July 3, 2014 – Republic of Mining

COLUMN-Copper is unexpected victim of Indonesian export ban – by Andy Home (Reuters India – July 3, 2014)

July 3, 2014

http://in.reuters.com/

The opinions expressed here are those of the author, a columnist for Reuters.

(Reuters) – When Indonesia banned the export of unprocessed minerals in January of this year, the consensus view was that the most significant impact would be on the nickel and aluminium raw material markets in that order.

Copper barely warranted a mention.

Analysts at Macquarie Bank, for example, issued a research note on January 14, two days after the ban came into effect, examining the implications in a question-and-answer format. The only reference to copper came in the 19th bullet point under the telling heading: “Have copper producers been let entirely off the hook?”

Six months on, though, and one of the country’s two giant copper mines is on care and maintenance and the other has cut production by half. There have been no concentrate exports since January.

Not only is this the single biggest hit to copper mine supply this year but it is acting to accelerate a fracturing of the copper concentrates pricing model.

Both Freeport McMoRan, which owns and operates the Grasberg mine, and Newmont Mining, major stakeholder in and operator of the Batu Hijau mine, appear to have been blind-sided by the January rule changes.

Mining sector tipped to rise again – by David McKay (Miningmx.com – July 3, 2014)

July 3, 2014

http://www.miningmx.com/

[miningmx.com] – THE long-standing adage about mining is that it consists of a hole in the ground with a fool at the bottom and a liar at the top. As derogatory as that may sound to an industry where its top 40 largest companies turn over $731bn, and provide the minerals crucial to modern life, the loss of investor confidence in the sector since 2012 suggests many among the investment ranks were prepared to believe it.

Mining companies spent $348bn between 2005 and 2012, but generated only $126bn in net cash returns. It was a poor performance that was reflected in how resource equities fared. The HSBC Global Mining index shed 46% of its value from 2011 to 2013 as the reality of how little had been returned in yield by the big-spending mining companies hit home.

That’s why at a market capitalisation of $157bn, Facebook is worth nearly double Rio Tinto ($86bn) even though the Anglo-Australian miner generated $50bn from continuing operations during its 2013 financial year.

In comparison, the social media phenomenon generated $2.5bn in the first quarter of this year and some $641m in profit whereas Rio Tinto produced an annual loss of $3bn, including impairments and currency exchange losses.

The market forces that affect Facebook and Rio Tinto are, of course, vastly different, but the fact remains that in a universe of investment, the promises of riches that would flow from China’s industrialisation in the early 2000s had, in the hands of the diversified mining companies, resulted in very little.

Blood Money and Conflict Minerals – by The Editors (Bloomberg News – July 2, 2014)

July 3, 2014

http://www.bloombergview.com/

The world’s insatiable demand for everything from smartphones to jewelry to cars is feeding the bloody war in eastern Congo, where tin, tantalum, tungsten and gold are mined for use in manufacturing. Last year, exports of these minerals from central Africa generated at least $2.1 billion — much of which went to rebels and government soldiers.

Four years ago, Congress responded with a sensible provision of the Dodd-Frank Act that requires U.S.-regulated manufacturers whose products may contain conflict minerals to investigate the matter and report, publicly, to the Securities and Exchange Commission. This transparency is meant to motivate the companies to get conflict minerals out of their supply chains and avoid the wrath of socially conscious consumers and shareholders.

So far, though, companies are widely flouting the law. The first conflict-mineral reports were due June 2, and only 6 percent met an acceptable standard for compliance, according to a review by Claigan, an environmental compliance consultancy.

Now, this is only the first year, and some companies may have been confused by an eleventh-hour Court of Appeals ruling that modified the law’s reporting requirements. Some noncompliance would have been understandable. But not this much. Manufacturers apparently need to be nudged awake to the harm their reliance on conflict minerals causes. The SEC will have to make an example of the worst offenders.

Labrador Iron halts mines amid steel-industry slump – by Bertrand Marotte (Globe and Mail – July 3, 2014)

July 3, 2014

The Globe and Mail is Canada’s national newspaper with the second largest broadsheet circulation in the country. It has enormous influence on Canada’s political and business elite.

MONTREAL — Labrador Iron Mines Holdings Ltd. said it is halting all operations at its mines for the rest of the year, the latest industry player to fall victim to slumping demand.

The benchmark price of iron ore, used to make steel, has plummeted 30 per cent this year on rising global supply and reduced steel output in the critical Chinese market. The spot price is in the $93 (U.S.)-a-tonne range, down from almost $120 in early April, a level at which high-cost producers such as Labrador Iron can barely meet their costs. Some observers see the price falling to below $80.

Labrador Iron is experiencing “considerable strain” on its cash resources and now needs outside investment if it is to continue operations, the company’s chairman and chief executive officer John Kearney said.

Across-the-board cost-cutting measures are in place and Labrador Iron is in talks for potential financing with commodity traders, financial institutions and others, the company said. The focus for 2014 is development of the flagship, long-life Houston Mine in the Labrador Trough, it said.

Pipes with asbestos still used in new buildings – by Tava Grant (Globe and Mail – June 27, 2014)

July 3, 2014

The Globe and Mail is Canada’s national newspaper with the second largest broadsheet circulation in the country. It has enormous influence on Canada’s political and business elite.

Pipes containing asbestos are being installed in new condominiums, hospitals and high-rises in Canada, despite widespread health concerns that have led many countries to ban its use.

The new installations come as cities across the country are spending millions of dollars to manage and remove asbestos materials from public buildings such as schools, community centres, courts and medical facilities. Unlike most other developed countries, Canada has never banned the use of asbestos and continues to import and export asbestos-containing materials, such as pipes and tiles, The Globe and Mail has reported.

Asbestos-cement pipes are allowed in both Canada and the United States, though there are regulations about how to cut and dispose of them. It is unclear how many asbestos-cement pipes are being installed in Toronto and other cities, and there appear to be no central records of where asbestos is being used.

Once the products are imported into Canada, it’s difficult to pinpoint where it actually gets sold. A key concern is that many workers, tenants and owners may not know asbestos materials are in their buildings, raising the risk of accidental exposures particularly in the event of a fire, or as the materials start to deteriorate.

The World Health Organization has declared all forms of asbestos carcinogenic and recommends its use be eliminated.

K+S Plans Specialty, Salt Growth to Add to Canada Potash – by Sheenagh Matthews (Bloomberg News – July 3, 2014)

July 3, 2014

http://www.businessweek.com/

K+S AG (SDF), the German potash producer that’s developing a $4 billion mine in Canada, is looking beyond the biggest investment in its history and plans to expand its specialty-fertilizer and salt businesses.

The salt unit has a target of doubling operating profit to 250 million euros ($342 million) by 2020, Chief Executive Officer Norbert Steiner said at a press conference at K+S’s Hattorf mine on the Werra River in central Germany. The company also plans to boost the proportion of sales from higher-margin fertilizers that have magnesium and sulfur content.

“We have ideas” for growth outside of potash, Steiner said. In salt, “we’re only in mature markets. We aren’t global yet.” Southeast Asia and eastern Europe are regions where the company is under-represented, he said, without specifying countries where Kassel-based K+S may expand.

K+S is still pouring the bulk of financial resources into development of the Saskatchewan mine dubbed Legacy. The potash producer cut its annual dividend 82 percent and sold 1 billion euros of bonds in December to help pay for the project. Some investors had called for a delay or cancellation of work on Legacy after an industry cartel breakup a year ago led to a 24 percent slump in potash prices.

The end of an export agreement between potash companies in Russia and Belarus in July 2013 roiled the industry, sending stock prices of fertilizer makers around the world down as much as 24 percent in a day.

Ontario debt rating outlook cut to negative by Moody’s – by Keith Leslie (National Post – July 3, 2014)

July 3, 2014

The National Post is Canada’s second largest national paper.

Canadian Press – TORONTO — Moody’s credit rating agency changed the outlook on Ontario’s debt rating Wednesday to negative from stable, citing concerns about the province’s ability to eliminate a $12.5 billion deficit by 2017-18 as scheduled.

“After several years of weak to moderate economic growth, and higher than previously anticipated deficits projected for the next two years, the province is facing a greater challenge to return to balanced outcomes than previously anticipated,” Moody’s Investors Service said in a statement.

The change in outlook affects approximately $250 billion in debt securities, Moody’s said as it reaffirmed Ontario’s Aa2 ratings.

The ratings agency didn’t wait for the Liberals to introduce their budget July 14 before lowering the outlook to negative, but Premier Kathleen Wynne has said it will be identical to the May 1 fiscal plan that was rejected by the opposition parties, triggering the June 12 election.

“Although the province has not yet tabled a new budget following its June election, indications are that it will be little changed from the May budget, which Moody’s indicated was credit negative for the province,” said Moody’s vice president Michael Yake.

Joe Oliver channels Jim Flaherty in telling Ontario to quit whining and solve its own budget problems – by Kelly McParland (National Post – July 3, 2014 )

July 3, 2014

The National Post is Canada’s second largest national paper.

When the late Jim Flaherty was finance minister, he got a certain joy from taking pot shots at Ontario’s economy, which he felt was badly managed under a series of Liberal governments.

In a 2012 speech he said the province had “no one to blame but themselves” for their troubles, and complained that “Ontario’s spending mismanagement is a problem for the entire country.”

“I would hope that they’re able to manage their spending better than they have been able to do over the past eight or nine years of government.”

He had plenty of justification for his taunts. Under his direction, the federal budget was well on the way to being balanced, while Ontario couldn’t seem to get a handle on its much-smaller shortfall, for all the bold talk from Queen’s Park. At the time of Flaherty’s address, Ontario expected a deficit of more than $12 billion, but was promising to bring it down. Two years later, it is still expecting a deficit of more than $12 billion and is still promising to bring it down.

It was reported that the Prime Minister’s Office eventually intervened and suggested Mr. Flaherty put a sock in it. His successor, Joe Oliver, lacks Mr. Flaherty’s brashness, but also seems to have been freed of the sock. In an article in the Financial Post Thursday, Mr. Oliver suggests, in the politest of terms, that the new government of Kathleen Wynne has no one but itself to blame for the mess it’s made of its economy, and should stop bleating at Ottawa to come to its rescue.

Canada: Streaming Transactions In The Mining Sector: A Financing Linchpin – by Michael D. Amm and Ian Arellano (Mondaq.com – July 3, 2014)

July 3, 2014

http://www.mondaq.com/

As the challenging environment for mining sector financing continues, streaming transactions are playing a prominent role in bridging the “financing gap”. Traditional equity, debt and project finance markets have not been available to mining companies to the extent they have been in the past. Mining companies have had to become more creative in financing the development of their projects and their M&A transactions—and they have increasingly turned to streaming transactions as a catalyst to help secure an overall financing package.

Background

A streaming transaction is an agreement whereby a financing party agrees to purchase future deliveries of minerals from an identified property in exchange for a significant up-front advance payment, referred to as a “deposit”, which is applied against future deliveries, typically together with additional ongoing fixed payments (which are a portion of the market price) as the minerals are delivered. The transaction is essentially a long-term commodity purchase contract at pre-agreed prices with the delivery obligations contingent on future production over a specified period or for the life of mine.

The financing party obtains exposure to mineral prices and the ultimate size and grade of the underlying resource, but not construction or production cost risks. Like a senior lender, the financing party normally takes security over the project assets and related subsidiary companies to secure the performance of the obligations under the streaming agreement. Streaming transactions are typically based on the production of precious metals, whether as the main output or as a by-product of a base metals project; however, the streaming model can also be used with respect to other commodities.