Tuesday, July 31, 2012

Grupo Mexico 2Q profit drops 5% despite higher production

Markets will be more focused on the global economy and the U.S. presidential election than on copper fundamentals, Grupo Mexico cautions.

While Grupo Mexico reported metals production up for the second quarter, net income dropped 5%.

For the first half of the year, however, Grupo Mexico's net income increased nearly 13% as copper, silver, gold and molybdenum output continued to be strong despite lower metals prices.

During the first half of this year, the company reported copper production rose 13%, silver was up 10%, gold jumped 35%, and moly increased 6%.

In financials published Monday, Grupo Mexico observed, "We believe that the demand for copper will remain solid given the estimated economic growth in China (8%) and the US (2%), the major copper consumers in the world, as well as the growth of almost all developing."

"In terms of supply, future production will be affected by lower ore grades, increased investment costs, and delays in the startup of production on new projects. All of these lead us to believe that the expected deficit for 2012 will hold into 2013, supporting the current copper prices," said Mexico's largest miner.

"However, we believe that the market will be more focused in the development of the debt crisis in Europe, the economic slowdown in China, and the presidential election in the US, than to the copper fundamentals," Grupo Mexico cautioned.

The company reports mining production in sales, noting that copper sales were up 13.2% in the first half of the year or from 376,933 metric tons for the first six months of 2011 to 426,829 metric tons. For the second quarter of the year, copper sales increased 6.1% from 198,203 metric tons for the second-quarter 2011 to 210,353 metric tons. The increased production in the second quarter was attributed to improved ore grades at the Ray, Cuajone and Caridad mines.

Moly sales for the first half of this year increased 4.6% from 8,848 metric tons in the first six months of last year to 9,251 metric tons. For the second-quarter 2012 moly sales increased 1.7% from 4,565 metric tons in the second-quarter 2011 to 4,641 metric tons. Improved ore grades at the Cuajone and Caridad mines increased second-quarter 2012 production.

Silver sales increased 23.7% in the first half of the year from 7,983,000 ounces in the first six months of last year to 9,876,000 ounces. For the second-quarter 2012, silver sales increased 27.8% from 3.98 million ounces in second-quarter 2011 to 5,087,000 ounces. The increase was attributed to higher output at the Buenavista, Cuajone and Caridad mines, due to better recovery.

Gold sales were up 29% during the first half of this year from 27,653 ounces in the first six months of last year to 35,677 ounces. For the second quarter of this year, gold sales were up 17.9% from 14,896 ounces in second-quarter 2011 to 17,562 ounces.

FINANCIALS

Grupo Mexico reported a net profit of $624 million for the second quarter, down from $657 million in the same period of last year. For the first half of this year, Grupo Mexico reported a net income of $1.34 billion, up from $1.19 billion for the first six months of last year.

Capital expenditures for the first half of this year reached a record high for organic growth of US$1 billion, a 130% increase over the first half of 2011.

S&P's lowers Barrick Gold’s credit rating to BBB+

Ratings agency Standard & Poor’s (S&P's) on Monday lowered gold producer Barrick Gold’s corporate credit rating to BBB-, from it previous A+ standing.

S&P's said the downgrade follows the company's announcement of a capital cost increase of close to $2.5-billion and a one-year delay to production start-up at its multibillion-dollar Pascua-Lama gold/silver project.

Barrick, the world's biggest gold miner, last week said lower productivity and persistent inflationary and other cost pressures had resulted in a 50% to 60% increase in capital costs at its $5-billion Pascua-Lama project, on the Chile/Argentina border. It blamed the cost increases mainly on a decision to manage construction of the mine using an in-house team, rather than an outside contractor.

“We believe that the latest revisions to Pascua-Lama likely precludes any meaningful balance-sheet deleveraging in the next 12 months, which would be necessary to return the company's financial metrics to comfortably within our expectations for the 'A-' rating, including a debt-to-Ebitda [earnings before interest, taxes, depreciation and amortisation] leverage ratio sustainably below 2x,” the ratings agency said.

S&P's added that the negative outlook on Barrick reflected the agency’s view that the execution risks surrounding Pascua-Lama could potentially stretch the company's credit measures and free operating cash-flow generation beyond the levels the agency had assumed within its base case scenario.

Source: Creamer Media Reporter

Botswana declines option to raise De Beers stake

Botswana said on Tuesday it had declined an option to lift its stake in diamond giant De Beers, leaving global miner Anglo American with the full $5.1-billion price tag for a buy-out of the remaining shares owned by the Oppenheimer family.

Diamond-rich Botswana had a right to raise its shareholding in the company to 25% from 15%, a move that would have cost it $1.3-billion at a time when it is striving to contain government spending.

The company and the country are deeply entwined. De Beers is the world's largest diamond producer by value and more of the precious gems come from sparsely populated Botswana than any other nation.

But deepening the relationship is too costly at the moment for the southern African government.

The ministry of minerals said in a statement the price was equal to about 10% of the country's gross domestic product, "a large cost for a country whose government budget is still in deficit, and is trying to bring the budget to balance within a year and a half."

It said "such a purchase would inevitably push back the restoration of balancing the budget and drain the country's international reserves."

The move would have also set back efforts to diversify Botswana's economy away from its heavy reliance on diamonds.

Anglo formally offered the Botswana government a pro-rata share of the Oppenheimer family's 40% stake under a long-standing pre-emption agreement.

First-half profit halved at De Beers as trade buyers were held back by a lack of funds and worries over consumer demand.

Anglo last week posted steeper-than-expected drop in profits as faltering global economic growth hit prices but it has put its long-term faith in diamonds.

Source: Reuters

Global iron-ore use to hit 2bn tons this year – Unctad report

Global iron-ore use was expected to increase from 1.92-billion tons in 2011, to 2-billion tons in 2012, and 2.08-billion tons in 2013, a new report by the United Nations Conference on Trade and Development (Unctad) found.

In its 'Iron-Ore Market 2011 – 2013' report, released in June, Unctad attributed the increase to an unchanging relationship between iron-ore demand and crude steel production.

The report also expected tight conditions in the iron-ore market over the next few years, but predicted that the current high prices would start to fall during 2013, as supply adapts to increased demand on the back of 796-million tons of new production capacity introduced between 2012 and 2014.

Africa and Asia would account for 14% and 12% of these projects, respectively. Australia would add 28% capacity, while Europe would account for 20%. North America and Latin America held 10% and 15% of the projects, respectively.

Meanwhile, the report stated that developing countries, which increased their exports by 104.8% over the past ten years, accounted for 49.5% of the total international iron-ore trade during 2011, which reached a record 1.115-billion tons.

Japan’s imports of iron-ore fell by 4.4% to 128.4-million tons, while Korea’s rose by 15.3% to 64.9-million tons. European imports also increased, reaching 156.4-million tons - 13.7% of world imports.

Xstrata copper volumes down, sees stronger H2

Miner Xstrata reported an 18% drop in copper volumes in the first six months of 2012, as it replaces ageing operations and undertakes expansion that will boost production in the second half.

Xstrata is in the throes of a merger with commodities trader Glencore, which made a $26-billion takeover bid for the miner earlier this year. Glencore, Xstrata's top shareholder, is currently locked in talks with rival investor Qatar Holdings over the terms of the proposed deal..

Xstrata, the world's fourth-largest copper miner, said production of the red metal dropped to 354 612 t from 434 046 t/y ago.

It was hit by the transition from mines like the Ernest Henry openpit in Australia to new mines and expansion projects. It was also dented by lower recoveries at the world's third-largest copper mine, Collahuasi, jointly owned with Anglo American, hit by poor weather, safety stoppages and a broken ball mill.

Mined coal, a key earner for Xstrata along with copper, saw consolidated production rise 13% to 43.4-million tons in the first half, as volumes for both thermal and coking coal improved in the second quarter in relation to the first.

Nickel rose 3% year-on-year to 52 800 t. Zinc, in which Xstrata will become the world's top player following the Glencore tie-up, was flat.

Source: Reuters

Monday, July 30, 2012

$80-trillion urban boost for mining projected – Anglo

Projections to 2025 point to cities around the world constructing the equivalent of the entire land area of Austria – 80 000 km2 – in residential and commercial floor space, which will require $80-trillion worth of investment.

Moreover, Anglo American CEO Cynthia Carroll said at the diversified major’s latest set of results, which saw operating profit fall 38% to $3.7-billion, that demand growth from now to 2025 for container traffic was expected to grow at a compound annual growth rate of 7.2%.

The global car fleet, Carroll added, was projected to double to 1.7-billion by 2030, covering ten times the average distance between the earth and the moon and cities would need an additional $10-trillion in yearly investments.

While tough short-term demand conditions do confronted the industry, long-term demand and supply scenarios continued to point to the modern world being mining’s oyster.

The latest Economist quotes BHP Billiton as projecting another 250-million Chinese to swop their villages for cities in the next 15 years, which would follow the 200-million that did so between 2000 and 2010, and diversified major Vale of Brazil tells a similar story or mining-boosting urban growth on the way that should buoy mining.

Carroll pointed out further that as development in emerging countries shifted over time from investment to consumption, the pattern of demand would change - but still keep mining in the money.

As that shift from investment to consumption took place, the rate of demand for steel demand - and consequently iron-ore, coking coal and manganese - would moderate, but then the expanding middle classes in many emerging countries should boost consumption of precious metals and minerals - in Anglo's case, platinum and diamonds - as that transition occurs.

One billion people were forecast to enter the consuming classes by 2025 and Carroll emphasized that Anglo’s diversified and time-balanced portfolio was positioning the company well to take advantage of the structural changes in the global economy.

And what was happening on the supply front was, Carroll added, just as important to prices as was the long-term demand picture.

Supply constraints - as well as difficulties producers faced to deliver that supply - would support prices.

Projects were facing significant delays as a result of increasingly complex planning and permitting regimes, exemplified by what Anglo itself was experiencing with its Minas-Rio iron-ore project in Brazil, a country where 40 projects worth $225-billion are currently facing delays averaging 24 months.

Developing and developed countries alike were seeking a larger slice of the mining cake, whether it was through JVs with mining companies, windfall taxes, increased royalties and in some cases mining-asset expropriation.

Remaining resources are located in places difficult to access and which have under-developed or non-existent infrastructure.

At the same time, mining itself is becoming more difficult, more challenging with existing operations facing grade declines and higher waste stripping.

In an industry that thinks in decades rather than years, capital allocation and balance sheet management required discipline and sound judgment and Anglo it is invested in the right commodities and the right high-quality and low-cost assets at the right time.

Source: Creamer Media Reporter

The Peruvian Amazon is not Avatar

By Hernando de Soto

ThePeruvianAmazon

Globalization has rolled into the Peruvian Amazon. The local indigenous communities have witnessed the forces of the global market up close and fear that they will be displaced and enslaved by outsiders eager to benefit from the valuable natural resources on their jungle lands —the petroleum, logging and mining companies as well as the swarms of settlers migrating into the jungle (Creoles from the cities and Indians from the highlands). The natives also worried that these outside forces will continue to debase the biodiversity of their forests.

Historically and all over the world, people facing invaders whom they believe are intent on destroying their world fight back, ferociously. Peru witnessed a tragic example of this very human response last 5 June in Bagua, where, tragically, so many Peruvians died...

Recently, I published an article, “The Peruvian Amazon is not Avatar” in the Peruvian press to commemorate the one year anniversary of the violent clashes that took place in Bagua in the Peruvian Amazon, leaving 34 people dead. The Institute for Liberty and Democracy (ILD) has spent the past year in the jungle researching this issue. I’ve spoken with many indigenous leaders about their fears – and their hopes – in the face of the encroaching forces of globalization that have arrived in their no longer isolated part of the world and motivated the Bagua uprising. ILD has learned a lot over the past year and has some interesting solutions–so many, in fact, that ILD intends to publish a book about them in September. My article is a preview of ILD’s findings and revelations.

It is not just a Peruvian problem. James Cameron, the director of the blockbuster American film “Avatar,” pointed out in a recent visit to the Brazilian Amazon that indigenous confrontations with the forces of globalization is a world-wide phenomenon. He cited Brazil, China, and India. In fact, ILD is finding in its research that it is far more widespread than even this very imaginative director imagines. Experts are forecasting food and commodity shortages in the not so distant future and also predicting that the world’s supplies will come mainly from Africa and Latin America.

One result has been a huge wave of funds flowing to emerging markets to buy land and concessions to local natural resources. That wave is now swelling, as people begin to realize that the global recession is far from over and that the excess of Western currencies flooding the market to stimulate growth and confidence may eventually lead to hyper-inflation. Major investors have already begun exchanging their cash for hard commodities, many of them located in “indigenous territories.”

But Cameron’s Hollywood solution will not work in the real world: In Avatar, the American miners were arrested, locked in their plastic coffins, and sent home in their space ships. Attaching guilt in the Peruvian Amazon is not so easy. In fact, in ILD has learned that many perceptions Peruvians held about their country’s indigenous peoples are even more fictional than the plot of Avatar. But in sorting out the facts from the fiction, ILD realized that it now had the information and data in hand that will help all concerned parties find viable, peaceful solutions.

I am convinced that what we have learned in Peru will not just open a new angle on these issues but will also be useful for creating reforms that will help avoid more violence around the world. If you are interested these issues, please read on. I suspect that you will be as intrigued by what we discovered as we were.

Chile Collahuasi says 2012 copper output won't reach last year's

The world's No 3 copper mine, Chile's Collahuasi, expects its production of the industrial metal to improve in the second half of the year versus the first six months, but its full-year output will likely still be below last year's, a company executive said on Friday.

Output at Collahuasi, which is jointly controlled by Anglo American and Xstrata, tumbled 10% in 2011 from a year earlier. Work stoppages, bad weather and accidents pulled copper output down to about 453 284 t, its lowest production since 2007.

"Regarding what we're expecting for the second half, we're going to have an improvement over the first half ... there's an improvement in ore grades," Xstrata's appointed president for Collahuasi, Roberto Darouiche, told reporters.

When asked if Collahuasi could make up for its shortfall in production to beat last year's output, Darouiche said "given the situation, it's not going to be possible."

Anglo reported earlier on Friday that attributable production at Collahuasi, from its 44% stake in the mine, fell 38% to 63 900 t during the first six months of the year, due partially lower ore grades.

Total first-half output at Collahuasi therefore likely reached 145 000 t, or less than a third of what the mine produced in 2011.

Two workers accidentally lost their lives at Collahuasi in separate incidents earlier this year, prompting the mine to temporarily suspend some operations.

Collahuasi expects to have ready in the second half of the year an environmental impact study for its expansion plans which seek to double annual production, Darouiche added.

The expansion aims to boost annual output to between 800 000 t and one-million tons.

Source: Reuters

World number one iron-ore miner still confident in Chinese market

Brazilian group Vale, the world’s number two mining company by market capitalisation, and the world’s number one iron-ore producer, remains confident that the Chinese economy will continue to expand strongly, despite the recent deceleration of the Asian giant’s growth rate. The Chinese growth rate during the second quarter of this year was 7.6%. Between 1999 and 2009, the Chinese economy grew at an annual average real rate of 10.3%, while between 1989 and 1999 the equivalent figure was 9.9%.

“We view this [deceleration] with absolute serenity,” Vale executive director: iron-ore and strategy José Carlos Martins told the Folha de São Paulo newspaper recently. “China is going through a process of structural change, which will mean a reduction in the rate of investment and an increase in the rate of consumption. The external sector is also reducing its dynamism, but the Chinese economy will still grow between 7% and 8% this year, a number that is still enviable. Structurally, from an economic point of view, we are more preoccupied with Europe and the US than with China.”

In the coming years, he expects the use of steel to manufacture vehicles, white goods and homes in China to increase while the use of steel in infrastructure, capital equipment, other machinery and equipment and export products will decline. “The final result will be that demand will still continue to be positive for many years.”

Vale expects Chinese iron-ore demand to rise by 5% this year, which was the rate achieved from January to May inclusive this year. “Our shipments to China continue to grow,” he averred. “We do not have any problems placing our volumes in China. It is a question of availability, competitiveness, quality and price.”

Iron-ore prices have fallen from about $170/t in 2011 to around $140/t this year, but this is the result of increasing competition in the market, not of a fall in demand, Martins reported.
Demand for the metal was continuing to grow, but at slower rates. “The price will remain volatile, in a band of $120 to $180 delivered to China, but probably below $150 in the next [few] months. The Western economy is in recession and China is pass- ing through a structural adjustment. We are no longer going to see the exuberance of the past [few] years. However, we have a very healthy growth in front [of us] in the coming years.”

For the past decade, iron-ore prices had been driven by a demand growth that continually outstripped supply. But in the next few years new mines will enter operation and, with a reduced rate of growth in demand, the price will be more influenced by the supply. “The most competitive producers, such as Vale, will continue to benefit from the floor cost of the less competitive producers,” affirmed Martins.

The group is not concerned about its level of dependence on the Chinese market. “Companies sell where there is a market, and the market is in China,” he pointed out. “Vale is less dependent on China than our direct competitors. We sell in Brazil, in the Americas, in Europe, in the Middle East, in Japan, in [South] Korea, as well as in China. What many see as a problem, we see as a solution. If we wanted to reduce our dependence on China, we would have to reduce our production, because the other markets don’t have the capacity to absorb this volume. If we wanted to depend less on China, we would have to change the structure of our business. Our expectation is growth that will come from other growing Asian countries.”

Source: Martin Zhuwakinyu

China iron-ore prices slump to 2 1/2-yr low

Benchmark international iron-ore prices hit their lowest level in more than two and a half years on Friday as China's slowing economy reduced global demand growth.

The fall in the price of iron-ore cargoes to the world's biggest steelmaking country will trigger alarm bells among global iron-ore giants such as Vale, BHP Billiton and Rio Tinto , all targeting growth in Chinese demand with rapid capacity expansion plans.

The Steel Index's price for 62%-grade iron-ore grade for delivery to China hit $116.20/t on Friday, its thirteenth consecutive decline and the lowest since December 29, 2009. The steel ingredient has declined 7% in a week.

China's economic slowdown is exacerbating the yearly summer lull for the country's steel industry, when soaring temperatures and frequent storms reduce construction activity.

Falling prices have already hit the revenues of the top mining companies. Brazil's Vale, the world's biggest iron ore producer, posted its worst earnings results in two years on Thursday, with second-quarter profits down 58% as a result of slowing iron-ore demand.

Iron-ore prices are around $50/t to $60/t cheaper than the same period last year and analysts said the situation could worsen.

"Iron ore prices could go into free-fall until end-user demand for steel picks up in the autumn," said Rafael Halpin, China analyst with the UK consultancy MEPS.

China's downturn has cut real estate investments and eroded demand in downstream sectors such as automobiles, shipbuilding and household appliances.

Tightened credit has also created cash flow problems among iron ore traders, forcing some to sell stocks at a loss and putting iron-ore prices under further downward pressure.

WEATHERING THE DECLINE?

Short sellers in the equities market have targeted Australia's Fortescue Metals Group for its exposure to iron-ore. Australia's No 3 producer and once a darling of the Australian share market, Fortescue stock has fallen 35% to date from its 2012 peak to close on Friday at A$4.

Still, the big miners have remained mostly bullish, insisting low production costs means they can weather a price decline more easily than higher-cost competitors.

"At current market prices, smaller high-cost iron-ore producers will start to drop out of the market," said Jose Carlos Martins, Vale's ferrous metals director.

Ambitious expansion plans remain intact. Fortescue said it is on track to reach its 155-million-tons-a-year target rate by mid-2013 despite seeing its expansion costs balloon by $2-billion to $9-billion.

"Margins are still pretty healthy for the iron-ore miners and it's not yet clear how China will turn out," said David Lennox, a mining analyst for Fat Prophets in Sydney.

Higher cost Chinese iron-ore producers may struggle, said Peter Norfolk, research director with Freight Investor Services, a London-based derivatives consultancy. That alone might be enough to support prices, he added.

"Certainly, recent experience has been that around this level of $120/t there has been some stabilisation of prices," he said. "Way back before in 2009 we have seen prices much lower than they are now and clearly we are going to need some demand-side stimulus for prices to head north again."

With traders and mills seeking to reduce their inventories, the removal of high-cost Chinese iron ore producers from the market might not have much of an impact.

"Reduced consumption of iron-ore and high inventories mean that high-cost domestic miners may not offer much support for prices in the short term," said Halpin of MEPS.

SUPPLY AND DEMAND

While daily steel output has remained close to record levels since May, Chinese mills are unlikely to try to maintain those output levels over the slower summer months.

"In the past, steel mills have kept output high during the summer, in anticipation of an autumn recovery. This speculation-driven support for summer steel production is likely to be absent this year, however," said Halpin.

"Reduced purchases of iron ore reflect that. We would argue that this is not a pause in buying, as mills seek to drive iron ore prices lower, but an indication that mills are paring production plans for the summer period."

Daily output stood at 1.99-million tons in mid-July, up 1.8% compared to the first ten days of the month, but there are already indications that mills have started to schedule "overhauls" and cut output over the slow summer months.

Medium-sized mills, together with the subsidiaries of giants like Baosteel, have already started cutting back output in order to prop up prices.

But analysts say the underlying problems won't be addressed until the Chinese government has found a way to kickstart demand.

"Clearly, outside China, demand is desperately poor and is set to be so for at least the rest of the year," Norfolk said.

Source: Reuters

Anglo cuts $1.5bn group capex, promises $200m platinum cut by year-end

Anglo American would deliver a cut of nearly $200-million out of the capital expenditure (capex) programme of Anglo American Platinum (Amplats) by year-end and lop $1.5-billion off 2012 group capex, Anglo CEO Cynthia Carroll said on Friday.

The downward revision of the previously guided capex would be from $7-billion to $5.5-billion and on platinum, Carroll said: “We’ll go beyond our capital reduction target for platinum and deliver a cut of almost $200-million by the end of the year.”

In addition to the $1.5-billion group cut for 2012, $200-million less would also be spent on exploration and early study development this year.

“For 2013, we’ve set a capex funding target of $6-billion and the 2013 funding target for exploration and early studies will be $600-million, down a further $300-million on 2012,” Carroll added.

There was “no silver bullet” as far as platinum was concerned and the group’s platinum review process would not be rushed.

Platinum’s current 11% profit margin, though in line with the current industry norm, was unacceptable for the medium to long term, and Amplats was working through the review to assess the optimal configuration of the portfolio.

This would take time and it would not be easy. In the light of the current volatile environment, discipline was paramount.

At a group level, Anglo would also be disciplined and strike the right balance in allocating capital.

The group would sequence investment in line with its funding capacity and focus on the most value-accretive options.

“We’re responding to tough times, but let there be no doubt in anyone’s mind that we’re well positioned to get through them in strong shape,” Carroll said, after announcing a 38% lower $3.7-billion group operating profit for the six months to June 30.

Macquarie First South Securities mining head Kieran Daly asked when and how Anglo would inform the market of the results of the platinum review - would it be at year-end, or during next year’s results presentation or at the end of the year.

A persistent Daly also wanted to know whether the company had taken decisions on any of the joint venture (JV) assets in view of platinum junior Atlatsa, formerly Anooraq, saying it was comfortable with its Bokoni mine in the Amplats stable, and whether government and labour were included in the review process, to give the review's decisions a realistic chance of implementation.

Carroll’s response was that Amplats platinum portfolio, with 12 operating mines, seven JVs, 58 000 employees and 580 000 dependents, was complex and massive and would not be done independently.

“We will look at the entire value chain, from resources to mining to processes sales and marketing and people, and no option is off the table, and we will retain platinum as a part of Anglo American as a starting point," Carroll reiterated.

New CEO Chris Griffith would implement the review decisions from September 1 and 60 000 oz of high-cost platinum had already been taken out of the system and the study into high-cost ounces was ongoing.

The key objective was to thoroughly access the options available to establish a long-term portfolio with sustainable competitive advantages that would maximise value.

There was no doubt that the global economic environment had deteriorated, driven by the commodity prices in the Eurozone and there was continuing uncertainty over the sustainability of the US economic recovery.

China’s slowdown in growth rate was also contributing to the contributing to the gradual short-term outlook.

But in the longer term, Anglo continued to see resilient commodity demand, driven by rising living standards in emerging countries like China and India and infrastructure replacement in developed countries.

If current trends were sustained, by 2025 cities around the world would build the equivalent of the landmass of Austria in residential and commercial floorspace and this would require cumulative investment totalling some $80-trillion.

As development in emerging countries shifted over time from investment to consumption, growth rates in steel demand should moderate and the expanding middle classes in many emerging countries should boost consumption of platinum and diamonds as that transition occurs.

One billion people were forecast to enter the consuming classes by 2025 and Anglo’s diversified and balanced portfolio positioned the company well to take advantage of the structural changes in the global economy.

What was happening on supply was just as important. Supply constraints as well as difficulties producers faced to deliver that supply would underpin prices.

Projects were facing significant delays as a result of increasingly complex planning and permitting regimes.

Developing and developed countries alike were seeking a larger slice of the mining cake, whether it was through JVs with mining companies, windfall taxes, increased royalties and in some cases mining-asset expropriation.

Remaining resources were located in places difficult to access and which had under-developed or non-existent infrastructure.

At the same time, mining itself was becoming more difficult, more challenging with existing operations facing grade declines and higher waste stripping.

In an industry that thought in decades rather than years, capital allocation and balance sheet management required discipline and sound judgement.

Anglo had invested in the right commodities and the right high-quality and low-cost assets at the right time and the company still had “the best pipeline of growth options in the industry”.

Anglo increased its dividend by 14% despite 46% lower earnings at $1.7-billion and the company was determined to maintain and build on that new base through the cycle.

The company recognised that future cash flows would be impacted by both economic uncertainty and higher operating and capital costs and to maintain its investment rating and dividend to shareholders, it would sequence investments to take advantage of all stages of development in emerging countries.

Source: Creamer Media Reporter

Tanzania minister wants established gold miners to pay 30% tax - no excuses

Gold miners who have been operating for five years or more should pay 30% corporate tax regardless of losses or shut down and leave the country says Tanzania's energy and mines minister.

Tanzania, Africa's fourth largest gold producer, has told mining companies operating for more than five years to start paying a corporate tax of 30 percent, citing rising prices of precious metals at the world market.

Tanzania's gold export earnings rose 31 percent last year to $1.879 billion from $1.436 billion a year before on higher world prices for the commodity, Sospeter Muhongo, energy and minerals minister, told parliament on Friday.

The minister said the government wants to earn higher revenues from mining companies due to the rising gold price and added the government had ordered audits of all large-scale gold mines in the country to ensure they started paying corporate taxes after recovering their costs of production.

"I am instructing all mining companies that have been in operation for more than five years to start paying corporate tax without any excuses," he said.

"If they claim they are still making losses and can't contribute to the national economy through taxes, they should shut down their mines and leave because minerals do not rot."

Major gold mining companies in Tanzania include African Barrick Gold Plc, which has four gold-producing mines, AngloGold Ashanti Ltd and Resolute Mining Ltd.

He did not say which of these mines were affected, but said Geita Gold Mine owned by AngloGold Ashanti and the Golden Pride mine owned by Resolute had already paid a total of 228.5 billion shillings in corporate taxes.

He said Tanzania was also evaluating 11 bids from investors for a stake in the state-run Buhemba gold mine. The government regained ownership of the mine this year after reversing its 2005 privatisation to a local company amid allegations of graft in the previous sale of the mine.

It is much smaller than mines run by the big companies.

The country has also invited bids for a joint venture project to develop a state-run coal mine with 35.5 million tonnes of reserves, the country's energy and minerals minister said Friday.

The government said the project would also involve construction of a 200-megawatt coal-fired power plant at a cost of $400 million.

"By June 2012, the State Mining Corp received bids from 16 foreign and local companies to enter into joint venture to develop this project," Muhongo said.

He said Tanzania has 136.5 million pounds of uranium oxide, with Australia-based miner Mantra Resources given a go-ahead to build a $450 uranium mine at a world heritage park after the project received approval from UNESCO, the U.N. cultural agency.

After 3 years, Doe Run Peru's La Oroya finally restarts

Peru's Minister of Energy and Mines says the resumptions of operations at the La Oroya metallurgical complex will benefit both workers and the local economy.

Peru's Minister of Energy and Mines, Jorge Merino Tafur, said Sunday the restart of the circuit operations of the zinc smelter at the La Oroya complex will financially benefit hundreds of workers and the local economy.

The administrator of the Doe Run Peru Company, Rocio Chavez, announced Saturday on RPP radio, "We have come to La Oroya to tell all the people of La Oroya and Peru on this memorable date we announce the restarting of operations at the metallurgical complex of La Oroya after its being shut down for three years.[sic]"

The restart of operations will begin on the zinc-processing circuit, which now has its smelting furnaces burning and the reactors on, she said. "The first shipment of concentrates arrives today so we can start production in the next few days."

Merino Tafur noted that resumption of operations of the zinc circuit has benefited up to 500 workers, who are now working full-time. He noted the zinc circuit meets environmental standards.

The minister observed resumption of zinc operations gives "a not too distant horizon" of resumption of lead operations. The metallurgical complex's lead circuit meets environmental standards, while the copper circuit currently does not meet the standards contained in La Oroya Program of Environmental Compliance and Management.

The La Oroya complex includes both smelters and refineries that process copper, zinc, gold, silver, lead, indium, bismuth, gold, selenium, tellurium, antimony and other producers.

Merino Tafur said he was looking forward to resolving pending issues related to the copper circuit, particularly the pending construction of a sulfuric acid plant for copper, which was required by the Peruvian government to remove pollutants at the metallurgical complex.

Resumption of the copper circuit will keep the mine in Huancavelica Cobriza in operation, the minister noted. The underground mine produces copper concentrates for the smelter.

Merino Tafur said the resumption of operations at the complex was achieved through consensus and the efforts of the management company Right Business, workers at the smelter, and creditors of the company Doe Run Peru, who were all interested in resurrecting a vital investment to the economy of La Oroya.

In April, Doe Run Peru was declared by its creditors to be in a process of "operational liquidation," meaning that while the creditors would not approve the company's restructuring plan, they would allow the company to resume production while the board of creditors further analyzed Doe Run Peru's situation and prepare to make a final decision.

Saturday, July 28, 2012

Peru gold, copper mining opposition intensifies

Newmont Mining has been operating Latin America’s largest gold mine, Yanacocha, since 1993. The mine is nearing the end of its life and Newmont wants to develop the nearby $4.8 billion Minas Conga copper and gold project, which will be the biggest foreign investment in Peru’s history. But the project has run into intense local opposition and five people were killed during recent protests, causing the government to impose a state of emergency.

Opponents, led by Cajamarca’s president, contend that the project will harm scarce water resources in the area. Their position has clashed with that of Peruvian President Ollanta Humala, who officially announced his support for Minas Conga in late June. This conflict has become a high-stakes test of how Peru treats foreign investment. The country has more than $50 billion in mining investments in the pipeline and taxes from mining are a key source of government revenue.

Resolving the conflict is a major challenge for the one-year-old administration of Humala, whose approval ratings are declining even as the economy is projected to grow 5.5% this year and 6% in 2013.

While the country’s decadelong economic boom has lifted many Peruvians out of poverty, about 30% of the population is still classified as poor with poverty especially widespread in rural areas. When he was running for office, Humala was seen as a left-wing radical. He won last June’s election by promising he would ensure that the poor get the benefits from the country’s mineral wealth. But, once in power, Humala dramatically reversed course, pursuing orthodox free-market policies.

“We’re still defending the economic model,” said Claudia Cooper, research associate at University of the Pacific in Lima. In the early 1990s, Peru opened up its economy via market-oriented reforms, privatizing industries and taking steps to promote trade and foreign investment. This free-market and investor-friendly model, Cooper noted, is supported by the majority of Peruvians, but about a third of the population doesn’t want the country’s mineral wealth to be owned by foreign corporations such as Newmont, Southern Copper Corp. SCCO -1.41% , Anglo American UK:AAL +0.75% and Xstrata

The social conflict tied to Minas Conga is probably the highest-profile one in Peru now, but it’s certainly not the only one. For instance, in the south of the country, Xstrata has recently seen violent protests against its Tintaya copper mine, which the Anglo-Swiss firm wants to expand.

“You have to separate the economic issues from the political issues. Conga is more of a political issue,” said Guillermo Arbe Carbonel, an economist at Scotiabank in Lima.

He pointed out that while social conflicts make the headlines, very few mining projects in Peru have actually been stopped or suspended.

But Cooper is less sanguine. “The natural-resources environment has deteriorated a lot in the past six months,” she said. “They [the government and protesters] are negotiating and we are hoping that anger is going to diminish,” she said, referring to the Minas Conga conflict.

Ever since Peru opened up its economy in the early 1990s, its resources have drawn foreign mining firms. The country has rich deposits of copper, silver and gold, as well as lead, zinc, tin and iron ore.

Minas Conga is estimated to hold 6.1 million ounces of gold and 1.7 billion pounds of copper. Like the Yanacocha gold mine, the project is a joint venture between Newmont, which has a majority stake, and Compania de Minas Buenaventura BVN -1.32% , a Peruvian precious-metals company. International Finance Corp. also has a small stake.

On a recent July evening in Lima, Miguel Santillana drew a map of Peru and recounted its history since the Spanish defeated the Incas at the battle of Cajamarca in 1532, plundering their gold and bringing devastating smallpox to the Andes.

Santillana, an analyst at the Peru Institute who has also worked as a consultant for foreign mining companies, said there was bad blood from the beginning between the local community and the Yanacocha mine operators, as people in Cajamarca tend to associate mining with abuse of resources.

The current conflict over Minas Conga has much more to do with politics than environmental concerns and it’s an effort to redefine the country’s economic model, according to Santillana, who believes that political leaders in Cajamarca want to weaken Humala and redirect Peru toward left-wing policies like those pursued by Ecuador, Venezuela and Bolivia.

In late June, Newmont said in a statement that before it begins the construction of Minas Conga mining facilities, it will build water reservoirs that will benefit the local community. But this commitment failed to appease the project’s opponents and the conflict has escalated.

Xstrata and Newmont declined interview requests for this story. The office of Peru’s economy minister said he was unavailable for an interview in Lima in early July due to a previously scheduled trip to Asia.

Besides Minas Conga, there are several other major mining projects in Cajamarca and observers think their fate is intertwined. These include Rio Tinto’s UK:RIO +0.48% RIO -1.77% La Granja copper project, which the company describes as one of the world’s largest undeveloped copper deposits, and Anglo American’s Michiquillay copper deposit.

Analysts at Eurasia Group wrote in a June report that anti-mining opposition is unlikely to develop into a nationwide movement, but it does have the potential to delay or derail certain projects, which has happened in the past. For instance, Peru dropped Newmont’s Cerro Quilish project in Cajamarca in 2004 and Southern Copper’s Tia Maria project in Arequipa in 2011.

Javier Torres, an anthropologist with nonprofit group SER, said the Minas Conga issue is very complicated to resolve and very politicized. He thinks the government should suspend the project and have an open discussion with the local community. President Humala may address the issue in his message to the nation on July 28, Peru’s independence day.

“We have to win this political fight,” Cooper said. “We have to get consensus on how we want to grow.”

Source: Marketwatch

Friday, July 27, 2012

Not convinced Chinese trade is a disaster? Take a look at these shipping numbers

Shipbuilding and shipping capacity in China surged as the country's demand for raw materials escalated in tandem with breakneck economic growth and investment in infrastructure.

China has 20 ports that can handle more than 100 million tonnes of cargo and in 2010 built ships with deadweight tonnage of 65.6 million tonnes, overtaking long-time top builder South Korea for the first time.

China – which overtook Japan in 2010 to become the world's second largest economy – dominates the global trade in just about every commodity including iron ore (representing some 60% of the global 1 billion tonnes seaborne trade), copper (38%), coal (47%), nickel (36%), lead (44%) and zinc (41%).

Fast-forward a couple of years and rates, orders and activity in the shipping industry – especially dry-bulk vessels used to haul iron ore and coal – are painting a very different picture:

  • The benchmark Baltic Dry Index is down 44% year to date at 958. The BDIY reached a high of 11,793 in May 2008 – that is a 91.8% drop.
  • Three-year charter rates for capesize ships which carry 80% of the world's 1 billion tonne iron ore trade have tumbled to roughly $10,000 a day from $55,000 five years ago.
  • Globally prices for Capesize vessels that can carry 150,000+ long tons have slid to roughly $46 million – half of what it was in 2007.
  • Valemax vessels capable of carrying 400,000 tons built for number one iron ore producer Vale are still barred from Chinese ports. These carriers cost roughly $110 million to build – they are now valued at less than $70 million.
  • Worldwide orders for dry-bulk vessels dropped 49% to 9.8 million deadweight tons in the first half of 2012.
  • The share price of Rongsheng Heavy, China's largest shipbuilder not under state control, is down 72% over the last 12 months. Astonishingly, it has not announced a single contract for new ships in 2012.
  • The monthly index of new-ship prices in China is now at its lowest point since March 2004.
  • China has 1,536 shipbuilding companies. About half of shipbuilders in the country may be forced to close within three years according to state-owned China State Shipbuilding Corp.

Anglo American disappoints: profits down 40% and Minas Rio delayed another year

Global miner Anglo American (LON:AAL) joined the ‘disappointing results club’ this morning as the London-listed mining group reported that its first-half operating profit dropped almost 40% – reportedly driven by weak commodity prices and mounting costs.

The group published an operating profit of $3.7 billion in the January-June period, while earnings reached $4.9 billion, representing a 31% drop and below the forecasted $5.2 billion.

Further disappointment came as Anglo announced another setback to its flagship iron ore project, Minas Rio, in Brazil. Licensing issues have delayed production at the mine, which is now expected to start exporting the commodity by the end of 2014, a year behind schedule.

“We are in a very challenging country and environment. There are 50 projects that have been put into the delay category, “ said Anglo American CEO Cynthia Carroll.

She added that many of the regulations in place were not there just six months ago; Carroll met Brazilian President Dilma Rousseff Thursday night to emphasize that point, hoping to find an end to the obstacles the company is facing in the South American country.

Despite the macroeconomic uncertainty and likely higher capital and operating cost within the industry, Carroll said Anglo American was committed to returning cash to shareholders – increasing its interim dividend by 14% to 32 cents per share.

Operating profits from the copper division, the second-largest business for Anglo American, fell 30% as the expansion of its Los Bronces copper mine in Chile was affected by adverse conditions including bad weather, stoppages and operational problems at Collahuasi.

Anglo shares dropped 1.65% to 1,931.50 pence on Friday in early morning trade in London.

The company also said it will deliver a cut of nearly $200 million out of the capital expenditure (capex) programme of Anglo American Platinum (Amplats) by the end of 2012.

Iron ore falls to 2-and-a-half year low as $120-price floor theory unravels

Iron ore prices fell again on Friday with the benchmark import price of 62% iron ore fines at China's Tianjin port dropping almost 1% to $116.20 a tonne, down 14% since the start of July and well below the $175.40 a tonne the steelmaking ingredient was trading at this time last year.

Chinese import prices – the country is responsible for consuming 60% of the world's iron – are now the lowest since December 2009 according to data provided by Steelindex.

In October last year ore shed over $60 a tonne over a months to briefly trade below $120. Iron ore first traded above $120 a tonne in January 2010 and July that year also saw a short-lived dip to $117.90.

As these dips and recoveries show $120 has in the past provided a strong price floor for traders because below that level many Chinese producers become unprofitable and cut production, but a sustained period below $120 a tonne may indicate a fundamental shift in the industry.

About 30% of China's domestic demand is supplied by local miners with generally low-grade ore and when they leave the market it allows South African, Australian and South American players to step back in.

Now this theory is being thoroughly tested.

Reuters reports small Chinese traders are being forced to sell off loss-making stockpiles and quotes Rafael Halpin, China analyst with the UK consultancy MEPS: "Iron ore prices could go into free-fall until end-user demand for steel picks up in the autumn."

On Wednesday Nomura steel analyst Matthew Cross argued that although the floor price of $120 has been breached "the destock may have just begun. Iron ore prices fell roughly 35% during both previous destocks, from US$180/t to around US$120/t, a similar decline from 2012 iron ore price highs of US$150/t suggests potential downside to around US$100/t."

Indian investors reach out to gold fund of funds

To continue to feed Indian investors craze for gold, asset management companies are launching open-ended schemes that will feed investors' money into its previously launched gold ETF.

Asset management company, IDBI Mutual Fund, which has launched a gold fund of funds scheme is the new kid on the block. Targeted mainly at retail investors and individuals without dematerialised (demat) accounts, fund of funds appear to have become the darling of Indian precious metals investors as well as fund houses.

Fund houses prefer to push the gold fund of funds (FoFs) which is available for sale through distributors, and at easier access points for investors.

"The idea is if investors want to take advantage of the improving fortunes of gold mining companies across the globe, they can invest in the gold fund of funds, wherein in some cases the Indian fund invests in the global fund of its parent investment house,'' said Mudkar Shastri, fund house manager.

These are early days though and there are no statistics as yet, to show the growing number of participants in the new category. However, the launch of seven FoFs in less than a year in India is a pointer to its growing interest.

Investors are being told that investment in gold provides better inflation-adjusted returns. "In the last 10 years, gold has beaten the headline inflation rate 8 out of 10 times. It has outperformed and given positive inflation adjusted returns. All the more reason to get into FoFs," said Vipul Jha, fund manager.

In some cases, gold FoFs are mutual funds that invest primarily in gold ETFs from the same sister company. Gold FoFs invest almost 90% in gold ETFs from the sister company, whereas the remaining 10% can be invested in money market instruments or debt instruments.

There are some basic characteristic differences between ETFs and FoFs. For instance, a gold FoF is characterised as a debt fund and charges a higher expense ratio as compared to a gold ETF. Gold ETFs charge a flat expense ratio of 1%. The expense ratio charged by gold FoFs tends to behigher by 25-50 basis points, which includes the ETF management charges.

Though these are the drawbacks, the advantages are said to be many. In the case of a gold ETF, investors are required to purchase a minimum of one unit, which is one gram of gold. Some FoFs offer half a gram or 0.5 unit.

SIP (systematic investment plan) option is available in gold FOFs. There is no option of SIP for gold ETFs - one has to manually initiate the purchase of gold ETF units through the demat account.

STP (straight through processing) transfers are also applicable for gold FoFs. An analyst said with the advent of Swing STP from HDFC and Value STP from ICICI, one can take advantage of Value Cost Averaging in gold FoFs.

"The class of people who invest in gold funds are those with a regular income and want to have SIPs. They are not concerned about higher management fees because they are usually long-term investors. These funds also provide liquidity in the long-term," said Shyam Bhatia, fund manager at a broking firm.

Gold is a great investment asset, added IDBI AMC managing director Debasish Mallick. "We see investment in gold as a component of prudent diversification to hedge against uncertainties, inflation and for long-term benefits," he said. He was speaking at the launch of IDBI's own product.

In the case of IDBI, the investment objective is to generate returns that correspond closely to the returns generated by IDBI Gold ETF that was launched last October. Under the scheme, investors would not hold gold physically and the AMC would keep the equivalent amount of imported gold in its vault with the Bank of Nova Scotia.

IDBI's Mallick added, "We are expecting at least $17 million (Rs 1 billion) during the new fund offer period." It ends August 8.

MARKET PLAY

Surging gold prices have helped FoF schemes generate better returns for investors. At the end of 2011, it was a completely different scenario, with a combination of factors bringing in flat returns.

Out of the six gold FoF schemes at the end of 2011, two have been in existence for more than three years and have grossly underperformed physical gold, said an official at rating agency Icra, "These are AIG World Gold Fund and DSP BlackRock World Gold Fund which returned 13% and 16%, respectively, as compared with gold's 25.5% and 29% return, over their respective periods of existence," he said.

The remaining four - Kotak Gold Fund, Quantum Gold Savings Fund, Reliance Gold Savings Fund and SBI Gold Fund, have been in existence for less than 7 months. While the first scheme underperformed, the remaining three generated marginally higher returns since their launch, he added.

The Icra official said that funds like AIG and DSP BlackRock primarily invest in international funds which, in turn, invest in gold mining companies. "Hence, these funds mimic the performance of mining companies and not that of gold, which could have been the reason for their slide," he added.

Newmont lowers gold, copper production guidance for 2012

Newmont anticipated lower gold and copper production during the second quarter and the first half of the year, as well as a decline in profits.

Newmont Mining Thursday narrowed its gold guidance from 5 million to 5.2 million ounces to a range of 5 million to 5.1 million ounces this year, due to lower tons mined at Tanami.

Attributable 2012 copper production is being lowered from prior guidance of 150 million to 170 million pounds to a new range from 145 million to 165 million pounds.

Attributable gold and copper production for the second-quarter 2012 was 1.18 million ounces and 38 million pounds, down 3% and 10%, respectively from the 1.22 million ounces and 42 million pounds reported during the second quarter of 2011.

For the first half of this year, Newmont reported attributable gold production of 2.49 million ounces, down from 2.56 million attributable ounces reported during the same period of last year. Attributable copper output was reported at 73 million pounds during the first six months of this year, down from 96 million pounds during the first half of 2011.

"As expected, our second quarter gold production was impacted by annual planned mill maintenance in Nevada and lower gold and copper production from Batu Hijau in Indonesia, as we continue with the planned stripping in Phase 6," said Newmont CEO Richard O'Brien.

FINANCIALS

Newmont reported adjusted net income of $294 million or 59-cents per share for the second quarter, down from $445 million or 90-cents per share for the second-quarter 2011.

Net income for the second quarter was $279 million, down 28% from $387 million in net income for the same period of last year.

For the first half of this year, Newmont reported an adjusted net income of $872 million or $1.76 per share, down from the adjusted net income of $958 million or $1.94 per share reported during the first half of 2011.

Net income for the first six months of this year was $769 million, down from $901 million reported during the same period of last year.

"Our capital expenditures are expected to be approximately $300 million lower than originally planned for the year, largely as a result of our slower development timetable at Conga in Peru," said O'Brien. ‘We also expect our advanced projects, exploration and G&A expenditures to collectively be approximately $100 million power this year."

Newmont is revising its 2012 attributable capex outlook from $3 billion to $3.3 billion to a range of $2.7 million to $3 billion. The revision is due primarily to the deferral of the development of the Conga project.

The board of directors approved a third quarter price-linked dividend payable of 35-cents per share.

Eldorado Gold cuts 2012 production target as profit falls

Eldorado Gold currently expects to produce 660,000 gold ounces this year, down from a previous estimate of 730,000 to 775,000 ounces. Q2 profits fell on a fall in output and rising costs.

Canada's Eldorado Gold Corp cut its full-year production target by 10 to 15 percent on Friday and reported a drop in second-quarter profit on lower gold output and higher costs.

The Vancouver-based miner now expects to produce 660,000 ounces of gold in 2012, down from a previous estimate of 730,000 to 775,000 ounces. It blamed delays at its Efemcukuru project in Turkey and at Eastern Dragon in China.

Eldorado is still waiting for a key project permit to start production at Eastern Dragon. The company said it has learned the permit must be reviewed by federal regulators, and it is in the process of preparing that submission.

At Efemcukuru, the company faced delays in the final processing of concentrate from the mine, which is shipped to Kisladag for leaching.

Eldorado earned $46.6 million, or 7 cents a share, in the second quarter, compared with $74.9 million, or 14 cents a share, in the year-earlier period.

Earnings were in line with analysts' average forecast, according to Thomson Reuters I/B/E/S.

Revenue fell 3 percent to $244.2 million as lower gold sales and higher costs weighed.

Gold production was 13 percent lower in the quarter at 140,694 ounces, while gold sales fell to 141,717 ounces from 162,164 ounces.

Cash costs rose to $480 an ounce from $397, while the average realized gold price was $1,612 an ounce, up from $1,510 a year earlier.

At the Jinfeng mine in China, production fell 45 percent on lower head grades and throughput at the mill. Output was also down slightly at the Tanjianshan and Kisladag projects.

Eldorado has operations in China, Brazil, Turkey, Romania and Greece. The company plans to more than double its gold output to 1.7 million ounces by 2016.

Source: Reuters

Monday, July 23, 2012

Colombia to offer gold, coal and copper rights next year

The country aims to draw more spending from investors such as Brazilian billionaire Eike Batista with auctions that may lead to producing mines by 2020, Mines and Energy Minister Mauricio Cardenas says.

Colombia expects to auction gold, coal and copper reserves for the first time next year to draw investment in energy and metals deposits stretching from the nation's Pacific coast to the Amazon jungle.

Rights to explore for coltan, used in mobile phones, uranium and platinum won't be part of next year's auction, Mines and Energy Minister Mauricio Cardenas said yesterday in an interview in central Colombia.

"We're not going to offer all of them at the same time," he said. "We will just take the areas where we have the best geological information."

Colombia aims to draw more spending from investors such as Brazilian billionaire Eike Batista with auctions that may lead to producing mines by 2020, Cardenas said. Investment in mining has lagged spending on oil production that helped push foreign direct investment in Colombia to a record $13.2 billion in 2011.

Next year's auction will include areas where the government has more data on reserves, such as the Andean mountains, Cardenas said. Colombia hasn't set the number of blocks it will offer.

Colombian President Juan Manuel Santos said this week that the government has put aside 20.5 million hectares (50.7 million acres) where new mining rights will be restricted to companies winning at auction.

There is less information available about potential mining reserves than for oil deposits, where auctions helped increase investment, said Gabriel Bayona, an analyst at Interbolsa SA, Colombia's largest brokerage.

‘Lack of Knowledge'

"There's a lack of knowledge about the areas," Bayona said today by phone from Medellin. "The plan perhaps is too ambitious."

Concern about global economic growth also may cool demand for new projects, he said.

Colombia will still award mining rights without auctions outside of the areas set aside by the government.

Colombia is the largest coal supplier in South America, exporting the fuel from mines owned by companies including Drummond Co., Anglo American Plc (AAL), Xstrata Plc (XTA) and BHP Billiton Plc. Companies already developing gold projects in Colombia include AngloGold Ashanti Ltd. (ANG) and Batista's AUX Canada Acquisition Inc., which bought control of Ventana Gold Corp. last year to gain gold deposits in Colombia.

Minimizing risk in junior gold stock investment

Joe Mazumdar* of Haywood Securities explains why some juniors are positioned to do better than some majors in the current geopolitical climate and he counsels pragmatism: Gold Report interview.

The Gold Report: Let's cut to the chase, Joe. With the stock prices of gold mining companies in free fall during the past year, why should gold investors stay the course?

Joe Mazumdar: One of the underlying fundamentals driving the gold equity market is what investors believe about the future supply and demand for gold. With respect to supply, global gold production has grown at a compound annual growth rate (CAGR) of 3% over the past four years despite a 15 -17% CAGR increase in the gold price over the same period. We note the risk of constraints on future production, which includes the paucity of large deposits for majors to replete their reserve base, operating and capital cost escalation, skill set shortage and increasing geopolitical risk, not to mention the current financing environment.

We've seen the gold price in various currencies go up 5-18% since 2011. In the Brazilian real and Indian rupee it's been up as high as 30%. Gold price appreciation has been problematic in countries such as India that traditionally support gold via physical demand due to high local prices. Consequently, a higher proportion of the physical gold demand has migrated to China, where the gold price appreciation has been more modest due to the strength of the currency. Overall, with gold fluctuating around US$1,550-1,600/ounce (oz), we're seeing net speculative positions reduced to the point that if we do have positive news on the gold front, such as another round of quantitative easing, there is a lot of room for these positions to rise and provide a significant lift to the gold price.

Currently, long-term investment demand for gold is being supported by exchange-traded funds. For diversification purposes, gold is being purchased by central banks. In many emerging markets, the proportion allocated by central banks to gold is rather low compared to the Western countries. Therefore, the potential exists for sovereign nations to further diversify their reserve base into gold. Volatilities are down off of the highs of Q3/11 and closer to long-term levels. Lower volatility would increase gold's appeal as a safe-haven asset.

TGR: What strategy should gold investors employ in an uncertain market?

JM: If you think gold prices will continue to move sideways, you should lean toward dividend-paying gold stocks, seniors to intermediate firms with low cash costs and a diversified asset base, predominantly in a low geopolitical risk jurisdiction, that are currently producing gold. If you think gold is headed up, then we advocate for leveraged plays, which come with a higher risk profile and include gold explorers, developers and junior producers. Notably, juniors are trading at best as to the gold price of 1.5-1.7, on an annualized basis, over the last quarter.

TGR: How do high interest rates affect the price of gold as compared to currencies?

JM: Interest rates vary globally as the global economy over the past few years has been running at two speeds. Western countries, which are combating anemic growth, have experienced protracted periods of low real interest rates; emerging markets are still battling inflationary pressures that have led them to maintain higher interest rates. Currently, risk averse investors seeking shelter from the sovereign debt crisis in Europe have sought out U.S. bonds, in particular, pushing yields down while driving the U.S. dollar higher. The higher U.S. dollar has driven commodity prices lower in U.S. dollar terms. Investor interest in low-yield, safe-haven assets lies in protecting their investments rather than seeking higher yields in riskier jurisdictions. Gold's ability to compete for a slice of the demand pie for safe-haven assets will, I believe, be important over the near to medium term.

TGR: What are the key indicators of a gold mining company in trouble-the signs of a management that may not be able to weather the downturn in stock prices and restricted access to development capital?

JM: In a nutshell, developers and explorers that are not producing cash flow are in danger. Important indicators to look for include the company's current cash position, the catalysts coming up and whether or not the firm has the cash to deliver the catalysts. Then we ask: Will the catalysts impact the stock positively? Where is the project located and what is the permitting environment? Are there social-license-to-operate issues? Is there a technically savvy management team? Can the team convince the debt market that it can deliver on its execution plan?

Management is the key to success for developers in the junior market. Possessing an in-situ resource alone in the current environment may not be attractive unless there is a competent management team that has the capacity to get the project permitted and is technically competent enough to execute the development and production plan. These management teams can provide access to alternative financing streams. If the skill set of the current management team seeking to progress a development project lacks development and/or operations experience, the stock is not going to go very far right now.

Although we believe it's a buyer's market for development assets, we are seeing more acquisitions of producing assets. Well-priced producing assets present less risk of permitting or social-license-to-operate issues and capital-cost escalation than a development project.

TGR: When is it generally prudent to sell holdings in a troubled company?
JM: Many believe the market will turn, and we believe it will, but the time frame is uncertain and in the long run we're all dead. Currently, we have noted the longer-term investors are willing to increase positions in equities within their current portfolio but less willing to take on new names. Short-term investors continue to pursue opportunities to reduce their position and sell into liquidity events such as a resource update or drill results.

TGR: How do you find companies to recommend?

JM: We lean toward companies with assets primarily in low geopolitical risk jurisdictions with infrastructure. Infrastructure is critical as it impacts capital (roads, power lines, transportation, remote camp, for example) and operating expenditures (diesel versus grid power, for example). The grade of a deposit may look great, but if it doesn't have power from a reliable grid and requires diesel, for example, it may only deliver weak margins and require higher capital expenditures (capex). Processing one gram of ore only works with inexpensive and reliable power such as in areas of Ontario and Quebec. If, however, the company needs to build a 100-kilometer power line, the capex quickly becomes unreasonable and is at risk to escalation. Once we narrow the jurisdiction, we seek the higher-grade deposits with a similar mining method (open pit versus underground bulk versus underground selective) within the area, which provides ample cushion for potential cost over-runs. A metallurgically simple ore body that can deliver recoveries in the 90s is desirable. We either seek companies that can provide assets that can generate a good margin with a manageable capital expenditure requirement or one with an asset that would provide a merger and acquisition (M&A) target for a major to intermediate producer seeking to replete its reserve base.

TGR: Let's talk about geopolitical risk. Is it increasing worldwide?

JM: I believe that major gold corporations should be concerned, if they are not already, with their geopolitical risk profiles with respect to current and future production. They need to diversify-whether it's the South African companies that need more assets outside of South Africa or other companies that have a bit too much of their production profiles based in high geopolitical risk jurisdictions. With all of the news about creeping nationalism, higher tax revenues, royalties, ownership and overall increasing geopolitical risk, firms need to mitigate the risk by investing more in increasing current production and reserves in lower geopolitical risk environments. The amount of global gold production in low geopolitical risk jurisdictions-such as the U.S., Canada, Australia, Chile and some Scandinavian countries-is just below 30%.

TGR: Back to the majors: what cost-benefits do senior companies generally use to assess the merit of repleting gold reserves?

JM: In the end the acquirer should be convinced that the project is accretive on either a near-term cash flow (CFPS) or longer-term net asset value (NAVPS) per share basis. The recent trend in M&A has been for production over development projects as the latter carries the risk of capital escalation, execution and permitting risk, among others. Hence, what appears to be accretive on a NAVPS basis one day may not be the next day.

Previously there was a lot of pressure from the investment community to show growth. The problem is when you're producing at levels of 4-8 Moz, it's difficult to show 3-5% annual growth rates. Currently, the investing community has shifted its collective focus and reverted to production at steady-state levels with dividends over concerns of escalating capex and delays with project development either organically or via acquisitions. Nonetheless, for majors a lot of ounces must be repleted on an annual basis just to maintain production levels, let alone grow them. I don't believe that any company wants to show a declining production profile to the market.

TGR: Any final thoughts on the market situation?
JM: In the near term, financing constraints will continue to be an issue effectively restricting the volume of news flow from many junior mining equity plays. We anticipate that many will reduce their burn rates and push their catalysts back while re-benchmarking expectations.

But I still see opportunities for companies with well-managed assets in low geopolitical risk jurisdictions that can produce near-term cash flow to be financed. We note the trend toward more debt financing and away from traditional equity financing. If the capex is manageable, say, in the $100-200M range, other alternatives to finance the project may be available such as vendor financings, selling of royalty, streaming off byproducts, doing some debt and a smaller proportion of equity. We acknowledge that a junior developer with a large capex requirement (over $500M) may be difficult to finance in the current environment.

TGR: Thank you for your time, Joe.

JM: You are welcome.

*Joe Mazumdar is a senior mining analyst with Haywood Securities in Vancouver. He served as director of strategic planning at Newmont Mining and was the senior market analyst for Phelps Dodge. He has held a variety of geologist positions with other mining companies working in South America, Australia and Canada, rounding out ~20 years of industry experience. Mazumdar holds a Bachelor of Science degree in geology from the University of Alberta, a Master of Science in exploration and mining from James Cook University and a Master of Science in mineral economics from the Colorado School of Mines.

Article published courtesy of The Gold Report - www.theaureport.com

Friday, July 20, 2012

Colombian coal miners strike at Glencore-owned mines

Colombian coal miners went on strike on Thursday over pay and better working conditions at the La Jagua mining complex of Glencore's Prodeco unit, a union official said.

The walkout at La Jagua mines is unlikely to affect spot thermal coal prices in Europe or Asia unless it lasts for weeks, but many industry sources are watching whether workers from Colombia's main coal railway join La Jagua in a walkout.

"Right now everything is stopped," Ricardo Machado of the Sintraminergetica union told Reuters by telephone.

Miners at La Jagua authorized a walkout two weeks ago in Colombia, the world's fourth-largest coal exporter, after 40 days of negotiations with Prodeco failed to produce a deal.

The La Jagua complex has five mining concessions, but the negotiations were only with Carbones de La Jagua.

Machado said workers from the two other Glencore-owned mines, Carbones El Tesoro and Consorcio Minero Unido, had joined the strike, which started at 5:30 a.m. local time on Thursday.

The three areas produced 7 million tonnes of coal last year, according to mining regulator data.

Glencore was not immediately available to comment.

La Jagua's coal is the highest quality produced in Colombia and when not blended, is a niche market material, industry sources said. Glencore's Prodeco operations consist of La Jagua and Calenturitas. It has its own port facilities.

La Jagua has such a high-energy, low-sulphur coal that it often gets sold as pulverized coal for use in steelmaking.

In 2010, laborers at La Jagua went on strike for five weeks before signing a two-year deal, and last year, they struck for eight days at the 5-million-tonne-per-year Calenturitas mine.

Latin America has a history of tense ties among mining companies, unions, indigenous people and environmental groups.

Unions use strikes for leverage in bargaining talks with mining and oil companies, which have been returning to Colombia after a fall in guerrilla violence over the last decade due to a U.S.-backed military offensive.

Source: Reuters

Codelco seeks access to "world-class" Ecuadorian copper/moly deposit

Chilean miner Codelco is negotiating with Ecuador for the Junin deposit which contains enough copper and molybdenum to rival the biggest mines in both Chile and Peru, an industry group says.

Codelco, the largest copper producer, is negotiating access to a "world-class" deposit in Ecuador, paving the way for the state-owned company's expansion outside of Chile, according to an industry group.

The Junin deposit in northern Ecuador contains enough copper and molybdenum to rival the biggest mines in Chile and Peru, which include Anglo American Plc (AAL) and Xstrata Plc's Collahuasi and BHP Billiton Ltd.'s Escondida, Santiago Yepez, president of Ecuador's Mining Chamber, said in an interview in Quito. Chile and Peru are the world's top copper producers.

"Junin could be one of the most significant copper deposits in South America," he said yesterday, citing earlier exploration work by Canada's Ascendant Copper Corp. and Mitsubishi Corp. The Mining Chamber represents companies exploring in Ecuador including Kinross Gold Corp. (K) and Tongling Nonferrous Metals Group (000630) Co. Codelco officials are "frequently" in Quito to meet authorities and the chamber, Yepez said.

A deal with Ecuador's state mining company Enami would give Codelco access to a large-scale copper deposit outside of Chile for the first time in its history after spending about a decade exploring in northern Brazil and Mexico. Kinross and Tongling are also in talks with Ecuador's government to start large-scale mining in the South American country for the first time.

Codelco officials declined to comment on talks with the government. Ecuador's Ministry of Non-Renewable Natural Resources didn't respond to telephone and e-mailed requests for comment.

Farmer Opposition

Codelco is focused on spending more than $20 billion to revamp its mines in Chile and may create a unit to expand overseas, Chief Executive Officer Thomas Keller said last month.

Ascendant lost the Junin concession after facing opposition from coffee growers and farmers in the nearby valley of Intag, Yepez said. Codelco faces a "tough task" in convincing locals to accept drilling at the site, he said.

More than 90 percent of Ecuador's terrain is unexplored and offers "gigantic potential" for copper and gold discoveries amid the Andean mountains that run through Chile, Peru, Ecuador and Colombia, Yepez said.

Ecuador's metals deposits, valued by the government at $220 billion, may contain more than 39 million ounces of gold reserves and more than 8 million metric tons of copper, according to the most recent data from the mining chamber.

In 2008, Ecuador annulled more than 4,000 mining concessions including Ascendant's rights to explore Junin, while President Rafael Correa rewrote the country's mining laws the following year to give the state greater control over the country's mineral resources.

Windfall Tax

Correa said yesterday he will revise a windfall tax after talks with Kinross to develop one of the world's biggest gold discoveries stalled.

"We have to make it more reasonable," Correa said. "We have the most demanding contracts in the world but we have to be very demanding because the opportunities are enormous."

The windfall tax gives the state the right to earn 70 percent of mineral profits above a pre-negotiated base price and has deterred investment, Yepez said. Codelco will be able to acquire up to 49 percent of Junin while Enami will retain a controlling 51 percent stake, he said.

Election Season

Ascendant delisted from the Toronto Stock Exchange following the annulments, while Southern Copper Corp. (SCCO) acquired the rights to Ascendant's Chaucha project in the South American country, beginning exploration this year.

Correa may wait until after February presidential elections before signing any mining accords because of opposition from environmentalists and other constituents, Yepez said.

"Without a doubt, the Ecuadorean government wants to support the mining sector and they are doing it," Yepez said. "Sadly, we are in an election season."

Large-scale mining faces resistance from local communities in Ecuador, like neighboring Peru where five people have died in demonstrations against Newmont Mining Corp.'s Minas Conga gold and copper project in Cajamarca. In March, Ecuadorean protesters forced their way into China's embassy in Quito in a failed attempt to stop the government from signing a contract with Tongling's unit, Corriente Resources Inc.

Chavez Ally

Changes in mining laws and the government's inexperience in negotiating large-scale mining contracts have deterred investors, said Xavier Andrade, a partner at Quito-based law firm Andrade Veloz Abogados. Codelco should have an easier time reaching a deal with the government than Junin's previous owners as Correa, an ally of Venezuela's President Hugo Chavez, has said he favors doing business with state-owned companies.

"The government is having a lot of trouble trying to understand how mining laws should be," Andrade, who specializes in the country's mining code, said yesterday in an interview at his offices in Quito. The country's laws give Codelco an advantage over other mining companies interested in developing the deposit, he said.

Gold steady on weak U.S. data; dollar weighs

Gold hovered near $1,580 an ounce on Friday as investors clung onto hopes for more monetary easing from the U.S. central bank after weak data in the previous session, but a dollar rebound would likely cap gains.

The latest data showed factory activity in the U.S. Mid-Atlantic region contracted in July for a third straight month and new jobless claims surged last week.

Earlier in the week, Federal Reserve Chairman Ben Bernanke said the Fed is ready to take action if economic conditions worsen, but gave few hints on another round of quantitative easing, which would boost gold's appeal on a higher inflation outlook.

Bullion has been trapped in a range between $1,530 and $1,630 for about two months as investors await a clear signal from the Fed and watch the euro zone struggling with its debt crisis, now in its third year.

"Range is contracting these days, and I don't see much encouragement for people to have a big position," said Yuichi Ikemizu, head of commodity trading, Japan, Standard Bank.

Spot gold traded little changed at $1,582.25 an ounce by 11.23 p.m. EDT, on course for a weekly loss of about 0.5 percent. The contract gained half a percent in the previous session.

U.S. gold futures for August delivery inched up nearly 0.1 percent to $1,581.90.

Holdings of the SPDR Gold Trust, the world's largest gold-backed exchange traded fund, dropped to 1,257.054 metric tons (1385.7 tons) by July 19, suggesting lackluster investor interest in gold.

TECHNICALS WEAK

Technical signals painted a grim picture for the gold in the near term.

"Gold appears to have lost its glimmer," said Tim Riddell, head of ANZ Global Markets Research, Asia.

"Daily momentum is flat/neutral as it languishes in the lower reaches of a $1,555-$1,635 range. The near term inability to regain levels above $1,600 will keep bias towards retesting the base of this range."

Riddell said though strong support has been built in the $1,522-$1,525 area, that level may come under severe pressure soon.

"Although any fall below $1,555 is likely to encounter solid support at $1,522-$1,525, bias is to see a flip of the current holding range to the downside for at least a test of $1,475 if not a longer term retracement target of $1,445-$1,447."

Precious metals prices 0323 GMT

Metal Last Change Pct chg YTD pct chg Volume

Spot Gold 1582.25 0.96 +0.06 1.18

Spot Silver 27.19 0.02 +0.07 -1.81

Spot Platinum 1410.25 -2.05 -0.15 1.24

Spot Palladium 580.89 1.39 +0.24 -10.97

COMEX GOLD AUG2 1581.90 1.50 +0.09 0.96 8900

COMEX SILVER SEP2 27.17 -0.05 -0.19 -2.69 1676

Euro/Dollar 1.2262

Dollar/Yen 78.59

COMEX gold and silver contracts show the most active months

Monday, July 16, 2012

Gold Market Review - Gold and Silver Flat on Week

 

Gold and Silver Bullion Market News and Analysis with Ben Traynor from BullionVault.

 

Source: BullionVault

China Copper Mines to construct copper leach plant

China Copper Mines is in the process of constructing a copper leach plant on the Copperbelt at an estimated cost of US$100 million.

The project area is located in Chingola district with over 500 permanent jobs expected to be created for the local community and people in the district.

The company commenced preliminary constructions last year awaiting approval from the Zambia Environmental Management Agency to proceed with the project.

This is according to an Environmental Impact Assessment report submitted to ZEMA.

“The company proposes to exploit five mineral waste dumps in the Fitula area to produce London Metal Exchange grade “A” copper,” says the EIA.

This investment will go towards the construction of mine infrastructure, purchase of mine equipments and the development of the actual mining dumps.

Infrastructure to be constructed on site includes heap leaching pads, back up ponds, solvent extraction, electro winning plants and offices.

The project will have both negative and positive impacts on the environment and the community.

Part of the negative impacts are involuntary resettlement of one household and a church building adding that it is expected to cause indirect loss of income to some Chingola communities.

Other negative impacts include noise pollution resulting from vibration due to crushing, air pollution, and occupation and health impacts.

On the positive front the company has resolved through the Compensation Resettlement Plan to give the affected parties an amount of K100 million for them to construct buildings at the area of their choice,” says the EIA.

Over 200 informal miners who were earning their living through the reclamation of low grade copper ore in the area will be relocated but have compensation package amounts to K600 million.

CCML is a new company in Zambia and has its shareholders United Quarries Limited operating locally for the past six years.

Jindal Steel sets Aug 10 deadline for Bolivian govt to resolve issues

Jindal Steel and Power has set an August 10 deadline for Bolivian government to resolve the issues related to its $ 2.1 billion venture in Bolivia, or it will pull out of the Latin American country.

“If they (Bolivian government) resolve those issues to our satisfaction, we will stay. Otherwise we will get out of there. By August 10, we will decide for sure,” the JSPL Chairman and Managing Director, Mr Naveen Jindal, told PTI in an interview.

Jindal’s contract, signed in 2007, was considered as the largest foreign direct investment for Bolivia and consisted of 40-years mining rights of El-Mutun mines, one of the largest untapped iron ore mines in the world, and setting up of iron and steel plants in the country.

In June, the Indian steel major had sent a termination notice to the Bolivian government, while alleging that contractual obligations related to gas supplies for the venture had not been met.

The notice sought to terminate the contract in a month, if the issues were not resolved. The deadline had ended on July 8.

However, Mr Jindal said that JSPL officials are still in discussions with the Bolivian government to revive the project.

He, however, made it clear that revival of the project would depend on gas allocation and scaling down the project capacity.

“What they are giving us is one-fourth of the (required) gas and are saying that you don’t scale down the capacity, we will give you gas later. Is it possible? How can we plan our investment on such assurances?

“Cost of gas there is USD 8/mBtu (million British thermal unit), while in US it is USD 2-2.5/mBtu. Okay, we will pay higher prices but how can we plan bigger without the gas being committed? We have to scale down (the capacity),” he said.

According to the contract, JSPL’s $2.1 billion project requires gas supply of 10 million standard cubic metres per day (MSCMD).

However, the Bolivian government is willing to commit only 2.5 MSCMD gas from 2014 due to non-availability of gas in the country, the company had said earlier.

The mining and steel project consists of setting up of a 10 million tonnes per annum iron ore pellet plant, six MTPA DRI (direct-reduced iron) plant and 1.7 MTPA steel plant, besides mining of El—Mutum mines for 40 years.

So far, the Naveen Jindal—led firm has invested $90 million in the venture and made investment commitments exceeding $600 million till March 2012 for purchase of technology, machinery, equipment and advances to vendors.

Source: Thehindubusinessline.com

Zimbabwe gold production up 29 pct

Zimbabwe's gold production rose 29 percent to 7.2 tonnes in the first six months of this year, generating $377 million in revenue, data from the mining chamber showed on Monday.

The southern African nation's gold mining sector is recovering from an economic crisis that peaked in 2008 when hyperinflation reached 500 billion percent and forced most mines to shut.

Total gold production for 2011 was 13 tonnes. Output remains well below the 27 tonnes reached in 1999 before the decade-long economic slide.

Canada-listed New Dawn Mining and Caledonia Mining , as well as the London-listed Mwana Africa and South Africa's Metallon Gold are among the gold producers in the country.

Source: Reuters

OceanaGold Philippines mine now fully funded

ASX- and TSX-listed OceanaGold has secured a $220-million credit facility to develop its Didipio gold project, in the Philippines.

The miner said on Monday that the project was now fully financed, despite an increase in the initial capital cost from $185-million in June last year, to $220-million.

The $220-million credit facility would be provided by a group of large, multinational banks, with the three-year facility providing OceanaGold with additional liquidity should it be required.

“I am very pleased with the strong support we’ve received from this group of large, multinational banks to restructure and strengthen the balance sheet,” said MD Mick Wilkes.

“It’s a vote of confidence in OceanaGold and allows us to focus on successfully commissioning Didipio and generating strong cash flows from our operation in 2013. We remain committed to creating a midtier, low-cost, international gold mining company and we look forward to working with our new financial partners to further grow the company.”

Wilkes said in a statement that construction activities at the Didipio project had progressed well during the past two months, and construction was now 70% completed, with more than 1 600 workers on site.

Mining of the Didipio orebody started on schedule this month in readiness for commissioning in the fourth quarter, and to build ore stockpiles for production in 2013.

“The Didipio project is going extremely well. We remain on track to achieve our goal set out in June last year to start commissioning in the fourth quarter of this year. Excellent progress has been made over the past few months with construction of the processing plant and the tailings storage facility.”

Wilkes noted that the increase in capital costs for the project was consistent with industry cost pressures, particularly for engineering design services. He noted that the company had also made the deliberate decision to engage with high-quality contractors in the Philippines, which cost more money, to ensure that the project was built to a high standard and on time.

“With the current cash position, cash flows from New Zealand operations in 2012 and the credit facility, the company is well positioned to meet its medium-term growth objectives,” Wilkes said.

The Didipio project was expected to produce some 100 000 oz of gold and 12 000 t of copper a year, over an estimated 16-year life-of-mine. OceanaGold recently signed a heads of agreement with commodity trader Trafigura to sell 100% of the project’s concentrate over at least five years, from the start of production.

Edited by: Mariaan Webb