Mark Latham Commodity Equity Intelligence Service

Wednesday 19th August 2015
Background Stories on

News and Views:

Attached Files


    China investigates top work safety regulator after Tianjin blasts

    China investigates top work safety regulator after Tianjin blasts

    China said on Tuesday it is investigating the head of its work safety regulator who for years allowed companies to operate without a license for dangerous chemicals, days after blasts in a port warehouse storing such material killed 114 people.

    Yang Dongliang, head of the State Administration of Work Safety, is "currently undergoing investigation" for suspected violations of party discipline and the law, China's anti-graft watchdog said in a statement on its website.

    The agency, the Central Commission for Discipline Inspection, did not say that Yang's behaviour was connected to the explosions in the port of Tianjin but the company that operated the chemical warehouse that blew up did not have a licence to work with such dangerous materials for more than a year.

    Investigators have not determined the cause of the blasts but the disaster has deepened public concern about safety regulations.

    China has struggled in recent years with incidents ranging from mining disasters to factory fires, and President Xi Jinping has vowed that authorities should learn the lessons paid for with blood.

    The People's Daily, the ruling Communist Party's official newspaper, said last week warehouse owner Tianjin Dongjiang Port Ruihai International Logistics had operated without a licence to work with dangerous chemicals because of an administrative loophole.

    Reuters could not verify that report but the company did not have any form of certification, including a licence to handle dangerous goods, between October 2014 and June 2015, according to its records on the State Administration for Industry and Commerce (SAIC) website.
    MGL Comment
    In a rare moment of honesty we had this from a Tianjin public official:

    Clean-up efforts at the site of the Tianjin blast have focused on the risk that sodium cyanide in the area could turn into a hazardous gas with rainfall.

    As heavy rain fell briefly on the morning of August 18, white-colored foam streamed onto Huanghai Road in Tianjin's Binhai New Area, 5.5 kilometers away from the site of blasts.

    A number of reporters exposed to the rain complained about a burning sensation in their lips and joints, though it is not clear if the foam is linked to chemical spills in the wake of the massive August 12 explosions.

    The Tianjin Meteorological Bureau said thunderstorms are expected to stop in the early morning hours of August 19, but a drizzle will follow.

    During a news conference on August 18, Bao Jingling, the chief engineer of the Tianjin Environmental Protection Bureau said workers have conducted two rounds of clean-up efforts to collect the toxic chemical sodium cyanide, but sodium cyanide dust from the explosion would remain a large risk.

    Bao warned local residents against exposing themselves to rain because if the dust is mixed with water, it triggers the formation of hydrogen cyanide, a colorless and highly poisonous liquid that becomes a vapour at even slightly above room temperature.

    He also warned local residents not to touch any dust in their homes if they must return to retrieve personal belongings or necessities.

    "In particular, people should avoid spilling water on the dust," he added.


    Gorbachev admitted in private that the Nuclear accident in the Ukraine made him realise that most of the contents of his intray were lies. He would relate the story of an old Finnish friend who personally brought him the recordings made by Finnish monitoring stations of geiger counter readings from the fallout. Thus started the fall of the Soviet Empire.  

    China is not the Soviet Empire, and the structure of the Chinese political society is not Russian; but such cataclysmic events often provoke change. Simply because the horror and anger are so widespread, so widely held and so intense that the tissue of lies and fabrications implicit in the structure of the economy becomes visible to all, and the leadership has full authority to act with purpose against deeply entrenched interests responsible for the disaster. 

    Amongst the revelations we are hearing is that the ownership of that warehouse was vested in some public official hiding behind a 'front' company. So who is now running scared? And have they already left China? 

    Look at capital ouflows from China:

    Image titleThis picture likely understates the true nastiness, as we've been hearing, and relaying to you, stories of Chinese emigre's buying Gold in HK with Yuan, and leaving the country with Gold, or even bitcoin. Last week the Australian gov't launched a crackdown on illegal, mainly Chinese, ownership of ocean front property. Once the Chinese arrive in their chosen destination, they unload the Gold, or bitcoin, and settle down to a quiet life. Last week in Florida, the US Justice dep't was looking into the whereabouts of the brother of a senior Chinese official who they fear had been approached by Chinese agents. There's just too much smoke around this capital flight story for it not to have some 'real', and its not modest, impact on the Yuan, Gold and other portable assets. 

    Back to Top

    Glencore First-Half Profit Drops 56% on Commodity-Price Rout

    Glencore First-Half Profit Drops 56% on Commodity-Price Rout

    Glencore Plc, the commodity trader and miner headed by billionaire Ivan Glasenberg, reported a 56 percent slump in first-half profit as its trading unit failed to offset a Chinese-led drop in raw-material prices.

    Adjusted net income declined to $882 million from $2.01 billion a year ago, the Baar, Switzerland-based company said on Wednesday. That beat the $711 million average of seven analyst estimates compiled by Bloomberg. The company, which will pay a dividend of 6 cents a share, cut its full-year forecast for trading profit.

    The world’s biggest natural resources companies are battling a slump in commodity prices that’s left copper and oil near six-year lows as China’s economy expands at the slowest pace in a quarter of a century. Glasenberg said in an interview that nobody can read the Chinese economy right now.

    In previous years, Glencore had cushioned the impact of lower commodity prices through its trading business, the world’s largest at a public company. However, in the first half, trading was weak due to what the trading house said was a “collapse” in the premiums that traders are able to charge clients for the delivery of metals such as aluminum and nickel.

    Adjusted earnings before interest and tax from its trading business, which includes the sale of commodities from crude to cotton, fell to $1.07 billion. That compares with the $1.28 billion average estimate of nine analysts surveyed by Bloomberg News.

    The company cut its full-year Ebit forecast for the trading business to $2.5 billion to $2.6 billion, down from $2.7 billion to $3.7 billion it announced in December.

    After writing down the value of assets, Glencore reported a net loss of $676 million, compared with a profit of $1.72 billion a year earlier.

    Capital Spending

    Glencore is defending its coveted investment-grade credit rating and dividends by lowering expenditure and selling some assets.

    The company last week said it’s trimming this year’s spending plan by as much as $800 million to no more than $6 billion and selling $290 million of mines. In addition, on Wednesday it said its capital investment next year will be capped at $5 billion.

    The company cut its net debt by $982 million in the first half to $29.6 billion, more than what analysts had expected. It impaired the value of its oil assets in Chad by $792 million after paying $1.35 billion last year for them.
    MGL Comment
    Bad number.Image title
    Only issue now is the cds market, which did not like these numbers. 

    7% yield puts it in the company of all the stocks paying 'uncovered' dividends. 

    Here's our guess: stock goes lower. 
    Back to Top

    Oil and Gas

    LNG ship owners launch vessel pool to cut costs in depressed market

    LNG ship owners launch vessel pool to cut costs in depressed market

    Three of the top liquefied natural gas (LNG) tanker owners have decided to market 14 vessels jointly on a spot charter basis, part of a new pooling arrangement that is aimed at cutting operating costs in a depressed market.

    The pool, consisting of eight modern vessels from Norwegian shipper Golar LNG and three each from Gaslog and Dynagas, will commence chartering operations in September, a statement from Gaslog said on Tuesday.

    A glut of newly built LNG vessels emerging from shipyards in Asia has been one factor driving down daily charter rates to around $30,000/day, compared with $130,000 two years ago.

    "The LNG Carrier Pool allows the participating owners to optimise the operation of the pool vessels through improved scheduling ability, cost efficiencies and common marketing," it said.

    The vessels will seek employment exclusively for charters of 12-months duration or less.

    The move reflects a growing LNG market shift towards short-term trading of cargoes as prices come under pressure and new production from Australia and the United States towards the end of the year is expected to add to oversupply.

    "The real driver primarily is the fact that we are seeing the short-term shipping market growing substantially, in the year to date there have been 97 short-term vessel fixtures versus around 78 in 2014," Gaslog Chief Executive Paul Wogan told Reuters.

    "It's becoming a much more important piece of the (LNG) shipping market," he said.

    The pool is expected to cater to this need by making vessel scheduling more flexible for traders, including the provision of rare single-voyage charters known as Contracts of Affreightment and other contract forms new to LNG shipping, the firm said.

    In May, Golar LNG broke the mould by allocating six LNG tankers to Swiss trader Trafigura on a single-voyage, or COA, basis, as part of a bid to keep its fleet busy and keep the ships refrigerated at low temperatures to make them more marketable.

    LNG is ordinary natural gas chilled into liquid form at minus 162 degrees Celsius. Tankers carrying the fuel must be "cold" in order to store and transport the fuel. If vessels become "warm" through lack of use, they have to go through a cooling process before accepting cargoes.

    Attached Files
    MGL Comment
    Each $10k per day off shipping rates reduces the effective cost of moving LNG to Japan from an export port 4400 miles away by 6c an mmbtu. So the 100k fall in shipping rates over the last two years has likely reduced Japan's spot prices 60c an mmbtu. 

    At the close of this year we will have spot cargo's appearing in Texas, and the obvious large market, Zeebrugge in Belgium, is thus 65c cheaper than in 2013.  EU spot prices seem to have been swooning in the last few months, and they are now down to $6.50 an mmbtu.Image title
    This could be economic weakness, but we do know EU buyers are taking spot cargos from Cheniere for december delivery. 

    The EU spot gas market is the largest spot gas market outside of North America, and it now must surely 'lock' into US henry hub pricing. Image title
    This table, from Platts, assumes 66k per day freight rates. Australia-Japan is 10% shorter than Cheniere-Zeebrugge.  Belgium-NE US (Boston) is calculated at 70c an MMBTU, Cheniere is 4 days further, but now at half the cost per day, so rough back of the envelope suggests 60c cost Cheniere -Zeebrugge.

    Henry hub $2.70
    Toll and port $1.50
    Transport 60c

    Cheniere buyers can make deliver US gas FOB Zeebrugge at ~$5.  This is the second time in 3 days we've arrived at roughly $5 as a back-of-envelope for US gas in the EU. (Our estimates for Nova Scotia yesterday look high on these shipping rates)

    This is bad news for the EU majors and Gazprom. We must think on current market that US new LNG build capacity heads into the EU, that implies that EU natural gas prices head towards the $5 mark. Most impacted:

    ~Statoil (ouch!)
    ~Gazprom.(big ouch!)
    Back to Top

    Shell in framework LNG deal with private Chinese firm

    Shell in framework LNG deal with private Chinese firm

    Royal Dutch Shell has entered a framework deal with a Chinese energy firm to jointly purchase and distribute liquefied natural gas, Shell said on Tuesday, a rare cooperation between a global energy company and a local private player.

    Shell signed the non-binding framework agreement with Guanghui Energy Co Ltd, which is building a gas receiving terminal in Qidong of Jiangsu province with a designed annual handling capacity of around 600,000 tonnes in its first phase.

    Chinese companies other than the country’s dominant energy giants are emerging as LNG importers after Beijing started allowing third-party access to import terminals built by the majors and private investment in the sector.

    Instead of a previous intent to be involved in building and operating the terminal, Shell, one of China’s top LNG suppliers, is now looking at only purchasing and marketing LNG, gas that is super-chilled in liquid form and transported in specialized tankers.

    “Our cooperation with Guanghui has evolved and the current scope under discussion is a joint venture to purchase, import and on sell LNG through the Qidong terminal,” Shell said in an emailed statement.

    Guanghui Energy, one of the country’s pioneer independent players in the LNG industry, has plans to expand its Qidong terminal with phase two and three developments, company and industry sources have said.

    Attached Files
    MGL Comment
    Guanghui Electric is actually quoted, its a $7bn mcap, with $3.5bn of debt (this is post crash, its down 40%). 

    Engages in real estate investment and development activities, extracts, processes, and distributes granites

    Xinjiang Guanghui Industry Co., Ltd. engages in the development, rental, and sale of real estate properties.

    It also processes and sells granite and liquefied natural gas. The company was founded in 1994 and is headquartered in Urumqi, China.

    Number of employees : 8 374 persons.

    Who knows what price the LNG sells at into this JV, but it is unlikely to be 'oil index' as local LNG retails at around the $12 mark.  Here's ISIS reporting from Guangdong:

    Gas distributors and power generators stand to make significant profits from selling imported LNG to downstream end-users or sending it to their gas-fired power plants. This is even after factoring in the costs of importing, storing, leasing and tolling at a state-owned LNG terminal.

    Most of the volume is loaded onto trucks for delivery to the end-users, with only some gas sent into the grid. Chinese distributors typically do not regasify LNG because it takes a chunk out of their margins. They also typically command a large market share in their respective regions, so are almost ensured a steady stream of domestic customers from the residential, industrial and commercial sectors.

    The price difference alone is a key factor driving the interest and urgency in buying LNG imports into China this year, market sources told ICIS. Even if the Asian spot price were to rise to $10.00-12.00/MMBtu, Chinese buyers can still earn a slight margin.

    So it sounds like spot LNG.
    Back to Top

    Asia spot LNG: Platts Sep JKM sees largest on-month gain at $8.007/MMBtu

    Asia spot LNG: Platts Sep JKM sees largest on-month gain at $8.007/MMBtu

    The Platts JKM for September delivery averaged $8.007/MMBtu over the July 16-August 14 assessment period, up 8.3% from August, the highest month-on-month gain so far this year, on renewed buying interest and waning spot availability in Asia.

    At $8.007/MMBtu, the JKM posted its highest monthly average price since February, when it averaged $9.911/MMBtu. However, this is the seventh consecutive month that prices have been rangebound at $7-8/MMBtu since falling from the $9-10/MMBtu level seen over January-February.

    Year on year, the JKM for September delivery was down 25.2%, the slowest decline so far this year, compared with the average price in September at $10.702/MMBtu.

    September trading had opened at $7.825/MMBtu, before rallying to $8.20/MMBtu toward the middle of the assessment period as cargoes dried up following a spate of deals.

    The bulk of these transactions were concluded between portfolio sellers and traders, most of then holding short positions into countries with ongoing buy tenders such as Pakistan, Egypt and Jordan.

    Importers in India had also issued multiple tenders and expressions of interest for prompt cargoes, with deals for volumes originating from Australia and Papua New Guinea LNG concluded close to $8/MMBtu for late-August and September delivery.

    This, coupled with emerging demand in the Atlantic Basin from South America and the Middle East, pushed up offers in northeast Asia to $8.30-8.50/MMBtu by the middle of the assessment month.

    Attached Files
    MGL Comment
    Last month we had near closure of Asian spot markets, as utilities retreated to their contractual commitments and simply did not require additional cargos.  So there was almost no activity, and spot cargos head for the EU.

    This month, we have spot buyers appearing around the $8.20 mark from a spattering of smaller buyers, all of whom are price sensitive. 

    Some wry amusement here that the traders for the big LNG players are short, when senior managements are telling investors in the EU that the LNG market is 'fine'. 
    Back to Top

    Woodside profit drops 40% beefs up sales marketing for Browse LNG in tough market

    Woodside profit drops 40% beefs up sales marketing for Browse LNG in tough market

    Woodside Petroleum Ltd said it has stepped up marketing for its Browse floating liquefied natural gas project, but conceded it is facing a buyers' market against a backdrop of weak oil prices.

    Australia's biggest independent oil and gas company reported a 40 percent slide in first-half profit on Wednesday, hit by the collapse in oil prices since June last year, but performed slightly better than expected with the help of cost cuts.

    Chief Executive Peter Coleman said spot LNG prices over the next 18 months were likely to remain at the soft levels seen so far this year and while oil markets were rebalancing this would take time to play out.

    "Our view is the oil market is going to remain structurally oversupplied for some time," he told a conference call.

    Underlying net profit was $679 million in the six months to June, down from $1.136 billion a year earlier. Four analysts on average had expected underlying net profit of $662 million.

    Woodside cut its interim dividend to 66 cents a share from $1.11 a year earlier, sticking to a policy of paying out 80 percent of its underlying net profit.

    Its shares jumped as much as 2.7 percent on the results.

    Despite some analysts expecting a delay, the company is still targeting a final investment decision on Browse in the second half of 2016, having moved into the front end engineering and design (FEED) phase this year.

    Woodside has been able to cut cost estimates by 20 to 30 percent for the subsea and pipeline aspects of the long-delayed project off Western Australia, which analysts previously estimated at $45 billion when it was planned with a land-based plant.

    Royal Dutch Shell, whose floating LNG technology is the template for Browse, recently said it was far from certain the partners would approve the project.

    "We've moved into FEED with a belief that we'll get the project across the line. But we're also under no delusion that there's some more work to do," Coleman said.

    The partners are now focused on driving down processing costs so Browse can be profitable even if oil fails to rebound, and will be marketing the gas aggressively this year.

    "It's a buyer's market," Coleman said.

    Woodside is relying on its recent $3.6 billion acquisition of stakes in Apache Corp's Australian assets, including Wheatstone LNG, to grow. Coleman said further near-term acquisition opportunities may be limited.

    "People aren't going to let go of high quality assets until they feel like there's not many other choices left to them."

    Attached Files
    MGL Comment
    The first accounting item we look at today in a big oil or gas company is their contingent liabilities. $100bn of contracted capex incurred prior to last August represents a future loss on the P&L of $25bn, that being the approximate cost of contracting that capex today in a much softer service market. 

    Woodside, like BP, is nearly unique in that it entered the downturn with a very liquid balance sheet that contained few capex commitments. This was simply because management could not make the substantial Browse development work at economic rates, even the gungho, and former partner Shell, turned its nose up at Browse preferring the ill fated and disastrous Gorgon development in the same space. 

    Image titleWoodside capex collapsed well before the crash.

    As a result, Woodside entered the downturn uncommitted, and can now enjoy the bounty of cheap service and engineering offered by starving service companies. Which, conveniently, brings us back to Browse. Clearly Woodside is running the numbers again on Browse with 25-30% lobbed off capex costs. The problem: they can't find buyers of LNG. 

    Woodside has a near 5% dividend yield approximately covered by free cashflow next year. That's pretty rare, and might be of interest to some investors. 
    Back to Top

    Britain offers new shale gas sites for first time in seven years

    Britain offers new shale gas sites for first time in seven years

    Britain offered shale gas exploration licences for the first time in seven years on Tuesday, awarding new sites to companies including IGas and France's GDF Suez.

    Britain's Conservative Prime Minister David Cameron has promised to go "all out for shale", hoping it will help reduce dependence on energy imports and generate additional tax revenue despite opposition from environmental campaigners.

    The government's licensing round, delayed since the start of the year, offered 27 new shale gas and conventional exploration blocks and attracted 95 applications from 47 companies, the government said, showing developers are still interested in exploring for the unconventional fuel in Britain.

    Other European countries, including France and Germany, have banned the use of shale gas hydraulic fracturing, or fracking, due to environmental concerns.

    The British government also offered new blocks on Tuesday to explorers Egdon Resources and Cuadrilla Resources, as well as Swiss chemicals company INEOS.

    "We are keen to move quickly to evaluate the potential of this resource, and determine if we can economically produce gas from our licenses," said Gary Haywood, chief executive of INEOS Shale, in a statement.

    The licences will be formally awarded once further assessments are carried out on a second tranche of 132 blocks that could be awarded at a later date.

    Despite these concerns, the government fully supports shale gas development and Tuesday's licence awards show it intends to continue pushing it forward.

    Last week, it changed planning guidelines to fast-track applications for fracking after local politicians in northwest England rejected two planning permits in June.
    MGL Comment
    This shale gas in the UK story is somewhat like one of those endless epic old english saga's. Think Beowulf, at 3182 lines, one of the most famous. So we've been sitting listening to this saga now for 7 years. 

    Everyone is bored. Even Shakespeare wasn't this cruel!
    Back to Top

    Struggles to cut cost delay oil play production in Argentina

    Struggles to cut cost delay oil play production in Argentina

    Argentina has drawn wide interest for its vast shale oil and natural gas production potential, but when it comes to committing investment to extract the resources, the hesitation is just as significant.

    The potential is huge. The US Energy Information Administration estimates that the biggest play, Vaca Muerta, holds 16.2 billion barrels of oil resources and 308 Tcf of gas resources. That's enough for the country to emulate the US shale boom.

    ExxonMobil, Shell, Total, Wintershall and others have taken stakes in Vaca Muerta, but only Chevron has advanced into production in a partnership with state-run YPF. They are producing about 43,000 b/d of oil equivalent, the first shale oil extracted outside North America.

    The others are moving toward pilots, a slow progression that is a sign of how hard it is to do business in Argentina and achieve what is most important for developing the play: getting drilling and completion costs down to profitable levels.

    YPF is making a go of it. With Chevron, it has drilled 360 oil wells in Vaca Muerta and brought down drilling costs to $7 million per well for verticals this year from $11 million in 2011.

    But that's still shy of the $4-5 million target, or the cost of horizontal wells in the prolific Bakken and Eagle Ford Shales.
    Without reaching these levels, 'the wells won't be profitable,' said Alex Fleming, a senior manager in oil and gas at EY Advisory, a US-based business advisory.

    A reason not to rush into production — only 400 wells have been drilled — is that wells must be tested for up to two years to gauge the potential of the shale rock before a company will commit billions of dollars. This is especially the case now that low global oil prices have slimmed investment budgets for frontier plays.

    YPF is only starting to make more strategic decisions, including moving rigs to the east of the Loma Campana block where it has found sweet spots for horizontal drilling. While more expensive at $14 million per wells with 18 frac stages, horizontals can yield twice the productivity as verticals, YPF chief financial officer Daniel Gonzalez said last week.

    YPF has cut the cost for horizontals from $15 million in the first quarter, when it was at 15 frac stages. The next step is to extend the laterals to as much as 2,000 meters (6,562 feet) from 1,500 meters, allowing for additional frac stages, Gonzalez said.

    In Argentina, however, YPF has been struggling to get below that $7 million per well mark.

    More could be done to cut costs, such as drilling slim-hole wells, sourcing proppants locally and convincing unions to work in smaller crews. But this likely won't be enough because a far greater inhibitor to cost reduction is the country's economic and political instability.
    MGL Comment
    Vaca Muerta is big, but it's in Argentina. In a perfect world it could be the size of the Eagle Ford. 

    Any rise in Oil prices would convert YPF into a great stock, with volume growth for a decade or more.

    There's tremendous desire by investors in emerging and the resource space for Oil prices to rise.  We think the critical decision path on Oil is now in the Permian basin in Texas. If Oil output rise there, it could overwhelm the decline in Eagle Ford and Bakken, and keenly upset investors. 

    I want to be bullish Oil here, but Oxy in the Permian is frightening me with those wells that are 4.5x more productive than Concho's. 
    Back to Top

    Marcellus players still making money at $1 gas

    Marcellus players still making money at $1 gas

    Range Resources, Cabot Oil & Gas, EQT, and Southwestern Energy are some of the names that should be in a world of hurt with natural gas prices in the northeast around $1. But they’re not. Here’s why: cash costs and hedges.

    Vincent Piazza of Bloomberg Intelligence says Range Resources in the second quarter had realized pricing of $2.95 per Mcf –not too shabby with Henry Hub at $2.83 for the same period. Piazza says the reason why Range Resources got so much for its gas was because of hedges – natural gas the company has sold previously for a locked in price. Strip that out and the realized price was $1.95 – which could have slowly eaten away at profits. Luckily for Range Resources, the company is 85% hedged for this year.

    So what happens next year once these hedges roll off? Well, Range has locked in hedges for about 50% of its production for 2016. Piazza says there will be some impact to these companies if differentials between northeast natural gas prices and Henry Hub stay wide.

    Low cash costs – these companies can produce natural gas on the cheap – near dirt cheap. Cash cost are around average $1 Mcf (?) because  - as Piazza puts it - these companies have “cracked the code.” They are doing more with less.

    Look at Southwestern. It's likely cutting capex in 2016 to $1 billion but plans to grow output by 4% year on year thanks to greater capex discipline and operational efficiency.

    Hedges, low costs, better efficiency. They’re why Piazza says these companies are in a better position than other names outside the Marcellus/Utica play.
    MGL Comment
    Here's a map of the world with Supergiant gas fields marked in red:

    Image title
    I've marked the Marcellus, which is simply absent from the 'official' literature in Red. Image title
    Here's Wiki on the 'official' supergiants.

    Here's our edit:

    Marcellus: 2360 tcf breakeven $1.
    South Pars: 1235tcf breakeven $7.5
    Urengoy: 222tcf breakeven $3-5 (complete guess, but it has 4000 miles of pipe to move through to arrive in western EU)
    Hassi R'Mei 123tcf breakeven $2-$3. 

    So the Marcellus (EXCLUDING Utica and Upper Marcellus, which could double the numbers) is 2x the size of the the biggest known field, and considerably lower in cost.

    Marcellus gas has already displaced all other North American gas from: NY, Chicago, St Louis. It is competing head on head with western basin gas in: Florida, Ontario (!!), Atlanta, the midwest.

    The issue becomes how far Marcellus gas can travel before it hits competition from a field of equivalent size and cost. The battleground is moving from the US into the Atlantic. The next field of combat will be western europe. In a perfect world it would move to Nova Scotia and into LNG export terminals there, and reach Zeebrugge well under $5 an mmbtu breakeven. In fact, it will be displaced Texan/Louisiana gas that moves into Europe via LNG STARTING THIS FALL!

    As per usual the companies impacted are maintaining as stony silence, and or denying its very existence. 

    Perception on the Marcellus has fought reality for 7 brutal years:

    2009: "Shale gas is expensive and high cost"
    2011 "The US will NEVER export gas"
    2015: " Our gas is contracted at good prices"

    Denial, denial, and more denial.

    Reality will be brutal, and I strongly suspect many EU investors are in for a shock next year as US LNG exports pour into the EU.

    Back to Top

    How Good Is the Permian Basin Anyway?

    How Good Is the Permian Basin Anyway?

    E&P companies have added 30 horizontal rigs in the Permian basin since the end of June. Most analysts didn't notice (Figure1).

    Figure 1. Tight oil horizontal rig counts since January 1, 2015. Source: Baker Hughes & Labyrinth Consulting Services, Inc.

    Rig counts in most active plays are stabilizing after falling more than 50% since November but companies are adding rigs in the Permian like there's a boom going on. Last week the total U.S. rig count was unchanged but 7 new horizontal rigs were added in the Permian. In fact, rigs were added in each of the last 7 weeks there.

    There have been a lot of silly pronouncements since oil prices collapsed about how rig counts don't matter anymore. Pad drilling and extraterrestrial advances in rig efficiency have made rig counts a meaningless measure. Also, the backlog of deferred completions allow companies to add production without adding new rigs. So we are told.

    But rig counts matter because they show where capital is going. When a rig contract is signed, major cash follows and usually, for a long period of time.

    When capital in the oil business is scarce, a counter-flow of 30 new rigs into one play says a great deal about how company executives view that play. 30 new rigs in the Permian basin means more than $200 million in capital expenditures if all the rigs are released after drilling just one well and no further spending occurs as a result of the drilling.

    Since rig counts began falling in November 2014, there have always been more rigs in the Permian than in any other tight oil or shale gas play (Figure 2).

    Figure 2. Tight oil and shale gas rig counts as of August 14,2015. Source: Baker Hughes & Labyrinth Consulting Services, Inc.

    More rigs have also been released in that play than in any other. Still, there are more than twice as many rigs drilling in the Permian as there are in the Eagle Ford Shale, and almost three times as many as there are in the Bakken play.

    Rig count is how company executives vote on the plays.

    We may hear great things about the potential of the Utica Shale but it's in the lower third for rigs and, therefore, capital. Studies proclaim that the Barnett and Fayetteville core areas are commercial at current gas prices but almost no one wants to put rigs there and spend money. Even the mighty Marcellus is a distant fourth in rig count behind the Permian, Eagle Ford and Bakken.

    There is a reason and it is profit or the perception of profit and rig count is how we know the score.

    For plays like the Eagle Ford and the Bakken, the best leases were taken long ago. If you don't have a position, the only way to get one is to buy or join someone else at a premium (e.g., Devon and Encana in the Eagle Ford).

    But the Permian is different. It is an old producing basin whose glory days were decades ago until tight oil technology came along. As a result, the land situation is complex and fragmented and there is usually a way to get in on a lease or a play with a good landman and enough money.

    There are multiple pay horizons in the Permian whereas, in the Eagle Ford and Bakken there is basically only one pay zone. In a comprehensive study done in 2000, Shirley Dutton of the Bureau of Economic Geology identified 32 different oil plays from 1,339 significant reservoirs in the Permian basin and each reservoir with cumulative production greater than 1 million barrels of oil.

    The Bakken and Eagle Ford are dominated by a dozen or so substantial public companies but in the Permian, there are hundreds of operators, many of whom are small and privately held, and some that are without access to the major capital required to be a shale player. To put it bluntly, the Permian is a great place for tight oil have-nots to find a home. Deals can be made in the Permian.

    Attached Files
    MGL Comment
    Here's the world's supergiant oil fields:

    Image titleHere's the latest estimate of STOIIP in the Permian Basin: 

    "Original oil in place (OOIP) in the Permian Basin has been estimated to be 106 billion barrels "

    Now lets apply some recovery factors:

    At 2% shale recovery= 2bn boe. (This is the approx number in most E&P accounts today)
    At 5% shale recovery=5bn boe. (This is current 'best practise' of Shale 1.0 companies: CXO, PXD, Brigham etc.)
    At 15% shale recvery=15bn boe. (This is implied by Oxy well results, it's the number acheived in the Marcellus, and it's the number in the Petroleum acedemic literature)

    So at 15bn boe, the number implied by the Oxy Permian numbers the Permian is #3 in the world. 

    The biggest question facing investors today is the Oil price. The Oil price depends on shale economics. Shale economics in the Bakken, and the Eagle Ford are marginal at todays spot prices, and we should reasonable now expect, with hedges, and capex contracts gone from the system, those basins to show declining production.

    But the Permian remains a complete wild card. The rig count is rising, that implies that the companies THINK they have a viable economic solution at $60 Oil, now I am saying $60, because that's pretty much the number in Permian based E&P company presentations today. The critical player in this latest chapter is Oxy, and Oxy, with 2.3m acres of land held by production showed Permian volumes up 78% yoy in q2. Oxy has not disclosed economics, but they look substantially better than either Concho's, EOG's, or Pioneer's.
    Back to Top

    Obama Proposes Cuts in Methane Leaks From Oil, Gas Operators

    Obama Proposes Cuts in Methane Leaks From Oil, Gas Operators

    The Obama administration proposed rules to cut methane emissions from oil and gas production, the second major climate initiative by President Barack Obama this month.

    The proposed rules from the Environmental Protection Agency target for the first time oil wells, compressors and other equipment as part of a broad effort to reduce leaks of methane, a more intense greenhouse gas than carbon dioxide, by 40 percent to 45 percent by 2025 from 2012 levels.

    The industry says it has cut the pollution, and rules could choke a U.S. energy renaissance already dented by oil prices near a six-year low.

    “The oil and gas industry is leading the charge in reducing methane,” Jack Gerard, the president of the American Petroleum Institute, said in a statement. “The last thing we need is more duplicative and costly regulation that could increase the cost of energy for Americans.”

    The centerpiece of Obama’s climate initiative, finalized this month, orders cuts in the carbon emissions from coal and natural-gas fired power plants. Climate activists pushed Obama to tackle methane seeping from wells, pumps and storage tanks in the oil and gas network, calling it the largest source of greenhouse gases that had been so far unaddressed.

    Oil Alternative

    Obama, who pledged to cut U.S. greenhouse gases 26 percent to 28 percent by 2025, has embraced the boom in domestic oil and gas production made possible by fracking and horizontal drilling in shale rock. And the EPA is relying on increased use of natural gas -- a cleaner alternative to coal -- as a key part of its rule to cut carbon emissions from power plants. That rule, the Clean Power Plan, was released Aug. 3.

    “Cleaner-burning energy sources like natural gas are key compliance options for our Clean Power Plan and we are committed to ensuring safe and responsible production that supports a robust clean energy economy,” Gina McCarthy, the head of the EPA, said Tuesday in a statement.

    The proposed rule will require oil and gas producers to upgrade their pumps and compressors on new wells, and expand the use of methane-capturing equipment now required for gas wells to oil wells. A separate rule, also proposed Tuesday, would force limits on ozone-forming pollutants from oil and gas wells in areas prone to smog.

    By 2025, the rules would achieve the greenhouse-gas cuts equivalent to removing 2 million cars from roads a year. Still, environmental groups had pushed for the EPA to address methane leaks from existing wells and equipment, and for the most part EPA punted on those proposals for now.
    MGL Comment
    I shall try and keep the invective in check.

    The EPA set out to measure methane from oil and gas wells after an academic accused the industry of being a leading methane polluter. Devon Energy, which has a myriad of shale, and conventional wells all over the USA, was one of the chosen partners. After some period of time, Devon withdrew its support for EPA measurements, and noted that that process was not being conducted on an accepted scientific basis. 

    Devon Energy, we would note, is one of the most technically able Oil and Gas E&P's in the field. They've made some bad strategic decisions in the last ten years, but their commitment to clean, environmentally friendly sound practice should not be doubted. Senior management at this company started their careers persuading the Navajo tribes in the 4 corners area (NM-CO-AZ-UT) to accept and allow gas drilling on pristine wilderness areas. 

    Now the polemic:

    This is 100% politics, and lacks any scientific basis. 
    Back to Top

    BP Whiting Woes Give Competitors Window to Gain as Margins Soar

    BP Whiting Woes Give Competitors Window to Gain as Margins Soar

    At least one Midwestern refinery is said to be considering a delay in maintenance work after trouble at BP Plc’s Whiting plant near Chicago sent regional profit margins to a seven-year high.

    Phillips 66 is weighing the postponement of a planned September turnaround at its Wood River, Illinois, refinery by several weeks, people familiar with the deliberations said. The Energy Information Administration estimated Tuesday that as much as 140,000 barrels a day of gasoline output is being lost after leaks at the biggest crude unit in the Whiting refinery reduced operations there.

    “Given how strong margins are, it wouldn’t be surprising to see some of the refinery maintenance by other refineries being pushed back by at least a week,” Amrita Sen, chief oil analyst at Energy Aspects, a London-based energy consultancy, said in a phone interview.

    Tempting refiners to rethink the tradition of doing repairs after the peak gasoline season wanes in September are profit margins that reached $50.48 in the Chicago area on Aug. 12, the highest since September 2008. On the same day, the spread between gasoline and oil traded in New York was $30.73. A decline to a $38.19 margin in Chicago on Tuesday still leaves the regional spread at its highest in more than two years.

    At least six other Midwest refineries have scheduled maintenance to begin over the next two months, including Marathon Petroleum Corp.’s unit in Catlettsburg, Kentucky. Whiting itself, already missing 235,000 barrels a day of capacity, is scheduled to shut a second crude unit in September, people familiar with the plans said.

    Sen estimates that crude capacity in the Midwest has been scheduled to drop 530,000 barrels a day in September and 660,000 barrels in October.

    Any delays in fall maintenance could benefit consumers. Regular gasoline in Chicagohas jumped 25 percent in a week to $3.455 a gallon, according to according to AAA, the nation’s largest motoring group.

    “The pressure is high because the refining margin is good and refiners have to serve the consumers who are struggling with this spike in gasoline prices,” Phil Flynn, senior energy analyst at Price Futures Group in Chicago. “They will face political pressure as people ask ‘‘why are you going into maintenance when we have a major refinery shutdown?’’

    BP’s 405,000 barrel-a-day Whiting refinery, 20 miles southeast of Chicago, is running at minimal rates and its big crude unit could be shut at least a month for repairs, people familiar with operations say.
    MGL Comment
    Image title
    Obviously bullish the refiners in the midwest. Marathon?

    Also seriously nasty news for Canadian Oil producers, this unit was specifically designed to run WCS crude. 

    This is the second time there have been problems at this big BP refinery. 
    Back to Top

    Warren Resources Announces Initial Results From Upper Marcellus Completions

    Warren Resources Announces Initial Results From Upper Marcellus Completions

    Warren Resources, Inc. today announced initial results from its well completion operations in the Upper Marcellus formation, located within its acreage block in Wyoming County, Pennsylvania.

    Warren successfully drilled and set pipe for two Upper Marcellus wells in the first quarter of 2015, and completion operations commenced in July 2015. The two Upper Marcellus wells have been flowing back for approximately two weeks and the current combined daily production rate is 17 MMcf per day with 3% of flowback load recovered. The wells are drilled from Warren's Mirabelli and Ruark pads.

    A successful test of the Upper Marcellus could potentially add over 40 additional well locations on Warren's acreage block. No reserves were booked at year end 2014 for the Upper Marcellus locations.

    Warren's drilling and completion efforts highlighted some attractive features of the Upper Marcellus formation in its acreage block. It is 180 feet thick, compared to the Lower Marcellus in the same area measuring 120 feet in thickness. Offset Lower Marcellus wells were monitored during fracturing operations and indicated no communication with the Upper Marcellus. The Company believes production rates and reserves associated with these wells will be 100% accretive.

    In addition, Warren has the advantage of having pipeline infrastructure and pads already in place to support the drilling of additional wells in the Upper Marcellus, thereby eliminating time consuming infrastructure projects, and providing economic returns at lower realized gas prices.

    Warren adhered to its strategy of driving operational efficiencies, with drilling costs for the two Upper Marcellus wells coming in 5% under budget and completion operations coming in 10% under budget. The Company sees an opportunity to reduce drilling and completion costs by 15% for future locations while maintaining exceptionally low lease operating expenses in the range of $0.75 per Mcf, including gathering and transportation costs.
    MGL Comment
    Warren is a $32m mcap with $229m of debt. 

    Not convinced on the economics of this well at <$2 gas, but it does strongly imply that we have to start factoring in yet another large resource of gas in the Marcellus. Cabot has also been drilling these upper Marcellus wells nearby, and with what appear to be better results, but Cabot is coy!
    Back to Top

    Alternative Energy

    Documents Confirm Apple Is Building Electric iCar!

    Documents Confirm Apple Is Building Electric iCar!

    Finally, we have the confirmation about Apple Electric iCar. Now we can prepare ourselves to the overnight rEVolution and mass market for EVs with Apple brand power behind it. We have first Trillion market cap company in the making: Apple has finally found the place where to park its cash and brilliant team of designers and engineers, its powerful branding and distribution channels will bring EVs to the masses. Low cost manufacturing base will help as well, China Yuan devaluation is very timely and you can check on my entries below about Foxconn. This largest producer of iPhones and iPads is building its own Megafactory for mass production of lithium batteries and investing almost one billion dollars in the $15k Electric Car to be produced in China.
      Lithium technology is already here, I was always advocating for Apple to buy the time to market and if not buy Tesla Motors outright, than to create the strategic partnership and use Tesla Model 3 power-train. Lithium is the magic metal which is at the heart of this rEVolution. Now we have the tide coming, all cars will be electric.
     Electric cars are not just about style and incredible performance - only they can keep us the right to personal mobility without killing everything around. It is not about money or new advance economy any more - it is about survival. U.S is moving very slowly in that direction, but I just read that 16 states are trying to block Obama's Clean Power Plan. Dollar can still open a lot of doors and dirty politicians hearts (if they have any). China is not a blessing in a lot of issues, but at least "they get it" - you cannot built the new economy with Q by Q performance. You need long term plan in place. They have one: electric cars are the strategic industry now. Under the radar screens the best technology is brought into the country, the best lithium deposits are acquired and the best lithium facilities are being built. Now China controls 75% of Hydroxide Lithium, which goes in the EVs batteries.
      International Lithium is working with Ganfeng Lithium, which supplies Panasonic for its cells for Tesla Motors lithium batteries and companies like BYD, Boston Power and LG Chem. It is very tough now in junior mining space, but I am very proud that our Team has managed not only to save our projects, but is rapidly developing them. Financing and technology from Ganfeng Lithium makes all the difference for us. We are making world the better place.
    MGL Comment
    This bloggers invective is worse than mine!
    Back to Top

    Will solar panels save you money? Ask Google

    Will solar panels save you money? Ask Google

    Google has launched a pilot project to help US householders find the best solar plan installation.

    Project Sunroof creates a personalised roof analysis for customers interested in buying solar panels.

    Those who want to take part in the programme need to provide their address and the company will use Google Maps to collect information.

    It will calculate how much sunlight hits a roof per year and depending on different factors such as temperature, shadows and the positions of the sun over the course of a year it will recommend an installation size.

    It aims to help householders generate close to 100% of their electricity use.

    The tool works out how much money a householder could potentially save by installing solar panels and connects them with local solar providers.

    In a statement Google said: “As the price of installing solar has gotten less expensive, more homeowners are turning to it as a possible option for decreasing their energy bill. We want to make installing solar panels easy and understandable for anyone.”
    MGL Comment
    Google does something intelligent in the renewable arena! For years the company has been backing 'moonshots' which the stock market holds in mild amusement or outright derision. 

    On another subject: have you noticed that all the 'internet generals' in this stockmarket have CEO's playing in the space flight sand pit?
    Back to Top

    Solar Cell Efficiency Could Double with Novel “Green” Antenna

    Solar Cell Efficiency Could Double with Novel “Green” Antenna

    “Most of the light from the sun is emitted over a very broad window of wavelengths,” says Challa V. Kumar, Ph.D. “If you want to use solar energy to produce electric current, you want to harvest as much of that spectrum as possible.”

    But the silicon solar cells people buy today are not very efficient in the blue part of the light spectrum. So Kumar’s team at the University of Connecticut built an antenna that collects those unused blue photons and then converts them to lower energy photons that the silicon can then turn into current.

    “Many groups around the world are working hard to make this kind of antenna, and ours is the first of its kind in the whole world,” he says.

    Commercial solar cells do a good job of converting light from about 600 to 1,000 nanometers (nm) into electric current but not from the 350 to 600 nm range. That’s part of the reason solar cells on the market today are only about 11 to 15 percent efficient. High-end panels can reach 25 percent efficiency but are unaffordable for most customers. Lab prototypes can reach even higher efficiencies but are difficult to scale up.

    Converting the mostly unused portion of the light spectrum to wavelengths solar cells can use in an affordable way is far from a simple task. To tackle this problem, Kumar turned to organic dyes. Photons in light excite dye molecules, which can then, under the right circumstances, relax and emit less energetic but more silicon-friendly photons.

    But to get dye molecules to work together, they need to be wrapped individually and densely, while satisfying certain quantum mechanical requirements. To address this issue, they embed the dyes inside a protein-lipid hydrogel by mixing them together, warming them up and then cooling them to room temperature. With this simple process, the material wraps around individual dye molecules, keeping them separated while packing them densely. Rather than creating a radio-like antenna, however, the procedure results in a thin, pinkish film that can be coated on top of a solar cell.

    “It’s very simple chemistry,” Kumar says. “It can be done in the kitchen or in a remote village. That makes it inexpensive to produce.”

    These antennas are made with biological and non-toxic materials that are edible in theory, Kumar says. “Not that you would want to eat your solar cells, but they should be compostable so they won’t accumulate in the environment,” he says.

    Attached Files
    MGL Comment
    I hate stories like this. They are plausible, disruptive and dangerous to my wealth. 

    Biotech tranforms solar economics? Be scared, be very scared.

    Image title

    UNSUBSIDISED solar, without this development, which could plausibly half solar electric costs over a ten year time frame, is already hitting the market at $4c a kwh. 
    Back to Top

    A Solar-Energy Giant Rises From the Rubble of Lehman Brothers

    A Solar-Energy Giant Rises From the Rubble of Lehman Brothers

    Seven years ago, Kerry Adler watched as the disaster at Lehman Brothers Holdings Inc. scuttled his vision of renewable-power riches. Today, he has reassembled assets from the collapsed investment bank, laying the foundation for a green-energycolossus.

    Adler’s SkyPower Ltd. has lined up deals to build utility-scale solar farms in North America, Asia and Africa worth more than $12 billion — though how the projects will be financed remains a mystery.

    To date, SkyPower has completed 23 projects totaling 300 megawatts, ranking it just 34th among solar developers worldwide, according to Bloomberg New Energy Finance. But if Adler is successful in fulfilling all of his signed contracts, he will have more renewable power capacity than any operator currently has.

    SkyPower aims to “kickstart this market in the hope of bringing power to people that really deserve it,” Adler, 50, said by phone from Kenya as he wrapped up his second major deal this year.

    To date, SkyPower has completed 23 projects totaling 300 megawatts

    That was a $2.2 billion pact for 1 gigawatt of solar — about the capacity of a typical nuclear reactor, and massive for renewables — that will take years to build. SkyPower has also begun a joint venture in Mexico, and within two months expects two more deals in the Middle East and Africa, each about as big as the Kenya contract.

    SkyPower has projects with a total capacity of about 25 gigawatts in the works, and Adler says he can build 7 gigawatts within five years. Even that would make it far larger than the biggest developers of commissioned solar projects: China’s Huanghe Hydropower Development Co Ltd., which has 2 gigawatts, and Arizona-based First Solar Inc., with 1.2 gigawatts, according to Bloomberg data. In terms of projects in the pipeline, only Missouri-based SunEdison Inc. is bigger, with deals representing 53 megawatts on the table.

    Lehman Collapse

    “The next question is what is your probability rating — how likely is it that those projects will get built,” said Michael Morosi, a solar-industry analyst at Avondale Partners LLC in Nashville, Tennessee. He called SkyPower’s ambitions “a stretch goal.”

    Adler founded SkyPower in 2003 after a stint as chairman of outsourcing firm Sitel Canada.  Lehman bought a majority stake in SkyPower in 2007. Lehman’s collapse the following year choked off credit to SkyPower, which itself sought protection from creditors in 2009.

    Since then, Adler has wrapped up Kenya and other contracts with a total potential value of $7.2 billion. In Egypt, he has promised to build 3 gigawatts, and in India SkyPower has deals to provide 350 megawatts.

    SkyPower offered “a very good rate, and we are hopeful that they will fulfil the contract,” said Manu Srivastava, commissioner for clean energy in Madhya Pradesh, one of two Indian states where Adler has deals.

    Financing Questions

    Despite Adler’s success in getting contracts, it’s unclear whether he’ll secure financing, said Jenny Chase, solar analyst at Bloomberg New Energy Finance. Many such agreements have scant repercussions for companies that fail to get financial backing and build the promised installations, she said.

    “Developers go around signing deals with countries and anyone else who might buy power from them,” Chase said. “A lot of those deals won’t come off.”

    SkyPower is the largest and one of the most successful developers and owners of utility-scale solar photovoltaic (PV) energy projects in the world
    SkyPower says it has worked with “leading bankers to the renewable industry,” though Adler declined to name them. He wouldn’t say whether there are any penalties in his contracts, but he insists SkyPower can line up the financial backing it needs.
    MGL Comment
    That Solar is competitive is clear. Whether Solar can be financed in this scale is unclear. 

    Just to be clear, that chart above is about 210m mt of coal. 
    Back to Top


    K+S secures major potash supply deal from its Canadian Legacy mine

    K+S secures major potash supply deal from its Canadian Legacy mine

    German fertilizer company K+S AG has won a deal to supply about 25% of the projected output from its Legacy potash mine in Saskatchewan, Canada, to a U.S distributor.

    “We are seeing enormous interest in potash from our Legacy mine both from existing and new customers,” K+S board member Andreas Radmacher said in a statement.

    The agreement grants Koch exclusive rights to 453,000 metric tonnes a year of the output from Legacy

    The agreement grants Koch exclusive rights to 453,000 metric tonnes a year of the output from Legacy, which is expected to produce about two million tonnes of potash annually by the end of 2017.

    The deal with Kansas-based Koch Fertilizer comes as the European firm attempts to fend off a takeover bid from Potash Corp. (TSX:POT), which in K+S view undervalues the project.

    Potash Corp., the world’s second-largest producer of the fertilizer ingredient, is hoping to take over rival K+S, as global competition among sellers deepens.

    The German company, which has rejected two takeover bids by Potash Corp. so far, has spent two billion euros on its Legacy project, located in southern Saskatchewan. The development, the first potash mine being built from scratch in 40 years, is expected to begin mid-2016.

    Last week, K+S said it remained open to a tie-up with the Canadian giant if the terms of Potash Corp.’s unsolicited offer change.

    If the merger succeeds, Potash Corp. would regain some of its historic dominance over the fertilizer market, as the two combined companies would account for 30% of global potash production.
    MGL Comment
    First reaction here is that a big contract like this, with an opportunist buyer like Koch, is sort of like a poison pill. Potash wants to crimp volumes into the market, and 'taking out' Legacy was clearly part of the plan. But if Legacy is contracted, the Potash cartel is once again, broken. 

    Putting Humpty Dumpty together again is never easy is it?
    Back to Top

    Precious Metals

    Now I am depressed.

    Image title
    MGL Comment
    We pointed out that Silver was holding the lows yesterday. 

    Almost the nanosecond we went to press, it crashed out.
    Image titleHere's the Silver 50 year chart, it's by far the clearest 'supercycle' indicator: 1980 peak: $50, 2011 peak $50. Long yawning bear market in between.

    We thought yesterday that Silver might hold the line, and stop being woeful and sad. 

    No luck. Supercycle bear thought MUST be your assumption. That means we're value trap, and not value. 

    Back to Top

    Base Metals

    Iluka H1 profit rises on higher revenues

    Iluka H1 profit rises on higher revenues 

    Higher revenues have lifted mineral sands miner Iluka’s after-tax net profit for the six months ended June 30 to A$20.4-million, compared with A$11.7-million in the prior comparable period. The company said the increased earnings reflected a lower exchange rate combined with lower depreciation charges. 

    Revenue from mineral sand sales for the first half of the year increased to A$349.6-million, compared with A$343.2-million in the prior comparable period, despite sales volumes having decreased by 0.4% year-on-year to 275 900 t. 

    Zircon sales increased by 4.9% year-on-year to 153 400 t, while combined rutile and synthetic rutile sales volumes reached 122 500 t, which was marginally lower than the 130 800 t reported in the first half of 2014. This reflected scheduling of high-grade titanium dioxide sales during the six months, as some customers rebalanced their supply chains in line with the ramp-up of Iluka’s synthetic rutile production, which restarted in April. 

    Iluka noted that the higher revenue achieved for its zircon, rutile and synthetic rutile products reflected an increased average realised Australian dollar per tonne, owing to a lower exchange rate, offsetting marginally lower volumes and weighted average received US dollar sales prices. Meanwhile, cash costs declined by 12.6% to A$175.5-million in the interim period, compared with the cash costs of A$200.7-million reported in the previous corresponding period, owing to the lower production of by-products and ilmenite concentrate. 

    Unit cash costs of production reached A$616/t, for zircon, rutile and synthetic rutile, excluding the by-product costs, which compared with the A$719/t reported in the first half of 2014. The lower unit cash costs also reflected higher production and the completion of mining at the Woomack, Rownack and Pirro operations, in the Murray basin. 

    Iluka MD David Robb said “Iluka’s balance sheet remains strong, both absolutely and relative to many players in the resources sector, with low net debt and significant funding headroom. This enables Iluka to continue to invest in its business and to consider external investments in a countercyclical manner, where financial merit and strategic rationale are evident,”
    MGL Comment
    Treading water here. We can't enthuse until China's property market recovers, or, more likely now, we have a boom in property somewhere else big enough to match Chinese capacity. 

    Sort of:
    ~Rest of emerging combined. 
    Back to Top

    Steel, Iron Ore and Coal

    Shanxi coal, steel and iron ore output falls in year to-date

    Shanxi coal, steel and iron ore output falls in year to-date

    North China’ leading coal-producing province of Shanxi produced 80.14 million tonnes of coal in July, down 1.6% on year and down 10.8% on month, said the provincial Bureau of Statistics on August 18.

    Over January-July, Shanxi produced 531.26 million tonnes of coal, down 4.3% year on year.

    Meanwhile, crude steel output of the province stood at 22.69 million tonnes during the same period, down 13.9% on year, with July output falling 19% from the previous year to 3 million tonnes.

    The output of iron ore and steel products was 21.4 million and 24.24 million tonnes between January and July, down 17% and 12% on year, with July output down 24.8% and 19.2% to 2.78 million and 3.33 million tonnes, respectively.

    Shanxi generated 21.5 GWh of power in July, down 8.8% on year. Total power output in the first seven months fell 8.2% from a year ago to 141.8 GWh.

    The province consumed 14.97 GWh of electricity in July, down 5% on year, with power consumption at industrial sector falling 6.4% to 11.79 GWh, data showed.

    Over January-July, Shanxi’s total power use stood at 100.37 GWh, down 5% on year, with power used in industrial sector down 7.1% to 78.19 GWh.
    MGL Comment
    Back to Top

    Lack of takers for Goa iron-ore clogs all stockyards

    Lack of takers for Goa iron-ore clogs all stockyards 

    While iron-ore mining in the western Indian province of Goa is poised to resume within a month, there are no takers for the raw material, leading to the stockpiling of old inventories and a space crunch for new production. 

    According to a Goa government official, of the total 15-million tonnes of old iron-ore fines inventory occupying stockyards and ports, only six-million tonnes have been liquidated through seven rounds of auctions; however, in the absence of large-volume overseas buyers, local traders were refusing to transport the stocks. 

    The government was pushing hard to auction another one-million tonnes of iron-ore before mining operations resumed next month, as miners would continue to face an acute space crunch to stock new production, leading to sharp a rise at pithead dumps. Citing an example, the official said that, at the seventh round of auctions concluded last week, only 50 000 t was sold against an offer of one-million tonnes. 

    Under the circumstances, the government was facing an uphill task in liquidating nine-million tonnes of old stocks and the department of mines could do very little to make space for new stock, the official added. 

    The resumption of mining in Goa was expected to be led by Vedanta Resources, which was readying to get production from its Codli mines under way, starting around mid-October. Meanwhile, in a related development, a Supreme Court-appointed expert committee has recommended that the mining cap on production from all iron-ore mines in Goa be increased to 37-million tonnes a year, up from 20-million tonnes a year, which the Apex Court had earlier set as a precondition to lifting the three-year ban on mining in the province. 

    Simultaneously, to lure buyers and ensure higher volume offtake from mines, miners in Goa have sought a further reduction in export duty on low-grade iron-ore fines from the current rate of 10%.

    Attached Files
    MGL Comment
    Indian iron ore now likely being marketed in China. 

    Best case: puts lid on price, and many analysts seem to have forgotten about this source of iron ore, so some negative surprise around the houses.
    Back to Top

    Junior Iron ore miners take large impairments

    Junior Iron ore miners take large impairments


    The 40% fall in iron ore prices pushed Australian iron ore miner and consumables group Arrium to an underlying net loss after tax of $A7M for the year to June 2015, down from a $296M NPAT a year earlier. Statutory NLAT after $1.7B in asset impairments was $1.9B.
    MD-CEO Andrew Roberts says restructuring of the mining business lowered targeted FY16 cash break-even price to about $US47/dmt for its Middleback Ranges exports.


    Falling iron ore prices and the seawall failure at its Koolan Island seawall failure sent junior producer Mount Gibson plunging to a net loss after tax of $A911.4M for the year to June 2015, from a $96.4M a year earlier, after non-cash impairments of $945.2M offset by a tax benefit of $99.9M.
    Following significant cost savings, CEO Jim Beyer predicts FY2016 sales of 4-4.5Mt at all-in cash costs of $50-54/wmt FOB.
    MGL Comment
    Impairments wiped out equity, leave debt intact, enfeeble balance sheets, and drive the killing zone dynamic. 
    Back to Top
    Commodity Intelligence LLP is Authorised and Regulated by the Financial Conduct Authority

    The material is based on information that we consider reliable, but we do not represent that it is accurate or complete, and it should not be relied on as such. Opinions expressed are our current opinions as of the date appearing on this material only.

    Officers and employees, including persons involved in the preparation or issuance of this material may from time to time have "long" or "short" positions in the securities of companies mentioned herein. No part of this material may be redistributed without the prior written consent of Commodity Intelligence LLP.

    Company Incorporated in England and Wales, Partnership number OC334951 Registered address: Highfield, Ockham Lane, Cobham KT11 1LW.

    Commodity Intelligence LLP is Authorised and Regulated by the Financial Conduct Authority.

    The material is based on information that we consider reliable, but we do not guarantee that it is accurate or complete, and it should not be relied on as such. Opinions expressed are our current opinions as of the date appearing on this material only.

    Officers and employees, including persons involved in the preparation or issuance of this material may from time to time have 'long' or 'short' positions in the securities of companies mentioned herein. No part of this material may be redistributed without the prior written consent of Commodity Intelligence LLP.

    © 2018 - Commodity Intelligence LLP