July 13, 2015 – Republic of Mining

Vale Rallies Most in Month Amid Iron-Ore Supply Cut Plan – by Juan Pablo Spinetto (Bloomberg News – July 13, 2015)

July 13, 2015

http://www.bloomberg.com/

Shares of Vale SA, the world’s largest iron-ore miner, rallied the most in a month as the company presses ahead with plans to cut production and boost profit.

Vale will withdraw output of iron ore by 25 million metric tons starting this month, Peter Poppinga, the company’s executive director for ferrous and strategy, said at an industry conference in Sao Paulo.

The cuts will come from its lower-quality products at its mines in south and southeast Brazil and from third-party purchases, he said.

“Our mantra is not volume at any cost anymore, it’s to maximize margins,” Poppinga told reporters at the event. “It doesn’t mean shutting mines, it means optimizing some production flows at plants.”

The Rio de Janeiro-based miner is moving to trim low-quality output as it focuses on boosting profit amid what it sees as an oversupplied market in 2015, and one that will probably be in surplus next year, Poppinga said.

China imports of coal go into steep decline but there’s a silver lining for Australia – by Angus Grigg (Australian Financial Review – July 13, 2015)

July 13, 2015

http://www.afr.com/

China is demanding less coal and more wheat.

That’s the key message from first-half trade data released on Monday by the Customs Bureau, which showed China’s overall imports remained weak while exports were only marginally better.

In US dollar terms the value of trade in the world’s second biggest economy fell 6.9 per cent over the first half of the year as wheat imports surged and coal declined.

For Australia, these wildly divergent statistics are hard to ignore. Over the first six months of the year, the volume of China’s coal imports fell 37.5 per cent compared to the same period in 2014.

The volume of wheat imports was up 66.5 per cent over the same period. For coal, the decline is a combination of protectionism and falling domestic demand.

Swiss Question Witnesses in Guinea in BSG Resources Bribery Probe – by Scott Patterson (Wall Street Journal – July 10, 2015)

July 13, 2015

http://www.wsj.com/

Investigators are looking into whether Israeli billionaire Beny Steinmetz’s mining arm paid bribes for rights

Swiss investigators said they have questioned several witnesses in the West African nation of Guinea in a broadening criminal probe into whether Israeli billionaire Beny Steinmetz’s mining arm paid bribes for the rights to one of the world’s largest iron-ore deposits.

The investigators, led by Geneva prosecutor Claudio Mascotto, left Guinea Friday after spending the week interviewing former government officials with ties to Guinea’s mining ministry and banking system who were involved in decisions related to the deal, according to people familiar with the investigation. The investigators also met with an attorney representing Mr. Steinmetz, the people said.

The interviews were another indication that individuals tied to BSG Resources Ltd., the mining arm of Mr. Steinmetz’s family-owned conglomerate, remains the focus of multiple investigations into allegations that bribes were paid to win mining rights in Guinea’s Simandou mountain range, where the iron-ore deposits are said to be among the world’s biggest.

Australian miners linked to hundreds of deaths, injuries in Africa – by Will Fitzgibbon (Sydney Morning Herald – July 11, 2015)

July 13, 2015

http://www.smh.com.au/

Australian mining companies are linked to hundreds of deaths and injuries in Africa, which can go unreported at home. Some of the Australian Securities Exchange-listed companies include state governments as shareholders. One company recorded 38 worker deaths over an eleven-year period.

In Malawi, litigation continues against Paladin Africa Limited, a subsidiary of Perth-based Paladin Energy, and its subcontractor after an explosion disfigured one worker with such heat that his skin shattered when touched by rescuers. Two others died in the same incident.

Other allegations include employees in South Africa hacking a woman with a machete and Malian police killing two protesters after a mine worker reportedly asked authorities to dislodge a barricade on the road to the mine.

An investigation by the International Consortium of Investigative Journalists, in collaboration with 13 African reporters, uncovered locally-filed lawsuits, violent protests and community petitions criticising some Australian companies.

Gas overtakes coal at US power stations – by Ed Crooks (Financial Times – July 12, 2015)

July 13, 2015

http://www.ft.com/intl/companies/oil-gas

New York – The US generated more of its electricity from gas than from coal for the first time ever in April — in a sign of how the shale boom is putting mounting pressure on the country’s mining industry.

Plunging prices for natural gas, which have fallen alongside oil since last summer, led to it being used to generate 31 per cent of America’s electricity in April, while coal contributed 30 per cent.

This was the first month in US history that gas-fired electricity generation surpassed coal-fired generation, according to SNL Energy, a research firm — although it came close in 2012 when gas prices were also very weak. In 2010, coal provided 45 per cent of US power.

Since then, competition from cheap shale gas — unlocked by the rise of horizontal drilling and hydraulic fracturing — plus a growing regulatory burden on coal-fired power plants, has squeezed out coal use. That trend has accelerated in 2015.

Brett Blankenship of Wood Mackenzie, the research company, said the combination of cheap gas and new environmental regulations such as curbs on mercury and related pollution from coal-fired plants was having a particularly deleterious effect on coal generation.

Debt Load Digs Into Mining Industry – by Rhiannon Hoyle (Wall Street Journal – July 12, 2015)

July 13, 2015

http://www.wsj.com/

Resources firms borrowed heavily to supply China; now boom is ending, prices are down

SYDNEY—When Australia’s richest person, Gina Rinehart, needed cash last year to build a massive iron-ore mine called Roy Hill in northwest Australia, five export-credit agencies and 19 banks teamed up to provide the US$7.2 billion required, sealing the largest project-financing deal in industry history.

The loan deal struck to fund the mine, cut into a vast red plain deep in the Australian Outback, now looks like the high point of a multiyear pileup of debt in the global mining sector.

As forecasts predicting endless growth in China’s appetite for raw materials became a matter of industry faith, mining companies borrowed extensively to build networks of pits, railway lines and port terminals. Megadeals abounded as a merger-and-acquisition frenzy took hold. Cheap borrowing costs, thanks to low global interest rates, fueled the splurge.

Now, as China’s hunger for resources ebbs and mining companies’ profits suffer amid falling commodity prices, those debts have become an albatross around the industry’s neck.

Ring of Fire: Bring on the mining Marshall Plan (Part 2 of 2) – by Stan Sudol (Sudbury Star – July 13, 2015)

July 21, 2015July 13, 2015

The Sudbury Star is the City of Greater Sudbury’s daily newspaper.

Editor’s note: This is the second part of a two-part story.

Roads, the best way to find new deposits

One of the first priorities is road transportation. Last March at the PDAC mining convention, the federal and provincial governments jointly announced roughly $800,000 in funding for four of the five isolated First Nations – Webequie, Nibinamik, Neskantaga and Eabametoong – to begin consultations on an east-west road that will connect their communities and the Ring of Fire camp to the provincial highway system. A small baby step of progress.

However, Marten Falls is currently not part of this initiative. While this community is the smallest populated of the Matawa Tribal Council, it probably has the most clout as its traditional territory encompasses the Ring of Fire. Although Webequie is considerably closer to the mining camp, it didn’t receive full-reserve status until 2001. Hence it is critical that Martin Falls be strongly encouraged to join the consortium discussing the road connection.

Manitoba is currently undertaking a visionary initiative to build all-season roads on the east side of Lake Winnipeg (which has similar Canadian Shield geography as in Northwestern Ontario) to connect isolated First Nations communities. The primary reason for the establishment of the East Side Transportation Initiative is to lower travel costs for essential supplies to 13 Aboriginal communities. In addition, winter roads are becoming less dependable due to climate change.

Accent: Bring on the mining Marshall Plan (Part 1 of 2) – by Stan Sudol (Sudbury Star – July 11, 2015)

July 13, 2015

The Sudbury Star is the City of Greater Sudbury’s daily newspaper.

Editor’s Note: This is first installment of a two-part story. The second will appear in the Monday edition of The Star.

There has been much commentary about healing and rapprochement with Canada’s First Nations due to the recent Truth and Reconciliation Commission report on the horrific abuse Aboriginal children experienced at residential schools during the last century.

However, if Ontario, which has the largest population of First Nations people in the country, truly wants to make amends for the sins of the past, then we need to look at “economic and social reconciliation” as our primary vehicle for restitution.

Until every First Nation community in the province has the same level of infrastructure and social services as non-Aboriginal towns and cities, most of the remorseful speeches by guilty white politicians are nothing more than hot air.

Without a doubt, some of the most destitute and impoverished First Nations communities are located in Ontario’s mineral-rich but isolated northwest, near the Ring of Fire – the most significant Canadian mineral discovery in almost a century – and in the regions to the west.

In northern development, put northerners’ unique realities first – by Adam Fiser ad Brent Dowdall (Globe and Mail – July 13, 2015)

July 13, 2015

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.

Adam Fiser and Brent Dowdall are senior research associate and senior manager for research and business development, respectively, at the Conference Board of Canada.

Many of Canada’s pressing socio-economic, political and environmental challenges are most intense in the North. Blessed with resource endowments, the North has much potential for economic growth, but resource development doesn’t automatically lead to sustainable development. How we prepare and plan for this growth will determine whether northerners benefit.

Initiating and sustaining a broad-based response to that challenge has been a mission of the Conference Board of Canada since 2009. A recently published compendium report of the Centre for the North affirms that the obstacles are complex, but not insurmountable.

Meeting the challenge requires an acceptance of the North’s unique realities. Not only are northern and southern Canada vastly different, but provincial and territorial northern regions themselves vary in geography and climate, demographics and culture, economic resources and business potential, governance structures and public services.

The Mining Supercycle’s Long Goodbye – by Helen Thomas (Wall Street Journal – July 8, 2015)

July 13, 2015

http://www.wsj.com/

Commodity prices have tumbled and China’s markets are in disarray

On the way up, the catchphrase of the commodities supercycle was “stronger for longer.” Now, its demise feels just as enduring.

The mining sector once seemed invincible thanks to China’s rapacious appetite for raw materials. But China’s economic growth has cooled and recent signs of life in areas like its property market haven’t shifted the negative mood. The meltdown in its stock market is now raising fears of a sharper slowdown.

With the price of metals down again this year, the industry is now truly in the pits. Share prices in the sector have sunk again to their lowest levels since the financial crisis and it is hard to see what could meaningfully revive them in the near term.

Iron ore’s bounce this year, from lows of about $47 a metric ton to about $65 last month, has evaporated: low-cost supply will pick up in the second half of the year and keep on rising. Metallurgical coal is suffering too as Chinese steel production falls. Meanwhile, thermal coal-used in power stations—seems well on its way to becoming a global pariah.

Shock and ore: What iron ore’s 10% rebound means – by Nyshka Chandran (CNBC.com – July 9, 2015)

July 13, 2015

http://www.cnbc.com/

Iron ore’s near 10 percent rebound on Thursday following a horror streak this week left strategists debating whether more pain is in store for the beleaguered commodity.

Benchmark ore for delivery to the Chinese port of Tianjin ended a ten-day rout overnight, rising to $48.30 a ton, a 9.5 percent increase from an all-time record low of $44.10 hit in the previous session.

Major banks like Citigroup remain bearish, predicting prices to fall below $40 a ton this year due to the commodity’s fundamental oversupply. HSBC meanwhile expects prices to trade around $45 during the third quarter. “We expect the market to go into oversupply and shake out mode again,” it said in a report this week.

But some analysts are optimistic.

“A near 10 percent bounce suggests people will think iron ore is now relatively cheap. A market that breaks to new lows and stays low is very weak, but to see such a bounce suggests there’s more comfort.

Employee concerns main hurdle in Potash Corp. takeover of K+S – by Rachelle Younglai (Globe and Mail – July 13, 2015)

July 13, 2015

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.

In Potash Corp. of Saskatchewan Inc.’s quest to buy K+S AG, one of its biggest hurdles may lie in the German company’s corporate structure.

K+S has two boards of directors, one comprised of executives and another of employee representatives and shareholders.

The employee-shareholder group, known as the supervisory board, has enormous influence over the company with the power to hire and fire executives.

Unlike most takeovers, where a high enough bid will succeed, the buyer must also deal with the supervisory board, which takes into account the employees.

“The representative of the employees represent different interests,” said Martin Imhof, a partner at law firm Heuking Kuhn Luer Wojtek, who specializes in cross-border mergers and acquisitions in Germany.

Miners’ focus shifts from investor returns to survival – by Silvia Antonioli (Reuters U.S. – July 10, 2015)

July 13, 2015

http://www.reuters.com/

LONDON, July 10 (Reuters) – Hit hard by the accelerated downturn in metal prices in recent months, global mining companies preparing to report results are likely to announce another round of austerity measures to cut costs and convince investors to remain committed to the sector.

With investors looking for evidence of continued capital discipline while credit ratings and dividends are pressured by a rout in prices for anything from iron ore to platinum, reductions in capital expenditure, operational costs and jobs could all be on the cards.

It comes as little surprise, therefore, that miners have been among the worst performers on London’s FTSE 100 index of blue-chip companies so far this year. The FTSE 350 mining index has fallen by about 15 percent since the start of the year.

“The picture has shifted to survival. With prices where they are, you wouldn’t expect any of the majors to think about big buybacks,” said Nik Stanojevic at British wealth manager Brewin Dolphin.

The weekend read: This is how the bottom looks – by Brent Cook (Mineweb.com – July 10, 2015)

July 13, 2015

http://www.mineweb.com/

Brent Cook’s take on how scary it looks out there, and why it might eventually and slowly get better.

The Rant. But then metal prices began to decline, economies slow, and profits slip away. What went wrong this time Dad? Will mining boom again? Don’t hold your breath kid. It’s bleak out there and we have a 10-year super commodity bull to work off this time.

I think what ultimately killed the recent boom was the slow realization by investors that most mining companies really couldn’t make money. Those savvy investors got the commodity boom and gold price right, and bought into the thesis that mining company profits would soar with the rising metal prices. The share prices did soar, for a while, but…

Instead of profits they got production costs rising in tandem with metal prices; capex blowouts; companies issuing equity and taking on debt whenever they could to cover the multitude of thoughtless acquisitions (supported by dubious, but 43-101 sanctioned, technical reports and financial projections) all piled on top of an eat-what-you-kill banking/brokerage community fronted by inexperienced or compromised analysts faced with the tall task of feeding the global frenzy of very short-term hedge fund gamblers with no skin in the game, trading stocks based on microsecond blips up until the shine wore off and, well, here we are today — busted again.

Confusion reigns on aboriginal rights when court rulings meet reality – by Jeffrey Simpson (Globe and Mail – July 11, 2015)

July 13, 2015

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.

VANCOUVER — A year and a bit later, people with good intentions and big brains in British Columbia are still trying to figure out the impact of the latest Supreme Court aboriginal-rights decision.

Learned law articles have been penned. Certain aboriginal spokesmen have told the provincial government, as a consequence of the decision, to recognize aboriginal title everywhere and get on with it. Resource companies and other private-sector enterprises don’t quite know what to make of the Tsilhqot’in decision.

Tsilhqot’in essentially recognized aboriginal title over a swath of territory for a previously nomadic aboriginal group. In this territory, with a few restrictions, the group now has de jure sovereignty, a precedent that, if extended over time, would leave B.C. pockmarked with little self-governing, largely sovereign aboriginal territories over which the Crown’s writ would barely run.

What’s clear about the Tsilhqot’in decision – and the long trail of previous aboriginal-rights cases – is that it makes for steady and remunerative work for lawyers. Essentially, the courts, and especially the Supreme Court of Canada, are making laws in this field.