September 1, 2015 – Republic of Mining

COLUMN – Weak China PMIs won’t automatically lower commodity imports – by Clyde Russell (Reuters India – September 1, 2015)

September 1, 2015

http://in.reuters.com/

China’s various purchasing managers’ indexes gather significant attention as indicators of the health of the world’s second-biggest economy, but they are less useful as a predictor of commodity imports.

The official Purchasing Managers’ Index (PMI) fell to a 3-year low of 49.7 in August, in line with market expectations and down from a reading of 50 in July.

The drop below the 50-level that separates expansion from contraction will be viewed as another sign that China is struggling for growth momentum, and raises further questions over whether 2015’s official target of a 7-percent increase in gross domestic product can be realised.

The Caixin/Markit PMI dropped to 47.3 in August, the weakest since 2009 and down from 47.8 in July.

The official PMI focuses on large, state-controlled companies, while the Caixin/Markit measure encompasses more small- and medium-sized enterprises.

Glencore sinks on equity issuance fears – by Bryce Elder (Financial Times – September 1, 2015)

September 1, 2015

http://www.ft.com/

Glencore hit another record low on Tuesday on growing concerns that it may be forced into an equity issue.

Miners slumped on data showing China’s factory activity contracted at its fastest pace in three years, which put further pressure on copper and coal prices.

Glencore closed down 10 per cent to 133.5p, which took its loss since flotation in 2011 to 75 per cent. With the major miners needing to raise as much as $60bn to recapitalise their balance sheets, companies should act quickly, argued Merrill Lynch.

“Early recappers could be rewarded with less dilution, premium market ratings and possibly a licence to undertake M&A,” it told clients.

Merrill estimated that, if current spot commodity prices stretch into perpetuity, Glencore has a $9.3bn capital shortfall against the debt target needed to safeguard its credit rating and would need to raise more than $16bn to cut net debt to 2 times earnings before interest, tax, depreciation and amortisation.

Why the Resource-Rich Canadian Government Is Always Poor – by Gabriel Yiu (Huffington Post – August 31, 2015)

September 1, 2015

http://www.huffingtonpost.ca/

Canada is the second-largest country in the world by total area. It has plentiful natural resources and a relatively small population of 35 million. Yet our government always claims it is short of money. Education funding has to be cut, healthcare resources are said to be insufficient, eligibility for Old Age Security is postponed from 65 to 67 and even Canada Post cannot afford to deliver mail to our homes.

Canada might be the first major western country that cannot afford to deliver mail to the homes of its people.

If you tell your friends overseas our situation, they might think that you’re joking.

Many Canadians accept the situation as normal, something that can’t be changed. Yet they do not question the absurdity of this reality.

Here are the world rankings of Canada’s natural resources:

Potash, #1
Uranium, #2
Oil, deposit #3 (production #6)
Nickel, #4
Diamond, #5

Indonesia to keep ban on nickel ore exports -govt officials – by Gayatri Suroyo and Bernadette Christina (Reuters U.K./Yahoo – September 1, 2015)

September 1, 2015

https://uk.finance.yahoo.com/

JAKARTA, Sept 1 (Reuters) – Indonesia will keep its export ban on nickel ore, contrary to recent media reports suggesting the country may relax curbs to prop up its slowing economy, senior government officials said.

Indonesia banned exports of unprocessed metal ores in early 2014 to force firms to develop smelters that would add value to the country’s resources and create jobs. But the curbs cost the country billions of dollars in lost revenue last year.

While there are signs the government is trying to bring more money back into resources, the Chief Economics Minister Darmin Nasution warned against speculation that the country would relax its nickel ore export ban.

Indonesia will seek consistency in its mining policies, he said on Tuesday, a view echoed by Mining Minister Sudirman Said.

“What we’re doing is looking for incentive to boost economic activities in nickel and bauxite business.

Mining’s new deal: A platinum solution? – by Rebecca Davis (Daily Maverick – September 1, 2015)

September 1, 2015

http://www.dailymaverick.co.za/

South Africa’s beleaguered mining industry is in danger of losing almost 12,000 jobs: an employment vacuum the country can ill afford. As of Monday, a new plan signed by the industry, government and the unions won’t guarantee that the jobs will be saved. If further retrenchments are inevitable, however, the plan may ensure that life is a little easier for laid-off mineworkers. But is it enough to solve the problems of an industry in crisis?

The mineral resources minister, the Chamber of Mines and union representatives all appeared to be in sunny spirits following Monday’s signing of an agreement aimed at halting the haemorrhaging of jobs from the mining industry.

Mineral Resources Minister Ngoako Ramatlhodi said there was every reason to be hopeful that the plan, titled “Leaders’ Declaration – Mining Industry Commitment to Save Jobs and Ameliorate the Impact of Job Losses”, would be implemented with the cooperation of all parties. Trade union Solidarity’s general secretary, Gideon du Plessis, told eNCA he had a “good feeling” about a plan he described as “revolutionary”. The Chamber of Mines put out a statement affirming that its members were “fully committed” to the process.

Absent was the Association of Mineworkers and Construction Union (Amcu), which had participated in weeks of negotiations but did not sign Monday morning’s agreement.

India Invites Australia Firms to Partner in Developing Mining Sector (The New Indian Express – September 1, 2015)

September 1, 2015

http://www.newindianexpress.com/

NEW DELHI: Steel and Mines Minister Narendra Singh Tomar today invited Australian companies to partner with their Indian counterparts to develop the domestic mining and exploration sector.

Tomar in his inaugural address at the Asia Pacific International Mining Exhibition (AIMEX) 2015 in Sydney today said that India and Australia can forge mutually beneficial relationships, an official statement said.

The Minister is leading a delegation, comprising heads of mining organisations and ministry officials to AIMEX 2015 — the world’s largest mining exhibition, it added.

“The total trade between India and Australia in 2013-14 was to the tune of 15 billion Australian dollars. We are hopeful that by forging mutually beneficial alliances, India will go on to feature in the top ten trade partners of Australia,” the statement quoted the Minister as saying.

India Day event was organised at the four-day exhibition with the objective of inviting proactive partnership of miners and explorers from across the world in the Indian mining industry, the statement said.

Confidence (lacking) in the mining space – by Nastassia Arendse (Mineweb.com – September 1, 2015)

September 1, 2015

http://www.mineweb.com/

EY’s review of mining M&A presents options for resource companies.

JOHANNESBURG – Is the mining Industry facing a crisis in confidence? As falling commodity prices eat away at earnings for the world’s largest miners, some investors (if not all) are focusing on how the industry will survive with its near-record levels of debt. And it’s looking quite ugly. Commodity prices, return on capital, finding ways of maintaining costs, these are just some of the issues keeping industry leaders up at night.

A key challenge in the mining industry is access to capital. In a recent report released by EY, mergers, acquisitions (M&A) and capital raising activity remained low over the first half of 2015, with the sector remaining largely focused on portfolio management instead of exploring other avenues for growth. Overall activity is 30% lower than the same period in 2014, dropping to $12.7 billion.

“I would say that M&A activity is not low because of a lack of effort, but the ability to fund those transactions is very, very low” said Wickus Botha, Head of Mining & Metals at EY.

For some of the majors who are sitting with a strong balance sheet, their dilemma is not knowing what to do with the capital.

Canada officially in a recession as GDP shrinks 0.5% in second quarter – by John Shmuel (National Post – September 1, 2015)

September 1, 2015

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

Canada’s economy contracted by 0.5 per cent in the second quarter, Statistics Canada revealed Tuesday, officially putting the Canadian economy in recession for the first half of the year.

Statscan also revised its first quarter GDP reading down to 0.8 per cent, from an earlier report of 0.6 per cent. A technical recession is defined as two back-to-back quarters of economic contraction.

Economists polled by Thomson Reuters had forecast that Canada’s economy would contract by 1.0 per cent in the second quarter.

While growth overall for the first half was weak, the second quarter ended with a strong handoff — GDP grew by 0.5 per cent in June, the strongest monthly reading in more than a month. Economists had expected growth of 0.2 per cent.

“The momentum registered in June is consistent with our view that Q3 will provide a breather as the economy,” said Avery Shenfeld, chief economist at CIBC World Markets.

Gold Isn’t the Safe Haven Investors Thought It Would Be – by Debarati Roy (Bloomberg News – August 30, 2015)

September 1, 2015

http://www.bloomberg.com/

Gold bulls piled into the metal in hopes that the turmoil sweeping financial markets would finally help revive prices. They were wrong.

Instead of a rally, futures in New York fell for four straight sessions even as global equities plunged to a two-year low. Rather than providing a refuge from the meltdown, gold’s volatility rose right along with a measure of equity turbulence, diminishing its appeal as a haven. As stocks started to recover, the metal kept falling because of reports that signaled gains for the U.S. economy.

It’s been a tough two years for investors in gold, which first fell into a bear market in April 2013. More than $52 billion has been wiped from the value of physical bullion funds since then. Money managers last week raised their net-long position to the highest since June just before futures capped the worst slump in a month. Stubbornly low inflation along with the prospect of tighter U.S. monetary policy has kept a lid on the metal, which doesn’t pay interest or offer returns, unlike competing assets.

“A good test for gold was the latest round of volatility, and gold did not do much, since it has become unattractive as a safe haven,” said Atul Lele, who helps oversee $5.1 billion as the chief investment officer at Nassau, Bahamas-based Deltec International Group.

Tragic story in Alberta government’s first fiscal update: A $6-billion deficit and soaring unemployment – by Claudia Cattaneo (National Post – September 1, 2015)

September 1, 2015

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

Alberta’s first fiscal update under the new NDP government paints a tragic picture of the once-booming oil province: a deficit of nearly $6-billion, and growing, despite higher income and corporate taxes; soaring unemployment; slumping manufacturing; and an expected 0.6% GDP contraction in 2015.

If that weren’t bad enough, the province is also reeling from a drought that is hurting its large agricultural sector as well as devastation from forest fires, which boosted the government’s disaster assistance expenses.

“There is no doubt that our big challenge is commodity prices that the government of Alberta does not control,” Alberta Finance Minister Joe Ceci told reporters after presenting the first-quarter forecast for 2015/2016 fiscal year revenue and expenses. “We all know that the price of oil has dropped dramatically in August. Nobody expected global oil prices to reach the levels they are at today.”

Indeed, Ceci suggested the deficit projection could swell to $6.5-billion by the time his government tables its first budget in October, and that the books won’t be balanced until 2018/2019.

Let Coal Die a Natural Death – by Editorial Board (Bloomberg News – September 1, 2015)

September 1, 2015

http://www.bloombergview.com/

Coal-fired electricity is becoming ever less profitable. That’s the good news — or it should be, since it gives power companies greater incentive to embrace cleaner and cheaper sources of energy.

But not every energy company is content to let the market guide its decision-making. In a role reversal, at least one energy company is asking regulators to intervene to keep coal profitable for a while longer.

In Ohio, the Public Utilities Commission is considering a request from the Akron company FirstEnergy to have consumers cover the higher cost of electricity from three aging coal plants. (One of these just underwent a $1.8 billion pollution-control upgrade to comply with federal law.)

The aim is to keep the plants open for another 15 years. Under this plan, FirstEnergy ratepayers could spend $3 billion more than necessary for electricity, according to the Office of the Ohio Consumers’ Counsel, a state agency.

Lynas CEO Digs In as Rare-Earth Prices Slump – by Rhiannon Hoyle (Wall Street Journal – September 1, 2015)

September 1, 2015

http://www.wsj.com/

CEO Amanda Lacaze says it is time for Lynas to invest more in sales and marketing to grow the business

SYDNEY—As rare-earths miner Molycorp Inc. looks to wind down production at its U.S. mine, Lynas Corp. Ltd., the only other producer outside of China, hopes to do the opposite and raise its output of elements used in batteries, magnets and other high-tech products.

To accomplish that goal, the Australian-listed miner plans to do one crucial thing: “Go out there and sell,” said Chief Executive Amanda Lacaze, in an interview.

Lynas, a former market darling, has found it tough to become a major competitor in the global rare-earths market.

The company was founded with an eye to breaking China’s stranglehold on the industry: The world’s second-largest economy has accounted for more than 90% of world-wide supply in recent times. But it took nearly a decade of development before Lynas began operations at its refinery in Malaysia’s Pahang state in late 2012.

When a slump hits a vast iron ore mine in Australia – by Ali Moore (BBC News – August 31, 2015)

September 1, 2015

http://www.bbc.com/

Cloudbreak mine, Western Australia – Australia’s iron ore industry has hit a slump after decades of boom fuelled by rampant demand from China. This is threatening the livelihoods of thousands of miners and entire communities dependent on these vast opencast mines.

At Perth Airport, just after 05:00 local time, the boarding gate is a sea of fluorescent yellow and blue. This is a regular shuttle service to Fortescue Metals’ Cloudbreak mine – the passengers are fly-in-fly-out workers and they come dressed for the job.

In just under two hours they’ll land at one of the giant iron ore mines in the Pilbara, where the red dirt hides untold riches. But times have changed. The price of ore has plummeted, down around 70% from its 2013 peak.

Every mine worker boarding Flight 1970 knows what that means: cost cuts. They’ve seen hundreds of millions of dollars worth of cuts across the industry already and more are likely to come.

China’s economic slowdown means the country doesn’t need as much iron ore. It’s the key ingredient for steel, and if you’re not building as many apartments and bridges and roads as before, you don’t need as much of it.

Editorial: Why the commodities super cycle was a myth (Financial Times – August 31, 2015)

September 1, 2015

http://www.ft.com/

Falling prices show the world is not running out of resources

In 1980, the economist Julian Simon challenged doom-mongering biologist Paul Ehrlich to a bet that the prices of any five metals would be lower in 10 years’ time. He won, and made his point: over the long run, technological progress means commodity prices are likely to fall in real terms.

From the early 2000s, many investors forgot that lesson. The idea that there are decades-long “super-cycles” in commodity prices has some respectability: a 2012 paper by Bilge Erten of the UN and José Antonio Ocampo of Columbia University found evidence for four such cycles during the period 1865-2009. But in the bastardised form that became popular in the 2000s , the concept gained less honourable currency, as a story that commodities were a one-way bet upwards.

With oil down about 57 per cent from its peak last June, and copper and iron ore down about 50 and 70 per cent respectively from their peaks in early 2011, it has become clear that story was profoundly misleading. Whether or not the supercycle exists, the regular old cycle definitely does, and there is nothing very super about it at all.