Mark Latham Commodity Equity Intelligence Service

Thursday 4th August 2016
Background Stories on www.commodityintelligence.com

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    Macro

    Rio Tinto earnings slump to 12-year low, warns conditions still tough


    Global miner Rio Tinto reported a 47% slump in first-half profit to its weakest in 12 years on Wednesday, but surprised the market with a higher-than-expected dividend while flagging that conditions remain difficult.

    New CEO Jean-Sébastien Jacques said he was focused on shoring up the company by cutting costs further and did not expect help from commodities markets, which had been pumped up in the second quarter by easy credit in China.

    "So we are confident, but absolutely not complacent. Looking forward, we expect market conditions to remain challenging and volatile," Jacques told reporters.

    Underlying earnings for the six months to June fell to $1.56-billion from $2.92-billion a year earlier, beating analysts' forecasts around $1.46-billion, according to an externally compiled consensus.

    Gains in the aluminium business were better than expected, while iron-ore and copper missed forecasts, analysts said.

    "It's a decent result in difficult times," said Paul Gait, an analyst at Bernstein in London.

    In a battered mining industry, the world's no.2 iron-ore miner is strongly placed as it has cut debt faster than its peers, so much so that it is digging new iron ore, copper and bauxite mines while its rivals are slashing capital spending.

    While some analysts have said Rio Tinto should use its balance sheet to snap up distressed assets rather than build new mines, Jacques said none of the assets Rio Tinto wants are on the market and prices others had paid for stakes incopper mines over the past year had been high.

    "We've been very clear - it's about build and smart buy, and the word smart you can put in capital letters," he said on a conference call with reporters.

    While Rio is eager to expand in copper, Jacques said it has no plan to increase its stake in Turquoise Hill Resources, which it already half owns. Turquoise Hill is the 66% owner of the Oyu Tolgoi copper mine in Mongolia.

    Thanks to its strong balance sheet, Rio Tinto was able to announce a half-year dividend of 45c a share, in stark contrast to rivals Anglo American and Brazil's Vale, which declared no dividends at their half-year results last week.

    The payout beat analysts' forecast of 41c.

    It remains on track to cut costs by $2-billion over the two years to December 2017.

    Net debt fell to $12.9-billion from $13.8-billion in December, which was better than expected.

    "In our view this leaves room for additional shareholder returns," London-based Investec analyst Hunter Hillcoatsaid.

    Rio Tinto in February scrapped a long-held policy of nevercutting its annual dividend to help weather a prolonged commodities bust.

    http://www.miningweekly.com/article/rio-tinto-earnings-slump-to-12-year-low-warns-conditions-still-tough-2016-08-03
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    Bill Gross Talks "Sex", Answers "Honestly" What Happens When The Financial System Breaks Down


    Bill Gross' latest letter is a curious melange of two distinct parts.

    The first one is more of the same traditional stream of consciousness we have grown to expect from the man some call the "former" bond king. Curiously, the topic of discussion is something Gross has never "touched" upon before, namely sex. As Gross says, "Sex is a three-letter word that has rarely appeared in an Investment Outlook until now." The second part may have been ghost-written by the "new" bond king, as it recaps - in a Q&A format - all the recent points made by Jeff Gundlach, who recently said to "sell everything" except gold and gold stocks. Gross' spin: "I don't like bonds, I don't like most stocks; I don't like private equity. Real assets such as land, gold, and tangible plant and equipment at a discount are favored asset categories."

    First, here is Gross' take on Sex:

    Sex is a three-letter word that has rarely appeared in an Investment Outlook until now. I may be risque and delve into the forbidden territory of politics and religion, but "SEX"? — Never. But here goes! Actually, my own personal history of sexual edification was probably like many of yours. My mother asked me at age 14 if I knew where little kittens came from and when I answered "the pet store", I never got an additional query or piece of information on the subject. I suspect she had written me off as hopeless long before.

     

    When it came time for me to be a father, I vowed never to repeat anything as stupid as that kitten trick to my kids, and I wound up not saying anything at all about sex to my older ones, Jeff & Jennifer, who are now in their 40s and safely beyond my parental foibles. The Nineties, however, ushered in a new sensitivity and a requirement to come clean with your child at an early age. And so, when Nick was born in 1988, Sue and I knew that we'd have to explain his "conception" at some point before we turned over the car keys and started four-digit checks for insurance. It's not like Nick was adopted or anything, but he was, in fact, one of California's first "test tube babies" which made him sort of unique and special — at least to us — and we felt he deserved knowing about it. Actually, it was a godsend as far as the sex education goes. At 8 or 9, when he asked about "babies", we both sat down and told him how he had been conceived: a doctor took some of Dad&s sperm and a few of Mom's eggs, mixed em' up in a test tube and "voila" — you've got a baby. He seemed to buy the story pretty well and we got to avoid all of the gushy —male / female — stuff.

     

    Our biggest challenge came years later when Nick got his hands on one of those trashy "Victoria's Secret" advertising mailers. As a service to me, Sue always does her best to dispose of them in the garbage can as quickly as possible, but this time Nick had gotten his hands on it and was intrigued not only by the pictures of those plain and unattractive models, but by the name itself. "Dad", he asked, "what is Victoria?s Secret?" Well now, I quickly thought, does he mean what is Victoria's Secret or what is Victoria's Secret? If it was the former, it could be just an innocent question about the mailer itself. If the latter, well, it was a path down which I wasn't willing to travel. "I am not sure", I replied, taking the brochure from his hands and depositing it in the trash, like Sue usually does. As a diversion though, I answered his question with one of my own. "Do you know where kittens come from?" I asked. "The pet store", he said, and with that I breathed a sigh of relief, content in his normalcy and satisfied I was fulfilling my role as a parent in the sensitive Nineties.

    Why the odd premable? Because as Gross then points out, as a transition to the more important - second part - of his letter,  "there are equally important questions in today's economy and financial markets, so I thought I'd condense a few of them to hopefully explain our current situation, perhaps a little more honestly than my "kittens in a pet store" ruse or what "Victoria's Secret" really was."

    Here, the most notable segment is the rhetorical answer to a question that asks "When does our credit-based financial system sputter/break down?"Goss' answer:

    When investable assets pose too much risk for too little return. Not immediately, but at the margin, low/negative yielding credit is exchanged for figurative and sometimes literal gold or cash in a mattress. When it does, the system delevers as cash at the core, or real assets like gold at the risk exterior, become the more desirable assets. Central banks can create bank reserves, but banks are not necessarily obliged to lend it if there is too much risk for too little return. The secular fertilization of credit creation may cease to work its wonders at the zero bound, if such conditions persist.

    He follows up with 4 more mini Q&As, as follows:

    Can capitalism function efficiently at the zero bound?

    No. Low interest rates may raise asset prices, but they destroy savings and liability based business models in the process. Banks, insurance companies, pension funds and Mom and Pop on Main Street are stripped of their ability to pay for future debts and retirement benefits. Central banks seem oblivious to this dark side of low interest rates. If maintained for too long, the real economy itself is affected as expected income fails to materialize and investment spending stagnates.

     

    Can $180 billion of monthly quantitative easing by the ECB, BOJ, and the BOE keep on going? How might it end?

     

    Yes, it can, although the supply of high quality assets eventually shrinks and causes significant technical problems involving repo, and of course negative interest rates. Remarkably, central banks rebate almost all interest payments to their respective treasuries, creating a situation of money for nothing — issuing debt for free. Central bank "promises" of eventually selling the debt back into the private market are just that — promises/promises that can never be kept. The ultimate end for QE is a maturity extension or perpetual rolling of debt. The Fed is doing that now but the BOJ will be the petri dish example for others to follow, if/ when they extend maturities to perhaps 50 years.

     

    When will investors know if current global monetary policies will succeed?

     

    Almost all assets are a bet on growth and inflation (hopefully real growth) but in its absence at least nominal growth with some inflation. The reason nominal growth is critical is that it allows a country, company or individual to service their debts with increasing income, allocating a portion to interest expense and another portion to theoretical or practical principal repayment via a sinking fund.Without the latter, a credit-based economy ultimately devolves into Ponzi finance, and at some point implodes. Watch nominal GDP growth. In the U.S. 4-% is necessary, in Euroland 3-4%, in Japan 2-3%.

    Finally, the most practically relevant section, and the one that almost verbatim ghosts Gundlach's own sentiment on what one should do at this time, is Gross' answer to "What should an investor do?"

    In this high risk/low return world, the obvious answer is to reduce risk and accept lower than historical returns. But don't you have to put your money somewhere? Yes, of course, except markets offer little in the way of double digit returns. Negative returns and principal losses in many asset categories are increasingly possible unless nominal growth rates reach acceptable levels. I don't like bonds; I don't like most stocks; I don't like private equity. Real assets such as land, gold, and tangible plant and equipment at a discount are favored asset categories. But those are hard for an individual to buy because wealth has been "financialized". How about Janus Global Unconstrained strategies? Much of my money is there.

    We are confident that the "new" bond king agrees.

    http://www.zerohedge.com/news/2016-08-03/bill-gross-talks-sex-answers-honestly-what-happens-when-financial-system-breaks-down
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    "Mysterious Redaction" Exposes Chaos Inside China's Central Planning Black Box


    Something odd took place on the website of the research office of China's National Development and Reform Commission, China's highest economic central planning agency.

    Early in the morning, local time, the statement, which can be found at the following site, said China should implement proactive fiscal policy, properly expand aggregate demand and increase effective investment amid downward pressure in investment. Traditional Chinese boilerplate until one reached further down in the statement, where 13 characters urged China to: "lower benchmark interest rates and banks' reserve requirement ratio at appropriate times."

    The investing community sprang up at what was the clearest suggestion that more easing is coming. Indeed, the language inclusion immediately prompted Nomura's chief China economist Zhao Yang to say that NDRC "is right to want interest-rate and RRR cuts to lower local government funding costs as their investment in infrastructure projects is key driver of Chinese economy."

    Which is fine, except... as Dow Jones writes, "control over interest rates isn't in the NDRC's bailiwick. Monetary policy is entirely the responsibility of the People's Bank of China, and it hasn't touched rates since October. It is highly unusual for any other agency, let alone an entity of the government body charged with running state infrastructure projects, to openly comment on what it thought China's monetary policy would or should be."

    And, as a result, within hours, it had become clear that the NDRC's research unit had overreached. By the afternoon, the 13 offending characters had vanished from the statement even though the unredacted version could still be found in China's internet.  As Dow Jones put it simply "call it Chinese policy-unmaking."

    The National Reform and Development Commission (NDRC) also removed a call for subsidies to help reduce inventories of unsold homes without any explanation for the change.

    The "mysterious redaction" amplified attention on the NDRC's unusual temerity, the WSJ writes, attracting notice from keen-eyed China hands. The omission spoke to the tension between two camps charged with stewarding China's economy. For months now, those allied with the central bank have warned that an ever-increasing reliance on looser liquidity is failing to juice the economy, arguing that monetary policy has reached its limits and abusing it would only cause consumer- and asset-price inflation.

    This is not the first time China's policy paralysis has been revealed: two weeks ago, Sheng Songcheng, the PBOC's head of statistics, went further. China's monetary policy, he warned, has fallen into a "liquidity trap." The term refers to an economic scenario where cash injections fail to reduce interest rates or generate more investments. Chinese companies were just hoarding the additional liquidity in the banking system instead of using it to expand investment, Mr. Sheng said.

    As we showed at the time, the monetary data  is confirming this concern, when last month China showed, for the first time in two decades that the country's M1, a definition of money that primarily means current deposits of China's non-financial institutions, accelerated in divergence from its M2, a broader measure of money in circulation. This meant that companies were taking money out of time deposits and holding it in cash and current deposits.

    It also means that just like the west, increasing liquidity in China - and Beijing has been all too generous in this regard - is now ending up stuck in the form of cash, which will put further downward pressure on the velocity of money, and lead to an even greater growth deceleration.

    Meanwhile, for the NDRC to call for a rate cut is in effect laying the blame for the slowdown on the central bank. Commission officials have argued that companies just need to find it cheaper to borrow before they would be willing to do so, helping to rev up a slowing economy. The NDRC runs approvals for large infrastructure projects undertaken by state corporations. Not so fast, the PBOC and its allies said. Implicit in the PBOC's admonitions was a message: Stop leaving the job of producing an economic recovery to the central bank alone, the WSJ adds.

    This confirms the message that has been prevalent across developed nation policy circles in recent months, as pressure has been rising to relieve central banks of providing the monetary boost to grow economies and hand over responsibility to fiscal authorities.

    Which leads us to the next point: in his widely reported comments to local media at an industry conference, Sheng also said the government can raise its fiscal deficit to 5% of its gross domestic product. This year's official fiscal deficit rate is set at around 3%. Sheng's call suggests that it is also up to the Ministry of Finance, which is in charge of tax policy, to take the lead in engineering a recovery. The ministry and the NDRC didn't immediately respond to calls for comment.

    As for today's "mysterious redaction", China pretended as if nothing had happened. Shortly after the redaction of the NDRC's statement, the central bank published a fairly routine recap of a central-bank conference held Tuesday and Wednesday. In it, the PBOC said China would maintain ample liquidity and reasonable growth in lending in the second half this year. Beijing would maintain a prudent monetary policy, keep the yuan basically stable and press on with market-based reform, it said.

    In other words, as Dow Jones concludes, it said "as you were." Whether markets ignore this latest confirmation of the chaos and lack or coordination at China's top central planning echelons is a question that will be answered in the coming weeks.

    http://www.zerohedge.com/news/2016-08-03/mysterious-redaction-exposes-chaos-inside-chinas-central-planning-black-box
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    China's top power producers H1 output slides, boosting new energies

    China's top power producers H1 output slides, boosting new energies

    China's top power producers saw electricity output decline in the first half of this year, mainly due to slack demand from industrial sectors amid slowing economic growth.

    http://old.en.sxcoal.com/0/150806/DataShow.html
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    Aggreko says recovery in N.America power market some way off


    Temporary power provider Aggreko said oil prices needed to be higher for longer to drive a recovery in its business with North American oil and gas customers, as it posted first-half profits that missed some analysts' forecasts.

    While crude prices have recovered from January lows, Aggreko CEO Chris Weston said North American shale companies were so far largely restarting projects by using power grids rather than the sort of temporary supplies provided by his company.

    "The oil price needs to be a little bit higher and higher for a reasonable period of time, 3-6 months, before you begin to see more drilling and production activity in areas where there is no power and therefore they need our services," he told reporters on Wednesday.

    The world's largest listed temporary power provider posted a trading profit of 77 million pounds ($103 million) for the six months ended June 30, which two analysts said was below the consensus estimate of around 85 million pounds.

    Aggreko shares fell as much as 15 percent, the biggest percentage fall on London's FTSE midcap index.

    Citing North America weakness and geopolitical tensions in other markets, Aggreko reiterated full-year pretax profit before exceptional items would be slightly lower than in 2015. The forecast banks on Aggreko winning extensions on contracts in Argentina, Venezuela and Yemen.

    Jefferies analysts said the guidance looked a stretch given it factored in an uptick in North America as well as success on all three contracts.

    Aggreko was not expecting to deploy any power for the Olympic Games in Rio de Janeiro this year, Weston said, after it withdrew from the tender process to supply generators in December.

    The company also said it had not yet engaged with the UK government over Britain's potential power needs after Prime Minister Theresa May decided to review plans to build a nuclear plant in southwest England.

    "Of course, if the crunch came and they needed power quickly we would respond," Weston said.

    http://www.reuters.com/article/aggreko-outlook-idUSL3N1AK2XU
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    Oil and Gas

    Iran Adopts Oil Contract as Glut No Barrier to Boost Output


    Iran approved an outline for a new oil contract model, taking the OPEC member a step closer to welcoming foreign investment in its energy industry and boosting production even more into an oversupplied market.

    The outline was approved at a cabinet meeting Wednesday, the official Islamic Republic News Agency reported, without saying where it got the information. Priority will be given to boosting production at jointly owned oil and gas fields, state radio reported, citing Oil Minister Bijan Namdar Zanganeh. The government wants to lure international oil companies that can make long-term investments worth billions of dollars and bring cutting-edge technology into Iran after sanctions that restricted its crude supplies were eased in January.

    Big oil companies such as Italy’s Eni SpA and France’s Total SA have expressed an interest in developing Iran’s oil and gas fields. Iran has been working on the oil contract model for the past two years. The country hopes companies will invest as much as $50 billion a year. It’s already succeeding in meeting its pledge to regain market share it lost due to the sanctions over its nuclear program. Production was 3.55 million barrels a day in July, 27 percent higher for this year and the most since December 2011, according to data compiled by Bloomberg.

    “Any process is going to take time and a lot of steps before any investment goes into the ground,” Edward Bell, commodities analyst at Emirates NBD in Dubai, said by phone. “This isn’t going to be a step change in the way markets are going now.”

    Brent crude prices fell 15 percent in July amid a growing recognition the global surplus of crude will take time to clear. Iran seeks to reach an eight-year high for daily output of 4 million barrels by the end of 2016, with foreign investment helping it regain the position as OPEC’s second-largest producer. It was third-largest in July, according to data compiled by Bloomberg.

    The new contract model was approved in a cabinet session presided by President Hassan Rouhani. The Oil Ministry will review each contract to be signed by potential new investors, including details on price, duration and other terms of the project, according to state radio.

    Investors will want to know exactly what conditions they will face in Iran, such as joint venture regulations and dispute resolution, Emirates NBD’s Bell said. “Once we get the full details on that, we will get a much better sense of how attractive the contracts are.”

    http://www.bloomberg.com/news/articles/2016-08-03/iran-approves-oil-contract-outline-in-step-to-even-more-supplies
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    Oil Traders Have Almost Zero Faith in Key Libyan Ports Resuming


    Oil traders who specialize in purchasing cargoes from Mediterranean ports view the chances of an imminent resumption of shipments from two key Libyan terminals as almost zero, even after a deal was struck to reopen the facilities.

    Three out of six traders questioned by Bloomberg said they don’t expect a single cargo to be shipped from Ras Lanuf or Es Sider ports by the end of next month. Two said they were pessimistic any deals would last long enough to allow a resumption, while another said only a few cargoes would get shipped if there’s a restart. Libya’s unity government reached an agreement July 28 with Petroleum Facilities Guard members over pay in exchange for reopening the terminals.

    Libyan oil officials have made multiple pledges over the past few years that the nation’s exports would revive, only for those promises to fail to materialize. A resumption of the North African country’s production to 2011 levels would add about 1.3 million barrels a day to world supplies, extending a glut in global crude markets that caused prices to crash. While the two ports have reopened, the fields that feed them have yet to restart.

    “It always seems to be a very game-theory situation here, in that as long as the oil’s not flowing, there’s nothing to fight over: everyone’s incentivized to make a deal,” said Seth Kleinman, European head of energy strategy at Citigroup Inc. “As soon as the oil starts flowing again, along with the money, then you have something to fight over” and export restarts will be “fitful”.

    Exports from all Libyan ports dropped to about 226,000 barrels a day in July after reaching a six-month high in June, according to ship-tracking data compiled by Bloomberg. There have been no exports from either port since December 2014 with force majeures in place. Production is about 300,000 barrels a day compared with almost 1.6 million in 2011 and the ouster of Moammar Qaddafi.

    Traders remain skeptical that a regular flow of crude can be achieved in the near future because of damage to infrastructure at the terminals and also because ofblockades by tribes and local factions the ports and oil fields. Those deposits include the Repsol SA-operated Sharara, Libya’s largest, and ENI SpA’s El Feel, or Elephant.

    Two of the traders booked ships previously for cargoes that were subsequently canceled, making them less confident about a restart now, they said. The six traders asked not to be identified because they aren’t authorized to speak to the media.

    http://www.bloomberg.com/news/articles/2016-08-03/oil-traders-have-almost-zero-faith-in-key-libyan-ports-resuming-ireqflms
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    Noble Energy reports smaller than expected loss, raises 2016 sales vol forecast


    U.S. oil and gas producer Noble Energy Inc (NBL.N) reported a smaller-than-expected quarterly loss and raised its full-year forecast for total sales volume as it benefits from improved drilling efficiency.

    Noble, like its peers, has been hit by continued weakness in crude prices. The benchmark U.S. crude Clc1 averaged $45.64 in the quarter ended June 30, about 21 percent lower than a year earlier.

    The company said it expects sales volume to fall to a range of 405,000-415,000 barrels of oil equivalent per day in the current quarter, from 427,000 boepd in the second quarter.

    Noble maintained its capital budget of less than $1.5 billion for 2016.

    The company's net loss nearly tripled to $315 million, or 73 cents per share, in the second quarter ended June 30, from $109 million, or 28 cents, a year earlier.

    Noble raised its 2016 sales volume forecast by more than 7 percent to an average of 415,000 boepd on a divesture-adjusted basis.

    Noble's sales volume rose 42.8 percent to 427,000 boepd in the second quarter.

    Excluding items, Noble reported a loss of 24 cents per share. Analysts on average were expecting a loss of 29 cents, according to Thomson Reuters I/B/E/S.

    http://www.reuters.com/article/us-noble-energy-results-idUSKCN10E18M
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    HELP in action: India hydrocarbon policies tested


    In March India approved a series of key policy changes under the new Hydrocarbon Exploration and Licensing Policy (HELP). This policy is about to be tested for the first time, can it revive investment interest in the struggling upstream sector?

    The story of the HELP contracts is one of give and take. The introduction of a revenue sharing contract shifts significant investment risk onto contractors, but in return for greater pricing freedom. The new contract structure aims to reduce regulatory oversight and bureaucracy, but the government will receive its revenue share from day one. New open acreage licensing has been long-advocated, but lack of data could hinder interest.

    There are potential upsides and downsides, but the terms will be tested via an ongoing bidding round of discovered fields being offered with similar contracting terms. Change is well needed, as gas production has dropped and oil output is stagnant:

    Image title

    What projects are available for bidding?

    India has placed 67 discovered oil and gas fields on offer to international and domestic companies.  There are 46 contract areas that encompass the 67 fields totalling 562 million barrels of oil equivalent (mmboe) in place, with 240 mmboe recoverable. However the average project size is less than 10 mmboe of resource.

    The majority of the projects are located in shallow water, with onshore fields accounting for less than a third of resource; only a fraction of fields are located in deepwater. There is a slight tendency to oil, although the bid round includes a significant offering of gas projects.

    How attractive are these projects?

    This is India's first licensing round in 6 years and the fiscal and contractual regime is vastly different from previous bid rounds.  Under the new revenue sharing terms, the contractors bear significantly more risk, as contractors have sole responsibility for any budget overruns. This creates a clear downside for marginal fields and  this bidding round contains exclusively marginal fields.  

    Image title


    On the upside: the new fiscal terms include the aforementioned pricing freedoms, creating potential for attractive opportunities. Additionally, conventional and unconventional exploration have been combined into a single license, creating freedom to explore throughout the duration of the contract.    

    Companies are bidding on government share of net revenue as opposed to profits post cost recovery. This makes high cost projects especially high risk; this does not bode well for the deepwater projects.

    There is a case to be made that the fiscal terms were never really the problem. New entrants have been rare and incumbents have relinquished acreage positions, with most citing regulatory hurdles as a barrier. The reduction of bureaucracy could be the crucial factor in achieving sustainable investment to drive a long-term recovery in India’s hydrocarbon industry.

    http://www.woodmac.com/analysis/HELP-in-action-India-hydrocarbon-policies-tested?utm_source=twitter&utm_medium=social&utm_campaign=wmorganic&utm_content=o

    Attached Files
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    Alaska Again


                                              Last Week  Week Before    Year Ago

    Domestic Production5 '000... 8,460          8,515 -55        9,465
    Alaska        ...............................427             482 -55           458



    http://ir.eia.gov/wpsr/overview.pdf
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    Summary of Weekly Petroleum Data for the Week Ending July 29, 2016


    U.S. crude oil refinery inputs averaged about 16.9 million barrels per day during the week ending July 29, 2016, 266,000 barrels per day more than the previous week’s average. Refineries operated at 93.3% of their operable capacity last week. Gasoline production decreased last week, averaging 10.0 million barrels per day. Distillate fuel production increased last week, averaging over 4.9 million barrels per day.

    U.S. crude oil imports averaged over 8.7 million barrels per day last week, up by 301,000 barrels per day from the previous week. Over the last four weeks, crude oil imports averaged 8.3 million barrels per day, 10.4% above the same four-week period last year. Total motor gasoline imports (including both finished gasoline and gasoline blending components) last week averaged 637,000 barrels per day. Distillate fuel imports averaged 96,000 barrels per day last week.

    U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) increased by 1.4 million barrels from the previous week. At 522.5 million barrels, U.S. crude oil inventories are at historically high levels for this time of year. Total motor gasoline inventories decreased by 3.3 million barrels last week, but are well above the upper limit of the average range. Both finished gasoline inventories and blending components inventories decreased last week. Distillate fuel inventories increased by 1.2 million barrels last week and are above the upper limit of the average range for this time of year. Propane/propylene inventories rose 0.3 million barrels last week and are near the upper limit of the average range. Total commercial petroleum inventories increased by 2.1 million barrels last week.

    Total products supplied over the last four-week period averaged about 20.5 million barrels per day, up by 0.6% from the same period last year. Over the last four weeks, motor gasoline product supplied averaged about 9.8 million barrels per day, up by 2.2% from the same period last year. Distillate fuel product supplied averaged over 3.6 million barrels per day over the last four weeks, down by 1.9% from the same period last year. Jet fuel product supplied is up 2.9% compared to the same four-week period last year.

    Cushing down 1.1 mln bbl

    http://ir.eia.gov/wpsr/wpsrsummary.pdf
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    Occidental Petroleum reports quarterly loss on oil price slide


    Occidental Petroleum Corp. swung to a loss in its latest quarter and revenue fell by more than a quarter as the company continues to deal with low energy prices.

    Houston-based Occidental, an oil and gas exploration and production company, has been working to cut costs amid the sustained drop in energy prices. Oil and gas cash operating costs fell 16% in the second quarter compared with the same quarter last year. The price of realized crude oil price fell 27% to $39.66 per barrel from last year, but is up 35% from last quarter.

    Occidental hasn’t significantly cut back production. In its latest quarter, production fell 0.8% from a year earlier to 653,000 barrels of oil equivalent a day.

    Occidental said it is continuing to reduce its exposure to some areas in the U.S., Middle East and North Africa regions. Production of these noncore assets 59%.

    Occidental reported a loss of $139 million, or 18 cents a share, compared with a profit of $176 million, or 23 cents a share, a year prior.

    Total sales from fell 27% to $2.53 billion with double-digit declines across its segments.

    http://www.wsj.com/articles/occidental-petroleum-swings-to-a-loss-as-revenue-falls-1470232152

    Occidental Petroleum Corp (OXY.N) said it expects to grow 2016 production at the high end of its forecast of a 4-6 percent increase, while staying within its budget of $3 billion, helped by productivity and efficiency gains.

    A fall in costs of oilfield services, coupled with increased productivity in the hydraulic fracturing process, has resulted in drastically lower costs for each new well, while yielding more barrels.

    Occidental said its production from U.S. fields increased to 302,000 barrels of oil equivalent per day (boe/d) in the second quarter from 298,000,000 boe/d a year earlier, with increased output from its Permian resources in west Texas and southeast New Mexico contributing to that rise.

    The company's production from ongoing operations, including its international business, rose to 609,000 boe/d from 552,000 boe/d.


    http://www.reuters.com/article/us-occidental-results-idUSKCN10E19H
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    Concho Resources reports second quarter 2016 results


    Concho Resources Inc. today reported financial and operating results for the second quarter of 2016.

    Second-Quarter 2016 Highlights

    Delivered quarterly production of 13.2 million Boe, or 145.2 MBoepd, exceeding the high end of the Company's guidance.
    Raised full-year 2016 production outlook to a range of 0% to 2% annual growth and maintained capital expenditure outlook.
    Reduced per-unit lease operating expense by 20% year-over-year and quarter-over-quarter and lowered full-year 2016 guidance for per-unit lease operating expense.
    Reported a net loss of $265.7 million, or $2.04 per diluted share. Net income totaled $33.9 million, or $0.26 per diluted share, on an adjusted basis (non-GAAP).
    Generated $413.6 million of EBITDAX (non-GAAP).

    Tim Leach, Chairman, Chief Executive Officer and President, commented:

    'We continue to execute a disciplined strategy that is focused on improving capital productivity while extending our track record of solid operational performance. The second quarter exceeded expectations both operationally and financially. Production surpassed the high-end of our guidance range, and for the fourth straight quarter our capital spending was funded within cash flow. Our updated 2016 outlook for annual production growth and lower cash operating expenses reflects the quality of our assets and our efforts to pursue sustainable efficiencies that enhance full-cycle returns. The momentum we are generating combined with the scale of our core assets in the Permian Basin reinforces our 2017 outlook for double-digit production growth while continuing to balance capital and cash flow.'

    http://www.oilvoice.com/n/Concho-Resources-reports-second-quarter-2016-results/d670792d83ac.aspx
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    Antero Resources reports second quarter 2016 results


    Antero Resources Corporation today released its second quarter 2016 financial results. The relevant condensed consolidated financial statements are included in Antero's Quarterly Report on Form 10-Q for the quarter ended June 30, 2016, which has been filed with the Securities and Exchange Commission.

    Highlights Include:

    GAAP net loss of $596 million, or $(2.12) per share, compared to a GAAP net loss of $145 million, or $(0.52) per share in the prior year quarter due to non-cash losses on unsettled hedges of $977 million and $198 million, respectively, driven by increasing commodity prices during each quarter
    Adjusted net income of $41 million, or $0.14 per share, representing a 136% increase compared to the prior year quarter
    Adjusted EBITDAX of $332 million, a 24% increase compared to the prior year quarter
    Net daily production averaged a record 1,762 MMcfe/d, a 19% increase over the prior year quarter and flat sequentially
    Included record net daily liquids production of 75,041 Bbl/d, a 63% increase over the prior year quarter and a 10% increase sequentially
    Realized natural gas price before hedging averaged $1.93 per Mcf, a $0.02 negative differential to Nymex, with 99% of production priced at favorable markets
    Realized natural gas equivalent price including NGLs, oil and hedges averaged $3.95 per Mcfe, a 3% increase over the prior year quarter

    Second Quarter 2016 Financial Results

    As of June 30, 2016, Antero owned a 62% limited partner interest in Antero Midstream Partners LP's ('Antero Midstream'). Antero Midstream's results are consolidated with Antero's results.

    For the three months ended June 30, 2016, the Company reported a GAAP net loss of $596 million, or $(2.12) per basic and diluted share, compared to a GAAP net loss of $145 million, or $(0.52) per basic and diluted share, in the second quarter of 2015. The GAAP net loss for the second quarter of 2016 included the following items:

    Non-cash loss on unsettled hedges of $977 million due to increasing commodity prices during the quarter
    Non-cash equity-based stock compensation expense of $26 million
    Impairment of unproved properties of $20 million

    Without the effect of these items, the Company's results for the second quarter of 2016 were as follows:

    Adjusted net income of $41 million, or $0.14 per basic and diluted share, a 136% increase compared to the second quarter of 2015
    Adjusted EBITDAX of $332 million, a 24% increase compared to the second quarter of 2015
    Cash flow from operations before changes in working capital of $269 million, a 29% increase compared to the second quarter of 2015

    http://www.oilvoice.com/n/Antero-Resources-reports-second-quarter-2016-results/132c61eb5e60.aspx
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    Enbridge's Sandpiper looks to be latest victim of pipeline overbuild


    The long-planned and oft-delayed Sandpiper pipeline through the U.S. Midwest may not be dead, but it appears to be on life support, a likely casualty of the oil-and-gas industry's infrastructure overbuild amid a two-year global oil rout.

    After years of delays, refiner Marathon Petroleum Corp and midstream giant Enbridge Inc on Tuesday announced they would scrap their joint venture agreements and transportation services for the 450,000 barrels per day Sandpiper project, instead agreeing to acquire a portion of the rival Dakota Access Pipeline.

    That $1.5 billion deal, if successful, will leave Sandpiper without Marathon as its main anchor, even though an Enbridge spokesman said plans for the line are still being evaluated. The project involves two pipeline legs stretching from North Dakota through Minnesota to Wisconsin.

    Outgoing pipeline capacity from the Bakken is currently at around 641,000 bpd, according to Genscape. Once Dakota Access becomes operational, capacity will rise to 1.21 million bpd.

    That projected increase comes against the backdrop of a dramatic decline in oil prices that has weighed on production in North Dakota's Bakken play, one of the biggest beneficiaries of the boom in U.S. shale production over the last several years.

    The Dakota Access Pipeline, slated to stretch from North Dakota to Illinois, is expected to come online in the fourth quarter. With global oil futures down by 70 percent in the last two years, traders and analysts say there just is not enough crude in production in the U.S. Midwest for both pipelines.

    According to the North Dakota Industrial Commission, the state's oil production fell to 1.05 million bpd in May, down from a peak of 1.23 million bpd in December 2014. Drillers have cut the number of rigs operating in North Dakota to 27, according to Baker Hughes, down from a peak of 203 in June 2012.

    Shippers in the North Dakota area already have the Double H and Pony Express pipeline to carry crude to other markets, and the Dakota Access Pipeline will increase competition for supply.

    "This reflects falling production in the Bakken. At least in the short term, there is no need for both pipelines," said Sandy Fielden, director of oil and products research at Morningstar.

    Dakota Access, owned by Energy Transfer Partners, will be able to transport North Dakota crude to Patoka, Illinois, giving shippers access to markets in the Midwest, East Coast and Gulf Coast.

    With oil hovering near $40 a barrel and narrow pricing differentials between regions, concerns about overcapacity are hitting midstream operators in numerous parts of the country, even in shale plays more economical than the Bakken.

    For Enbridge, investing in another project could be the best step forward for a pipeline marred by regulatory delays. The $2.6 billion Sandpiper project was originally planned for startup this year, but was then pushed to 2017 after Minnesota regulators ordered an environmental review to examine alternate routes for that state's portion of the project.

    In February, it was again delayed to 2019 due to further environmental reviews and permitting in the state.

    If Sandpiper is ultimately shelved, it would not be the first time in the region. In 2014, Enterprise Products Partners canceled plans to build the first crude pipeline from North Dakota into Cushing, Oklahoma, citing lack of shipper support.

    http://www.reuters.com/article/usa-oil-bakken-pipelines-idUSL1N1AK14M
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    LOOP storage auction sees high participation, prices as storage demand intensifies


    The August Louisiana Offshore Oil Port storage auction on Tuesday saw high trader participation combined with higher prices versus a month ago, according to industry sources familiar with the Gulf Coast market.

    During the August event, 6.6 million barrels of storage space for September, October, November, December, the first-quarter 2017 strip, the second-quarter 2017 strip and the third-quarter 2017 strip. Compared to the July auction, the August event sold 250,000 more barrels of storage space for forward months.

    A widened spread between the spot price and forward delivery months for sour crudes has added upward support for crude storage demand. The front-month/third-month Mars sour crude outright spread closed at minus $1.26/b Tuesday, widening from its close of minus $1.01/b July 5.

    Moving into fall refinery maintenance season, anticipated seasonal declines in regional refinery runs are driving demand for crude storage, according to a Gulf Coast market source.
    The auction, which operates on the Dutch auction model, saw an increase in final prices for storage. The August auction offered 4,200 block futures contracts ranging between 20 cents/b and 50 cents/b versus the July auction, which offered 3,300 block futures contracts ranging between 20 cents/b and 35 cents/b.

    Capacity allocation contracts auctioned on Tuesday also included 2,400 physical forward agreements ranging between 29 cents/b and 50 cents/b versus the July auction, which offered 3,050 physical forward agreements ranging between 24 cents/b and 35 cents/b.

    The storage contract, launched in March 2015, is based on crude storage capacity at LOOP's Clovelly Hub in Louisiana. Each capacity allocation contract auctioned gives the buyer the right, but not the obligation, to store 1,000 barrels of LOOP sour crude at the LOOP facility in Clovelly, Louisiana.

    Once the crude storage auction is complete for the time period, a secondary market for the LOOP storage contract trades as a differential to the Matrix Markets results.

    http://www.platts.com/latest-news/oil/houston/loop-storage-auction-sees-high-participation-21159128
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    One nook of America’s shale industry is eyeing a big comeback


     Amid the gloom and doom that’s set in all along America’s shale fields these past two years, there has been one small, but consistent, bright spot. Sand, it turns out, is a much greater tool in hydraulic fracking than drillers had understood it to be. Time and again, they’ve found that the more grit they pour into horizontal wells – seemingly regardless of how extreme the amounts have become – the more oil comes seeping out.

    The message from drillers is “more, more, more sand,” said Sean Meakim, an oil-services analyst at JPMorgan Chase & Co. “All of the numbers are going up and they’re going up dramatically.”

    On a per-well basis, sand use has doubled since 2011, climbing to nearly eight-million pounds, according to consulting firm IHS Inc. It’s this growth that’s sent the stock prices of the country’s four publicly traded sand miners surging more than 90% this year. True, overall sand usage in the fracking industry is still way down from the 2014 peak – more than three-quarters of America’s drilling rigs, after all, have been idled since oil prices collapsed – but the per-well increases have analysts and investors betting that the sand industry will boom again as soon as fracking activity starts to pick up even a little bit.

    That moment may seem far off right now as crude prices careen again – they’re down 20% since briefly touching $51 a barrel in early June – but oil-service giants Schlumberger Ltd. and Halliburton Co. have both seen enough positive signs on the ground to declare in recent weeks that the industry has bottomed out. And if prices were to resume their rebound and just manage to climb above $60 a barrel, some 40% below pre-crash levels, analysts at Jefferies Group and Bloomberg Intelligence predict that total sand demand will soar past 2014’s record 64-million tons in as little as two years.

    Sand is by no means new to the oil industry but it’s taken on an importance in fracking that it never had in traditional vertical-well drilling. Because shale rock is so dense, drillers rely on large quantities of both sand and water to tease the oilout. The water is blasted into the well at high pressure to create tens of thousands of tiny cracks in the rock. The sand then keeps the cracks open, elongates them and makes them more jagged. Increase the amount of sand, fracking outfits have found, and you increase the amount of fractures that stay open.

    Another thing they’ve discovered during the downturn is that the extra money they had been shelling out for white sand shipped in from Wisconsin and Minnesota, instead of the brown sand found in the Southwest, may not have been worth it. While white sand is stronger, brown sand – which can run as much as 25% cheaper at about $60 a ton – has proved to be equally capable of maintaining cracks open.

    Brown Sand

    This is why sand mines in Texas and Arkansas have been a lot busier of late than those up north. US Silica Holdings Inc., the largest publicly traded frack-sand miner in the country, estimates that brown sand now accounts for more than 40% of the market, up from 16% in 2014. Two weeks ago, the company said it was buying NBR Sand, a brown-sand minernot far from Texas’s main oilfields, for $210-million with an eye to more than double output there to two-million tons a year.

    US Silica’s shares have nearly doubled this year, while Fairmount Santrol Holdings Inc. tripled. Hi-Crush Partners LP rose 105% and Emerge Energy Services LP climbed 92%. In comparison, oil exploration and production companies in the S&P 500 rose 14%, while those in a broad oil-servicesindex are little changed.

    “People are uber uber bullish on sand,” said Matthew Johnston, an oil-services analyst at Nomura Securities. “I get it. I understand where all the euphoria is coming from.”

    http://www.miningweekly.com/article/one-nook-of-americas-shale-industry-is-eyeing-a-big-comeback-2016-08-04

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    U.S. refiner HollyFrontier's adjusted profit misses estimates


    U.S. refiner HollyFrontier Corp reported a lower-than-expected quarterly adjusted profit, hurt by weak refining margins.

    Crack spreads 1RBc1-CLc1, the difference between the prices of crude oil and refined products, have narrowed sharply due to a spike in distillate and gasoline inventories in the United States.

    HollyFrontier's gross margin fell to $8.88 per produced barrel in the second quarter, from $17.42 a year earlier.

    The company said it incurred $57 million in costs during the quarter to comply with the U.S. Environmental Protection Agency's Renewable Fuel Standard program.

    The RFS program requires oil refiners to blend more renewable fuel or buy paper credits in an opaque, sometimes volatile market. Compliance credits to meet the standards, known as Renewable Identification Numbers (RINs) were about 25 percent higher in the second quarter than a year earlier.

    Texas-based HollyFrontier's refinery utilization rate fell to 96.7 percent in the quarter, from 100.7 percent a year earlier.

    The net loss attributable to the company's shareholders was $409.4 million, or $2.33 per share, in the quarter ended June 30, compared with net income of $360.8 million, or $1.88 per share, a year earlier.

    Excluding items, the company earned 28 cents per share, lower than the average analyst estimate of 32 cents, according to Thomson Reuters I/B/E/S.

    Sales and other revenue fell nearly 27 percent to $2.72 billion, beating analysts' expectations of $2.42 billion.

    http://www.reuters.com/article/hollyfrontier-results-idUSL3N1AK3R6
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    Alternative Energy

    First Solar sees 'encouraging signs' for solar demand


    First Solar Inc the largest U.S. solar equipment manufacturer, on Wednesday dismissed concern about slowing growth in the industry, and posted quarterly profit and sales beat analysts' estimates due to higher demand.

    The development of utility-scale projects in the United States had slowed after Obama Administration's Clean Power Plan was stayed in federal courts earlier this year.

    First Solar also said it was in "active discussions" with utilities and that there was strong interest from commercial and industrial customers for large scale solar power projects.

    "We continue to see many encouraging signs for solar demand over the long-term horizon," Chief Executive Mark Widmar said in a post-earnings call on Wednesday.

    Widmar said there was a lot of "very aggressive pricing behavior" in the market for both power purchase agreements and modules.

    Shares of First Solar – the first major U.S. solar company to report results – rose as much as 7 percent after the bell as the company also gave an encouraging full-year forecast.

    First Solar said it produced 785 megawatts of power in the second quarter ended June 30, about 39 percent more than a year earlier.

    That helped the company's revenue rise 4.3 percent to $934.4 million, which beat analysts average estimate of $862.7 million, according to Thomson Reuters I/B/E/S.

    Net income tumbled 85.7 percent to $13.4 million, or 13 cents per share, due to an $86 million restructuring charge, primarily related to a decision to end production of the TetraSun crystalline silicon products.

    Excluding items, the company earned 87 cents per share, well above analysts' average estimate of 54 cents.

    First Solar said it expects to earn $4.20-$4.50 per share on an adjusted basis in fiscal 2016. The midpoint of the range was above analysts' estimates of $4.25.

    The company also adjusted its full-year gross margin forecast to 18.5-19.0 percent from 18-19 percent.

    http://www.reuters.com/article/us-first-solar-results-idUSKCN10E2JQ
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    Tesla posts another loss, but says on track for future deliveries


    Tesla Motors Inc reported a steeper than expected quarterly loss on Wednesday on higher spending at its vehicle and battery factories, and said adjusted profitability could be within sight if the company meets its delivery goals.

    The 13th straight quarterly loss for the Silicon Valley electric carmaker underscores the financial hurdles that hamper it while it takes on increasingly ambitious goals - a ten-fold ramp of vehicle production in three years and the recent plan to acquire solar panel installer SolarCity Corp 

    Tesla, led by entrepreneur Elon Musk, said it was still on track to deliver about 50,000 new Model S and Model X vehicles during the second half of 2016, and reiterated that it would spend $2.25 billion in capital expenditures in 2016 to prepare for its upcoming Model 3 sedan.

    If the company can fulfill those production and delivery goals in the second half of the year, "we've got a great chance of being non-GAAP profitable" Chief Financial Officer Jason Wheeler told analysts on a conference call without specifying a time period.

    Tesla reported its first-ever quarterly profit in 2013.

    Shares of the company, which has offered to buy SolarCity for $2.6 billion, were little changed in after-hours trading.

    "There's no doubt Tesla will remain the category leader as electric vehicles become increasingly mainstream, but it could be years before the bottom line justifies any investment in Tesla other than a purely speculative one," said James Brumley, InvestorPlace.com analyst.

    Tesla reported last month it had missed its vehicle delivery target for the second consecutive quarter, raising doubts it would hit its annual target. But Tesla could end the year just shy of its original delivery target of 80,000 to 90,000 vehicles for 2016 if it delivers 50,000 cars in the second half of 2016.

    "We were in production hell for the first six months of the year," Musk told analysts during a conference call. "Man, it was hell. And we managed to climb out of hell partway through June and now the production line is humming and our suppliers mostly have their shit together."

    Musk warned he would fire suppliers and reorganize internal teams who fail to meet a target date of July 1 to begin production of the Model 3, even while acknowledging it will not be possible to meet that date.

    The company said it planned to open a new store every four days on average for the rest of the year, including in Taipei, Seoul and Mexico City, but did not disclose the cost.

    Excluding items, Tesla lost $1.06 per share in the three months ended June 30, wider than analysts' expected loss of 52 cents per share, according to Thomson Reuters I/B/E/S.

    Tesla said its net quarterly loss widened to $293.2 million, or $2.09 per share, from $184.2 million, or $1.45 per share, a year earlier. Total revenue rose 33 percent to $1.27 billion.

    Click here for a graph on Tesla's results: tmsnrt.rs/1kpNS9J

    Tesla said gross margins will improve by 2-3 percentage points in the second half of the year, although adjusted operating expenses will increase for the full year by 30 percent.

    Musk sketched out an ambitious plan last month to venture into manufacturing electric trucks and buses, as well as expanding the company's solar energy business.

    He has cast the SolarCity tie-up as a long-term bet on a carbon-free energy and transportation company that provides cars, battery storage, solar panels and other energy solutions, while leveraging technology and cost savings from the combined entity.

    SolarCity's chairman and biggest shareholder, Musk has said the combined company will help save at least $150 million a year and require only a "small equity capital raise" next year. But some analysts are wary of the combination of two companies burning through huge amounts of cash.

    Tesla unveiled its massive battery factory, the Gigafactory, in Nevada last week, and on the conference call, Musk said he foresees "exponential growth" in Tesla's storage battery business.

    http://www.reuters.com/article/us-tesla-results-idUSKCN10E2J1
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    Agriculture

    CF Industries profit tumbles as fertilizer prices slump


    U.S. nitrogen fertilizer producer CF Industries Holdings Inc (CF.N) reported an 87 percent plunge in quarterly profit - more than expected - and warned on Wednesday that prices would likely remain weak into next year due to abundant supplies.

    Nitrogen prices have been pressured by China's growing exports of urea, and new capacity coming on stream in North America. Chinese export volumes have started to dip, however, according to Integer Research.

    Net earnings for the second quarter fell to $47 million, or 20 cents per share, from $352 million, or $1.49 per share, a year earlier.

    Excluding items, it earned 33 cents per share, lower than average analysts' estimates of 68 cents, according to Thomson Reuters I/B/E/S.

    Net sales fell 14 percent to $1.13 billion, matching the average analysts' estimate.

    The Deerfield, Illinois-based company's shares dipped 3 percent after normal trading hours on the New York Stock Exchange.

    http://www.reuters.com/article/us-cf-industries-results-idUSKCN10E2NH
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    Precious Metals

    Anglo American kicks off major new diamond mine in Canada


    De Beers' Gahcho Kue diamond mine in Canada's Northwest Territories is expected to reach full commercial production early next year, Anglo American said on Wednesday.

    Output at the roughly $1 billion project, which Anglo describes as the world's largest new diamond mine, will be an average of 4.5 million carats per year over its anticipated 13-year life.

    "Starting the ramp-up to production at Gahcho Kue - on time, on budget and in a challenging environment - is a remarkable achievement," De Beers Chief Executive Bruce Cleaver said in a statement.

    De Beers, the world's largest diamond producer by value, has a 51 percent stake in Gahcho Kue, with the rest held by Mountain Province Diamonds.

    First diamond production at the Arctic mine began in late June, BMO Capital Markets analyst Edward Sterck said in a note to clients, two to three months ahead of schedule.

    Output from the mine, which officially opens in September, will not result in a supply surge because it will replace production coming offline, De Beers said.

    Anglo American, which has an 85 percent stake in De Beers, has set diamonds, precious metals and copper at the core of its restructured portfolio as it seeks to recover from a commodities rout.

    De Beers has placed the emphasis on value rather than volume and in any case says large new finds are rare, predicting demand growth will "almost certainly" outstrip growth in carat production in the next 10 years.

    The volume of carats recovered from first production has not been announced, but Mountain Province said two gem quality stones of 24.65 carats and 12.1 carats were recovered.

    "Now that production has commenced, investor focus likely will turn to the first diamond tender and initial realised prices," Sterck wrote. "New mine production generally takes some time to establish itself in the market ... thus, there is some pricing risk around the first tender."

    http://www.reuters.com/article/angloamerican-diamonds-idUSL8N1AK584
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    Base Metals

    Indonesia's new resources chief tells Freeport not to push on contract extension


    Indonesia's newly appointed resources chief urged Freeport-McMoRan Inc on Wednesday not to push for a quick extension of its contract to operate the giant Grasberg copper mine, amid a planned revision of the country's mining law.

    In his first remarks on Freeport since his appointment as Coordinating Maritime Affairs Minister late last month, Luhut Pandjaitan, a trusted advisor of Indonesia's President, said the government was "evaluating everything".

    "Freeport shouldn't push us. We are a sovereign state and we know what we are doing," Pandjaitan told reporters, referring to contract talks to extend Freeport's right to mine in Indonesia beyond 2021.

    Freeport wants assurances on a contract extension before investing $18 billion to expand its operations, including underground, but under existing laws cannot legally begin talks on a contract extension until 2019.

    "We will also look carefully at what we can do without breaking the law," said Pandjaitan.

    Indonesia's existing 2009 mining law is expected to be revised by parliament this year.

    Freeport, which runs one of the world's biggest copper mines in Indonesia's easternmost province of Papua and is one of Jakarta's biggest taxpayers, is also waiting on an extension of its copper export permit, which is due to expire on Aug. 8.

    Pandjaitan said he planned to discuss the export permit with newly appointed Energy and Mineral Resources Minister Arcandra Tahar, and hoped to be able to provide more details on this and Freeport's contract in one or two weeks.

    Freeport Indonesia spokesman Riza Pratama said the company was waiting for the government to provide "legal and fiscal certainty" for it to continue operations through to 2041, and was "optimistic" it would be granted a new export permit.

    Freeport usually produces about 220,000 tonnes of copper ore a day and a prolonged stoppage in shipments would hit the company's profits and deny Jakarta desperately needed revenue.

    The U.S.-based miner and the government are also at loggerheads over a governent drive to increase revenues from its minerals, after Indonesia ruled that from Jan. 12, 2017 copper concentrate exports will be banned.

    Freeport currently processes only about a third of its copper concentrate in Indonesia.

    Freeport CEO Richard Adkerson said last week he did not believe that Indonesia would go through with the ban on copper concentrate exports, as it would harm the country's economy.

    He also said Freeport had received assurances that it would get an export permit by Aug. 8, while discussions on extending the miner's long-term contract had been "constructive".

    http://www.reuters.com/article/indonesia-freeport-mcmoran-idUSL3N1AK2B7
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    Philippines suspends seventh nickel miner in environmental crackdown


    The Philippine government has suspended the operations of a seventh nickel miner, Claver Mineral Development Corp, a minister said on Thursday, deepening an environmental crackdown that has caused jitters in global nickel markets.

    The Philippines is the biggest supplier of nickel ore to top market China and the suspension of some mines and the risk of more closures sent global nickel prices to an 11-month high of $10,900 a tonne on July 21.

    "Today we are suspending Claver Mineral. We will audit all the mine sites of Mindanao," Environment and Natural Resources Secretary Regina Lopez said, referring to the nickel-rich southern Philippine island. Claver runs a mine in the Surigao del Norte province in Mindanao.

    Lopez made the announcement during a mining forum in southern Davao City, but did not immediately say what prompted the suspension.

    The government has now suspended seven miners, all of them nickel producers, amid an ongoing audit that began on July 8 that aims to check whether companies are complying with regulations to protect the environment where they're operating.

    Claver Mineral did not immediately respond to a request for comment. Congressman Prospero Pichay Jr has taken control of the company after acquiring a 60 percent stake in September 2015, according to Claver Mineral's website.

    "Those who violated the laws, who allowed the improper mining of areas of Mindanao, they must be held accountable," Mario Luis Jacinto, director of the Mines and Geosciences Bureau, said at the forum.

    In 2012, the bureau ordered the suspension of Claver's mining operations due to excessive silt buildup in the area where it is located, local media reported.

    President Rodrigo Duterte on Monday warned mining companies to strictly follow tighter environmental rules or shut down, saying the Southeast Asian nation could survive without a mining industry.

    "I would like that the mining companies, the ones that we suspend, must rehabilitate. That is social justice," Lopez said.

    Three-month nickel on the London Metal Exchange peaked at $10,770 on Thursday.

    http://www.reuters.com/article/philippines-mining-suspension-idUSL3N1AL1QI
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    Steel, Iron Ore and Coal

    Apollo consortium frontfrunner for Anglo's $1.5 billion Australian coal assets: sources


    A consortium led by private equity firm Apollo Global Management (APO.N) has emerged as the frontrunner for Anglo American's (AAL.L) metallurgical coal mines in Australia, valued at up to $1.5 billion, two sources familiar with the matter told Reuters.

    Anglo American, like its peers, is selling off prized assets after a prolonged commodities rout that has left it with high levels of debt.

    The mining firm said in February that discussions were underway about divesting its Moranbah and Grosvenor assets, as part of its plans to sell $3-4 billion of assets this year in order to cut debt. The process is being run by Bank of America Merrill Lynch (BAC.N).

    Apollo has now teamed up with energy-focused private equity firm Riverstone Holdings and Pennsylvania coal exporter Xcoal Energy & Resources, founded by Ernie Thrasher and Chris Cline, a billionaire entrepreneur often dubbed the King of Coal, and is on site finalizing details of the deal, one of the sources familiar with the matter said.

    The consortium, which has yet to enter exclusive talks but could sign a deal within weeks, has financing lined up from four banks, this source said speaking on condition of anonymity.

    Reuters previously reported that major mining firms BHP Billiton and Glencore as well as suitors from China, Japan and India were looking at the assets.

    Anglo American last week booked a $1.2 billion impairment on the value of the Moranbah-Grosvenor assets, which it said reflected a weaker outlook for the price of metallurgical coal, used in steel making.

    It said it could not comment on the "ongoing" sale process.

    Apollo, Riverstone and Glencore declined to comment, whilst Xcoal and BHP Billiton did not immediately respond to requests for comment.

    "It's a complex process," Anglo American Chief Executive Mark Cutifani said last week.

    Several bankers said BHP Billiton (BHP.AX)(BLT.L) Mitsubishi Alliance (BMA), the world's largest metallurgical coal exporter, has bid for the assets, but could run into competition issues in China and Japan, which would slow down completion of a sale at a time when Anglo American needs cash to pay down debt. One banker said the private equity consortium had put in a higher offer than BMA, but financing was the key stumbling block because banks, under pressure from clean energy campaigners, are reluctant to lend to the coal industry. So far, Anglo American is about half way to its asset sales target for 2016, having fetched a higher-than-expected $1.5 billion for its niobium and phosphates businesses in Brazil earlier this year.

    http://www.reuters.com/article/us-anglo-american-asset-sales-idUSKCN10E13P

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    Indonesia to suspend new coal mining concessions



    Indonesia's Ministry of Energy and Mineral Resources will soon issue a moratorium on new coal mining concessions to protect the environment, local sources reported.

    The moratorium will be implemented after the presidential instruction of a five-year moratorium on new palm oil plantation concessions, which also aims at safeguarding the environment, the Indonesia Investments reported.

    Heriyanto, Head of the Legal Department Directorate General of Minerals and Coal at the Energy Ministry, emphasized that the moratorium in Indonesia's mining industry only involves coal, not the mining of minerals.

    While some say it is easy to implement a moratorium on new coal mining concessions, given the fact that current coal prices are touching multi-year lows, others think it is still a valuable move because the regulation interrupt ambitions of companies that are in the coal mining market for the long run to purchase new concessions for a relatively cheap price amid low coal prices.

    The moratorium was not applicable for those mining companies that already obtained concessions to expand their coal business as long as their expansion plans are in line with existing permits and regulations.

    Once the regulation on new coal mining concessions is put in place, the nation's coal mining companies can only expand their businesses through acquisitions or mergers.

    Indonesia produced 100.96 million tonnes of coal in the first six months this year, plunging 16.27% from 120.58 million tonnes recorded in the corresponding period of 2015.

    Coal exports during the same period stood at 79.98 million tonnes, down 19.79% year on year.

    http://old.en.sxcoal.com/0/150751/DataShow.html
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    China's coke market may embrace another upturn


    China's coke market is likely to embrace another round of price hikes in August, mainly supported by rising demand from steel mills amid larger profit margins and rain-interrupted coke deliveries.

    Steel makers in China began to vigorously restock the steel-making material after recent rise in steel prices, lending sound support to the further upturn of coke prices. The ex-works price of Tangshan square billets rose to 2,120 yuan/t by August 2, VAT-included.

    Coke supply, however, was in shortage, as coking plants in Shanxi and Inner Mongolia cut coke productions in response to the government's environmental protection requirements, arousing snapping-ups among steel makers, sources confirmed with China Coal Resource.

    Most coking plants in Inner Mongolia kept operating rate low at 30% or so under the pressure from environmental authorities, while plants in Changzhi of Shanxi were also asked by environmental panels to cut production, which was expected to last for 15 days or so.

    Meanwhile, tight coking coal supply left coke producers in Shanxi, Hebei and other areas no choice but to lower operating rate to 80% or so. Coking plants in Yuncheng of Shanxi reported coking coal stocks to be enough only for 2-3 days of use.

    In addition, coke deliveries were delayed to some extent, as some roads linking Shanxi with Hebei and Shandong are still yet to recover from recent heavy rains.

    As such, coke inventories of steel mills remained at a low level. Some mills in Hebei reported stocks enough for only 2-3 days of use, while those usually maintaining coke stocks for over 25 days of use had stocks only enough for one week of use.

    To boost coke deliveries, some steel makers offered 20 yuan/t for over 3,000 tonnes of supply and 30 yuan/t for over 5,000 tonnes of supply.

    http://old.en.sxcoal.com/0/150765/DataShow.html
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    VALE: $10B from 3% of future iron ore sales to CHINA?


    Brazil's Vale SA is considering raising up to $US10B from the sale of up to 3% of future iron ore output to undisclosed Chinese companies, according to 2 sources with direct knowledge of the matter, Reuters reports.

    Under the deal, Vale, the world's biggest iron ore producer, would sell part of its future output over a 30-year period, receiving streaming financing from the companies. Vale has not reached a decision on the move and has no comment.

    http://www.miningbusiness.net/content/vale-10b-3-future-iron-ore-sales-china
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    Rio's now mining iron ore for $14.30 a tonne


    Rio Tinto did not make a song and dance when it started mining at its Silvergrass project in Australia's Pilbara in August last year. After getting flak from politicians and competitors alike about its aggressive expansion strategy, the Melbourne-based giant probably thought it prudent not to.

    But now with iron ore in a raging bull market, it's singing the praises of the project. With the release of first half results, the board approved $338 million to complete the development of Silvergrass.

    "The brownfield expansion of the high-grade Silvergrass mine offers attractive returns, with an expected internal rate of return for this investment well in excess of 100 per cent and a pay back of less than three years," according to Rio.

    Not only will Silvergrass's high grade ore help to "retain the integrity and quality" of Rio's flagship Pilbara blend but will reduce unit costs at its Australian operations further.

    Silvergrass is a satellite deposit located adjacent to Rio Tinto’s Nammuldi mine. The initial phase of with a five million tonne per annum capacity started production in the fourth quarter of 2015 and the second phase, which will take annual mine capacity from five to ten million tonnes is expected to come into production in the fourth quarter of this year.

    Thanks to the latest investment final capacity of over 20 million tonnes per year would easily plug into Rio's existing Pilbara infrastructure and the project could be in full production in 2018.

    Rio's Pilbars  margins are already pretty fat. According to its half-year financial report the company's Pilbara unit cash costs fell to $14.30 per tonne in 2016 first half compared to $16.20 per tonne in the same period last year.

    Rio said that's due to exchange rate movements, increased volumes, reduced fuel prices, lower selling costs and increased labour productivity. Pilbara operations delivered a free on board (FOB) EBITDA margin of 58% in 2016 first half, compared with 61% in 2015 first half.

    Production from the Pilbara is expected to be between 330 and 340 million tonnes in 2017, Rio said.

    Iron ore traded at a three-month high on Wednesday with the Northern China 62% Fe import price exchanging hands for $60.70 a tonne, up 41% year to date. So far this year iron ore is averaging around $52 a tonne, flat compared to the 2015 average price.

    http://www.mining.com/rios-now-mining-iron-ore-14-30-tonne/
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