Iron Ore Warning: High Spending Days Are Over

One of the world's largest investors in mining stocks, BlackRock, has been out and about over the past week issuing warnings to the major resource companies. 

The iron ore price has hit a five-year record low and BlackRock wants to push a message to management - avoid reverting to the high spending expansionary ways and stay focused on cutting costs and rewarding shareholders.

Evy Hambro, whose team manages more than $20 billion across multiple funds for BlackRock, doesn't seem to explicitly mention whether he includes big iron ore producers chasing increased production among the list of management's bad habits - or whether he thinks the likes of BHP and Rio are ultimately shooting themselves in the foot, given that massively increased supply is a significant factor on the weakening price of the metal.

There is plenty of unconfirmed talk that this is the message that BlackRock has conveyed to the likes of BHP Billiton (in which it is the largest shareholder) and Rio Tinto.

One of the larger culprits in a supply-flooding sense is Fortescue which, percentage wise, has grown much faster than its larger competitors. However the genesis of its expansion plans dates back many years and its target production level has now been reached. 

Fortescue's shareholders are unlikely to see any further volume expansion beyond sweating the existing assets a bit harder.

The ripple effect of the continuing fall of the iron ore price is an issue that is now becoming mainstream. It has major ramifications for the country's exports and governments' tax revenue and thus the broader economy.

To date the large mining companies in Australia have been able to offset last year's lower commodity prices for iron ore and coal by undertaking major cost cutting drives and efficiency initiatives.

But if prices continue to fall and much of the low hanging fruit has been harvested, revenues and profits will be under pressure.

While we can't blame everything on oversupply, given there are seasonal demand factors from the Chinese customers that come into play - the latest of which is that country's weak property market - the fact remains that the Australian producers in particular have been pumping out enormous volumes of iron ore into the seaborn market.

The immediate focus for the Australian iron ore industry has been the health of the smaller mining companies with cash costs close or in excess of the current iron ore prices. How much longer can they last and is this the start of a wave of consolidation?

Western Desert Resources, a company unknown to most, became the canary in the coal mine last week when it had receivers appointed to it. It was the iron ore plaything of hotel billionaire Bruce Mathieson, and had plenty of high-profile directors on the board - with loads of experience across business. Sadly not much in mining.

How the industry shakes out from here depends on which of the smaller players are attractive to those looking for a cheap entry and the agenda of the buyers.

There may be some consolidation between the smaller players - and how this pans out depends on which have cash. BC Iron recently made a $250 million bid for Kerry Stokes' iron ore play, Iron Ore Holdings.

Earlier in the year the Chinese group Baosteel moved into the market in a joint bid with rail infrastructure group, Aurizon for Aquila Resources.

New York-based financier Edward Sugar - a man who helped Fortescue find finance in its early days and who was in Australia last week - suggested there were billions of dollars waiting in the wings looking for resources projects.

He says that private equity players that have traditionally not stepped into the mineral resources space are now assessing whether there are opportunities stemming from the fallout from the financially wounded or the asset sales from the bigger mining stocks that are looking to focus their core portfolios. BHP Billition and Rio are clear examples.

The interest from these private equity groups and other funds set up to invest in mining assets generally - like that formed up by former Xstrata boss Mick Davis - are scouring Australia, the UK and Canada in particular.

UBS' Glyn Lawcock has just released a useful update on the price iron ore (62 per cent Fe which is the one traditionally used) needs to be for companies to hit cash break-even.

For Rio (best in show) it is US$45, BHP needs an iron ore price of US$50 and Fortescue needs a price of US$74. The first two are looking pretty comfortable at this price and FMG will hope to further reduce its costs in order to make a decent return at current price levels.

But the next layer down the smaller iron ore producers hit break even above where the iron ore price is today. The exception in Mount Gibson and BC Iron which have a bit of additional head room.

These producers can not afford to ride out a protracted period of weak prices. 

And there is enormous disparity among those in the industry, the investment banks commodities experts and even the Australian state and federal treasuries about the outlook.

Lawcock for example thinks the price might pick up a bit in November and December (as it usually does).

But not even the most optimistic are suggesting that the days of super profits from this industry are set to return. It's a business that can generate good returns if costs are low but the days  of justifying the massive capital costs of building rail and port infrastructure from scratch appear to be a thing of the past.

You Can't Have Solar Without Silver

You Can't Have Solar Without Silver

With a history that dates back more than 5,000 years, silver has been an incredibly valuable metal through the ages. It was once used as a trading currency along the Asian spice routes and was even the standard for U.S. currency for a while.

However, the precious metal holds far more value than just as a currency. In fact, more than half of the world's silver is actually used for industrial purposes as it is used in X-rays, low-e windows, and even solar panels. As it turns out, even solar energy wouldn't work the same way if it wasn't for silver.

Making Solar Shine

Silver is a unique metal. It has the highest electrical and thermal conductivity of all metals, and it's the most reflective. These physical properties make it a highly valued industrial metal, especially when used in solar cells.

Silver is actually a primary ingredient in photovoltaic cells, and 90% of crystalline silicon photovoltaic cells, which are the most common solar cell, use a silver paste. What happens is that when sunlight hits the silicon cell it generates electrons. 

The silver used in the cell works as a conductor to collect these electrons in order to form a useful electric current. The silver then transports the electricity out of the cell so it can be used. Further, the conductive nature of silver enhances the reflection of the sunlight to improve the energy that's collected. Therefore, if it wasn't for silver solar wouldn't be as efficient in turning sunlight into energy.

Shining a Light on Silver in Solar

The average solar panel actually uses about two-thirds of an ounce of silver, which is about 20 grams. That might not sound like a lot, but at around $20 an ounce it contributes more to the cost of solar than it does to the other industrial products that use silver. For example, a laptop only contains 750 milligrams to 1.25 grams of silver while a cell phone contains just 200-300 milligrams of silver, so silver is a tiny fraction of the cost of those devices.

Overall, the solar industry uses about 5% of the world's annual silver supply, or an estimated 52.4 million ounces. However, as demand for solar increases, especially in China, the demand for silver used in solar could double. Because of this it is estimated that by next year the solar industry will use 100 million ounces of silver.

Because of the volatility in the price of solar, panel makers are working on using less of it on each panel. Still, the overall increase in demand for new solar panels is what's driving the demand silver used by the solar industry. 

This increased demand for silver could have a real impact on the solar marketplace in the years to come as solar could push up the price of silver. So, should silver prices surge it could have an impact on the production costs of solar panels, which would then impact the economics of the solar industry.

Final Thoughts

Silver is a precious metal to the solar industry. Because of this any future spike in the price of silver could hold back the growth of the industry. 

It's a trend to keep an eye on as surging silver prices could dim the prospects of the solar industry in the future because it's becoming such a large consumer of the precious metal.

A New Adaptive Material Could Halve the Cost of Solar Power

 

Solar power is one of the most reliable forms of renewable power-but it's still expensive. Now, a team has developed a smart, adaptive material that could slash the its cost in half.

Developed by start-up Glint Photonics, the new material has optical properties that can change to help it capture as much light as possible. Currently, large-scale solar plants have to use tracking technology to ensure that their cells maximize their exposure to sunlight; this new material changes its reflectivity in response to heat from concentrated light to capture light across a wide range of angles.

 

The new technology is a kind of coating for use in a solar cell which focuses light into a piece of glass. An array of thin lenses concentrate sunlight across a broad range of angles, before it's passed to a glass sheet, coated on both sides with reflective coating. The front coating, however, is made of the new material, and Technology Review explains how it works:

 

When a beam of concentrated light from the array of lenses hits the material, it heats up part of it, causing that part to stop being reflective, which in turn allows light to enter the glass sheet. The material remains reflective everywhere else, helping to trap that light inside the glass-and the light bounces around until it reaches the thin edge of the glass, where a small solar cell is mounted to generate electricity.

As the day wears on, the lenses throw the light-captured across a broad range of incident angles, remember-onto a different spot on the glass sheet, always allowing light in only where the beam of light falls. In turn, it reduces the need to keep the device pointed directly at the sun. Glint Photonics claims that the technology could produce solar power at a cost of four cents per kilowatt-hour, compared to eight cents per kilowatt-hour for normal solar panels.



The technology is still a proof of concept-its efficiencies still need to be upped, and the whole thing need to be scaled to work at commercial volumes-but it's a very promising development.

Australia's 'Vast' Solar Resources Closer to Being Tapped In a Big Way

Australia’s largest solar plant moves one step closer to completion with the first of 1.35 million solar photovoltaic (PV) modules being installed on Wednesday at AGL’s Nyngan Solar plant in central NSW.

Located on a 250-hectare site about 550 km north-west of Sydney, the $290 million plant will have a capacity of 102 megawatts, or enough to power about 33,000 homes.

The plant is expected to be completed by next July and generate an estimated $137 million for the regional economy over its 30-year life span, said Scott Thomas, AGL’s general manager power development.

“AGL has already invested over $3 billion in renewable energy generation in Australia and with projects like the Nyngan Solar Plant, (it) is increasing the proportion of zero-carbon emission generation in the National Electricity Market,” Mr Thomas said.

The Baird government has lately stepped up public support for the renewable energy industry, placing it at odds with Coalition counterparts at the state and federal level.

Last week, Environment Minister Rob Stokes called for NSW to be “Australia’s answer to California” in promoting solar and wind energy, and also backed leaving the national renewable energy target – now being reviewed for a possible cut by an Abbott-government appointed panel – at current settings.

AGL’s Nyngan plant and a sister 53-megawatt solar project in Broken Hill will cost about $440 million to build, including $166.7 million in grants from the Australian Renewable Energy Agency (ARENA) and $64.9 million from NSW coffers.

For Nyngan alone, the cost will be $290 million, with ARENA’s funds totalling $116.1 million and $43.3 million from NSW.

“The NSW government’s support for this project has been vital and a very important role in the widespread development of utility scale solar across NSW and across Australia,” Leslie Williams, Parliamentary Secretary for Renewable Energy, said.

“NSW has vast solar resources and has long been a standout leader in photovoltaic research,” Ms Williams said. “We are now taking the next step and becoming a standout leader in renewable energy development.”

Laid out end to end, Nyngan’s PV panels would stretch about 1600 km, or roughly the distance from Sydney to Melbourne and back.

The twin solar plants may be among the last large-scale renewable plants to be developed for some time as on-going investor concern about the future of the Renewable Energy Target (RET) has all but frozen new spending in the sector in Australia.

Just $40 million was invested in the first half of 2014 – the lowest since 2001 – and a fraction of the almost $2.7 billion poured into large-scale renewable energy in 2013, Bloomberg New Energy Finance reported earlier this month.

Small-scale renewable energy has seen a less precipitous decline although cuts in feed-in tariffs and other support have seen PV installations slide from 60,114 systems in the first quarter of 2013 to 45,369 in the three months to June 2014, according to the Australian Solar Council.