Mark Latham Commodity Equity Intelligence Service

Thursday 18th June 2015
Background Stories on

News and Views:

Attached Files


    Power glut leaves generation companies powerless

    Financial Express reported that even as private power producers with untied capacity are hoping to sign power purchase agreement with two states, Andhra Pradesh and Uttar Pradesh, they are anxious tariff levels could be unprofitable given the large surplus of power available.

    The Andhra Pradesh government has announced it is looking to buy 2,400 MW and tenders are slated to open on June 25th. Given that in the recent past the state has been compelled to buy expensive power generated by gas-based units, this time around it would look to procure electricity at a cheaper tariff.

    The purchase by the Andhra government will be the biggest long-term purchase of electricity in the country in the last four years. The stiff competition should see Andhra Pradesh procuring electricity at tariffs that were lower than in 2012, when it negotiated PPAs at an average levellised tariff of INR 4.82 per unit.

    Meanwhile, the Uttar Pradesh government is readying to negotiate the purchase of 3,800 MW and should sign PPAs in a couple of months. In 2012, the state was looking to buy 6,000 MW of power but ended up signing PPAs for for only 2,175 MW. It is now completing the purchase of the remaining amount, following some prompting by the state electricity regulator.

    Mr SK Agarwal, CFO of UPPCL, said that “We have appointed consultants and are moving ahead to buy close to 4000 MW.”

    While the sale of 6,200 MW via long-term PPAs should help revive the fortunes of the sector, power generators remain cautious since the total untied capacity in the country is more than three times, 20 GW, than the current round of procurement.

    Industry insiders believe that power producers whose plants have been up and running for months without PPAs in place would want to ink pacts to be able to utilise their assets. This, they believe, could lead to fierce bidding and drive down tariffs to unviable levels.
    Back to Top

    China’s energy guzzlers May power use down 1.1% on yr

    Power consumption of China’s four energy-intensive industries dropped 1.1% year on year to 145.1 TWh in May, accounting for 31.8% of the nation’s total power consumption in the month, the China Electricity Council (CEC) said on June 17.

    The ferrous metallurgy industry consumed 43.6 TWh of electricity in May, down 5.0% year on year but up 3.8% on month, compared to the growth of 1.2% in the previous year; while the non-ferrous metallurgy industry used 37.3 TWh of electricity, up 10.4% year on year and up 3.3% from April, lower than the growth of 2.4% a year ago.

    The chemical industries consumed 34.9 TWh of electricity in the month, down 2.1% year on year but up 2.0% from April, lower than a 6.4% growth a year ago; while power consumption of building materials industry dropped 6.6% year on year but increased 8.1% from April to 29.3 TWh, compared to a 7.8% rise in the preceding year.

    Over January-May this year, the four industries consumed a total 669.9 TWh of electricity, dipping 1.7% year on year, accounting for 30.6% of China’s total power consumption in the same period.

    The ferrous metallurgy industry consumed 206.9 TWh of electricity over this period, down 6.5% year on year; while the non-ferrous metallurgy industry used 176.3 TWh of electricity, up 5.0% from a year ago.

    The chemical industry consumed 169.7 TWh of electricity, up 1.6% year on year; while the building materials industry used 117 TWh of electricity, down 6.6% from a year prior.
    Back to Top

    Oil and Gas

    China's sagging diesel demand finds hope in e-commerce boom

    Diesel has found an unexpected ally in the growing legion of delivery trucks spawned by China's rapidly expanding e-commerce, forestalling any drop in the country's consumption of the fuel as the economy shifts its focus away from manufacturing.

    In a sign of China's migration to a services-based economy from an industrial powerhouse, its demand for diesel used to power machinery and fuel trucks, as well as generate electricity, has been flat this year.

    That economic restructuring has led to predictions China's diesel consumption will peak soon. But with e-commerce delivery trucks picking up some of the slack, diesel use is now seen growing slightly till 2020.

    "China's soaring e-commerce growth has spurred a surprise strength in diesel demand this year, offsetting continuing weakness from the industrial and manufacturing sector," said analyst Gordon Kwan of Nomura research.

    China's e-commerce market has overtaken that of the United States as the world's largest and is seen expanding nearly 25 percent a year to 4.5 trillion yuan ($726 billion) by end-2017, according to iResearch, a Chinese Internet research firm.

    The country is home to the world's biggest e-commerce company, Alibaba Group Holding Ltd, which handles more online commerce than Inc and eBay Inc combined.

    To cash in on the growing demand for delivery vehicles, China's e-commerce logistic and transport service providers have increased their fleet of trucks. Yuantong Express, among the top four in the sector, added 300 trucks in 2014 and now owns a total of 3,000, most of which run on diesel.

    The firm expects its shipments to jump to 30-40 million packages during the massive online shopping sale on Singles' Day, a Nov. 11 Chinese response to Valentine's Day, from 25 million on the same day a year ago.

    A regional logistics hub of Inc - China's No.2 e-commerce company - has also been expanding its truck fleet, up more than threefold over two years with a target to own a total of 1,000 trucks next year, said a Sinopec fuel marketing official, who closely follows key clients including e-commerce logistics firms.

    A spokesman could not confirm the figure but said the company's total sales value had quadrupled in the past two years.

    As more people shop online, diesel use in the world's No.2 economy will grow, though only slightly, sources said.
    Back to Top

    Rosneft to maintain hydrocarbon output in 2015-2017 - CEO

    Rosneft to maintain hydrocarbon output in 2015-2017 - CEO

    Russian oil producer Rosneft plans to keep its hydrocarbon production stable in 2015-2017, Chief Executive Officer Igor Sechin said on Wednesday, potentially increasing output by 2 percent if market conditions are favourable.

    Rosneft, the world's top listed oil company by output, faces financial and technologicalrestrictions due to Western sanctions imposed over Moscow's role in the Ukraine crisis.

    "The business plan envisages a stable production level in 2015-2017 with the potential for an increase of 2 percent if market conditions are favourable," Sechin told Rosneft shareholders at the company's annual general meeting.

    Sechin added that Rosneft planned to produce 252 million tonnes of oil equivalent this year. He did not give a breakdown for oil and gas.

    In 2014, Rosneft oil production reached 205 million tonnes (4.1 million barrels per day), compared to 4.2 million barrels per day in 2013.

    Speaking in St Petersburg, Sechin said Rosneft planned to invest 300-350 billion roubles ($5.6-$6.5 billion) into new large upstream projects in 2015-2017.

    Rosneft, in which BP owns almost a 20 percent stake, spent 533 billion roubles on capital expenditure last year. Sechin also said the firm planned to ship around 40 percent of its exports to Asia by 2019.

    He was quoted as saying by Interfax news agency that it was hard to predict when the state would further reduce its holding in Rosneft - a plan delayed due to the weak economy - and that the chief executive officer at oil producer Surgutneftegaz, Vladimir Bogdanov, had no plans to buy Rosneft shares.
    Back to Top

    Bets Israel Gas Dispute May End Send Delek Group to 6-Month High

    Delek Group Ltd. rose to the highest since December as investors discerned an end to months of regulatory uncertainty that halted development of Israel’s offshore natural gas fields.

    The company’s shares jumped after Yuval Steinitz, Minister for National Infrastructures, Energy and Water resources, told Army Radio that the Israeli government wants to reach an agreement with exploration companies on a natural gas policy framework as soon as possible.

    “I think we are nearing the end of the regulatory saga as all parties want to reach a solution,” Eldad Tamir, chief executive officer of Tel Aviv-based Tamir Fishman Group, said by phone. “Any delay hurts the Israeli economy.” Tamir said his financial services company, which has $5 billion in assets under management, recently upped its stake in Delek Group.

    The development of Leviathan, Israel’s largest offshore natural gas field, held by Houston-based Noble Energy Inc. and units of Delek Group, has stalled amid arguments over policy. The country’s antitrust commissioner, David Gilo, tendered his resignation last month to protest the blueprint that is set to be approved. Gilo said it doesn’t do enough to break up the gas monopoly that emerged after two major offshore fields were discovered several years ago.
    Back to Top

    BHP Billiton offers one LNG cargo from Australian export plant

    A division of mining group BHP Billiton is holding a closed tender to sell a liquefied natural gas (LNG) cargo from Australia's North West Shelf export plant, trading sources said.

    It was not clear whether the cargo had yet been awarded, they said.

    A recent change in the way the North West Shelf project markets LNG cargoes means that the six equal shareholders in the facility will from now on sell cargoes individually.

    The shareholders are BHP Billiton, BP, Chevron , Japan Australia LNG (a joint venture of Japanese firms Mitsubishi and Mitsui plus Shell and Woodside.
    Back to Top

    National Oilwell Varco to cut 1,500 Norwegian jobs

    National Oilwell Varco, the largest U.S. oilfield equipment maker, said it will cut its Norwegian workforce by 1,500 by the end of this year as low oil prices have reduced investments.

    It plans to cut 900 permanent jobs and 600 contractors, the firm said in a statement on Wednesday.

    “The reason for the lay-offs is the big change in the market situation for our industry over the last year with reduced investments and reduced sale of new equipment,” it said.

    “The uncertain market situation also means that we can’t say how comprehensive the process of laying off people will be in the longer term”.
    Back to Top

    Summary of Weekly Petroleum Data for the Week Ending June 12, 2015

     U.S. crude oil refinery inputs averaged 16.3 million barrels per day during the week ending June 12, 2015, 294,000 barrels per day less than the previous week’s average. Refineries operated at 93.1% of their operable capacity last week. Gasoline production decreased last week, averaging about 9.7 million barrels per day. Distillate fuel production decreased last week, averaging over 5.0 million barrels per day.

    U.S. crude oil imports averaged about 7.1 million barrels per day last week, up by 444,000 barrels per day from the previous week. Over the last four weeks, crude oil imports averaged over 6.9 million barrels per day, 5.3% below the same four-week period last year. Total motor gasoline imports (including both finished gasoline and gasoline blending components) last week averaged 682,000 barrels per day. Distillate fuel imports averaged 147,000 barrels per day last week.

    U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) decreased by 2.7 million barrels from the previous week. At 467.9 million barrels, U.S. crude oil inventories remain near levels not seen for this time of year in at least the last 80 years. Total motor gasoline inventories increased by 0.5 million barrels last week, and are in the upper half of the average range. Both finished gasoline inventories and blending components inventories increased last week. Distillate fuel inventories increased by 0.1 million barrels last week but are in the lower half of the average range for this time of year.

    Propane/propylene inventories rose 1.9 million barrels last week and are well above the upper limit of the average range. Total commercial petroleum inventories increased by 2.7 million barrels last week.

    Total products supplied over the last four-week period averaged about 19.7 million barrels per day, up by 5.2% from the same period last year. Over the last four weeks, motor gasoline product supplied averaged almost 9.4 million barrels per day, up by 3.3% from the same period last year. Distillate fuel product supplied averaged over 3.9 million barrels per day over the last four weeks, down by 2.1% from the same period last year. Jet fuel product supplied is up 4.9% compared to the same four-week period last year.

    Attached Files
    Back to Top

    U.S. Petroleum Balance Sheet, Week Ending 6/12/2015

                                                               Latest   Last week   Year ago

    Domestic Production .................... 9,589    9,610 -21    8,477 1,112

    Full details:
    Back to Top

    The impact of the fracklog on the US short-term liquids supply

    In the first months of 2015, the US shale industry faced a rapid decline in drilling activity, yet oil supply has not been showing any signs of entering into a consistent decline phase. This opposite movement is mainly due to drilled uncompleted wells, namely fracklog. The following examines how drilling and fracking activity in the US shale evolved in 2014-2015 and to what extent accumulated fracklog can affect light tight oil (LTO) supply in 2015-2016.

    Figure 1 provides a full insight into the fracklog evolution in the largest LTO plays 'The Big Three' Bakken, Eagle Ford and Permian Basin, which together accounted for 80% of LTO production growth in 2014. Last year, driven by expansion of tight formations in the Permian Basin, drillers outperformed completion crews by three horizontal wells per day on average. This has led to a significant accumulation of the fracklog with an annual increase of 1,100 wells as of year-end. When drilling had started falling with almost 35% decline from October 2014 to February 2015, fracking activity showed a delayed response, declining by less than 25% in the same period. However, the decline accelerated in March and April 2015. As a result, the fracklog decreased by 200 wells in the first five months of 2015.

    Figure 1 also demonstrates a strong correlation between the number of fracked and started wells, as 80% of the wells come online within three weeks after completion. Thus, massive well completion delays prevented aggressive fracklog reduction, but the number of fracked wells has been sufficient to balance base production decline to date.Image title

    In the beginning of June 2015, the scale of the fracklog in 'The Big Three' plays remains alarming with 3,850 wells awaiting completion crews. As much as 35% of these wells were drilled more than five months ago. This number corresponds to 7-8 months of drilling at the current pace and indicates that the US shale has sufficient inventory to restore growth when market conditions become favourable.

    Charts and more: title

    Attached Files
    Back to Top

    Small, mid-cap E&P companies to see $16 bln funding gap in 2016 - Cowen & Co

    Small, mid-cap E&P companies to see $16 bln funding gap in 2016 - Cowen & Co

    Small and mid-cap exploration and production companies in the United States are expected to see a gap of $16 billion between spending estimates and projected cash flows for 2016, Cowen & Co analysts said.

    Oil producers have been lowering capital budgets and rig counts, hit by a 44 percent decline in global crude prices since last June.

    Barclays said in January oil and gas companies could cut exploration and production spending in North America by 30 percent or more this year if U.S. crude continued to trade in the $50-$60 per barrel range.

    Brent crude futures were at $65.21 on Wednesday, while U.S. crude futures were at $61.20. Brent hit a high of $115.06 in June last year.

    "... borrowing bases will be declining and debt metrics deteriorating," Cowen & Co said on Wednesday, leading small and mid-cap companies to issue additional equity this year to support 2016 budgets.

    Small and mid-cap companies will need $8.6 billion to meet the Street's 2016 production growth projections, the brokerage's analysts wrote in a note.

    They reviewed 46 liquids-weighted and 12 gas-weighted E&P operators and used their first-quarter results to reach a consensus for 2016 U.S. capital expenditure.
    Back to Top

    Oilfield services provider Calfrac halves dividend

    Canadian oilfield services provider Calfrac Well Services Ltd halved its quarterly dividend to 6.25 Canadian cents per share, citing lower crude oil prices and weak demand for oilfield services.

    Calfrac's board also approved an additional capital of about C$12 million for 2015 to expand in Latin America, the company said on Wednesday.

    The company, whose services include hydraulic fracturing, cementing and well stimulation, had forecast capital expenses of C$215 million for the year in February.

    At that time the Calgary, Alberta-based company forecast a drop of at least C$25 million in general and administrative costs, including a 20 percent cut in compensation of board members and a 10 percent reduction in salaries.

    Calfrac gets most of its revenue from the United States and Canada. Oilfield services providers in North America have been hit by lower drilling activity as producers scale back spending to cope with the decline in global crude prices since last June.

    Calfrac's stock fell more than 61 percent to C$7.85 on the Toronto Stock Exchange in the 12 months through Tuesday.
    Back to Top

    Noble outflanked a pair of rivals to secure Rosetta deal, docs show

    Noble Energy outbid at least two other companies interested in buying Rosetta Resources after offering the smaller independent producer a sweeter deal with a higher premium than its competitors, new regulatory filings showed.

    Analysts have said for months that the global oil slump would mean large, well-financed companies snapping up small firms with good acreage and heavy debt loads. But the Noble-Rosetta deal, announced in May, has been the only such transaction of its kind involving a large U.S. oil and gas producer since crude collapsed last year.

    Details about the negotiations were revealed in recent U.S. Securities and Exchange Commission filings ahead of a special shareholder meeting to decide whether to approve the deal. The meeting is slated for July 20.

    Houston-based Rosetta began eying a deal in December shortly after crude prices began plummeting, but the firm originally had another partner in mind, according to the SEC filings.

    Months earlier, when oil was trading around $100 per barrel, Rosetta considered combining with another exploration and production company, even signing a confidentiality agreement in the first step toward making a deal. But those discussions fizzled out before December, according to the filings. The company is not named in the documents.

    By mid-December, Rosetta was feeling pressure from oil prices that had collapsed nearly in half. Craddock met with the CEO of the unnamed oil producer, who expressed interest in a deal. Rosetta also hired Morgan Stanley & Co. to identify potential candidates for a merger or acquisition.

    Morgan Stanley in January shopped the Rosetta deal out to 17 companies, and seven expressed interest, including Noble.

    Noble’s CEO David Stover met Craddock in person in mid-February and made his pitch: Rosetta’s assets in Texas’ Eagle Ford Shale and Permian Basin were a “strategic fit” for his company, which did not have a significant foothold in those oil-rich regions.

    The opportunity was huge for Houston-based Noble, which for years had mapped and analyzed the Eagle Ford and Permian, hoping to jump-start the company’s foray into those prime shale plays. Noble already had a footprint in some key U.S. shale plays, including the DJ Basin in northern Colorado and the Marcellus Shale in the northeastern United States.

    Rosetta wanted to work with a company that had a slate of good assets and a healthy balance sheet. The firm also wanted an all-stock transaction, allowing Rosetta’s shareholders to benefit from rising oil prices.

    Stover made a “best and final offer,” the exchange ratio of .542 shares of Noble common stock in a deal worth 38 percent more than the closing price of Rosetta’s common stock. The other firm’s proposal represented a 23 percent premium, according to filings. Stover also agreed to reduce the termination fee by $5 million to $65 million and to drop the “force-the-vote” provision.
    Back to Top

    Valero and Suncor question Enbridge Line 9 delay

    The two biggest customers on Enbridge Inc's newly reversed pipeline to carry Western Canadian oil from Sarnia, Ontario, to Montreal want to meet Canada's energy regulator to find out why the pipeline's opening has been delayed by months.

    Valero Energy Corp and Suncor Energy Inc, each of which owns of two refineries in the province of Quebec, said in separate letters posted on the NEB's website that the delay in approving the startup of the 300 000 bpd Line 9 pipeline is pushing up their costs and harming their operations.

    They requested a meeting with the board's chairman, Peter Watson.

    "We believe it is important that you are aware of the high cost and negative economic impacts to our business, and by extension to those communities and provinces in which we operate, as the time for a decision is ongoing," wrote Kris Smith, Suncor's Executive Vice-President of Refining and Marketing.

    The controversial project will carry Western Canadian crude to Quebec, replacing supplies currently shipped by rail or imported from abroad. The board approved the project in February but refused to let Enbridge open the 639-km (400-mile) line until it met 30 conditions related to emergency response, continued consultation and pipeline integrity.

    "Following the board's approval of the project...we made capital investments, including major structural work at our Montreal East terminal and Levis refinery, of close to CAN$200 million (US$162 million), in anticipation of receiving deliveries via Line 9," Ross Bayus, President of Valero's Canadian operations wrote.

    "Moreover, the delays associated with satisfying certain of the conditions imposed by the board, particularly from last fall, required Valero to revert to international markets for supplies of crude oil to answer Eastern Canada's demand for petroleum products."

    The reversal will benefit Suncor's 130 000 bpd Montreal refinery and Valero's 265,000 bpd Jean Gaulin refinery in Levis, Quebec.
    Back to Top

    Energen updates on common stock offering and on oil hedges for 2016

    Energen Corp. has launched an underwritten public offering of 5,700,000 shares of its common stock. The company has also begun hedging its 2016 oil production and has added to its 2015 oil hedge position.

    The underwriter of the common stock offering will have a 30-day option to purchase up to 855,000 additional shares of common stock from Energen. The underwriter intends to offer the shares from time to time for sale in one or more transactions on the New York Stock Exchange, in the over-the-counter market, through negotiated transactions or otherwise at market prices prevailing at the time of sale, at prices related to prevailing market prices or at negotiated prices.

    Energen intends to use the net proceeds from the offering to fund a slight increase in drilling activity in the Midland Basinin the second half of 2015 and, more significantly, to begin a multi-year acceleration of development activities in thePermian Basin in 2016, with capital investment in 2016 of $1 billion or more; net proceeds also may be used for other general corporate purposes, including the acquisition of proved and unproved leasehold. Pending such uses, Energen intends to use the net proceeds from this offering to repay borrowings outstanding under its credit facility.

    Energen has also begun hedging its 2016 oil production and has added to its 2015 oil hedge position. Over the past week, Energen has entered into swap contracts for 1.1 million barrels of 2016 oil production at an average NYMEX price of $63.80 per barrel. The company also has hedged an additional 2.9 million barrels of 2015 oil production in July through December 2015 at an average NYMEX price of $62.46 per barrel.

    Adjusted for the new 2015 swaps, Energen’s oil hedge position for the period April through December 2015 (as disclosed on May 6) now covers 82% of the company’s estimated 2015 production midpoint for the last nine months of the year of 11.1 million barrels (based on production guidance issued on May 6) at an average NYMEX price of $80.76 per barrel.
    Back to Top

    Alternative Energy

    India ramps up solar power target to 100 GW

    The Union Cabinet, in an ambitious push for clean energy, ramped up the country's solar energy generation target five times to 100 GW by 2022, from 20,000 MW under the Jawaharlal Nehru National Solar Mission (JNNUSM) on Wednesday. If India manages to achieve this target, it will become one of the largest green energy producers in the world. JNNUSM was launched by the United Progressive Alliance in 2009. This will also greatly reduce the country's reliance on fossil fuels thus reducing our carbon emissions, which is the third largest in the world behind China and United States of America. Currently, India has an installed solar photovoltaic capacity of 3,800MW.

    Along with this decision, the Cabinet Committee on Economic Affairs also approved setting up of over 2,000 MW of grid-connected solar projects on build, own and operate (BOO) basis under JNNUSM Phase-II. As per the Centre's plan, of the 100 GW, 40 GW would be rooftop solar energy and 60 GW wouild be through large and medium scale grid connected solar power projects.

    The big push for solar would need an investment of Rs 6 lakh crore. In the first phase, the Centre will be providing Rs.15,050 crore as capital subsidy to promote solar capacity addition. Primarily, the capital subsidy would be too promote Rooftop solar projects.
    Back to Top

    Japan offshore wind project to gain largest ever turbine

    Japan’s $405million offshore wind project is set to gain a 7-megawatt turbine.

    The turbine, which will be the largest of its kind ever to be used at sea, will generate power 12 miles (20km) off the coast of Fukushima.

    The project, which was established two years ago, already has a 2-megawatt model.

    Yasuhiro Matsuyama, a trade ministry official in charge of clean energy projects, said: “Countries are exploring floating offshore wind technology and Japan is in a sense at the same level with Norway and Portugal.

    “This will be the world’s first pilot project to use such an extremely large-size turbine.”

    The scheme is funded by the Japanese government and led by Marubeni Corp.

    The floating structure, made by Mitsubishi Heavy Industries, is expected to start trial operation in May.
    Back to Top

    Earlier end to subsidies for new UK onshore wind farms

    New onshore wind farms will be excluded from a subsidy scheme from 1 April 2016, a year earlier than expected. There will be a grace period for projects which already have planning permission, the Department of Energy and Climate Change said.

    But it is estimated that almost 3,000 wind turbines are awaiting planning permission and this announcement could jeopardise those plans.

    Energy firms had been facing an end to generous subsidies in 2017.

    The funding for the subsidy comes from the Renewables Obligation, which is funded by levies added to household fuel bills.

    After the announcement was made, Fergus Ewing, Scottish minister for business, energy and tourism and member of the Scottish parliament, said he had warned the UK government that the decision could be the subject of a judicial review.

    "The decision by the UK government to end the Renewables Obligation next year is deeply regrettable and will have a disproportionate impact on Scotland, as around 70% of onshore wind projects in the UK planning system are here," he added.

    The move was part of a manifesto commitment by the Conservative party ahead of the general election in May.

    "We are driving forward our commitment to end new onshore wind subsidies and give local communities the final say over any new wind farms," said Energy and Climate Change Secretary Amber Rudd.

    "Onshore wind is an important part of our energy mix and we now have enough subsidised projects in the pipeline to meet our renewable energy commitments," she said.

    The grace period could allow up to 5.2 gigawatts (GW) of wind capacity to go ahead, which could mean hundreds more wind turbines going up across the UK.
    Back to Top

    Precious Metals

    Goldcorp sells off 26% stake in Tahoe to raise cash

    Canadian gold giant Goldcorp has sold its 26% stake in Tahoe Resources for just under $1 billion as the miner continues to try increasing cash flow amid weak bullion prices.

    The Vancouver-based miner, the world’s largest gold producer by market value, offered 58.1 million common shares of Tahoe for Cdn$17.20 each in a secondary share sale, according to a company statement. Tahoe won’t receive any of the proceeds from the offering, Goldcorp added.

    A group of banks led by GMP Securities and Bank of Montreal bought Tahoe shares and will resell them to investors.

    A group of banks led by GMP Securities and Bank of Montreal bought Tahoe shares and will resell them to investors. The transaction is expected to close by June 30.

    The news came on the same day Royal Bank of Canada downgraded Goldcorp’s stock to “sector perform” from “outperform,” citing missed guidance and concerns over the miner’s ability to continue paying its monthly dividend.

    Reno, Nevada-based Tahoe operates the Escobal silver mine in Guatemala, which it acquired in 2010 from Goldcorp in return for shares and cash, and La Arena gold mine in Peru.
    Back to Top

    Base Metals

    X2 in the running for Anglo copper mines

    X2 in the running for Anglo copper mines

    All eyes have been on Mick Davis and his $5.6 billion X2 fund to set the ball rolling for private equity in mining. But the ex-Billiton CFO has so far failed to pull the trigger despite the likes of Anglo-American, BHP Billiton and Vale putting assets up for sale.

    Now Reuters reports that X2 is among the firms bidding for two Anglo American copper mines in Chile.

    According to unnamed sources "Mick seems keen on those assets" while Glencore and boutique UK investment firm Audley Capital are also in the running. In the past Chile's state-owned copper giant Codelco was also mentioned as a possible bidder.

    Bids for the Mantos Blancos and Mantoverde copper mines closed last week. The $1 billion number for both has been touted for a long time, but "two mining sources familiar with the mines gave more conservative valuations of around $500 million or less":

    "An industry source said although Glencore was still in the process it was unlikely to make a high enough bid to win the assets."

    "They are both mines towards the end of their life although with some investment Mantoverde's life can be extended," a second industry source said. "I would think a smaller firm like Audley is more likely to get them. Certainly the John MacKenzie [former Anglo copper head] connection is strong."

    Meanwhile a separate report claims that X2 didn't come close to the winning bid for a stake in Barrick Gold's Zaldivar copper mine in Chile once dubbed as the "Andean ATM".

    "There were seven bids higher than that of X2," a London-based banking source with knowledge of the matter told Mining Weekly. "They couldn't make the numbers work."
    Back to Top

    Finland to inject more funds into troubled nickel mine

    The Finnish government plans to inject a further 112 million euros ($126 million) into restructuring troubled nickel mine Talvivaara after a potential buyer failed to arrange financing, a minister said on Wednesday.

    Talvivaara’s listed parent company is going through debt restructuring while its key subsidiary, which owns the mining assets, last year applied for bankruptcy protection following a drop in nickel prices, repeated production disruptions and environmental damage.

    The government funding to create a new company around the mine follows a previously promised 97 million euros.

    It said it was continuing negotiations with British investment firm Audley Capital Advisors, which in March signed a conditional agreement to buy the key assets of the mine, as well as other parties.

    “To secure binding financing has so far proved very difficult due to many reasons, including the mining sector’s tough market situation,” Minister of Economic Affairs Olli Rehn told a news conference.

    He added that the government was also preparing to close down the mine in the north of the country if a commercially viable solution cannot be found. If that happened, the funding would be used to cover the costs.

    According to the initial plan, a consortium led by Audley was aiming to take a 85 percent stake in the mine while the Finnish government would have taken 15 percent.
    Back to Top

    Steel, Iron Ore and Coal

    Australia quarterly coking coal contract with Japan falls 15%

    September-quarter coking coal price contracts between Australian coal miners and Japanese steel producers were settled at $93/t for premium grades, down 15% from the June quarter, according to two people familiar with the negotiations.

     The lower settlement price covers about 20-million tonnes of Australian-mined coal for the quarter, and influences coking coal spot prices globally.

    It falls at the low end of spot sales priced at $92-$95 by BHP Billiton for delivery in July, and compares with $109.50 in the previous quarter. 

    "It has been done at $93/t, that is the settlement," Marian Hookham, senior manager for consultancy IHS Coal in Australia told Reuters. "I hoped the recent bounce up in met (coking) spot prices might see a slightly higher settlement but no luck. 

    It will make life tough for the US exporters," a second person closely observing the negotiations said, speaking on condition of anonymity. Hookham said the price decline could lead to more mines shutting. "We anticipate closures in the United States to speed up if this price is finalised," she said. "For Australia, there is some insulation from the exchange rate, but certainly some sectors in the industry will be producing at a loss." 

    The Australian dollar has eased against the US dollar over the past nine months, benefiting Australian-based miners. BHP, in partnership with Mitsubishi Corp, operates the world biggest coking coal export business from Australia. US-based Peabody Energy this month said it was cutting 1.5-million tonnes of annual coal production from its North Goonyella mine in Australia. 

    Last year, Vale, Sumitomo and Glencore each idled mines in Australia. Quarterly benchmark coking coal traded as high as $330/t in mid-2011 after bad weather took much of Australia's supply off the market.
    Back to Top
    Commodity Intelligence LLP is Authorised and Regulated by the Financial Conduct Authority

    The material is based on information that we consider reliable, but we do not represent that it is accurate or complete, and it should not be relied on as such. Opinions expressed are our current opinions as of the date appearing on this material only.

    Officers and employees, including persons involved in the preparation or issuance of this material may from time to time have "long" or "short" positions in the securities of companies mentioned herein. No part of this material may be redistributed without the prior written consent of Commodity Intelligence LLP.

    Company Incorporated in England and Wales, Partnership number OC334951 Registered address: Highfield, Ockham Lane, Cobham KT11 1LW.

    Commodity Intelligence LLP is Authorised and Regulated by the Financial Conduct Authority.

    The material is based on information that we consider reliable, but we do not guarantee that it is accurate or complete, and it should not be relied on as such. Opinions expressed are our current opinions as of the date appearing on this material only.

    Officers and employees, including persons involved in the preparation or issuance of this material may from time to time have 'long' or 'short' positions in the securities of companies mentioned herein. No part of this material may be redistributed without the prior written consent of Commodity Intelligence LLP.

    © 2018 - Commodity Intelligence LLP