Mark Latham Commodity Equity Intelligence Service

Wednesday 7th September 2016
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    Saudi Arabia Said to Weigh Canceling $20 Billion of Projects

    Saudi Arabia is intensifying efforts to shrink the highest budget deficit among the world’s biggest 20 economies, aiming to cancel more than $20 billion of projects and slash ministry budgets by a quarter, people familiar with the matter said.

    The government is reviewing thousands of projects valued at about 260 billion riyals ($69 billion) and may cancel a third of them, three people said, asking not to be identified as the discussions are private. The measures would impact the budget for several years, two of the people said.

    A separate plan includes merging some government ministries and eliminating others, two people said, also speaking on condition of anonymity.

    The world’s biggest oil exporter has taken unprecedented steps to rein in a budget shortfall that ballooned to 16 percent of gross domestic product last year, curtailing fuel and utility subsidies as well as cutting billions of dollars in spending. The International Monetary Fund expects the shortfall to drop to below 10 percent of GDP in 2017.

    The Finance Ministry declined to comment, while officials at the Ministry of Economy and Planning weren’t available for comment when contacted by Bloomberg. Several senior government officials are accompanying Deputy Crown Prince Mohammed bin Salman on an Asian tour.
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    Let’s dump Hinkley C and invest in Plan B

    One outcome from Brexit is the need for Great Britain to confidently reinvent itself to the wider world. Good leadership demands decisiveness whether popular or not. Decisiveness creates confidence and respect and it’s time we were bold.

    Raw deal

    The UK Government has agreed with EDF that they’ll be able to sell power at £92.50/MWh when the plant is running but this is double the current wholesale price. Some believe this will become a good deal as inflation kicks in but it won’t be the case since the deal will be inflated by the Consumer Price Index.

    As a result the actual price could be 40%-50% more at say £130/MWh. Furthermore, if the wholesale price actually falls below £92.50/MWh then we, the taxpayer, will pick up the bill to cover the shortfall.

    Here’s a new proposal: We dump Hinkley Point C and walk away. The project dubbed by Greenpeace as “the most expensive project on earth” is a bad investment deal that’ll land our kids and grandkids with long term debt for decades to come, let alone handing them a radioactive waste problem.

    The Germans and Belgians have said no to nuclear in the long term. Italy and Spain is rolling back nuclear ambitions and even France is having second thoughts. So let’s be decisive say ‘no thank you’ and make a better choice.

    Plan B: The Energy Investment Fund

    Hinkley C is expected to generate 7% of the UK’s energy needs by the mid 2020s so why don’t we invest to save the same amount or more? A 1% fall per year target from now would exceed the planned generation from Hinkley C and rather being saddled with the long term debt repayment, we have a long term investment programme in energy efficiency.

    The government could set aside the Energy Investment Fund (EIF) for organisations to claim grants against investments. Whether they’re changing the lights, installing solar panels or training staff, it wouldn’t matter as long as they could prove sustainable savings. A similar model, the Energy Demand Reduction scheme, has already succeeded in minimising peak demand so let’s expand the idea to energy efficiency measures in the EIF programme.

    The outcome

    Admittedly we’d miss the alleged 25,000 cement mixing jobs for 10 years in nuclear construction but we’d create more variable jobs elsewhere in the energy efficiency industry demanding a wider range of sustainable skills way beyond the 10-year lifespan of the nuclear construction employment. We’d also avoid the long term debt, the need to hide nuclear waste and make a decision to protect future generations, not burden them.

    Should we should stop wasting our time on Hinkley C and invest in Plan B: The Energy Investment Fund? What do you think?
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    Ball Bearings: Uk Economy loves Brexit?

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    G20 baulks at ending fossil fuel subsidies, “dumbest” policy of all

    G20 baulks at ending fossil fuel subsidies, “dumbest” policy of all

    The G20 meeting in China may have been notable for the decision by both China and the US – the two biggest carbon emitters on the planet – to ratify the Paris climate treaty, an initiative that will almost certainly see the deal come into force by 2017, three years earlier than anticipated.

    But the grouping of the world’s most powerful nations is still taking little action on ending fossil fuel subsidies, despite agreeing to the move in 2009 to end what has been described as the “dumbest policy” in the world.

    The International Energy Agency estimates that countries spent $US493 billion on consumption subsidies for fossil fuels in 2014, while the UK’s Overseas Development Institute suggests G20 countries alone devoted an additional $US450 billion to producer supports that year.

    Throw in the unpaid environmental and climate impacts, and the International Monetary Fund puts total annual subsidies for fossil fuels at more than $5 trillion.

    Last week, the Bloomberg Editorial Board said fossil fuel subsidies were the dumbest policy they could find in the world, saying that the “ridiculous” outlays would be economically wasteful even if they didn’t also harm the environment.

    “They fuel corruption, discourage efficient use of energy and promote needlessly capital-intensive industries,” the Bloomberg team wrote. “They sustain unviable fossil-fuel producers, hold back innovation, and encourage countries to build uneconomic pipelines and coal-fired power plants.

    “Last and most important, if governments are to have any hope of meeting their ambitious climate targets, they need to stop paying people to use and produce fossil fuels.”

    The Bloomberg team said the G20’s pledge in 2009 is “no use” and “too vague”, and called on the governments to first agree on a standard measure to report various subsidies (Australia, for instance, rejects the claims by NGOs and others that it has $7 billion a year in fossil fuel subsidies) and to set strict timelines for eliminating them.

    They didn’t; despite the call being echoed by 200 civil society groups, and multi-national insurers with $1.2 trillion in assets, led by Aviva, who called on the G20 leaders to “kick away the carbon crutches” and end fossil fuel subsidies by 2020.

    “Climate change in particular represents the mother of all risks – to business and to society as a whole,” said Aviva CEO Mark Wilson. “And that risk is magnified by the way in which fossil fuel subsidies distort the energy market.  These subsidies are simply unsustainable.”

    But the G20 only went so far as to “reaffirm our commitment to rationalise and phase-out inefficient fossil fuel subsidies  …  recognising the need to support the poor, even though most analysis says such subsidies mostly support the well off.  We … look forward to further progress in the future,” the G20 said.

    NGOs are now hoping that Germany, which will take over the chairmanship of the G20 for the next year, will deliver a tight deadline by the time the next summit. Some say it will be the “last chance” to agree on an end date.
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    Mining exploitation of Arco generate new resources to Venazuela

    Mining exploitation of Arco generate new resources to Venazuela

    Google translate:

    Exploitation of Mining Arco offers a wide range of possibilities to increase the inflow of resources to the country for the benefit of all Venezuelans, I assure Ecological Mining Development Minister, Robert Mirabal.

    In an interview with Venevision, he said that "the State will own at least 55% stake in each of these industries.

    He expanded that is also the income tax that is typical of the activity, there Royalties ranging from 3 to 13% are calculated according to the degree of economic sensitivity of each of these projects and there are special benefits set the standard for further of all income, generate a factor of social development around the area of influence of each of these projects. This means that between 67 and 71, 72% of the total income of the activity will for the Republic ".

    The headline said that "this is a plan that has been done with a lot of dedication to be seriously developed technical scientific way seeking care environment.Whatever you do today will benefit or goes looking for the balance of the environment "
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    Glencore to sell first euro bond since Sept 2015 share price fall

    Glencore is selling its first euro bond today since a dramatic fall in the price of its shares and bonds in September last year, which was fuelled by a rout in commodity prices and investor fears over its debt load.

    At their nadir in September 2015, Glencore’s euro bonds maturing in 2025 were trading at 63 cents on the euro. They have since recovered to 96 cents after the miner and commodities trader launched a wide-ranging debt reduction programme,reports capital markets correspondent Gavin Jackson.

    The Switzerland-based company sold a small Swiss franc bond in April in a move that was widely interpreted as signalling to investors its continued ability to access financing.

    Glencore reported its first half results two weeks ago. The company told investors it was stepping up its debt reduction programme and was aiming to resume dividend payments next year.
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    Renault sees diesel disappearing from most of its European cars

    Renault expects diesel engines to disappear from most of its European cars, company sources told Reuters, after the French automaker reviewed the costs of meeting tighter emissions standards following the Volkswagen scandal.

    The sober reassessment was delivered at an internal meeting before the summer break. It shows how, a year after VW (VOWG_p.DE) admitted engineering software to cheat U.S. diesel emissions tests, the repercussions are forcing major European car makers to rewrite strategic plans that will shape their futures for years to come.

    Renault and domestic rival Peugeot (PEUP.PA), both heavily invested in diesel technology, initially scrambled to defend its future viability after the VW crisis erupted.

    But in the July meeting, Renault's Chief Competitiveness Officer Thierry Bollore said the diesel investment outlook had dimmed significantly, according to two people who were present.

    "He said we were now wondering whether diesel would survive, and that he wouldn't have voiced such doubts even at the start of this year," said one of the people.

    "Tougher standards and testing methods will increase technology costs to the point where diesel is forced out of the market," the source summarized Bollore as saying.

    Diesel engines, pricier but more efficient than gasoline, had already vanished from the smallest 'A'-segment vehicles like Renault's Twingo well before VW's so-called 'dieselgate', as their extra expense outstripped savings on fuel.

    By 2020, Renault now predicts that the toughening of Euro 6 emissions rules will push diesel out of cars in the next 'B'-segment size category, including its Clio sub compact, as well as some 'C' models such as the Megane hatchback, the sources said.

    Models in those first three size categories accounted for most of the group's 1.6 million European deliveries last year, and more than 60 percent were diesels.

    "Everybody is backtracking on diesel because after 2017-18 it becomes more and more expensive," said Pavan Potluri, a power train analyst with consulting firm IHS Automotive.

    While the VW scandal centered on the German carmaker's cheat software, it also focused public attention on an industry-wide disparity between nitrogen oxide (NOx) emissions on the road and those recorded in regulatory tests.

    Mass-market diesels that meet legal NOx limits in approval tests commonly emit five times as much or more in everyday use. The gases contribute to acid rain and respiratory illnesses blamed for hundreds of thousands of deaths globally each year.

    Starting in 2019, however, vehicle approvals will be based on emissions performance during real driving. This is forcing manufacturers to install costlier emissions treatment systems.

    Attached Files
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    Rio versus BHP boils down to investors' choice of commodity

    The backgrounds of the leaders of the world's top mining companies illustrate the choice facing investors, with BHP Billiton's chief executive having worked in the oil industry and Rio Tinto's new boss more focused on copper.

    After aggressive cost-cutting and asset sales to drive down debt, the two mining giants are positioning themselves to capture growth as commodity markets begin to recover from a crash that dented company balance sheets.

    French-born Jean-Sebastien Jacques has led Rio only since July, while his counterpart at BHP , Scotsman Andrew Mackenzie, has been in place for the turbulent past three years.

    Both men sang from the same songsheet when presenting financial results last month.

    They ruled out the reckless spending of the past that almost led to financial ruin and promised to be safe, boring and disciplined, buying assets only when the price was right and maintaining the focus on lowering costs.

    Rio is widely regarded as the better pick, with more analysts rating it a "Buy" than BHP, according to Reuters data.

    Rio has the advantage of having cut debt faster, while investors have also been put off BHP by a dam burst at an iron ore mine in Brazil last year that could lead to years of litigation.

    But there are signs of a shift in sentiment as investors weigh the two miners' exposures to different commodities.

    Since the start of the year, BHP has rallied more than Rio -- 31 percent versus 17 percent on the London stock market -- and some analysts see better potential for BHP's coking coal and oil assets, compared with Rio's greater exposure to iron ore.

    "It's pretty much a tie. Both are cautious and both have had big failures in the past," one industry source said, speaking on condition of anonymity. "Oil is the swing factor and that's a fairly safe bet longer term."

    Chris LaFemina, managing director at Jefferies, upgraded his recommendation on BHP to "Buy" from "Hold" last month, having already rated Rio a "Buy".

    He cited BHP's potential to cut costs further and its bigger exposure to coking coal and oil.

    Coking coal has rallied because of demand in top consumer China, while oil needs an output agreement from the Organization of the Petroleum Exporting Countries to get a meaningful boost.


    Frances Hudson, investment director, at Standard Life says it is pragmatic to have exposure to at least one of the two big miners given their heavyweight presence on the FTSE index of leading British stocks.

    Rio's market capitalisation is 43.7 billion pounds ($58.7 billion), while BHP's is almost 59 billion pounds, according to Reuters data.

    Reuters lists Standard Life Investments as the 15th largest investor in Rio's London-listed share. It does not appear among the top investors in BHP, but does have a smaller stake.

    Not everyone feels it is time to reinvest in the mining companies after BHP plunged more than 40 percent last year and Rio lost around a third of its value.

    Liberum investment bank rates both Rio and BHP a "Sell".

    Liberum analyst Richard Knights said BHP's Samarco Brazilian joint venture, liable for last year's dam burst, was a small asset for the company in financial terms. However, the concern is that no one can rule out massive damages being awarded after legal arguments.

    Rio has been boosted by its greater exposure to iron ore which has rallied by around a third this year on the Dalian Commodity Exchange.

    Iron ore, used in making steel, results in higher profit margins than oil because it requires less reinvestment to maintain output, analysts say, so it provides cash to improve Rio's balance sheet and boost dividends.

    Analysts, however, question the durability of the iron ore rally given the global oversupply.

    "Rio has the best assets in iron ore and aluminium, but those are commodities have two of the worst supply/demand outlooks in my opinion," Knights said.


    Jacques got the top job at Rio after winning praise for his work on the Oyu Tolgoi project in Mongolia, which when completed will be the world's third-biggest copper mine.

    Known as "JS", he is the first copper man in decades to run the company and his appointment was seen as a shift away from iron ore.

    Rio gets less than 10 percent of its core profit from energy and roughly 60 percent from iron ore.

    BHP's boss Mackenzie held a number of senior roles at oil company BP, and also headed the diamond and minerals division at Rio.

    For BHP, iron ore makes up roughly 40 percent of its EBITDA - earnings before interest, tax, depreciation and amortisation - and oil assets around 30 percent. Coal, including thermal and coking, accounts for some 5 percent.

    BHP last month listed the swing factors that could affect its core profit.

    The firm would receive a $42 million boost for each $1 increase on the price of a tonne of coking coal.

    Another dollar on the oil price would add $79 million to EBITDA in the current financial year, while an extra $1 per tonne for iron ore means $217 million in extra profits.

    This year hard coking coal has nearly doubled, while oil has increased roughly 25 percent.

    Rio sets out its exposure differently. "Rio Tinto's exposure to commodity prices is diversified by virtue of its broad commodity base," it said in its results statement.


    Analysts say its geographical reach takes Rio into riskier parts of the world than BHP, which is focused on OECD countries, giving Rio more potential to grow and broaden that base, especially in copper.

    Combined with diamonds, copper now provides some 11.5 percent of Rio's EBITDA.

    Essentially flat since the start of the year, copper has failed to match rallies elsewhere, but analysts and executives say the laggard could become a leader.

    In an interview with Reuters shortly after becoming CEO, Jacques said he believed copper could be the first commodity to "get out of the over-supply environment".

    At the end of 2015, Rio had 252 million pounds of copper sales provisionally priced at 217 cents per pound.

    A 10 per cent change in the price of copper from provisional prices, would increase or reduce net earnings by $36 million.

    For some investors, the sluggishness of copper, regarded as a commodity bellwether, fuels their doubts about further gains even if low interest rates have renewed interest in miners.

    Roger Jones, head of equities at London and Capital, said he believed investors had limited their exposure to the mining sector for the last few years "but the magnitude of the underweight has been reduced".

    London and Capital, which has around $3.2 billion of assets under management, does not hold share in either Rio or BHP.

    "In our view, both share prices are assuming a strong recovery in end markets which we believe is unlikely as current commodity markets are likely to move sideways at best over the medium term," he said.
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    Oil and Gas

    Oil-Market Rescue Seen No Nearer Amid Saudi-Russia ‘Lip Service’

    An international agreement to cap crude-oil output in a way that would restrict actual supply and support prices looks no nearer after the two largest producers pledged to cooperate.

    Most members of the Organization of Petroleum Exporting Countries that can raise production have indicated they will aim to do so, while others are already close to short-term limits.

    Monday’s joint statement by the oil ministers of Saudi Arabia and Russia, billed as a “significant” announcement, was “without any substance for market balances,” Amrita Sen, chief oil analyst at consulting firm Energy Aspects Ltd., said in Singapore.

    Although both nations committed to discuss measures to help the oil market, including a potential output freeze, Saudi Arabia said there’s no current need to limit production. Russia’s Energy Ministry also expressed doubt last week that a cap is needed. Further reducing hopes of a meaningful accord, the two failed to agree on whether Iran has fully restored pre-sanctions output, key to determining whether it should take part in any freeze.

    Impossible Cooperation

    “There is not even a little chance for a real cooperation between Russia and Saudi Arabia,” Eugen Weinberg, head of commodities research at Commerzbank AG in Frankfurt, said by e-mail. “It’s clearly just a lip service, since the real cooperation between these competitors is just impossible.”

    OPEC members are due to meet other producers for informal talks in Algeria later this month. One major issue undermining the impact of a potential freeze deal is that both Saudi Arabia and Russia are already pumping a lot of oil. The Saudis produced a record 10.69 million barrels a day in August, according to a Bloomberg survey of analysts, oil companies and ship-tracking data. Russian production has been running at a post-Soviet high all year, Energy Ministry data show.

    "A freeze doesn’t resolve anything if Saudi Arabia and Russia are both freezing when their production is at a record high," Saad Rahim, chief economist at oil-trading house Trafigura Group Pte, said in Singapore.

    For a QuickTake explainer on how oil prices are determined, click here.

    While Russia appears willing to join an international agreement to steady the market, it’s reluctant to lead the process of negotiating a freeze. Deputy Prime Minister Arkady Dvorkovich has said all OPEC members must reach consensus on a cap before Russia will participate. Even if a deal is on the table, Iran, Nigeria, Libya and even Iraq could reasonably seek exemptions.

    Iran showed Monday that it’s ready to pump more crude, with state-run National Iranian Oil Co. saying the country can raise production to 4 million barrels a day in two to three months from the current daily level of about 3.8 million. Iran’s unwillingness to take part in a previous freeze plan negotiated in April led Saudi Arabia to walk away from the deal.

    Nigeria may also demand the right to restore production after militant attacks curbed output, while Libya will want to boost volumes that shrank to a fraction of pre-conflict levels. In Iraq, Prime Minister Haidar Al-Abadi has said he’d support a freeze deal though new Oil Minister Jabbar Al-Luaibi previously called on oil companies to increase production to boost national revenue.

    Most of the rest of OPEC’s members are already pumping as much as they can.

    Saudi Arabia and Russia were keen to publicize their rapprochement on Monday, saying their joint statement showed a growing trust and understanding that collaboration is vital to oil’s recovery. Yet analysts remain skeptical a meaningful deal can be reached in Algiers.  

    "Talk is cheap but they could pay a dear price for crying wolf too often," Commerzbank’s Weinberg said.
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    Iran supports $50-60 oil price, stability measures-state TV

    Iran supports $50-60 oil price, stability measures-state TV

    Iran supports an oil price of $50-60 per barrel and any measure to stabilise the market, state TV quoted the country's oil minister as saying on Tuesday.

    "Iran wants a stable market and therefore any measure that helps the stabilisation of the oil market is supported by Iran," Bijan Zanganeh said after meeting OPEC Secretary-General Mohammed Barkindo in Tehran.

    OPEC's third-largest producer, Iran has signalled willingness to support the possible revival of a global deal on freezing production levels only if fellow exporters recognise its right to regain market share lost as a result of sanctions.

    Under a deal reached with six major powers in 2015, international sanctions imposed on Iran ended in January in exchange for Tehran curbing its nuclear programme.

    Efforts by OPEC and non-OPEC oil exporters to reach an agreement on freezing output earlier this year foundered because Iran declined to participate.

    Members of the Organization of the Petroleum Exporting Countries will meet on the sidelines of the International Energy Forum (IEF), which groups producers and consumers, in Algeria on Sept. 26-28, during which they are expected to discuss a possible output freeze.

    Non-OPEC member Russia is also expected to attend the IEF.

    Hit by global oversupply, oil prices collapsed to as low as $27 per barrel earlier this year from as high as $115 in mid-2014, but have since recovered to around $47.

    "We support oil prices between $50 and $60 per barrel," Zanganeh said.

    A senior Iranian official said on Monday Iran was ready to raise its output to 4 million barrels per day in a couple of months depending on market demand.

    OPEC kingpin Saudi Arabia and Russia agreed on Monday to set up a task force to review oil market fundamentals and to recommend measures and actions that would secure market stability.
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    New LNG bunkering brand launched

    ENGIE, Mitsubishi Corp. and NYK Line have announced the launch of a new brand for their joint marketing of LNG as a marine fuel around the world: Gas4Sea.

    Gas4Sea aims to lead innovation through the ship-to-ship (STS) supply of LNG for the maritime sector.

    The companies concluded a framework agreement for a partnership to develop LNG bunkering services in 2014. By combining NYK's shipping expertise with ENGIE and Mitsubishi Corp.'s LNG supply portfolio and terminal access under the brand Gas4Sea, the partners will offer a cleaner, reliable, safe, and cost-effective service to shipping customers worldwide. The companies will also be able to tailor their LNG supply chains to their customers' needs.

    The partners will begin operations in 4Q16, using a purpose-built LNG bunkering vessel with a 5000 m3 LNG capacity. Designed to adapt to the largest range of customers, it will be able to bunker vessels at the Belgian port of Zeebrugge, as well as other nearby ports.

    The partners will expand their LNG bunkering services under Gas4Sea to meet more customers' needs into other regions, in collaboration with stakeholders including shipping companies, port authorities, terminal operators, regional suppliers, and local governments and regulators.

    Philip Olivier, CEO of ENGIE Global LNG, said: "Continuing ENGIE's long history of innovation, we are proud to launch this first global LNG bunkering service together with our longstanding partners. In the general framework of energy transition, we believe LNG has a key role to play in developing a more sustainable shipping activity. In the coming months, we will start supplying United European Car Carriers' new dual fuel car carriers operating in the North Sea and Baltic Sea."

    Jun Nishizawa, SVP and Deputy COO of Mitsubishi Corp.'s Natural Gas Business Division, said: "At Mitsubishi Corp., we continue to strive as a responsible energy supplier to contribute to the reduction of environmental impact leveraging on our half an century experience in LNG. We are at the juncture of achieving substantial emissions reductions in the maritime sector. Through our partnership with ENGIE and NYK, we hope to expedite shipping companies' transition to LNG by placing ourselves as a key piece in the global marine LNG supply chain."

    Hitoshi Nagasawa, Senior Managing Corporate Officer of NYK Line, added: "As a leading global shipping company, NYK is also striving to find reliable and environmentally sustainable solutions to help address society's need to reduce emissions. We believe that the use of LNG as a marine fuel is a key innovation in this search and through Gas4Sea, using the world’s first purpose-built LNG bunkering vessel, we and our partners ENGIE and Mitsubishi Corp. will offer ship owners and operators the opportunity to participate in this innovation and further enhance our industry's ability to operate in a more environmentally responsible way."
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    Suncor sells oil storage stake to Fort McKay First Nation‎

    Suncor Energy Inc is selling a stake in an oil-storage facility to the Fort McKay First Nation‎ in a $350-million deal.

    The aboriginal group will buy a 34.3-per-cent interest in Suncor's East Tank Farm once it becomes operational in 2017, Suncor said in a statement Tuesday, with proceeds paid upon closing.

    The facility will handle crude from Suncor‎'s $15-billion Fort Hills mine, which is due to add 180,000 barrels per day of new capacity in northern Alberta starting later next year.

    Under the deal, Fort McKay will finance the transaction with revenue from terminal fees. Suncor will remain operator.

    It's expected to close in the second quarter of 2017 subject to some conditions.
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    Brookfield group to buy Petrobras pipeline unit for $5.2 billion: source

    Brazil's Petroleo Brasileiro SA agreed to sell 90 percent of its natural gas pipeline unit to a group of investors led by Canada's Brookfield Asset Management Inc for $5.2 billion, a source with direct knowledge of the deal said on Tuesday.

    The investor group includes British Columbia's pension fund and Chinese and Singaporean sovereign wealth funds CIC and GIC. The agreement will be submitted to the Petrobras board and the transaction is expected to close in late September, the source said. Petrobras declined to comment and Brookfield didn't immediately comment.
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    Argentina to propose 203% natural gas tariff hike to help boost E&P

    Argentina's government will propose increasing residential natural gas tariffs by 203% with twice yearly hikes of less than 10% at a September 16 public consultation, as it seeks to spur investment in building gas production, Energy Minister Juan Jose Aranguren said.

    "The increase being proposed is an average of 203%," Aranguren told reporters late Monday, according to state newswire Telam.

    Aranguren's office did not have further information on the plan when contacted Tuesday.

    The 203% is less than the 400% that the government increased residential tariffs on April 1, a hike that was annulled last month by the Supreme Court after complaints by consumer rights groups. The Supreme Court told the government to hold a public consultation before raising the tariffs, as required by law.

    The new hike is to take effect October 1, with biannual increases thereafter, Aranguren said.

    This will help reduce state spending to subsidize the tariffs, which now covers 81% of the bill, while consumers pay the rest. With the increase, consumers will pay half of the bill and the rest will come from the state, Aranguren said.

    With the gradual increases, the government wants to eliminate the subsidies by 2019 for most of the country. It will take longer, however, in the colder southern region of Patagonia, where a slower increase in tariffs means the subsidies won't be eliminated until 2023, according to Aranguren.

    In terms of wellhead prices, which account for about half of the gas bill, the 203% increase means that households will pay $3.42/MMBtu, up from $1.29/MMBtu currently. That is less than the $4.72/MMBtu it would have reached with the 400% increase.

    With the gradual increases, the wellhead price paid by residential consumers will reach $6.78/MMBtu in October 2019.

    Households account for 24% of the 130 million-180 million cu m/d gas consumption, meaning that higher hikes on tariffs for factories and power plants, which account for 63% of the consumption, will limit the impact on overall wellhead prices.

    The conservative government of President Mauricio Macri doubled wellhead prices to an average of $5.30/MMBtu after taking office in December.

    The higher pricing is key for encouraging a ramp-up in production after years of shortages pushed up imports to a third of consumption. Macri has said he wants to replace imports of liquefied gas, now at about 25 million cu m/d, with local production by 2021-2022.

    Gas production rose 7.5% to 122.2 million cu m/d in the first half of 2016 from a 10-year low of 113.7 million cu m/d in 2014, according to Energy Ministry data. This was helped by a government-incentivized price of $7.50/MMBtu for new developments, including in the country's huge shale and tight plays like Mulichinco and Vaca Muerta.
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    EOG Resources and Yates Petroleum agree to combine in transaction valued at $2.5 billion

    EOG Resources, Inc. and Yates Petroleum Corporation today announced definitive agreements under which EOG has agreed to combine with Yates Petroleum Corporation, Abo Petroleum Corporation, MYCO Industries, Inc. and certain other entities (collectively, Yates). Under the terms of this private, negotiated transaction, EOG will issue 26.06 million shares of common stock valued at $2.3 billion and pay $37 million in cash, subject to certain closing adjustments and lock-up provisions. EOG will assume and repay at closing $245 million of Yates debt offset by $131 million of anticipated cash from Yates, subject also to certain closing adjustments.

    'This transaction combines the companies' existing large, premier, stacked-pay acreage positions in the heart of the Delaware and Powder River basins, paving the way for years of high-return drilling and production growth,' said William R. 'Bill' Thomas, Chairman and Chief Executive Officer of EOG. 'We are excited by this unique opportunity to advance EOG's strategy of generating high-return growth by developing premium wells at low costs that enhance long-term shareholder value.

    'Additionally we are thrilled to welcome Yates' 300 employees to the EOG family and look forward to continuing the important presence Yates has established in the community of Artesia, N.M.'

    Yates is a privately held, independent crude oil and natural gas company with 1.6 million net acres across the western United States. Since 1924, when it drilled the first commercial oil well on New Mexico state trust lands, Yates has amassed a rich acreage position across the western United States. Highlights of Yates' assets are summarized below:

    Production of 29,600 barrels of crude oil equivalent per day, net, with 48 percent crude oil
    Proved developed reserves of 44 million barrels of oil equivalent, net
    Delaware Basin position of 186,000 net acres
    Northwest Shelf position of 138,000 net acres
    Powder River Basin position of 200,000 net acres
    Additional 1.1 million net acres in New Mexico, Wyoming, Colorado, Montana, North Dakota and Utah.

    EOG is the largest oil producer in the Lower 48, with average net daily production of 551 thousand barrels of crude oil equivalent and a reputation for technological leadership in the development of unconventional resource plays.'EOG is our partner of choice as we look to extend Yates' 93-year legacy,' said John A. Yates Sr., Chairman Emeritus of Yates Petroleum Corporation and son of founder Martin Yates Jr. 'As we enter a new era of unconventional resource development, we are excited to join forces with another pioneering company like EOG.'

    Douglas E. Brooks, Chief Executive Officer of Yates Petroleum Corporation, added, 'This is a tremendous opportunity to combine EOG's strong technical competencies with the enormous resource potential of the Yates acreage to create significant value for Yates and EOG shareholders alike.'

    Yates immediately adds an estimated 1,740 net premium drilling locations in the Delaware Basin and Powder River Basin to EOG's growing inventory of premium drilling locations, a 40 percent increase. A premium drilling location is defined by EOG as a direct after-tax rate of return of at least 30 percent assuming a $40 flat crude oil price. EOG plans to commence drilling on the Yates acreage in late 2016 with additional rigs added in 2017.

    'Through this transaction, our premium drilling strategy is gaining added momentum. With improving well productivity and this newly enhanced resource base, our organization can generate further increases in returns and capital efficiency,' Thomas said. 'The combination enhances the size and quality of EOG's existing portfolio of oil resource plays.'

    Doubles Position in Delaware Basin and Adjacent Plays

    Yates has 186,000 net acres of stacked pay in the Delaware Basin in New Mexico that is highly prospective for the Wolfcamp, Bone Spring and Leonard Shale formations. This brings the combined company's total Delaware Basin acreage position to approximately 424,000 net acres, a 78 percent increase to EOG's existing holdings.

    Additionally, Yates has 138,000 net acres on the Northwest Shelf in New Mexico that is prospective for the Yeso, Abo, Wolfcamp and Cisco formations. These shallow plays have the potential to contribute additional amounts of premium inventory with the application of EOG's advanced completion and precision targeting technologies and low cost structure. Along with EOG's existing acreage, the newly combined company will have 574,000 net acres in the Delaware Basin and Northwest Shelf.
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    ‘We are committed’: Petronas hopes to secure environmental license for Canadian LNG project by year-end

    Malaysia’s state-owned oil and gas company Petronas is on track to get its US$27 billion refining and petrochemical complex in the south of the country up and running in 2019, the head of the group’s downstream operations told Reuters.

    Petronas has earmarked heavy spending cuts to contend with low oil prices that have sent profit tumbling, but the company remains committed to the Refinery and Petrochemical Integrated Development (RAPID) project it aims to turn into a regional oil and gas hub by 2035.

    “By the end of the year we should have completed more than 50 percent of the complex and we’re on track to start operations in the first quarter of 2019,” said Md Arif Mahmood, Petronas downstream CEO and group executive vice-president.

    The project, launched in 2012 at Pengerang in the southern state of Johor, will consist of a 300,000 barrel per day refinery and petrochemical complex with combined annual chemical output capacity of 7.7 million metric tonnes.

    Other facilities include a liquefied natural gas (LNG) regasification terminal.

    “There are four billion people in southern Asia and future growth will be there as the number of middle-class income makers grows,” Mahmood said.

    Like other energy companies, Petronas has cut costs, laid off workers and deferred investments to offset the slide in crude prices.

    It has earmarked more than 10 billion euros (US$11.2 billion) of capital expenditure cuts over the next three to four years and is looking to maximize other revenue streams outside upstream exploration.

    “With the new norm for crude at US$40 to US$50 a barrel, downstream has become a critical component, it flies the flag of the company,” Mahmood said.

    In Italy to attend the Formula 1 Grand Prix at Monza (Petronas is sponsor of the Mercedes F1 team), Mahmood said that the company’s growth in Europe would be focused on expansion of its lubricants business.

    “We have an aggressive plan to grow in Germany, the UK, Ireland and Italy,” he said.

    Europe is one of the company’s main lubricant markets, generating 28 per cent of the group’s total volumes. Italy is the biggest market, accounting for 48 per cent of European sales.

    In chemicals, Mahmood said the group would maximize benefits from its partnership with Germany’s BASF, though a planned joint venture in synthetic rubber with Italian oil major Eni’s Versalis has been abandoned.

    “We’ve both decided not to go ahead because of market conditions,” Mahmood said.

    Besides the RAPID project, Petronas has ambitious plans in LNG and Mahmood said it hopes to gain long-awaited environmental clearance for a US$35 billion LNG export terminal in western Canada by the end of the year.

    Petronas has been waiting more than three years for a permit to start building the Pacific NorthWest terminal and some analysts have said that LNG oversupply and lower oil and gas prices now threaten to make the project unattractive.

    “We are committed at the moment, but first we need to see what the conditions of approval are,” Mahmood said.

    The company, which is one of the world’s largest LNG producers, is also on track with construction of a US$12 billion offshore LNG plant that it touts as the world’s first floating liquefaction facility.

    “You’ll see production at the end this year or early next,” Mahmood said, adding that commissioning is also under way for a ninth production line at the group’s Bintulu LNG complex in Malaysia.
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    Murphy Said to Lead Group for Deepwater Mexico Oil Lease Bidding

    Murphy Oil Corp., Petroliam Nasional Bhd. and Sierra Oil & Gas are in talks to form a group that would bid jointly for the first opportunity in more than seven decades to independently operate offshore fields in Mexico’s deep Gulf waters, a person with direct knowledge of the plan said.

    The three producers are in the process of signing a joint study and bid agreement, a step to form a consortium for Mexico’s sale of deepwater leases on Dec. 5, according to the person, who asked not to be identified because the information isn’t public.

    Mexico, which ended a monopoly on oil exploration as it struggles to arrest declining production at its aging fields, expects the historic sale of deepwater drilling rights in the Gulf of Mexico will bring in investment of as much as $44 billion. About three quarters of Mexico’s prospective resources are located in the deep waters of the Gulf, according to government data.

    More Interesting

    A total of 16 operators and 10 financial companies have already qualified to bid for the December auction. The sale has lured more interest than an opportunity to partner with state-owned Petroleos Mexicanos to develop the Trion field in the Perdido area.

    Murphy Oil, which is approved to act as an operator should the company win an oil block, will not "reveal information about the upcoming lease round at this time," Kelly Whitley, the Houston-based company’s vice president of investor relations and communications, said in an e-mailed response to questions. Ivan Sandrea, chief executive officer of Mexico’s Sierra Oil & Gas, declined to comment. Petronas, as the Malaysian state-run oil producer is known, didn’t respond to e-mails seeking comment. The company is also qualified as an operator.

    The aspiring bidders have joined forces before. Murphy Oil and Petronas bid together for two blocks in Mexico’s first shallow-water oil auction in July last year, though their offer fell short of the minimum 40 percent stake the government required to retain in the fields.

    Sierra Oil & Gas, which bid in a consortium with Talos Energy LLC and Premier Oil Plc, won rights to explore for crude in two blocks in the same auction. Petronas and Sierra Oil & Gas bid in consortium groups in the country’s second auction, though neither were awarded contracts.

    Bidder’s Backing

    Sierra Oil & Gas, a recently formed company in Mexico that qualified as a financial partner for the Dec. 5 auction, has received funding from BlackRock Inc., Riverstone Holdings Ltd. and EnCap Investments LP. Chevron Corp., Exxon Mobil Corp. and Hess Corp. have also agreed to bid together at the upcoming auction, a person with knowledge of the plans said last month.

    Joint agreements to bid can be dissolved if one of the companies withdraws its intention to participate in the contract, and the companies may opt not to bid even if the consortium is still in place.
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    Shell starts production at Stones in the Gulf of Mexico

    Shell announces today that production has started from the Stones development in the Gulf of Mexico. Stones is expected to produce around 50,000 barrels of oil equivalent per day (boe/d) when fully ramped up at the end of 2017.

    The host facility for the world’s deepest offshore oil and gas project is a floating production, storage and offloading (FPSO) vessel. It is the thirteenth FPSO in Shell’s global deep-water portfolio and produces through subsea infrastructure beneath 9,500 feet (2,900 meters) of water. Stones underscores Shell’s long-standing leadership in using FPSOs to safely and responsibly unlock energy resources from deep-water assets around the world.

    “Stones is the latest example of our leadership, capability, and knowledge which are key to profitably developing our global deep-water resources,” said Andy Brown, Upstream Director, Royal Dutch Shell. “Our growing expertise in using such technologies in innovative ways will help us unlock more deep-water resources around the world.”

    Stones, which is 100% owned and operated by Shell, is the company’s second producing field from the Lower Tertiary geologic frontier in the Gulf of Mexico, following the start-up of Perdido in 2010.

    The project demonstrates Shell’s commitment to realizing significant cost savings through innovation. It features a more cost-effective well design, which requires fewer materials and lowers installation costs; this is expected to deliver up to $1 billion reduction in well costs once all the producers are completed.

    The FPSO is also specially designed to operate safely during storms. In the event of a severe storm or hurricane, it can disconnect and sail away from the field. Once the weather event has passed, the vessel would return and safely resume production.

    Shell’s global deep water business is a growth priority for the company and currently produces 600,000 boe/d. Deep-water production is expected to increase to more than 900,000 boe/d by the early 2020s from already discovered, established reservoirs. Three other Shell-operated projects are currently under construction or undergoing pre-production commissioning: Coulomb Phase 2 and Appomattox in the Gulf of Mexico and Malikai in Malaysia.
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    Enbridge to Buy Spectra Energy in $28 Billion Deal

    Canadian pipeline company Enbridge Inc. on Tuesday agreed to buy Houston’s Spectra Energy Corp. in an all-stock deal valued at about $28 billion, creating a major North American energy-infrastructure company at a time when energy-industry operators continue to deal with the fallout from low oil prices.

    Under the deal, announced jointly by the companies, Spectra Energy shareholders will receive shares of Enbridge valued at around $40.33 each, or a premium of about 11.5%, based on the closing price of Enbridge shares on Friday.

    The arrangement has an enterprise value of about $127 billion and the deal, which has the full support of the boards of both Enbridge and Spectra, is expected to close in the first quarter of 2017, the companies said in a release.

    On closing, Enbridge shareholders are expected to own about 57% of the combined company, to be called Enbridge Inc., and Spectra Energy shareholders will own the remaining 43%. The merged company will have assets spanning crude oil, liquids and natural gas pipelines, terminal and midstream operations, a regulated utility portfolio and renewable power generation operations.

    “Bringing Enbridge and Spectra Energy together makes strong strategic and financial sense, and the all-stock nature of the transaction provides shareholders of both companies with the opportunity to participate in the significant upside potential of the combined company,” said Al Monaco, Enbridge chief executive.

    “Together, the merged company will have what we believe is the finest platform for serving customers in every region of North America and providing investors with the opportunity for superior shareholder returns,” added Spectra Energy Chief Executive Greg Ebel, who will become chairman of the merged company.
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    ChemChina extends public tender offers for Syngenta to November 8

    ChemChina extends public tender offers for Syngenta to November 8

    ChemChina on Tuesday extended by almost two months the deadline for Syngenta investors to tender their shares as the Chinese company seeks to complete a $43 billion takeover of the Swiss pesticides and seeds group.

    Investors in Basel-based Syngenta now have until Nov. 8 to tender their shares unless this is further extended, ChemChina said in a statement. The previous deadline, which had already been prolonged, was Sept. 13.

    "All of the other terms and conditions of the tender offers remain unchanged and ChemChina continues to expect to conclude the transaction by the end of the year," ChemChina said.

    The companies are awaiting some regulatory approvals for the deal and need to keep the tender offer open during this period, a Syngenta spokeswoman said.

    Syngenta stock had eased 0.1 percent to 432.30 Swiss francs by 0905 GMT (0505 ET), still below the offer price of $465 per share in cash plus a special dividend of five Swiss francs.

    At current exchange rates, the offer is worth nearly 461 francs a share including the special dividend.

    Clearance for the takeover last month from a U.S. national security panel removed significant uncertainty over the deal.

    Several U.S. lawmakers and groups representing farmers had expressed fears over a Chinese state-owned company being in a position to influence the U.S. food supply.

    The United States reviewed the deal because more than a quarter of the company's seeds and crop protection revenue last year came from North America.

    The current discount to the offer price, stemming from some uncertainty whether the deal will go ahead, has slowed down the tender process, one asset manager said.
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    BASF warns crop protection markets to remain challenging

    BASF warns crop protection markets to remain challenging

    BASF, the world's third-largest crop chemicals supplier, became the latest player in the industry to warn that agricultural markets would remain volatile and challenging.

    The German group reiterated that its crop protection unit would seek to match last year's profitability in 2016, "which is a stretch but that's our commitment," the unit's head Markus Heldt said at a news conference at BASF's Ludwigshafen headquarters.

    Among farmers, there is "a wait and see mentality with regard to investment and spending on crop protection," said BASF's Harald Schwager, management board member in charge of the unit.

    The crop protection and seeds industries have been hit by low prices for agricultural produce, Latin American farmers struggling to get bank credit for procurement expenses and weak emerging-market currencies.

    BASF's crop protection division in 2015 chalked up earnings before interest and tax (EBIT) before special items of 1.1 billion euros ($1.23 billion) over sales of 5.8 billion euros, a margin of 18.7 percent.

    The group, which also produces industrial chemicals, engineering plastics, oil and gas, has remained on the sidelines of major consolidation moves in the agricultural industry. It said on Tuesday it would lie in wait for antitrust-related selloff of businesses as rivals merge.

    German rival Bayer said over night that merger negotiations with Monsanto Co had advanced and that it was willing to sweeten its offer to more than $65 billion to acquire the world's largest seeds company.
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    Precious Metals

    Eldorado Gold exits China, sells Jinfeng mine for $300 million

    Canada’s Eldorado Gold said Tuesday has completed the sale of its 82% stake in the Chinese Jinfeng mine to a wholly-owned subsidiary of China National Gold Group for US$300 million in cash.

    Jinfeng mine is expected to generate 95,000-105,000 ounces of gold this year, as the operation transitions fully into the underground.

    The move marks the Vancouver-based miner exit from China, as the company announced earlier this year it was also selling its other three operations in the country — White Mountain, Tanjianshan and Eastern Dragon — for US$600 million in cash. That deal is expected to close before the end of the year, Eldorado said in the statement.

    The transactions, said the company’s president and CEO Paul Wright, will add “meaningful value” to Eldorado and further strengthen the firm’s financial flexibility to advance its internal project pipeline.

    Jinfeng produced 149,655 ounces of gold in 2015 and is expected to generate 95,000-105,000 ounces of gold this year, as the operation transitions fully into the underground.

    Eldorado Gold, which also has operations in Turkey, Greece, Romania and Brazil, said it would use the money obtained from its Chinese mines to “continue to grow” the business based on “long-lived, low-cost assets.”
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    Base Metals

    Codelco warns strike at Salvador mine risks division’s future

    Salvador, Codelco’s smallest mine, produced 49,000 tonnes of copper last year. 

    Chile’s Codelco, the world's No.1 copper producer, said a strike over contract terms initiated Monday by members of Union No. 2 of its Salvador mine, threatens the division’s feasibility.

    Salvador, which is the state-owned firm’s smallest operation and produced 49,000 tonnes of copper last year, has been battling to turn a profit after dwindling ore grades pushed up production costs, affecting a plan to extend the mine's life.

    Salvador, Codelco’s smallest operation, has been battling to turn a profit after dwindling ore grades pushed up production costs, affecting a plan to extend the mine's life.

    “As is public knowledge, the general situation at Salvador is critical,” Codelcosaid in the statement (in Spanish). “To impede work at the Salvador division — at a time when we need to guarantee its continuity, increase production and intensify efficiency efforts — prevents us from ensuring its viability.”

    The stoppage was illegal until late Monday, when one of the unions accepted Codelco’s final contract offer. After that, it became legal, which means most workers have now downed tools. This partly as those who did not take part in the initial strife were unable to get to work after striking colleagues blocked access to the mine.

    Operations at the mine, located in northern Chile, remained shut at about 9 a.m. local time Tuesday, local radio station reported (in Spanish).

    With copper prices down more than 30% since early 2014, Codelco offered last week a wage increase limited to inflation, as well as signing and efficiency-related bonuses. But members of Union No. 2, which covers Salvador's refinery and smelting workers, voted 346 to 228 against it.

    In August last year, the mine was hit by an around three-week strike by a different group of contract workers, which cost Codelco more than $15 million in lost production and damaged equipment.

    Attached Files
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    Chile says wins better terms for copper concentrates in deal with India

    Chile has obtained improved terms for the copper and molybdenum concentrates it exports to India under a new trade deal between the two countries signed Tuesday in New Delhi, it said.

    The new deal expands a Partial Trade Agreement signed in 2007, granting preferential tariff terms to 474 products not included in the original deal and increasing the tariff preference margin by between 80% and 100%, Chile's office of economic relations, DIRECON, said in a statement.

    "This means at least 80% of the products we can export to India, a market of more than 1.2 billion people, will obtain preferential market access," said DIRECON head Andres Rebolledo.

    The deal will principally benefit Chilean farmers, but will also improve the terms on which copper concentrates and molybdenum concentrates enter the Indian market.

    In 2015, Chile exported 372,100 mt of copper in concentrate to India, making it Chile's fourth most important market for copper exports behind China, Japan, and South Korea.

    But the deal will not improve access for exports of more refined forms of copper from Chile to India, which uses tariffs to protect domestic smelting and refining operations.

    In 2015, Chile exported 3,300 mt of copper metal and 4,000 mt of blister and anode to India.

    Copper accounted for almost 95% of the $1.841 billion worth of Chilean goods exported to India last year.

    However, India is not a key market for Chilean molybdenum. In 2015, India imported $11.8 million of molybdenum oxide from Chile, representing 2% of Chile's total molybdenum exports.
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    Congo State miner submits offer for Freeport's Tenke copper project

    Democratic Republic of Congo's State mining company Gecamineshas submitted an offer to buy Freeport McMoRan's majority stake in the Tenke copperproject, Gecamines' interim director-general Jacques Kamenga told Reuters on Wednesday.

    Freeport agreed in May to sell its 56% stake in Tenke, one of the world's largest copper mines, to China Molybdenum for $2.65-billion.

    Toronto-based Lundin Mining, which holds a 24% stake, has until September 15 to exercise its right of first offer before the deal goes through.
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    Steel, Iron Ore and Coal

    Global coal-fired power capacity falls, led by China, India

    The amount of coal-fired power generating capacity under development worldwide has shrunk by 14% to an estimated 932 GW in July this year, compared with 1.09 TW at the start of the year, Reuters reported, citing a study released on September 7.

    It was mainly driven down by China as it struggles with oversupply and tries to promote cleaner energy, according to a Global Coal Plant Tracker run by non-government and anti-coal group CoalSwarm.

    The study also attributed it to India's policies of curbing plans for coal-fired plants introduced in the first half of 2016, partly due to under-utilization of existing plants.

    The overall decline, of 158 GW, was almost equal to the coal generating capacity of the European Union, at 162 GW, it said.

    China saw the biggest drop of 114 GW to a total 406 GW proposed in its pre-construction pipeline so far, followed by India with a decline of 40 GW, it estimated.

    The Chinese government vowed in February to shut coal capacity of 500 million tonnes per annum in the next three to five years to reduce oversupply. Profits also shrank in the first half of the year because of sagging power demand and higher coal prices.

    The Philippines and Indonesia had also curbed coal, while countries such as Egypt and Mongolia raised their planning.

    Coal plant retirements are increasing worldwide, especially in the United States and Europe, but are still only a fifth the size of new plant construction, a study by CoalSwarm and other non-governmental organizations said in March.

    From 2003 to 2015, for instance, the United States added 23 GW of coal capacity and retired 54 GW.
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    Adaro presents positive outlook despite revenue fall during H1

    Adaro presents positive outlook despite revenue fall during H1

    Indonesian coal company Adaro Energy recorded a 16% fall in revenues from its coal mining and trading activities in the first half of 2016, as the average selling price for its coal fell 17%, showed data from the company's latest financial press release.

    Lower production costs enabled the company to increase in coal business profit, however, by 15% to $134 million.

    The company sold 17.1 million tonnes of coal over January to June, flat on year. While its coal production stood at 25.9 million tonnes, keeping the company on track to hit the lower end of its annual target of 52-54 million tonnes.

    Cost of revenue fell, however, by 21% as the company benefited from lower strip ratios and good operational productivity.

    In addition, the company said it had hedged 30% of its fuel requirements – the most significant cost item at Indonesia's truck-reliant coal mines – for the rest of year at well below its 2016 budget.

    Thermal coal market improved recently on the back of supply rationalisation in major coal producing countries and sustained demand.

    Adaro was positive on future demand, according to Garibaldi Thohir, the company's president director and CEO, believing the current market downturn is cyclical and that the long-term fundamentals for coal remain intact.

    The company is optimistic with the prospect from Indonesia and other Southeast Asian countries as these countries will continue to depend on coal to fuel their surging energy needs to achieve stronger economic growth, said Thohir.
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    Gladstone Australia coal exports to China ease in Aug to 749,000 mt

    Shipments of coal to China from the Port of Gladstone in Queensland, Australia, sank below 1 million mt in August for the first time since April, at 749,000 mt, Gladstone Ports Corporation data showed Tuesday.

    Exports to China from Gladstone averaged 1.14 million mt/month from May to July following restrictions from Beijing on domestic production, which sent Chinese buyers shopping on the seaborne market.

    The shipments to China slid 29% month on month in August, but remained almost double the monthly average of 379,000 mt/month for the first quarter of the year, the data showed.

    A similar trend was seen in export figures from Australia's Port Waratah Coal Services terminals at the port of Newcastle, which fell from an 18-month high of 1.80 million mt in July to 549,000 mt in August.

    A trader told S&P Global Platts last week that China's demand for coal has slightly weakened recently due to a drop in temperatures. Power plants were consuming stocks in 20-21 days now, compared with 15 days previously, he said.

    Gladstone Ports Corporation handles 42 coal types with the majority being metallurgical coal and approximately 30% being thermal coal, it says.

    China had received 18% of all Gladstone coal exports in July but that fell to 12% in August, while exports to Japan, India, South Korea and Taiwan all rose month on month in August, the data showed.

    Japan -- which takes the lion's share of Gladstone coal exports -- saw its largest monthly volume from Gladstone for the year to date in August, rising 9% month on month to 2.30 million mt, according to the figures. It's the most the country has been sent since 2.45 million mt in December last year and is 300,000 mt more than the 12-month rolling average of 2.00 million mt/month, Gladstone data shows.

    India also received its largest monthly volume for the year to date with exports rising 56% month on month to 1.50 million mt in August, which is the most that has been sent since 1.68 million mt in September, 2015, and it breached the 12-month average of 1.28 million mt/month.

    Exports to South Korea were up 22% month on month at 965,000 mt in August, but were still lagging the 12-month rolling average of 1.14 million mt.

    Taiwan, which took just 3% of Gladstone's coal exports, saw shipped volumes surge 164% to 198,000 mt, but remained lower than the 12-month average of 265,000 mt, the data said.

    The boost in exports to the four countries helped offset the decline in shipments to China, to take total coal exports from Gladstone up by 8% month on month to 6.14 million mt, which is the most since May's 6.29 million mt. The 12-month rolling average for total coal exports from Gladstone is lower at 5.93 million mt.

    The volumes were sent via 59 cargoes in the month and on Monday Gladstone's RG Tanna coal terminal had two vessels at berth and five at anchor, down from three at berth and six at anchor last week, Gladstone Ports Corporation said.

    Fifteen mines, operated by companies including BHP Billiton-Mitsubishi Alliance, Ensham Resources, Jellinbah Resources, Wesfarmers and Yancoal Australia, supply coal exports to Gladstone port and its three coal terminals in Queensland -- Barney Point, RG Tanna and Wiggins Island.

    GPC was not reporting any vessels at berth or at anchor for Barney Point or Wiggins Island.
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    India’s iron-ore output bounces back but policy uncertainty resurfaces

    Indianiron-ore production bounced back to positive territory, recording growth of 8% during 2015/16, and is forecast to increase by 29% in the current financial year, despite policy uncertainty looming over the sector.

    Data sourced from the Steel Ministry shows that Indian iron-ore production hit the 139-million-ton mark in 2015/16. The recovery during the year was significant, considering the six-year production low of 128-million tons in 2014/15.

    Barring 2013/14, when iron-ore production was positive, Indian iron-ore production has persistently declined, with 2011/12 registering a 20% contraction, followed by a 19% contraction in 2012/13 and a 15% contraction in 2014/15.

    Provisional production estimates for the current financialyear show iron-ore production is expected to increase to 180-million tons, with officials claiming that the final figure could be even higher, as several provinces are ramping up production and many of them, such as Odisha, are seeking a relaxation of the yearly production ceiling imposed by the Supreme Court.

    Citing examples to back such a claim, an official pointed out that Odisha’s production of 80-million tons in the lastfinancial year was at a ten-year high.

    Similarly, in western India, miners in Goa are seeking a relaxation of the 20-million-ton-a-year production ceiling, with Vedanta leading the charge for a relaxation of the restrictions. Vedanta is not allowed to produce more than five-million tons a year, but has already extracted about three-million tons in the current financial year.

    Meanwhile, the sustainability of India’s iron-ore turnaround is unclear, owing to a failure to reconcile conflicting claims about the country’s export future.

    The debate got a fresh lease on life last month with the SteelMinistry indicating that it is willing to engage the FinanceMinistry on a pending proposal to prune the export tax oniron-ore fines and lumps.

    While the government has slashed export tax on low gradeiron-ore fines to 10%, a higher rate of 30% was maintained for all other grades despite repeated pleas of miners for a reduction to maintain the momentum of revival.

    Quick to nip any such move in the bud, the Indian SteelAssociation, the representative body of domestic steelproducers, has in a communication to the Ministry, demanded that the higher rate be maintained to “preserve natural resources for domestic use and ensure adequate raw material security, keeping in view long-term growth plans and investments in domestic steel capacity growth”.

    Making a case against easing exports, steel companies have pointed out that over the past five years, steel production has registered a compound annual growth rate (CAGR) of 6.5% while the CAGR of iron-ore production during the same period was a negative 6.51% indicating dire long-term availability of the critical raw material.

    For their part, miners represented by the Federation of Indian Mineral Industries (FIMI), said that after becoming largely a minor player in international markets, Indian iron-ore needed fiscal support from the government to mark a renewed presence among global buyers.

    FIMI claimed that higher exports would not result in scarcity now or in the future. On the contrary, higher exports would lead to higher production and higher exploration and discovery within the country.

    Attached Files
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    BHP-Vale mine bondholders said to hire lawyers for debt talks

    Samarco bondholders hired US law firm Hogan Lovells for help with debt-restructuring talks as the stalled Brazilian iron-ore miner runs out of money, according to people with knowledge of the matter.

    With a coupon payment looming, Hogan Lovells is seeking a Brazilian law firm to work with it on negotiations to alter repayment terms, said the people, asking not to be named because the matter is private.

    The mining venture owned by BHP Billiton and Vale is exploring options with creditors as its mining operations remain on hold ten months after a deadly tailings dam spill. While Melbourne-based BHP and Rio de Janeiro-based Valeare putting up money for Samarco’s working capital and repair and relief work, they aren’t covering debt payments.

    Samarco, Vale, BHP and Hogan Lovells all declined to comment.

    The mine – the world’s second-largest producer of iron-orepellets before the spill – is also seeking an agreement on about $1.6-billion in bank loans to postpone payments until it resumes mining, people with knowledge said last month.

    While its dollar-denominated bonds don’t start maturing until 2022, coupon payments are scheduled for as early as September. The notes are trading at about 36c on the dollar from about 60c in early May, after hopes faded for a swift resumption of operations.

    After previously flagging a 2016 restart, the mine may not get new permits until late next year or 2018 amid regulatory scrutiny into an incident that killed as many as 19 people and was described by authorities as Brazil’s worst-everenvironmental disaster. Vale is eyeing a mid-2017 restart at Samarco, investor relations director Andre Figueiredosaid last week.

    Samarco hired JPMorgan Chase & Co to help it with restructuring talks, BHP hired Rothschild & Co., Vale has Moelis & Co. advising it, while banks holding the mine’s debt are working with FTI Consulting, people with knowledge said in June.
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