Mark Latham Commodity Equity Intelligence Service

Thursday 29th September 2016
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    China's economy less healthy in third quarter than data suggest-private survey

    China's economy was less healthy in the third quarter than a recent spate of upbeat data suggest, with growth coming exclusively from manufacturing and property while the services and retail sectors faltered, a private survey showed.

    Manufacturing posted its fastest expansion nationally, with 53 percent of companies seeing revenue gains, up 3 percent from a year earlier, a quarterly survey of more than 3,100 firms by China Beige Book International (CBB) showed.

    While a government infrastructure building spree and housing boom have given a much needed boost to "old economy" firms from steel mills to cement makers, CBB noted foreign orders had also improved.

    But "new economy" sectors - services, transportation and retail - showed weakness both quarter-on-quarter and year-on-year, with cash flow and profits deteriorating, leaving the country on uneven footing.

    Services slowed and retail firms experienced one of their weakest performances in the history of the survey as e-commerce firms gobbled up more market share.

    "The chief problem in China economic analysis remains the unwillingness to look behind dubious headline data," authors Leland Miller and Derek Scissors wrote in a note accompanying the report.

    "High-profile indicators such as GDP and the PMIs this quarter will rubber stamp the government's recovery narrative, but only those with nothing on the line should accept this at face value."

    Official data for August raised hopes the economy was stabilising and perhaps even picking up, with industrial output, retail sales and property investment all quickening more than expected, while industrial profits grew at the strongest pace in three years.

    But while the property sector showed another quarter of strong growth, there are signs that China's real estate boom is starting to stutter, the CBB report said.

    Property sales revenue is uneven across the country, while companies' cash flow weakened, prompting a spree of new borrowing that will likely add to worries about rapidly rising debt levels. Moreover, more and more cities are tightening restrictions on home purchases as prices soar.

    In the services sector, growth weakened in every area aside from hospitality. Retailers with only brick- and- mortar stores saw no net revenue growth in the third quarter.

    "Struggling retail and a property bubble is not the kind of stability many are touting," the report said.

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    Will Anglo stick to radical restructuring plans?

    The world's number five diversified mining company, Anglo American announced a "radical portfolio restructuring" at the end of last year. The company with roots going back more than a hundred years to South Africa's gold and diamond fields said it's reducing the number of mines it operates from 55 to as few as 16 to focus on diamonds, copper and platinum because of better long-term potential. Its nickel, coal and iron ore assets will be put up for sale.

    Nine months the mining world seems a very different place. And the divestment process has been slow. Anglo is only halfway towards its goal of getting rid of between $3 billion – $4 billion worth of assets this year towards its goal of bringing net debt below $10 billion.

    The company managed to sell a niobium and phosphate operation in Brazil for $1.5 billion, but attempts to rid itself of its South African coal mines are facing opposition from all corners including the company's top shareholder.

    Finding buyers for the Australian coking coal mines have also proved difficult particularly since that market there is a very different beast today than it was when Anglo first put the assets up for sale. And despite a pick-up in price there's been no news of buyers for its South African and Brazilian iron ore operations – the number four supplier to China of the steelmaking material.

    They have publicly committed to this restructuring programme but the pressure to do it from a balance-sheet perspective is not there any more

    Besides, the downsizing  may no longer be the right strategy for the Anglo with metallurgical coal prices skyrocketing, iron ore 50% above its December lows and a broad improvement in base metal prices (with the glaring exception of copper).

    On Wednesday Moody's Investor Service upgraded the credit rating of Anglo with a positive outlook to "reflect the company's strengthened leverage profile and our assessment that it shows greater operating resilience and is unlikely to reverse from the improved leverage position."

    The ratings firms said while it is taking into account recent modest uptick in the commodities prices it does not expect a significant upside in prices in the next 12-18 months:

    Taking into account our updated commodity price assumptions, we expect AAL's adjusted EBITDA to reach around $5 billion in 2016/2017, assuming no further divestments. Improved unit costs across the portfolio and relative weakness in production currencies, including the South African Rand and Brazilian Real, should continue to cushion AAL's profitability amid relatively weak pricing environment. In particular, accelerated cost reduction in the iron ore operations and ramping-up at Minas Rio, have significantly improved the overall resilience of the iron ore business.

    "You get a little bit of joy and you think that the world has changed"

    Anglo's share price reflects the company's much brighter prospects with the stock up three-fold in London (helped in part by the fall in the pound) for a market value of more than $17 billion.

    The recovery in Anglo's operating environment has some calling for CEO Mark Cutifani to abandon the radical restructuring. The Financial Times quotes Fraser Jamieson, analyst at JPMorgan, as saying that Anglo much healthier balance sheet and declining risks in the industry may necessitate a rethink:

    “When Anglo announced the [restructuring] plan it felt like [the company] could be a matter of weeks away from being forced into very punitive [asset] sales or having to raise equity.

    “Now […] they find themselves with a different problem — they have publicly committed to this restructuring programme but the pressure to do it from a balance-sheet perspective is not there any more.”

    Cutifani told the Financial Times  that he's sticking to plans for a new Anglo despite the rally in its key commodities:

    “That is the mistake we make in this industry. You get a little bit of joy and you think that the world has changed. We are not going to allow one or two good months change what we think is strategic.”

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    Oil and Gas

    Devil's in the details of OPEC deal as Asia buyers remain cautious

    Asian crude oil buyers remained cautious, eyeing details of an OPEC deal after the oil-producers group agreed for the first time since 2008 to reduce output in an oversupplied market.

    Global oil prices held onto gains on Thursday after soaring 6 percent in the previous session as the Organization of the Petroleum Exporting Countries agreed on Wednesday to reduce output to a range of 32.5-33.0 million barrels per day.

    However, how much each country will produce is to be decided at the next formal OPEC meeting in November, when an invitation to join cuts could also be extended to non-OPEC countries such as Russia.

    "We have to wait and see whether they will take real action and how long it would last," said Kim Woo-kyung, spokeswoman at SK Innovation, owner of South Korea's largest refiner.

    The size of the proposed cut is not significantly huge, she said, but added that the deal could support prices, increase the value of refiners' crude inventories and margins by pushing up oil product prices.

    OPEC's new target represents an implied cut of 0.5-1.0 million bpd, although the actual cut could easily be much smaller at 0-0.5 million bpd depending on whether Libya and Nigeria can recover from supply disruptions, Societe Generale's oil analyst Michael Wittner said.

    The OPEC deal is unlikely to affect Middle East crude supplies to term customers in Asia for next year, but may crimp additional volumes that producers have been offering throughout 2016, traders said.

    "They've been giving incremental volumes so maybe less for next year," said a trader with a North Asian refiner who declined to be named as he was not authorised to speak to media.

    Still, robust oil demand in Asia has absorbed much of the increase in OPEC production and may provide little impetus for OPEC producers to cut output unless demand drops.

    "It has historically taken a fall in oil demand to ensure quota compliance, as in that case, production is forced lower by a decline in refinery intake around the world. This is not the case today with resilient demand growth," Goldman Sachs analysts said.

    Asian refiners' crude demand has been good this year and are expected to hold steady unless there are major changes in refining margins or crude prices set by producers, the trader said.

    Higher oil prices could also encourage U.S. shale producers to increase output and fill in supply gaps left by OPEC, traders said.

    "An amply supplied market will continue to allow these importers to pick and choose from a broader array of suppliers, though given current refinery configurations the dependence on Middle Eastern crudes will continue," BMI Resarch analyst Peter Lee said.
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    How Actual Nuts and Bolts Are Bringing Down Oil Prices

    Last spring, Statoil ASA announced it had used the same oil well design and components to drill three reservoirs for the price of one.

    While the specs for Norwegian Sea drilling might provoke reactions akin to the oil field’s name—the Snorre—such standardized pipes and casings could hold the key to a pervasive mystery about today’s energy market: Why is everyone still drilling when prices are in the basement?

    Even as oil producers have planned $1 trillion worth of spending reductions between 2015-to-2020—cutting staff, delaying projects, and squeezing contractors—they’ve continued to green-light new wells from the Norwegian Sea to Brazil, and from Uganda to the Gulf of Mexico. Those initiatives mean oil production will continue to grow, adding to the supply glut and putting downward pressure on prices.

    It’s a development that has both baffled and frustrated the world’s biggest producers of crude, who have been waiting for lower prices to force a rollback of global production. They have largely blamed the resilience of the world’s oil drilling on U.S. shale producers, as well as efforts to maintain market share, but the Snorre and other projects like it suggest there may be another–much more boring–culprit at fault.

    That's because oil majors' urgent mission to slash costs includes standardizing the components used in drilling for oil–a development that has helped turn unprofitable wells into moneymakers, protected bottom lines, and allowed companies to keep pumping even in the face of crude prices that have more than halved over the past three years.

    “One might wonder how it is possible that with expenditures being cut dramatically in the upstream industry, output is still growing in many parts of the non-OPEC world while the costs of future projects are declining,” analysts at JBC Energy GmbH wrote earlier this year. “One of the key topics in this respect is industry standardization.”

    While oil traders have been pondering the prospect of a production freeze from OPEC, which has so far ramped up production to seize market share and force upstart shale players out of business, they’ve paid scant attention to cooperation already taking place across the industry.

    Earlier this year the heads of some of the world’s biggest oil majors, including Saudi Aramco, BP Plc, Repsol SpA, and Statoil, met behind closed doors to discuss a push to cut costs by standardizing the equipment used in exploration and production. Other joint projects are already under way, meaning everything from the ‘Christmas Tree’ collections of valves and spools used in oil wells, to light bulbs, and engineering contracts are now up for standardized treatment.

    It’s a sharp turnaround from the heady days of the mid-2000s when oil reached more than $145 per barrel. Back then, nascent standardization efforts were primarily aimed at speeding up lead times—the interval between the discovery of oil and when drilling commences—in order to make up for a shortage of engineers and other energy industry professionals.

    “People were rushing to get hydrocarbons into the market. If something wouldn’t work, you could just throw more money at it,” said Rod Christie, president and chief executive of Turbomachinery at GE Oil & Gas. “Today that’s not an option. Everything has to be more efficient.”

    Now, lead times and costs are again at the fore—but for very different reasons. With the price of oil dipping to $26.21 in February and currently hovering around $45 a barrel, attaining maximum production using the least amount of time and resources is crucial.

    “Time is money in this business,” said Kristin Nergaard Berg, DNVL Gas AS project manager for a joint industry effort to standardize sub-sea processing. “The earlier you start production, the better the net present value of your project is.”

    It’s a far cry from the way things used to be done, when drillers would often order costly custom fittings tailor-made for individual wells. Ordering standardized parts can allow the companies to pre-stock components and rapidly sign contracts, letting them ramp up production at a faster rate and cheaper cost—similar to the creation of the standardized railway gauges that helped spur a boom in train traffic.

    Nergaard Berg estimates that standardization of sub-sea forgings alone—the massive steel spools used in deepwater drilling—has resulted in a 30 percent reduction in project lead times. Christie, of GE Oil & Gas, also reckons that standardization can lower drilling expenses by an average of 30 percent.

    At Statoil, the three wells drilled at its Snorre B platform cost an average 170 million kroner ($21 million) compared with about 490 million kroner for previous projects, according to the Stavanger, Norway-based company. That means oil obtained by the platform, which began pumping some 80,000 barrels a day, costs an average of $10 a barrel.

    About 100 miles south of New Orleans, BP has more than halved the costs stemming from a massive floating oil platform known as Mad Dog. While the company is benefiting from a steep reduction in the cost of drilling services and commodities such as steel, a “large chunk of savings has been driven by simplification and standardization,” Goldman Sachs Group Inc. analysts said in research published this month.

    “Once FX variations have been factored in, we expect the majority of the projects to be more cost competitive vs. U.S. shale,” the analysts led by Henry Tarr said. “Factoring in the new cost deflation drives breakevens for deepwater the most.”

    Such standardization efforts are likely unleashing a wave of downward pressure on oil production costs, according to Goldman’s analysis. That’s helped keep expenses low and production high, forcing oil prices lower thanks to the stubborn glut in supply.

    “We expect the majority of the projects to be more cost competitive vs. U.S. shale,” the Goldman analysts said, with deepwater drilling to benefit the most from standardization.

    Overall, oil majors have taken a chainsaw to expenses, reducing spending for the 2015-to-2020 period by $1 trillion, according to estimates from consulting firm Wood Mackenzie Ltd.

    “The oil industry has often been criticized as being behind other industries in terms of the implementation of available technology,” said the analysts at JBC. “This is beginning to change.”

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    Russia Smashes Post-Soviet Oil Supply Record as OPEC Weighs Curb

    Russia, the world’s largest energy exporter, is on course to pump a post-Soviet record amount of oil in September, adding as much as 400,000 barrels a day to the country’s production. The output surge comes as OPEC nations meet in Algeria, with discussions to curb a global surplus at the top of their agenda.

    Russian crude and condensate production is set to average 11.1 million barrels a day this month, compared with 10.7 million barrels a day in August, according to preliminary Energy Ministry data compiled by Bloomberg. That would surpass the 10.9 million barrels a day January production level, which officials consideredas a potential cap during failed talks among producer nations in April.

    Now they’re reviving those efforts. Russia and members of the Organization of Petroleum Exporting Countries are meeting this week in Algeria to discuss scenarios for potentially curbing production to help stabilize an over-supplied oil market. The talks may not produce a decision, in part due to the different views of regional rivals Saudi Arabia and Iran. The April discussions in Doha fell apart after Saudi Arabia insisted Iran join the effort to limit production instead of being allowed to return output to a level prior to the imposition of international sanctions, which were lifted in January.

    Russia would consider a range of freeze options, though it would prefer capping its output at the most recent levels, according to Energy Minister Alexander Novak.

    "We will look at different options and discuss them with OPEC", Novak told reporters late yesterday after bilateral meetings with Saudi Arabia, Iran and Venezuela. "Undoubtedly, September would be the month that objectively would suit us best.”

    Siberian Fields

    The increase in Russian crude output is being driven by the start of new fields in the country’s far north and the Caspian Sea region. Rosneft PJSC, along with Gazprom Neft, the oil unit of Gazprom PJSC, began commercial production from the East Messoyakha venture earlier this month. Rosneft plans to start the Suzun field, a separate project in Siberia, next month, according to Chief Executive Officer Igor Sechin. Lukoil PJSC’s Caspian Filanovsky deposit has started a second well, which is now in test production, and is on track to grow to a peak of 120,000 barrels a day next year, according to the company press service.

    Russia produced record annual average 11.4 million barrels a day in 1987, before the break-up of the Soviet Union, according to BP statistics. Bloomberg’s monthly estimate for September production is based on daily data from the Energy Ministry’s CDU-TEK for the first 27 days of the month, and then the average of the rate over the last week for the final three days.

    Russian production has every opportunity to continue growing, potentially adding another 2-3 percent over the next 12 months if the government doesn’t raise taxes on the industry, according to Artem Konchin, an oil analyst at Otkritie Capital in Moscow. Rosneft and Lukoil, the nation’s two largest producers, have shifted their guidance on output to positive territory as they start new fields and increase spending on core production in Siberia, he said in an e-mail.

    “If the freeze happens at current levels, then the bar is obviously higher,” Konchin said. “Technically, I’m not sure how that whole thing will be implemented -- no one is sure.”

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    Libya’s Oil Output Nudges Higher as Wintershall Resumes Output

    Libya, struggling to revive its energy industry after five years of armed conflict, restarted production at an eastern oil field and was poised to export crude from the port of Zueitina for the first time since November.

    Germany’s Wintershall AG began pumping at Concession 96 in the As Sarah field on Sept. 16 and is producing 35,000 barrels a day, a company official said Wednesday in an e-mailed response to questions. Wintershall restarted production at the request of Libya’s National Oil Corp. and will send oil from the field to Zueitina for export, the official said.

    The tanker Ionic Anassa is due to arrive at Zueitina on Oct. 3, according to a signal from the ship. It would be the first vessel to load crude there since force majeure restrictions were lifted earlier this month.

    “Libya’s output is showing the first signs of a credible increase,” said Olivier Jakob, managing director of Petromatrix GmbH in Zug, Switzerland.

    Libya, with Africa’s largest crude reserves, produced 260,000 barrels a day last month, data compiled by Bloomberg show. It has gradually boosted output and is now pumping 485,000 barrels a day, National Oil Corp. Chairman Mustafa Sanalla said in an interview in Algiers on Wednesday as OPEC members prepared to meet in the Algerian capital. The country produced about 1.6 million barrels a day of oil before the 2011 uprising that ousted longtime leader Moammar Al Qaddafi, but output has withered as rival militias vied to control energy facilities.

    Three Ports

    The NOC removed force majeure at Zueitina and the export terminals of Es Sider and Ras Lanuf on Sept. 14, after reaching a deal with Khalifa Haftar, commander of the armed forces controlling the terminals. Force majeure, a legal status protecting a party from liability if it can’t fulfill a contract for reasons beyond its control, was declared after the ports came under attack. Ras Lanuf, Libya’s third-biggest oil port, resumed exports this month. Zueitina will ship two oil cargoes by the end of the month, and operations at the port are normal, the NOC’s Sanalla said.

    Renewed crude shipments from Zueitina would give an additional boost to Libya’s economy as rival administrations toil to form a unified national government. Islamic State militants exploited a power vacuum in Libya after the country split between two rival administrations in 2014.

    Wintershall is part of the world’s biggest chemicals company, BASF SE, which also operates in plastics, agriculture and natural gas.

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    Eni asks banks for billions to finance Mozambique gas project

    Italian oil firm Eni has approached banks for billions of dollars to finance a huge offshore gas development in Mozambique, a significant step in getting a long-delayed project off the ground, the company and sources said.

    Eni confirmed it met bankers in London last week about project financing to develop the Coral field, part of the huge reserves discovered six years ago in the Area 4 concession off the Mozambican coast.

    "It's running into billions of dollars," one source familiar with the financing told Reuters, adding banks were also looking for credit guarantees from foreign governments, including Britain and China.

    Banks are likely to respond within three to four weeks with terms of loans they are willing to provide, one of the last stages before Eni can make a final investment decision (FID) on the project, two sources close to the deal said.

    Eni said it hoped to announce a FID by the end of this year.

    Some lenders may be concerned about involvement in a project in Mozambique, given recent clashes between opposition guerrillas and government forces and financial scandals.

    The International Monetary Fund (IMF) is in Mozambique this week to try to restore trust between President Filipe Nyusi's government and international lenders after more than $2 billion in secret loans came to light this year.

    The IMF has suspended its own lending to the southeast African country, insisting on external scrutiny as a precursor to resuming financial aid.

    "The biggest challenge is Mozambique country risk," one of the sources said.

    Reserves discovered in Mozambique's Rovuma Basin in recent years amount to some 85 trillion cubic feet, one of the largest finds in a decade and enough to supply Germany, Britain, France and Italy for nearly two decades.

    The gas offers Mozambique an opportunity to transform itself from one of the world's poorest countries into a middle-income state and a major global liquefied natural gas (LNG) exporter.

    Negotiations with operators Eni and U.S. firm Anadarko have dragged on for years due to disputes over terms and concerns about falling energy prices.

    However, there have been several signs of significant progress in recent months.

    Eni has struck a deal with Samsung Heavy to provide a floating LNG platform to process the gas from the Coral field, which will be sold to BP.

    Eni has also wrapped up long-running talks to sell a multi-billion dollar stake in other fields in Area 4 to Exxon Mobil, sources told Reuters last month.

    In 2013, Eni sold 20 percent of its Area 4 licence to China's CNPC for $4.2 billion but since then oil and gas prices have come down by more than half.

    Anadarko's $24 billion onshore LNG project is expected to lag Eni's and its FID is unlikely this year.
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    Hundreds of workers laid off amid Norway strike action

    Hundreds of workers have been laid off in Norway amid strike action by Industri Energi.

    The staff made redundant are from Baker Hughes, Schlumberger and Halliburton.

    According to reports, the majority of the employees who have lost their jobs are from Baker Hughes.

    Strike action has been ongoing in Norway since last week.

    The companies involved are alleged to have claimed there is simply not enough work for staff as drilling operations have been halted because of the strike.

    Industri Energi said pressure was being put on the workers through job cuts to give up on strike action.

    Since the industrial action began there have been no discussions between the companies or unions.
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    Vitol CEO says does not see tighter oil market before 2018

    The chief executive of Vitol, the world's largest oil trader, said on Wednesday he did not see the global oil market tightening before 2018.

    He also expressed scepticism over the significance of a potential OPEC deal on freezing production.

    "If you freeze production at a level that is clearly above demand ... is that bullish?" Ian Taylor asked a Bloomberg conference in London.

    Investors were closely watching an OPEC meeting in Algiers this week anticipating that the cartel would finally agree a plan to tackle a global crude surplus that sent oil prices tumbling in 2014. But so far, the talks have remained just that.

    Taylor said it would be difficult for the market to rebalance with underwhelming global economic growth meeting slightly better-than-expected production.

    He expects oil demand growth this year at 1.2 million-1.3 million barrels per day and that the liquefied natural gas market would remain long until 2022.
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    A world first for Chinese LNG marine platform builder

    The Chinese company Wison Offshore & Marine, the upstream arm of the Wison Group that focuses on services and capital investment in the oil and gas industry, today announced its natural gas floating liquefaction unit (FLNG) has successfully completed its performance test at the Wison yard in Nantong, China. This marks for the first time LNG has ever been produced onboard a floating facility.

    The company’s services cover the full life cycle of project delivery, from facility design and engineering, to project management, construction, commissioning and operations.

    "The performance test was carried out in the presence of classification societies, the client Exmar [for which Wison provided turnkey services] and all the relevant parties. During the 72-hour performance test, the excellent performance of the FLNG ensured all key design requirements and production capacities (guaranteed performance) were achieved for the unit’s operational effectiveness," Wison said.

    The FLNG project is being delivered by Wison under an engineering, procurement, construction, installation and commissioning (EPCIC) contract with Exmar. All systems on the FLNG have been commissioned and tested without leaving the shipyard by using LNG to supply gas without connection to a pipeline, Wison said. Conducting gas trials and performance testing in the shipyard shortened the time required for project completion.

    "Floating LNG production, storage and transportation facilities are emerging markets with large potential," said An Wenxin, the senior vice president of Wison Offshore & Marine. "The small-scale FLNG being delivered by Wison has design advantages with low-cost and compact features, providing the market with more economical and efficient solutions."
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    Russia's Gazprom plans to launch third LNG train at Sakhalin-2 in 2021

    Russia's Gazprom plans to launch third LNG train at Sakhalin-2 in 2021

    Gazprom said on Thursday it plans to launch a third liquefied natural gas (LNG) production train at the Sakhalin-2 LNG plant in 2021, possibly fed by a newly drilled field, as Russian companies seek to boost their share of the global LNG market.

    Russia accounts for less than 5 percent of the global LNG market but new plants are being built or considered by Novatek, Gazprom and Rosneft.

    Located at Prigorodnoye on Sakhalin island, Sakhalin-2, Russia's sole LNG plant, operates two production lines with a combined capacity of 10 million tonnes of LNG per year. The third train should add another 5 million tonnes.

    An obstacle to expanding the plant, operated by Gazprom, Royal Dutch Shell, Japan's Mitsui and Mitsubishi, is the resource base.

    Shareholders are considering two options: buying gas from the Sakhalin-1 project led by ExxonMobil, developing new resources or a combination. Yet, Sakhalin-1, where the state oil firm Rosneft is also a shareholder, is aiming for its own LNG plant.

    Vsevolod Cherepanov, a Gazprom board member, said that the first exploitation well at the Yuzhno-Kirinskoye field, viewed as a source of fuel for Sakhalin-2 expansion, aimed to be drilled in 2017, with production to start in test mode in 2021 and in full operation in 2022.

    "The plateau of 21 billion cubic meters (bcm) a year is expected to be reached in ten years. We will start from 3 bcm," Cherepanov said. For the third train to operate, a total of 7-8 bcm of gas per year is needed, he added.

    "We also have Kirinskoye field with (expected) 5.5 bcm (a year)... (But) 50 percent of volumes is enough to launch the third train. We will increase volumes a year after that."

    Cherepanov said talks were ongoing with a Chinese company over a drilling platform for Yuzhno-Kirinskoye, but Gazprom may also drill on its own.

    In 2015, the United States restricted exports, re-exports and transfers of technology and equipment to the Yuzhno-Kirinskoye field, making it harder to develop.

    Gazprom executives have said they will find a way to bring the field on stream. The company said this month it had discovered a new gas deposit in the Sea of Okhotsk near Sakhalin island.

    Cherepanov said that based on preliminary information from one well, the field could contain over 40 bcm of gas, yet to be proved, but could not replace Yuzhno-Kirinskoye as a source for Sakhalin-2 expansion.


    On Thursday, a LNG tanker could be seen on its way from the facility in Prigorodnoye to Asia-Pacific markets. It takes 2-3 days to reach Japan or South Korea, major LNG consumers.

    Olivier Lazare, head of Royal Dutch Shell in Russia, said on Wednesday that shareholders at Sakhalin-2 had agreed on the strategy of marketing LNG from the planned third train. He declined to provide details.

    Two sources close to the project said that there were no commercial talks with buyers yet, though one source said shareholders has agreed on general principles for marketing.

    The proximity of Asian markets is behind the idea of Sakhalin-1 shareholders to build their own LNG facility, with initial capacity of 5 million tonnes a year and start after 2023.

    "In the current pricing environment, it (the LNG project) remains competitive but challenging," a source close to the planned plant, known as Far East LNG, said.

    Asian LNG spot prices are under $6 per mmBtu, down from more than $20 between 2010 and 2014, due to soaring output from Australia and the United States.

    Given low prices were putting on hold plans for LNG facilities, there could be a deficit on the market from 2023, according to Mark Gyetvay, chief financial officer with Novatek.

    "If we look at Russia increasing its supplies of LNG it is reasonable to assume that Sakhalin LNG can expand their project," Gyetvay told Reuters this month.

    Novatek plans to ship its first LNG cargoes from a new facility in Russia's Yamal peninsula next year and is considering building its second LNG facility, Arctic LNG-2.

    "It's ironic that nobody raises these types of questions for Australian LNG projects," Gyetvay said, when asked if the was room for new Russian projects on world markets.

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    Promising signs in Beetaloo test

    Preliminary results from Origin Energy’s Amungee NW-1H horizontal exploration well in Australia’s Northern Territory have been “encouraging” according to one of its joint venture partners.

    Falcon Oil & Gas Ltd.: Update on Hydraulic Stimulation of Amungee NW-1H

    Falcon Oil & Gas Ltd.  is pleased to provide the following technical update regarding the hydraulic stimulation of the horizontal Amungee NW-1H well in the Beetaloo Basin, Australia.

    Highlights of preliminary results from the Amungee NW-1H horizontal exploration well:

    -Completion of 11 hydraulic stimulation stages along the 1,000 meter horizontal section in the Middle Velkerri B shale zone
    -Stimulation treatments were successfully executed, with 95% of programmed proppant placed
    -Flow back of hydraulic fracture stimulation fluid to surface continues
    -Early stage gas flow rates through the 4.5" casing are encouraging
    -The rates regularly exceed 1 million standard cubic feet per day ("MMscf/d"), and consistently range between 0.4 - 0.6 MMscf/d
    -A workover rig is being mobilised to run production tubing and to commence an extended production test

    Philip O'Quigley CEO of Falcon commented on the results:

    "Preliminary results of the first horizontal exploration well in the Beetaloo are very encouraging. The planned testing programme utilising a production tubing string aims to evaluate the potential gas flow rate of the well.

    We look forward to updating the market when further results become available."

    This announcement has been reviewed by Dr. Gábor Bada, Falcon Oil & Gas Ltd's Head of Technical Operations. Dr. Bada obtained his geology degree at the Eötvös L. University in Budapest, Hungary and his PhD at the Vrije Aniversiteit Amsterdam, the Netherlands. He is a member of AAPG and EAGE.
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    Summary of Weekly Petroleum Data for the Week Ending September 23, 2016

    U.S. crude oil refinery inputs averaged over 16.3 million barrels per day during the week ending September 23, 2016, 253,000 barrels per day less than the previous week’s average. Refineries operated at 90.1% of their operable capacity last week. Gasoline production decreased last week, averaging about 9.6 million barrels per day. Distillate fuel production decreased last week, averaging 4.7 million barrels per day.

    U.S. crude oil imports averaged over 7.8 million barrels per day last week, down by 474,000 barrels per day from the previous week. Over the last four weeks, crude oil imports averaged over 7.8 million barrels per day, 6.5% above the same four-week period last year. Total motor gasoline imports (including both finished gasoline and gasoline blending components) last week averaged 778,000 barrels per day. Distillate fuel imports averaged 144,000 barrels per day last week.

    U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) decreased by 1.9 million barrels from the previous week. At 502.7 million barrels, U.S. crude oil inventories are at historically high levels for this time of year. Total motor gasoline inventories increased by 2.0 million barrels last week, and are above the upper limit of the average range. Both finished gasoline inventories and blending components inventories increased last week. Distillate fuel inventories decreased by 1.9 million barrels last week but are above the upper limit of the average range for this time of year. Propane/propylene inventories rose 1.5 million barrels last week and are above the upper limit of the average range. Total commercial petroleum inventories remained unchanged from last week.

    Total products supplied over the last four-week period averaged over 20.0 million barrels per day, up by 2.7% from the same period last year. Over the last four weeks, motor gasoline product supplied averaged 9.4 million barrels per day, up by 3.6% from the same period last year. Distillate fuel product supplied averaged over 3.5 million barrels per day over the last four weeks, down by 6.4% from the same period last year. Jet fuel product supplied is up 0.9% compared to the same four-week period last year.

    Cushing down 631,000

    Attached Files
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    Small drop in US oil production

                                                                            Last week     Week before       Last year

    Domestic Production '000.................. 8,497               8,512                 9,096
    Alaska ............................................     454                  464                     469
    Lower 48 ........................................ 8,043               8,048                  8,627
    Exports ...........................................     507                  588                     526
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    SandRidge Energy, Inc. Provides Operations Update and Full Year 2016 Guidance

    SandRidge Energy, Inc. provided an update of its Mid-Continent and Colorado operations as well as full year 2016 capital expenditure/operational guidance and hedging. The Company will release third quarter 2016 earnings results on November 8th, with a related conference call on November 9th (details included below).

    Operations Update

    2016 High-graded Harvest of Mid-Continent Plus Initial Development in North Park Niobrara

    Running one drilling rig for most of 2016 in the Mid-Continent and one rig through August in the North ParkNiobrara, SandRidge is allocating capital across both of its active areas, generating cash flow stability while advancing drilling and completion innovations.

    SandRidge plans to invest $225 to $255 million of capital expenditures in 2016, with $56 million spent during the second quarter and $110 million during the first half of 2016, excluding acquisitions and abandonment liabilities. Full year total production is estimated to be between 18.9 -19.3 MMBoe, with 5.0 MMBoe produced during the second quarter and 10.5 MMBoe during the first half of 2016. Thirty seven horizontal laterals are planned to be spud during the year, with 26 in the Mid-Continent and 11 in North Park. These lateral counts include four extended laterals, one dual extended lateral, and two full section development projects in the Mid-Continent, and one extended lateral in North Park.

    In the Mid-Continent, encouraging development and testing of additional zones, notably the Chester overlying the Mississippian, has grown the existing multiyear drilling inventory, taking full advantage of existing leasehold and infrastructure. The Mid-Continent continues to benefit from improved reservoir characterization and primarily multilateral and extended lateral drilling is planned.

    Extended laterals and multilaterals are also envisioned as part of the North Park Niobrara development. The Company recently drilled and is currently completing a Niobrara extended lateral which is expected to be online in the fourth quarter of 2016. Optimized well spacing, multiple initiatives to further lower costs per lateral, and incremental productive zones are all targeted upsides.

    Mid-Continent Assets in Oklahoma and Kansas

    Drilled 18 laterals in 1H’16, bringing 26 laterals online
    Successful first dual extended lateral, the Dettle 1-29 20H, produced a 30-Day IP of 1,099 Boepd1 (60% oil) and was drilled and completed for approximately $1.7MM per lateral2 or $368/ completed ft
    1H’16 2016 Mississippian completed well costs averaged $1.9MM per lateral or $418/ completed ft, ~19% reduction from all of 2015
    Successful Chester drilling with most recent 7 laterals averaging a 30-Day IP of 487 Boepd (60% oil), expanding drilling inventory on existing leasehold footprint

    SandRidge has been actively developing the Mississippian and adjacent oil and gas reservoirs since 2010, drilling over 1,600 horizontal producing wells in Oklahoma and Kansas. While the Company has a combined 1.1 million acres in all of Oklahoma and Kansas, its current drilling activity is concentrated within its 462,000 acres of focus area leasehold in Oklahoma, 64% of which is held by production. The Company’s Mid-Continent assets averaged approximately 52,000 barrels of oil equivalent per day (25% oil, 24% NGLs, and 51% natural gas) during the second quarter of 2016.

    1) Calculated as the highest consecutive 30-Day average production rate during the early life of a well

    2) A “lateral” is defined as a single one-mile section lateral

    SandRidge pioneered the use of multilaterals in the Mississippian, where typically two to four laterals are drilled from a single vertical wellbore. This approach reduces the average drilling and completion cost per lateral, while further reducing expenses by utilizing shared surface facilities and artificial lift systems.

    During the first six months of 2016, the Company continued to develop its Mid-Continent asset by drilling 18 laterals and bringing 26 laterals online. The Company successfully completed its first ever dual extended lateral in the Mississippian formation, currently producing from 18,426 feet of completed lateral. The Dettle 2408 1-29 20H was drilled and completed for just under $1.7 million per lateral and produced a 30-Day IP of 1,099 Boepd (60% oil). Separately in the Chester, an extended lateral development project, the Earl 2414 1-11H 14H, yielded a 30-Day IP of 560 Boepd (62% oil) with a drilling and completing cost of $2.16 million per lateral.

    Niobrara Asset in North Park Basin, Jackson County, Colorado

    Drilled eight laterals in 1H’16, bringing five laterals online
    First SandRidge well, the Gregory 1-9H, produced an initial 30-Day IP of 550 Boepd (89% oil); online for over six months, the Gregory has produced a total of ~73 MBoe and averaged 346 Boepd the last 30 days
    Four additional 1H’16 wells produced an average 30-Day IP of 460 Boepd (91% oil)
    Successfully drilled and currently completing first extended lateral well (a two mile lateral), expected to be brought online in Q4’16
    Three additional wells brought online in 2H’16 are in various stages of evaluation, having been designed to test spacing, artificial lift methods, and stimulation concepts, including the use of slickwater frac fluids

    SandRidge acquired its oil rich Niobrara properties in December 2015 and began development in January 2016. The Niobrara is located at vertical depths between 5,500 and 9,000 feet with gross pay thickness of 450 feet to 480 feet. The Company holds 129,000 net acres in the Niobrara play, 55% of which is held by production or held by federal unit. This land position comprises a dominant footprint in the North Park Basin where the Niobrara shale is geologically similar to but thicker and oilier than that of the actively developedDenver–Julesburg or “DJ” Basin. The Company is preparing applications for two additional federal units and plans to shoot additional 3D seismic surveys in early 2017 to extend and complement the existing 54 square mile 3D survey.

    Initial development plans include 1,300 Niobrara drilling locations. The properties averaged approximately 1,200 barrels of oil per day during the second quarter of 2016, impacted by pad drilling and some planned shut-ins of existing producers while new wells were being drilled and completed on the same pad.

    At year end 2015, 16 Niobrara wells already delineated a large contiguous producing area, supporting 108 PUD locations at SEC prices. At the end of 2015, 28 million barrels of oil equivalent were booked as proven reserves (81% oil).

    During the first six months of 2016, the Company drilled eight horizontal laterals, bringing online five laterals. While horizontal drilling with single laterals has been the standard to date, a two mile extended lateral was successfully drilled in July 2016 and is currently being completed. In addition, other Niobrara benches will be appraised and optimal well spacing tests will be conducted in 2016 and 2017. Also in 2017, the Company will expand application of extended laterals.

    Multiple cost reduction and efficiency efforts have steadily reduced well costs in the early development of our Niobrara asset. Drilling optimization efforts include improving drilling mud and bit systems, presetting surface casing and drilling extended laterals. Numerous fracture stimulation enhancements are also underway. Efforts to optimize completions have included the refinement of water and sand volumes, number of frac stages, stage length, and cluster spacing. The Company now has line of sight to achieving drilling and completion costs below $4 million per lateral.

    2016 Operational Guidance

    The Company is providing an update to its previously disclosed 2016 capital budgeting guidance of $285 million, estimating that it will now spend $225 to $255 million for the full year. Additionally, the Company is initiating total 2016 production guidance of 18.9-19.3 MMBoe.
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    Law unfairly gave shale drillers 'special' treatment, Pa. Supreme Court rules

    The Pennsylvania Supreme Court has decided that Act 13, the state Legislature's 2012 attempt to accommodate the shale gas industry, is an unconstitutional "special law" that benefits specific groups or industries.

    The court, in a decision Wednesday, said Act 13's provisions limiting notification of spills and leaks to public water suppliers but not to private well owners, and its "physician gag order" restricting health-care professionals from getting information about drilling chemicals that could harm their patients, violate the state constitution's prohibition against special laws.

    The court also struck down the provision that allows companies involved in transporting, selling, or storing natural gas to seize privately owned subsurface property through eminent domain.

    And the decision prohibits the Public Utility Commission from reviewing local ordinances and withholding impact-fee payments from municipalities that limit shale gas drilling.

    "The decision is another historic vindication for the people's constitutional rights," said Jordan Yeager, lead counsel representing the Delaware Riverkeeper Network and Bucks County municipalities in the case. "The court has made a clear declaration that the Pennsylvania legislature cannot enact special laws that benefit the fossil fuel industry and injure the rest of us."

    Marcellus Shale Coalition president David Spigelmyer praised Act 13 as a "commonsense bipartisan law that modernized our oil and natural gas regulatory framework," and said he was disappointed with the court's ruling, "which will make investing and growing jobs in the commonwealth more - not less - difficult without realizing any environmental or public safety benefits."

    Neil Shader, a state Department of Environmental Protection spokesman, said the department's lawyers were reviewing the ruling to determine its impact. He said the eventual need to notify private well owners of drilling spills and leaks affecting their water supplies could have the biggest impact on department operations.
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    Alternative Energy

    Division over cost competitiveness of renewables

    The Institute of Directors annual conference in London this week heard differences of opinion on when renewable energy was likely to make parity with fossil fuels in terms of cost competitiveness.

    Anglo-Swiss mining giant Glencore’s chairman Tony Hayward said he didn’t see renewables capable of meeting the feat by mid-century, much later than energy organisations have forecasted.

    According to Mining Weekly the company maintains such reasoning valid in terms of ongoing investment in coal and forecast global demand will grow by 7 per cent by 2030, driven by emerging economies and industrial demand.

    "The investment we put in the ground today will come out in ten years. The same applies to the world's oil and gas companies - their investments will come out in 20 years," Hayward said, going on to add that renewables won't achieve cost parity with fossil fuels until 2051.

    "In 15 years' time, if someone really does achieve a technological breakthrough akin to a mobile phone, an iPhone, that will change the energy picture going forward," he said.

    Other energy company chiefs speaking at the event did not share the former BP boss's opinion.

    Wilfrid Petrie, UK and Ireland chief executive at French gas and power group Engie, said he thought it would be as early as in five years' time, whereas David Brooks, MD of supply at UK renewable energy supplier Good Energy, said it could happen by 2020, adding that wind was already at cost parity with fossil fuels.

    Attached Files
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    Finnish client takes new legal action against Areva over nuclear project

    Finnish utility Teollisuuden Voima (TVO) has started fresh legal action against French nuclear group Areva to avoid further delays at its Olkiluoto 3 nuclear reactor in Finland, company spokesman said.

    The project, almost a decade behind its original schedule, is nearly complete, but TVO wants assurances that a restructuring of plant supplier Areva won't cause further delays and that the plant would be ready to begin production in 2018 as planned.

    "We have asked for this several times but have not received the necessary assurances," he said by phone, adding that TVO is now seeking assurances through a case filed in Nanterre Commercial Court, in France.

    TVO and Areva are already claiming billions of euros from one another at the International Chamber of Commerce's arbitration court because of delays and cost overruns on the project which was originally due to start operation in 2009.

    In the restructuring of the French nuclear power industry, Areva is due to sell its nuclear reactor unit to another state-owned utility EDF, but Olkiluoto 3 is planned to be handed to another legal entity.

    That has made TVO concerned that the French would in the coming years prioritise other projects, such as Flamaville in France and Hinkley Point in Britain.

    Areva on Wednesday said that the restructuring would not harm the Finnish project.

    "Our group will provide all necessary answers," a spokeswoman told Reuters in an email, confirming they had received the court order on Tuesday.

    "Areva is fully mobilised to complete the project as soon as possible and according to the updated schedule."

    Finnish media earlier this week said that TVO had also approached the European Commission which has opened an investigation to determine whether the French financing for the restructuring complied with state aid rules.

    When Olkiluoto 3 project was launched, its cost was estimated at 3.2 billion euros ($3.6 billion), but in 2012 Areva estimated the overall cost would end up closer to 8.5 billion euros.

    The EPR reactor is set to become Finland's fifth and largest, and cover about 10 percent of the country's power supply.

    TVO's owners include Finnish utility Fortum and paper companies UPM and Stora Enso.

    Attached Files
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    Salamanca will have' incredibly good' margins says Berkeley's Schumann

    Things are falling into place for Berkeley Energia’s Salamanca uranium project in Spain with the latest news the appointment of heavyweight engineering firm Amec Foster Wheeler to design the mine.

    It follows quickly on from last week’s offtake agreement that will guarantee a price of US$41 per pound of uranium produced.

    As operating costs are estimated at US$15 per lb, it should mean an ‘incredibly good margin’ says Hugo Schumann, corporate manager.

    Next steps will be finalising the US$100mmln funding to build the mine alongside more offtake and marketing deals where the publication of the definitive feasibility study has generated a stack of interest, he says.
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    Precious Metals

    Protesters block access to Mexican mine owned by Goldcorp

    Protesters in northern Mexico said they have blocked access to the Penasquito mining complex operated by Goldcorp, threatening to interrupt production at the country's biggest gold deposit.

    The protesters, which include landowners and truck drivers, began their blockade on Monday and are demanding payment for environmental damages, jobs, and water for their communities, Felipe Pinedo, one of the protest leaders, said on Wednesday.

    In late August, Reuters reported on a long-running leak of contaminated water which had not been disclosed to the public.

    A source close to the company told Reuters that the blockade was illegal and risked interrupting production at the mine, which was operating below capacity.

    "If the blockade is not lifted immediately, the company will not have material by Saturday," he said.

    Last year the Penasquito mine produced 860 300 oz of gold, a quarter of Goldcorp 's total production.

    Attached Files
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    Gold miner Petropavlovsk turns first profit since 2012

    Russia-based gold miner Petropavlovsk has posted its first profit since 2012, as it looks to move on from a torrid few years.

    Petropavlovsk reported a pre-tax profit of $4.8m in the six months to June, against a loss of $26m for the same period a year ago. Revenue slipped 14.5pc to $254m as gold production fell after poor weather in the Amur region of Russia where it mines.

    The company nearly went bust in 2015 but now expects to close a refinancing deal with its creditors next month that will extend its debt repayment schedule to 2022. Petropavlovsk borrowed heavily earlier this decade to fund expansion, only to be hit by a downturn in gold prices. In the first half of the year it slashed $12.4m from its debt pile, bringing it down to $598m.

    Chairman Peter Hambro, a City veteran, said: “It’s been a long struggle, but even a small profit is better than what we had in the past.

    “We’ve made huge progress with the banks and we’ve been given the financial flexibility we need. The banks really understand what it is we’re doing.”

    Earlier this year Petropavlovsk announced a brace of deals – including the acquisition of a neighbouring miner – that would help it “bulk up” on gold production. These deals are progressing, Mr Hambro said, but they had been awaiting the outcome of its talks with creditors.

    Petropavlovsk, which has four mines in the far east of Russia, achieved a breakthrough in the first half when it began mining underground at its Pioneer pit, which promises higher-grade gold. “Underground mining adds higher grade and reduces the amount of waste material we have to move,” Mr Hambro said. “As a result our waste costs have hugely shrunk.”

    The miner’s costs fell across all its mines in the first half, thanks to efficiencies and to a fall in the value of the rouble, the currency in which it prices its operations and pays its staff.

    Gold has risen 24pc this year, and has stayed broadly flat in the last few months at around $1,320 an ounce. Mr Hambro said he saw “no reason why it should go any lower”. “I’m a great believer in gold in times of turmoil. There is less and less exploration for gold around the world and demand continues to grow.”
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    Impala Platinum refinery workers in SA strike over pay

    Members of a union representing more than half the worker’s at Impala Platinum Holdings’s refinery in South Africa started a strike on Tuesday after talks over pay and benefits broke down.

    About 500 people who are members of the National Union of Mineworkers didn’t report for duty after five rounds of talks with the world’s second-biggest platinum producer broke down, the organisation said in an e-mailed statement.

    The refinery, about 35 kilometers (22 miles) east of Johannesburg, employs about 900 people, NUM Deputy Branch Secretary Mpho Mere said by phone. About 85% of employees reported for duty today and operations are normal, according to Impala spokesman Johan Theron. South Africa is the world’s biggest producer of platinum.

    “We declared a dispute because we’re still far, far apart,” he said. In some wage categories at the refinery, the NUM is seeking a 9.5% increase, with the company offering 7.5%, Mere said. South Africa’s inflation rate was 5.9% in August.

    Impala declined 5% to R64.65 by 12:43pm in Johannesburg. The stock has still doubled in 2016.

    Other Demands

    Impala also is not close to meeting demands for higher housing, shift and standby allowances, and wants employees to use its in-house medical-insurance plan, which the union says undermines freedom of choice.

    “We continue to engage and seek ways of trying to close the gap” in negotiations, Theron said.

    The refinery raised production from mine-to-market operations by 11 percent to 628 600 ounces in the year ended June 30 from 12 months earlier, while refined output from third-party purchases and tolls climbed 32% to 182 900 ounces, it said in a September 1 statement.
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    Base Metals

    BHP, Oz Minerals cut copper output after Australia power outage

    A power outage in South Australia has halted more than 300,000 tonnes of annual copper production capacity and knocked out the Australian state's only lead smelter, producers said on Thursday.

    A massive blackout in South Australia on Wednesday forced BHP Billiton to suspend production at its Olympic Dam copper mine to divert back-up power to maintain essential operations at the remote site.

    A BHP spokesman did not say when operations would resume at the mine, which produced 203,000 tonnes of copper in fiscal 2016, or about 13 percent of company-wide output.

    The outage also brought Oz Minerals' Prominent Hill mine, which is forecast to produce up to 125,000 tonnes of copper in concentrate this year, to a halt, a spokesman said.

    He also could not say when operations would restart.

    "Production has been put on hold until further notice," the spokesman said.

    Nyrstar NV said its 185,000-tonnes-per-year Port Pirie lead smelter will be out of action for up to two weeks.

    London lead futures climbed to the highest since May last year over supply concerns.

    A back-up diesel generator at the smelter kept the furnace going for several hours when power was cut to the entire state yesterday.

    But repairs to a blast furnace, damaged when power was lost and slag solidified, could result in the company losing "three to five million euros".

    "It is expected that the blast furnace will be down for approximately 10 to 14 days for repairs," Nyrstar said.

    Severe storms and thousands of lightning strikes knocked out power to the entire state of South Australia on Wednesday.

    A BHP spokesman said back-up generators were providing power to critical infrastructure but a full restart of operations will only occur when full power is restored.

    It was too early to determine if BHP would seek legal protection from supply obligations under a declaration of force majeure, he said.

    The blackout happened after strong winds destroyed major power lines north of the state capital Adelaide and lightning struck a power plant, causing a surge across the grid. The network and link to neighbouring Victoria state shut down to prevent damage to infrastructure, causing a state-wide outage.
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    Lundin poised for mega Congo copper deal

    Lundin poised for mega Congo copper deal

    In May Freeport-McMoRan Copper & Gold (NYSE:FCX) announced the sale of its Tenke Fungurume copper mine in the Democratic Republic of the Congo to China Molybdenum (CMOC) for up to $2.65 billion, a crucial part of the Phoenix-based company's debt reduction program.

    But exiting the DRC is proving to be as complicated as operating a mine in the troubled central African country.

    Central to the deal is a right of first offer owned by Toronto's Lundin Mining which through a Bermuda-based company indirectly owns 24% of Tenke, a high-grade mine that last year produced 203,965 tonnes of copper and just over 16,000 tonnes of cobalt.

    Last week Freeport, which controls 56% of Tenke, extended Lundin's ROFO for the second time to September 29 suggesting a larger deal involving CMOC and the Democratic Republic of Congo's state-owned Gecamines (20% direct owner) may be in the works. Gecamines, which opposes the Freeport-CMOC deal is also said to be putting together its own bid with partners.

    If Lundin manages to secure the same terms as the Freeport-CMOC agreement its stake could be worth in the region of $1.2 billion, but the extension suggests a new deal could be negotiated that could see Lundin become a major shareholder (and perhaps operator) together with Gecamines and CMOC.

    In Q2 Lundin wrote down the value of its interest in Tenke by $772 million which could indicate that the company's going to play hardball when it comes to negotiating a price

    Lundin, which this year is forecast to produce around 250,000 tonnes of copper including its share of Tenke, has been on the acquisition path and in March made a deal to acquire the promising Timok copper project in Serbia owned by Freeport and Canada's Reservoir Minerals.

    At the time Lundin CEO Paul Conibear said that Timok, would "fill Lundin's copper pipeline", but a few months later the deal fell through, ironically through a ROFO exercised by Reservoir Minerals which now owns 100% of Timok after a takeover by Nevsun Resources.

    In July Conibear told Bloomberg that after losing the eastern European property, Lundin would like to be active in M&A but was holding back due to a lack of quality targets.

    Tenke did not make it into that conversation, but Lukas Lundin  in a wide-ranging interview at the end of August said "the best opportunities are in base metals" and he's keen to see Lundin Mining of which the family owns about 13%, "resume its acquisition spree.":A contemplated expansion of Tenke would likely boost production capacity towards  500,000 tonnes and catapult Lundin towards the top tier of copper producers

    "China Molybdenum would likely be “OK” as a partner “but it’s a different culture and they’re not very experienced miners so I’m sure it’s going to be more work for us,” Lundin said.

    Apart from suggesting Lundin Mining could be appointed operator of the mine over the Chinese, the Swedish billionaire added that “bigger is better,” when asked what size asset he’s hunting for.

    For its part Gecamines expressed their displeasure with the Freeport-CMOC deal since its announcement in May and is pressuring parties to come to an alternative arrangement going so far as to say it could block the deal:The transaction “will remain in a deadlock, unless Lundin and Freeport respect Gecamines’ and the state’s rights

    “Any simultaneous withdrawal by Lundin and Freeport in favor of CMOC or other buyers will be problematic and would in fact actually reinforce the suspicion of fraud to Gecamines’ and the state’s rights," Yuma said. The transaction “will remain in a deadlock, unless Lundin and Freeport respect Gecamines’ and the state’s rights,” he said.

    Even in its current form Tenke is a prized asset notwithstanding its location in one of the more difficult mining jurisdictions in the world. But a contemplated expansion of the mine would likely boost copper cathode production capacity towards 500,000 tonnes per year and catapult Lundin towards the top tier of producers.
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    Steel, Iron Ore and Coal

    China punishes coal, steel companies for violating pollution, safety rules

    China's state planner has punished hundreds of coal and steel companies by forcing them to close or cut output for violating environmental and safety regulations, the latest effort to crack down on the country's heavily polluting industries.

    The National Development and Reform Commission (NDRC) forced two steel companies to shut completely, 29 firms to halt production and another 23 to curb output, it said in a statement on Thursday. The closures and curbs followed a nationwide inspection of more than 1,000 steel makers in the world's top producer.

    Among more than 4,600 coal mines inspected, the NDRC has revoked safety certificates for 28 coal mines and forced another 286 coal mines to halt production, it added.

    The planner did not identify or name the companies, or give details on how the companies broke the rules and how long the penalties will be in place.

    Beyond the safety and environment rules, the NDRC also listed other infractions such as violations of energy consumption rules or quality standards.

    The statement reflects the government's continued push to force ageing mills and mines to comply with tough new pollution rules by meeting emission standards and installing appropriate monitoring equipment.

    China's unwieldy coal and steel industries are considered two of the biggest sources of pollution in the country.

    The government is targeting coal output cuts of 500 million tonnes in the next three to five years.
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    China raises thermal coal futures trading fees

    The Zhengzhou Commodity Exchange will start collecting transaction fees for thermal coal futures contracts that were opened and closed in the same day, effective September 28, the bourse said on September 27 in a statement on its website, without giving further details.

    Investors piled into Chinese commodities exchanges in the first half of the year, driving up prices and stoking fears of a bubble, on bets that economic stimulus and industrial reforms would lead to shortages of everything from cotton to iron ore.

    The authorities quelled the frenzy, with bourses raising transaction fees and required margins. While volumes for most contracts haven't recovered, coal trading has ballooned in recent weeks on speculation that mining cutbacks are leading to shortages.

    Front-month thermal coal futures on the Zhengzhou exchange jumped to 532.40 yuan/t on September 22, a shade below a two-year high of 532.60 yuan/t reached earlier in the month. The January contract fell 0.1% to 527 yuan in overnight trading. A record 1.217 million thermal coal contracts changed hands with a total turnover of almost 64 billion yuan ($9.6 billion), bourse data show. Chinese exchanges count both the buy and sell side of a futures contract.

    Coal prices in China have risen this year as the government's efforts to cut overcapacity and promote less-polluting fuels slowed mining.

    Output fell more than 10% in the first eight months of the year, causing imports to rise to the highest since 2014 and forcing policy makers to coordinate higher production from biggest miners.
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    Chinese miners raise coking coal prices ahead of holidays

    Large Chinese miners have recently announced to hike coking coal prices further ahead of National Day holidays over October 1-7, as restocking demand from coke and steel producers remained robust amid tight supply.

    In Shanxi, Changzhi-based Lu'an Group adjusted up prices of lean meager coal from its Wuyang mine and lean coal from its Sima mine transported via railways each by another 60 yuan/t to 760 yuan/t and 790 yuan/t with VAT, separately, effective September 24.

    That was the second increase this month after an increase of the same scale on September 15.

    Last week, Shanxi Coking Coal Group, the country's top producer of the material, further raised rail-delivered washed coking coal prices by 50-95 yuan/t, effective September 21, after a price hike of 30-95 yuan/t on September 1.

    Meanwhile, eastern China-based Shandong Energy Group lifted up prices of coking coal by 50 yuan/t, with that of gas coal and 1/3 coking coal at 760 yuan/t and 790 yuan/t, on ex-washplant basis, respectively, effective September 28.

    The miner also increased ex-washplant price of thermal coal by 30 yuan/t to 530 yuan/t.
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    China probes senior Hebei Iron & Steel executive for suspected graft

    The deputy general manager of Hebei Iron and Steel, China's largest steel company by output, is being investigated by the ruling Communist Party for suspected corruption, the party's anti-graft watchdog said on Wednesday.

    Wang Hongren is suspected of "serious discipline breaches", the Central Commission for Discipline Inspection said in a brief statement, using its usual euphemism for graft but providing no other details.

    Dozens of senior officials and executives have been caught up in a sweeping campaign against corruption launched by President Xi Jinping since he assumed power almost four years ago.

    It was not possible to reach Wang for comment and unclear if he has been allowed to retain a lawyer.

    The company declined to comment.

    Wang, 58, was formally a deputy general manager at another steel maker in the northern province of Hebei, Handan Steel Group, according to his official biography.
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    Scottish investment hopes rise as mothballed steel plant reopens

    Scotland's last major steelworks reopened under the ownership of industrialist Sanjeev Gupta on Wednesday, heralded by Nicola Sturgeon's government as proof that the country can draw investment and protect industry in difficult times.

    Liberty Steel bought the 144-year-old Dalzell plant in Motherwell and its sister works at Clydebridge in Glasgow in April from Tata Steel (TISC.NS) for a symbolic sum, with the Scottish government underpinning the process.

    Tata mothballed the plants at the end of 2015 due to the impact of cheap Chinese imports, causing the loss of 270 jobs and sparking fears for the area's economy after the closure of a nearby plant in Ravenscraig in 1992.

    Fresh from watching molten slabs of steel roll out of the furnace, Sturgeon described the revival of the steel plate mill as "a very positive signal that the steel and engineering industries still have a future in Scotland".

    "It is a difficult market, but we now have a company in the ownership of Dalzell that has a vision of what they want to achieve," she told Sky News.

    Britain's ability to compete in the global steel market was thrown into the spotlight earlier this year when Tata Steel put its entire British operations up for sale.

    Several groups including Liberty have expressed an interest in those assets, which include the Port Talbot steel plant in Wales, but Tata is currently exploring options for a joint venture with Germany's Thyssenkrupp.

    Gupta said on Wednesday he was now also looking to open an electric arc furnace in Scotland.

    "The most compelling place to build an electric arc furnace is the Midlands (in England) because it's a big generator of scrap and a big consumer of steel," he told Reuters. "But we are looking to do it in Scotland also, mainly because of the Scottish government, their enthusiasm.

    "It's been a great experience working here."

    In a nod to Gupta's Indian heritage, a steel pellet sculpture of Ganesha, Hindu god of beginnings, had been erected for the opening.

    Sturgeon, who has said she may seek another independence referendum for Scotland, told a business conference in London on Tuesday that her country was consistently outperforming every part of the UK except London when it came to attracting inward investment.

    Steel plate is used in industries like construction, shipbuilding, automotive, mining and energy sectors.

    Dalzell is also looking to make plates for the manufacture of wind turbines and in the longer term could seek to supply projects like Hinkley Point, the new nuclear plant due to be built in southwest England.

    Liberty has spent five months preparing to reactivate Dalzell's furnace and rolling mill to produce 150,000 tonnes of steel plate a year.

    It has hired around 120 staff, mostly former employees, and hopes to increase output to 500,000 tonnes eventually, employing 200 people within 18 months.

    Gupta said the Clydebridge works would come back on stream "in due course as market conditions allowed". Britain currently consumes 700,000 tonnes per year of plate steel, increasing at around three percent annually.
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