Mark Latham Commodity Equity Intelligence Service

Tuesday 12th May 2015
Background Stories on www.commodityintelligence.com

News and Views:






Macro

Commodity Intelligence Quarterly

Our quarterly slidedeck.

Attached Files
Commodity Intelligence q2 2015 (2) (1).pdf
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CRB Rally.

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On the one year chart this really looks quite impressive.
Oil and Iron ore, for example are 50% off the lows.

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The 25 year chart looks sick as a dog. Lets face it we've lost our biggest customer -China.

And all of these rallies look inventory related:
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Oil financed by specs.
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Iron ore by steel makers looking for some stimulus to help.

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But platgold just looks sick.

To be investable, rather than tradeable, we need final demand.

We're looking for it, hard!




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South32 spin off brings more value to BHP

Mining giant BHP Billiton on Tuesday revealed new unit costs for its remaining divisions in the wake of the demerger of South32. “In recent years, we have made great strides towards becoming the most efficient supplier of our chosen commodities and secured productivity gains of nearly $10-billion. 

We believe we can go even further with a simpler portfolio and improve margins by reducing costs more deeply than the competition,” CEO Andrew Mackenzie said from Barcelona. The shareholders of BHP last week approved the demerger of South32, which will result in BHP spinning out its aluminium, coal, manganese, nickel and silver assets. 

Mackenzie said on Tuesday that the divestment of South32 would potentially deliver substantial benefits to BHP’s remaining operations. Unit costs at the miner’s Western Australian iron-ore operations were now expected to be reduced by 21%, to some $16/t during the 2016 financial year. This was well below the $20/t figure put forth by the company during March this year. Unit costs at the Escondida copper operation, in Chile, would also fall by 16% on a grade adjusted basis, while drilling cots in the Black Hawk petroleum licence, in the US, would average $2.9-million, a reduction of 20%. 

Mackenzie said that capital and exploration expenditure for 2016 was also expected to fall to $9-billion, down from the $12.6-billion reported in 2015. He said that the reduction reflected ongoing improvements in capital productivity along with the deferral of some shale developments and the Inner Harbour debottlenecking project, in Western Australia. 

The miner would spend some $1.5-billion during 2016 on its onshore US business, to support a development programme with ten operated rigs. “We will continue to invest in our high quality projects to create long-term value and support dividend growth. 

The iron-ore and metallurgical coal markets are currently well supplied and we do not expect to invest significantly more in these businesses at this time,” Mackenzie added. Instead, he said, BHP’s capital focus would be on commodities the company believed would have attractive supply fundamentals. “We believe grade decline in copper and field decline in oil will constrain industry production and support a recovery in prices over the medium-term. 

The potash industry has largely exhausted brownfield expansion options and new greenfield supply will be required. “Our diverse portfolio of growth options will allow us to select the markets in which we can create the most value,” Mackenzie said.

http://www.miningweekly.com/article/south32-spin-off-brings-more-value-to-bhp-2015-05-12
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Oil and Gas

OPEC expects oil prices to be about $76 a barrel in 2025 - WSJ

The Organization of the Petroleum Exporting Countries (OPEC) expects oil prices to be about $76 a barrel in 2025 in its most optimistic scenario, the Wall Street Journal reported, citing a draft of the cartel's latest strategy report.

OPEC does not expect oil prices to consistently trade at $100 barrel again in the next decade, an assessment that has the group considering the return of production limits, the Journal said. (on.wsj.com/1bK28p9)

Oil slipped towards $65 a barrel on Monday as signs that U.S. shale oil production was recovering after a recent price rally renewed concerns of a growing global supply glut.

The report also considers situations where crude oil costs below $40 a barrel in 2025, the Journal said.

OPEC decided against cutting output in November, despite a huge oversupply in world markets.

The report recommends that OPEC return to a production quota system that it abandoned in 2011 after fights over how much each country would get to produce, the Journal said.

http://www.reuters.com/article/2015/05/11/oil-opec-idUSL3N0Y25U820150511
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Saudi Aramco discovered eight new oil and gas fields in 2014

Saudi Arabia's state oil company Saudi Aramco discovered eight new oil and gas fields in the east of the country in 2014, the company said in its annual report on Monday.

Aramco did not give figures on estimated reserves or production rates for the new fields but said they represent the highest number of discoveries in the company's history.

"Upstream, we reliably met domestic and international demand, discovered eight new fields and booked reserves that significantly exceeded production - despite the fact our combined oil and gas production approached an all-time high," chairman Khalid al-Falih wrote in the report.

There were five new gas fields, named Abu Ali, Faras, Amjad, Badi and Faris, with two oil fields, Sadawi and Naqa. The other was an oil and gas field named Qadqad.

"This brings our total number of discovered fields to 129," the company said.

Aramco produced 9.5 million barrels per day (bpd) on average in 2014 and exported a total of 2.5 billion barrels to customers around the world, the report said.

Top oil exporter Saudi Arabia, which has output capacity of 12.5 million bpd, pumped 10.29 million bpd in March.

The company said at the end of 2014 that crude oil and condensate reserves stood at 261.1 billion barrels while natural gas reserves registered 294 trillion cubic feet, both record highs.

http://af.reuters.com/article/commoditiesNews/idAFL5N0Y23UN20150511
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China crude imports to pick up as storage, buyers emerge

China's appetite for crude oil is expected to pick up later this year as storage comes online and new buyers emerge, even after its inbound shipments surpassed United States imports last month for the first time, traders and analysts say.

China's crude oil imports hit a record 7.37 million barrels per day (bpd) in April, making it the world's biggest importer for the commodity last month.

And despite slowing economic growth, China's crude purchases are expected to keep climbing in second-half 2015, supporting oil prices that have rebounded about 40 percent since touching six-year lows earlier this year due to a supply glut.

"While most of the focus is on the supply side ... one of the elements that could help the bulls' case later in the year and next year is China," analysts at Energy Aspects said.

Chinese refiners are expected to rebuild crude stocks pulled down by months of high refining rates, and will begin to fill new commercial storage tanks with a total capacity of nearly 40 million barrels that will come online this year.

"I expect to see higher commercial inventory levels," an oil trader with a Chinese state company said on condition of anonymity.

"Everybody is expecting higher oil prices towards the end of the year, so naturally there will be inventory (build)," he said, as refiners buy crude before it gets more expensive.

China is also expected to resume buying for its strategic petroleum reserves (SPR). Consultancy SIA Energy expects two new strategic storage facilities - in Jinzhou and Tianjin - with total capacity of about 50 million barrels to be completed in the fourth quarter.

Fresh demand from independent "teapot" refiners, which account for a fifth of China's refining capacity, could also add to imports. The country's biggest private refiner, Shandong Dongming Petrochemical Group, expects to get approval in the third quarter to start importing about 5 million tonnes a year (100,000 bpd) of crude.

Adding to China's import needs is a potential dip in domestic output this year of about 120,000 bpd, forecast by researchers at Wood Mackenzie as companies cut capital spending.

The bullish outlook for crude imports contrasts with slowing economic growth in China. Domestic oil demand is forecast by the International Energy Agency (IEA) to grow a modest 2.7 percent in 2015, a bit higher from last year but down from double digit growth at the beginning of the decade.

http://www.reuters.com/article/2015/05/11/china-crude-imports-idUSL3N0Y24KX20150511
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North West Shelf LNG marketing changes could trigger showdown with China

Radical changes in the way the North West Shelf partners market their liquefied natural gas are seen as a potential trigger for a showdown with China over the economic superpower's ultra-cheap gas purchase contract.

Woodside Petroleum, the lead partner of the North West Shelf venture, said in its 2014 annual report the partners in the venture would switch to a system where they each marketed their own share of LNG produced at their plant in Karratha that wasn't committed to contract buyers.

The new system, called equity marketing of LNG, would also apply at the Pluto venture, where Woodside is the 90 per cent owner.

By 2021, when several long-term contracts have expired, the move could create a pool of about 6 million tonnes a year of LNG from the North West Shelf being marketed on that basis, equivalent to about 1 million tonnes net to Woodside, Credit Suisse energy analyst Mark Samter told clients in a note.

That could create an opportunity to "unlock" the North West Shelf venture's sales contract with China's CNOOC, Mr Samter said.

The 25-year, $25 billion contract for more than 3 million tonnes a year of LNG was struck at a historically low price in 2002, with no clauses that allowed for price increases even if oil prices rose. The terms mean the venture is selling LNG to CNOOC at much lower prices than are typical in the market, even after last year's plunge in crude oil prices, against which Asian LNG long-term contracts are typically based.

As revealed in The Australian Financial Review in January, Woodside and its partners have been seeking to increase the price of the contract in meetings with Chinese officials in the southern province of Guangdong. The companies have been accused of holding back LNG shipments as a tactic to try to pressure CNOOC into negotiating on a price increase.

The Credit Suisse note pointed to a report in specialist publication Energy Intelligence, which apparently said the North West Shelf venture had issued an ultimatum for CNOOC's Guangdong Dapeng LNG to pay more or shipments would stop in late May on the contract.

Mr Samter said while stopping shipments would be "contractually difficult", the benefits to Woodside in securing higher prices for the LNG from other customers could be "large".

http://www.afr.com/business/energy/gas/north-west-shelf-lng-marketing-changes-could-trigger-showdown-with-china-20150512-ggzkgp
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Mitsui charters eight LNG newbuild

Mitsui & Co. of Japan said it has signed a 25-year time charter deal with Trinity LNG Transport for the eight carrier that will ship the liquefied natural gas from Cameron project in the United States.

This vessel follows the five ships with time charter parties signed in September, 2014 and the two charter parties signed in January, 2015, the company said in a statement.

The latest deal brings the total maximum charter hire amount for the combined eight ships to approximately 700 billion Japanese yen.

The 178,000 cbm carrier will be built by Imabari Shipbuilding and is expected to commence its charter deal around 2020.

http://www.lngworldnews.com/mitsui-charters-eight-lng-newbuild/

Attached Files
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Castleton joins oil trade titans with Morgan Stanley deal

Castleton Commodities International will buy Morgan Stanley's physical oil business, the largest and oldest on Wall Street, vaulting the Connecticut-based merchant into the big leagues of global crude and fuel traders.

In a long-awaited deal that appears to mark the end of the Wall Street bank's more than three-decade history as a major player in physical oil markets, Castleton will gain several dozen oil tank storage leases, physical oil supply and purchase contracts, and a team of about a hundred traders.

Neither Morgan Stanley nor Castleton released terms of the transaction, but analysts estimated the deal to be valued at slightly more than $1 billion. This principally represents the value of oil inventories in storage or transit. The deal will not be material for Morgan Stanley, the bank said.

Castleton, a Connecticut-based trading group now owned by a private equity group of hedge fund and trading veterans, will have more scale and scope to compete in the massive global oil market.

The deal "aligns well with our goal of becoming a top-tier, global multi-commodity merchant," said CCI's Chief Executive and President William C. Reed II, a former Enron and hedge fund trader who has been running the firm since 2008.

Morgan's Global Oil Merchanting unit has traded around 2 million barrels per day (bpd) of crude and oil products over the past five years, and has 45 oil storage leases for some 30 million barrels, mainly in the United States and Europe, CCI said.

About a hundred front-office staff, including traders and shippers, are expected to move to CCI with the transaction, according to a person familiar with the deal. In total, as many as 200 employees may transfer to CCI, a second person said. The bank's Tom Simpson and Fabrizio Zichichi will lead CCI's global oil trading business, the firm said.

While Morgan Stanley will maintain its client-facing oil trading business, including both physical and paper transactions, the sale concludes the bank's years-long effort to divest a physical trading division that had come under intense regulatory scrutiny and suffered waning profitability.

The bank still plans to sell its stake in oil tanker group Heidmar, which was not part of the deal, a source said.

http://www.reuters.com/article/2015/05/11/morgan-stanley-castleton-oil-idUSL3N0Y26WE20150511
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Gulf Keystone - Equity issuance strengthens financial position

GKP's oversubscribed equity offering gives it renewed financial strength, with cash in hand of over $120m. This allows GKP to invest to maintain its current capability of 40mb/d and cover operating expenses in 2015 even without receipt of revenues from oil sales (which we fully expect it to receive in time). Additionally, the removal of the book equity ratio put option illustrates the commitment of the bondholders to the asset base. The current share price reflects uncertainty over receipt of revenues, but we believe the KRG fully appreciates the importance of Shaikan to the region, and that a reliable payment cycle will come in time. Our core production and development NAV is 56p/share, increasing to a full NAV of 90p/share. We also examine other valuations given the strategic process now entered into, which reveals potential upside from these estimates.

Stable production of 40mb/d possible in 2015

Operationally, GKP has achieved a great deal in the last year. Production capacity has increased to 40mb/d, despite the delays and uncertainties caused by the ISIS incursion in 2014. The drilling of Shaikan-11 (under time and under budget) effectively completes the major capital investment required for continued production at capacity of 40mb/d, though some debottlenecking will be required. The remaining capex earmarked for 2015 points to the future of production (export via pipeline), which could help cut transport costs from $25/bbl to perhaps $5/bbl.

Strategic review opens up opportunities

In February, GKP said it was engaged with a number of parties on asset transactions or a sale of the company. We examine a number of scenarios under which deals may be executed, and the valuation impact. The results suggest significant upside potential is possible.

Valuation: Core NAV 56p, full NAV 90p

The $144m write-down of the Akri-Bijeel asset, though unfortunate, has little effect on the valuation for GKP, as the bulk of value remains in the exploitation of the massive Shaikan field. The announcement of the strategic review puts the company in the spotlight, and we would expect buyers to be able to look past possible near-term cash flow issues to see the strategic value in GKP's assets. Although Shaikan is the crown jewel, the value of the (high WI) Sheikh Adi block could add meaningfully in time. We note that the company is owed an estimated $252m, slightly less than half its current market capitalisation.

http://www.oilvoice.com/n/Gulf-Keystone-Equity-issuance-strengthens-financial-position/2a2169ac16fb.aspx
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EIA Predicts Shale Oil Output Cuts to Grow Next Month

Output from the prolific tight-rock formations such as North Dakota’s Bakken and Texas’s Eagle Ford shale will slide 54,227 barrels a day this month, based on Energy Information Administration estimates. It’ll fall another 86,000 barrels in June to a five-month low of 5.56 million, the agency said Monday.

“Even if 10 rigs come back today, we’re still going to see production decline,’ Amrita Sen, chief oil analyst at consultant Energy Aspects Ltd. said by phone from London on May 6. ‘‘We’ve reached this inflection point where there aren’t enough rigs drilling to offset legacy declines.”

Standard Chartered Plc forecast on May 4 that U.S. shale oil output will drop about 78,000 barrels a day in June from a month earlier, with declines totaling 137,000 barrels a day in the second quarter.

The drop in shale output may prove short-lived. The rebound in prices has drillers including Pioneer Natural Resources Co. preparing to put rigs back to work in U.S. fields. The Irving, Texas-based company said last week that it may deploy more rigs as soon as July.

“Prices are at a level where you’re inviting the deployment of rigs again, so the view of supply significantly falling may be misguided,” Harry Tchilinguirian, the head of commodity markets strategy at BNP Paribas SA in London, said by phone on May 6.

The EIA’s June production forecasts cover the yield from major plays that together accounted for 95 percent of domestic output growth from 2011 to 2013.

Output from the Eagle Ford in Texas, the second-largest oil field in the U.S., will slide by 2.8 percent in June to 1.64 million barrels a day. Production in the Bakken region of North Dakota will drop 2.4 percent to 1.27 million, the EIA said.

Yield from the Permian Basin in West Texas and New Mexico, the largest U.S. oil field, will continue to rise, climbing 0.3 percent to 2.06 million.

The EIA’s oil-production estimates are based on the number of rigs drilling in each play and how productive they are. The number of oil rigs in service across the country has fallen for 22 straight weeks, reaching 668 on May 8, the fewest since September 2010, according to field services company Baker Hughes Inc.

http://www.bloomberg.com/news/articles/2015-05-11/america-s-shale-oil-production-decline-seen-accelerating-in-june
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ExxonMobil Announces Cold Lake Project Expansion Starts Production

Exxon Mobil Corporation announced today that bitumen production began on schedule at the $2 billion Cold Lake Nabiye project expansion in northeastern Alberta, Canada.

“ExxonMobil has the project management experience, engineering expertise and effective contractor interface to deliver superior cost and schedule performance along with safe, reliable facilities that will operate for decades”

The expansion is producing about 20,000 barrels per day and volumes are expected to increase during the year to peak daily production of 40,000 barrels. Nabiye will access 280 million barrels of recoverable resources during its expected 30-year lifespan.

“ExxonMobil has the project management experience, engineering expertise and effective contractor interface to deliver superior cost and schedule performance along with safe, reliable facilities that will operate for decades,” said Neil W. Duffin, president of ExxonMobil Development Company. “Nabiye will contribute important new production to ExxonMobil as we continue to bring new projects on line.”

ExxonMobil expects to increase production volumes this year by 2 percent to 4.1 million oil-equivalent barrels per day, driven by 7 percent liquids growth. The volume increase is supported by the ramp up of several projects completed in 2014 and the expected startup of seven new major developments in 2015, including Hadrian South in the Gulf of Mexico, expansion of the Kearl project in Canada, Banyu Urip in Indonesia and deepwater expansion projects at Erha in Nigeria and Kizomba in Angola.

http://www.businesswire.com/news/home/20150511005672/en/ExxonMobil-Announces-Cold-Lake-Project-Expansion-Starts#.VVC8RY5VhBc
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Noble Energy to buy Rosetta Resources for about $2 bln

Oil and natural gas producer Noble Energy Inc said it would acquire Rosetta Resources Inc for about $2 billion in stock, highlighting a consolidation being driven by a steep fall in global oil prices.

The deal will give Noble entry into the Eagle Ford Shale field and the oil and gas region of Permian Basin in Texas.

Rosetta shareholders will receive 0.542 Noble Energy shares for each share held, or $26.62 per share, based on Noble's closing price of $49.12 on Friday.

The offer represents a 38 percent premium to Rosetta's Friday close of $19.33. The shares had lost nearly two-thirds of their value since June.

Noble will also assume Rosetta's net debt of $1.8 billion as of March 31.

The company said it had identified more than 1,800 drilling locations across Rosetta's liquids-rich assets, consisting of 50,000 net acres in the Eagle Ford shale and 56,000 net acres in the Permian.

The assets have the potential to produce about 1 billion barrels of oil equivalent, Noble said.

Noble's deal for Rosetta, expected to close by the third quarter, is the latest acquisition triggered by the steep drop in global oil prices .

Royal Dutch Shell last month agreed to buy BG Group for 47 billion pounds ($70 billion) in the first major energy industry merger in more than a decade.

Smaller companies have followed suit. Spain's Repsol bought Talisman Energy, Canada's fifth-largest independent oil producer, for $8.3 billion last December.

http://www.reuters.com/article/2015/05/11/rosetta-resource-ma-noble-energy-idUSL3N0Y258D20150511
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Chesapeake cutting back Utica drilling in eastern Ohio

As long as Chesapeake Energy can keep two drilling rigs in eastern Ohio, it will be able to hold onto its acreage. Akron Beacon Journal reports that Chesapeake will operate with only two rigs before the end of the third quarter of 2015 and will also reduce the number of its fracking crews from four to 2.5.

Chesapeake is cutting its operations in Ohio after a stretch of low natural gas prices. At the same time, the company is extending its laterals to produce better results in Ohio.

Chesapeake is the number 1 player in the Utica Shale. The company is the number 2 natural gas producer in the United States. Compared to the first quarter of 2014, Chesapeake’s production for the first quarter of 2015 grew by 14 percent.

http://shalegasreporter.com/news/chesapeake-cutting-back-utica-drilling-eastern-ohio/55488.html
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Alternative Energy

Plug Power reports 1Q loss

Plug Power Inc. (PLUG) on Monday reported a loss of $11.1 million in its first quarter.

On a per-share basis, the Latham, New York-based company said it had a loss of 6 cents. Losses, adjusted for non-recurring gains, came to 7 cents per share.

The results did not meet Wall Street expectations. The average estimate of five analysts surveyed by Zacks Investment Research was for a loss of 6 cents per share.

The alternative energy company posted revenue of $9.4 million in the period.

http://www.cnbc.com/id/102666605
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Base Metals

Turquoise Hill Q1 Financial Results and Review of Operations

Turquoise Hill Resources today announced its financial results for the quarter ended March 31, 2015. All figures are in US dollars unless otherwise stated.

HIGHLIGHTS

Oyu Tolgoi recorded revenue of $426.2 million in Q1'15 on sales of 167,700 tonnes of concentrate containing high gold content; concentrate sales exceeded production for Q1'15.

Revenue and sales in Q1'15 reflect expected lower quarterly production and reduced head grades as well as the impact of the Lunar New Year holiday when border and customs operations were closed.

Turquoise Hill reported income attributable to shareholders of $96.2 million, including a non-cash impairment reversal credit of $35.2 million related to its SouthGobi investment.

Turquoise Hill generated operating cash flow of $105.3 million during Q1'15.

In Q1'15, material mined increased 16.1% over Q4'14 mainly due to improvements driven by a range of productivity initiatives in the open pit partially offset by longer haul distances.

Concentrator milling rates increased through Q1'15 as improvements started to take effect, particularly in the pebble crushing circuit.

Open-pit development for 2015 is proceeding to schedule with higher-grade material expected to be processed by the concentrator starting in Q2'15.

Turquoise Hill expects production distribution at Oyu Tolgoi to be relatively similar to 2014 with production levels significantly higher in the second half of 2015.

Significant progress has been made in discussions with the Government of Mongolia; however no formal agreement has been signed that resolves all remaining matters.

Oyu Tolgoi LLC signed a Cooperation Agreement in April 2015 with its partner communities, which is required under the Investment Agreement and the Mongolian Minerals Law.

On April 23, 2015, Turquoise Hill completed its divestment transaction with Novel Sunrise Investments Limited for the sale of 48,705,155 shares in SouthGobi, with a loss on disposal expected in Q2'15.

On May 1, 2015, Turquoise Hill announced the expiration of its share purchase agreement with National United Resources for the proposed sale of 56,102,000 shares in SouthGobi.

During Q1'15, Turquoise Hill generated $95.1 million of cash.

Turquoise Hill's cash and cash equivalents at March 31, 2015 were $954.2 million.

http://finance.yahoo.com/news/turquoise-hill-announces-financial-results-210758810.html
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Peru says halts talks with Southern Copper over possible 'wrongdoing'

Peru's energy and mines minister said on Monday that she has halted talks with Southern Copper Corp over its stalled $1.4 billion Tia Maria project until the miner explains its role in possible "wrongdoing."

The government summoned German Larrea, the chief executive officer of Southern Copper's parent company, Grupo Mexico , to the capital Lima to clarify the matter.

Energy and Mines Minister Rosa Ortiz said her suspicions of wrongdoing stem from audio recordings in which a man is heard offering to stop to violent protests against the project in exchange for money from the company.

Reuters could not confirm the authenticity of the audio recordings, which a local lawyer has said represent his conversations with a lead opponent of Tia Maria in a bid to mediate a solution.

Ortiz said she wants the company to explain its involvement in the scandal, which threatens to further obstruct plans for the 120,000-tonnes-per-year project.

"I have suspended talks with Southern until it clarifies its participation in this wrongdoing," Ortiz said in an email to Reuters.

"Today I requested the presence of Mr. Larrea, owner of the company, in Lima with the aim of clarifying this matter," she said. "I am waiting for him to confirm when he will arrive."

Southern Copper did not respond to requests for comment. But in a full-page ad published in Peru's biggest newspaper, El Comercio, the miner denied wrongdoing.

"Southern Copper is not involved in illegal acts," it said.

In the recordings, the lawyer, Jesus Gomez, who has previously worked with Southern Copper, is heard brokering a bribe on behalf of the company if opponents call off protests.

Gomez said in an interview with local daily La Republica that Southern Copper told him it had no interest in such a deal but that he should play along.

The government has accused the Tia Maria opponent in question, Pepe Julio Gutierrez, of extortion. Gutierrez has denied that he is the person in the audio.

http://www.reuters.com/article/2015/05/12/peru-southern-copper-idUSL1N0Y22PT20150512
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Zinc’s Supply & Demand Equation Not Simple Math

As the year works through its second quarter, there appear to be hopes 2015 will be a good year for zinc. Or not.

When it comes to zinc, over the past three years, mine production, metal production and metal usage have all risen.

Full article:
http://www.hardassetsinvestor.com/features/6893-zincs-supply-a-demand-equation-not-simple-math.html?showall=&fullart=1&start=7
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European producers under pressure on softer aluminium ‘all-in’ price

Aluminium producers are expected to be under increasing pressure as the aluminium ‘all-in’ price (London Metal Exchange cash price + premium) has fallen over the last few months on the back of lower global premia, while the LME aluminium cash price has largely remained unchanged.

smart-lme-aluminum-cash-price-vs-all-in

As the graph above indicates, the LME cash price has traded in a tight  $180/mt range for most of this year — practically unchanged from levels seen back in mid-October and mid-December. At the same time, the Platts European duty-paid aluminium premium assessment has come off around $350 since mid-November when it peaked at a record high of $500-510/mt. Platts assessed duty-paid aluminium at $150-160/mt plus LME cash, in-warehouse Rotterdam May 11.

In theory, the lower all-in price should start to eat into smelter margins and see producers under increased pressure. One analyst source has forecast that over 10 million mt of global capacity is now loss-making at current all-in price levels and notes that producers are now much more exposed to LME price movements without the cushion of elevated premia.

While exports of semi-finished aluminium products from China have seen growing concerns over increased  supply in the physical spot market, December shipments peaked at just less than 500,000 mt. Meanwhile, primary aluminium and aluminium product exports from climbed by over 30% year-on-year to 430,000 mt in April.

The Chinese government also recently removed a 15% export duty on certain alloy and semi-finished products (product codes: 76042910, 76041010 and 760120)  that could arguably see more primary metal exit China disguised as semi-finished product.


http://blogs.platts.com/2015/05/12/european-aluminum-producers-price-pressure/
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Steel, Iron Ore and Coal

Rio’s new coal chief sees commodity recovery in the ‘very’ far distance

Rio Tinto’s newly appointed coal boss, Jean-Sébastien Jacques, says it will be at least three or four years before thermal coal prices recover.

Jacques, who was named as the company’s new coal leader in February when Rio revealed plans to combine its copper and coal divisions to cut costs, told The Australian Financial Reviewhe expected the sector to undergo longer price pain than anticipated.

"In coal we have to be ready that we have multiple years, it could be even three or four years, before we see an inflection point," Jacques was quoted as saying. “There will be volatility, don't get me wrong; but where you say, 'Well there is a real step change' – that won't be in the short term."

Jacques added his main priority since taking over the job from Harry Kenyon-Slaney eight weeks ago is to ensure Rio’s coal mines remained free-cash-flow-positive, amid what he called “a very challenging environment”.

Analysts estimate around a fifth of the thermal coal industry is losing money based on current prices — a position that is usually unsustainable in commodity markets.

“When you are that far into the cost curve, the downside is pretty limited,” Tom Price, commodities strategist at Morgan Stanley, said in a March note. “Price buoyancy is already indicating that this is the case.”

http://www.mining.com/rios-new-coal-chief-sees-commodity-recovery-in-the-very-far-distance/?utm_source=twitterfeed&utm_medium=twitter
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Shanxi Coking Coal cuts May prices by 40 yuan/t

Shanxi Coking coal group Co., Ltd, China’s largest metallurgical coal producer, has cut prices by around 40 yuan/t from April for some steel mills, a slower pace compared with April’s cut, sources said.

The group has cut prices of its premium coals by a total of 100-120 yuan/t since April.

Besides, the group continued setting prices separately with each end user at varied extents of discounts, and offering extra discounts for large volume buyers.
 
However, some buyers didn’t adjust down purchase prices for coking coal from Shanxi’s local mines, as their stocks were low.
 
Buyers said the price may be reduced by only 10-20 yuan/t generally in the short run, as many miners are suffering losses and can’t stand more price reduction.
 
One buyer said many local private mines and washing plants have closed or suspended production and most state-owned producers are running in red.
 
One source said the ex-washplant price of primary coking coal in Jinzhong with 1.6% sulphur was 500 yuan/t with VAT and the price of fat coal with 1.8% sulphur was 490 yuan/t.
 
The free-on-rail price of one Luliang-based producer’s primary coking coal with 2.5% sulphur was 440 yuan/t, and the producer has halted the production of coals with sulphur content of 1.8%.

http://en.sxcoal.com/0/118655/DataShow.html
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Shanxi's investment in coal industry continued to decline in the first quarter of 2015.

In the first three months, the province's investments in the coal industry dropped 15.5 percent lower than the same period last year, while coal's share of the industrial investment decreased to 22.2 percent.

On the other hand, the non-coal industry attracted more investment this quarter. The non-coal industry has completed investment of 34.26 billion yuan ($5.52 billion) from Jan to March, growing 16 percent over the past year.

Shanxi's coal and related industries used to be the main destinations of investment before the "golden age" of coal industry ended in 2012.

The province's economic restructuring has led more capital to flows to non-coal industry. After the coal resources integration, investment withdrew from coal towards non-coal industries such as agriculture and tourism, according to coal industry experts.

http://en.chinamining.com.cn/News/2015-05-12/1431409882d72152.html
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Iron ore soars on China move

The price of iron ore has surged to its highest level in more than two months after the People’s Bank of China (PBoC) opted to trim interest rates over the weekend.

At the end of the latest session, benchmark iron ore for immediate delivery to the port of Tianjin in China was trading at $US62.50 a tonne, up 3.3 per cent from its prior close of $US60.50 a tonne.

The offshore move is just the latest upswing in a one-month rally that has driven the commodity almost 35 per cent above the 10-year low of $US46.70 a tonne reached in early April.

The startling recovery came straight after dire forecasts came rolling in from analysts in April, with Goldman Sachs suggesting the commodity may never hold above $US50 a tonne after 2015 and Deutsche Bank, Citi and the Abbott government all warning of falls into the mid-$US30s.

Since those expectations were made public the commodity has been driven higher by rising oil prices, Chinese stimulus and supply cut signals from both BHP Billiton and Vale as well as several distressed junior players.

While at first it was viewed as a dead cat bounce as traders looked to cover heavily short positions, the duration and size of the rally is providing hope to the sector that a lowpoint in the cycle may already have been reached.

http://www.businessspectator.com.au/news/2015/5/12/commodities/iron-ore-soars-china-move
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Anglo may raise Brazil iron ore capacity to 29 mln t/yr by 2018-20

Anglo American may increase capacity at its Minas-Rio iron ore mine in Brazil by nearly 10 percent, a move that could cut unit costs at the troubled $13 billion project, the company's Brazil chief executive said on Monday.

Production volume could rise as high as 29 million tonnes in the 2018-2020 period, 9.4 percent more than the mine's expected capacity of 26.5 million tonnes a year, Paulo Castellari, Anglo's CEO for Brazil, told reporters at a presentation near Belo Horizonte, Brazil.

Adding new capacity without large additional investments brings down per-tonne costs for bulk commodities. This could help Anglo's Minas-Rio mine compete with low-cost producers such as Brazil's Vale SA and Australia's BHP Billiton Ltd and Rio Tinto Ltd, which have cash costs of between $20 and $30 per tonne.

Cash costs at Minas-Rio are expected to be between $33 and $35 per tonne, Castellari said.

This year, costs are expected to be nearly double that figure at about $60 per tonne as the recently opened mine ramps up output.

The Minas-Rio project sends iron ore 529 kilometers (329 miles) from its central highlands mine in Minas Gerais state via a slurry pipeline to a port north of Rio de Janeiro where it loads pellet-feed grade ore onto ships for export.

Minas-Rio cost $5.5 billion to acquire the rights from Brazilian tycoon Eike Batista and $8.4 billion to build. It is the largest-ever foreign investment in Brazil.

After taking a $4 billion write-down on the project in 2012, Anglo began operations at Minas-Rio late last year, nearly five years behind schedule and after a China-driven iron-ore price boom went bust.

Iron ore prices in the Chinese spot market .IO62-CNI=SI, the largest for the steel-making ingredient, rose 3.3 percent on Monday to $62.50 a tonne, the highest in more than two months.

Castellari said Anglo had so far been pleased with the premium the company was receiving for its high-iron-content ore but declined to say how much more he gets per tonne above the benchmark spot price.

http://www.reuters.com/article/2015/05/11/anglo-ameri-brazil-production-update-3co-idUSL1N0Y21TN20150511
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