Mark Latham Commodity Equity Intelligence Service

Friday 31st July 2015
Background Stories on www.commodityintelligence.com

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    Macro

    Sumitomo Jumps Most in Two Years After Quarterly Profit Surges

    Sumitomo Corp., the Japanese trading house that posted its first annual loss in 18 years on asset writedowns, said profit grew 57 percent in the quarter ended June. The shares jumped.

    Net income rose to 82 billion yen ($661 million), Sumitomo said in a statement to the Tokyo Stock Exchange. That beat the 53 billion-yen average forecast from three analysts surveyed by Bloomberg. Sumitomo’s free cash flow jumped to $106.9 million from a negative $107 million a year earlier.

    “Our ‘earnings pillars’ including media business and leasing business showed robust performance, despite a decrease in earnings of tubular products business in North America due to a drop in oil prices,” Sumitomo said. The trader expects the global economy to “continue its slow but steady growth.”

    A bet on U.S. shale gas led Sumitomo’s writedowns last year, which included impairments on Australian coal and Brazilian iron ore. The trader, whose assets include Japan’s biggest shopping channel and a zinc mine in Bolivia, said it expects a rebound this fiscal year, forecasting net income of 230 billion yen.

    Total resource-asset writedowns by Japan’s five major traders, which include Mitsui & Co. and Itochu Corp., exceeded $5.8 billion last year, a figure equal to two-thirds of the companies’ annual profits. Investments in oil, gas and mining have turned problematic as China’s economy slowed, softening raw material prices over the past two years.

    Sumitomo’s recovery this year is being led by businesses outside raw materials, where demand is weaker than initially anticipated, the company said. Transport infrastructure, media and lifestyle goods and services, as well as reneweable energy projects will support this year’s profit, it said.

    Sumitomo shares jumped as much as 7.6 percent to 1,432.50 yen, the most since May 21, 2013, and ended at 1,418 yen. Revenue declined 3.2 percent to 2 trillion yen in the first quarter, Sumitomo said.

    http://www.bloomberg.com/news/articles/2015-07-30/sumitomo-jumps-most-in-two-years-after-quarterly-profit-surges

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    Surrender Monkeys?

    #1

    The economic expansion—already the worst on record since World War II—is weaker than previously thought, according to newly revised data.

    From 2012 through 2014, the economy grew at an all-too-familiar rate of 2% annually, according to three years of revised figures the Commerce Department released Thursday. That’s a 0.3 percentage point downgrade from prior estimates. (USA)



    #2 

    The Conference Board of Canada has downgraded its forecast for the Canadian economy.

    On Wednesday, the board predicted the economy will grow by 1.6 per cent this year, Canada’s worst showing since 2009. In May, it forecast growth of 1.9 per cent. The Canadian economy grew by 2.4 per cent last year.

    The board said the contraction of the Canadian economy in the first quarter of the year, lower oil prices, a near-record trade deficit and uncertainty in global markets have dimmed the growth outlook for Canada.

    “There has been much speculation on whether the Canadian economy has dipped into recession,” Matthew Stewart, associate director, national forecast, said in a release. “We expect the numbers to show economic growth tracking close to zero in the second quarter.

    “But even if Canada  slips into mild recession, we expect it to be small and short-lived, with the economy picking up through the rest of the year.”

    Todd Hirsch, chief economist with ATB Financial, said the economic picture has gotten progressively worse over the year both for Canada and Alberta.

    “Part of it is energy prices. That’s the Alberta story. These energy prices are in our sort of lower case scenario that we thought we would see by the middle of the year,” he said. “Those haven’t recovered yet. For Canada, it’s really an export story which is a big puzzle.

    #3

    NEW YORK (Standard & Poor’s) July 27, 2015–Standard & Poor’s Ratings Services  downgraded 244 issuers worth $1.2 trillion in rated debt and upgraded 125  issuers with $621 billion in rated debt in the second quarter of 2015.

    Downgrades eclipsed upgrades around the world as geopolitical and economic  risks rose, including Greece’s potential exit from the eurozone (the  “Grexit”), a slowdown in economic growth in China, and the credit effect from  interest rate normalization on part of the Federal Reserve System in the U.S., according to Standard & Poor’s “Global Corporate And Sovereign Rating Actions And Outlook–Downgrades Surpass Upgrades Around The World As Geopolitical And Economic Risks Increase,” published today on RatingsDirect.

    “Downgrades surpassed upgrades across the globe in the second quarter of 2015,  with most regions seeing two downgrades for every one upgrade—slightly above historical averages,” said Diane Vazza, head of Standard & Poor’s Global Fixed Income Research Group.

    #4

    Taiwan Q2 GDP growth unexpectedly slumps to 3-yr low as demand from China cools


    * Q2 GDP growth below forecast, lowest since early 2012

    * Collapse in exports hits economy

    * Government to downgrade full year GDP forecast

    * Central bank can't do much -analyst (Adds further analyst comments, context on monetary policy)







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    Chinese provinces power load hit new high

    China has witnessed a surge in power load in many provinces since entering the dog days in mid-July, driven by increased residential and irrigation demand amid high temperature, sources reported.

    On July 27, power grid in eastern Shandong province posted a record high load of 62.55 GW, up 1.4% from the peak level last year, said the Shandong branch of the State Grid Corp.

    The company predicted a power load peak of 69.5 GW in early or mid-August in Shandong, and the province may experience a maximum shortfall of 7 GW.

    Northwestern China’s Shaanxi province saw its power load hit record high at 17.7 GW on July 27, and is predicted to see its power load peak at 18.92 GW in 2015, with daily power consumption at 400 GWh the most.

    Luckily, the province would have 1.11 GW of surplus power even its power load peaks at 19.5 GW during extreme weather this year, said the Shaanxi branch of the State Grid Corp.

    Meanwhile, power load on the grid of southeastern Jiangsu also hit the highest of the year at 80.26 GW on July 29. Shanghai and Tianjin saw their power load reach the highest level of the year at 28.26 GW and 12.7 GW.

    Northwestern Xinjiang reported a record high of 25.73 GW in power load on July 23, up 11.7% from the year prior.

    http://en.sxcoal.com/0/128877/DataShow.html
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    Oil and Gas

    Saudi Arabia Reportedly To Cut Crude Production

    Saudi Arabia reportedly will cut crude production at the end of the summer after keeping up record production for most of the year.The world's top crude exporter could start the cuts as early as September, sources told the Wall Street Journal. The reductions could amount to 200,000 to 300,000 barrels a day.

    Saudi Arabia produced 10.56 million barrels a day in June.

    The cuts will likely come from domestic supply and won't affect exports. Saudi Arabia burns crude to create electricity, with demand especially high during the hot summer months.

     Saudi Arabia has led an effort to keep OPEC production up and crude prices low as it seeks to protect market share from U.S. shale producers.

    Read More At Investor's Business Daily: http://news.investors.com/business/073015-764192-saudi-arabia-reportedly-to-cut-crude-production.htm#ixzz3hNxYOlJg


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    Shell-BG: hmm, its not about price, its about synergies...

     

    Progressing with the recommended combination with BG: ‘grow to simplify’

    In April 2015, Shell announced its recommended combination with BG.

    - Enhanced free cash flow - this enhances Shell’s dividend potential in any expected oil price environment.

    - An IOC LNG and deep water innovation leader – accelerating and de-risking our current strategy.

    - Springboard to change Shell – asset sales and refocused spending would result in a simpler, more focused company, concentrated around three pillars – upstream and downstream engines, deep water and LNG.

    • We remain on track for completion in early 2016, as planned. We are making good progress with the regulatory approvals process, including approvals received from Brazil CADE, South Korea FTC and US FTC. Pre-conditional filings have been submitted, covering Australia, China and the EU, and we are progressing well in other jurisdictions.
    • A joint team has been established with BG to plan for a world class integration of the two companies once the transaction has closed, and to retain the top talent from both companies.
    • Synergies from the transaction should be at least $2.5 billion per year from 2018, subject to the bases of belief, principal assumptions and sources of information set out in Appendix 5 to the announcement of the recommended combination.
    • By combining Shell’s current complementary positions with BG’s LNG and deep water assets, Shell can add significant value – beyond the announced synergies - by applying its technology and know-how at greater scale, at a lower cost, concentrating on areas of existing competitive advantage, and through better optimization of the combined portfolio.
    • Pro-forma combined capital investment for Shell and BG in 2016 is expected to be around $35 billion in the current environment.
    • Shell expects $30 billion of asset sales between 2016 and 2018, as the combined portfolios are restructured.
    • The free cash flow expansion expected from BG’s Australia and Brazil growth is a natural fit with Shell’s 2017+ free cash flow growth potential.
    • This in turn enhances Shell’s continued intention to pay a dividend of $1.88/share for 2015 and at least $1.88/share for 2016, and reflects confidence in future financial capacity.
    • Share buy-back of at least $25 billion expected for 2017-2020, subject to the assumptions set out in the announcement of the recommended combination, supported by the re-shaping of the portfolio we are planning, and enhanced free cash flow from the combination with BG.
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    Conoco has quarterly loss, lowers capex

    ConocoPhillips, a Houston-based, independent oil and gas company, Thursday reported a second-quarter 2015 net loss of $179 million, compared with second-quarter 2014 earnings of $2.1 billion.

    Excluding special items, second-quarter 2015 adjusted earnings were $81 million, or $0.07 per share, compared with second-quarter 2014 adjusted earnings of $2.0 billion, or $1.61 per share. Special items for the current quarter primarily related to a deferred tax charge from a change in Canada’s tax law and non-cash impairments.

    Production from continuing operations, excluding Libya, for the second quarter of 2015 was 1,595 MBOED, an increase of 39 MBOED compared with the same period a year ago. The net increase reflects 69 MBOED, or 4 percent growth, after adjusting for 30 MBOED from dispositions and downtime. Growth was primarily due to new production from major projects and development programs, partially offset by normal field decline and downtime.

    Adjusted earnings were lower compared with second-quarter 2014 primarily due to lower realized prices, partially offset by higher licensing revenues. The company’s total realized price was $39.09 per barrel of oil equivalent (BOE), compared with $70.17 per BOE in the second quarter of 2014, reflecting lower average realized prices across all commodities.

    Operating costs for the quarter were $2.16 billion compared with $2.43 billion in the second quarter of 2014. Adjusted for pension settlement and restructuring costs of $69 million pre-tax, operating costs were improved 14 percent year over year.

    “We are lowering our operating cost and capital expenditures guidance, while maintaining our operational targets.”

    For the quarter, cash provided by continuing operating activities was $2.0 billion. Excluding a $0.3 billion change in operating working capital, ConocoPhillips generated $2.3 billion in cash from operations. In addition, the company funded $2.4 billion in capital expenditures and investments, paid dividends of $0.9 billion, and increased debt by $2.5 billion.

    Ryan Lance, ConocoPhillips chairman and chief executive officer, said: “We continue to deliver on our operational milestones while positioning the company for a period of lower, more volatile prices.”

    “We exceeded our production target, made progress on our major project startups and safely executed our planned turnarounds in the quarter. We are lowering our operating cost and capital expenditures guidance, while maintaining our operational targets. To further increase our capital flexibility, we are continuing to shift the portfolio to investments with shorter cycle times, including reductions to deepwater spending.

    http://www.offshoreenergytoday.com/conocophillips-reports-loss-cuts-capex/

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    Gas awakening from US shale slumber as LNG shipments near

    Bloomberg reported that after years of languishing in a shale-induced coma, the US natural gas market is waking up.

    Seasonal price swings will intensify as the country begins shipping liquefied natural gas cargoes to Asia and Europe later this year, said Bank of America Corp, RBC Capital Markets LLC and Wood Mackenzie Ltd. While that’s good news for traders yearning for volatility, it could be bad news for consumers.

    Exports will help prices rebound from the slump caused by the US pumping record amounts from shale formations. Growing domestic winter demand is already causing spikes and trading volumes in futures markets have rebounded to the highest level in 3 years. Average retail gas prices also will rise with LNG exports, according to Bloomberg New Energy Finance.

    Mr Francisco Blanch, head of commodities research at Bank of America Corp in New York, said that “Connecting U.S. natural gas prices into the global market could result in wider spreads at home. Global LNG spot prices are notoriously seasonal.”

    The International Energy Agency said that Cheniere Energy Inc will start operating a liquefied natural gas terminal this year in Louisiana, the first new export site in 46 years. The US will be the 3rd largest supplier by 2020.

    Mr Blanch said that In a sign of what may be coming, futures for January 2017 are already trading at a 35.7 cent premium to October 2016 contracts, the biggest premium for this time of the year since 2012. That seasonal spread may widen to as much as a dollar as LNG exports expand.

    http://steelguru.com/gas-oil/gas-awakening-from-us-shale-slumber-as-lng-shipments-near/430834#tag
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    Cimarex and Concho


    Image titleBig important slide.
    Image title32% IRR at $50 Oil. Very Impressive.
    Image titleConcho says 70% IRR: same area, $60 assumption here. Note that Concho is shortening its laterals.

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    Marathon Petroleum plans additional $2 bln share buyback

    Marathon Petroleum Corp reported a weaker-than-expected quarterly profit, hurt by a decline in refining margins as the company's crude costs remained high.

    Marathon Petroleum, unlike other refiners, failed to benefit from a 50 percent drop in global crude prices in the past year.

    Shares of the company, which was spun off from Marathon Oil Corp, fell about 5 percent in premarket trading on Thursday.

    The company's gross refining margin fell to $14.84 per barrel in the second quarter from $16.02 a year earlier.

    In contrast, Valero Energy Corp reported a better-than-expected quarterly profit on Thursday as its refining margin rose to $13.71 per barrel from $9.84.

    Marathon Petroleum said it was hurt by "less favorable product price realizations compared to the spot market reference prices and less favorable crude oil acquisition costs."

    The company also announced another $2 billion share buyback program. Marathon Petroleum said it had bought back $408 million of shares in the second quarter under the $2 billion buyback plan it had announced in July last year.

    The company said this month it would acquire MarkWest Energy Partners LP for $15.6 billion to enter the natural gas processing business.

    Net income attributable to Marathon Petroleum fell to $826 million, or $1.51 per share, in the quarter ended June 30 from $855 million, or $1.48 per share, a year earlier.

    Analysts on average had expected a profit of $1.76 per share, according to Thomson Reuters I/B/E/S.

    Marathon Petroleum's total revenue and other income fell 23.6 percent to $20.58 billion.

    http://www.reuters.com/article/2015/07/30/marathon-pete-results-idUSL3N10A4SQ20150730
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    Occidental:boring quarter, but the story is well worth a read.

    Occidental Petroleum Corp.’s profits fell 85 percent in the second quarter as lower oil prices offset its surge in crude production from the Permian Basin in West Texas and elsewhere.

    Houston-based Occidental, the biggest oil producer in the Permian, collected $165 million, or 21 cents a share, in the second quarter, down from $1.1 billion, or $1.38 a share, in the April-June period last year. Revenues fell to $2.3 billion from $3.7 billion.

    Occidental’s crude production in the Permian continue to rise as oil prices fell and drilling activity declined across the U.S. shale plays in Texas and elsewhere. It put out 51 percent more oil and gas in the Permian compared to the same period last year, bringing output there to 109,000 barrels of oil equivalent a day.

    Overall, Occidental’s energy production increased 13 percent to 658,000 barrels a day.

    “We continue to focus on managing our business to be profitable in this current environment by improving margins and increasing production through improved well performance,” Occidental CEO Stephen Chazen said in a written statement.

    He said its operating costs are down, making it cheaper to pull a barrel out of the ground – $1.50 cheaper at $13 a barrel in operating costs.

    The company spent 25 percent less in the quarter than last year, but its higher production volumes and improved well performance in the Permian brought in about $400 million in additional operating income compared to the first quarter.

    It said the rise in Permian output was offset by declines in the Midcontinent region and elsewhere.

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    Valero Energy's quarterly profit doubles

    U.S. refiner Valero Energy Corp reported a better-than-expected quarterly profit as its refining margins rose due to a steep fall in crude oil prices.

    Gasoline crack spreads - the difference between crude oil and gasoline prices - have risen due to a 50 percent slump in crude prices since June 2014.

    Valero's refining margin rose to $13.71 per barrel in the second quarter from $9.84 per barrel a year earlier.

    The company's refining volumes rose 3 percent to an average of 2.8 million barrels per day (bpd), mainly due to lower maintenance activity.

    Valero said on Thursday that it was on track to start operations at two light crude processing units at the Corpus Christi and Houston refineries in the first quarter of 2016.

    Net income from continuing operations attributable to Valero's stockholders more than doubled to $1.35 billion, or $2.66 per share, in the quarter ended June 30 from $651 million, or $1.22 per share, a year earlier.

    Analysts on average had expected earnings of $2.42 per share, according to Thomson Reuters I/B/E/S.

    Operating revenue fell 28 percent to $25.12 billion.

    http://www.reuters.com/article/2015/07/30/valero-energy-results-idUSL3N10A4T320150730

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    LINN Energy: Q2 Results; To Recommend Suspension of Distribution

    LINN Energy, LLC and LinnCo, LLC announced today financial and operating results for the three months ended June 30, 2015, the intent to recommend suspension of LINN's distribution and LinnCo's dividend and the repurchase of approximately $599 million of senior notes at a 35 percent discount.

    "After careful consideration, management has decided to recommend to the Board of Directors that it suspend payment of LINN's distribution and LinnCo's dividend at the end of the third quarter 2015 and reserve approximately $450 million in cash from annualized distributions. The Board and management believe this suspension to be in the best long-term interest of all Company stakeholders," said Mark E. Ellis, Chairman, President and Chief Executive Officer.

    LINN reported the following second quarter 2015 results:

    Grew average daily production by 1.5 percent to approximately 1,219 MMcfe/d for the second quarter 2015, compared to 1,201 MMcfe/d for the first quarter 2015;
    Increased full-year 2015 production guidance by approximately four percent and decreased lease operating expenses guidance by six percent;
    Total revenues of approximately $322 million for the second quarter 2015, which includes losses on oil and natural gas derivatives of approximately $191 million;
    Improved lease operating expenses by 18 percent to approximately $141 million for the second quarter 2015, compared to $173 million for the first quarter 2015;
    Net loss of approximately $379 million, or $1.12 per unit, for the second quarter 2015, which includes non-cash losses related to changes in fair value of unsettled commodity derivatives of approximately $455 million, or $1.33 per unit;
    Excess of net cash provided by operating activities after distributions to unitholders and discretionary adjustments considered by the Board of Directors ("Board"), including total development of oil and natural gas properties (see Schedule 1) of approximately $71 million for the second quarter 2015; and
    Estimated net positive mark-to-market hedge book value of approximately $1.6 billion as of June 30, 2015, and $1.8 billion as of July 28, 2015.

    http://finance.yahoo.com/news/linn-energy-announces-second-quarter-103000123.html
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    1.8 Bcf/d of Marcellus/Utica Gas Heads West on REX Starting Aug 1

    Something really big is about to happen in the Marcellus/Utica region. Starting August 1, the Rockies Express Pipeline (REX), originally built from Colorado and Wyoming to Monroe County, OH to bring natural gas from west to east, will reverse the flow for a large and important section of the pipeline.

    On August 1, the section of REX from Monroe County, OH to Mexico, MO will reverse the flow and carry 1.8 billion cubic feet per day (Bcf/d) of Utica and Marcellus Shale gas to the Midwest, including to the greater Chicago area.

    This flow reversal has the power to a) increase prices northeast drillers receive for their natural gas, and b) lower the cost of natural gas for consumers (and industrial companies, and electric generating plants, etc.) in places like Chicago. It is a win/win scenario. It is important, and will have such a profound affect on natgas prices in the Midwest.

    http://marcellusdrilling.com/2015/07/1-8-bcfd-of-marcellusutica-gas-heads-west-on-rex-starting-aug-1/?utm_source=dlvr.it&utm_medium=twitter
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    Alternative Energy

    Japan plans to fund solar power parks in India

    Clean Techinca reported that the Japanese International Cooperation Agency has finalised plans to fund solar power parks in various states of India.

    According to the recent announcement, the Japanese International Cooperation Agency plans to invest USD 500 million into the Indian solar parks. Other multilateral institutions like the World Bank, KfW, the European Investment Bank, and the Asian Development Bank also plan to provide low-cost debt financing for large-scale and rooftops solar power projects.

    The Indian government plans to set up 25 of these solar parks across the various states. Out of total 100GW solar power installation by 2022, about 20 GW is expected to come from solar parks.

    Over the years, the Indian solar power market has attracted significant foreign investment. The Indian government expects a total investment of USD 160 billion in the country’s renewable energy sector over the next 5 years. A large portion of this is expected to come from international private project developers and development banks, although Indian banks have started raising funds through green bonds as well.

    The government may also consider launching tax-free green infrastructure bonds to attract domestic long-term investments. In February, Indian banks and foreign investors pledged to provide funding worth USD 57 billion for renewable energy capacity addition in the country.

    According to earlier reports, the Indian government was in talks with various international development banks to raise USD 3 billion for the National Solar Mission. The government has already signed agreements with the US Trade and Development Agency and the US Export-Import Bank for a total debt funding of USD 3 billion. Currently India’s solar installed capacity is approximately 4 GW, meaning that it has to add 96 GW over the next 7 years.

    http://steelguru.com/power/japan-plans-to-fund-solar-power-parks-in-india/430839#tag
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    Uranium

    Cameco sees 5-10 pct rise in 2015 revenue Q2 earnings down

    Canada's Cameco Corp , one of the world's largest uranium producers, raised its full-year revenue forecast, helped by increased capacity from its purchase of nuclear fuel broker Nukem Energy GmbH in 2013.

    The company said it expects 2015 revenue to rise 5-10 percent, up from its previous forecast of a rise of 5 percent.

    Cameco, which owns the world's largest uranium producing mine at McArthur River, Saskatchewan, reiterated its forecast for total uranium output of 25.3-26.3 million pounds in 2015.

    In the second quarter ended June 30, Cameco's uranium sales volume slipped to 7.3 million pounds from 7.4 million pounds a year earlier.

    The company's average realized uranium price rose only 1 percent to $46.57 per pound, and average unit cost of sales rose 14 percent to C$40.71 per pound.

    Cameco said the uranium market "continued to be flat" in the second quarter mainly due to an over-supplied market.

    On an adjusted basis, the company earned 12 Canadian cents per share during the quarter, missing the average analyst estimate of 20 Canadian cents per share.

    The company has been a beneficiary of India's recent move to limit the legal liability of U.S. suppliers in the event of a nuclear power plant catastrophe.

    Cameco secured a deal in April to supply 7.1 million pounds of uranium concentrate to India over the next five years.

    The company's net earnings attributable to its shareholders fell to C$88 million ($68 million), or 22 Canadian cents per share, in the quarter, from C$127 million, or 32 Canadian cents per share, a year earlier.

    Excluding special items, adjusted earnings in the period were C$46-million, or C$0.12 a share, down 41% year-on-year when compared with C$79-million, or C$0.20 a share, in the second quarter of 2014.

    Revenue rose 12.5 percent to C$565 million.

    http://www.reuters.com/article/2015/07/30/cameco-results-idUSL3N10A4ZX20150730

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    Agriculture

    Potash Corp profit drops 12 pct on weak nitrogen business

    Potash Corp of Saskatchewan Inc reported a 12 percent drop in quarterly profit, missing Wall Street estimate, hurt mainly by weak nitrogen earnings and lower phosphate sales.

    The company, the world's biggest fertilizer company by market capitalization, lowered the top end of its full-year profit forecast to $1.95 per share from $2.05. The low end of the guidance remained unchanged at $1.75.

    Analysts on average were expecting earnings of $1.81 per share, according to Thomson Reuters I/B/E/S.

    The company, the second-biggest potash producer by output after Russia's Uralkali OAO, also makes phosphate and nitrogen fertilizers.

    Potash Corp said nitrogen production, the company's second-biggest business, fell 2 percent to 1.6 million tonnes in the second quarter ended June 30, from a year earlier, while average realized nitrogen price fell 15 percent to $334 per tonne.

    Sales volumes at the company's third-biggest business, phosphate, fell 20 percent due to absence of production at the Suwannee River plant in Florida, Potash Corp said.

    The company's potash production remained flat at 2.5 million tonnes, while average realized potash price rose 4 percent to $273 per tonne.

    Potash gross margin jumped 5.6 percent to $417 million.

    The company changed its potash sales forecast for the year to 9.3-9.6 million tonnes from 9.2-9.7 million tonnes.

    The company's net income fell to $417 million, or 50 cents per share, in the second quarter, from $472 million, or 56 cents per share, a year earlier.

    The results came in below the average analyst estimate of 51 cents per share, according to Thomson Reuters I/B/E/S.

    Revenue fell 8.5 percent to $1.73 billion, below analysts' average estimate of $1.89 billion.

    http://www.reuters.com/article/2015/07/30/potashcorp-results-idUSL3N10A46K20150730
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    Precious Metals

    OceanaGold to buy Romarco for $660 million

    OceanaGold Corp. agreed to buy Romarco Minerals Inc. in a deal worth C$856 million ($660 million) to gain control of its bullion project in South Carolina.

    OceanaGold will pay 0.241 of its shares for every one in Romarco, the Melbourne-based company said in a statement on Thursday. That values each Romarco share at C$0.68, a 73 percent premium on the July 29 closing price, OceanaGold said.

    A decline in the gold price, which last week fell to the lowest since February 2010, is spurring deals after asset valuations tumbled. OceanaGold said in April it was seeking to buy more assets after agreeing to pay $101 million for Newmont Mining Corp.’s Waihi mine in New Zealand.

    After completion, OceanaGold shareholders will own about 51 percent and Romarco investors about 49 percent. Adding the Haile mine, which is targeting first production in 2017, will boost the combined company’s annual gold output to about 540,000 ounces.

    http://www.mineweb.com/news/gold/oceanagold-halts-trading-on-possible-combination/
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    Base Metals

    Antofagasta to buy Barrick Chile mine, eye more partnerships

    Barrick Gold Corp agreed on Thursday to sell 50 percent of its Zaldivar copper mine in Chile to copper miner Antofagasta Plc for $1 billion in cash, and both parties stressed that this was just the start of more cooperation.

    The emergence of family-owned, Chilean-based Antofagasta as the winner of the competitive bidding process for a mine once dubbed the "Andean ATM" is a surprise after market speculation centered on either a Chinese or global miner as the buyer.

    Both Barrick and Antofagasta said the deal was a launch pad for future co-operation, likely in Chile where Barrick owns large, unbuilt projects such as Pascua-Lama and Cerro Casale.

    "Antofagasta has an outstanding track record of building and operating mines in Chile, and we see this as the first step in an ongoing, collaborative partnership," Barrick Co-President Kelvin Dushnisky said in a statement.

    Barrick spokesman Andy Lloyd declined to comment on any specific projects for future partnerships.

    Antofagasta would become the operator of Zaldivar, an open pit mine, and would be overseen by a board consisting of three nominees from each company.

    Zaldivar is situated in northern Chile's main copper-producing area right next to BHP Plc and Rio Tinto-owned Escondida, the world's largest copper mine. Both BHP and Escondida itself had been tipped as potential buyers, as was China Molybdenum Luoyang Co.

    Zaldivar last year produced around 100,000 tonnes of copper at a net cash cost of $1.79 a pound and generated $244 million before tax. That cash cost is still well below spot copper prices, which were last at $2.38 a pound, near six-year lows.

    The purchase of Zaldivar "represents a rare opportunity to acquire a substantial interest in an established, low-cost mining operation that generates strong cash flow," Diego Hernandez, Antofagasta's chief executive, said in a statement.

    Barrick, the world's biggest gold producer, said that including the sale of Zaldivar, it has now announced debt-reduction related deals worth around $1.85 billion.

    The Toronto-based company has said it wants to reduce its debt by at least $3 billion this year. The latest deal brings it to nearly two-thirds of that total.

    Barrick also said it was "actively exploring" a number of other joint venture and sales opportunities. It would update the market on Aug. 5 when it releases its second-quarter results, the miner said.

    http://www.reuters.com/article/2015/07/30/barrick-gold-antofagasta-zaldivar-idUSL1N10A3S320150730
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    Zambia’s H1 copper output rises 2.1%

    Zambia’s copper production increased by 2.1 percent in the first half of 2015 versus the same period last year as mining companies in Africa’s No.2 producer of the metal ramped up output in May and June, the statistics office said on Thursday.

    “Increase in copper production in May and June of 2015 was the main reason for the increased output,” the Central Statistical Office (CSO) said in a statement.

    “Actual copper output increased from 324,654 tonnes over the period January to June 2014 to 331,511 tonnes in the same period of 2015,” it said.

    http://www.miningne.ws/2015/07/30/zambias-h1-copper-output-rises-2-1/
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    Zambia's CEC to reduce power supply to mines - industry official

    Zambia's Copperbelt Energy Corporation will cut power supply to mines it services by 30 percent from midnight, a senior industry official said on Thursday.

    Copperbelt Energy buys electricity from state power company Zesco Ltd and supplies it to companies including Vedanta Resources, Glencore and Vale.

    "Copperbelt Energy Corporation informed us this morning that it will cut power supply to the copper belt mines it supplies by 30 percent from midnight. Obviously this will have a negative impact on production," Zambia Chamber of Mines President Jackson Sikamo told Reuters.

    Zesco has already reduced supply to mines it directly deals with, by 24 percent.

    Power cuts in Africa's second-biggest copper producer have already affected production at mines run by Canada's First Quantum Minerals and Barrick Gold, the chamber said on Tuesday.

    http://www.reuters.com/article/2015/07/30/zambia-power-mines-idUSL5N10A6CW20150730
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    First Quantum mulls development delays to conserve cash

    Base-metals miner First Quantum Minerals will consider delaying some work at major development projects to preserve cash as it grapples with slumping commodity prices and power supply cuts at facilities in Zambia.

    The Canadian company, which recently raised C$1.4 billion ($1.01 billion) in an equity offering designed to cut debt and fund projects, said on Thursday that cash conservation and cost reductions remain its top priority.

    "In the event of a continued and protracted weakened price environment, we do have options available to us to protect the balance sheet further," Chairman Clive Newall said on a conference call with analysts.

    Vancouver-based First Quantum maintained its C$1.4 billion budget for 2015 capital expenditures, including C$600 million for its Cobre Panama copper mine in Panama, but said 2016 spending could drop dramatically.

    "Already, we have identified how we can defer a significant amount out of our next year's Cobre Panama budget without affecting its construction schedule," Newall said.

    The company said it is studying how it can save money by adjusting the timing of capital expenditures. At Cobre Panama, for example, it is buying less power equipment and deferring its use, while still keeping the project on track.

    "The capital expenditure for next year, we think, will be less than C$1 billion and probably more in the region of C$800-C$900 million," said Chief Executive Philip Pascall.

    Newell said the company could also defer expansion of a sulphide circuit at its Kansanshi copper mine in Zambia, by "a year or so", without affecting long-term production.

    First Quantum, which primarily mines copper, but also nickel and gold, is trying to alleviate the impact of a 24 percent reduction in power supply in Zambia.

    It shut its Sentinel copper processing development this week, after Zambian power utility Zesco Ltd reduced power supplies, a result of low water levels at hydro-electric plants due to a drought.

    Rainfall doesn't typically resume until December, Pascall said, and supply problems will likely continue through to January February.

    http://www.reuters.com/article/2015/07/30/fst-quantum-min-spending-idUSL1N1022S820150730
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    MMG to produce less zinc as Dugald mine delayed

    MMG Ltd., the listed unit of China’s biggest state-owned metals trader, expects to produce less zinc through 2018 as a new $1.4 billion mine is delayed and an existing deposit closes.

    Dugald River in Queensland, Australia, will start production in the first half of 2018 with output of about 160,000 metric tons a year, Andrew Michelmore, chief executive officer of Melbourne-based MMG, said Wednesday.

    The Century mine, Australia’s largest open-cut zinc operation, is being wound up this month after 16 years, according to a filing. MMG initially estimated Dugald River would start in late 2015 with as much as 220,000 tons a year. It also supplies zinc from its Golden Grove and Rosebery mines.

    “There will be a gap,” Michelmore said on a conference call. “That will probably help the price.” The company reviewed its plans for Dugald River after discovering faults in the orebody that required technical work, he said. Capital expenditure has been cut by $100 million, he said.

    http://www.mineweb.com/news/base-metals-and-minerals/mmg-to-produce-less-zinc-as-dugald-mine-delayed/
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    Steel, Iron Ore and Coal

    China rejects domestic thermal coal for excess trace elements, sulphur or ash

    China’s quality watchdog has rejected a series of domestic thermal coal cargoes that failed the test for trace elements, sulfur or ash, making market participants speculating domestic product may be facing similar quality inspections as for imported coal.

    The General Administration of Quality Supervision, Inspection and Quarantine (AQSIQ) has marked 13 cargoes of domestic thermal coal as "unqualified" in the second quarter of this year, accounting for 14.7% of the 87 batches of product inspected.

    With samples from 18 producing provinces including Shanxi, Shaanxi, Inner Mongolia, etc., most of the unqualified cargoes contained excess fluorine, while a few failed in test for ash or sulphur.

    Boasting the advantage of premium quality, China’s large miners such as Shenhua, China coal Energy, Datong Coal and Yitai had no products deemed "not up to the standard".

    These rejected cargoes came from small coal companies in Inner Mongolia, Shaanxi, Jilin, Heilongjiang, Jiangxi, Sichuan and Guizhou including Inner Mongolia-based Wuhai Tianyu Energy, Shaanxi-based Huangling No. 2 Mine, etc.

    This may come as a blow to the bulk of the coal miners in China, which have already been battling sagging demand and competition from imported coal.

    Actually, the quality inspection standard for commercial coal, which was released last September and came into force on January 1, has specified that the requirement should apply to both domestic and imported coal.

    But since the implementation of the standard, market participants appeared to have paid more attention to the trace elements test on imported coal, betting the government would use this standard mainly for curbing imports.

    According to the standard, commercial coal should contain mercury below 0.6μg/g, arsenic below 80μg/g, phosphorus below 0.150%, chlorine below 0.300% and fluorine below 200μg/g.

    The sulphur content of commercial coal should been less than 1.5% for lignite and below 3% for other coal varieties, while the ash content should be below 30% for lignite and 40% for other varieties.

    http://en.sxcoal.com/128916/NewsShow.html
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    Shanxi H1 coking coal output down 5.9pct on yr

    North China’ leading coal-producing province of Shanxi produced 255 million tonnes of coking coal in the first half of the year, down 5.9% on year, showed the latest data from industry portal China Coal Resource (CCR).

    That accounted for 42.19% of China’s total output, the first year-on-year decline since 2011, mainly due to sluggish demand from downstream coke and steel sectors.

    Shanxi’s raw coking coal output in June hit the highest of the year to 49.54 million tonnes, down 3.34% year on year but up 9.69% from May – the second consecutive monthly increase, showed the CCR data.

    In June, Shanxi’s washed coking coal output stood at 18.97 million tonnes, up 0.26% on year and up 5.68% on month; total output over January-June fell 3.57% from the year before to 96.5 million tonnes, said the CCR.

    Over January-June, China’s coking coal consumption reached 266 million tonnes, down 3.36% on year, said the CCR.

    On July 29, the CCI Met Shanxi Premium Low Vol index assessed ex-washplant price of Liulin Premium low-sulphur primary coking coal at 640 yuan/t with VAT, unchanged on week; while CCI Met Shanxi High Sulfur Low Vol index was 470 yuan/t, down 5 yuan/t from the previous week.

    http://en.sxcoal.com/0/128879/DataShow.html
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    Vale overcomes iron ore slump to return to profit in Q2

    Vale SA, the world's biggest iron ore producer, returned to profit in the second quarter, bolstered by higher output and cost cutting and keeping up pressure on Australian rivals in the fight for market share.

    The Brazilian miner overcame a slump in iron ore prices to report a net profit of $1.68 billion for the quarter on Thursday, moving into the black for the first time in a year. The profit was up 17.3 percent from the same quarter last year, and more than four times an average forecast of $408 million by six analysts in a Reuters poll.

    A big part of the improved result was a reduction in cash costs, with Vale lowering its cost of producing a tonne of iron ore to $15.8 per tonne, from $18.3 per tonne in the first quarter. With the iron ore price .IO62-CNI=SI about half what it was a year ago, mining companies have focused their attention on reducing costs in order to survive the slump.

    For Vale, one of the lowest-cost producers of the steelmaking raw material alongside Australia's Rio Tinto and BHP Billiton, the result is a welcome boost after a series of losses.

    The profit announcement comes a week after the Rio de Janeiro-based company announced record mine output for the second quarter.

    Crucially, Vale said its realized price, a measure of how much it earned on ore sales, rose to $50.6 per tonne, up from $46 per tonne in the first quarter.

    But as the Brazilian miner battles to increase margins, Vale said iron ore production next year will likely be less than the 376 million tonnes it had previously forecast.

    "Probably we'll be between the guidance we gave... and the 340 million tonnes we are producing in 2015," iron ore chief Peter Poppinga told analysts on a conference call, adding the company was phasing out higher-cost production.


    http://www.reuters.com/article/2015/07/30/vale-sa-results-idUSL1N10A0F620150730

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    China sources 84% of H1 iron ore from Australia, Brazil; share seen rising

    China's iron ore demand is falling, but its share of imports from mining giants Australia and Brazil is rising, which is squeezing smaller miners and curbing their supply.

    China imported 453.1 million mt of iron ore in January-June, with 83% of it coming from Australia and Brazil, up from 74% in H1 2014, according to General Administration of Customs data released last week.

    Australia's top three miners Rio Tinto, BHP Billiton and Fortescue Metals Group, as well as top global miner Vale, all announced higher output in April-June.

    "When ore prices fall below $60/dmt level, it is difficult for domestic miners to survive," a Beijing-based trader said.

    "When the price fall below $50/dmt level, it is below the cost curve for many overseas small miners."

    The trader said output from smaller miners has fallen sharply this year. The Platts IODEX CFR China price was assessed at $56.75/dmt Wednesday, up from a record low of $44.50/dmt on July 8.

    Capesize freight rates from Australia to China have increased 15.9% in the same period to $6.20/wmt Wednesday, from $5.35/wmt on July 8.

    "If the price stays below $45/dmt for three months, some big producers may have financial problem not to mention small ones," an international trader said.

    Supply from smaller miners has as a result become less stable, leading some steel mills to prefer buying from the top miners. But others have continued to seek out smaller miners for deals.

    "For the same iron content, non-mainstream ores is $3-$5/dmt cheaper than mainstream ores," said a steel mill source that buys regularly from small miners, adding that the discount applies mostly to low iron content fines used for blending.

    Another steel mill source said most products are currently difficult to source in the spot market except for Pilbara Blend fines from Rio Tinto, and Newman fines and Yandi fines from BHP.

    http://en.chinamining.com.cn/News/2015-07-31/1438312455d73108.html
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    ArcelorMittal profit falls 21%, maintains full-year target

    ArcelorMittal’s second-quarter profit fell 21% as iron-ore prices slumped and Chinese steel exports rose.

    Earnings before interest, taxes, depreciation and amortization declined to $1.4 billion from $1.76 billion a year earlier, the world’s largest steelmaker said Friday in a statement. The result beat the $1.34 billion average of 12 analyst estimates compiled by Bloomberg.

    The company, based in Luxembourg, maintained its full-year Ebitda forecast of $6 billion to $7 billion.

    ArcelorMittal is fighting to sustain profit on two fronts as prices for iron-ore it mines fell to the lowest in at least six years and record Chinese steel exports pushed prices for the metal lower. The company previously reduced its 2015 profit guidance in May.

    http://www.mineweb.com/news/iron-and-steel/arcelormittal-profit-falls-21-maintains-full-year-target/
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    JSW Steel gets shareholder approval to raise INR 14,000 crore

    PTI reported that JSW Steel announced that its shareholders have approved company's proposal to raise a total of Rs 14,000 crore through private placement and qualified institutional placement (QIP) route. The firm's shareholders at the Annual General Meeting (AGM) earlier this week approved raising up to Rs 4,000 crore through QIP and Rs 10,000 crore by selling non-convertible debentures (NCDs).

    Both the proposals were through special resolution, JSW Steel said in a BSE filing.

    The fund will be utilised for planned capital expenditure including refinancing of expensive debt and reducing interest costs, among other corporate purposes, JSW had said in its annual report.

    The NCD sale may be carried out in one or more tranches in the current fiscal on a private placement basis.

    The firm said it will be completing its present brownfield expansion to reach 18 million tonnes per annum (mtpa) capacity by the end of financial year 2015-16. It is targeting 40 MTPA capacity by 2025 with significant investment in mineral resources such as iron-ore and coal.

    http://steelguru.com/steel/jsw-steel-gets-shareholder-approval-to-raise-inr-14-000-crore/430872#tag
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