Mark Latham Commodity Equity Intelligence Service

Tuesday 6th October 2015
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    Modi and Merkel vow trade talks and 2 billion green energy euros

    India and Germany pledged on Monday to revive efforts to reach an Indo-European free trade pact after talks fell apart this year, and struck deals to promote clean energy and make it easier to do business.

    Although Chancellor Angela Merkel and Prime Minister Narendra Modi made no mention in conversations with journalists of resuming talks on a free trade agreement between India and the European Union, it was perhaps the most significant "deliverable" of her trip to New Delhi.

    The leaders "committed themselves to bringing about the earliest possible resumption of talks", said a joint statement issued after their three-hour talks.

    Asia's third-largest economy has been relatively insulated from a slump in global trade, but Modi still needs to boost exports for his pitch to investors to "Make in India" to create skilled jobs for millions of young Indians.

    Germany, Europe's largest economy, is looking to expand its presence in India to compensate for a slowdown in China. Merkel's delegation was joined by bosses from household names like Siemens, Airbus, E.ON and Thyssenkrupp.

    The trade talks have been on ice since earlier this year when India walked out in a row over exports of generic drugs to the European Union.

    Germany, a world leader in renewable energy, will also provide more than 2 billion euros ($2.25 billion) in aid for solar projects and green energy corridors - or high-efficiency power grids - as part of a broader push for sustainable development.

    The assistance, part of a raft of agreements signed in New Delhi, dovetails with efforts to bind India into a global debate that will culminate in the COP21 climate change summit in December.
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    Volkswagen Emissions Investigation Zeroes In on Two Engineers

    Two top Volkswagen engineers who found they couldn’t deliver as promised a clean diesel engine for the U.S. market are at the center of a company probe into the installation of engine software designed to fool regulators, according to people familiar with the matter.

    The two men, Ulrich Hackenberg, Audi’s chief engineer, andWolfgang Hatz, developer of Porsche’s winning Le Mans racing engines, were among the engineers suspended in the investigation of the emissions cheating scandal that sank the company’s market value by 43% since Sept. 18 and triggered a world-wide recall to refit the engines to meet clear-air standards, these people said.

    Messrs. Hackenberg and Hatz, who didn’t respond to requests for comment, are viewed as two of the best and brightest engineers in German industry. They were put in charge of research and development at the Volkswagen group shortly after Martin Winterkorn became chief executive in January 2007. Mr. Winterkorn, who resigned over the scandal, couldn’t be reached for comment.

    The company has acknowledged that managers, struggling to meet U.S. sales targets, masked the emissions of new-car engines to sell so-called clean diesel technology to skeptical American consumers. The car maker said as many as 11 million vehicles carried a “defeat device,” software that reduces tailpipe emissions only when the car is being tested, not on the road.
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    Glencore CEO bets on copper production cuts as shares surge

    Glencore Chief Executive Ivan Glasenberg said steep output cuts by copper miners will help lift prices in the next 18 months, in some of his first public comments since fears about commodities demand and the company's debt battered the company's shares.

    Trader and miner Glencore's stock jumped as much as 72 percent in illiquid trade in Hong Kong and as much as 20 percent in London, partly on prospects the company will sell some assets to cut debt.

    The stock has recouped all of its losses from the past week, with several brokers saying a recent sell-off was overdone as the miner and trader had the ability to withstand the crunch on commodity prices.

    The price of copper, Glencore's largest earner, hit six-year lows below $5,000 a tonne in August due to a slowdown in China, one of the world's biggest consumers of metals and other raw materials. It was around $5,180 on Monday.

    "Supply will ultimately tighten... Fundamentals will prevail," Glasenberg told the FT African Summit on Monday.

    Glencore said in September it would suspend some copper production at Katanga Mining in Democratic Republic of Congo and at Mopani Copper Mines in Zambia for 18 months.

    "The governments understood what we are doing," Glasenberg said on Monday, adding that production would resume once the mines become competitive.

    The Swiss-based trader has pledged to cut its net debt to $20 billion from $30 billion, by selling assets, reducing capital expenditure, suspending dividend payments and raising $2.5 billion of new equity capital with a share sale.

    With the share sale completed, the market is now focussing on asset sales.

    Reuters reported on Friday that Glencore is in talks with a Saudi Arabian sovereign wealth fund and China's state-backed grain trader COFCO, along with Canadian pension funds, to sell a stake in its agricultural assets.

    The company has said it is on track to sell a stake in its agricultural business by early next year, according to Barclays.

    Separately, The Telegraph newspaper reported Glencore would listen to offers for a takeover of the entire company although its management did not believe there were any buyers willing to pay a fair value for the company. The company's share price has fallen more than 60 percent this year.
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    German manufacturing orders slump unexpectedly

    German manufacturing orders unexpectedly slumped in August, adding to a steeper-than-forecast decline in July, a sign that slower growth in China and recessions in other key developing markets are starting to leave their mark on Europe's largest economy.

    German manufacturing orders, adjusted for seasonal swings and calendar effects, dropped 1.8 per cent on the month as orders from outside the eurozone fell 3.7 per cent, the economics ministry said on Tuesday. Economists polled by The Wall Street Journal had forecast a 0.3 per cent monthly gain.

    Demand from within the eurozone increased by 2.5 per cent from July, but domestic orders fell by 2.6 per cent.

    The ministry said that August's sharp reduction was partly caused by "vacation effects", but lowered its manufacturing orders data for July to show a monthly drop of 2.2 per cent, compared with the 1.4 per cent fall previously reported.
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    Oil and Gas

    Tanker Rates Soar As China Hoards Saudi's

    The oil patch is full of conundra currently... crude price declines globally to near 2009 lows but supertanker day-rates (demand) soaring over $100,000 for the first time since 2008. However, today's news thatSaudi Arabia is slashing its price (to a $3.20 discount to the bechmark with the largest price cut since 2012) suggests in an effort to shore up tumbling reserves and capture more market share amid dwindling demand (and excess supply) - a price war has begun led by US ally Saudi Arabia... and China is hoarding crude at these low-low prices.

    Saudi Arabia cut pricing for November oil sales to Asia and the U.S. as the world’s largest crude exporter seeks to keep its barrels competitive with rival suppliers amid sluggish demand. As Bloomberg reports,

    Saudi Arabian Oil Co. reduced its official selling price for Medium grade crude to Asia next month to a discount of $3.20 a barrel below the regional benchmark, compared with a $1.30 discount for October sales, the company said Sunday in an e-mailed statement.

    But, the paradox is that 'demand' appears extremely high judging by the soaring rate for super-tankers...

    As Bloomberg reports, the world’s biggest crude oil tankers earned more than $100,000 a day for the first time since 2008, amid speculation that a surge in Chinese bookings is curbing the number that are left available for charter.

    Ships hauling 2 million barrel cargoes of Saudi Arabian crude to Japan, a benchmark route, earned $104,256 a day, a level last seen in July 2008, according to data on Friday from the Baltic Exchange in London. The rate was a 13 percent gain from Thursday.

    Bookings by Chinese oil companies surged this week to collect oil from regions including the Middle East and West Africa, the world’s biggest loading areas, according to George Los, a New York-based analyst at shipbroker Charles R. Weber Co. The Asian country imported 26.6 million metric tons of crude in August, 5.6 percent more than a year earlier, according to customs data.

    The bottom line appears to be that China is "buying low" and squeezing suppliers which is keeping prices suppressed even as demand appears to be soaring (from China's hoarding).

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    Saudi Aramco in talks to buy some of China's CNPC assets -sources

    Saudi Aramco, the world's biggest oil producer, is in talks with China National Petroleum Corp (CNPC) to buy some of the Chinese oil company's marketing, retail and refining assets, people familiar with the matter told Reuters.

    The deal value is currently estimated around $1 billion to $1.5 billion, although final valuations and assets are subject to change, they said.

    Saudi Aramco, which has been looking to buy more refining and retail operations as a way to sell more of its output, is in discussions to buy at least one of CNPC's refineries and some 300 retail outlets, one of the people said.

    Saudi Aramco declined to comment and CNPC officials were not available for comment. Sources declined to be identified as the discussions are confidential.

    It remains unclear when the deal will be finalised, the people said, adding that discussions started about five months ago.

    Saudi Aramco has hired Deutsche Bank to advise on the transaction, while CNPC is working with HSBC Plc and one other mainland bank on the deal, according to the sources. Deutsche Bank and HSBC declined to comment.

    CNPC's planned asset sale comes after China's state-controlled oil giant Sinopec Corp raised $17.5 billion last year by selling a 29.9 percent stake in its retail business, ahead of a potential IPO in 2016..

    Saudi Aramco has been keen to make inroads into more advanced chemicals to diversify away from its oil and basic petrochemicals businesses. Chief Executive Khalid al-Falih told a conference in January that it was "even more committed today to diversifying and investing in new sectors" despite the impact of oil price declines.

    In March, the state-owned oil giant signed a new $10 billion loan deal with 27 financialinstitutions, partly to finance the acquisition of a stake in Laxness, a German rubber firm with a market value of $4.7 billion, according to Thomson Reuters data.
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    UAE on track to meet 3.5 mil b/d production capacity target in 2017: energy minister

    The UAE is continuing to invest in its oil and gas development plans despite lower oil prices, and is on track to meet its 2017 production capacity aims, energy minister Suhail al-Mazrouei said Sunday.

    The Persian Gulf state will spend as much as $35 billion in an attempt to cut its dependence on natural gas for power generation.

    "We are continuing with our investments," Mazrouei said at an energy event in Abu Dhabi, state-run WAM news agency reported Sunday, adding that was no delay due to the fall in the price of crude oil.

    The sharp oil price decline that began in the second half of 2014 has prompted concern over upstream investments, but Mazrouei reiterated that the UAE remained on track to meet its medium-term production capacity target of 3.5 million b/d by late 2017 or early 2018, up from around 3 million b/d currently.

    Abu Dhabi is still in talks with international oil companies for stakes in its onshore concession, which covers the emirate's major onshore oil fields representing more than half its production.

    The new 40-year production sharing agreements offer access to fields with more than 100 billion barrels of oil still in place.

    But after several years of talks, Abu Dhabi has so far announced only three partners for the new concession -- Total, with a 10% working interest, Japan's Inpex (5%) and a joint venture of South Korea's KNOC and GS Energy (3%).

    Some 22% of the Abu Dhabi Company for Onshore Oil Operations, or Adco, concession is still up for grabs. A raft of other projects are also still awaiting approval.

    However, at the same time, Mazrouei said the government is investing in alternative power sources to minimize natural gas consumption and imports."We are investing $35 billion for that purpose," he said.

    The UAE hopes to reduce natural gas as a feedstock in power generation to 70% by 2021, down from 100% currently.

    Emirates LNG, a joint venture between Abu Dhabi's state-owned Mubadala Petroleum and International Petroleum Investment Co. is planning to build a 15 million mt/year LNG import terminal at Fujairah.

    Once completed, the facility, along with import facilities already installed at Dubai's Jebel Ali terminal, will take the UAE's total LNG import capacity to 18 million mt/year. The UAE also has the capacity to export 8 million mt/year of LNG.
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    Brazil's Petrobras cuts spending plan for 2nd time in 3 months

    State-led Petróleo Brasileiro SA , struggling with the biggest debt load among global oil firms, on Monday cut $11 billion from capital spending plans for this year and next as Brazil's currency and oil prices slump.

    Petrobras, as the company is commonly known, plans to cut 2015 investment by 11 percent to $25 billion from the previous $28 billion, according to a statement. Investment for 2016 will be cut 30 percent to $19 billion from $27 billion. Budgeted costs plus operating expenses excluding purchases of raw materials were also trimmed for this year and next.

    The company is being battered by a whirlwind of bad news. In the last year, oil prices dropped nearly 50 percent and Brazil's currency, the real, slipped by a third against the U.S. dollar, causing revenue to fall and debt to soar.

    Meanwhile, the downgrade of its debt rating to junk status has raised the cost of borrowing, and a giant corruption scandal has tarnished its reputation with investors.

    "The company's uncertain future is the consequence of terrible governance," said Fabio Fuzette of Antares Capital, a Sao Paulo investment fund. "Debt is so high that they've sacrificed capital investment to preserve cash."

    The cuts announced Wednesday are the second round of retrenching in three months for the Rio de Janeiro-based company, which recently prided itself on having the world's largest corporate-investment plan.

    Reuters reported last month that Petrobras could be forced to make new cuts to its five-year plan, announced in late June, as the burden of falling oil prices, risinginterest payments and a weak currency made the program obsolete.

    Hailed as a return to reality after years of missed output goals and a giant corruption scandal that led to $17 billion of writedowns in April, the June plan cut investment 41 percent to $130 billion from $221 billion for the 2015-2019 period

    Petrobras said on Wednesday that it still plans to sell up to $15.1 billion of assets by the end of 2016. Of that $700 million is expected to be raised this year.

    By the end of 2019, additional asset sales and other corporate reorganizations are expected to bring that total to $56 billion, an amount double the company's market value of $28 billion.

    "You can't look at numbers like that and think the people running this company are serious," Fuzette said.

    He warned investors against buying the company's stock, even after it has dropped 60 percent in the last year. Those who want to invest in the company, he added, should consider buying its debt instead because he believes the government could be forced to bail Petrobras out, paying off lenders at the expense of shareholders.

    Oil output goals were also kept unchanged for the 2015-2019 period, the statement said.

    "I really don't see how they can maintain their output goals while cutting spending," said Adriano Pires, head of the Brazilian Infrastructure Institute, a Rio de Janeiro energy research group and a long-time critic of Petrobras.

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    BP's Record Oil Spill Settlement Rises to More Than $20 Billion

    The value of BP Plc’s settlement with the U.S. government and five Gulf states over the Deepwater Horizon oil spill will rise to $20.8 billion, an increase of $2 billion from an agreement reached in July, said the U.S. Department of Justice.

    The settlement is the largest in the department’s history and resolves the government’s civil claims under the Clean Water Act and Oil Pollution Act as well as economic damage claims from regional authorities, according to a statement Monday.

    “BP is receiving the punishment it deserves, while also providing critical compensation for the injuries it caused to the environment and the economy of the Gulf region,” U.S. Attorney General Loretta Lynch said in the statement.

    The London-based company will pay $700 million for injuries and losses not yet known related to spill and $350 million for the reimbursement of assessment costs, according to a consent decree filed at the U.S. District Court in New Orleans. The company will also pay $167.4 million to the U.S. for some non-reimbursed costs related to the spill and $82.6 million for lost royalties owed the U.S. on spilled oil.

    The settlement takes BP’s total budget for the spill to more than $54 billion, five years after an explosion at the Macondo well polluted the Gulf of Mexico and forced the company to shed more than third of its market value and assets to pay for the accident.
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    Shell CEO Doing All to Safeguard Dividends Amid Low Oil Prices

    Royal Dutch Shell Plc is “pulling out all the stops to safeguard” its dividend in a world where oil prices remain “lower for longer,” Chief Executive Officer Ben Van Beurden said.

    Europe’s biggest oil company is also protecting its plan to buy back shares, Van Beurden said in e-mailed comments before a speech at an industry conference in London on Tuesday. Shell is also keeping its “investment program steady for the future,” he said.

    The halving of oil prices in the past year has forced Shell and its peers to cut costs, defer projects and hunker down for a prolonged period of low oil prices. Even with oil trading for about $50 a barrel, Shell’s Van Beurden and BP Plc boss Bob Dudley have made dividends their top priority. Shell has weathered market ups and downs for seven decades -- including oil at less than $10 in the 1980s and 1990s -- without cutting dividends.

    The company is “geared to generate cash flow from operations and free cash flow in 2017 and beyond,” Van Beurden said. “So Shell is planning for a longer period of low prices.”

    Shell’s debt-to-equity ratio gives it the flexibility to maintain dividend payouts even at lower oil prices, Van Beurden said. The Hague-based company expects to cut operating costs by about $4 billion, or 10 percent, this year and will reduce capital expenditure by 20 percent.

    Oil’s collapse drove Shell’s annual dividend yield to 8.1 percent on Sept. 28, the highest in more than at least 20 years. The measure was at 7.2 percent on Monday compared with 4.1 percent for the benchmark FTSE 100 Index.

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    Iraqi Kurds Boost Oil Sales in Drive for Financial Independence

    Iraq’s Kurdish region ramped up crude exports by 27 percent in September as the semi-autonomous enclave seeks greater financial independence amid a budget dispute with the federal government in Baghdad.

    The Kurdistan Regional Government exported 18.6 million barrels, or an average of 600,463 barrels a day, through the pipeline network to the Turkish port of Ceyhan, according to a statement on the KRG’s Ministry of Natural Resources website. In August, the KRG exported 14.7 million barrels of crude oil to the Mediterranean port.

    Fields operated by the KRG contributed 448,340 barrels a day to the region’s exports, while deposits managed by the central government’s North Oil Co. shipped 152,122 barrels a day, according to the statement. Kurdish oil exports increased in September even as shipments halted for two days because of sabotage and theft, it said.

    “In September, the KRG continued to increase its direct oil sales in Ceyhan to compensate the region for the budget shortfalls from the federal government in Baghdad,” the KRG said in its statement.

    Iraq’s minority Kurds, who historically have resisted control by governments in Baghdad, are independently developing oil reserves they say may total 45 billion barrels -- equivalent to almost a third of Iraq’s total deposits, according to BP Plc data. The KRG and the central government have traded accusations of breaches to a Dec. 2 agreement that provided for the Kurds to export their oil through the state oil company in return for cash from authorities in Baghdad.

    The central government denies that the Kurds supplied an agreed-upon 550,000 barrels a day and sent the KRG less cash as a result. The failure of the two sides to settle their differences over how to share revenue from oil sales exacerbates uncertainty about crude supplies from northern Iraq, one year since Kurdish troops occupied the region of Kirkuk and nearby oil fields to defend them against Islamic State militants.

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    Suncor Energy commences offer to acquire Canadian Oil Sands Limited

    Suncor Energy Inc. today announced that it has formally commenced an unsolicited offer to Canadian Oil Sands Limited (TSX Symbol 'COS') shareholders to acquire all of the outstanding shares of COS for total consideration of approximately $4.3 billion. Under the terms of the Offer, each COS shareholder will receive consideration of 0.25 of a Suncor share per COS share. Including COS' estimated outstanding net debt of $2.3 billion as at June 30, 2015, the total transaction value is approximately $6.6 billion.

    'We believe this is a financially compelling opportunity for COS shareholders,' said Steve Williams, Suncor's president and chief executive officer. 'By accepting this Offer, COS shareholders will become investors in Canada's leading integrated energy company with 50 years of experience in oil sands operations and a track record of returning significant value to shareholders. We're offering a significant premium to COS' current market price and also providing exposure to a meaningful dividend increase. We're confident in the value this Offer provides to COS shareholders.'
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    The US Shale Oil Industry Will Simply Vanish

    The year 2015 will be crucial and could be the beginning of the end of US Shale producers. However, it could be too strategically important for government. The collapse of shale industry means a return to energy-dependence on OPEC-states. As US Census Bureau data provides, since 2011 the share of crude petroleum and natural gas in total US Import have decreased every year, while total import has steadily grown up. Between years 2011 and 2014 general import of crude petroleum and natural gas fell by $84 billion. At the same time, the share of OPEC trade balance in total US trade balance decreased from 23% to less than 10% in 2014. The rescue of US shale industry or shale production could have strategic dimension.

    One of the possibilities is removing US crude export restrictions.Opening the global market for US shale oil could results in increased domestic production. Removal of restrictions would not have significant influence on global crude prices.

    Full details:
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    SandRidge Energy, Inc. Announces Acquisition of Pinon Gathering Company

    SandRidge Energy, Inc. today announced that it has entered into an agreement to acquire the Piñon Gathering Company, LLC from EIG Global Energy Partners for $48 million cash and $78 million of its 8.75% Senior Secured Notes due 2020. The Piñon Gathering Company, LLC owns approximately 370 miles of gathering lines supporting the natural gas and CO2 production from the Company's Piñon field in West Texas. As a result of the transaction, the Company will eliminate minimum volume commitment payments of approximately $40 million per year, forecast to continue until 2021 and additional contractual fees thereafter, as well as secure a strategic asset supporting its West Texas natural gas production.

    James Bennett, President and CEO, commented, "We are pleased to announce the repurchase of our West Texas Piñon gas gathering infrastructure. By eliminating payments related to contractual volume commitments, this transaction will immediately increase annual EBITDA by approximately $40 million by lowering our overall lease operating and gathering expense. This transaction is also consistent with our stated goals of reducing existing contractual liabilities related to legacy operations."
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    Alternative Energy

    SolarCity claims it has created the world's most powerful solar panel

    SolarCity today said it has manufactured the world's most efficient rooftop solar panel.

    The photovoltaic panels have an efficiency exceeding 22%, the company said, 7 percentage points higher than the average rooftop panel efficiency rating of roughly 15%.

    "The new SolarCity panel generates more power per square foot and harvests more energy over a year than any other rooftop panel in production and will be the highest volume solar panel manufactured in the Western Hemisphere," the company stated in its news release.

    SolarCity said it will begin production of the new solar panels in small quantifies this month at its 100 MW (megawatt) pilot facility in Freemont, Calif. The company, however, eventually plans to begin mass production of the panels in its1 GW (gigawatt) facility in Buffalo, N.Y.

    According to SolarCity, the new panels were measured as having a 22.04% module-level efficiency by Renewable Energy Test Center, a third-party certification provider.

    The new panels produce 30% to 40% more power over the current models, but they cost the same to manufacture -- about .55 cents per watt, according to Bass. The panels, which are 1.61 meters or 1.81 meters in size, depending on the model, will have a capacity of 355 watts each.

    SolarCity's panel also performs better than other modules in high temperatures, which allows it to produce even more energy on an annual basis than other solar panels of comparable size, the company said.

    SolarCity expects to produce between 9,000 and 10,000 solar panels each day when the Buffalo facility reaches full capacity, which should be in early 2017, according to SolarCity spokesman Jonathan Bass.

    Attached Files
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    SunEdison to cut 15 pct of its workforce

    U.S. solar company SunEdison Inc said it would cut about 15 percent of its global workforce as part of a restructuring plan to integrate the businesses it bought recently.

    The company had about 7,260 employees as of Dec. 31, 2014, according to a filing in March.

    The company will incur a related charge of $30 million to $40 million, which will be recorded in the third quarter of 2015 and through the first quarter of 2016.

    Most of these charges are expected to be paid by the end of the fourth quarter of 2016, SunEdison said in a regulatory filing on Monday.

    SunEdison's stock has been under pressure since mid-July as investors questioned the solar company's liquidity after its purchase of Vivint Solar Inc.

    TerraForm Power Inc, a unit of SunEdison, said in July it would buy 930 megawatt of wind power plants from Invenergy Wind LLC for $2 billion.
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    Odisha gets its first 100pct solar-powered village

    October 2nd this year marked a life-changing transition for the 350 odd dwellers of Baripatha, a tribal village about 25 km southwest of Bhubaneswar. It made history by becoming the first village in the state to be powered entirely by solar energy.

    Many solar projects elsewhere in the country have floundered and failed but Baripatha is different. Its model is low-cost, low-maintenance and community-owned - elements that are missing in other solar-powered projects.

    Mr Joydeep Nayak, senior IPS officer, the prime mover behind this initiative, said that "This model can be replicated all over Odisha to provide power to its nearly 3,900 villages."

    The INR 7 lakh project, co-funded by ECCO Electronics and Jakson Group, has put individual solar units with two lamps in each of the village's 61 households, along with a central one-kilowatt unit that powers eight street lamps, and an LED television set and a TV set-top box for the community centre.

    Mr Sandip Ghosh, executive vice-president of Jakson, said that “By providing individual units to each household, these problems have been resolved. Till now, in all rural solar projects, central units would supply power to households. Often, the exposed cables would be tapped by some, while others would draw more than their shares. This would cause the central unit to overload and trip."

    Mr Vivek Bihani, CEO of ECCO, said that "The entire village has been involved in the planning and execution. Village mukia Narayan Hisa along with a local ITI diploma holder, Epil Kumar Singh, are responsible for the maintenance. The only maintenance required is regular cleaning of the solar panels and, in case of the central unit, ensuring that the water levels in the batteries are at the optimum mark. It is actually zero-maintenance."

    Two multipurpose LED lamps were handed over to each household on Friday by NALCO chairman and managing director Mr T K Chand and various state officials.

    Mr Bihani said that "They cost INR 2,650 and INR 1,750 each and villagers can get them on easy instalments through micro-finance."

    Nayak says NALCO and other companies are willing to subsidize these lamps as part of their CSR.

    The central solar unit has eight big panels that can be folded in just two minutes to protect them from cyclones and high-speed winds that hit Odisha frequently. This central unit can also operate a one-horsepower irrigation pump.
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    German consumers face billions of extra costs for new power lines

    The German government said on Monday the increased usage of underground cabling to avoid local protests against new power lines would cost up to eight billion euros.

    The grid expansion is an important pillar of Chancellor Angela Merkel's "Energiewende" or shift from nuclear power and fossil fuels towards renewable energy sources.

    The net operators say more power lines are needed to carry green energy from the breezy north to the country's industrial south where several nuclear power plants will be switched off.

    But since the federal network agency presented a master plan to build three high-voltage direct-current transmission lines, protest groups have formed across the country.

    The conflict escalated when Bavarian premier Horst Seehofer, head of Merkel's sister party the Christian Social Union (CSU), bowed to public concern and publicly revoked his support for the grid expansion.

    In July, Merkel's coalition settled the dispute by agreeing that net operators should modernise existing pylons and use underground cabling in as many areas as possible.

    This approach would lead to additional costs of three to eight billions euros, the economy ministry has now said, giving figures for the project for the first time.

    The costs for building and operating the electricity grid are normally passed on to consumers in Germany.

    At the same time, the agreed underground cabling could lower overall costs in the medium-term by reducing local protests and speeding up construction of the power lines, the ministry added.
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    Precious Metals

    Sibanye to acquire Aquarius Platinum

    Neal Froneman has taken another step towards transforming Sibanye into a significant producer of Platinum Group Metals (PGM’s) with the announcement on the 6th of October to purchase the entire issued share capital of Aquarius Platinum. This could represent yet another step in Sibanye’s ambitions of becoming South Africa’s mining champion.

    The offer has been made at $0.195/share, which based on yesterday’s rand/dollar exchange rate translates to R2.66/share. The board of Aquarius has unanimously endorsed the offer.

    The transaction will allow Sibanye to consolidate the operations of Aquarius – which include the Kroondal and Mimosa mines – with those of the Rustenburg operations it recently acquired from Anglo American Platinum.

    As per the SENS announcement, ” Synergies have been quantified in the following areas:

    – Efficiency and cost savings derived from rationalisation of shared operational and overhead
    cost structures, best practice benchmarking between operations and economies of scale across
    the combined operations;
    – Optimisation of surface infrastructure; and
    – Removal of traditional lease boundaries, resulting in optimal use of existing underground
    infrastructure and improved operational planning.”

    The transaction will also provide an entry point for Sibanye into Zimbabwe, through Aquarius’ Mimosa mine. To year-end June, Aquarius produced 349 thousand ounces (Koz) of PGM’s.
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    Base Metals

    Pan Pacific sees copper prices back at $6,000 in FY16/17

    Japan's Pan Pacific Copper expects copper prices to rise to $6,000 a tonne over the next 18 months, driven by global production cuts and demand growth in Asia, although any upside will be limited in 2015, its president said on Monday.

    "Copper prices will continue to languish this year, hovering between the current level and $5,500 a tonne," President Yoshihiro Nishiyama told a news conference.

    Copper prices hit a six-year low of $4,855 a tonne in late August amid fears over a slowing economy in top buyer China. Prices have since recovered to around $5,160 a tonne but are well below recent peaks above $6,300 in May.

    Nishiyama said Japan's biggest copper smelter expected prices to recover from next year, led by a series of production cuts by miners including Glencore and Freeport-McMoRan , as well as solid demand in Southeast Asia and India.

    The company forecast an average price of $6,000/T in the year to end-March 2017 and $6,700/T in the following year.

    "We expect the market to hit the bottom this year or next year," Nishiyama said.

    Pan Pacific, which also mines copper, is ramping up output of its new Caserones copper mine in Chile. The mine achieved full produciton in September and aims to produce 150,000 tonnes of copper concentrates next year, Nishiyama said.

    Pan Pacific, 66 percent owned by JX Holdings and 34 percent by Mitsui Mining and Smelting, said it plans to cut its output of refined copper by 7.5 percent in October-March from a year earlier to 271,600 tonnes.

    The reduction is due to maintenance at its Saganoseki Smelter in November and a fire in September at its Tamano Smelter which forced it to halt operations for 40 days.

    Copper demand in Japan is expected to pick up in the January-March quarter, PPC director Takayasu Kashimura said.

    Pan Pacific will begin negotiations soon on copper processing fees and premiums for Chinese buyers to secure metal for 2016.

    Nishiyama said he did not expect a major fall in the fees from this year's $107 a tonne or 10.7 cents a pound due to a recovery in spot prices.

    Global miners pay treatment and refining charges (TC/RCs) to smelters to convert concentrate into refined metal. Higher fees are typically seen when concentrate supply rises or available smelter capacity thins.

    "As for China premiums, we believe we don't have to make a big cut from this year's $115 a tonne," Nishiyama said, citing recent spot premiums at $110-120.

    Attached Files
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    First Quantum Minerals Updates on Key Developments and Actions


    Terms of a replacement Cobre Panama precious metals stream agreement finalized; capital costs estimate lowered

    A revised precious metal stream agreement has been agreed with Franco-Nevada Corporation ("Franco-Nevada"). Under the revised agreement, it is expected that Franco-Nevada's initial contribution of between $330 million to $340 million will be paid to First Quantum during October. Additional details are contained in a separate joint news release.
    The estimated capital cost of the Company's flagship project, Cobre Panama, has been reviewed in detail and reappraised. It is now estimated the total project cost will be $5.95 billion, approximately 7% below previous estimates with potential for further improvements.
    Capital costs have been reduced due to better construction efficiency, continued optimization of detailed design and lower costs for equipment and bulk materials such as rebar and structural steel.
    Overall the project is approximately 35% complete and experience to date allows greater confidence in forecasting total project costs. The project remains on track for process commissioning and first concentrate production in late 2017.
    The port is now a fully operational and has received direct international shipments.
    Early priority is being given to the completion of the power station taking advantage of virtually all required materials being available on-site. Mechanical installation works are progressing well.
    Project costs incurred to date amount to $2.621 billion of which First Quantum's partner in the project, KPMC, has contributed $524 million. The remaining estimated costs to completion will be met by an additional contribution from KPMC of $666 million, $1 billion payable by Franco-Nevada under the precious metal streaming agreement and$1.663 billion by First Quantum.

    Zambian power stabilizing; Sentinel anticipates commercial-level production by end of 2015

    The Zambian power situation is stabilizing. Full power of 153MW is currently being provided to the Kansanshi mine and smelter and 55MW to the one power line currently connected to the Sentinel mine.
    Sentinel's ramp-up to date has been affected by the limited power supply. Despite this, good progress has been made. Construction of the second power line connecting Sentinel to Lusaka West is complete and scheduled to be energized shortly. Once the second power line is connected and energized, Sentinel will be entitled to its full power requirement of 160MW. This will allow for the mine to ramp-up towards commercial-level production expected by the end of 2015.
    ZESCO, the state-run power company, has requested the mining industry to use supplementary power for 30% of their requirements. Discussions are currently underway regarding the related tariffs for this supplementary power. The Company expects full production at both Kansanshi and Sentinel through the purchase and sharing of this power.
    It is expected that the country's generating capacity will improve following the rainy season starting in November. In addition, approximately 400MW of new power generation capacity is expected online in Zambia in 2016 from projects nearing completion (300MW thermal and 100MW hydro).

    Production and cost guidance for 2015 revised

    Copper production for 2015 is now expected to be between 385,000 and 410,000 tonnes excluding Sentinel pre-commercial commissioning production of between 30,000 and 50,000 tonnes.
    The C1 cost estimate is lowered to between $1.20 and $1.35 per pound.

    Management is employing a number of measures to enhance the Company's capital position and maintain financial stability

    With borrowings at elevated levels during a period of development project expenditure, the maintenance of available project funding, the strengthening of the Company's balance sheet and further cost reductions remain key priorities.
    Initiatives to strengthen and protect cash flow include:

    in addition to the reduction in capital for Cobre Panama, other planned capital programs across the Company have been reduced or re-phased by approximately $700 million,
    hedged approximately170,000 tonnes of copper production at an average price of $2.411 per pound ($5,316per tonne) over the balance of 2015 and well into 2016,
    reduced the work force by 644 and lowered salaries by up to 20% which, when combined with a detailed review of all other operating costs, has led to annual savings of approximately $420 million, and
    realized $215 million from the settlement of the ENRC Promissory Note with a further $85 million to be received in October.

    A commitment to reduce net debt by over $1 billion through a combination of asset sales and other strategic initiatives by the end of Q1 2016.
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    Cobalt’s Luck Could Come From Volkswagen, Glencore Troubles

    One side-story to the biggest headlines in corporate Europe,Glencore PLC and Volkswagen AG, is a minor metal called cobalt.

    Some analysts believe that the price of this metal, used in phones and car batteries, will rise when beleaguered commodity’s giant Glencorecloses down mines responsible for 5% of global supply as it seeks to cut costs. And some investors are betting that increased demand for electric cars in the wake of the Volkswagen emissions scandal will also boost cobalt.

    To be sure, cobalt prices have yet to jump, not least as warehoused stocks of the metal are currently high and could dampen the effects of extra demand or supply cuts. And some market players also question the impact that Volkswagen’s troubles will have on demand for electric cars.

    This small market, though, hovers in the shadows of giant metals like copper and aluminum and during a period of extreme volatility for this sector, cobalt’s story has been overshadowed.

    “We’re positive about cobalt for next year,” said Vivienne Lloyd, a base metals analyst at Macquarie. “A lot of people were jumping up and down making noise about copper, and cobalt was kind of the side-story.”

    The minor metal is currently trading at $28,000 a metric ton, down more than 40% from its 2010 peak of around $47,000 a ton. Like other metals, the price has fallen as more mines were created to cater for a big increase in demand that didn’t come.

    Cobalt has often moved on speculation over whether its largest exporter, the Democratic Republic of the Congo, will ban the export of ores, as its government has sometimes threatened to do. The metal has also been hit by economic weakness in its top refiner China.

    But more recently, the news seems better.

    Early last month, Glencore said that it will suspend activities at two large mines, in the DRC and in Zambia, removing an annual 5,000 tons of cobalt from a market of roughly 100,000 tons. The Swiss-based trading giant, which recently saw its share price whipsaw on concern over its debt levels, is the largest provider of cobalt, producing roughly 20% of global supply.

    On the demand side, the picture is also looking rosy for the metal, some analysts say.

    Fitch Ratings believes that the Volkswagen emissions row could now be a game-changer for the global car market. Volkswagen’s shares have fallen 40% to trade below €100 ($112.65) a share following revelations on September 18 that the company installed software in 11 million of its diesel-engine vehicles in a bid to cheat strict U.S. emissions tests. Officials in several countries have called for investigations into the scandal.
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