Mark Latham Commodity Equity Intelligence Service

Tuesday 19th May 2015
Background Stories on www.commodityintelligence.com

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    Macro

    Possibly the most confusing Chinese state policy document ever.

     State Council decision to deploy, adapt and take the initiative to lead the new normal economic development, further emancipate the mind, bold exploration and accelerate the introduction of both has annual characteristics, but also conducive to long-term institutional arrangements of the reform, further emancipate and develop social productive forces. To deal with the relationship between government and the market as the core, driven by the government's own revolution important areas of reform, focus their efforts on the ground has been introduced to implement the reform program, launched a number of activation seize the market, the release of energy, is conducive to the steady growth of employment insurance reform and increase efficiency new initiatives to reform the new dividend into development new impetus.

    Firmly grasp the problem-oriented, so that the reform to better serve the steady growth, adjusting the structure, benefit people's livelihood, risk prevention. To effectively solve the problems facing the economic and social development as an important criterion for the effectiveness of economic reform. For economic downward pressure, the development of deep-seated contradictions highlight the old and new problems are stacked up, increase the risk of difficulties and risks and other issues, and promote the steady growth conducive to employment insurance benefits by early introduction of reform measures to speed up the landing, stimulate market dynamism through reform release development potential, resolve potential risks, and promote steady economic advance and to improve quality and efficiency upgrades.

    Insist on top-level design and the combination of grass-roots innovation, and fully arouse social vitality and creativity. Both attach great importance to the reform of the top-level design, but also insist on looking downward, the pace down, fully respect and play to local, grass-roots masses practices and pioneering spirit, good attention from the focus of the masses, the difficulty to find the starting point of reform people's lives, so reform ideas, decisions, measures and develop more in line with the actual needs of the masses, to find the best solutions from practice to promote top-level design and grassroots exploration positive interaction, combination.

    Conscious use of the rule of law and the rule of law way of thinking reform, deepen the reform and the rule of law to achieve the organic unity of security.


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    Oil and Gas

    Saudi oil exports reach nine-year high

    Saudi Arabia shipped more crude in March than in any month since November 2005 as the world’s biggest oil exporter battled for market share amid a global glut.

    The kingdom exported 7.9 million barrels a day of crude, up 548,000 barrels a day from February, according to figures published Monday on the website of the Joint Organisations Data Initiative.

    Iraq, the largest producer in OPEC after Saudi Arabia, shipped 2.98 million barrels a day in March, the most since at least January 2007 when it began submitting data to the initiative known as JODI.

    Saudi Arabia and Iraq boosted exports as the Organization of Petroleum Exporting Countries pumped above its official target for the 11th consecutive month in April, data compiled by Bloomberg show. Middle Eastern producers are competing with cargoes from Latin America, North Africa and Russia for sales in Asia, and competition has intensified since OPEC decided on Nov. 27 to keep its output target unchanged at 30 million barrels a day. The group is to meet next on June 5 in Vienna.

    Saudi Arabia produced 10.29 million barrels a day in March compared with 9.64 million in February, according to JODI. The country’s output in the month was the highest since at least January 2002 when JODI started collecting statistics from governments.

    Saudi Arabia burned 351,000 barrels day of crude in March to generate electricity, an 11 percent increase from February, according to the JODI website. The nation processed 1.91 million barrels a day in domestic refineries in March, the lowest level since November last year, the data showed.

    http://fuelfix.com/blog/2015/05/18/saudi-oil-exports-reach-nine-year-high/#30267101=0
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    Marathon Oil seeking bids in East Africa onshore blocks

    Marathon Oil is said to be seeking bids for its interest in four onshore exploration blocks in East Africa.

    The company is looking to focus on its blocks in the US shale formations.

    Marathon, like a number of other US oil and gas companies, plans to direct more capital into formations such as the Eagle Ford in South Texas.

    Production growth in the region tends to give higher returns.

    The company will be taking offers for all or part of the properties located in Ethiopia and Kenya according to reports.

    https://www.energyvoice.com/oilandgas/78855/marathon-oil-seeking-bids-in-east-africa-onshore-blocks/
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    LNG's adverse impact on Petronas and Malaysia

    The earnings of state-owned Petroliam Nasional Bhd (Petronas) and the country’s current account are expected to come under pressure in the next few months due to the steep drop in the average price of spot liquefied natural gas (LNG).

    LNG prices track crude oil prices and have more than halved, with the average spot price down as of April to US$7.60 mmbtu (million British thermal units)since oil prices started their downward descent last July.

    LNG makes up two-thirds of Petronas’ total oil and gas production, and with contract agreements up for renewal, analysts pointed out that earnings would be hit.

    The average price of spot-LNG in July 2014 was US$13.8MMbtu, and prices rose slightly to US$15.1mmbtu as of Dec 2014. It started adjusting early this year, and as of April, it stands at US$7.9mmbtu.

    Economists believed that the country would face a current account (CA) deficit in the second quarter if countracts negotiated were not favourable.

    Citigroup Inc economist Kit Wei Zheng warned that headwinds from lower oil prices, which have not been as severe based on first-quarter gross domestic product (GDP) data, could increase going forward.

    “The impact of weaker LNG prices on the CA should be maximum in the second quarter, and the CA surplus should recover in the second-half for leading to a full year surplus of 3.2% of GDP,” he said in a report following the release of Bank Negara’s first-quarter GDP data last Friday.

    In 2014, Petronas produced a total of 1,358 kboe (kilo barrel of oils equivalent) of gas out of a total of 2,226 kboe of oil and gas. Gas made up 61% of Petronas’ total oil and gas production that year.

    The LNG sales volume that year increased 4% to 30.12 million tonnes from 28.85 tonnes in 2013, driven by higher trading volume and higher sales from the Petronas LNG complex in Bintulu, Sarawak.

    Not only would that have implications on Petronas earnings, but Petronas’ contributions to government revenue could be impacted. Petronas contribution had dropped to about 22%, from 30%.

    In 2012 and 2013, when the going was still good and Brent crude stood above US$100 per barrel, Petronas had contributed RM80bil and RM73.4bil respectively to the Government.

    For 2014, that contribution has been estimated to drop to around RM68bil with Brent averaging US$99 a barrel. The contribution for 2015 would decrease further with Brent oil now hovering at the US$60 level.

    Petronas had earlier estimated that Brent crude would be about US$55 per barrel for 2015. Brent crude has now recovered slightly to the US$66 level.

    Besides the implications to Petronas earnings and the Government’s revenue, economists have pointed out that the drop in LNG prices could potentially impact Malaysia’s CA surplus.

    However, a Petronas official said recently that the national oil company has a long-term approach to the LNG business, with supply security part of contract negotiations, which could be signed for up to 20 years in some cases.

    http://www.thestar.com.my/Business/Business-News/2015/05/18/LNGs-adverse-effect-on-Petronas-and-Malaysia/?
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    BP agrees to cut spending on Iraq's Rumaila field after oil price drop

    BP has cut its development budget for Iraq's giant Rumaila oilfield by $1 billion this year after the government warned a slump in crude prices and its battle against Islamic State was making it difficult to pay oil companies.

    The British oil major has agreed with Baghdad to reduce its 2015 spending on the country's largest oilfield to $2.5 billion, from the initially planned $3.5 billion, an industry source familiar with the matter said on Monday.

    International firms operate in Iraq's southern oilfields under service contracts, whereby they are paid a fixed dollar fee for volumes produced.

    But the arrangement has put Baghdad's coffers under immense strain, as a dramatic drop in crude prices since last summer has hammered the revenue it receives from selling oil.

    Oil companies have proposed millions of dollars of budget cuts, a senior Iraqi oil ministry official told Reuters in March.

    It came after the government - wary of a boost in production costs that would further stretch state finances - asked them to revise development plans by considering postponing new projects and delaying already committed undertakings.

    Production from Rumaila is expected to remain steady at around current levels of about 1.4 million barrels per day in 2015.

    Foreign oil companies, already complaining of infrastructure constraints, say they see little chance of a rise in Iraqi production this year or even next.

    Iraq's inability to increase output as fast as it has previously announced could help ease the global oil glut more quickly than anticipated and thus support prices.

    The OPEC producer sought to renegotiate the terms of its contracts with international oil companies.

    In a series of letters sent to companies such as BP, Royal Dutch Shell, ExxonMobil, Eni and Lukoil since January, the oil ministry set out the need for change in response to "the rapid drastic decrease in crude oil prices".

    http://www.reuters.com/article/2015/05/18/iraq-bp-rumaila-idUSL5N0Y93082015051

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    BP Plans to Sell Part of Its Stake in Australian Oil Venture

    BP Plc plans to sell part of its oil project off southern Australia, before an exploration campaign that’s slated to start late next year at a cost of more than A$1 billion ($800 million).

    BP wants to cut its stake to between 40 percent and 50 percent from 70 percent, with the sales process starting in the second half this year, Bryan Ritchie, vice president of exploration for Asia Pacific, told reporters Tuesday in Melbourne. Statoil ASA owns the rest of the project in the Great Australian Bight.

    “We’ve had a number of companies speaking to us, and hopefully some of the companies will see the potential we see,” he said. “There’s a big opportunity there.”

    The U.K. energy giant is planning to drill in a region it has described as “the last big unexplored basin in the whole world.” It faces oppositionfrom environmentalists worried about the potential for an accident five years after the Gulf of Mexico oil spill.

    BP is also looking for opportunities to work with other companies exploring in the Bight to potentially save money and make their operations more efficient, he said.

    Chevron Corp. and Santos Ltd. are among other companies with holdings in the region.

    The company plans to start drilling in October 2016, Ritchie said earlier in a speech at the Australian Petroleum Production & Exploration Association conference. BP expects to drill a second well and pause before proceeding with another two wells, he said.

    http://www.bloomberg.com/news/articles/2015-05-19/bp-plans-to-sell-part-of-its-stake-in-australian-oil-venture
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    Eagle Ford drilling will get a lot cheaper by mid-2016

    Pumping a barrel of oil out of the Eagle Ford Shale could get $10 to $15 cheaper by summer 2016 as service companies cut costs and operators tune up their wells, analysts say.

    The oil slump hasn’t stopped producers in the South Texas play from getting better at targeting oil-rich rock in lateral sections of their horizontal wells, speeding up their pressure pumping systems and adopting better technologies for bringing wells into production.

    Those efforts could help lift wells’ initial production rates by an average 33 percent in the Eagle Ford, even as service companies cut prices for drilling tools, proppant and rigs by an average 16 percent this year, Wood Mackenzie analysts said.

    Those two factors could bring the Eagle Ford’s breakeven oil price down from $56 to as low as $41 a barrel by June next year, putting millions more barrels within reach for producers. Similar trends are emerging in the Bakken Shale in North Dakota and the Permian Basin in West Texas.

    “The death of the unconventional business has been greatly exaggerated,” Wood Mackenzie analyst Cody Rice said. “Operators can still make money in the best portions of the best plays in the lower 48.”

    Oil production across the United States, according to the energy research firm, is likely to grow by 675,000 barrels a day this year, about half of the production growth rate in 2014. But even with crude prices at $55 a barrel, the industry can still afford to scoop up nearly 23 billion barrels of U.S. shale oil, and there are 20,000 prime spots in the Eagle Ford that haven’t been drilled yet.

    So while the oil slump has curbed drilling activity, the industry is improving how it gooses oil. In the Eagle Ford, producers are fracturing shale rock using 55 percent more proppant and 50 percent more water than they were a few years ago, and they’ve adopted the cement lining of the so-called plug-and-perf system, one method of completing wells.

    Oil companies have cut their U.S. shale spending from last year’s $96 billion to $60 billion this year, but a dollar will go a lot further in the oil patch next year if the service companies’ cost cuts hold out, Wood Mackenzie analyst Ben Shattuck said.

    More than half of the service cost reductions are expected to come from drilling tools, drilling services, proppants and rigs. They’re expected to cut costs around 15 percent to 20 percent this year around the United States, but some operators are getting discounts as high as 50 percent. For instance, the price of Wisconsin’s white sand used in hydraulic fracturing has been cut in half in places like the Bakken.

    The Wood Mackenzie analyst said all of this is better news for private companies, small to mid-sized public explorers and independent producers than it is for the oil majors and national oil companies. Small to mid-sized firms own roughly 7o percent of the remaining resource the research firm has estimated in the shale plays, and larger firms tend to own acreage on the fringes of the plays.

    http://fuelfix.com/blog/2015/05/18/analysts-drilling-in-the-eagle-ford-shale-will-get-a-lot-cheaper-by-mid-2016/#2971101=0
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    Tokyo Gas targets more U.S. shale gas investments -exec

    Tokyo Gas Co Ltd, Japan's biggest gas utility, is looking to invest in more U.S. shale gas production as a hedge to liquefied natural gas (LNG) imports from the United States to start next year, a company executive said on Monday.

    The company has inked contracts to buy 1.9 million tonnes per year (tpy) of LNG from U.S. producers and aims to invest in an equal volume in the upstream sector, said Shigeru Muraki, a board member and executive adviser at Tokyo Gas.

    "We try to expand our investment in the shale gas production in the United States. That can be the natural hedge for LNG," he told reporters on the sidelines of an industry conference.

    The company has contracted to buy 1.4 million tpy of U.S. LNG from the Cove Point project, which will start shipments in the second or third quarter next year, and 0.5 million tpy from Mitsui & Co's Cameron project, he said.

    In 2013, Tokyo Gas bought a stake in a shale gas field in Texas' Barnett Basin from Quicksilver Resources that would give it 0.35 million to 0.5 million tpy of gas output.

    Companies seeking to attract investments in U.S. shale projects are offering terms that could work even after oil prices fell, he said, citing a project proposed last month in Houston that would yield fixed revenue of $11 per million British thermal units (mmBtu) for deliveries by ship to Asia.

    Muraki said U.S. gas delivered to Asian destinations is competitive to oil-indexed supplies when oil is at $70 a barrel, but loses its cost competitiveness at $50 a barrel.

    LNG is expected to remain in oversupply through 2020, Muraki said, citing slower growth in China and a possible demand drop of 20 million tpy in Japan once it restarts 24 nuclear reactors.

    http://www.reuters.com/article/2015/05/18/asia-oil-tokyogas-idUSL3N0Y92WI20150518
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    China looks to secure 1st U.S. LNG supplies from Cheniere by 2020

    Chinese buyers are eyeing long-term supplies of liquefied natural gas (LNG) from U.S. company Cheniere Energy, an official from the firm said on Tuesday, in what would be the first LNG deal between the world's two biggest energy users.

    Cheniere Energy is set to become the first U.S. LNG exporter, with shipments to start by the end of this year. However, no Chinese companies have signed up for any U.S. LNG cargoes so far.

    That could change soon: "There's a lot of interest from Chinese buyers for long-term LNG volume, especially for 2020 onwards," said Nicolas Zanen, Vice President for Asia at Cheniere Marketing Pte Ltd, a wholly owned subsidiary of Cheniere Energy Inc.

    Zanen said that some Chinese buyers had already begun moving to secure supplies, although without providing any details.

    "The Chinese market is a very interesting market for us. I wouldn't be surprised if in the future we are delivering LNG to China. And not necessarily small buyers, big buyers as well," said Zanen on the sidelines of the Asia Oil and Gas Conference in Kuala Lumpur, declining to give more information.

    Zanen made the comments following recent controversy in the United States about American companies contracting to ship LNG supplies to China.

    The United States, which is seeing demand for new exports despite an emerging glut, is set to become the world's third biggest exporter of LNG by 2020, behind Qatar and Australia.

    Australia's LNG export capacity is set to more than triple to 86 million tonnes a year before 2020, compared to Qatar's annual 77 million tonnes and U.S. expectations of selling 61.5 million tonnes per year by 2020.

    http://www.reuters.com/article/2015/05/19/asia-oil-cheniere-idUSL3N0YA2GQ20150519
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    Agriculture

    PhosAgro Q1 production volumes increase by 8.3%

    Firming prices and demand-positive forex shifts appear to be pushing PhosAgro in the right direction, despite historically low dollar-denominated crop prices holding down demand for fertilisers. The company continues to focus on operational improvement to increase production and sales volumes.

    Moscow-based fertiliser producer PhosAgro OAO has announced its production results for Q1 2015, detailing 8.3% and 2.8% respective year-on-year (y-o-y) upticks in production and sales volumes.

    Phosphate fertilisers led the jump in production – PhosAgro produced 1.34m tonnes phosphate-based fertilisers in the January to March period of 2015, up 9.2%

    http://www.indmin.com/Article/3454428/PhosAgro-Q1-production-volumes-increase-by-83.html
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    Precious Metals

    Norilsk aims to complete palladium deal with Russia c.bank by year-end

    Norilsk Nickel and other investors aim to complete their purchase of palladium from Russia's central bank stockpile by the end of this year, a deputy chief executive of the producer said on Monday.

    The company also hopes to deliver nickel to the Shanghai Futures Exchange, and will explore potential options for non-core assets, including part of its polar division and upstream gas assets.

    Norilsk, the world's largest palladium producer, proposed the scheme to the central bank last year as part of its efforts to guarantee stock availability for long-term customers and to increase market transparency, adding that the pool of potential investors and financing could bring in up to $2 billion.

    "In terms of the existing stockpile, we are working very actively with the Russian central bank because our understanding is that they are a sizeable holder of palladium resources," Pavel Fedorov told Reuters in an interview in London.

    "But (that is) something that is quite digestible by the market, should that be sold," he added.

    Fedorov said capital for the purchase would be raised via cash as opposed to a platinum swap.

    He added that there was agreement from the political level, and that the approval process was being worked through with the central bank.

    "Once that is in place, we will detail the offer mechanisms," he said.

    Fedorov said Norilsk had a number of offers for financing, including from large financial institutions, and would put in up to $200 million of its own equity.

    The volume of palladium held by the central bank is a state secret but the institution holds one of the world's biggest gold and foreign exchange reserves.

    Norilsk, also one of the world's leading Nickel producers, is hoping to agree a deal with the Shanghai Futures Exchange to provide nickel for delivery against its futures contracts in the next few months, Fedorov said.

    "Our long-term focus is to help sponsor the development of the Chinese commodity market and ShFE is our key partner," he said.

    http://www.reuters.com/article/2015/05/18/russia-norilsk-palladium-idUSL5N0Y91V520150518
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    Osisko Gold Royalties sees Q1 net earnings greatly improve y/y

    TSX-listed Osisko Gold Royalties has declared first-quarter net earnings from continuing operations of $10.2-million, or $0.15 a share, for the first quarter of 2015. This was a marked improvement on the $3.5-million net loss, or $0.08 a share loss, in the corresponding period of 2014. The company achieved revenues for the period under review of $10.6-million. This was owing to the sale of gold and silver from the 5% net smelter royalty (NSR) received from the Canadian Malartic mine, in Quebec, compared with nil in the first quarter of 2014. 

    The mine produced 135 786 oz of gold during the period under review, as a result of higher than expected recovery rates, which were partially offset by lower than expected grades. “We congratulate the mine's new owners Yamana Gold and Agnico Eagle Mines as they complete the optimisation of the mine and increase Canadian Malartic's production profile," said Osisko chairperson and CEO Sean Roosen in a statement on Friday. 

    The company had not started recording revenues from its Éléonore royalty, while Virginia had received advance royalty payments of US$5-million from 2009 to 2013. Osisko advised that revenues would be recognised once the advance payment received was reduced to nil through royalty payment calculations, expected towards the end of the third quarter. 

    The company reported record quarterly gold ounces earned and sold for the quarter of 6 985 oz, and record quarterly silver ounces earned and sold of 7 825 oz. Adjusted earnings of $8.2-million, or $0.12 a share, were also noted, as were net cash flows provided by operating activities of $5.6-million. Further, cash and cash equivalents for the first quarter increased by $173.2-million to $348.4-million and working capital and marketable securities of $438.9-million were reported. 

    In the eleven months as a new company, Osisko had strengthened the balance sheet by adding over $242-million in cash raised through equity issues, acquired the Éléonore royalty through a friendly transaction with Virginia Mines, and had acquired a stake in Labrador Iron Ore Royalty Corporation (LIORC). Since the beginning of 2015, Osisko had acquired, as of May 14, a 9.75% interest, including a 7.2% interest during the first quarter, in LIORC. LIORC was entirely focused on the operations of Iron Ore Company of Canada (IOC) through a 7% gross royalty on the IOC iron-ore operations, a $0.10/t marketing fee on all products sold by IOC and a 15% direct interest in IOC. IOC was currently a major Canadian iron-ore producer held by Rio Tinto (59%), Mitsubishi Corporation (26%) and LIORC. The mine, in the Newfoundland-Labrador area in Canada, had been in operation for more than 53 years and had reserves to continue operations for 29 years at the current production rate.

    “While our focus remains on precious metals, we will continue to seek out opportunities for the company where we believe Osisko will benefit from domestic, long-life assets with strong cash flow,” Roosen added.

    http://www.miningweekly.com/article/osisko-sees-q1-net-earnings-greatly-improve-yy-2015-05-18
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    Base Metals

    China's copper demand to warm up in H2 on Beijing's measures

    Consumption of refined copper in China in the second half of 2015 is likely to rise as Beijing's moves to increase liquidity and cut costs to local firms in an effort to stimulate the economy.

    China earlier this month cut interest rates for the third time in six months and is expected to cut rates again as part of Beijing's measures to support the slow economy.

    The recent measures include more IPOs in the equity market and requiring banks to keep funding state projects, increasing the liquidity to local firms.

    Copper is a major indicator for industrial activities, used in power cables to home appliance. Growing demand in the world's top consumer, China could support global prices.

     Chinese copper consumption may rise more than 5 percent from a year ago in the second half, compared to up to 4 percent expected for the first half, said Yang Changhua, senior analyst at state-backed research firm Antaike and executives at a state-owned metal producer and a large maker of copper tubes and rods.

     "Demand in the second half would be better than now," the executive at copper producer said.

    He added that Beijing's anti-corruption checks had delayed orders from state-owned power firms and the orders should rise strongly in the second half.

    Yang at Antaike said demand from home appliance makers had been supporting the consumption, while Beijing's measures were easing worries over the slow economy, prompting investment.

    "We think the worst is over. We may even see a small (domestic) shortage in copper within 2-3 months," said the executive at copper tubes and rods maker.

    He added that China's property market was warming up, boosting demand for home appliances in the third quarter.

    While many expect a rise in copper demand in the second half, some see the growth smaller with Beijing's efforts to stimulate the economy taking a few months.

    http://en.chinamining.com.cn/News/2015-05-19/1432016019d72263.html
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    Rio Tinto, Mongolia reach deal to build huge Oyu Tolgoi copper mine

    Mongolia and Rio Tinto have reached an agreement paving the way for work to resume on a delayed $5 billion underground copper mine that is expected to underpin the growth prospects of both the country and the global miner.

    The Oyu Tolgoi project, which started producing from a $6.5 billion open pit mine two years ago, is the biggest single foreign investment in Mongolia and has long been seen as a bellwether of the country's openness to foreign investment.

    However, disputes between Rio Tinto and Mongolia over taxes and the costs of building the first stage stopped work on the second phase underground mine, which Rio says will unlock 80 percent of the copper wealth at the project.

    The row has also deterred investment in Mongolia over the past two years and worsened the hit to its economy from sliding commodity prices, leading the country's new prime minister to push hard to resolve the issues.

    "Oyu Tolgoi is a world-class copper-gold asset and its further development is of great economic significance for Mongolia," Prime minister Chimediin Saikhanbileg said in a statement.

    "There is no doubt that moving forward with the Oyu Tolgoi project will improve the investment climate in Mongolia."

    Rio Tinto's Turquoise Hill Resources arm owns 66 percent of Oyu Tolgoi, while the Mongolian government owns the remainder. Rio is operator of the project, located in the Gobi desert near Mongolia's border with China.

    "This is by far the best undeveloped growth project that any of the majors has, and it's in the best commodity - copper," said Deutsche Bank analyst Paul Young.

    The first phase open pit mine has been producing since 2013.

    Before development of the much larger underground mine can begin, Rio Tinto said the project will need to finalise financing, conduct a feasibility study and secure all necessary permits.

    "Our joint announcement today reflects tremendous leadership by all parties and paves the way for work to resume on the underground development, which is expected to deliver significant value to shareholders," Rio Tinto Copper and Coal Chief Executive Jean-Sébastien Jacques said in a statement.

    Rio Tinto gave no details on how soon it expects to complete a final feasibility study on the underground project, secure financing and start digging the mine and did not say when it aimed to start producing copper from underground.

    Analysts estimate the mine will only reach commercial production in 2019 or 2020 at the earliest.

    http://www.reuters.com/article/2015/05/19/rio-tinto-plc-oyu-tolgoi-idUSL3N0Y95MT201505

    The agreements address key outstanding matters including the following specific items: tax matters, the 2% net smelter royalty, sales royalty calculation and management services payments. The agreements also address the sourcing of power for Oyu Tolgoi from within Mongolia. The overall value impact for the Company in connection with the agreements is less than 2% of the value of the reserve case of $7.4 billion.

    In 2003, Turquoise Hill acquired a 2% net smelter royalty from BHP Billiton. The enforceability of the royalty has been challenged by the Assistant General Prosecutor of Mongolia under Mongolian law. The Company has conceded that it has no entitlement to receive payment.

    In June 2014, Oyu Tolgoi LLC received a Tax Act (Tax Assessment) from the Mongolian Tax Authority as a result of a general tax audit for the period 2010 through 2012. Oyu Tolgoi appealed the assessment and in September 2014 received a response reducing the amount of tax, interest and penalties claimed to be payable, from approximately $127 million to approximately $30 million. In a separate agreement with the Government of Mongolia, Oyu Tolgoi has agreed, without accepting liability and without creating a precedent to pay the amount of the determination by way of settlement to resolve the tax matter.

    The parties have agreed that Oyu Tolgoi's 5% sales royalty paid to the Government of Mongolia will be calculated on gross revenues by not allowing deductions for the costs of processing, freight differentials, penalties or payables. Oyu Tolgoi will recalculate royalties payable accordingly since the commencement of sales and submit any additional amount payable to the Government within 30 days.

    Notwithstanding the terms of the ARSHA, the parties have agreed that in calculating the Management Services Payment (MSP), the rate applied to capital costs of the underground development will be 3% instead of 6%, as provided by the ARSHA. The MSP rate on operating cost and capital related to current operations remains at 6%.

    Within 30 days of execution of the Mine Plan, Oyu Tolgoi LLC and Turquoise Hill have agreed to prepare and submit working assumptions for a possible credit enhancement mechanism to support Oyu Tolgoi LLC's obligations under a potential power purchase arrangement from the Tavan Tolgoi power plant project.

    Today's announcement is a significant first step towards restarting underground development. The Mine Plan is available on SEDAR and the Company's website.



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    Peru strike spares output at top copper and gold mines

    Peru's production of copper and gold was largely unaffected by a national strike on Monday as unionized workers declined to down tools for fear of losing their jobs and companies used replacements.

    Walk-outs at some mines, however, might have curbed silver, tin and iron output, according to unions in Peru, the world's third biggest copper, silver, zinc and tin producer and the seventh-ranked gold producer.

    The strike, organized by the National Mining Federation that represents about 20,000 workers, aimed to press the government to tighten restrictions on firings and the use of contract workers.

    But plans for an ambitious stoppage across Peru were upended after the government declared the strike unfounded and companies threatened to dismiss strikers or ordered contract workers to fill in, said federation head Ricardo Juarez.

    Copper output from Peru's four top producers, Antamina, Southern Copper, Cerro Verde and Antapaccay, was normal, union bosses at the mines said. The mines together produced about a million tonnes of the red metal last year, or more than three quarters of Peru's total copper output.

    But silver output from Uchucchacua was partially hurt by a strike that began earlier in May, said Carlos Galvez, the chief financial officer of operator Buenaventura . Galvez declined to specify by how much. The head of the Uchucchacua union said 50 percent of the mine's total workforce remained active.

    Operations were normal at other leading silver producers, including Volcan and Antamina, said union leaders there.

    Tin output from Minsur likely slipped as unionized workers went on strike, said union boss Marco Sarca. Minsur did not respond to requests for comment. The mine produced 23,100 tonnes of tin last year.

    The union and management at Peru's second biggest zinc and first biggest lead miner, Milpo, did not answer requests for comment on Monday. Antamina and Volcan are Peru's first and third biggest zinc producers, respectively.

    http://www.reuters.com/article/2015/05/18/peru-mining-strike-idUSL1N0Y90JD20150518
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    Steel, Iron Ore and Coal

    German ministry softens CO2 emission demands for power plants

    Germany plans to force coal-fired power plant operators to reduce their CO2 emissions by 2020 by less than previously planned, according to an economy ministry document seen by Reuters on Monday, bowing to opposition from within the industry.

    Thousands of coal workers marched in Berlin last month to protest against plans to slap a levy on the oldest and most polluting power plants, which unions say could put 100,000 jobs at risk.

    The levy is aimed at forcing coal operators to slash their emissions and stop Germany from falling short of its target to cut greenhouse gases by 40 percent by 2020 compared to 1990 levels.

    But RWE, the country's largest power producer, warned the measure would lead to the immediate closure of its lignite-fired power plants.

    In an attempt to defuse the situation, the economy ministry now plans to require coal plant operators to cut their emissions by 16 million tonnes by 2020, compared with a previous target of at least 22 million tonnes, according to the document.

    Under the original proposal power plants older than 20 years were required to pay a penalty on CO2 emitted above a limit of seven million tonnes per gigawatt of installed capacity, with the oldest power plants receiving even lower exemptions.

    The new proposal has raised the amount of CO2 older power stations are able to emit before the penalties kick in.

    "Increasing the amount that is exempt by almost a third will significantly increase the profitability of older power stations," the document said.

    Generators E.ON and Vattenfall declined to comment. RWE was not immediately available for comment.

    The government now plans to achieve the remaining six million tonnes of CO2 emission cuts for the energy sector by promoting the use of more environmentally-friendly combined heat and power plants, government sources said.

    However the proposal is yet to be approved by the Chancellor's office and other ministries, they said.

    http://www.reuters.com/article/2015/05/18/germany-coal-idUSL5N0Y91TH20150518
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    Shanxi Jan-Apr coal outbound sales down 33 pct on weak demand

    Outbound coal sales from northern China’s Shanxi province slumped 33.33% on year to 128.45 million tonnes in the first four months, data showed, mainly due to weak downstream demand.

    In April, Shanxi’s outbound coal sales rose 3.66% on month but fell 24.53% on year to 32.44 million tonnes. It was the 7th consecutive year-on-year plummet.
     
    By Industry
    Over January-April, Shanxi sold 84.29 million tonnes of coal to power industry in other provinces, down 33.66% on year, as coal-fired power output declined and unit coal consumption gradually decreased.
     
    For metallurgical industry, Shanxi sold 15.53 million tonnes of coal outside in the first four months, down 27.04% on year, as coke and steel producers kept pressing down coal purchase prices.

    Shanxi coal was mainly sold to Hebei, Jiangsu, Shandong, Beijing and Zhejiang provinces, which combined bought 22.92 million tonnes of coal in April, accounting for 70.65% of Shanxi’s total sales and down 14.54% on year.

    Shanxi’s coal sales to Hebei fell 0.79% on year to 8.62 million tonnes in April, while total sales over January-April declined 40.76% on year to 30.09 million tonnes, most of which was used in power and metallurgy industries.

    http://en.sxcoal.com/0/118970/DataShow.html
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    BHP chief comes out swinging against Australian iron ore inquiry

    A proposed Australian Senate inquiry into the economic impact of a slump in the price of iron ore could damage the country's economy and drive Asian customers to shift investment to Brazil, BHP Billiton CEO Andrew Mackenzie said on Tuesday.

    Prime Minister Tony Abbott last week threw his support behind a proposal by Senator Nick Xenophon for an inquiry into the impact of the price collapse on government revenue and to consider whether action is needed to ensure healthy competition in the sector.

    In a heated radio interview Mackenzie hit back, blasting an inquiry as a waste of government resources and adding that he was "perplexed" by the conservative government's decision to back it.

    Mackenzie denied that top producers Rio Tinto and BHP had colluded to depress prices and drive smaller producers out of the market, calling the inquiry "an amazing gift to our major competitor, Brazil."

    "Not all inquiries are bad because they can draw people on to the same page, create transparency and trust, but this is a ridiculous waste of taxpayers' money," Mackenzie said.

    "This is red tape and a burden on business, plain and simple."

    The iron ore price slump has caused a A$20 billion ($16 billion) loss in government revenue in the past year and the fiscal 2016 budget released last week hinges on iron ore fetching at least $48 a tonne over the next year.

    Major miners BHP, Rio Tinto, Brazil's Vale and Fortescue have ramped up output as demand growth has cooled in China, which has driven down prices and left smaller, high-cost producers struggling to survive.

    The iron ore price hit $46.70 a tonne in April, its lowest in a decade, although it picked up to around $61 last week.

    Just hours after Mackenzie's interview Abbott appeared to backtrack at least somewhat from his earlier support of last week, telling reporters that he had not made any decision to have an inquiry.

    "The last thing we would want is a one-sided inquiry which degenerates into a witch hunt against some of our best companies," he said.

    http://www.reuters.com/article/2015/05/19/australia-iron-idUSL3N0YA1D220150519
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    Brazil's steelmaker Usiminas to cut output due to lower demand

    Brazil's Usinas Siderurgicas de Minas Gerais S.A. will turn off two of its furnaces to reduce pig iron production by 120,000 tonnes per month and adapt the operation to lower demand in the steel market, the company said on Monday.

    Usiminas, as the company is known, said it will turn off the number 1 furnace at its Cubatao plant in Sao Paulo state and the number 1 furnace at Ipatinga plant, in the state of Minas Gerais, both located in Brazil's center-south region.

    "Such adjustment aims to adapt production to the current rhythm of demand in the steel market," the company said in a filling with the local market regulator in Brazil.

    Usiminas produces some 6 million tonnes of raw steel a year and sells around 80 percent of that in the local market.

    The company, which also produces iron ore, posted a net loss of 235 million reais.

    http://www.reuters.com/article/2015/05/19/brazil-steel-usiminas-idUSL1N0YA00920150519
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    China steel price slumps to 12-year low

    Chinese prices of steel used mostly to build homes and offices fell to a 12-year low as peak construction season begins to ebb in the world’s biggest consumer.

    The average spot price of steel reinforcement bar, or rebar, dropped for a 10th day to 2,458 yuan ($396) a metric ton, the lowest level since January 2003, according to data from Beijing Antaike Information Development Co.

    Spot rebar is 11 percent lower this year after four straight annual drops as a prolonged slump in China’s property sector has hurt steel demand. Prices have fallen after reaching a two-month high in March ahead of the usual peak-demand period from April to June. New home prices slid in 69 of the 70 cities tracked by the government in April from a year earlier, National Bureau of Statistics said on Monday.

    “For downstream industries like construction, we’re already at the peak of the season or already passed it,” said Ginger Ding, an analyst at Metal Bulletin Research in Shanghai.

    China’s steel demand slumped 6 percent in the first quarter and may have peaked over the long term, the China Iron and Steel Association said last month.

    Crude-steel production in April slid 0.7 percent from a year earlier to 68.91 million tons, while investment in fixed assets expand at the weakest in almost 15 years, the statistics bureau said last week. Infrastructure and construction together account for about two thirds of China’s steel demand, according to HSBC Holdings Plc.

    The contract on the Shanghai Futures Exchange fell on April 10 to the lowest since trading began in 2009. Futures retreated 1 percent to close at 2,349 yuan a ton. Iron ore with 62 percent content at Qingdao declined 1.6 percent to $61.31 a dry ton on Friday, according to Metal Bulletin Ltd.

    http://www.mineweb.com/news/iron-and-steel/china-steel-price-slumps-to-12-year-low/
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