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Commodity Super-Cycle and Decline

NEWS RELEASE: Australia’s mining sector in the balance

Baker & McKenzie launches global report examining the challenges and  opportunities facing the world’s key mining destinations

Australia, 17 September 2012 – Baker & McKenzie, the world’s largest law firm, has launched a report highlighting significant concerns about the future of Australia’s mining sector.

The Firm surveyed more than 300 senior industry leaders across six key mining jurisdictions – Australia, Brazil, Canada, China, Indonesia and South Africa – and the research suggests that investors in Australia are more pessimistic about the future of mining investment in this country than those investing in the other jurisdictions surveyed.

Of the executives commenting on Australia, 75% said that investing in the mining sector has become more complicated and costly due to factors such as increasing regulatory and environmental obligations, complex and uncertain project development requirements and the rising costs of mine development and operation.

The level of Commonwealth and State Government involvement in the Australian mining industry is also causing concern to investors, with 61% of respondents believing that the Government is too involved in the industry and 72% believing that sovereign risk is on the increase. 

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China helping nickel: analyst – by Carol Mulligan (Sudbury Star – September 18, 2012)

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

Three key drivers will boost commodity prices in the second half of 2013 — China, China and China — says an economist with TD Securities. China consumes about 40% of the world’s nickel and copper, and its economy is “not c o l l a p s i n g ,” despite some naysayers, says Bart Melek.
 
China has $3.6 trillion in reserve, a minimum debt to gross domestic product ratio and a “big political incentive” to keep growing, Melek told about 100 people at a breakfast meeting Monday of the Sudbury Area Mining Supply and Service Association.
 
Stability is important in the one-party state, whose government is determined to keep people employed and food on the table, said Melek. China has also embarked upon a five-year plan to move 20 to 25 million of its citizens every year from rural areas to cities. That requires more housing and transportation services that require copper, nickel and iron ore.
 
China’s economy may be growing more slowly than it was, but it’s still growing three to four times as fast as our economy, said Melek, head of commodity strategies at TD Securities. Melek is forecasting economic stability in the United States as well, because of a monetary policy to hold interest rates at 0% to 2015.

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China’s imports shrink as slump worsens – by Joe McDonald (The Associated Press/Toronto Star – September 11, 2012)

The Toronto Star has the largest circulation in Canada. The paper has an enormous impact on federal and Ontario politics as well as shaping public opinion.

BEIJING, CHINA—China’s imports shrank unexpectedly in August in a sign its economic slump is worsening and the Chinese president warned growth could slow further, prompting expectations of possible new stimulus spending.

Imports declined 2.6 per cent from a year earlier, below analysts’ expectations of growth in low single digits, data showed Monday. That came on top of August’s decline in factory output to a three-year low and other signs growth is still decelerating despite repeated stimulus efforts.

The weakness in China’s demand for imports is bad news for exporters in Southeast Asia, Australia, Brazil and elsewhere that are counting on its appetite for oil, iron ore, industrial components and other goods to offset anemic Western markets.

Analysts expect Chinese growth that fell to a three-year low of 7.6 per cent in the latest quarter to rebound late this year or in early 2013. But they say it likely will be too weak to drive a global recovery without improvement in the United States, which is struggling with a sluggish recovery, and debt-crippled Europe.

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Asian trade data point to dire outlook for mining stocks – by Scott Barlow (Globe and Mail – September 6, 2012)

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.

Recent trade data illustrate a near-collapse in Asian exports to the European Union which, if it continues to accelerate, would signal the end of the mining supercycle.

Over the past decade, Canadian mining stocks have closely tracked the path of Asian export data, highlighting the importance of Asian manufacturing growth on demand for base metals.

The incredibly sharp decline in exports from South Korea and China to Europe suggest a dire outlook for Canadian mining stocks and sustained selling pressure in the sector.

“Asia’s export growth to the E.U. fell from –5.0 per cent in June to –15.6 per cent in July, and the trajectory is becoming as steep as during the global financial crisis” writes Nomura economist Rob Subbaraman.

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Miners Retrench in Australia – by Rhiannon Hoyle (Wall Street Journal – September 5, 2012)

http://online.wsj.com/home-page?mod=WSJ_topnav_’home_main

SYDNEY—Australian mining companies are slashing spending as the country’s economic outlook dims.

The world’s fourth-largest producer of iron ore, Fortescue Metals Group Ltd., FMG.AU -4.81%said Tuesday it will slice operating costs by $300 million and save a further $1.6 billion by delaying the development of a large iron mine in Western Australia’s Pilbara region. The company will also cut several hundred jobs.

Rio Tinto RIO.AU +1.66%and BHP Billiton BHP.AU +0.93%are also planning cutbacks amid darkening economic outlooks around Asia, slumping prices for industrial commodities and rising production costs.

Mining companies in Australia are moving quickly to protect profits as the price prospects for major industrial commodities worsen—posing a risk for the resource-rich nation’s economy. Australia recovered quickly from the financial crisis in 2008 and grabbed a place among the world’s fastest-growing developed countries largely due to mining. That status is now at risk as companies such as BHP, Rio Tinto and Fortescue aggressively rein back their investments.

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‘Supercycle’ fears hit mining groups – by Helen Thomas (Financial Times/CNN – August 28, 2012)

 http://edition.cnn.com/

(Financial Times) — Anglo American set the sombre tone. Falling prices and rising costs enfeebled the mining group’s businesses in the first half of the year, halving earnings.

First among its diversified cadre to report, the miner last month pruned its spending plans on high-profile growth projects. It is now — as earnings season approaches its conclusion — a familiar tale. The mining industry faces a number of negative factors that are squeezing earnings, curtailing cash flows and forcing management teams to make tougher choices.

The backdrop to the lacklustre results is the concern over whether the so-called “supercycle” is drawing to a close after years of surging Chinese demand combining with supply constraints from decades of under-investment to send prices higher for commodities such as copper, coal and iron ore.

BHP shelves Olympic Dam expansion The debate is crucial to mining companies and their investors. Over the long term, the performance of mining equities is largely correlated with commodity price fluctuations. Increases in costs, especially wages and payments to governments, tend to lag behind booming profits as prices rise, putting severe pressure on the sector’s profitability.

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China’s inventories pile up as demand flat-lines – by Carolynne Wheeler (Globe and Mail – September 3, 2012)

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.

BEIJING — You know it’s going to be a bad year for China’s exporters when all manner of goods – including the kitchen sinks – are gathering dust in storerooms.

“Of course [the slowdown] is affecting us,” Du Huayao, the manager at Foshan Nanhai Bigao Sanitary Ware Co. Ltd., which makes bathroom and kitchen fixtures, said in a telephone interview from his factory in Guangdong province.

“Sales this year from the foreign market have dropped from one-third to two-thirds.” Compounding Mr. Du’s woes is China’s slowing property market, which has pulled down his domestic sales as well. The company has already laid off 20 of its original 50 workers and has slowed production. “We don’t even have inventory built up now. Last year we did, but this year, the business was so bad that we dared not produce too much.”

As the country’s economic growth slows and its exports to North America and Europe drop off, inventories of everything from iron ore and copper to cars, liquor and designer goods are growing. Chinese exports grew just 1 per cent in July.

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The fundamental attraction of gold and gold stocks – Don Coxe – by Peter Byrne (Mineweb.com – September 1, 2012)

www.mineweb.com

Don Coxe* explains how demographic shifts are affecting the price of gold and delves into the logic of investing in gold as a long-term strategy. Interview with The Gold Report.

TORONTO –  The Gold Report: What fundamentally attracts you to gold?
 
Don Coxe: There are many serious reasons why I like gold, but one very important reason has to do with the shift in the share of world gross domestic product away from the highly industrialized nations toward emerging economies in Asia. For thousands of years, people in China and in India have respected gold. The Western countries, on the other hand, were captivated some decades ago by economists who claimed that gold had become irrelevant as money. But the Chinese and Indian people hoard gold as a store of value and trade it as a treasured commodity.
 
TGR: Are the pricing mechanisms for gold shifting toward control by the East?
 
DC: Consider an art auction. If a bidder who 10 years ago only bought one painting suddenly buys 50 paintings, that bidder will greatly influence subsequent bids for the art. In China and India there are suddenly many more wealthy people than they’ve had for millennia.

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Opinion: Emerging markets offer risk, but also reward for investors – by Michael Schaab (Vancouver Sun – August 30, 2012)

The Vancouver Sun, a broadsheet daily paper first published in 1912, has the largest circulation in the province of British Columbia.

Michael Schaab, CA CFA, is a vice-president and portfolio manager at Leith Wheeler Investment Counsel Ltd. in Vancouver. The article is not intended to provide advice, recommendations or offers to buy or sell any product or service.
 
With fewer analysts and investors in the mix, the chance of finding undervalued investments is greater
 
Emerging markets are often touted in investment circles and the business media. Yet many investors are unsure of how to invest in emerging markets, or even whether they should. These markets are alluring but can be mysterious, misunderstood or simply difficult to access.
 
With a prudent strategy, however, emerging markets can strengthen an investor’s portfolio. Before adding exposure, investors should understand the tenets of emerging-market investing, its risks and rewards and a proper approach to investing in them.
 
So, what is an emerging market? It’s a country or region that is less developed financially and economically than “developed” markets. Meanwhile, its economy is growing rapidly.

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Anglo CEO [Cynthia Carroll] Doubles Down on New Mines Amid Falling Demand – by Jeremy Kahn (Bloomberg Markets Magazine – September 2012)

http://www.bloomberg.com/

Driving northeast from Santiago, the road corkscrews toward the shark’s-grin skyline of the Andes Mountains. In winter, Santiago’s smart set plies this route, heading for virgin-powder days and pisco-sour nights at La Parva ski resort. Most have no inkling that in a high mountain valley just over the ridgeline, excavators the size of houses have sculpted the mountainside into a steeply terraced pit 1,800 feet deep, Bloomberg Markets magazine reports in its September issue.

This is Los Bronces, one of the world’s richest copper mines. Anglo American Plc (AAL), the London-based company that owns Los Bronces, spent $2.8 billion from 2007 to 2011 to double the size of the mine. And Los Bronces is just one of four megaprojects that Anglo Chief Executive Officer Cynthia Carroll has initiated or pushed through construction since she took over in 2007 — each representing a wager in excess of $1 billion on the continued rise of China, India and other emerging markets.

Los Bronces is also at the center of a legal battle between Anglo and Codelco, the Chilean state-owned mining company. The dispute — over whether Anglo can block Codelco from exercising an option to buy half of Anglo’s Chilean subsidiary — has spooked Anglo investors and weighed on the company’s share price, which dropped more than 15 percent from the time the controversy erupted in October to August 8.

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Gold, China and the commodities super cycle – Jim Rogers – by Geoff Candy (Mineweb.com – August 29, 2012)

www.mineweb.com

“The Chinese will buy a lot more gold over the next decade”

GEOFF CANDY: Welcome to this week’s edition of Mineweb.com’s Gold Weekly podcast. Joining me on the line is Jim Rogers – he’s a renowned author, commentator and investor. Jim, gold prices in dollars hit their highest point since mid-April on Monday, largely on hopes of further stimulus from the Federal Reserve. Are we likely to see these hopes dashed once more, do you think or are we likely to see something different post the Jackson Hole meeting?
 
JIM ROGERS: Well I have no idea what’s going to happen at Jackson Hole. I do know that the Federal Reserve is going to continue to print more money, whether they announce it or not because that’s all they know to do, it’s the wrong thing to do for all of us – for the world, but they don’t know any better. So whether they announce it or whether they call it something different, who knows. Until the world economy gets better these guys don’t know anything else to do so they’re going to print more money.
 
GEOFF CANDY: Is there any way to get the world economy better – one gets the sense that we’re almost at an impasse at this stage?

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W(h)ither mining’s big five diversifieds? – by Lawrence Williams (Mineweb.com – August 23, 2012)

www.mineweb.com

After a hugely successful decade, bar some occasional ill-timed acquisitions, the major diversified miners are beginning to see earnings dive as China draws in its industrial horns.

LONDON (MINEWEB) – The big five western diversified mining companies – BHP Billiton, Rio Tinto, Vale, Anglo American and Xstrata, may have been the place to make blue chip resource stock investments really pay off over the past 10 years or so of the global mining and minerals supercycle, but could their stellar performance be coming to an end?

Certainly the latest financial figures coming out suggest that things may be turning down for all of them – some had been falling back earlier – but there looks to be the definite possibility that matters might well get worse before they get better – particularly with China, on which the top three are heavily dependent, perhaps beginning to rethink its industrial structure.

The success of the diversified miners has not been due to gold, despite the latter’s sterling performance over the past 12 years – indeed none are heavily invested in primary precious metals mining – nor even in copper or other base metals in which all do have major interests, but primarily in the bulk-mined iron ore and coal which have been the principal contributors to their profit growth over the years – but with iron ore and coal prices slipping back quite sharply in the light of the Chinese downturn the fall-off in revenues is already beginning to have a serious impact and causing the miners to take a more cautious view on near term capital spending on new mines and expansion projects.

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BHP Billiton puts $68-billion worth of projects on hold as profit plunges – by Elisabeth Behrmann and Jesse Riseborough (Bloomberg News/National Post – August 22, 2012)

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

BHP Billiton Ltd., the world’s biggest mining company, put approvals for about US$68 billion of projects on hold after second-half profit plunged 58% as metal prices declined and costs rose.
 
Net income dropped to US$5.5 billion in the six months ended June 30 from US$13.1 billion a year ago, according to Bloomberg calculations that were confirmed by the Melbourne-based company. That beat the US$3.5 billion median estimate of four analysts surveyed by Bloomberg.
 
BHP doesn’t expect to approve any spending on major projects this fiscal year, including the Olympic Dam expansion, which would have created the world’s largest uranium mine, the company said Wednesday. It joins Rio Tinto Group and Xstrata Plc in booking declining profits amid sluggish global growth.

“Given current investor sentiment towards high-capex, long-dated projects, the move not to approve Olympic Dam and Outer Harbour will be taken positively,” Richard Knights, an analyst at Liberum Capital Ltd., told Bloomberg. “The problem for BHP management is at some point they will have to weigh up the market’s desire for short-term returns and their prerogative as a major mining company to commission long-dated projects.”

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Junior miners in grip of bear market – by Gordon Hamilton (Vancouver Sun – August 14, 2012)

The Vancouver Sun, a broadsheet daily paper first published in 1912, has the largest circulation in the province of British Columbia.

Exporation strong but slowing Chinese demand, eurozone crisis hamper financings

Junior mining companies are going through the toughest bear market since the 2008 financial meltdown, according to the Association for Mineral Exploration British Columbia.
 
In a quarterly letter to members posted on the association’s website, AME B.C. president Gavin Dirom said tough economic conditions have hit the sector again, prompted by worries about Europe’s sovereign debt crisis and China’s slowing demand for copper.
 
“Although the global mineral exploration and development sector may still be in a multi-year commodity super-cycle, very challenging equity financing and bear market conditions were the reality during the second quarter of 2012,” Dirom said in the open letter to members. “Members of AME B.C., especially prospectors and junior explorers, are experiencing the impact of these tough economic conditions.”
 
Dirom noted that equity capital raised on Toronto’s venture capital exchange, the TSX-Venture, was down 62 per cent in the period January to May over the same period of 2011. “Gold companies, for example, were only able to raise $445 million through equity placements in May and June, which is the lowest two-month total since late 2008.”

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NEWS RELEASE: B.C. seizing on global demand for mining (May 16, 2012)

For the B.C. Mineral Exploration and Mining Strategy, click here: http://www.empr.gov.bc.ca/Mining/Documents/MiningStrategy2012.pdf

VANCOUVER – A long-term plan designed to develop the mining industry and create jobs to support B.C. families was announced today by Minister of Energy and Mines Rich Coleman.

“British Columbia is poised for a new phase of growth, investment and job creation, which will enable us to reach across the Pacific and tap into growing demand in Asian markets,” said Premier Christy Clark, who is presently on her second Asia Jobs and Trade Mission promoting resource development to overseas customers. “Long-term growth in our mining industry will translate into strong economic growth for our communities, First Nations and the province, and thousands of well-paying jobs that will benefit families in British Columbia.”

The new B.C. Mineral Exploration and Mining Strategy outlines a plan to create eight new mines and expand nine existing ones by 2015. The mining strategy’s six overarching goals are:

• Enhancing B.C.’s competitive edge.
• Streamlining regulatory processes.

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