Mark Latham Commodity Equity Intelligence Service

Tuesday 15th March 2016
Background Stories on www.commodityintelligence.com

News and Views:

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    Macro

    More wretched news in the world's 7th largest economy


    Data released on Monday showed that economic activity in the world's 7th largest economy fell 8% this January from a year before. That makes it the 11th month in a row that activity has fallen.

    This is going to be a difficult problem to solve, since Brazil's government is a complete mess right now.

    Millions of Brazilians took to the streets over the weekend, peacefully protesting corruption that has reached the highest levels of the country's government. It all stems from a 2014 corruption sting called Operation Car Wash, that showed the ruling party was engaged in widespread corruption at Petrobras, the country's massive quasi-state oil company.

    ReutersDemonstrators attend a protest against Brazil's President Dilma Rousseff, part of nationwide protests calling for her impeachment, at Copacabana beach in Rio de Janeiro, Brazil, March 13, 2016.

    Last week, beloved former President Luiz Inacio Lula da Silva was taken into custody and questioned about ill-gotten gains connected to the scandal. Over the weekend, protestors called for Lula's successor, Dilma Rousseff, to resign. She also faces impeachment proceedings in the country's legislature.

    Analysts expect Brazil's economy to contract by 3.5% in 2016, but the estimates keep rolling in, and they keep going lower.

    http://uk.businessinsider.com/brazil-economic-activity-january-2016-3?r=US&IR=T
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    Putin Orders "Main Part" Of Russian Army Out Of Syria As Peace-Talks Resume


    Having collapsed just over a month ago, peace talks to end the Syrian strife resumed today amid the "fragile" truce brokered by US and Russia. So that makes the following even more intriguing:

    *PUTIN ORDERS `MAIN PART' OF RUSSIAN ARMY TO START SYRIA PULLOUT
    *PUTIN SPOKE W/ ASSAD, TOLD HIM OF DECISION TO PULL OUT: PESKOV

    So having stated proof of Turkish troops in Syria this morning, and after the resignation of the Russian navy commander, Putin tells the foreign ministry to intensify their role in the peace process.

    http://www.zerohedge.com/news/2016-03-14/putin-orders-main-part-russian-army-out-syria-peace-talks-resume
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    Distressed asset buyers see silver lining as miners languish


    After years on the sidelines, funds specializing in troubled assets are set to take center stage in the mining industry, driving deals in a sector where the top players alone plan to raise more than $30 billion through sales to cut debt.

    Overall deal volume in mining and metals last year sank to its lowest level globally since 2003, according to Thomson Reuters data, as the industry's sellers, crippled by more than $1 trillion in debt, crowded a market with very few buyers.

    Bankers, funds and investors, however, say that could change in 2016, as specialist buyers rethink a market where prices are languishing, mines are losing money and the traditional competition is weak.

    Funds sidelined and waiting for the right deals could amount to as much as $3 billion, according to a ballpark figure from corporate finance and restructuring firm FTI Consulting.

    "The longer this commodity rout continues, the greater number of restructures," David McCarthy, national leader for restructuring at Deloitte in Sydney, told Reuters.

    "Some of those will be by existing financiers and existing equity holders. For others, the risk will be too great - and that's where distressed opportunities will (be)."

    Oaktree Capital, the world's largest investor in distressed debt, opened an office in Sydney this month, in part at least because of the strain in mining, it said, particularly iron ore, where it sees potential for deals.

    Others are targeting existing mines where the geology has already been proven - and not development projects - for gold, copper, zinc and rare minerals, all exposed to the later stages of the economic cycle and renewable energy.

    "I think it will be a busy year for everyone in the industry," said Michael Ryan, a senior managing director of FTI Consulting in Perth.

    "I expect to see a lot of restructuring and cost cutting work, debt for equity transactions, restructuring balance sheet type transactions, sales of assets, divestiture of non-key assets to further shore up (distressed miners') balance sheets."

    In Australia's struggling iron ore sector for example, existing lenders to Atlas Iron (AGO.AX) agreed to take a haircut on repayments in return for a larger equity stake.

    But steel and iron ore group Arrium (ARI.AX), with nearly $2 billion of debt, had to look outside for help, turning to GSO Capital Partners, the global credit and alternative investment arm of PE behemoth Blackstone Group (BX.N).

    Earlier this month, it secured $927 million in funding to help Arrium retire debt and overhaul its business.

    Media reports have said Cerberus Capital Management, another major U.S. investor in distressed assets, also considered a move on Arrium and remains on the sidelines. Cerberus did not respond to an emailed request for comment.

    In November, global PE group Denham Capital backed Perth-based Auctus Minerals and its management team of mining restructure specialists with $130 million, as it bought battered Atherton Resources ATE.AX, which holds zinc and gold-copper resources in Queensland.

    "If you invest equity into what makes money at current price levels, you also have the unlimited upside if, during the holding period, the market recovers," Denham Capital Managing Director Bert Koth told Reuters.

    But the key question is how long these new financial investors can hold on to mining assets, given futures prices that suggest metals prices could languish for as long as another decade - the very cycles that have long kept private equity out of mining.

    http://www.reuters.com/article/us-mining-m-a-distressed-idUSKCN0WH06Q

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    Lula likely to take cabinet position: source


    Brazil's former president Luiz Inacio Lula da Silva will likely accept a position in President Dilma Rousseff's cabinet but plans to travel to Brasilia on Tuesday to discuss his options with her in person, a source said on Monday.

    Brazil's top three papers also reported late on Monday that Lula was expected to accept a ministerial position in the coming days, after a crusading federal judge was given jurisdiction to rule over money laundering charges presented against him.

    Any decision to arrest Lula would now be made by Federal Judge Sergio Moro, who oversees a sweeping investigation into kickbacks at state-run oil firm Petrobras and approved the detention of dozens of senior executives.

    State prosecutors filed for the arrest of Lula last week after charging him with money laundering for concealing ownership of a beachfront condo, in a case that had been separate from the investigation overseen by Moro in the southern city of Curitiba.

    Accepting a cabinet position would give Lula immunity from Moro, though not from Brazil's Supreme Court. The source said Lula, Rousseff's predecessor and political mentor, was nearly convinced he should take the position.

    It was not yet decided whether he should be Rousseff's chief of staff or replace the minister in charge of legislative affairs, Ricardo Berzoini, the source said.

    Sao Paulo Judge Maria Priscilla Oliveira said in a decision on Monday the state prosecutors' case had an "undeniable connection" to the Petrobras investigation, in which dozens of engineering executives schemed to siphon money from Petrobras in order to bribe public officials.

    News magazine Veja also reported a major break in the Petrobras case on Monday, providing details of alleged plea bargain testimony from the former head of engineering conglomerate Andrade Gutierrez that named several sitting ministers.

    Veja reported, without saying how it obtained the information, that former Chief Executive Otavio Azevedo confessed that a bribery scheme already documented at Petrobras was standard operating practice for spending throughout the government.

    Azevedo, who is now under house arrest, said the graft scheme included payoffs for soccer stadiums built for the 2014 World Cup, Veja reported, backing up similar reports from newspaper Folha de S.Paulo in November.

    Media representatives for Andrade Gutierrez declined to comment immediately on the report. Efforts to reach representatives of Azevedo were not immediately successful.

    His plea bargain, if confirmed, would be the first from a head of Brazil's biggest engineering groups, which have been at the center of the Petrobras investigation rattling the country's political establishment for two years.

    Moro has already allowed federal police to detain Lula for questioning after prosecutors said he may have benefited from the scheme, an event that spurred isolated clashes between Lula's supporters and critics.

    Lula has disavowed ownership of the apartment and denied any wrongdoing, calling the investigation political in nature.

    His lawyer condemned the decision to send the case to Curitiba, saying Moro should not have jurisdiction over the case and denying that Lula had anything to do with the Petrobras scheme. A spokeswoman for his institute said Lula taking a cabinet position was only speculation for now.

    Moro, who has also jailed the former treasurer of Rousseff and Lula's Workers' Party as well as Lula's former chief of staff, has become a folk hero to millions of Brazilians fed up with impunity for the elite. Some have criticized his frequent use of pretrial detention, however.

    The investigation of Lula has bolstered calls for Rousseff to step down or be impeached. Hundreds of thousands of anti-government protesters flooded the streets on Sunday, many carrying signs in support of judge Moro.

    Rousseff also appointed a new justice minister on Monday for the second time in a month, naming Eugenio Jose Guilherme de Aragao, a prosecutor who had previously worked for the nation's electoral court.

    http://www.reuters.com/article/brazil-corruption-curitiba-idUSL2N16M1A8

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    China to expand electricity pricing reform


    China will expand its pilot power transmission and distribution pricing reform to 12 more provincial power grids and one regional network in a bid to further open the electricity market, the country's top economic planner said on March 14.

    Power grids in regions such as Beijing, Tianjin, Chongqing and Guangdong will be included in the pilot program, according to the National Development and Reform Commission.

    The reform, first rolled out in Shenzhen in 2014, is mainly aimed at separating the power transmission and distribution price from the sales price, in effect allowing room for the market to have a bigger say in deciding the final price.

    Unlike power-generating companies and sales firms, which face abundant competition in the market and thus have little pricing power, power grid companies are considered natural monopolies that can determine prices.

    Under the reform, power grid companies will no longer profit from the difference between its costs and its sales prices. Instead, they will charge a government-verified service fee based on the costs of transmitting and distributing power.

    By establishing an independent power transmission and distribution pricing mechanism, the government has laid a solid foundation for the market to decide prices on both the power generation and sales sides.

    After its debut in Shenzhen, the reform was launched in Inner Mongolia, Anhui, Hubei, Ningxia, Yunnan and Guizhou in 2015.

    http://en.sxcoal.com/0/142494/DataShow.html
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    Oil and Gas

    Russia says Iran has right to increase oil output - Shana


    Russia understands and accepts Iranian demands to allow Tehran to fully regain pre-sanctions oil output levels before joining any discussion about a global output freeze, Iranian news agency Shana quoted Russian energy minister as saying on Monday.

    "Major oil producers shall coordinate with each other. However, since Iran's production decreased under sanctions, we totally understand Iran's position to increase production and revive its share in the global markets," Shana quoted Alexander Novak as saying.

    "Within the framework of major oil producers (OPEC and non-OPEC), Iran is liable to have an exclusive way for increasing its oil production," Shana quoted Novak as saying following a meeting with Iranian Petroleum Minister Bijan Zanganeh.

    Top non-OPEC exporter Russia and OPEC's biggest producer Saudi Arabia agreed last month to freeze oil output levels if all other major producers agreed to join. Iran remains a major obstacle to the deal as it wants to boost production volumes to regain pre-sanctions output levels.

    http://www.reuters.com/article/iran-russia-oil-idUSL5N16M3GM
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    OPEC sees lower 2016 demand for its oil, pointing to higher surplus


    OPEC on Monday predicted global demand for its crude oil will be less than previously thought in 2016 as supply from rivals proves more resilient to low prices, increasing the excess supply on the market this year.

    The monthly report from the Organization of the Petroleum Exporting Countries contrasts with that of the International Energy Agency, which on Friday said producers outside OPEC were cutting production by more than it had expected.

    Saudi Arabia in 2014 led a change in OPEC strategy to defend market share instead of cutting output to support prices, hoping to slow growth in rival supplies such as U.S. shale oil. The move accelerated a collapse in prices, which hit a 12-year low of $27.10 in January.

    The price drop has started to slow the development of relatively expensive supply sources such as shale and forced companies to delay or cancel billions of dollars worth of projects, putting some future supplies at risk.

    In the report, OPEC said it still expected supply from outside the group to fall by 700,000 bpd this year. But it revised up the absolute level of non-OPEC supply in 2015 and 2016, and said producer efforts to maintain output made its 2016 forecast more uncertain.

    "There has been a reduction in production costs, mainly in the U.S., as well as increased hedging, with producers choosing to produce with losses rather than stopping production," OPEC said. "This has caused the non-OPEC supply forecast in 2016 to become more uncertain."

    As a result, OPEC now expects the global demand for its crude to average 31.52 million bpd in 2016, down 90,000 bpd from last month's forecast.

    The group pumped 32.28 million bpd in February, the report said citing secondary sources, down about 175,000 bpd from January, mainly due to outages in Iraq and Nigeria.

    Saudi Arabia told OPEC it kept output in February steady at 10.22 million bpd, after the top oil exporter struck a preliminary deal with fellow OPEC members Venezuela and Qatar, plus non-OPEC Russia, to freeze output.

    Iran, which wants to regain market share after the lifting of Western sanctions on Tehran rather than freeze output, told OPEC it raised supply to 3.39 million bpd - about 250,000 bpd more than the secondary sources' estimate.

    The report indicates supply will exceed demand by about 760,000 bpd in 2016 if OPEC keeps pumping at February's rate, up from 720,000 bpd implied in the previous report.

    http://www.reuters.com/article/opec-oil-report-idUSL5N16M3UFOPEC sees lower 2016 demand for its oil, pointing to higher surplus

    OPEC on Monday predicted global demand for its crude oil will be less than previously thought in 2016 as supply from rivals proves more resilient to low prices, increasing the excess supply on the market this year.

    The monthly report from the Organization of the Petroleum Exporting Countries contrasts with that of the International Energy Agency, which on Friday said producers outside OPEC were cutting production by more than it had expected.

    Saudi Arabia in 2014 led a change in OPEC strategy to defend market share instead of cutting output to support prices, hoping to slow growth in rival supplies such as U.S. shale oil. The move accelerated a collapse in prices, which hit a 12-year low of $27.10 in January.

    The price drop has started to slow the development of relatively expensive supply sources such as shale and forced companies to delay or cancel billions of dollars worth of projects, putting some future supplies at risk.

    In the report, OPEC said it still expected supply from outside the group to fall by 700,000 bpd this year. But it revised up the absolute level of non-OPEC supply in 2015 and 2016, and said producer efforts to maintain output made its 2016 forecast more uncertain.

    "There has been a reduction in production costs, mainly in the U.S., as well as increased hedging, with producers choosing to produce with losses rather than stopping production," OPEC said. "This has caused the non-OPEC supply forecast in 2016 to become more uncertain."

    As a result, OPEC now expects the global demand for its crude to average 31.52 million bpd in 2016, down 90,000 bpd from last month's forecast.

    The group pumped 32.28 million bpd in February, the report said citing secondary sources, down about 175,000 bpd from January, mainly due to outages in Iraq and Nigeria.

    Saudi Arabia told OPEC it kept output in February steady at 10.22 million bpd, after the top oil exporter struck a preliminary deal with fellow OPEC members Venezuela and Qatar, plus non-OPEC Russia, to freeze output.

    Iran, which wants to regain market share after the lifting of Western sanctions on Tehran rather than freeze output, told OPEC it raised supply to 3.39 million bpd - about 250,000 bpd more than the secondary sources' estimate.

    The report indicates supply will exceed demand by about 760,000 bpd in 2016 if OPEC keeps pumping at February's rate, up from 720,000 bpd implied in the previous report.

    http://www.reuters.com/article/opec-oil-report-idUSL5N16M3UF
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    Nigeria's state oil company failed to remit $16.1 bln to public purse in 2014 - auditor-general


    Nigeria's state oil company failed to remit 3.2 trillion naira ($16.1 billion) to the public purse in 2014, the auditor-general said on Monday.

    Samuel Ukura, who presented his findings in a report to lawmakers at the national assembly, said other government ministries and agencies had failed to remit funds which took the total figure not passed on to 3.3 trillion naira for that year.

    Development in Nigeria, Africa's biggest oil producer and largest economy, has been stunted by decades of corruption and mismanagement.

    http://www.reuters.com/article/nigeria-fraud-nnpc-idUSL5N16M4RL
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    Near-Record Cash `Comfort' for Canada Oil Firms Amid Price Rout


    Canada’s biggest oil producers are sitting on a near-record pile of cash, giving them the resources to keep investing and manage debt while weathering the worst price rout in a generation.

    The five largest oil producers including Suncor Energy Inc. and Cenovus Energy Inc. have a combined C$8.5 billion ($6.4 billion) in cash and cash equivalents, an increase of 7.6 percent from a year earlier and more than twice the levels seen during 2009 downturn. The figures, which are little changed from a record C$9 billion in 2014, don’t include the proceeds from Imperial Oil Ltd.’s recentsale of its Esso-brand gas stations for C$2.8 billion.

    “Sitting on cash and a healthy balance sheet has become a competitive advantage,” Amir Arif, an analyst at Cormark Securities Inc. in Calgary, said by phone. “These guys still have a lot of capital they need to spend.”

    Divestitures, cost cutting, equity raises, and dividend cuts have helped bolster balance sheets as Canadian oil producers buckle down for the “lower for longer”  prices Suncor Chief Executive Officer Steven Williams has described. Compared with the last downturn when commodity prices made a quick recovery, the industry isn’t betting on a return to high prices and needs the money to keep their operations expanding.

    Having cash is an important survival tactic as commodity markets remain volatile despite the recent recovery that saw oil prices rebound toward $40 from more than a 12-year low of about $26 a barrel in February. West Texas Intermediate is expected to average C$39.50 this year, according to the estimates compiled by Bloomberg. The North American benchmark settled at $37.25 Monday on the New York Mercantile Exchange.

    http://www.bloomberg.com/news/articles/2016-03-15/near-record-cash-comfort-for-canada-oil-firms-amid-price-rout
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    Anadarko raises $3bn.

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    Turning to frack tech, stricken U.S. oil drillers test new limits


    Fifty-stage frack jobs. Fifteen-foot cluster spacing. More than 2,000 pounds of proppant concentrate per foot.

    Top U.S. shale producers are pushing fracking technology to new extremes to get more oil out of their wells, as they weather lower-for-longer oil prices.

    While the impact of the techniques may be scarcely noticeable on current U.S. output with so few wells in operation, it could mean drillers are able to accelerate production more fiercely than ever once prices recover.

    The hunt for the next big technology to transform the process of fracking is still on, with companies looking at methods such as using carbon dioxide to coax more oil out of wells that have already been hydraulically fractured.

    Commentary from executives in recent weeks suggests they are doubling down on existing accomplishments and innovations to boost production.

    Pioneer Natural Resources is increasing the length of stages in its wells, Hess Corp is raising the total number of stages, EOG Resources is drilling in extremely tight windows, while Whiting Petroleum Corp and Devon Energy Corp have loaded up more sand in their wells, fourth-quarter earnings call comments show.

    Sector experts say these techniques could boost initial output per well by between 5 and 50 percent, demonstrating the resilience of the industry. . "We have got to keep moving ahead in terms of our knowledge base so that when things improve we can hit it with all cylinders," Pioneer COO, Tim Dove, said on a recent quarterly results call.

    The company plans to cut spacing between clusters, or small perforations that provide fluid and sand access to the formation, to as little as 15 feet - a move it said would have been "unheard of" in the past.

    For a typical well in the Bakken, a jump to 15-foot spacing could easily boost initial output by as much as 50 percent, Monte Besler, who runs FRACN8R Consulting in North Dakota, estimated.

    Many of the techniques have been around for the last four years as the U.S. shale boom took off, but drillers are deploying them at a greater rate as prices show little sign of recovering significantly amid concerns about a global glut.

    "The increase in proppant amounts and fluid amounts and the decrease in cluster spacing, all of those are directions that industry in general has been headed," said Jennifer Miskimins, senior consulting engineer with Barree & Associates in Lakewood, Colorado.

    "In some places it is helping with long-term recoveries and that's why we're starting to see people push the envelope a little bit."

    Drillers have already idled slower rigs, shifted crews and high-speed rigs to "sweet spots" with the most oil during the punishing 20-month price rout.

    With the major shale companies ready to crank up the spigots if oil prices recover to $40-$45 a barrel, the latest steps are all the more significant.

    For many, efforts to boost production while keeping costs in check are already paying off.

    In the fourth quarter, Pioneer slashed stage lengths by 60 percent, added one cluster per stage, and pumped more fluid - about 36 barrels per foot, up from 30 - in all of its wells.

    The results? Initial production jumped by more than 15 percent from the prior quarter to 2,200 barrels per day in about 22 of its wells in the Permian, the company said, describing the result as "exceedingly strong."

    A frack stage is a portion of the horizontal section of the well. Typically, the larger the number of stages used, the better initial production is expected to be.

    Hess' decision to increase stage counts by about 40 percent to 50 delivered a more than 20-percent average increase in initial production rates for basically the same cost, the company said.

    The costs for producers for these techniques is also dropping dramatically as service providers compete aggressively for the limited amount of work on offer, experts said.

    Others are turning to sand, which is pumped with a mixture of chemicals and water to induce pressure and crack rocks.

    Whiting, Devon and Continental Resources Inc have all loaded up well completions with higher proppant concentrations, or essentially, sand.

    The benefit for a company like Devon, which is pumping about 2,500 to 2,700 pounds per lateral foot in some of its wells, could be as much as a 50 percent rise in initial rates, Besler estimated.

    The moves highlight that these companies are not yet considering raising the white flag in the face of the downturn.

    "Even in 2016 we're changing what we're doing in terms of optimization, we're pushing the limits." Pioneer's Dove said.

    http://www.reuters.com/article/usa-shale-fracking-idUSL1N16K04D
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    Debt deadlines loom for SandRidge, Venoco and Energy XXI


    The first major upstream oil and gas bankruptcy filing of the year could occur this week as SandRidge Energy Inc, Venoco Inc and Energy XXI Ltd reach the end of grace periods following millions in missed interest payments.

    The three oil and gas exploration and production companies with operations across the United States, said they would skip a total of $44.2 million in interest payments last month, as they negotiated debt restructurings with creditors.

    Their decisions kicked off month-long grace periods. Under many credit agreements, lenders can call all their debt due after the end of the grace period, potentially pushing the companies into bankruptcy.

    Venoco and Energy XXI could not immediately be reached for comment. SandRidge declined to comment on the grace period.

    If either SandRidge or Energy XXI file for bankruptcy they would be among the biggest victims of the nearly two-year-long oil selloff, which has seen dozens of companies go under, tens of thousands of jobs axed and corporate spending slashed.

    Before a rebound in the past two months, crude oil prices fell 75 percent from mid-2014 highs above $100 a barrel to 12-year lows of about $26 for WTI and around $27 for global benchmark Brent.

    SandRidge currently has 717 employees, Energy XXI had 378 employees at June 30, and Venoco had 158 employees at the end of 2014.

    SandRidge has total debts of around $4 billion and Energy XXI owes approximately $3.3 billion. Venoco owes $565 million.

    One of the options SandRidge was considering when it announced it hired restructuring advisors earlier this year was a prepackaged bankruptcy. Energy XXI has said in filings it may file for bankruptcy if oil prices remain low.

    More than 40 energy-related companies sought court protection from their creditors in 2015. The bankruptcies have been slow and tortuous. Assets have been sold at depressed prices.

    Offshore driller Paragon Offshore Plc has been the only major energy-related bankruptcy filing this year, but roughly a third of U.S. oil producers, or 175 firms, is at risk of slipping into Chapter 11, according to a study by Deloitte, the auditing and consulting firm.

    More than a dozen companies rated "B-" or below in the stressed energy sector must also come up with the cash to make interest payments March 15, according to data from Fitch Ratings.

    The companies include Chesapeake Energy Corp, which has an approximately $400 million maturity due according to Thomson Reuters data. Others are Linn Energy LLC, which is already working with restructuring advisors and California Resources Corp. All three companies worked out debt swaps with investors last year to try to reduce their debt loads and interest expenses.

    Goodrich Petroleum Corp has already said it will not make $12.2 million in interest payments due March 15, and $2.8 million in payments due April 1.

    The company is offering equity to its holders of preferred stock and unsecured notes in an exchange offer that expires March 16. If the holders do not participate, Goodrich said it is likely to file for Chapter 11 bankruptcy, in which those holders will probably receive nothing.

    http://www.reuters.com/article/usa-energy-bankruptcy-idUSL2N16M0IG

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    Cheap oil, new pipelines end rail transport boom, EIA says


    Declining prices and extra pipeline capacity have shrunk U.S. crude by rail shipments, according to an analysis by the U.S. Energy Information Administration.

    The majority of the slowdown has come thanks to slowing shipments of oil from Midwest producers to the refineries of the Gulf Coast. Shipments of crude oil to the East Coast and the Pacific region are down slightly, though still above 2012 levels.

    Oil producers initially embraced shipments of oil via rail when surging U.S. shale production outgrew infrastructure for getting oil to market. While shipping via tank car is more expensive than paying pipeline tariffs, rail shipments can come online faster and offer flexible destinations.

    Rail shipments peaked at 928,000 barrels per day in October 2014, the EIA said. Most of the oil flowed from the Midwest to the refineries on the coasts, as crude oil buyers looked to cash in on the U.S. oil that was selling for less than oil from overseas. Since then, the incentive to move oil has slipped as the difference between global and U.S. oil prices has narrowed, the EIA said.

    “Because domestic crudes such as West Texas Intermediate (WTI) and Bakken, which are priced at Oklahoma and North Dakota, respectively, are no longer priced significantly less than waterborne crudes such as North Sea Brent, there is less of a cost advantage for costal refineries to run the domestic crudes,” analysts wrote.

    More than half of the oil carried on rails starts in the Midwest and ends up in the East Coast, the EIA said. The figure peaked at 465,000 barrels per day in April 2015, and has declined as refineries have imported more oil. A smaller amount of rail cars head to the West Coast — shipments averaged 139,000 barrels per day of crude oil by rail from the Midwest in 2015, about the same as 2014.

    Rail shipments from the Midwest to the Gulf Coast have plummeted from the largest share of the market in 2012 to the smallest in 2015. The shipments started to decline in late 2013 as new pipeline capacity offered producers a cheaper route to the regions refiners. Shipments dropped to 38,000 barrels per day in December 2015, down by 75,000 barrels per day from the previous year.

    http://fuelfix.com/blog/2016/03/14/cheap-oil-new-pipelines-end-rail-transport-boom-eia-says/
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    Alternative Energy

    China rapidly converting to green energy


    World-leading installation of wind, solar power shows commitment to reduce coal and emissions

    China is making great strides in its green-energy efforts, according to an environmental expert.

    "China broke records last year in the installation of wind and solar power," said Manish Bapna, executive vice-president of the World Resources Institute. "Clean energy investment was over $110 billion, twice what the US invested."

    The investments are part of China's commitment to phase out the use of coal for energy. Bapna spoke at a teleconference last week about China's 13th Five-Year Plan (2016-20) and how it will affect climate and energy.

    "China has committed to a new kind of economic development. It sees a move from real dependence on heavy industry toward service and innovation, and particularly a more consumption-based economy," said Kate Gordon, vice-chairwoman of climate and sustainable urbanization at the Paulson Institute.

    "China has already been taking a slew of actions to cut its use of coal, which is responsible for about 80 percent of its CO2 emissions and about 50 to 60 percent of its most damaging form (of air pollution), PM2.5," said Barbara Finamore, Asia director at the National Resources Defense Council.

    Individual cities and provinces have decided to impose their own limits on carbon emissions.

    "There are 20 provinces and 30 cities that have already set some sort of coal-cap targets," Finamore said. "And for some, that means an absolute cap on coal consumption; for some this means no more increase, and for many, they set coal-consumption-reduction targets."

    Despite good news on the environmental front, China's economic focus on creating a "green manufacturing strategy" and a shift from growth driven by investment and exports to one driven by consumption has come with a price: job loss.

    According to preliminary forecasts, the coal and steel sectors will see combined layoffs of 1.8 million. The central government will allocate 100 billion yuan ($15.4 billion) over two years to help the laid-off workers find new jobs, according to media reports.

    China's draft 13th Five-Year Plan will be reviewed at the annual session of the national legislature, which opened on March 5. Experts are optimistic that China will continue to improve its environmental protection efforts through the legislative process.

    "Expectations are fairly high about what might be contained, not only in the 13th Five-Year Plan, but perhaps as importantly, in the following sectorial plans. And I think we're quite keen to see whether this shift that we have started to see over the past several years takes on a more accelerated step change in the coming five years," Bapna said.

    http://en.chinamining.com.cn/News/2016-03-14/1457937846d75630.html

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    Portable power with solar panels you can roll up


    U.K company Renovagen is looking to harness the power of the sun - wherever it shines - with "rollable" solar arrays that can be rapidly deployed in a variety of locations.

    The sun is an abundant source of clean energy, and our appetite for it seems to be growing: according to a recent report from GTM Research, the solar market in the U.S. is set to grow by 119 percent in 2016.

    "We're the first company that's actually made an entire solar farm rollable," John Hingley, managing director of Renovagen, told CNBC's Sustainable Energy.

    "We've made the entire solar array, so the support structure and all of the power cabling, embedded into a single solar mat," Hingley went on to add.

    This design enables rapid deployment of the array, Hingley said.

    "We can tow it out in two minutes… because it's all pre-wired, everything is permanently wired in, there's no electrical connections [that] need to be made once you get on site, so you won't need a solar engineer to set it up."

    An 18 kilowatt system can be deployed from a trailer unit in around two minutes, while a larger system up to 300 kilowatts in size can be set up in under an hour from a shipping container.

    Currently, the company is selling demonstration systems. "Right now we have no economies of scale, so the cost is quite high, anywhere between £50,000 and £110,000 ($71,805 and $143,610) per system," Hingley said.

    "But as we get into serious manufacturing the cost will come down significantly, so we might expect that to come to 35-75,000 pounds, perhaps even by the end of this year." He added that there was the potential for further cost reduction in the future.

    In terms of where the technology can be used, there are a range of options, with Hingley listing sectors such as agriculture, festivals, disaster relief, humanitarian response and the military.

    http://www.cnbc.com/2016/03/14/portable-power-with-solar-panels-you-can-roll-up.html
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    Toyota partners in making wind-power hydrogen for fuel cells


    Toyota Motor Corp. is responding to the main criticism of fuel cell cars, that making the hydrogen for the fuel is not clean, with plans to help make the hydrogen using wind power.

    Fuel cells are zero-emission, running on the power created when hydrogen combines with oxygen in the air to make water. But to have a totally clean supply chain, the hydrogen must also be cleanly made. Right now, most hydrogen is produced from fossil fuels.

    In a project announced Monday, hydrogen from the wind-power plant Hama Wing in Yokohama, southwest of Tokyo, will be compressed and transported by truck to power fuel-cell forklifts at four sites in the area — a factory, a vegetable-and-fruit market and two warehouses.

    The project is a partnership between Toyota and the cities of Yokohama and nearby Kawasaki, and the prefectural Kanagawa government.

    Japanese electronics and energy company Toshiba Corp. and energy supplier Iwatani Corp. also are involved.

    Why not just use the electricity produced by wind power for electric vehicles? Why bother making hydrogen?

    Defending the project, Toyota Senior Managing Officer Shigeki Tomoyama stressed that it is easier to store hydrogen than electricity.

    Clean hydrogen is the best fix for global warming and energy security, he said.

    "A stable supply of CO2-free hydrogen is needed," he told reporters at a Yokohama hotel.

    Toyota, which makes the Prius gas-electric hybrid, says electric vehicles are limited because of their cruise range.

    Wind-powered hydrogen is expected to reduce carbon-dioxide emissions by at least 80 percent compared with using gas or grid electricity, according to the companies.

    The hydrogen trucks, which were newly developed, serve as hydrogen fueling stations for the forklifts.

    Japan hopes to become a leader in hydrogen power and plans to showcase its prowess during the 2020 Tokyo Olympics. Costs and ensuring an adequate hydrogen supply are obvious challenges.


    Read more here: http://www.star-telegram.com/news/business/article65906102.html#storylink=cpy

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    Solar giant sets new direction for profits


    Hebei-based JA Solar Holdings, one of the world's largest producers of solar energy products, is seeking to expand in emerging markets touched by China's Belt and Road Initiative.

    The company plans to install solar panels in all cities and towns along the Belt and Road routes, said Jin Baofang, the president of JA Solar.

    The move comes in the face of a competitive price war in the solar industry and declining profits in the United States and Europe brought by heavy import taxes as high as 165%.

    "Installed solar capacity has suffered a decline in some traditional markets, such as the US,” said Jin on the sidelines of the ongoing two sessions.

    "While China's Silk Road Economic Belt and 21st Century Maritime Silk Road, which aim to improve cooperation with countries in Asia, Europe and Africa, has provided huge opportunities for us.”

    The Nasdaq-listed company built its first overseas manufacturing plant in Penang, Malaysia. A key factor that has pushed Chinese solar companies to invest in Malaysia is that solar panels made there do not invite heavy duties in the US and Europe, as those made in China do.

    Located in Penang Bayan Lepas Industrial Park, the first production line has an annual capacity of 400 MW. JA Solar has now begun construction on the second phase of the factory.

    The company also plans to focus on markets in India, West Asia and Southeast Asia, Jin said.

    http://en.sxcoal.com/0/142539/DataShow.html
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    Agriculture

    Indian agribusiness firm to fund first phase of Karnalyte’s Saskatchewan potash project


    India-listed agribusiness firm Gujarat State Fertilisers and Chemicals (GSFC) has agreed in principle to provide $700-million to finance construction of the first phase of project developer Karnalyte Resources’ 625 000 t/y Wynyard potash deposit, in Saskatchewan.

    TSX-listed Karnalyte would also spin out secondary mineral assets and unexplored lands into one or more separate entities to achieve a fully financed structure to build its flagship potash mine. The strategic partnership between Karnalyte and GSFC provided Karnalyte with a significant competitive advantage in the marketplace, and was expected to provide GSFC with a secure supply of potash for many years to come.

    “This ground-breaking deal structure demonstrates GSFC's long-term commitment and desire to secure supplies of key natural resources through investment structures that are aligned with the values of Canadian shareholders. I believe this financing will serve as a template for future investment by Indian companies in Canada and will strengthen relations between our two countries for years to come,” commented GSFC senior VP and CFO Vishvesh Nanavaty.

    The agreement made provision for senior secured debt, subordinated unsecured debt and an equity infusion to be backstopped by GSFC. Karnalyte advised that this structure allowed for a 3:1 debt-to-equity ratio for the project financing. The equity component of the project financing was expected to be fulfilled 50% by way of the issuance of common shares by the company, and 50% through issuing unsecured subordinated debt, which was expected to limit the shareholder dilution.

    The transaction comprised more than $500-million in debt over a 20-year term; a total equity requirement equal to one-third of the amount of the senior secured debt, with up to 50% to be raised through subordinated unsecured debt and the remainder to be raised through issuing shares, backstop guarantees by GSFC for any shortfalls of equity in the event that Karnalyte was unable to raise sufficient amounts through issuing shares, and backstop guarantees by GSFC in the event of project cost overruns.

    As a condition to obtaining the project financing, GSFC was required to have and maintain at least a 51% voting interest in Karnalyte, while the senior secured debt was outstanding. To this end, Karnalyte would issue a non-dilutive ‘special voting share’ to a subsidiary of GSFC.

    Completion of the proposed transaction was subject to finalising definitive documentation, approval by Karnalyte and GSFC's boards of directors, approval by Karnalyte's shareholders, and regulatory approvals, including the approval of the TSX.

    In 2011 Karnalyte received a positive feasibility study prepared by Foster Wheeler Canada and Ercosplan for Karnalyte's plans to construct a solution mining facility at Wynyard, with the aim of producing a high-grade (97% purity) granular potash product. Karnalyte intended to construct the facility in three phases, with Phase 1 expected to produce about 625 000 t/y, increasing by 750 000 t/y with Phase 2, and totalling 2.13-million tonnes a year with the addition of Phase 3.

    Previously in 2013, GSFC, one of India's largest fertiliser and industrial chemicals manufacturing companies, made a strategic investment in Karnalyte of about $44.7-million, resulting in GSFC holding a 19.98% ownership stake in Karnalyte. During this deal, Karnalyte and GSFC signed an offtake agreement providing for GSFC to buy about 350 000 t/y from Phase 1.

    The offtake would start with commercial production from Phase 1, which would result in Karnalyte having secured sales for about 56% of its potash production from Phase 1 for about 20 years. The offtake agreement also provided GSFC with the option to increase its offtake by 250 000 t/y to 600 000 t/y from the date when Phase 2 started commercial production. The agreement also provides GSFC with the potential to increase its offtake by up to 400 000 t/y from Phase 3, for a total yearly volume of up to one-million tonnes a year.

    http://www.miningweekly.com/article/indian-agribusiness-firm-to-fund-first-phase-of-karnalytes-saskatchewan-potash-project-2016-03-14
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    Precious Metals

    Doray profit surges as Andy Well shines


    Gold miner Doray Minerals on Tuesday announced a 263% increase in net profit after tax for the six months to December, compared with the previous corresponding period, as both gold production and revenue increased. 

    Doray reported a net profit after tax of A$14.5-million, compared with the A$4-million reported in the previous, as production from the Andy Well mine, in the Murchison region of Western Australia, increased by 20% over the same period, to 47 197 oz. Revenue for the interim period also increased by 22%, from the A$60.1-million reported in the six months to December 2014, to A$73.1-million. Doray 

    MD Allan Kelly said that improvements in mining methods and dilution control at the Andy Well mine resulted in significant increases in gross profits and cash flow from operations, compared with the previous year. “We have had a very good half-year, and it sets us up as we move into commissioning at Deflector and increase production,” Kelly said in a conference call.

    “The first half results see us on track to meet the upper-end of our production guidance of 78 000 oz to 85 000 oz, and if we achieve that, it would be the third consecutive year that we have outperformed the bankable feasibility forecast at Andy Well of 74 000 oz/y, while the significant increase in earnings and profit sees us outperforming some of our larger peers in the sector on a per-capital basis.” 

    Kelly meanwhile said that construction of the Deflector project, also in Western Australia, was progressing to schedule. Deflector, which was due to start production in mid-2016, was expected to produce 1 972 oz of gold from its openpit operation and 348 592 oz of gold from its underground mine. The mine would boost Doray’s production to some 140 000 oz/y.

    http://www.miningweekly.com/article/doray-profit-surges-as-andy-well-shines-2016-03-15
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    Base Metals

    Antofagasta Scraps Dividend as Metal Rout Erases Most Profit


    Antofagasta Plc, the copper miner controlled by Chile’s richest family, scrapped its dividend after the rout in metals wiped out almost all of its annual profit.

    Net income excluding some items fell to $5.5 million from $422.4 million for the year ended Dec. 31 from a year earlier, the company said in a statement. Sales dropped 34 percent to $3.4 billion. It decided not to pay a final dividend after its interim payment exceeded its policy of paying 35 percent of earnings.

    “We know that copper is a cyclical industry and as a result of the actions that we have taken over the past year we will be positioned to benefit from the recovery when it comes," Chief Executive Officer Diego Hernandez said in the statement.

    Antofagasta was among the worst-performing stocks last year in the U.K.’s FTSE 100 Index, tumbling 38 percent as falling metal prices hit profits, forcing miners around the world to cut jobs, dividends and investments to save money. Copper slumped 25 percent in 2015, the biggest annual drop since 2008, as demand from top consumer China slowed.

    "Our focus is on optimizing our operations and projects under construction to cut costs and free up cash flow whilst retaining the flexibility to accelerate investment for future growth if circumstances are appropriate,” Hernandez said.

    The miner affirmed its production forecast for this year of 710,000 to 740,000 metric tons of copper as output from its Antucoya mine increases and as it incorporates production from the Zaldivar operation, in which it bought a 50 percent stake last year.

    http://www.bloomberg.com/news/articles/2016-03-15/antofagasta-abandons-dividend-as-copper-slump-trims-profit-99
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    Steel, Iron Ore and Coal

    Hebei to cap iron and steel capacity at 200 Mtpa by 2020


    Northern China’s Hebei province, the largest steel production base in the country, aims to limit iron and steel production capacity within 200 million tonnes per annum (Mtpa) by 2020, the last year of the 13th Five-Year Plan period.

    It means that 60% of the province’s existing iron and steel companies will be shut down or reorganized during the next five years, Governor Zhang Qingwei told a group discussion during the National People's Congress.

    In 2016, the province targets to cut iron capacity by 10 Mtpa and steel capacity by 8 Mtpa, Zhang said.

    During the process of reducing overcapacity, the problem of staff resettlement will be a headwind, insiders said.

    A total 0.5 million iron and steel workers, mainly from private companies, will face risks of job adjustment or loss, as the country works to reduce 100-150 Mpta iron and steel capacity from 2016 to 2020, according to the China Iron and Steel Association.

    The Hebei provincial government has unveiled some measures to address overcapacity, but the effect so far has not been so pleasing.

    Last year, the Hebei government used the unemployment insurance fund to subsidize iron and steel companies meeting requirements in job transfer training, occupation and social insurance assistance.

    But it mainly favors large state-owned iron and steel companies, while small private ones still have to paddle their own canoes to resettle or lay off staff.

    Another problem to obstruct overcapacity reduction is that iron and steel companies, which have suspended production either under the government’s order or spontaneously on huge deficit, may restart capacity as the market improves.

    In the wake of price rebound, major steel mills expanded capacity utilization rate to 77.49%, up from 74.69% at the start of this month.

    http://en.sxcoal.com/0/142488/DataShow.html

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    China company develops clean coal tech to lower emissions


    Shenwu Environmental Technology Co., Ltd, a Shenzhen Stock Exchange-listed company based in Beijing, has released a new technique in coal processing that the company said will significantly lower the costs and emissions compared with conventional coal gasification.

    The new technology separates the volatile matter from the fixed carbon content in coal. The volatile matter will be further decomposed into natural gases, petrol and synthesis gas.

    The fixed carbon content will be transformed into calcium carbide and carbonic oxide. The calcium carbide will then react with water to produce acetylene.

    China is in bad need of clean-coal technologies to ease its environmental pressure and production overcapacity, according to Wu Daohong, board chairman of Shenwu, the energy solutions company.

    "In 2014, energy consumption per capita in China was 3.1 tonnes of standard coal, lower than half of the level in developed economies. Higher living standards come with higher per capita energy use. A moderately well-off society, which is China's goal by 2020, is normally marked by more than 4 tonnes of standard coal of per capita energy consumption," said Wu.

    In the past 10 years, China has invested 1.56 trillion yuan ($240 billion) in developing clean coal. In the next five years, it is expected to invest another 3 trillion yuan in environmentally friendly coal.

    According to statistics provided by Shenwu, the new technology is able to produce three products within one step-synthesis gas, petrol and natural gases-accounting for 24%, 38% and 38%, respectively, of the total final product. The conventional coal gasification, however, only produces synthesis gas. It needs further chemical reaction to produce petrol and natural gases.

    With every 1 million tonnes of olefin, coal gasification requires investment of 28 billion yuan while the new technology only needs 20 billion yuan. The new technology's water consumption is also 50% lower than coal gasification. Its carbon dioxide emissions are 37% lower.

    China's coal industry has been plagued by large investment, low outcome and high water consumption, said analysts.

    http://en.sxcoal.com/0/142533/DataShow.html
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    Russia's Evraz 2015 core earnings down 39 pct


    Evraz, one of Russia's largest steel producers, said on Tuesday its core earnings fell 39 percent in 2015 due to lower prices for its products, partially offset by a weaker rouble.

    Evraz and other Russian steel producers have been supported by the weaker rouble reducing costs in dollar terms and making exports more profitable, but were hit by a drop in global steel prices which fell by a third last year.

    Evraz's earnings before interest, taxation, depreciation and amortisation (EBITDA) fell to $1.4 billion in 2015 compared with $2.4 billion in 2014, in line with the median forecast in a Reuters poll of analysts.

    The company, part-owned by Chelsea soccer club owner Roman Abramovich, also posted a net loss of $719 million due to $441 million of impairment charges and $367 million of foreign exchange losses. In 2014, its net loss was at $1.3 billion.

    Evraz said its impairments included the write-off of goodwill at its subsidiaries in the United States and Canada and the impairment of the cash-generating units of Palini e Bertoli in Italy.

    The company's revenue was down 33 percent to $8.8 billion, while net debt was reduced to $5.3 billion by the end of 2015 from $5.8 billion at the end of 2014.

    Evraz said on a conference call its capital expenditure in 2016 would be less than $400 million, down from $428 million in 2015.

    http://www.reuters.com/article/evraz-results-idUSL5N16N15G
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