Mark Latham Commodity Equity Intelligence Service

Friday 26th August 2016
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    Brexit takes deeper toll on German business morale-Ifo economist

    Britain's vote to leave the European Union weighed on German business morale in August more heavily than previously, with orders in the chemicals and auto industry particularly subdued, Ifo economist Klaus Wohlrabe told Reuters on Thursday.

    "Brexit has had a stronger effect now," Wohlrabe said, adding this applied in particular to companies that have strong trade ties to Britain such as the chemicals or automotive industry.

    The Munich-based Ifo economic institute said its business climate index unexpectedly fell to 106.2 in August from 108.3 in July. Economists polled by Reuters had forecast a reading of 108.5.

    Wohlrabe said the decline in the index was mainly due to a weaker performance from the chemicals and electric industry: "Export expectations in the chemicals sector have fallen significantly due to Britain," he said.
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    Biden: Nord Stream 2 pipeline is a 'bad deal' for Europe

    U.S. Vice President Joe Biden said on Thursday the United States believed the Nord Stream 2 pipeline involving Russia and several European energy companies was a "bad deal" for Europe.

    Russia's Gazprom and its European partners agreed the project, which will run across the Baltic Sea to Germany, last year.

    But many eastern European countries and the United States have said the pipeline could limit supply routes and the energy security of the European Union, which gets a third of its gas from Russia.

    Biden made his comments during a news conference in Sweden.
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    Bolivia says deputy interior minister killed after kidnap by miners

    Bolivian Deputy Interior Minister Rodolfo Illanes was beaten to death after he was kidnapped by striking mineworkers on Thursday, the government said, and up to 100 people have been arrested as authorities vowed to punish those responsible.

    "At this present time, all the indications are that our deputy minister Rodolfo Illanes has been brutally and cowardly murdered," Minister of Government Carlos Romero said in broadcast comments.

    He said Illanes had gone to talk to protesters earlier on Thursday in Panduro, around 160 km (100 miles) from the capital, La Paz, but was intercepted and kidnapped by striking miners.

    The government was trying to recover his body, Romero said, in a case that has shocked Bolivians.

    Defence Minister Reymi Ferreira broke down on television as he described how Illanes, appointed to his post in March, had apparently been "beaten and tortured to death".

    Illanes' assistant had escaped and was being treated in a hospital in La Paz, he said.

    "This crime will not go unpunished. Authorities are investigating ... around 100 people have been arrested," Ferreira said.

    Protests by miners in Bolivia demanding changes to laws turned violent this week after a highway was blockaded. Two workers were killed on Wednesday after shots were fired by police. The government said 17 police officers had been wounded.

    The National Federation of Mining Cooperatives of Bolivia, once strong allies of leftist President Evo Morales, began what they said would be an indefinite protest after negotiations over mining legislation failed.

    Protesters have been demanding more mining concessions with less stringent environmental rules, the right to work for private companies, and greater union representation.

    The vast majority of miners in Bolivia, one of South America's poorest countries, work in cooperatives, scraping a living producing silver, tin and zinc. There are few foreign-owned mining firms, unlike in neighboring Peru and Chile.

    Natural gas accounts for roughly half of Bolivia's total exports. Ex-coca grower Morales nationalized Bolivia's resources sector after taking power in 2006, initially winning plaudits for ploughing the profits into welfare programs and boosting development.

    However, his government has been dogged by accusations of cronyism and authoritarianism in recent years, and even the unions who were once his core support have soured on him as falling prices have crimped spending.

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    Oil and Gas

    Iran sets terms for cooperating with OPEC to stabilise oil market

    Iran will help other oil producers stabilise the world market so long as fellow OPEC members recognise its right to regain lost market share, the country' oil minister said on Friday in remarks made ahead of next month's meeting of the oil exporters group.

    Iran, OPEC's third-largest producer, boosted output after Western sanctions were lifted in January, and had to refused to join OPEC and some non-members in an accord earlier this year to freeze production levels.

    "Iran will cooperate with OPEC to help the oil market recover, but expects others to respect its rights to regain its lost share of the market," Bijan Namdar Zanganeh was quoted as saying by the oil ministry's news agency SHANA.

    Asked about an oil output freeze plan, Zanganeh said that Iran supports any effort to bring stability to the market.

    Tehran insists it will be ready for joint action only once it regains pre-sanctions output of 4 million barrels per day (bpd). It pumped 3.6 million bpd in July, OPEC figures show.

    Zanganeh said Iran had no role in instability of the oil market, as the crisis happened when Tehran's exports were less than 1 million bpd.

    Members of the Organization of the Petroleum Exporting Countries will meet on the sidelines of the International Energy Forum (IEF), which groups producers and consumers, in Algeria on Sept. 26-28.
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    Iraq Seeks Formal Deal With Kurds to Protect New Oil Exports

    Iraq’s resumption last week of oil shipments through a Kurdish-controlled pipeline bumped up its export capacity by five percent almost overnight. Now OPEC’s second-biggest producer is seeking a formal deal with the self-ruling Kurds to ensure it can maintain the increased flows.

    The central government in Baghdad has been locked in a dispute with the semi-autonomous Kurdistan Regional Government in the north of Iraq since 2014, when the Kurds began selling their oil independently. In March, Iraq’s state-run North Oil Co. stopped using its only export route, the KRG’s pipeline to Turkey, for crude it pumped in Kirkuk province. The Oil Ministry ordereda restoration of these exports last week.

    “We’re still waiting for an agreement on the details regarding who should receive the oil revenues,” Deputy Oil Minister Fayyad Al-Nima said Wednesday in a telephone interview.

    The government is now exporting about 100,000 barrels a day from its Kirkuk fields, Al-Nima said. Officials at the KRG’s Ministry of Natural Resources didn’t immediately reply to e-mailed and telephone requests for comment.

    Sustaining Supply

    A formal accord could keep Iraq’s northern exports flowing smoothly, sustaining the producer’s recent increase in supply to global markets. Iraq has struggled to raise oil exports this year, due partly to its feud with the KRG, and a failure by the two sides to reach a political agreement could jeopardize the renewed shipments. The three Kirkuk fields -- Baba Gorgor, Jambour and Khabbaz -- can produce a combined 150,000 barrels a day for export.

    “It looks like a very shaky foundation for the restart,” Richard Mallinson, an analyst at Energy Aspects Ltd. in London, said by phone.

    The central government and the KRG last reached a deal in December 2014, when they agreed that the Kurds would give Baghdad control of their exports in exchange for a full payment of their share of the federal budget. Within six months, independent Kurdish exports had resumed, and each side was accusing the other of not meeting its obligations.

    Minister’s Support

    Iraq’s new oil minister, Jabbar al-Luaibi, fed hopes for a new agreement, saying on Aug. 15, his first day in office, that he saw ways to resolve the dispute.

    “I don’t think it’s unreasonable to hope for two or three months of steady flows” of oil exports from Kirkuk, Robin Mills, chief executive officer of Dubai-based consultant Qamar Energy, said by phone. “Beyond that it really depends. Does the new minister succeed in coming up with a more sustainable proposition?”

    Both governments could benefit from a deal, not least because both are short of cash after more than two years of battling Islamic State militants and weathering low oil prices. Iraq is exporting 3.8 million barrels a day, including oil sold by the KRG, Prime Minister Haidar Al-Abadi said Tuesday at a news conference.

    “It’s in the interest of both governments to try and get as much revenue as they can at the moment,” Hannah Poppy, an analyst at The Risk Advisory Group in London, said by phone. “It probably won’t be sustainable in the long term, simply because of the wider political disputes.”
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    Maybank second quarter profit slides, says closely monitoring oil sector loans

    Malaysia's biggest lender Malayan Banking Bhd  said on Thursday it is keeping a close watch on loans made to the oil and gas sector, after posting a 27 percent drop in quarterly net profit as allowances for loan impairment losses tripled.

    Slowing loan growth in Malaysia and higher provisioning for loan impairments across the region due to rising risks in industries such as oil and gas have hurt Southeast Asia's fourth largest bank by assets.

    "We will... remain vigilant and maintain proactive management of asset quality while building our capital and liquidity positions," Group CEO Abdul Farid Alias said in a statement.

    Net profit slid to 1.16 billion ringgit ($288.70 million) for the April-June quarter from 1.58 billion ringgit a year ago. Net interest income rose 7.5 percent to 2.88 billion ringgit.

    The bank saw allowances for impairment losses jump to 982 million ringgit in the quarter from 301 million ringgit in the same period last year.

    Group CFO Amirul Feisal Wan Zahir said Maybank was also monitoring the oil and gas sector. About 3.75 percent of the group's total loans were in that sector, he said.

    "We are monitoring the sector closely in Malaysia and Singapore," Amirul told reporters.

    Analysts have said Maybank has exposure to Swiber Holdings (SWBR.SI), which last month became the biggest Singapore business to fall victim to the oil price slump. Amirul declined to comment on the bank's exposure to Swiber.

    Malaysian oil and gas service provider Perisai Petroleum Teknologi (PPTB.KL) is also facing financial challenges.

    Maybank said loans growth at home will likely continue to moderate to 6-7 percent this year from 7-8 percent in 2015 on the back of easing household loans growth.

    It maintained its overall 2016 loans growth forecast of 8-9 percent. Maybank had seen 12 percent growth in the previous year.

    Maybank's CEO did not rule out another 25-basis-point rate cut by the central bank this year, adding that the cuts could drive loan growth for the lender.

    Last month, Bank Negara Malaysia surprised markets by cutting its overnight interest rate MYINTR=ECI by 25 basis points to 3.00 percent, the country's first rate cut since 2009.

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    Seadrill says oil industry may be turning as Q2 beats forecast

    Norway-listed offshore driller Seadrill, once the crown jewel in the businessempire of shipping tycoon John Fredriksen, said the oil industry may be turning a corner as it posted second-quarter earnings above forecasts on Thursday.

    At the height of the oil price boom, the company was the world's largest offshore driller by market capitalisation, but it has been struggling as oil firms slash costs to counter a 57-percent decline in crude prices since mid-2014.

    Seadrill's share price has fallen by 90 percent over the past two years, against a 1.5 percent rise for the Oslo benchmark index over the same period.

    But the cycle may be turning, Seadrill said on Thursday, joining other industry suppliers that have recently pointed to signs of recovery in demand from oil companies.

    "Oil prices stabilized in the $40-50 range during the quarter and there is a growing belief that we are at or near the bottom of this downcycle," Seadrill said in a statement.

    Seadrill's earnings before interest, tax, depreciation and amortisation (EBITDA) fell to $557 million in the second quarter, against $651 million a year ago and expectations for $512 million in a Reuters poll of analysts.

    Seadrill repeated that it expected to conclude the refinancing process of its $10 billion debt by the end of the year.
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    China’s Biggest Oil Company Aims for 50% Natural Gas by 2020

    China’s biggest oil company wants natural gas to account for half its output by the end of the decade.

    PetroChina Co. aims to raise natural gas as a share of its production from 37 percent currently, President Wang Dongjin told reporters Thursday in Hong Kong. The company supports the government’s efforts to liberalize gas prices and implement market-based reforms, he said.

    “We will have some adjustment on oil and gas production down the road,” Wang said. “There is a huge potential for natural gas production to grow in the years to come.”

    The world’s largest energy consumer is seeking to raise the share of less-polluting natural gas in its energy mix to 10 percent by 2020. President Xi Jinping’s government twice cut gas prices last year in an attempt to boost demand. While demand growth for oil has slowed, natural gas use rose 9.8 percent in the first half this year.

    PetroChina shares in Hong Kong gained as much as 1.9 percent, the biggest intraday gain in more than a week, and were up 0.6 percent at HK$5.25 at 1:41 p.m. local time. The city’s benchmark Hang Seng Index added 0.3 percent.

    2030 Targets

    The state-owned explorer plans to raise output by around 30 percent to produce more than 300 million tons of oil and gas equivalent (6.02 million barrels per day) by 2030, with half of that coming from overseas projects, Wang said. PetroChina had 14.4 percent of its output coming from overseas in the first half of the year, according to its interim report.

    “The target should be very achievable based on our current overseas oil and gas equity reserves,” Wang said. “The pace of overseas oil and gas production growth will also be affected by factors including crude price when we make investment decisions.”

    The company’s global crude output in the first half of the year fell 1.4 percent to 470.6 million barrels from the same period in 2015, it said in astatement Wednesday. Gas production rose 7.4 percent to 1.66 billion cubic feet. Total oil and gas output was 748.2 million barrels of oil equivalent. While that’s up 1.7 percent from the same period last year, its a 1.3 percent slide from the second half of 2015.

    China National Petroleum Corp., PetroChina’s parent company, is prioritizing natural gas exploration and production in the second half the year and may adjust investment strategies depending on the change in oil prices, Chairman Wang Yilin said in a statement last month.

    Pipeline Sale

    The state-owned explorer’s profit dropped 98 percent to 531 million yuan ($80 million) in the six months to June, while revenue fell 15.8 percent to 739 billion yuan, it said Wednesday. The sale of a Central Asian pipeline network helped the company recover from its first-ever quarterly loss earlier this year.

    Lower crude price forced PetroChina’s exploration and production business to post a 2.4 billion yuan operating loss in the first half, compared with a profit of 32.9 billion yuan a year earlier. Operating profit from refining jumped almost fourfold to 21.4 billion yuan from 5.6 billion a year ago, according to PetroChina’s earnings statement.

    The explorer cut its domestic crude output target for 2016 to 103 million tons from 106 million tons set at the beginning of the year as some high-cost fields were shut down because they couldn’t make a profit at current oil prices, PetroChina’s President Wang said on Thursday.

    Reallocating resources to refining may be a strategy to deal with low crude prices, Wang said. The shift will be temporary as oil and gas output will lead the company’s rebound once oil recovers to $60 to $80 a barrel, he said. The company expects prices to stabilize between $45 to $50 a barrel in the second half of this year, before rising to around $50 to $60 by 2017, and $60 to $80 by 2020, he said.

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    Tangguh LNG expansion contracts signed

    BP, on behalf of the Tangguh Production Sharing Contractors, has announced that it has signed two major Tangguh Expansion Project contracts for the onshore LNG engineering, procurement and construction (EPC) and offshore GPF engineering, procurement, construction and installation (EPCI).

    The contract signing, which took place in BP’s office in South Jakarta, Indonesia, was witnessed by the Chairman of SKK Migas, Amien Sunaryadi.

    The onshore EPC contract has been awarded to a joint venture led by Indonesian EPC contractor Tripatra with Chiyoda, Saipem and Suluh Ardhi Engineering. The Offshore EPCI ihas been awarded to PT Saipem Indonesia.

    BP confirmed that construction of Tangguh Train 3 is set to begin by the end of this year. First LNG production ins scheduled for 2020.
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    Petrobras voluntary layoff program accepted by 6,100 employees

    A voluntary layoff program at state-run oil company Petroleo Brasileiro SA has been accepted by 6,100 employees, a source with direct knowledge of the matter told Reuters.

    The number may rise by month-end, the deadline for the plan proposed by the oil giant known as Petrobras. Around 12,000 employees, or 21 percent of its workforce, are eligible.

    If all eligible employees accepted the voluntary layoff program, Petrobras would face an immediate cost of 4.4 billion reais ($1.3 billion) but save 33 billion reais in salaries over the next four years, the company said upon announcing the plan.
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    Low prices may hobble potentially massive new Canada oilfield

    A deepwater oilfield off the coast of eastern Canada could hold 25.5 billion barrels of crude, according to a new seismic report by the Newfoundland and Labrador government, potentially making it the country's largest offshore resource.

    But the West Orphan Basin, 300 km (186 miles) northeast of Newfoundland, may still struggle to attract exploration bids in a November land sale due to persistently low crude prices.

    Paul Barnes, Atlantic Canada and Arctic manager with the Canadian Association of Petroleum Producers, said while publicly available seismic data was useful, companies needed to drill to prove the potential of a basin and there were a limited number able to spend $200 million-$250 million per deepwater exploration well.

    "In order to undertake that type of activity you have to be a very financially well-off company or multinational and have a degree of confidence there's potential there to find something," Barnes said. "With the downturn in oil prices and less cash to invest, whether this basin will see any activity in that land sale is hard to predict."

    Provincial government-owned Nalcor Energy used seismic data, assessed by independent oil and gas consultancy Beicip-Franlab, to study a 20,000 square-km (7,722 sq-mile) area.

    The report, released on Wednesday, found the basin could potentially hold 20.6 trillion cubic feet of natural gas in addition to the unrisked oil reserves. Unrisked means it is unclear how much of the reserve will eventually be recovered, but Jim Keating, an executive with Nalcor Energy, said recovery factors typically range between 25 and 75 percent.

    The nearby Flemish Pass Basin is estimated to hold 12 billion barrels of potential unrisked reserves. Norwegian company Statoil announced a 300 million to 600 million barrel discovery there in 2013 and the basin attracted C$1.2 billion in exploration commitments in a 2015 licensing round.

    The bidding on licenses in the West Orphan Basin will close on Nov. 9. Nalcor's Keating said interest was high so far, and provincial premier Dwight Ball said in a news release he was "cautiously optimistic" about positive results.

    Oil and gas companies already active in the Atlantic Canada region were lukewarm when asked about potentially exploring the West Orphan Basin, where no drilling has been done so far.

    Statoil said it had no firm plans at this time to undertake additional exploration drilling activities, while Royal Dutch Shell said its focus was on its exploration program offshore Nova Scotia.
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    Blackstone Unleashes Cash Hoard in Texas Shale Oil Land Grab

    Blackstone Group LP is partnering with two oil and gas companies as it targets assets in the sought-after Permian shale formation.

    Jetta Permian, formed with Jetta Operating Company Inc., plans to acquire leaseholds in the Permian’s Delaware Basin in West Texas and southern New Mexico, New York-based Blackstone said in a statement Thursday. The partnership has $1 billion of capital committed.

    Blackstone has also designated $500 million in a partnership with Guidon Energy to acquire assets in the Permian’s Midland Basin "with the potential to commit significantly more with future acquisitions." Guidon purchased about 16,000 net acres in Martin County, Texas, in April.

    The partnerships underscore the industry’s interest in one of the few regions where drilling remains profitable at current prices. The Permian has dominated acreage deals among independent drillers this year. PDC Energy Inc. bought into the Permian with a $1.5 billion acquisition announced this week. Meanwhile Parsley Energy Inc. and Concho Resources Inc. also added holdings in the play this month.

    Crude prices have rebounded to above $47 a barrel since dropping near $26 in February. Private equity firms have stepped into the market to pick up assets that have lost value since oil plunged from above $100 a barrel in the middle of 2014.

    Blackstone’s energy private equity business, led by David Foley, raised $7 billion across two funds in the past four years. The most recent vehicle, which finished gathering $4.5 billion last year, had only spent about 5 percent of its money as of June 30, according to Blackstone’s second-quarter earnings statement.
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    Concho's remarkable acheivement.

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    American LNG granted blanket LNG export permit

    The United States Department of Energy issued an order granting American LNG Marketing blanket authorization to export LNG from its Hialeah facility in Medley, Florida.

    Liquefied natural gas will be delivered in ISO containers and loaded onto container ships or roll-on/roll-off ocean-going carriers for export at Port Canaveral or other ports in Florida, according to the filing.

    On a cumulative basis, American LNG will export up to the equivalent of 6.04 billion cubic feet of natural gas over a two-year period.

    The facility, once completed, will have a total production capacity of 100,000 gallons of LNG per day or 8.26 MMcf of natural gas, and a storage capacity of approximately 270,000 gallons.

    DOE previously issued two long-term authorizations to American LNG to export liquefied natural gas to free trade agreements and non-FTA countries. American LNG was authorized to export up to the equivalent of 3.02 bcf per year in each of the orders.

    The company noted that the blanket authorization is to enable it to engage in short-term exports of domestically produced LNG prior and following the commencement of commercial operations. The volumes proposed for export are not additive to either of the previously granted authorizations.

    American LNG is controlled by Fortress Equity Partners, a partnership sponsored by entities related to Fortress Investment Group. The company added that the Hialeah facility is owned and operated by LNG Holdings, another company controlled by FEP.

    LNG Holdings contracted Chart Industries to provide its standard C100N LNG liquefaction plant for the project.
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    China National Nuclear Power H1 net profit up 0.99pct on yr

    China National Nuclear Power H1 net profit up 0.99pct on yr

    China National Nuclear Power Co., Ltd, the listed subsidiary of China National Nuclear Corporation, realized net profit of 2.5 billion yuan ($375.09 million) in the first half of this year, edging up 0.99% from a year ago, said the company in its half-year report released on August 25.

    Its operating revenue reached 14.13 billion yuan during the same period, rising 9.6% year on year, mainly due to increased power output after Fangjiashan #2, Fuqing #2 and Hainan #1 power generating units were put into commercial operation, said the company.

    Over January-June, the company produced 40.4 TWh of electricity, increasing 10.17% on year, according to the report.

    China National Nuclear Power will continue to promote the development of nuclear power generation in the future, given its advantages such as zero carbon emissions, stable efficiency of power generation as well as policy support.

    At present, all of the company's power projects in operation and under construction are nuclear power projects.
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    Precious Metals

    Gold Slammed For Second Day As COMEX Options Expire

    With COMEX option expiration looming, gold is being monkeyhammered lower for the second day in a row on heavy volume...

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    Notably 1300 and 1310 Strikes seem most heavily held...

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    Harmony Gold turns predator on deal hunt to fill output gap

    Harmony Gold Mining Co. is willing to use debt and equity to buy a profitable mine that will offset falling production in South Africa and help fund a major new project in Papua New Guinea, Chief Executive Officer Peter Steenkamp said.

    With the company likely to lose about 40% of its current production over the next six years due to mines reaching the end of their lives, a big acquisition is “a necessity,” Steenkamp, 56, said Tuesday in an interview in Johannesburg.

    “We have a gap emerging and what we need to do is fill that,” Steenkamp said. “We have to look for something fairly big.”

    Harmony, South Africa’s third-largest gold miner, lost money for three years to 2015 but has been revived by a price for the metal that’s 26% higher this year and a weak South African rand, which has lowered costs. The company’s ultimate goal is to build a $2.6 billion mine on its Golpu copper-gold deposit in Papua New Guinea that will reduce costs as well as boost production and reserves. It has a 50% stake in the project with Newcrest Mining Ltd. owning the rest.

    The stock has more than tripled to R56.48 this year, giving the company a market value of R25 billion ($1.8 billion).

    “We’re trying to beef up the current engine to be able to build Golpu, which is the prize,” Steenkamp said. “We want to do the right acquisition at the right time to have enough firepower to build Golpu.”

    Debt Capacity

    Harmony has the capacity to raise about R5 billion in debt but would consider using its stock to make a big acquisition, Finance Director Frank Abbott said. “It’s difficult to put a value on the size of what a merger or acquisition would be.”

    Declining to name specific targets, Steenkamp said Africa and Papua New Guinea would be preferable locations for an acquisition. “In South Africa, it’s limited,” said Abbott, 60. “AngloGold has got some assets and Sibanye. It depends on whether they’re prepared to sell any of those assets. I don’t think Sibanye is a seller but AngloGold might be a seller.”

    Any purchase would have to have at least 1 million ounces of reserves, produce 100,000 ounces a year and bring the company’s overall costs down to $950 an ounce.

    Harmony produced 1.1 million ounces of gold in the year to June 30 at an all-in cost of $1,003 an ounce. Gold dropped 0.6% to $1,329.45 an ounce at 2:16 p.m. in London.

    Historically, the company has been an end-of-life operator for aging mines in South Africa. That’s now coming home to roost, with six of its 14 operations reaching the end of their scheduled lives in the next six years. Masimong and Unisel “are basically mined out” while Kusasalethu needs 2.6 billion rand of capital to extend its life beyond five years, Steenkamp said.

    Ounce Loss

    The three closures mean Harmony will lose about 220,000 ounces, he said. Bambanani, Hidden Valley and some of its surface operations will also cease by 2022, according to the producer’s website.

    As well as a future acquisition, Steenkamp plans to boost production by combining two of its mines, Tshepong and Phakisa. Together, they produced about 290,000 ounces last year. Merging them would cut costs and could raise output to 350,000 to 375,000 ounces a year, Steenkamp said. The company should be able to maintain current production for about five years, he said.

    “Harmony is not up against the wall like last year but it has to do something,” said Rene Hochreiter, a Johannesburg-based analyst at Noah Capital Markets (Pty) Ltd. with a buy rating on the stock. “The current gold price has provided a big windfall and they want to take advantage.”

    With gold up by almost a third this year and competitors also on the prowl for acquisitions, Harmony is aware that any deal would be “fairly expensive,” yet it would be a price worth paying to see the company through the mine closures and increase its ability to fund Golpu.

    “We can’t buy at any cost,” Steenkamp said. “But I’m pretty sure we’ll be able to find what we want in Africa.”
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    Base Metals

    Nickel merry-go-round: Indonesia ferronickel replacing Philippine ore

    Is nickel's current rally sustainable or is the metal merely having a strong run because market participants are more focused on the environmental crackdown in top ore miner the Philippines, rather than on the surge in Indonesian ferronickel exports?

    No doubt nickel is one of the strongest commodity performers this year, with benchmark London futures rising 13.3 percent from the end of last year to the close on Wednesday.

    The bulk of that rally has come in the past three months as new Philippine President Rodrigo Duterte and his hard-line environment secretary Regina Lopez cracked down on alleged environmental abuses by the mining industry.

    At least eight nickel mines have been shut down in the Philippines this year, cutting around 10 percent of the country's capacity.

    The Chamber of Mines of the Philippines has called the closure of mines a "demolition campaign", but Lopez appears undeterred, saying more mines will be shut if they are having adverse impacts on the environment.

    Certainly, it seems that lower Philippine nickel ore exports are already showing up in the import numbers for China, the world's biggest buyer of the metal that is used mainly in the manufacture of stainless steel and electronics.

    China imported 3.163 million tonnes of nickel ore and concentrates from the Philippines in July, down 35.9 percent from the same month a year ago, according to customs data.

    Imports in the first seven months totalled 13.84 million tonnes, a drop of 27.3 percent from the same period last year.

    This is significant as the Philippines is by far and away the largest supplier of nickel ore to China, accounting for almost 96 percent of the total for January-July.

    This means that if there is a sustained drop in supply from the Philippines it will be hard for Chinese nickel pig iron producers to source replacement material.

    This is especially true as nickel ore cargoes from Indonesia, which used to be China's top supplier, remain unavailable as part of that country's ban on the export of certain unprocessed minerals, such as nickel and bauxite.


    Indonesia's shipments of nickel ore came to an abrupt halt in early 2014 after the Southeast Asian nation enacted a mineral export ban as part of efforts to ensure investment in domestic downstream processing plants.

    It may also be that this effort is starting to show up in China's import figures, with a large jump in shipments of ferronickel, an intermediate stage of the metal that contains both nickel and iron.

    China's imports of ferronickel from Indonesia were 74,493 tonnes in July, more than five times taken in the same month a year earlier.

    Likewise, year-to-date imports from Indonesia have surged more than four-fold to 390,706 tonnes, giving the nation a 70 percent share of Chinese imports of ferronickel.

    This surge in imports of ferronickel is significant as it shows that the way China gets its nickel is changing.

    Indonesian nickel producer PT Antam says on its website that it extracts about one tonne of ferronickel from between 70 and 80 tonnes of nickel ore.

    If these figures are assumed to be representative of Indonesia's ferronickel production as a whole, it means the country's ferronickel exports to China in the first seven months of the year are roughly equivalent to 27.3 million tonnes of nickel ore.

    This is more than double the amount of nickel ore exported to China from the Philippines, providing proof that China isn't importing less nickel, but is changing the form in which it imports the metal.

    The Indonesian ore export ban of early 2014 led to a 50 percent spike in London nickel prices from January to a peak of $21,625 a tonne on May 13 that year.

    But as the market came to realise that there was sufficient nickel ore elsewhere to compensate for lost Indonesian output, prices slumped to a low of $7,550 a tonne on Feb. 12 this year.

    While the current disruptions in the Philippines have no doubt tightened the market for nickel ore, it's more than likely that the ramp up of ferronickel exports from Indonesia are more than sufficient compensation for the overall nickel market.

    The difficulty in sourcing nickel ore is certainly a problem for China's nickel pig iron producers, but their problems don't necessarily translate into a shortage of nickel in the global market, especially if Indonesia is back in the market as a ferronickel supplier.

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    Nickel price hurts Western Areas' 2016 results

    A significant reduction in the nickel price has dented Perth-based miner Western Areas’ revenue in the 2016 financial year, pushing the company into an after-tax loss of A$29.78-million.

    The 2016 loss compares with a profit of A$35.01-million in the 2015 financial year, Western Areas, which is the only nickel producing pure play company listed on the ASX, reported on Thursday.

    Revenue decreased to A$209.12-million, from A$312.68-million in the previous financial year, while sales volumes decreased to 24.79-million tonnes, from 26.04-million tonnes in 2015. Mine production increased to 27.61-million tonnes in 2016, from 26.52-million tonnes in 2015, while mill production remained unchanged at 25.01-million tonnes.

    Production is built around two underground nickel mines, Flying Fox and Spotted Quoll, both within Western Area’s Forrestania project area, in Western Australia.

    Western Areas has managed to deliver improvements insafety and cost reductions, lowering its cash costs in US dollar terms from $1.94/lb in 2015 to $1.64/lb in 2016, but MDDan Lougher said that the nickel price environment had failed to reward the company’s efforts.

    “Western Areas has clearly demonstrated its resilience and flexibility by seeing through the worst nickel priceenvironment in its operating history.”

    The miner realised a nickel price of A$5.69/lb in the financialyear, compared with A$7.87/lb in 2015.

    “The company took decisive action in October 2015 by announcing the deferral of capital expenditure and someexploration activities into the 2017 financial year. These decisions are only possible due to prior period investments in the business and reflect the operational flexibility we’ve built into the business model,” Lougher said.

    “We believe that the company is well set to either operate in a difficult commodity price environment or prosper in an improving nickel price situation by virtue of the actions and decisions taken over the last eighteen months,” he added.

    Post year-end, there was an improvement in the nickel price which resulted in the June month experiencing positive quotational price adjustments of A$3.4-million (tax effected), for nickel price movements in July.

    Western Areas provided a production guidance of between 22 500 t and 24 500 t of ore for the 2017 financial year. Flying Fox is estimated to contribute between 10 000 t and 11 000 t, while the Spotted Quoll estimate is between 12 500 t and 13 500 t. The group’s nickel-in-concentrate production guidance is between 20 200 t and 22 200 t.
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    Mineral sands miner Iluka sinks to half-year loss

    Mineral sands miner Iluka Resourcesplunged to a net loss of $20.9-milllion in the first half of 2016, compared with a profit of $20.4-million a year earlier, owing to lower revenue growth.

    Mineral sands revenue dipped from $349.6-million in the six months ended June 30, 2015, to $338.4-million in period under review, the ASX-listed company reported on Thursday.

    “The poor half-year financial results reflect a lack of overall revenue growth, despite 15% higher zircon/rutile/synthetic rutile sales volumes. Lower prices prevailed, especially for zircon, as Iluka responded to competitor price positioning, but gross margins were protected through reductions in unit costs of goods sold,” commented MD David Robb.

    Zircon/rutile/synthetic rutile production increased by 20.8% year-on-year to 334.4-million tonnes, while ilmenite production decreased by 15.9% to 164.1-million tonnes, putting total mineral sands production at 498.5-million tonnes, compared with 472-million tonnes in the first half of 2015.

    Zircon/rutile/synthetic rutile sales increased from 275.9-million tonnes to 316.4-million tonnes, generating revenue of $321.1-million. Ilmenite sales fell to 17.7-million tonnes, from 159.5-million tonnes, generating revenue of $17.3-million.

    Sales mix factors, including a higher proportion of synthetic rutile and zircon concentrate sales, also influenced revenue outcomes, as did a lower Mining area C iron-ore royalty contribution.

    “Earnings and free cash flow generation were adversely affected, influenced in part by the timing of sales towards the end of the half and, therefore, lower collections occurring within the half,” he said, adding that free cash flow was expected to be second-half weighted.

    Robb detailed Iluka’s approach to adverse market conditions, pointing out that the company had constrained its production to match demand and that it continued to focus on operational efficiency and unit cash cost improvements, reporting a reduction in unit cash costs of production of 34.7% and a 12.7% reduction in the unit cost of goods sold.

    The group also continued to focus on investing in its future, he said, stating that it invested in trialing an innovativemineral sands mining technique, together with continued support for other research and development work in mineral sands mining and processing.

    Iluka aimed to take advantage of opportunities by investing in a counter-cyclical manner, Robb said, pointing to the offer for Sierra Rutile as one such example.

    “Investing counter-cyclically, by nature, involves investing at a time when current cash flows are depressed. To do otherwise is to fall into the resources industry trap of investing pro-cyclically. The timing of investment, as well as the nature of investment, is central to the creation of value in mineral resources, as is a through-the-cycle commitment toexploration, innovation and technology.”

    Attached Files
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    Steel, Iron Ore and Coal

    Ganqimaodu Jan-Jul coal imports up 29.9pct on year

    Ganqimaodu border crossing in northern China's Inner Mongolia autonomous region imported 5.41 million tonnes of coal from neighboring Mongolia over January-July, increasing 29.94% from the year prior, local media reported.

    It accounted for 45.61% of total coal imports of Inner Mongolia over the period, which were reported at 11.87 million tonnes, gaining 44% on year, according to data from the Hohhot Customs.

    The value of coal imports at Ganqimaodu rose 1.19% on year to 1.43 billion yuan ($214.06 million) or 59.37% of the autonomous region's total over January-July, which stood at 2.4 billion yuan, up 18.8% from the year prior, data showed.

    Cumulative coal import started to rise on a year-on-year basis in the first five months, after falling for 16th months amid lackluster demand as Chinese end users turned to imports amid tight domestic supply under the government's de-capacity policy.
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    Australian coking coal prices rally

    Australian coking coal prices are heating up, boosted by another bout of fiscal stimulus in China along with a swathe of supply disruptions worldwide, spurring shortage concerns.

    The spot price for premium coking coal has now rallied by over 60% since mid-February, with gains accelerating last week by the most since early 2011 when devastating floods hit parts of southeast Queensland, disrupting major supply chains.

    Supply disruptions and an increase in Chinese infrastructure and property investment lead to a remarkable turnaround following years of constant price declines.

    Several highways in Shanxi, one of China's major coal producing provinces, have been closed for repairs following heavy rainfall at the end of July. Competition for railway freight space with thermal coal has also led to a shortage of coking coal at Chinese steel mills. Outside China, supply has also come under pressure. Several hard coking coal mines in Queensland are undergoing maintenance or facing production troubles. Vale has also stopped rail transport at its operations in Mozambique due to militant attacks.

    A resurgence in China's manufacturing and property construction sectors this year, thanks largely to policy makers resorting to stimulus, has helped support commodity prices generally.

    "So long as Chinese steel mills enjoy healthy margins, spot and contract coking coal prices will likely remain supported. Though downside risks do exist," said Vivek Dhar, a mining and energy analyst at the Commonwealth Bank, adding that high prices may also incentivise US and Mongolian coking coal exporters to enter the Asian market and address any shortage concerns.

    According to the Australian government's Department of Industry, Innovation and Sciences, Australia's metallurgical coal production is forecast to increase by around 2% to 192 million tonnes in the current financial year.

    In the department's latest resources and energy quarterly report released in July, it forecast that Australia's metallurgical coal export earnings were likely to decline by a further 5% to A$18.2 billion ($13.9 billion) in 2016–17 due to "lower prices and subdued growth in volumes".

    Australian coal exports — both metallurgical and thermal — were worth $A37 billion last year, according to Austrade, accounting for 11.6% of total Australian exports of goods and services, second only to iron ore in terms of total value.
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    Glencore records $395 million thermal coal derivative loss

    Glencore has made a loss of $395 million from hedging 55 million mt of its unsold coal production in the derivatives market during the first six months of 2016, the Switzerland-based diversified miner said in its half-year report Wednesday.

    "The net expense comprises primarily $395 million relating to an accounting measurement mismatch between the fair value of coal derivative positions in respect of portfolio risk management/hedging activities initiated in Q2 2016 and the anticipated future revenue to be generated from the sale of future unsold coal production," Glencore said in a statement.

    The miner added that the total derivatives position managing forward sales was expected to be settled before the end of June 2017.

    Glencore said that under International Financial Reporting Standards accountancy rules, the transactions could not be designated as hedging instruments as they included pre-existing trading contracts for which mark-to-market movements had already been included in trading results.

    As a result, the loss had to be reported ahead of the underlying futures transactions expiring.

    International seaborne thermal coal prices have been on an upward slant since bottoming out in the second quarter due to Chinese domestic production cuts, and a rebalancing of a previously oversupplied market.

    Since the beginning of April, Europe-delivered CIF ARA year-ahead thermal coal futures have risen over 37% to $57/mt on Tuesday, according to S&P Global Platts data.

    Attached Files
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    Shandong Iron & Steel Group H1 profit surge 211 pct

    Shandong Iron & Steel Group Company Limited, one Shandong-based leading steel producer, saw its net profit surge 210.57% on year to 23.15 million yuan ($3.5 million) in January-June, the company said in its half-year report late August 25.

    Business income of the group stood at 21.96 billion yuan in the same period, falling 4.54% year on year, it said.

    The income accounted for 70.67% of the annual target of 31.08 billion yuan, thanks to price rise of steel products.

    In the first half of the year, the company produced 7.9 million, 4.27 million and 3.79 million tonnes of pig iron, crude steel and steel product, accounting for 47.09%, 46.16% and 44.33% of the annual targets, respectively.

    The lagging production was because the company intended to reduce stocks by controlling production and arranging maintenance.
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    Vale expects Samarco to restart mid-2017

    Vale expects Samarco to restart mid-2017

    Brazilian miner Valeexpects Samarco, an iron-ore joint venture it owns with BHP Billiton, to restart operations in the middle of 2017, a company executive said on Thursday.

    Samarco's mine has been shut since November when a tailings dam on the site burst, killing 19 people and causingBrazil's worst-ever environmental disaster.

    André Figueiredo, head of investor relations at Vale, told a stock market event in Sao Paulo that he thought Samarcooperations could restart by mid-2017 in comments first reported by the Estado de S Paulo newspaper and confirmed by a Vale spokesperson.

    Figueiredo did not provide any details on why he expectedSamarco to be producing again by then.

    Samarco had originally expected to resume production this year, but has since said that this is unlikely. The Stateenvironmental body responsible for granting permission to resume operations, Semad, has said the process would continue into next year.

    The financial strain of being without its primary revenue stream has led Samarco to consider talking to bondholders about changing the terms on $2.2-billion of securities or to pursue an exchange offer, according to a Reuters report on Wednesday, which cited two people with knowledge of the situation.
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