Mark Latham Commodity Equity Intelligence Service

Monday 15th June 2015
Background Stories on www.commodityintelligence.com

News and Views:








Macro

US Retail finally responds

But May retail sales, reported Thursday, were up a robust 1.2% from April, and core sales–which exclude autos, gasoline and building materials—were up a solid 0.7%. Both March and April data were revised up.

So it appears consumers, with a lag, have responded. The economy, reported to have shrunk at a 0.7% annual rate in the first quarter, may actually have been flat, andcould be growing as much as 3% in the current quarter.

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Former PetroChina vice chairman to be prosecuted for graft



Former PetroChina Vice Chairman Liao Yongyuan has been expelled from the Communist Party and will be prosecuted for crimes including bribery, the party said on Monday, the latest official caught up in a sweeping corruption crackdown.

Liao stepped down from his posts as vice chairman and non-executive director in March. He was the most senior of two vice chairmen at PetroChina, China's top oil and gas producer, making him the company's second-highest ranking official.

The party's graft watchdog, the Central Commission for Discipline Inspection, said that Liao abused his position to help with job promotions, took "enormous" bribes and was an adulterer.

"Liao Yongyuan was a senior party official, and seriously violated the party's political rules and the organisation's discipline," it said in a short statement.

Liao and the evidence of his crimes will be handed over to the legal authorities for prosecution, it added.

The Communist Party always conducts its own investigations before the courts are involved. As the party controls the courts, they generally do not challenge the party's accusations.

The corruption watchdog had previously said Liao was under investigation for "serious disciplinary violations" stemming from his role as a general manager of China National Petroleum Corporation (CNPC), the parent company of PetroChina.

Liao, a 30-year veteran at CNPC, was appointed vice chairman of PetroChina in May 2014, just months after China announced that several top executives from the two companies were under investigation. That included Jiang Jiemin, former chairman of both entities.

President Xi Jinping has spent the past three years waging war on corruption, saying it threatens the party's very survival. Scores of senior officials in the party, the government, the military and state-owned enterprises have been brought down by the campaign.

Some were protégées of former security tsar Zhou Yongkang, who was jailed for life last week after being found guilty of crimes ranging from taking bribes to leaking state secrets.

In a separate statement, the graft watchdog said that Sun Hongzhi, who was a deputy head of one of China's business regulators, the State Administration for Industry and Commerce, had also been expelled from the party and would be prosecuted for bribery and embezzlement.

http://www.reuters.com/article/2015/06/15/china-corruption-petrochina-idUSL3N0Z11PP20150615
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Shanghai aims to cut energy use

Shanghai aims to cut its energy consumption in industrial output by 2.3 percent this year, the Shanghai Commission of Economy and Informatization said yesterday.

The city government will also replace around 2,000 coal-burning furnaces with clean-energy facilities this year, the commission said, adding that 27 percent of the work has been completed in the first five months of 2015.

Shanghai will hold 352 programs to promote energy saving from June 13 to 19. A White Paper on the city¡¯s industrial energy consumption status in 2014 will also be released during the period.

Officials and firms from Jiangsu and Zhejiang provinces will also join the programs as their officials also hope to address environmental issues in the Yangtze River Delta region.

Shanghai has more than 180 professional companies that tackle pollution.

http://en.chinamining.com.cn/News/2015-06-11/1433987055d72530.html
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Tough year, decline in prices to impact on ARM results

Tough year, decline in prices to impact on ARM results 

JSE-listed Africa Rainbow Minerals (ARM) expects its headline earnings for the year ending June 30 to fall by at least R1.8-billion year-on-year, owing to the decline in US dollar commodity prices compared with prices in the previous comparable period, particularly for iron-ore. 

Headline earnings a share were also anticipated to be lower, dropping by at least 45% year-on-year. 

However, the lower US dollar prices were partially offset by a weaker rand dollar exchange rate during the period.  

ARM’s basic earnings were also expected to be negatively impacted by an unrealised mark-to-market loss on its Harmony Gold investment, owing to a decline in the Harmony share price of R21.61 a share, as well as an impairment of an operating furnace at Machadodorp Works.  

The miner also noted that its basic earnings for the year could be at least 55%, or R1.8-billion lower than the R3.2-billion reported in 2014. The company’s results would be released in September.

http://www.miningweekly.com/article/tough-year-decline-in-prices-to-impact-on-arm-results-2015-06-12
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Oil and Gas

IEA releases oil market report for June

Global oil supplies fell by 155 000 barrels per day (155 kb/d) in May to 96 million barrels per day (mb/d) on lower non-OPEC output, but remained at a steep 3 mb/d above the level of May 2014, the IEA Oil Market Report (OMR) for June informed subscribers. Annual growth slowed marginally from March and April and remained roughly split between non-OPEC and OPEC countries. The June issue raised the forecast of non-OPEC supply growth for 2015 by 195 kb/d to 1 mb/d.

OPEC supply edged up 50 kb/d in May to 31.33 mb/d, the highest rate since August 2012. Saudi Arabia, Iraq and the United Arab Emirates pumped at record monthly rates to keep output more than 1 mb/d above OPEC’s official supply target for a third month running. Oil ministers agreed to maintain that target at their 5 June meeting.

The estimate of global demand growth has been revised up to 1.7 mb/d for the first quarter of 2015 and 1.4 mb/d for all of 2015. Momentum is expected to ease somewhat the current quarter, assuming a return to normal weather conditions and given the recent partial recovery in oil prices.

Global refinery crude runs reached an estimated 77.9 mb/d in April, 0.3 mb/d lower than March, and 1.7 mb/d above a year earlier. Delayed new capacity of 1.5 mb/d in non-OECD regions has lifted product cracks and OECD refining utilisation rates, and caused backwardation to re-appear in oil products markets. (Backwardation is the market situation in which futures prices are progressively lower in the distant delivery months.)

OECD industry oil stocks built by a steep 38.0 mb in April, to stand 147 mb above average levels, as refined-product stocks moved to their widest surplus in more than four years. Preliminary data indicate that OECD inventories added a further 12.6 mb in May, though US crude stocks posted their first draw in nine months.

http://www.scandoil.com/moxie-bm2/news/spot_news/iea-releases-oil-market-report-for-june.shtml
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Iran Seeks $100 Billion for Gas as World Fixates on Nation’s Oil

Iran needs $100 billion to rebuild its gas industry and has met with European energy giants as an end to decades of international sanctions looms, according to the state-run company in charge of discussions.

“We welcome and appreciate investment by companies; we welcome new technology,” Azizollah Ramazani, international affairs director at National Iranian Gas Co., said in an interview in Paris. “During the last 18 months we have had many discussions with foreign companies.”

While commodity markets fixate on a return of Iranian oil, the importance of gas in the longer term was underlined Wednesday as BP Plc data showed the Islamic Republic held its position as the nation with the largest proven reserves of the fuel after snatching the crown from Russia in 2011.

Deputy Oil Minister Hamid Reza Araghi met with international companies at the World Gas Conference in June, Ramazani said, adding that half of the $100 billion that Iran requires will need to come from foreign producers.

“In Paris, we met a lot of companies and they were very eager to have negotiations,” primarily from Europe, Ramazani said .

The prospect of renewed fossil-fuel supplies from Iran is one of the great unknowns for global energy markets already shaken by surging U.S. shale output and Saudi Arabia’s decision to keep pumping oil even as prices collapsed.

If a final agreement on Iran’s nuclear program is reached by the June 30 deadline and sanctions eased, Iran plans to increase gas exports sevenfold to 200 million cubic meters a day in four years, said Ramazani. It wants to raise production to 1.2 billion cubic meters a day in five years, from 800 million now, he said.

http://www.bloomberg.com/news/articles/2015-06-12/iran-seeks-100-billion-for-gas-as-world-fixates-on-nation-s-oil
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Libya's oil production at 500,000 bpd - NOC statement

Libya's oil production at 500,000 barrels per day, according to the state-run National Oil Corporation, the country's LANA news agency reported from Tripoli on Sunday.

The figure is slightly higher than the 460,000 barrels a day production reported last week.

More than a dozen fields in central and western Libya have closed due to protests and fighting between two rival governments, armed factions, or by Islamic State attacks. Two major oil ports are also closed in the North African OPEC producer.

https://en-maktoob.news.yahoo.com/libyas-oil-production-500-000-bpd-noc-statement-115429951--business.html
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Indian oil min says met Cairn India over Vedanta merger

India's oil minister met executives from oil company Cairn India this week to discuss its potential merger with parent Vedanta Ltd, the operating unit of London-listed mining and energy group Vedanta Resources Plc.

Vedanta earlier this week signalled it was considering merging those two listed subsidiaries, as it tries to resolve a mismatch between its debt -- held at the top of the group -- and its cash, largely generated by subsidiaries including Cairn.

Asked on Friday if he had met the companies to discuss the deal, Oil Minister Dharmendra Pradhan said the government's main concern was that any deal should not affect Cairn's investments.

"They met me, but my ministry's concern is that capital expenditure should grow. My ministry's expectation is oil and gas production should increase," he told Reuters.

Debt-burdened Vedanta began simplifying its byzantine structure with a 2012 overhaul, but further moves to streamline the group and buy out minorities in cash-rich subsidiaries have long been awaited by the market.

A source familiar with the matter said the deal -- a test for new Indian rules protecting minority shareholders -- could be announced as early as Sunday.

The move is reported to have been triggered by a drop in Cairn's shares as oil prices weakened, making for a more favourable merger ratio for Vedanta.

"There's no question that they do it the moment they feel capable of doing it. It's always been the best thing for them to do," said one industry banker in London.

Analysts calculate that almost three-quarters of Vedanta's debt is held at either the group or the operating level. Cairn, by contrast, had roughly $2.6 billion in cash on its balance sheet as of March 31.

This matters particularly at a time when analysts estimate the group's debt repayments over the next five years will outpace its free cash flow. According to UBS analysts those repayments come to $15 billion, against an estimated free cash flow of $9.9 billion.

http://www.reuters.com/article/2015/06/12/india-oil-vedanta-idUSL3N0YY3IJ20150612
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Vedanta makes $2.3 bln bid to buy out minorities in Cairn India

Indian mining and energy group Vedanta Ltd made a $2.3 billion offer on Sunday to buy out minority shareholders in cash-rich oil unit Cairn India , a deal that helps parent Vedanta Resources Plc repay hefty debts.

Shareholders in Cairn India, India's top private sector oil producer, will get one share in Vedanta Ltd for every share held, the companies said in a joint statement on Sunday.

The shareholders will also get one redeemable preference share in Vedanta Ltd with a face value of 10 rupees, making the deal worth roughly $2.3 billion. That implies a premium of 7.3 percent to Cairn's Friday close and a ratio of 1.04 for 1, marginally better than expectations of a simple 1 for 1 swap.

Vedanta began simplifying its complex structure with a 2012 overhaul, but further moves to clean up the group and buy out minorities in its cash generating units have long been awaited by the market. Cairn India has a roughly $2.6 billion cash pile.

The deal, expected to close in the first quarter of 2016, is the first major structural change under Vedanta Ltd Chief Executive Tom Albanese, the former Rio Tinto boss appointed last year. He said the deal moved Vedanta closer to its goal of being a major diversified player.

Though long-expected, the timing of the Cairn buyout is likely to have been triggered by a sharp drop in Cairn India's stock as oil prices fell, making for a favourable merger ratio for Vedanta. Cairn India shares have dropped over 50 percent over the past year.

Vedanta Resource Plc, Anil Agarwal, currently holds a majority interest in Mumbai-listed operating unit Vedanta Ltd, which in turn holds a 59.88 percent stake in Cairn India.

But Vedanta Ltd also holds other assets, including about 65 percent in Hindustan Zinc, whose minorities are likely to be the next target of the group's clean-up effort, and aluminium producer BALCO, in which it has a 51 percent stake.

Both companies count the Indian government as minority shareholders, limiting Vedanta's ability to move.

http://www.reuters.com/article/2015/06/14/cairn-india-ma-vedanta-idUSL3N0Z006C20150614
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Oil layoffs reach 150,000, recruiting firm says

Pelted by the oil-market crash, the energy industry’s job cuts reached 150,000 by the end of May, says energy recruiting firm Swift Worldwide Resources, and that figure had grown by a fifth since March.

While the pace of layoff announcements has certainly slowed in recent months, the United States has nonetheless seen the “the fastest and steepest decline,” Swift said in a recent update on job losses. Oil operations in the North Sea have also been hit hard.

Swift said the layoffs are ubiquitous, impacting western oil producers, state-owned oil companies, oil field service firms, engineering and construction companies and manufacturers. Contractors, the kind of labor Swift specializes in, are “often the first to get let go, with little fanfare,” though direct employees have been affected, as well.

The recruiting firm tracks both public and non-public data, and it is possible the industry’s layoffs actually exceed Swift’s numbers, Swift CEO Tobias Read said in the report.

“Where data is not publicly available we have kept our ear to the ground and made assumptions based on likely impact,” he said. “Our assumptions remain conservative and the likelihood is that total job losses probably substantially exceeds Swift’s forecast.”

A big portion of the layoffs have come from the oil fields service sector. In recent months, Schlumberger, Halliburton, Baker Hughes and Weatherford, the world’s four biggest oil-tool providers, have announced plans to ax nearly 50,000 jobs, all told.

Southeast Asia hasn’t seen substantial job losses, Swift said, but that could change in Korea, China and Singapore as orders haven’t come in as much as in the past. Angola and Nigeria have seen rigs sidelined and spending cuts, and Russia is still struggling under the weight of economic sanctions.

“The only substantially buoyant market is the Middle East, led by Saudi Arabia, where drilling activity is at a 20-year high,” Swift said. “Despite this, only a modest number of jobs are being created.”

http://fuelfix.com/blog/2015/06/12/oil-layoffs-reach-150000-recruiting-firm-says/#33549103=0&33583101=0
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Enoc ups its offer to seal Dragon Oil deal

Emirates National Oil Company has upped the ante to buy the remainder of Dragon Oil, valued at £1.7bn.

Shareholders of oil and gas explorer Dragon Oil will receive 750p per share, the company said in an announcement on Monday.

The offer valued Dragon Oil at £3.7b, and would be financed through Enoc’s existing cash resources.

The deal followed several unsuccessful approaches by Enoc to purchase the approximately 46% it did not own.

Enoc group chief executive Saif Al Falasi said the company improved its offer to 750p per share following a recommendation of Dragon Oil’s independent committee.

“We believe that Dragon Oil has now achieved as much as is possible through its existing upstream strategy,” he said.

Enoc, which is ultimately owned by the government of Dubai, said production is close to plateau at Dragon Oil’s sole producing asset, making the deal a good exit opportunity for minority shareholders.

- See more at: http://www.digitallook.com/news/news-and-announcements/enoc-ups-its-offer-to-seal-dragon-oil-deal--762717.html#sthash.jrXybfVx.dpuf
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Sete Brazil: big rig contractor in 'financial reorganisation'

A reorganization plan to help oil rig supplier Sete Brasil Participações SA remain in business should be ready by the end of June, after shareholders and creditors agreed to extend financing as credit dried up, the president of Brazil's state development bank BNDES said on Thursday.

Last week, commercial banks signed a memorandum of understanding to avert demanding repayment of as much as 11 billion reais ($3.7 billion) in loans to Sete Brasil that matured this month, extending them for a further 90 days.

The decision was aimed at helping the ailing oil rig supplier to come up with alternatives to stay current on its debts and afloat, BNDES President Luciano Coutinho said at a congressional hearing. Coutinho was summoned to speak about BNDES' exposure to Sete Brasil.Image title

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US rig count continues fall

The US drilling rig count declined 9 units during the week ended June 12 to settle at 859 rigs working, according to data fromBaker Hughes Inc.

After 22 straight weeks of double-digit and near triple-digit declines, the count over the past 5 weeks has dropped by an average of just 7 rigs/week. It has now fallen in 27 consecutive weeks overall, during which time it has lost 1,061 units (OGJ Online, Dec. 5, 2014). Compared with this week a year ago, the count is down 995 units.

“New permits issued have remained relatively stable over the last 3 months, which makes us confident that this indicator has bottomed some time ago,” RJA explained. “However, the lack of a material upswing seems indicative of what we believe should be a slow recovery in rig activity.”

During the week, oil-directed rigs decreased 7 units to 635, down 974 from a recent peak on Oct. 10, 2014, and 907 year-over-year. Gas-directed rigs edged down a unit to 221. Rigs considered unclassified also edged down a unit, settling at 3.

Land rigs lost 12 units to 825, down 955 year-over-year. A week after their smallest decline of the year, rigs engaged in horizontal drilling dropped 10 units to 663, down 709 from a recent peak on Nov. 21, 2014, and 585 year-over-year. Rigs drilling directionally edged down a unit to 95.

Offshore rigs gained 2 units to 29, down 26 since the beginning of the year and 30 year-over-year. Rigs drilling in inland waters edged up a unit to 5.

Canada’s rig count continued its upward trajectory, gaining 11 units to 127, down 117 year-over-year. Oil-directed rigs jumped 9 units to 68 while gas-directed rigs gained 2 units to 59.

All of the major oil- and gas-producing states reported rig counts that were either up a unit, unchanged from last week, or down a unit. Down a unit each was Texas at 363, New Mexico at 45, Colorado at 38, Ohio at 21, West Virginia at 19, Kansas at 13, Alaska at 9, and Utah at 6.

Unchanged from a week ago were Pennsylvania at 46, Wyoming at 22, California at 11, and Arkansas at 5. Oklahoma at 107 and Louisiana at 71 each edged up a unit.

Just four of the major basins reported movement. Down a unit apiece was the Permian at 232, Marcellus at 63, and Utica at 23. The Eagle Ford edged up a unit to 104.

http://www.ogj.com/articles/2015/06/bhi-us-rig-count-continues-fall-in-27th-straight-week.html
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Canada approves $1.3bn North Montney Mainline pipeline project

Canada has given consent to Nova Gas Transmission (NGTL)'s proposal to build C$1.7bn ($1.38bn) North Montney Mainline Pipeline project.

The project is proposed by Nova Gas Transmission, a subsidiary of TransCanada to transport natural gas from northeastern British Columbia to the existing NGTL system.

North Montney Mainline Pipeline project will feed gas to a second pipeline called the Prince Rupert Gas Transmission line.

"Through our plan for Responsible Resource Development, we are enhancing environmental protection and engaging First Nations in all aspects of resource development."

It is planned to be connected to Pacific NorthWest LNG terminal, which is a $11bn LNG terminal being illion liquefied natural gas export terminal being proposed by Petronas.

Nova Gas Transmission had submitted to Canada National Energy Board (NEB) for review, which NED had recommended for approval.

The government approval, however, comes with 45 terms and conditions, which ensure public safety and environmental protection.

The proposed pipeline will have an initial capacity to transport 2.1 billion ft3 of gas per day.

Prior to the start of pipeline construction, NEB will ensure if it meets specified conditions through a NGTL demonstration.

NGTL is expected to increase engagements with Aboriginal groups and local communities, before initiating work on the project, to ease its impacts on them.

Canada Minister of Natural Resources Greg Rickford said: "The approval of this project contributes to Canadian energy security and jobs while supporting the competitiveness of our natural resources globally.

"Through our plan for Responsible Resource Development, we are enhancing environmental protection and engaging First Nations in all aspects of resource development."

TransCanada has also secured NEB approval for its King's North Connection project as part of the Canadian Mainline system.

http://www.hydrocarbons-technology.com/news/newscanada-approves-13bn-north-montney-mainline-pipeline-project-4599812
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Berkshire’s Suncor Bet Endorses Long-Term View for CEO Williams

Warren Buffett’s Berkshire Hathaway Inc. and Steve Williams have one thing in common. They both dumped Exxon Mobil Corp. for Suncor Energy Inc.

For Williams, a former Exxon executive who is now the Canadian oil-sands producer’s chief executive officer, Berkshire’s stake in Suncor is a testament to a strategy of cutting costs and investing in its best assets even as the industry confronts a price collapse.

“I’m very proud that Warren has come in so heavily to the stock.” Williams, who’s had “occasional discussions” with the billionaire, said in an interview at Bloomberg’s Calgary bureau on Wednesday. “I’m particularly pleased because I worked for Exxon for 20 years before I came to Suncor, so it’s slightly personal as well.”

Suncor has the highest gross margins among 18 of the world’s largest oil and natural gas producers, four times higher than Exxon’s, data compiled by Bloomberg show. The margins have risen while those of global and Canadian peers declined, according to the data.

Suncor became Berkshire’s biggest oil holding after the company sold all shares in Exxon last year, while increasing its stake in the Calgary-based producer since the second quarter of 2014.

Alan Jeffers, a spokesman for Exxon, declined to comment. Buffett didn’t return a message left with an assistant.

Berkshire owned about 22.3 million shares of Suncor as of the end of the first quarter, up from 13 million at the end of 2013, according to data compiled by Bloomberg. Since the end of 2013, Suncor has declined 4.7 percent.

The shares have failed to keep pace with growing margins as a result of investor concerns that a declining Canadian dollar will erode asset values and delayed pipeline projects will limit market access for Canadian crude, Williams said.

http://www.bloomberg.com/news/articles/2015-06-12/berkshire-s-suncor-bet-endorses-long-term-view-for-ceo-williams
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Distillate line space values jump with US Gulf Coast salt cavern storage problems

Distillate line space values jump with US Gulf Coast salt cavern storage problems

A lack of available US Gulf Coast distillate storage space due to torrential rains in the region has reduced tankage capacity, resulting in a scuttle for line space on Colonial Pipeline, which sources say is being used as secondary storage space.

Line space on Colonial Pipeline's 1.16 million b/d Line 2 was still talked unseasonably strong Friday, and was assessed at 3.25 cents/gal Thursday. Values rose as high as 3.75 cents/gal early in the week, the highest point since March 6, which was at the tail-end of peak distillate demand from a long winter in the Northeast.

Line 2 space is typically negative during the summer months, but sources said companies are buying up space in order to put barrels on the pipeline as a cheaper alternative to storing them, due to constraints with salt cavern reserves for ULSD.

"There is a storage issue in the Gulf Coast related to the caverns," a ULSD trader said. "It seems to have calmed down a bit, but there is too much brine. They use brine to raise and lower the product, and if there is too much brine - because of the recent rain - there is no room to pump out the brine to make room for the product."

The US Department of Energy says that salt caverns are a cheaper alternative to storing in a tank farm.

"Created deep within the massive salt deposits that underlie most of the Texas and Louisiana coastline, the caverns offer the best security and are the most affordable means of storage, costing up to 10 times less than aboveground tanks and 20 times less than hard rock mines," the DOE says on its website.

http://www.platts.com/latest-news/oil/houston/distillate-line-space-values-jump-with-us-gulf-21607511
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Alternative Energy

Harvard says Solar threatens US gas consumption.

Image title
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Agriculture

French minister asks shops to stop selling Monsanto Roundup weedkiller

French Environment and Energy Minister Segolene Royal has asked garden shops to stop over-the-counter sales of Monsanto's Roundup weedkiller as part of a wider fight against pesticides seen as potentially harmful to humans.

"France must be offensive on stopping pesticides," Royal told France 3 television on Sunday.

She did not specify how she would enforce any move to curb over-the-counter sales of Roundup, one of the most widely used herbicides.

The International Agency for Research on Cancer (IARC), part of the World Health Organization (WHO), said in March that glyphosate, the key ingredient in Monsanto's Roundup was "probably carcinogenic to humans."

That prompted calls from some public officials and consumers for a ban on the pesticide.

Monsanto said on Sunday it had no information relating to a change in the marketing authorisation for Roundup and that there was no new scientific data available to challenge it.

"Under the conditions recommended on the label, the product does not present any particular risk for the user," the company said in an email.

France is already considering a move to restrict self-service sales of plant protection products for domestic gardeners as part of a wider move to crackdown on pesticides, although this would only apply from 2018. Sales would have to be done through a certified vendor.

A full ban on the use of pesticides by home gardeners in France is planned for 2022.

http://www.reuters.com/article/2015/06/14/france-monsanto-idUSL5N0Z00H120150614
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Precious Metals

Petra Diamonds forecasts full-year revenue below market estimates

Petra Diamonds Ltd forecast full-year revenue below market expectations as the smaller diamonds mined from late stage ores at its Finsch and Cullinan mines in South Africa have been fetching lower prices.

Petra said it expected revenue of about $430 million for the year ended June 30, almost 9 percent lower than a year earlier and below an average market estimate of $442 million, according to three analysts.

The company had warned twice earlier this year that its results would be below consensus due to variability in grade and production mix and softness in the diamond market earlier in the year.

Petra has been mining at mature caves at Finsch and Cullinan and has therefore seen a lower incidence of the high quality stones that have traditionally boosted the company's results.

Cullinan, located in the foothills of the Magaliesberg mountain range northeast of Pretoria, has in particular been the source of many large diamonds.

Petra in 2014 unearthed three large stones at the mine, which is the source of the largest rough diamond ever recovered - the 3,106-carat Cullinan Diamond found in 1905. Petra has not revealed any major discovery at Cullinan in 2015.

Mining at Cullinan's mature underground area has also meant that the ore mined has been more diluted, costing the company more to move additional waste material.

Petra, however, kept its full-year production target of about 3.2 million carats and said its reliance on heavily diluted ore would be reduced in fiscal year 2016 as it ramps up production from new areas.

http://www.reuters.com/article/2015/06/12/petra-diamonds-outlook-idUSL3N0YY2GP20150612
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Base Metals

First Quantum is mining’s ideal takeover target, Bernstein says

First Quantum Minerals is the ideal takeover target for mining giants like BHP Billiton and Rio Tinto seeking to grow through acquisitions instead of building projects from scratch, Sanford C. Bernstein & Co. said.

“Several miners will be looking to acquire a copper producer, ideally offering strong growth,” Bernstein analyst Paul Gait said. “First Quantum looks like the ideal target. It’s a base metals copper pure-play, generating 70 percent of its revenue from copper and about 20 percent from nickel.”

Miners will focus on buying existing copper mines to boost production as the current price below $6,000 makes building new projects uneconomic, Gait said in a note. BHP and Rio are among the most likely buyers as they diversify from iron ore, he said. Glencore Plc may also be interested so it can benefit from synergies in the Central African copper belt, he said.

First Quantum, a Vancouver-based miner of copper in Zambia and nickel in Australia and Finland, plans to triple annual copper-output capacity to more than 1.3 million metric tons in five years after completing its Cobre project in Panama by 2018.

This month it raised about C$1.4 billion ($1.1 billion) to speed growth in its copper projects as a supply deficit looms.

http://www.mineweb.com/news/base-metals-and-minerals/first-quantum-is-minings-ideal-takeover-target-bernstein-says/
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Zinc's infinitely stretchable deficit deadline

All mining activities at the giant Century zinc mine in Australia will have ceased by the end of this month.

News that will be greeted with relief by believers in the zinc deficit story, who have had to watch Century's operator MMG push back the fateful closure date many times in the past.

Century has become totemic of zinc's bull narrative of looming shortfall as some of the world's biggest mines come to the end of their natural lives without obvious like-for-like replacements.

Mining activities may be stopping at Century this month but the mill will continue operating into the third quarter, processing stockpiled ore.

This was expected. Largely unexpected was MMG's announcement in April it will then mill another 450,000 tonnes of ore from trial mining activities at the nearby Dugald River project.

That ore grades 13.3 percent zinc, implying almost another 60,000 tonnes of contained metal. It will take between four and six weeks to process that ore, meaning the Century mill might still be producing concentrates into the fourth quarter of this year.

That tonnage windfall is not included in MMG's 2015 production guidance of 320,000-370,000 tonnes for Century, because Century is now, er, closed.

It's only a small deferral in the grand scheme of things but just as the Century closure is totemic of the zinc bull story, so the latest push-back is symptomatic of that story's curiously elastic narrative.

So too is MMG's development work at Dugald River. The mine was originally due to ramp up as Century wound down but the company delayed the start date after encountering more complex ore than anticipated.

Worth noting, therefore, is the fact that MMG hasn't given up on Dugald River. Pre-mining activities are continuing and the company is working on a new mining plan, which would extend mine life but with lower annual output.

Well, at least the Lisheen mine in Ireland is going to close pretty much on schedule in the coming months.

But operator Vedanta Resources has sprung its own surprise on the zinc market, Its Skorpion mine in Namibia was scheduled to close next year but a new mining plan will push that deadline back a couple of years to the company's 2019 financial year (April 2018 to March 2019). Oh, and milling operations will continue into financial 2020 using stockpiled ore.

Skorpion is only a medium-sized producer with capacity of around 150,000 tonnes per year and it is highly unusual in producing zinc metal rather than zinc in concentrates.

It will not therefore offset the loss of Lisheen, which until the last year or so was producing around 175,000 tonnes of contained zinc per year.

That task will fall to Vedanta's new Gamsberg mine, an extension of its existing Black Mountain operations in South Africa. First ore from Gamsberg is expected in 2018 with anticipated long-term production at a rate of 250,000 tonnes per year.

It is proof that producers of any commodity will work to renew their portfolios, particularly when the consensus view is that they will be bringing new capacity on stream in an environment of supply deficit.

And unsurprisingly, the prospect of zinc raw materials deficit and associated higher prices is incentivising others as well.

Take, for example, Energia Minerals, the Australian-listed junior, which is rehabilitating the long-forgotten Gorno mine in northern Italy, precisely to reap the expected zinc bonanza.

Zinc bulls will be unfazed. The numbers, they point out, still point to a shortfall of zinc, albeit one that keeps edging back from imminent to pending.

Stocks of concentrates accumulated over the last few years will initially cushion the market against any evolving shortfall of mined material.

That makes the kinks in zinc's deficit deadline important in terms of attempting to forecast when shortfall, if it ever finally materialises, translates into price reaction, both in the concentrates and the refined metal parts of the market.

And the kinks in the zinc story just keep on multiplying.

http://www.reuters.com/article/2015/06/12/zinc-supply-ahome-idUSL5N0YY1XY20150612
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China's magnesium output expected to grow 10% annually through 2020

China's magnesium output is expected to grow at least 10% annually to 1.3 million mt by the end of 2020, the Magnesium Industry Association of Shaanxi said Friday.

The report estimates this year's output at 800,000 mt. China produced 700,000 mt/year of magnesium during the 12th Five-Year Plan period (2011-2015), it said.

The rising output was attributed to countries' push to reduce emissions through light-weight engineering, which will increase demand for magnesium and magnesium alloy products.

China aims to to have 600,000-700,000 mt of processed magnesium production by end-2020, with at least 10 producers having deep-processed magnesium alloy output capacity of more than 20,000 mt/year, the association said.

The country also aims to have more than six magnesium smelters with output capacity of 50,000-100,000 mt/year.

The report said China's push for energy efficient and alternative energy vehicles would increase applications for magnesium alloy components.

http://en.chinamining.com.cn/News/2015-06-15/1434334301d72558.html
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Steel, Iron Ore and Coal

Indonesian coal miners have less room for cost cutting

The Jakarta Post reported that Indonesian coal mining companies are facing pressure on their operations as current low commodity prices and several changes in government policies have left them little room for cost-cutting programs.

When coal prices started to decline, mining companies said they would reduce costs partly by lowering the stripping ratio - the ratio of the volume of waste material that must be removed to get the coal - so that they could maintain their profits and continue operations.

However, as prices keep declining, cutting costs no longer seems a viable option.

Based on a survey conducted by Coaltrans Asia for its 21st conference, most of the respondents said that Indonesian coal producers now only had very limited room to reduce costs before they reached a final option: closing their operations.

The respondents argued that coal mining contractors or service providers still had a margin to keep them in operation.

Mr Edwin Tsang, director and chief marketing officer of PT Adaro Indonesia, one of the country’s major coal producers, said during a session at the Coaltrans Asia conference, said that “Maybe slightly. I think there is a limit [to which] it can be done.”

http://steelguru.com/coal/indonesian-coal-miners-have-less-room-for-cost-cutting/426772#tag
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Arrium cuts capex, sales volumes to combat low iron-ore prices

ASX-listed Arrium Mining and Materials on Monday announced a significant reduction in capital expenditure (capex), as well as the potential divestment of assets to combat the falling iron-ore prices. 

The company said that despite the redesign of its South Australian hematite operations, which included the mothballing of the Southern Iron mining operation, and subsequent work to decrease operating costs, it had to do more to make the operations viable. 

The redesign of the mining business left Arrium with about nine-million tonnes a year to export from its Middleback Ranges operation, at a targeted cash cost of A$57/t delivered into China. Arrium would reduce planned capex by A$70-million from its previous 2016 financial year targets, with further reductions of about A$140-million planned between 2016 and 2019. While the miner was targeting sales of between nine-million and ten-million tonnes in the 2016 financial year, the capex reduction was expected to result in sales volumes of between six-million and eight-million tonnes between 2017 and 2019. 

However, Arrium pointed out that the business would retain the flexibility to increase capex  and sales volumes, should the iron-ore market indicate a value return. Meanwhile, Arrium has warned of a potential impairment charge of some A$320-million for the year ended June, primarily relating to the impact of the lower iron-ore prices. 

Arrium MD and CEO Andrew Roberts said that the company was also undertaking a strategic review of its entire business, in the low iron-ore price environment, following a detailed assessment of the company’s balance sheet and its portfolio. The review included an assessment of options to achieve an appropriate structure and level of debt, and would include the potential divestment of “significant assets or businesses”, 

Roberts said. “Our mining consumables business is continuing to perform strongly and we are seeing significant improvements of steel. However, despite the benefits from restructuring mining and stronger earnings in our mining consumables and steel businesses, the extent of the deterioration in iron-ore prices means we have had to adjust our expectations around the timing and rate of debt reduction.” 

Roberts said that the review would consider a range of options to deliver the best outcome for shareholders. In February this year, Arrium sold its wire rope business to a Belgium-based firm for A$90-million.

http://www.miningweekly.com/article/arrium-cuts-capex-sales-volumes-to-combat-low-iron-ore-prices-2015-06-15
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Ukraine's Mariupol steel plants in critical state after gas cut-off

Two of Ukraine's largest steel plants are in a critical situation and may have to cut production, owner Metinvest said on Friday, after fighting in the separatist east severed gas supplies to the port city of Mariupol and two other towns.

Mariupol, a southeastern government-controlled city on the Sea of Azov, lies close to the frontline with rebel territories. Metinvest's Ilyich and Azov Steel plants employ 10 percent of Mariupol's population.

The interior ministry accused rebels on Friday of shelling the pipeline, causing damage which gas transport monopoly Ukrtransgaz said had left three towns, including Mariupol, without gas supplies for up to two days.

"The situation (at the plants) ...is critical. They are considering switching the blast furnaces to low run and limiting their steelmaking and rolling processes," Metinvest said in a statement.

Prime Minister Arseny Yatseniuk said Russia-backed had deliberately targeted the pipeline in a bid to destabilise Mariupol.

"They're doing this on purpose to sow panic in Mariupol, to shut down the factories so that people don't get wages. It's part of the Russian plan," he said in a government meeting.

Rebel officials denied responsibility for the attack on the pipeline around 100 km north of Mariupol. "The area indicated by Ukrainian authorities is beyond the reach of our mortars," separatist news service DAN quoted them as saying.

The industrial hub has been under threat from rebel attacks for months despite a ceasefire deal. Control of the city would help the rebels form a corridor to the Crimea peninsula which Russia annexed from Ukraine last year.

Production has fallen significantly at the plants since fighting erupted last April but they have kept working despite severe supply disruptions.

Output at Ilyich, which is producing around half as much steel as before the conflict, was 1.1 million tonnes in the first four months of 2015, while Azov Steel produced 590,000 tonnes in the first quarter.

Overall, steel production in Ukraine was down by 28 percent to 9.247 million tonnes in the first five months of 2015 compared with the same period last year, producers' union Metalurgprom said this month.

http://www.reuters.com/article/2015/06/12/ukraine-crisis-mariupol-metinvest-idUSL5N0YY1IZ20150612
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China's Baoshan cuts steel prices for July as demand weakens

China's Baoshan Iron & Steel will cut main steel product prices for July bookings, the company said on Friday, as sluggish economic growth hit demand for the industrial material.

The company will cut hot-rolled coil and cold-rolled coil prices by 80 yuan a tonne. Baosteel's pricing policy is expected to set the tone for the sector which has suffered from chronic overcapacity and tepid demand.

http://en.chinamining.com.cn/Companies/2015-06-15/1434335505d72560.html
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