Mark Latham Commodity Equity Intelligence Service

Friday 12th June 2015
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    Colombia's FARC rebels step up infrastructure attacks, kill 3 police

    Colombia's FARC rebels shot dead three police officers on Thursday and brought down an energy pylon, cutting off power to half a million people in the country's south, the military said, as the Marxist group steps up attacks amid stumbling peace talks.

    Members of the FARC, or the Revolutionary Armed Forces of Colombia, opened fire on the three police officers patrolling a stretch of the southwestern Pan-American Highway on Thursday and detonated explosives a few kilometers away on the same road.

    The 8,000-strong FARC lifted a unilateral ceasefire about three weeks ago and has since hit almost daily at roadways, power networks and crude oil trucks and pipelines, polluting water supplies in the rebels' southwestern stronghold.

    The insurgent group has been in talks with the government for the last 30 months, seeking to end a 51-year conflict that has killed almost a quarter of a million people. The negotiations have continued despite the intensified attacks.

    Months of relative detente ended in April when the FARC killed 11 soldiers in Cauca province who were sheltering from the rain, essentially breaking a ceasefire it began in December. Government troops then killed 27 rebels, prompting the FARC to renew hostilities.

    The talks have advanced despite a near-constant backdrop of fighting since they began. The five points on the agenda include victim reparations, agricultural reform, eliminating the cocaine trade, demobilization and rebel political participation.

    The FARC, which began in 1964 as a peasant movement, wants President Juan Manuel Santos to agree to a bilateral ceasefire, and analysts reckon the latest attacks are aimed at angering Colombians so they pressure him to call a truce.

    He has so far refused and has condemned the attacks as irrational and having no explanation. Defense Minister Juan Carlos Pinzon has slammed FARC leaders as having the "mentality of idiots."

    Television networks have shown footage recorded on cellphones of oil tanker truck drivers being forced by the FARC to empty the thousands of barrels of crude they were carrying onto the highway. Nineteen trucks were forced to unload on Monday, then several more on Thursday.

    Several thousand barrels of crude oil spilled into a river in southwest Colombia on Monday after the FARC bombed a pipeline owned by state-run oil company Ecopetrol. Its chief executive officer, Juan Carlos Echeverry, has called the damage an "environmental tragedy."
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    Oil and Gas

    Saudis say could raise output to meet demand

    Oil futures dipped on Friday after Saudi Arabia said it was ready to raise output further to meet strong demand.

    But the rally was halted by a dimming global economic outlook as well as top crude exporter Saudi Arabia saying it was ready to increase its oil output in coming months to a record high to meet a rise in global demand.

    In Japan, the world's third-biggest economy, May crude oil purchases by its big utilities fell 47.4 percent compared with the same month last year, and they also bought less natural gas and coal.

    Thanks to relatively cheap crude oil, refiners have enjoyed high margins as demand for refined products has been strong, but there are early signs that overproduction will pull down margins as product oversupply emerges.

    Independent stocks of oil products at Europe's Amsterdam-Rotterdam-Antwerp hub rose 5 percent in the week to Thursday to hit a record high of 5.845 million tonnes.

    While gasoline refining margins remain near three-year highs and surprising diesel demand growth underpinned its margins, the profitability of European jet fuel has declined as thousands of tonnes in surplus cargoes land from new refineries in the Middle East. Some analysts and traders say jet fuel's fate could foretell margins for other oil products, particularly diesel.

    Should demand for refined products fall due to emerging oversupply, analysts have said that would spill back into the crude market and pull down prices there as well, as refineries slash orders and reduce output.
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    China natgas output drops for 2nd month, price cut eyed

    China's natural gas output fell 2 percent in May from a year earlier, official data showed on Thursday, its second straight month of decline as the market expects Beijing to announce another price cut in the coming months to lift slowing demand.

    Output recorded a 2.9-percent year-on-year drop in April, to 9.4 billion cubic metres (bcm), the lowest since July 2014 in outright volumes. Such drops in output have been rare.

    Production was 9.9 bcm in May, slightly higher than April on a daily basis. Total output in the first five months of 2015 climbed 2.1 percent from the same period the year before to 53.2 bcm, the National Statistical Bureau (NSB) said.

    China, the world's largest energy guzzler, is keen to boost the use of natural gas to cut emissions and fight air pollution.

    But demand has been hit since last year as domestic prices, which are regulated by the government, were not cut until April, lagging the steep declines in global oil markets that Beijing uses as a benchmark for gas pricing.

    In the first four months of 2015, China burned 62.9 bcm of gas, up a tepid 2.4 percent from the same period last year, according to the National Development & Reform Commission.

    Industry sources said Beijing may move to cut city-gate, or wholesale gas prices again in the coming months to lift demand.

    Factories that produce items such as ceramics and glass have curbed gas purchases, while the use of gas as a transport fuel has also eased as its price competitiveness relative to diesel narrows hugely.
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    Cheniere reveals plans for additional LNG projects

    Cheniere plans to expand its liquefied natural gas empire, adding two additional production units in Corpus Christi and partnering with a smaller Houston-based LNG company to build new projects in Louisiana.

    The company on Wednesday announced that it has filed paperwork seeking federal approval to build two more liquefaction trains near its proposed LNG export terminal in Corpus Christi, where construction has started on two of the five proposed trains.

    Cheniere also agreed to team up with Parallax Enterprises to complete two mid-scale projects already under development in places close to pipelines and deep water access. The company unveiled Live Oak LNG on the Calcasieu Ship Channel in southwestern Louisiana earlier this year and in April, acquired Louisiana LNG on the Mississippi River south of New Orleans.

    The projects each have two trains with a capacity to produce 2.5 million metric tons of the supercooled gas per year.

    Altogether, the expansions would boost Cheniere’s LNG production capacity to 60 million metric tons per year within a decade.

    In a statement, CEO Charif Souki said Cheniere expects to fund the developments with internally generated cash flows, which allows the company to remain a low-cost supplier while giving Cheniere more flexibility in making deals to sell LNG to global buyers.

    If the plans are approved by the federal government, Cheniere expects to start construction on the projects by 2017 and could begin producing the first batches of LNG as early as four years later, the company said in a statement.
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    Gazprom and Shell talk LNG

    Alexey Miller of Gazprom and Shell’s CEO Ben van Beurden met in Milan on Wednesday where they discussed the status of Sakhalin II and the future collaboration within the project.

    They also addressed the prospects for cooperation in the oil and gas sector, as well as the current situation in the LNG markets, according to a statement by Gazprom’s press office.

    As part of Sakhalin II, Russia’s first LNG plant with the annual capacity of 9.6 million tons of LNG was commissioned in 2009.

    Sakhalin Energy is the Sakhalin II project operator with the ownership distributed among Gazprom (50 per cent plus one share), Shell (27.5 per cent minus one share), Mitsui & Co. (12.5 per cent) and Mitsubishi (10 per cent).

    In 2014, Gazprom and Shell signed the memorandum-roadmap to prepare FEED documents for the third LNG production train within the Sakhalin II project.
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    Petronas approves FID on Pacific LNG plant.

    Pacific NorthWest LNG has committed to doing business in British Columbia.

    The consortium planning to export liquefied natural gas from Price Rupert announced Thursday it has made a positive Final Investment Decision on its proposed $36 billion project.

    If built (the project still needs to pass federal environmental assessments, agree to deals with opposing First Nations and have government ratify of the Project Development Agreement in Victoria), PNW LNG would represent the biggest capital investment in B.C. history.

    While the final design of the LNG facility on Lelu Island is still to be determined, it is envisioned that the initial phase of the facility would include:

    • Two liquefaction plants: A series of process equipment situated in a line (called “trains”) that acts as a large refrigerator to convert natural gas into LNG by chilling it to -162 degrees Celsius.
    • Two LNG storage tanks: Stores LNG at atmospheric pressure prior to being transferred onto LNG carriers.

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    Russia Fails to Rule on Schlumbergers Eurasia Drilling bid

    Russia failed to rule on a planned purchase of the company by Schlumberger Ltd.

    Russia’s foreign-investment commission met Thursday yet didn’t make a decision on Schlumberger’s bid, Natural Resources Minister Sergei Donskoi said by phone, without giving a reason. Investors had hoped a ruling would clear the way for the deal’s $1.7 billion first phase, which has already been delayed months.

    Schlumberger, based in Houston and Paris, announced the planned purchase in January as the U.S. and Russia faced off over President Vladimir Putin’s support for a separatist insurgency in Ukraine. U.S. and European sanctions on Russia include curbs on exports of drilling technology.

    The acquisition was pushed back as Russia’s antitrust authority sought additional information. That led Eurasia to miss a February deadline for completing the first phase, under which core investors would buy out the 45.65 percent held by minorities at $22 a share. At a later stage Schlumberger would gain an option to acquire the rest.

    A discussion of the bid was originally on the commission’s agenda for Thursday, two officials said earlier this week. It was unexpectedly removed before the meeting, RBC reported, citing two unidentified people with knowledge of the matter.

    “The government probably decided to be more cautious amid rising tensions in Ukraine and statements from U.S. and EU politicians on extending sanctions against Russia,” said Ildar Davletshin, an energy analyst at Renaissance Capital in Moscow.

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    Bill to Ease Petrobras Pre-Salt Burden Seen Passing by Senators

    Senators of Brazil’s largest party expect the upper house to approve a bill that relieves state-controlled Petrobras of its role as sole operator and compulsory stakeholder in so-called pre-salt oilfields.

    “I don’t see any difficulty for this project to be approved in the Senate,” Eunicio Oliveira, leader of the PMDB, said in a telephone interview from Brasilia this week. “It’s an important project for the country and would aid Petrobras.”

    Changes would help the most indebted oil company in the world by reducing necessary investments in future oil rounds, said PMDB Senator Ricardo Ferraco, the sponsor of the bill. Humberto Costa, Senate leader of President Dilma Rousseff’s Workers’ Party, said only a widespread social movement could stop the bill from being approved.

    While Rousseff herself is resisting deregulation, her Energy Minister Eduardo Braga said in a recent interview in Houston that he supports allowing Petroleo Brasileiro SA, as the company is formally known, to opt out of the obligation to assume at least 30 percent ownership of all pre-salt projects and operate them. The company lacks the money to cover its share of development after racking up $125 billion in debt. The pre-salt is the jewel in Brazil’s vast offshore oil reserves.

    The bill, authored by Senator Jose Serra of the opposition PSDB party, would still have to be approved by the lower house. Brazilian legislators often don’t vote along party lines, making the outcome unpredictable.

    Ferraco said he has spoken to fellow congressmen and is certain of the majority of votes. He plans to place the bill on a fast-track that would put it to a vote on the floor without going through committees.

    While most members of the Workers’ Party oppose the bill, some will vote for it, said Costa.

    “We will have to rally our constituency against it because there are strong lobbies behind the push to change the rules,” Costa said.
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    Hess Sells Half of Bakken Pipeline Unit for $2.68 Billion

    Hess Corp., the most active oil driller in the Bakken last year, agreed to sell a 50 percent stake in its pipeline and processing unit in the area to private equity firm Global Infrastructure Partners for $2.675 billion in cash.

    The companies are forming a midstream joint venture called Hess Infrastructure Partners, New York-based Hess said in a statement Thursday.

    “The joint venture with its strategically located assets will be one of the largest midstream operators in the Bakken,” Chief Executive Officer John Hess said in the statement. “The joint venture will be in a strong position to fund future energy infrastructure investments and continue to grow its midstream business.”

    Hess will get a total of $3 billion in cash from the transaction, including $300 million from a debt sale by the joint venture that will help it close a cash flow gap expected this year because of lower oil prices. Fracking and horizontal drilling in the Bakken formation have made North Dakota the nation’s largest oil-producing state behind Texas, according to the Energy Information Administration.

    The company said it will continue with plans for an initial public offering of units in Hess Midstream Partners LP.
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    Cenovus resumes operations at Foster Creek oil sands site

    Cenovus Energy Inc said it had resumed normal operations at its Foster Creek oil sands site in Alberta after a forest fire led to a precautionary shutdown on May 23.

    Canada's No. 2 independent oil producer had evacuated about 1,800 workers and shut down production at the site, which it operates as part of a joint venture with ConocoPhillips.

    The project averages production of about 135,000 barrels per day.

    Cenovus said it expects production in the second quarter to be reduced by 10,500 bpd and in the full year by about 2,600 bpd due to the shutdown.

    The company's total production in the first quarter ended March 31 averaged 218,020 bpd.

    The company said its Athabasca natural gas operations, which were also shut down due to the forest fire, have resumed.

    At least 233,000 barrels per day of oil sands production, 9 percent of Alberta's total oil sands output, had been suspended because of the fire risk.
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    Alternative Energy

    Southern Power Distribution Company calls for bids for solar power

    Times of India reported that the Southern Power Distribution Company of Telangana Limited has called for Request for Selection (RFS) for procuring 2,000 MW of solar power on long-term basis through reverse tariff-based competitive bidding. The last date for the bids is June 30th.

    According to a press release by Mr G Raghuma Reddy, CMD of TSPDCL, the bids were divided into group-I and group-II based on the injection voltage levels.

    The CMD said that the capacity under group-I bids is 500 MW and group-II bids will be 1,500 MW. While the tariff ceiling for group-I bids is INR 6.450 per KWh and group-II bids is 6.320 per KWh.
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    Amazon backs USD 150 million solar power project in Virginia

    Amazon Web Services, the e-commerce giant's cloud-computing business, will support the building and operation of a roughly USD 150 million solar farm planned in Virginia, with the project being named Amazon Solar Farm US East.

    An Amazon representative declined to specify Amazon's financial commitment to the project, saying the company wouldn't comment beyond a press release sent out Wednesday.

    Amazon's announcement comes a week after Greenpeace disclosed a letter from 19 AWS customers, including the Huffington Post, Upworthy and Tumblr, calling on the business to publicize more information on what kind of energy sources are powering its cloud-computing data centers. Greenpeace, an environmental advocacy group, has previously gone after Amazon for its alleged lack of transparency in this area, claiming other cloud-infrastructure firms, such as Apple and IBM, have provided far more information on their energy use and goals.

    Amazon responded to Greenpeace's claims a few days later in a blog post, saying its cloud-computing customers use fewer servers and less energy than when businesses run their own data centers. It also repeated AWS's goal of having 40% of its infrastructure powered by renewable energy sources by the end of 2016. As of April, the company said that it had about 25% coming from renewable sources.
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    L.A. won't buy power from Mojave Desert solar plant, after all

    The city of Los Angeles has dropped plans to buy electricity from a controversial solar plant proposed for the Mojave Desert, delivering a serious blow to the most environmentally sensitive renewable energy project in the state.

    City officials said Thursday that the Soda Mountain Solar Project would be too damaging to bighorn sheep, desert tortoises and other wildlife near the site along Interstate 15, just south of Baker and less than a mile from the Mojave National Preserve.

    The decision was made after a Department of Water and Power review found that other proposed renewable energy projects would charge the city less for electricity and would have fewer challenges in delivering the power to Los Angeles.

    Bechtel Corp., developer of the plant, had hoped that Los Angeles would buy most of the power. Ron Tobler, project development manager for Bechtel, said the company is negotiating with other prospective customers for the electricity.

    If the project does not get a power purchase agreement signed soon, "it will be extremely difficult for it to proceed with development," said Cory Honeyman, a senior solar analyst at the consulting firm GTM Research. That's largely because the window is closing on eligibility for a 30% federal tax credit for the project.

    "The Sierra Club is delighted to see the city do the right thing and choose not to sign a power purchase agreement with this harmful project," said Sarah Friedman, a senior campaign representative with the organization. "We support clean energy, but this is the wrong place to do it."
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    Rio Tinto mulling impairment charge of $300 mln

    Rio Tinto Ltd said it was assessing an about $300 million non-cash impairment charge related to its shareholding in Energy Resources of Australia Ltd .

    ERA, in which Rio Tinto has a 68.4 percent stake, said earlier on Thursday that it would not proceed with the final feasibility study of its Ranger 3 Deeps uranium project in Australia, citing weak market conditions.

    Rio Tinto said it agreed with ERA's decision not to progress with the study "due to the project's economic challenges." (

    Uranium prices plunged after the March 2011 meltdown at Japan's Fukushima nuclear plant. Japan idled its entire industry in response, exacerbating a worldwide supply glut.

    Rio Tinto also said it would assist ERA in funding the rehabilitation program at the Ranger mine near Kakadu National Park, following a toxic spill in December 2013.
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    U.S. weather forecaster sees El Nino likely to last into 2016

    A U.S. weather forecaster warned on Thursday the El Nino weather pattern that can cause droughts in Asia and heavy rain in the Americas will likely last into next year, longer than previously expected and potentially roiling crops and commodity prices.

    The Climate Prediction Center (CPC), an agency of the National Weather Service, pegged the chances of El Nino weather conditions continuing into the Northern Hemisphere's 2015-16 winter at 85 percent, becoming the first major forecaster to say the event is highly likely to last into next year.

    CPC previously saw a more than 80 percent chance El Nino would last through 2015.

    Government forecasters have been heightening their warning calls for a stronger and longer El Nino. Japan's weather bureau on Wednesday also said it sees the possibility of El Nino lasting into the winter.

    The event, the warming of Pacific sea-surface temperatures, can have devastating consequences for global agriculture, triggering heavy rains and floods in South America and scorching weather in Asia and as far away as east Africa.

    In the United States, El Nino increases precipitation in key agricultural regions and reduces the likelihood of a busy hurricane season from June to November that can disrupt energy operations in the Gulf of Mexico.
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    Base Metals

    First Quantum mulls $1.5bn power plant to power Zambian mine

    First Quantum Minerals will consider investing as much as $1.5 billion to build a power plant in Botswana that will supply its mine in neighboring Zambia, a venture partner of the copper producer said.

    Current plans for a 300 megawatt coal-fired plant with an estimated cost of $750 million at the Sese power project in Botswana could be doubled, Frazer Tabeart, chief executive officer of African Energy Resources Ltd., said Wednesday in an interview in the capital, Gaborone. First Quantum is increasing its stake in the Sese project to 75 percent for A$12 million ($9.3 million), he said.

    First Quantum needs power for its 80 percent-owned Kansanshi mine in Zambia, the largest copper mine in Africa, which is expected to produce about 350,000 metric tons of the metal a year. The Vancouver-based company’s additional investment with African Energy will fund a study to determine whether to build the larger plant, Tabeart said.

    “They will decide on whether they are going ahead with a 300 megawatt or 600 megawatt project early next year,” Tabeart said at a resources conference. Perth-based African Energy has the right to export any power from the plant that First Quantum doesn’t take up, he said.

    John Gladston, a spokesman for First Quantum in Zambia, said he couldn’t make any immediate comment and requested that questions be e-mailed to him.
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    China alumina prices drop on growing supply as production costs fall

    Prices of alumina in China have fallen more than 10 percent since January and are unlikely to recover this year as lower production costs encourage refineries to boost output, industry sources in the country said.

    Refiners usually sell alumina to aluminium smelters as it is the key ingredient in the production of that metal, which is used in everything from cars to cooking utensils.

    Weaker prices for the raw material could boost aluminium output in the world's top consumer and producer of the metal, curbing demand for imports. Alumina typically accounts for around 40 percent of costs in primary aluminium production.

    Spot alumina traded at about 2,350 yuan to 2,550 yuan ($379 to $411) a tonne in China this week, compared to around 2,800 yuan in January, smelter sources said. The prices were lower than about 2,550-2,650 yuan for duty-paid imports, traders said.

    A spot alumina shipment was sold to China at $347 a tonne this month, compared to over $350 in April.

    In contrast, the price of primary aluminium in China had risen more than 1 percent from this year's low in January to 12,785 yuan on Thursday, supported as large smelters limited spot sales.

    "The cost of imports has been higher than local alumina prices this year and most of the inflows were term shipments," said a trading manager at a state-owned aluminium smelter. He declined to be identified as he was not authorised to speak with media.

    China's alumina imports dived 40 percent from a year ago in the first four months of 2015.

    The trading manager said production costs at many alumina refineries in China had dropped due to lower prices for coal and power. He estimated current production at around 1,600 yuan to 2,300 yuan a tonne.

    That is down by about 200 yuan from the final quarter of 2014, with higher profits prompting refineries to produce more alumina, said Xu Hongping, analyst at China Merchants Futures.

    China's alumina production stood around a record 4.8 million tonnes in March and April. If that level of output was annualised it would equate to around 57.6 million tonnes of the country's annual production capacity of more than 60 million tonnes.

    Xu estimated at least 2 million tonnes of new capacity started production in May and June. But she said most of that was owned by aluminium smelters, cutting their alumina purchases.

    Increased output would weigh on domestic alumina prices in the second half, even though some 2 million tonnes of new aluminium capacity may begin production, she said.

    Two tonnes of alumina are typically used for one tonne of aluminium.

    But declining alumina prices could be a sign of slowing aluminium production growth in China, said Nic Brown, commodity research head at Natixis.

    Attached Files
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    Steel, Iron Ore and Coal

    China May coal output down 6.1pct on yr: NBS

    China produced 309.39 million tonnes of coal in May, down 6.1% year on year but up 3.8% month on month, said the National Bureau of Statistics (NBS) on June 11.

    Over January-May, total coal output of China stood at 1.46 billion tonnes, down 6% on year, showed the NBS data, as miners scaled back production to avoid losses caused by low prices as supply continued to exceed demand in the domestic market.

    Coal miners have been hit hard by prolonged weakness in domestic demand, as the release of more production capacity after years of expansion coincided with a slowdown in the Chinese economy and the government’s effort to increase the use of clean energy to reduce pollution.

    The Chinese government has vowed to further curb illegal coal production by carrying out an overall inspection on coal mines construction and production in main producing areas, according to a document published on the NDRC's website on June 3.

    Coal mines illegally built, producing beyond approved capacity or with safety issues would be asked to shut operation to rectify within a time limit, and those fails to do so will be forced to close by the provincial government.

    China’s domestic coal prices showed signs of stabilizing in the second half of May, but overall market conditions remain discouraging, as the country is expected to see further rise in hydropower output while industrial power demand shows no signs of apparent improvement.
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    China May thermal power output down 1.7 pct YoY

    Electricity output from China’s thermal power plants – mainly coal-fired – fell 1.7% year on year and down 1.0% from April to 344.4 TWh in May, showed data from the National Bureau of Statistics (NBS) on June 11.

    Weak industrial demand continued to weigh on coal-fired power generation, which was also impacted by hydropower output, which rose 2% year on year and 9.3% month on month to 76.7 TWh in May.

    Total electricity output in China stood at 456.2 TWh in May, unchanged from a year ago but up 2.5% month on month, the NBS data showed. That equates to daily power output of 14.72 TWh on average, unchanged on year but down 0.7% from April.

    Over January-May this year, China produced a total 2,218.7 TWh of electricity, up 0.2% year on year, with thermal power dropping 3.1% on year to 1,739.3 TWh while hydropower output increasing 11.5% to 318.2 TWh.
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    Japan's environment ministry pushes back on shift to coal

    Japan's environment ministry is pushing back on the growing use of coal to generate power after the Fukushima nuclear disaster led to the shutdown the country's reactors, as concerns mount over greenhouse emissions.

    Environment Minister Yoshio Mochizuki told reporters on Friday he will submit an objection over plans for a 1.2 gigawatt coal-fired plant to the powerful industry ministry, which has been promoting use of the fuel to cut costs.
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    Atlas plans A$180 mln capital raising to battle tough iron market

    Struggling Australian mining company Atlas Iron Ltd said on Thursday it is planning to raise capital via a placement of new shares at a heavily discounted price to key contractors, existing and new shareholders.

    After a near collapse due to a slump in iron ore prices, Australia's fourth-largest iron ore miner has recently resumed some mining operations and is now trying to raise cash to keep it afloat.

    The share issue, at price of A$0.05 Australian dollars each, represents a 58 percent discount to the last traded price before the shares were suspended and is much lower that Atlas shares have ever traded, the company said.

    On Apr. 7, Atlas suspended trading in its shares and all mining operations, entering crisis talks with its creditors and contractors as the price of iron ore was below its $50 a tonne break-even level.

    "The company now is focusing on the next step in its restructuring and growth strategy. This involves a capital raising, with the funds raised strengthening Atlas' balance sheet and assisting the company in managing periods of volatility in market conditions," the company said in a statement.

    The plan involves placements of shares to new and existing shareholders to raise up to A$50 million ($39 million), a placement to key Atlas contractors to raise up to A$30 million, and a participation offer to eligible Atlas shareholders to raise up to A$100 million.

    Contractors have already committed about A$23.9 million, the company said.

    Some analysts, however, doubted investors appetite for the new shares given the gloomy outlook for iron ore.

    "It's surprising to see such marginal tonnes coming back on given most people expect iron ore prices to fall again," said Liberum Capital analyst Richard Knights. "It would be surprising to see people willing to put their hands in their pocket for something like this, but I wouldn't rule it out either."
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