Mark Latham Commodity Equity Intelligence Service

Tuesday 7th April 2015
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MacroOil and GasPrecious MetalsBase MetalsSteel, Iron Ore and Coal


Devil is in the detail of deal shrinking Iran's nuclear programme

Tehran's nuclear programme will shrink significantly under a framework deal to make Iranian moves towards building an atom bomb virtually impossible for years - but the devil is in the detail.

Iran has agreed with six world powers to curb its nuclear activity in three main areas: the size and grade of its uranium stockpile, the number of centrifuges that enrich uranium, and the maximum fissile purity of the product of these machines.

"The approach outlined will effectively prevent Iran from building a nuclear bomb for an extended period of time," said Robert Einhorn, senior fellow at the U.S.-based Brookings institution.

Still, some details have yet to be determined and the pact will take effect only if a final deal is agreed by June 30, a big "if" which can still scupper an agreement.
MGL: The deal as described in French documentation is effectively a 'stop' for ten years. It doesn't degrade Iran's existing capacity, nor does it prevent Iran from resuming its program if the west steps away from its commitments to gradually end restrictions.

Does it mean we see 1mbd of Iranian crude hit markets from June? Image titleThe futures market in the last week displayed a curious reaction. It marked up spot, but took the 5 year futures on crude down a peg or two. 


Deals to soon yield $8 bln in investments for Mongolia -PM

Mongolia will soon finalise negotiations that will free up $8 billion for expansions at the country's largest coal and copper mines, its prime minister said in a national address on Sunday.

Talks between the government and investors are progressing towards the close of deals on Mongolia's multi-billion dollar Oyu Tolgoi copper mine and Tavan Tolgoi coking coal mine, Prime Minister Chimed Saikhanbileg's said late on Sunday.

Mongolia is desperate for a revival in foreign investment after it fell 74 percent last year amid disputes with foreign investors such as global miner Rio Tinto .

"Now the parties are finalising their respective internal processes and we will soon officially announce results," Saikhanbileg said about the expansion project for the Oyu Tolgoi copper mine, according to an unofficial translation of his televised speech.

A spokesman for Rio Tinto, holder of a 66 percent stake in the copper mine, could not be reached for comment.

Disputes over the rising costs at Oyu Tolgoi and taxes have delayed construction of the second underground phase at the $6.5 billion mine since August 2013.

Rio Tinto must resolve the disputes before banks can release more than $4 billion in financing to fund the expansion.

The government is also in the final stages of forging a deal to hand over management of state-owned Erdenes Tavan Tolgoi coal mine to China's Shenhua Energy, Japan's Sumitomo Corp and Mongolian Mining Corp subsidiary Energy Resources.

Mongolia has asked the partners to spend $4 billion to expand the Tavan Tolgoi mine's capacity.

Both mines are located less than 250 kilometres from the Chinese border.

Mongolia's mineral riches and strategic location drove peak economic growth of 17.5 percent in 2011, but disputes with investors have recently soured investment appetite.

The Asian Development Bank has estimated the average economic growth rate for 2015 and 2016 could slow to as little as 4 percent, without a strong recovery in foreign investment.

Saikhanbileg, who entered office last November to kick-start the economy again, blamed the disputes with mining investors on the political posturing by the country's 76 lawmakers.

Mongolia is also planning to announce a final deal this month for the long awaited Combined Heat and Power Plant 5 project led by GDF Suez, Japan's Sojitz Corp. Korea's POSCO and Mongolia's Newcom Group, he said.

The consortium in 2014 signed an initial 25-year power purchase agreement for the 415 megawatt coal-fired facility.
MGL: Turquoise Hill rallied 10% on this news, and so it should. Perhaps a braver commentator might have put buy on this last week, but we've repeatedly seen hopes dashed in these grueling talks between the Mongolian Gov't and RTZ. The current EV of TRQ is almost identical to the NPV of the expansion, despite the stock being 1/10 of its value 5 years ago. 

Obviously there's upside from the copper and gold price, but its worth noting the sheer scale of the lands controlled by TRQ, and that intriguing Ulaan Kul discovery to the north.Image title
"In early 2011, Ivanhoe and BHP Billiton Ltd. discovered a new zone of shallow copper-molybdenum-gold mineralization approximately 10 kilometres north of the Ivanhoe Mines Oyu Tolgoi copper-gold mining complex currently under construction in southern Mongolia. The discovery, known as Ulaan Khud North, extends the known strike length of the Oyu Tolgoi mineralized system by an additional three kilometres to the north, to more than 23 kilometres."

Turquoise Hill must be high on our list of prospective copper gold midcaps, it is one of the best copper-gold discoveries in decades, and one of the few quoted coppers exiting from some kind of political blight (cf Zambia or Peru).


Oil and Gas

Saudi Narrows Discount to Asia

“The drive for Aramco to raise prices is the improvement in the refining margin for gasoline and diesel,” Essam al-Marzouk, a Kuwait-based analyst and former vice president for Europe at Kuwait Petroleum International, said by e-mail Sunday. “The Saudis have established good market share in Asia and are less worried by competition from other producers than they used to be early in the year.”

Brent, a global oil benchmark, fell almost 50 percent in the past year amid increasing supply from areas including North America. Saudi output at near-record level is making up for sluggish sales from other OPEC members, as bad weather stunted Iraq’s exports and fighting in Libya kept some fields and ports shut. Iran may add supply if an interim agreement reached last week over its nuclear program leads to a final deal.

Brent for May settlement added as much as $1.95 a barrel, or 3.6 percent, and traded at $56.48 at 2:20 p.m. local time on the London-based ICE Futures Europe exchange.

Refining Margins

Saudi Aramco narrowed the discount for its Arab Light grade to Asia to the least since December, cutting it by 30 cents a barrel to 60 cents less than the regional benchmark, the company said in an e-mailed statement Sunday. Arab Medium will sell at a $2 discount in May, an increase of 20 cents a barrel from April, according to the statement.

MGL: WTI caught fire Monday on this story. Equities rallied some, but not as much. 

No real change in our view. Saudi long term objective is $60. Price right now is below $60, so they are trying to steer the market higher, and keep their market share. Difficult high wire act.

Iran Oil Officials in Beijing to Discuss Oil Supplies, Projects

An Iranian delegation is in Beijing this week to push for more oil sales and discuss Chinese oil and gas investments in Iran, just days after Tehran and world powers reached a framework nuclear deal, Iranian oil officials told Reuters.

China is Iran's largest trade partner and oil client, having bought roughly half of Iran's total crude exports since 2012, when sanctions against Iran were tightened.

Amir-Hossein Zamaninia, Iran's deputy oil minister for commerce and international affairs said he and his colleagues would discuss China's oil and gas projects in Iran, while officials from state-run National Iranian Oil Company (NIOC) will meet with China's biggest crude buyers.

The NIOC and other officials are expected to meet with regular customers Unipec, the trading arm of top Asian refiner Sinopec Corp, and state trader Zhuhai Zhenrong Corp, which started taking Iranian crude in the mid-1990's when Tehran sought to repay arms purchases with oil.

- See more at:
MGL: Iran wastes no time in reaching out for investment partners. Pre sanctions they managed just over 2.4mbpd. Right now production is around 1mbpd. Storage is rumoured to contain some 7m barrels. 

WSJ on Petrobras Scandal

Prosecutors say around 230 businesses are being investigated, and a total of more than $700 million may have been stolen. A former Petrobras chief executive said earlier this year that write-downs of inflated values would probably total at least $1.2 billion, maybe much more.
MGL: Eyecatching article. This $700m is low compared to the various numbers we've seen floating around. 1997 as start date is also mentioned, thats some 7 years earlier than the earliest mention we've seen to date.

Libya's official government in new bid for oil cash

Libya's Prime Minister Abdullah al-Thinni has said his government would run its own oil sales and deposit revenues abroad in a bid to divert proceeds away from a rival self-declared administration in Tripoli.

Crude revenues are at the heart of a battle for control of the North African OPEC producer that has pitted the two rival governments against each other in a growing conflict, four years after the civil war ousted strongman Muammar Gaddafi.

On Sunday, a suicide bomber struck at a checkpoint near the Tripoli-allied town of Misrata, killing at least six people and wounding 40 more, according to a local news agency.

Thinni, based in the eastern city of Al-Bayda, announced late on Saturday he had authorised his internationally recognised government's oil corporation to open a separate bank account in the United Arab Emirates for oil revenues and to seek independent oil sales.

Until now oil sales and revenues have gone through Libya's central bank and National Oil Corporation in Tripoli, where a rival administration took over last summer. The Tripoli-based NOC has tried to stay out of the conflict between the rival governments.

Analysts say Thinni's government will struggle to convince international traders it is legally entitled to claim ownership of Libyan crude.
MGL: So this is the official gov't in the east of the country responding to their loss of control of the capital, and crucially the apparatus of managing the Libyan National Oil Corporation, which is controlled by the rebels, or the Petroleum National Guard (whoever they report to!).

Bullish output maybe?

Eni looks for Mozambique FLNG decision later this year

In its annual report, Eni said it anticipates reaching a final investment decision (FID) regarding its potential offshore Mozambique FLNG project in the second half of this year.

The company said until then it will work to finalize gas contracts and production licenses leading to the FID.

Eni said the award of the relevant engineering, procurement, construction, installation, and commissioning contracts for the FLNG unit is expected by the end of 2015.

Production start-up is expected for the end of 2019.

The gas discovery, which Eni has said is “the greatest discovery in its exploration history” with a 2.5 tcm (88.3 tcf) potential, is in Mozambique’s Rovuma basin.
MGL: FLNG now? All the documentation we've so far seen suggested a port complex and associated infrastructure. It looks suspiciously like ENI is configuring a minimal size FLNG facility to develop the asset and put it into some kind of slow production mode whilst LNG prices are in the tank. Thinking must surely be that they can 'gear up' production when market prices allow the project economic returns. 

Parex: Q1 Production 26,700 bopd Drilling Activity Increase in 2015

Parex Resources Inc., provides an operational update that confirms Q1 2015 production of 26,700 bopd and announces the start of its 2015 exploration program. All amounts herein are in United States dollars (USD).

Exploration & Production Update:

Oil production for Q1 2015 averaged approximately 26,700 barrels of oil per day, exceeding our original 2015 fully year production guidance of 26,500 bopd.
Block LLA-34 Tilo-1: On March 28, 2015 Tilo-1 commenced a long-term test and current production is approximately 850 bopd.
Commencement of 2015 Exploration Program: Block LLA-26 Rumba-1 exploration well was spud on March 25, 2015. The well is targeted to drill to a total depth of approximately 13,800 feet to test the Mirador and Une formations.
Plan to increase the 2015 exploration drilling program by 2 additional exploration wells on Block LLA-32 and 1 contingent appraisal well for a total of 11 wells in 2015.

2015 Capital Plans: Brent Oil Price Scenario $50-$60 per barrel

Parex has a robust asset portfolio that provides capital allocation flexibility together with capital preservation. Within a Brent oil price scenario of $50-$60 per barrel, our current 2015 capital and production guidance is as follows:

Base Production (excluding 2015 Exploration): 26,500-26,700 bopd
Base + Exploration Capital: $145-$155 million

Supported by sustained production and an improving cost structure, Parex is seeking partner and regulatory approval to drill up to 3 additional wells on Block LLA-32 in 2015, in addition to our existing 8 exploratory commitment wells on 7 blocks for a total of 11 exploration and appraisal wells.

Further, as a result of a 15-20% reduction in capital costs over 2014, Parex expects to increase its exploration drilling program by the 3 wells while maintaining its original capital budget range of $145-$155 million. Dependant on exploration results, Parex will evaluate deploying additional non-budgeted capital to increase 2015 production.

MGL: Parex is a great comapany, and they show they're stripes here. Not only is the price deck realistic, but the company runs positive cashflow, and has net cash on the balance sheet.  PV10 at $95 Oil is $1.1bn, EV is $1.2bn. Realistic PV10 is $400m? Like all Oil equity it is too pricey.

Oil Storage

Image titleImage titleImage title
MGL: These charts from a WSJ blog were worth reprinting, the argument, that there was plenty of storage available, we've explored before. 

Record gasoline output to curb biggest U.S. oil glut in 85 years

Refiners are poised to make gasoline at a record pace this year, keeping the biggest U.S. crude glut in more than 80 years from overflowing storage.

They’re enjoying the best margins in two years as they finish seasonal maintenance of their plants before the summer driving season. They’ll increase output to meet consumer demand and they’ve added more than 100,000 barrels a day of capacity since last summer, when they processed the most oil on record.

Booming crude production expanded inventories this year by 86 million barrels to 471 million, the highest level since 1930. Analysts from Bank of America Corp. to Goldman Sachs Group Inc. have said storage space may run out. What looks like an oversupply is turning into an all-you-can-eat buffet for those making gasoline and diesel fuel.

 “A lot of the excess crude we’ve been sitting on is going to get chewed up quickly,” Sam Davis, an analyst for energy consulting company Wood Mackenzie Ltd., said in Houston April 2. “We’re going to move from a stock build to a stock draw.”

Refining margins in March have averaged $28.09 a barrel, the most since March 2013.

Refiners typically schedule maintenance shutdowns in the spring and fall, reducing oil demand during that time. U.S. refiners increased crude runs by an average 1.1 million barrels a day in April through July over the past five years. During that period, U.S. crude inventories have fallen an average of 24.7 million barrels from the end of May through September.

WTI is in a contango market structure, with futures contracts for April 2016 selling for $10.84 a barrel more than April 2015 when that contract expired on March 20. That encourages traders to keep crude in Cushing to profit on the trade, Lipow said.“There’s an incentive to fill up Cushing and hold it there,” he said.
MGL: All perhaps true. But doesn't that move the Oil glut into a product glut? Doesn't it move the pressure from WTI to Brent via the exports of product? 

Since late february WTI has been closing in on Brent. So it does appear that this trend is well underway.Image title

US oil and natural gas rig count drops by 20 to 1,028

HOUSTON Oilfield services company Baker Hughes Inc. says the number of rigs exploring for oil and natural gas in the U.S. declined by 20 this week to 1,028 amid slumping oil prices.

Houston-based Baker Hughes said Thursday 802 rigs were seeking oil and 222 exploring for natural gas. Four were listed as miscellaneous. A year ago, 1,818 rigs were active.

Among major oil- and gas-producing states, Texas and North Dakota each dropped six rigs, Louisiana was off five and Oklahoma four. Arkansas, Kansas, Ohio and Pennsylvania declined one apiece.

California was up by two and Alaska and West Virginia added one rig each.

Colorado, New Mexico, Utah and Wyoming were unchanged.
MGL: We can deduce that the rig count is now about overhang, and completions are about production.

We have inferred from state vs federal data that production has already peaked, but that the fracklog now represents a very considerable backlog of production waiting for price.

Horizontal rig activity is still 2x the lows of 2009.Image title
We suspect Canadian production is responsible for most of the build in inventory, not US production. 

Absent the storage cliff, we have possibly reached a point of meta-stability in Oil markets. US shale production falls could easily wipe out the global capex inertia in output over the next 12 months.  That leaves us thinking that Oil trades $40-$60 for the moment.

Risks: storage cliff, Iran.

To make a bullish case you have to think that Iran-Saudi turns from a proxy war into an all out Muslim civil war. Thats not an outcome that anybody wants, but it is there on the table. Present Saudi policy mitigates against any Oil outcomes above $60 in our forecast.


Rig count stabilizes in Eagle Ford

After 14 weeks of declines, drilling activity is showing signs of stabilizing in the Eagle Ford shale region just south of San Antonio. This week's figures from theBaker Hughes Rig Count showed no declines in drilling activity for the Eagle Ford.

Although there were no gains, many oil industry observers have predicted that the market would reach an equilibrium point between drilling and production during the second quarter of 2015.
MGL: One week does not make a trend. 

But, looking inside the data, it is quite striking that there were no rig changes whatsoever across all the counties that comprise the Eagle Ford:

Image title


Precious Metals

Gold speculators run for cover

Large scale speculators in gold futures are scrambling to cover massive short positions – bets that prices will fall – as the price of gold continues to recover from near four-year lows hit last month.

On Monday gold for delivery in June – the most active futures contract – leaped $23.30 or nearly 2% from Thursday's closing price hitting $1,224.20 during lunchtime trade in New York before settling at $1,218.60, a six-week high.

Moday's strength is on the back of disappointing economic data released on Friday when markets were closed when the US Labor Department reported that the world's largest economy added just 126,000 new jobs in March against expectations of a 245,000 gain and the smallest increase since December 2013.

After eight straight weeks of increasingly bearish positioning on the gold market to levels last seen December 2013, large investors like hedge funds or so-called "managed money" last week added 44% to net longs – bets that price will rise.

In the week to March 31 according to the Commodity Futures Trading Commission's weeklyCommitment of Traders data, hedge funds slashed short positions by a fifth and at the same time added to long positions in gold.
MGL: GDXJ is the easiest way to play the Gold juniors, and this year we've only really written buy on a select few precious stocks. 

Base Metals

China's 10 nonferrous metal output up 6.8% in Jan-Feb to 7.7 mln tons

The combined output of the ten nonferrous metals rose 6.8% year on year to 7.7 million tons in the first two months of this year, according to the latest statistics released by the National Development and Reform Commission.

The output of aluminum electrolytic rose 4.9% year on year to 4.64 million tons in the two-month period. The output of copper and alumina oxide see a growth of 15.7% and 13.4%, respectively.

The output of lead dropped 5.3% year on year in the period, and the output of zinc went up 16.7% from a year earlier in the first two months.

In Feb 2015, the prices of major nonferrous metals reflect a decrease from Dec 2014. The average prices of copper and lead futures on the Shanghai Futures Exchange stood at RMB 40,964 and RMB 12,495 per ton, down 13.3% and 6.6% from Dec 2014, respectively.

In the first two months of this year, China¡¯s nonferrous industry realized RMB 20.6 billion in profit, 1.8% higher than in the same period of 2014.
MGL: Aluminium production growth continues to decelerate, last year it was over 7%. Copper, Bauxite, and Zinc output growth exceeds demand growth, Aluminium and Lead are now below demand growth, and Aluminium is persistently below demand growth.

All we need is an improvement in global economic data to ignite  Aluminium, no sign of that in our newsflow --yet.

Barrick hints at Mick Davis deal

The world’s top gold producer may also look at disposing of its Zaldivar copper mine in Chile.

In an interview with the Financial Times John Thornton, chairman of the Toronto-based miner, would not comment on specific sale plans or negotiations for Barrick’s copper business.

But Thornton, who took over as chairman almost a year ago did indicate what a good deal may look like:

“I could imagine a joint venture in which, let’s say, we sold a minority interest to a party [with] a world-class chief executive and that chief executive was going to run the copper business the way he thought made sense.

“We would build the business with him. We would be majority owner or even 50-50 owner. It would build value for us.”

Mr Thornton said it would be a “good example” to assume that Barrick could go into a partnership with someone such as Mr Davis.

Sounds like just about everyone is hoping to get into bed with Mick Davis and his $5.6 billion X2 Resources fund these days. Not surprisingly, X2 declined to comment for the story says the FT.
MGL: Investor's have always loathed Barrick's exposure to copper, the Zambian fiasco was, for many the last straw. So this new management has likely been read the riot act, and is looking for a exit. Mick Davis is credible and might create some value for Barrick, Zaldivar is a great property, the Zambian asset, not as good, either geologically, or politically. Mick Davis is saying nothing. 

Barrick stock, meanwhile, has an interesting little head and shoulder base underneath it now. 

Steel, Iron Ore and Coal

Glencore, Japan's Tohoku set annual coal price down 17 pct -sources

Mining group Glencore Xstrata Plc and Japan's Tohoku Electric Power Co have settled an annual Australian thermal-coal import contract 17 percent lower than a year earlier, sources with direct knowledge of the matter said on Tuesday.

The price for the fiscal year beginning April 1 was set at 67.80 per tonne, the same as an agreement last week between Tohoku and Rio Tinto , the three sources said, underscoring a mounting supply glut for thermal coal worldwide.

Australia is by far the biggest supplier to Japan, accounting for 80.4 million tonnes last year, or nearly three quarters of its thermal coal imports.

The price set by Tohoku and the two suppliers will likely be followed by other Japanese utilities.

Annual contracts starting in April account for the majority of Australian thermal coal imports to Japan, covering around 50 million tonnes.

International coal markets have been hit as China, the world's biggest producer and importer of the fuel, has curbed imports to support its own mines and as it battles pollution at home.

A Tohoku spokesman said it had agreed with multiple resource majors on Australian coal supplies for the new fiscal year but declined to give details.

Glencore did not immediately respond to requests for comment.

Other would-be buyers said they were disappointed with the price, as spot has recently plunged to below $60 a tonne.

Asian benchmark thermal coal from Australia's Newcastle terminal has fallen around 10 percent this year, last settling at $56.85 a tonne. The price has lost more than 60 percent since early 2011.
MGL: Image title
Spot coal has completely collapsed following this bruising deal.
We think the Japanese sought volume, and Glencore refused to budge below $67 for volume.  

$56 spot coal is simply dire, its always possible Glencore traders are dumping out some cargo's they bought prior to the deal, and thats creating a nasty whiplash market. 

Consensus now bearish Iron ore

Industry experts also don’t expect to see a recovery in the price of iron ore, a primary steel-making ingredient, anytime soon.Caroline Bain, senior commodities economist at Capital Economics Ltd. in London, last month forecast that iron-ore prices are likely to hit $45 a ton by year-end as large surpluses of iron-ore continue to flood into the market and Chinese demand cools.
MGL: MGL: From the WSJ. We've been hearing this for a while, but its the first time in print. 

India's 2014/15 iron ore imports hit record 15.5 mln T

India's iron ore imports jumped to a record above 15 million tonnes in the fiscal year to end-March as tumbling global prices and limited domestic supply pushed steelmakers to buy more of the raw material overseas, industry data showed on Monday.

Formerly the world's No. 3 supplier of iron ore, India has been importing it over the past three years due to court-imposed restrictions aimed at curbing illegal mining in the major producing states of Karnataka and Goa.

The shortage deepened last year when some mines in the states of Odisha and Jharkhand were ordered to close after the expiry of licences.

India's iron ore imports totalled 15.5 million tonnes in the past fiscal year, according to data compiled by industry consultancy SteelMint, which tracks shipments at 18 ports across the country. In the year to March 2014, imports were just 320,000 tonnes.

More than half of imports in fiscal 2014/15 were brought in by JSW Steel, India's third-largest steel producer, with 8.4 million tonnes. Tata Steel followed with 3.06 million.

Official Indian government data only covers April-December, with imports totalling 7.38 million tonnes, according to the trade ministry.

Despite the jump in shipments to India, global iron ore prices fell below $50 a tonne .IO62-CNI=SI last week to the lowest level since a key benchmark pricing index began in 2008.

The steelmaking commodity has lost about two-thirds of its value since the start of last year amid a global glut and slow demand from top iron ore buyer China.

The reopening of iron ore mines in states such as Odisha, Jharkhand and Goa may reduce India's imports in the current fiscal year, said Dhruv Goel, managing partner at SteelMint.

"We expect imports will be limited to 6-7 million tonnes, subject to global iron ore prices," Goel said.
MGL: Here's India's iron ore production:Image title
So if we take these  figures at face value, (and there's some scepticism needed on the volume of illegal mining at the peak, ie real production could well have been considerably higher than official values); that implies the gradual return to production could conceivably add a maximum of 100m mt to supply.

Two huge caveats:

1> Indian production is high quality low grade (ie low impurity, but only 30-40% grade), and how much is economic sub $50 iron ore?  

2> How large was illegal mining at the peak? We know licenses were issued and abused, ie an operation license was often used to produce multiples of the actual licensed figure. 

This all makes the Indian restart a very difficult animal to assess.  Suffice to say we do see something, and we do likely see net imports swing back to net exports. How long does that take? Miners are talking about a september restart.

India's Odisha state to renew 18 iron ore mine licences-official

India's top iron ore producing state is likely to renew the licences of 18 iron ore mines shut since last year, a state official said on Saturday, in a boost for local steel producers.

A panel of senior government officials in Odisha state has recommended the reopening of the mines, which were closed last year due to non-renewal of years-old leases, the state's mining director Deepak Kumar Mohanty told Reuters.

"We expect to complete the renewal process in 10 days," Mohanty said.

The re-opening of the 18 mines will raise iron ore output in Odisha state to 70 million tonnes this fiscal year, about the same level as before the mines were shut, from the 51 tonnes produced in the year ending March 31, the official said.

The panel has also recommended an extension of the lease period for eight separate mines in the state, which belong to Tata Steel, Steel Authority of India and Odisha Mining Corp and are currently operating under a so-called temporary express order, Mohanty said.

The Supreme Court last year ordered the closure of nearly half of the 56 mines operating in Odisha because they were operating without a renewal of years-old leases.
MGL: Odisha adds to the sense of Indian restart, we now have all three large iron ore states engaged on a legal process to restart mining.

Atlas considers asset sales, restructuring to survive iron ore crash

Australia's Atlas Iron Ltd is reviewing its operations and could look to sell assets to combat a dramatic slide in iron ore prices in a vastly oversupplied market dominated by mega producers.

Shares in Atlas, one of a handful of small miners that emerged to meet rising demand for the steel-making mineral in China a decade ago but now struggling to stay afloat, were voluntarily suspended on Tuesday as it maps out a strategy.

Atlas shares have plunged 40 percent since January, outpacing a 35 percent decline in iron ore, and the firm said it has hired Lazard to advise on ways to reduce overheads.

Atlas could move to suspend production at the higher cost Mt Webber and Abydos mines, leaving it to focus on its more profitable Wodgina deposit, some analysts said.

"I reckon you would see them shrink to about two to three million tonnes a year from Wodgina only," said a analyst who has covered Atlas since its inception in 2004 and did not want to be named. "Wodgina is the closest to Port Hedland, has reasonably better grade and would be the cheapest operation."

Cheaper oil to run diesel-powered equipment, lower freight rates and a weaker Australian dollar against its U.S. dollar-priced sales have helped soften the blow, but the most recent price plunge means Atlas is operating with little or no profit margin

Spot ore .IO62-CNI=SI dropped to $46.30 a tonne this week, the lowest level since The Steel Index began publishing prices in October 2008.

That compares with a January average all-in production cost of A$60.80 ($46) CFR (cost and freight) China reported by the company.

"Atlas has already commenced discussions with a number of its stakeholders in relation to various initiatives intended to further reduce costs and preserve value," the company said, adding it would not comment further on the review.
MGL: Atlas trucked iron ore to port.  Small beer in the scheme of iron ore, but reinforces the idea that we are now down to the big 3+ Fortescue, and at $46 iron ore, Fortescue must be in the red.  Only BHP can really make use of Atlas's operations, it has trail nearby all three mines, but we should not expect movement from BHP, their current rail capacity is maxed out as far as we can tell. 

Australia chases BHP, Rio Tinto on Singapore tax shelter - AFR

Australia is pursuing global miners BHP Billiton  and Rio Tinto for shifting billions of dollars in iron ore profits through marketing hubs in Singapore that pay almost no tax, the Australian Financial Review reported on Tuesday.

The Australian Taxation Office was chasing multibillion dollar claims against each company, the newspaper said, citing a source with direct knowledge of the disputes.

The Singapore arrangements save the two companies more than A$750 million (382 million pounds) a year in Australian tax, it said.

The newspaper said BHP declined to comment on whether it received a tax bill tied to its Singapore hub, while Rio Tinto said it had not received a tax bill.

Both companies say their Singapore operations were not set up to cut tax but to serve their customers better, while the Australian tax office considers the arrangements tax avoidance.

"It is a big issue. It's huge," Tax Commissioner Chris Jordan told the Australian FinancialReview in March, referring to tax audits of more than 15 marketing hubs used by resource companies. "There's a lot of funds that have been transferred into hubs for the so-called marketing, shipping, you know sales, supposedly, that are being carried on."

The newspaper said sources insisted that Rio Tinto's Singapore-related earnings, which flow to a UK company, were in dispute.

Close to A$1 billion in base tax was at issue from 15 marketing hub cases, the tax office said, according to the newspaper.
MGL: We're really not convinced the big miners set up these arrangements as a tax dodge, it looks much more likely they were a response to a market that was moving inexorably away from 1 year contracts to spot. That applies to all the large Australian bulk commodities:- iron ore, coal, coking grades. 

Also probable, the discount applicable, say $5 a mt for bulk, was not a big deal when the three big bulk minerals were over $100 a metric tonne, but now that we are pricing the bulks at $50-$60 a mt, that discount is actually 10% of gross, and likely 25-30% of net profit per tonne, so it has become a big tax deduction. 

Tax authorities are clearly upset. So it has become an issue.
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