investors in a new commodities fund.
Commodities prices in U.S. dollars -- the global benchmark -- have dropped dramatically this year, as liquidity and credit dried up raising questions over global industrial growth.
But priced in Australian dollars the picture is no where near as bleak.
Government forecasters expect iron ore to generate a record $38.7 billion in export revenue in the year to June 30, 2009 -- Australia is the world's top exporter. Coal for steelmaking will bring in $44.4 billion.
"We've been blessed by the fact the pain of declining U.S dollar metals prices is being softened by the Aussie dollar's fall," said Bass Metals Ltd (BSM.AX) Managing Director Mike Rosenstreich.
Rosenstreich said sales of zinc, lead, silver and gold from the company's mine on Australia's Tasmania island hit records in the quarter just ended, providing margins over costs of 100 percent-plus for the first time.
"For us, it's full steam ahead," he said.
The Australian dollar has fallen 25 percent Since early July, when it was almost worth as much as the U.S. dollar and some were forecasting parity. Over the same period, U.S. dollar copper prices fell 38 percent, though in Australian dollars, the drop was only 17 percent.
In gold, where U.S. dollar priced bullion has failed to revisit last March 17's all-time high of $1,030.80 an ounce, in Australian dollars, prices are hitting new heights.
"The Australian dollar gold price XAUAUD=R on October 8 rose to A$1,417.30 an ounce, the highest since the Australia dollar was floated in 1983," said Sandra Close, managing director of gold consultants Surbiton Associates.
"On average, Australian cash costs for mining gold are around A$600 an ounce, making it less than half the price of gold," she said.
But if the routing in global commodities worsens, it could take more than a friendly currency exchange rate to keep mines churning, said Mark Pervan head of commodities research for Australia & New Zealand Bank.
"Sure, Australians have a natural hedge with the dollar right now, but that's only part of the picture," he said.
"If we really go into a tailspin with the financial crisis, nobody's going to need the stuff anyway." (Reporting by James Regan; editing by Michael Roddy)
