Mark Latham Commodity Equity Intelligence Service

Tuesday 20th October 2015
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    Trudeau's Liberals Oust Harper With Surprise Canada Majority

    Justin Trudeau’s Liberal Party swept into office with a surprise majority in Canada’s election, ousting Prime Minister Stephen Harper and capping the biggest political comeback in the country’s history.

    With 86 percent of polls reporting, the Liberals were elected or leading in 184 of the 338 seats in the House of Commons, with the Conservatives on pace to take 102 and the New Democratic Party 41, according to preliminary results Monday from Elections Canada. Most polls had predicted the Liberals would win a minority government.

    The result is a vindication of Trudeau’s campaign to reject Harper’s budget restraint agenda, claiming the nation needsdeficit spending to combat economic woes triggered by an oil-price collapse. Trudeau, 43, also used his youthful optimism to exploit a thirst for change, as almost three-quarters of voters said they were ready to oust Harper’s Conservatives after more than nine years in power. Harper plans to step down as party leader.

    “Canadians from all across this great country sent a clear message tonight -- it’s time for a change in this country, my friends, a real change,” Trudeau told cheering supporters at a Montreal hotel.

    The result reflected an east-west vote split in a country with six time zones, with Liberals dominating along the Atlantic coast and the country’s two largest provinces -- Quebec and Ontario -- while the Conservatives won most seats in western provinces such as Alberta.
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    EU Oil Equity Sentiment: desparately seeking susan.

    Europe’s Big Oil Is a Buy as Cuts Point to Recovery at Last

    After enduring the longest oil-price collapse in more than a decade, crashing profits and an investor exodus, Europe’s biggest producers are regaining fans as analysts bet earnings bottomed last quarter and will now start to recover.

    While Total SA, the region’s second-biggest oil company, will probably post the worst quarterly performance since 2009, it also has the highest proportion of buy ratings in a year, according to analysts surveyed by Bloomberg. Despite similarly bleak forecasts, Royal Dutch Shell Plc, Europe’s No. 1, has the
    biggest share of buy recommendations since mid-2012 while BP Plc has the most since February.

    The ratings show faith in the producers’ ability to weather the commodities rout, which has seen Brent crude tumble by 40 percent in a year and company valuations shrink to at least three-year lows. More analysts now believe that the industry’s sweeping spending cuts, job losses and shuttered output will be sufficient to bolster oil prices and foster profit growth.

    “It is possibly a case of being darkest before the dawn,” Lydia Rainforth, a London-based analyst at Barclays Plc, said by e-mail. A pullback in production and delays to projects “make some form of recovery inevitable” in the oil market, she said.

    Shell’s B shares, the most widely traded, have increased 15 percent this month, heading for the best performance since April 2008, after previously falling 30 percent this year. Total has gained 11 percent, while BP is up 13 percent, the biggest jump since October 2011. Energy companies are the best performers on the MSCI World Index this month after languishing at the bottom for most of the year. 

                             Spending Cuts

    The rebound comes after the companies made spending cuts to help them ride out the downturn. Drillers have reduced investments in exploration and production by a record 20 percent this year, International Energy Agency Executive Director Fatih Birol said Oct. 6. Companies also have divested assets, scrapped staff incentives and renegotiated contracts to lower costs.

    “Across the board, we see companies working very hard to cut capital and operating expenditure levels and the speed at which this is going is very high,” Occo Roelofsen, Amsterdam- based leader of the oil and gas practice at consultants McKinsey & Co., said by phone. “A lot of business units are starting to
    cope with the new situation relatively fast as they start to adjust to the new normal.”

    While the cutbacks help to buoy balance sheets and cash flow, they hamper explorers’ ability to add oil resources. Shell’s reserves and production have dropped in three of the past four years, while BP’s output has declined about 18 percent since the 2010 Gulf of Mexico oil spill that forced the company to sell assets to pay for the damages. 

                          Defending Dividends

    As cuts bite, companies are making dividends a priority over production growth. Shell Chief Executive Officer Ben Van Beurden said this month he is “pulling out all the stops” to safeguard shareholder payouts that Shell has maintained since the end of the Second World War.

    Oil’s 16-month dive has been brutal, wiping out $397 billion from the value of the 23 companies in the Stoxx Europe 600 Oil & Gas index and driving down earnings.

    Total will post adjusted profit of $2.5 billion for the third quarter when it reports on Oct. 29, according to the average of five analyst estimates compiled by Bloomberg. That’s the lowest since the fourth quarter of 2009. Profit at BP, reporting Oct. 27, will drop to $1.3 billion, the lowest in at least five years, while Shell will report $3.3 billion, near the lowest since 2013, analyst estimates show.

    Results will subsequently improve, said Ahmed Ben Salem, a Paris-based oil analyst with Oddo & Cie. As a result of spending cuts, the oil companies’ break-even price -- the level at which they can make a cash profit -- is at about $80 a barrel and will fall to $60 by 2017 from $100 last year, he said, without giving
    an oil-price forecast.

    "Oil companies are doing the job and adjusting to this lower-price situation,” Ben Salem said. “They’re resetting their companies to be leaner and more cost-effective, which will only benefit them in the future.”

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    New EU rules may mean Trafigura clears commodity derivatives elsewhere

    European Union plans to impose position limits on commodity trading firms could mean Trafigura takes its clearing business outside the region, Christophe Salmon, the company's chief financial officer said on Monday.

    The European Securities and Markets Authority (ESMA) last month announced rules to flesh out the Markets in Financial Instruments Directive II (MiFID II) law that comes into force in January 2017.

    Position limits, which curb how much of a commodity individual trading firms can hold in order to avoid unduly influencing its price, are being introduced for the first time.

    Depending on the commodity, position limits will range from 5 to 35 percent of the market. ESMA will publish its draft rules on position reporting by end of 2015.

    While the new rules are aimed at curbing speculators, commodity trading companies - often acting as wholesalers in the market - will be caught up in the regulation.

    "We are completely price agnostic, meaning that each time there is a mismatch between buy and sell we hedge it on the derivative market," Salmon said at the Reuters Commodities Summit.

    Large volumes transacted by trade houses can give the impression of unduly large positions, but any holdings are typically physically backed.

    "The simple fact that you can put some hard limit to the quantum of a complete misunderstanding of the concept," Salmon said.

    "It will probably be that we will have to use non-European clearing platform and marketplace to be able to do the same volume of hedging."

    MiFID II also stipulates that commodity market wholesalers or intermediaries will have to hold capital reserves unless they pass a couple of tests on trading activity.

    The "market share" test assesses whether a company's speculative trading in commodity derivatives is high in relation to overall trading in the EU. The "main business" test measures speculative trading in commodity derivatives as a percentage of its total commodity derivatives trading.

    The thresholds for the market test for metals and agriculture are four percent, oils and oil products and gas at three percent, six percent for power and 10 percent for coal.

    Salmon also said regulatory capital requirements for commodity traders would make the EU uncompetitive in relation to the United States or Asia.

    "Most of the hedging we do, 95 percent, is done on a cleared platform, we post initial and variation margin on a daily basis," he said.

    "Asking commodity traders to book regulatory capital to potentially cover a liquidation scenario is in fact wearing the trousers with belts and braces."

    Initial and variation margins is the cash left with clearing houses to cover a percentage of open futures positions.

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    Commodity traders buy there own bonds

    Forget oil, copper and wheat. Commodities traders are crowing about the money to be made in the bond

    On the cocktail party circuit at the industry’s LME Week earlier this month, at least a dozen traders and executives said that the surest profits these days was in debt issued by their employers and their very own rivals: Glencore Plc, Louis Dreyfus Commodities BV, Trafigura Pte Ltd. and Noble Group Ltd.

    Take $1.25 billion of Glencore notes maturing this month: the yield surged to a record 32.3 percent on Sept. 29, up from less than 2 percent in early September. Buying $1 million worth of the bond that day may generate in excess of $35,000 in profit in less than four weeks if Glencore repays the notes by maturity on Oct. 23.

    Bonds got sucked into the same vortex that sent Glencore shares plunging 30 percent in a matter of hours on Sept 28. Even as yields surged, traders said the turmoil hadn’t shaken the backing of the lenders who financed the industry, suggesting the bonds were a safer bet than the markets had priced in.

    "The bonds of the trading houses were extremely cheap," said Graham Sharp, an adviser to consultants Oliver Wyman & Co. and co-founder of oil and metals trading house Trafigura. "This was an anomaly."

    While the natural resources industry is battling the worst drop in prices since the global financial crisis, traders -- particularly in oil -- are benefiting from the pick up in price volatility.

    Not only traders, but the firms themselves have been buying back their own debt. Gunvor Group Ltd. last month completed the repurchase of the commodities trader’s $500 million debut bond. The yield on the notes peaked at more than 14 percent in December after the U.S. imposed sanctions on co-founder Gennady Timchenko. The Russian billionaire sold his stake one day before the sanctions were announced.

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    Oil and Gas

    Saudi Arabia Seen Raising $32 Billion in 2016, Saudi Fransi Says

    Saudi Arabia will probably sell about 120 billion riyals ($32 billion) of debt in 2016 as the country seeks to prop up its finances after oil’s slump, according to Saudi Fransi Capital.

    Next year’s expected 10 billion riyals a month of sales will add to an estimated 135 billion riyals of debt issuance this year, analyst Aqib Mehboob wrote in a note to investors on the country’s banking industry.

    Saudi Arabia is responding to the decline in crude, which accounts for about 80 percent of revenue, by tapping foreign reserves, cutting spending, delaying projects and selling bonds. Net foreign assets fell by about $82 billion at the end of August after reaching an all-time high last year. The country has raised about 75 billion riyals from debt issuance this year, according to the bank.

    Saudi Arabia’s public debt is among the world’s lowest, with a gross debt-to-GDP ratio of less than 2 percent in 2014. “Even with the government running a 20 percent of GDP deficit again, and only funding 25 percent of the deficit through bond issuance, the foreign reserves remain at very comfortable levels,” Mehboob said in the report.

    Falling for a seventh month in a row, net foreign assets held by the central bank dropped to $654.5 billion in August, the lowest since February 2013.

    Saudi Fransi Capital is the investment-banking arm of Banque Saudi Fransi, a lender that is part-owned by France’s Credit Agricole SA.

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    OMV to take 1 bln euro charges as oil price slump dents asset values

    Austria's OMV will take around 1 billion euros ($1.1 billion) in special charges to reflect the damage to the value of its oil fields and equipment by weak crude prices, conceding the oil price outlook was significantly more bearish than it had previously predicted.

    Reflecting trends across the sector due to the slump in oil prices, Austria's biggest industrial company said on Monday the decline had "significantly burdened" its performance in the third quarter, adding it had slashed its assumptions for the coming years by as much as $25 a barrel.

    The company's shares, which had risen on Friday to their highest in nearly four months, fell 3.8 percent in early trading, though they pared losses and were down 1.8 percent at 25.01 euros by 0749 GMT.

    "These revised assumptions have required impairments to asset valuations in the upstream business, covering both assets under production and development, as well as exploration assets, to be recognized during the quarter," the company said.

    The comments from OMV, which also said it planned to sell a stake of up to 49 percent in its pipeline unit Gas Connect Austria, echo similar moves from European competitors. Spain's Repsol for instance said last week it would step up asset sales, trim investments and cut costs.

    OMV is due to report its third-quarter earnings on Nov. 5.

    The group's new assumption for the price of benchmark Brent crude was $55 a barrel in 2016, it said. Its previous assumption was $75 a barrel, according to its 2014 annual report.

    For 2017, the forecast was trimmed to $70 a barrel from $90, and the figure for 2018 was reduced to $80 a barrel from $105 a barrel. From 2019 onwards, it expected $85 a barrel.

    "Net special charges recorded in the (third) quarter, predominantly as a consequence of the reduced oil price assumptions, will amount to approximately 1 billion euros," OMV said.

    The company said potential buyers of up to 49 percent of its Gas Connect Austria unit had expressed "strong interest" and a deal was expected to be signed next year.

    "In times of a difficult oil price environment, we are taking the appropriate measures to both optimize the portfolio and strengthen the group's cash flow and balance sheet", Manfred Leitner, head of OMV's downstream division, said.

    The company said its production had fallen to 292,000 barrels of oil equivalent (boe) per day from 307,000 a day in the previous quarter and 311,000 in the same quarter last year.

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    Japan's JOGMEC buys light crude for strategic reserves

    State-run Japan Oil, Gas and Metals National Corp (JOGMEC) on Monday bought about 2.52 million barrels (400,000 kilolitres) of light crude via tender for the government's Strategic Petroleum Reserves, a trade ministry official said.

    JOGMEC was seeking four sets of 630,000-barrel light crude, which are to be delivered to two government stockpiling bases in Tomakomai City in Hokkaido, northern Japan, by Feb. 24, 2016.

    The ministry official declined to comment on the crude grades or the prices.

    The tender comes after Japan in June sold a total 4.15 million barrels of crude from the government's Strategic Petroleum Reserves as part of a plan to replace the oil with other grades.

    In recent years, Japan has been replacing heavier crude in its reserves with lighter crudes to reflect the growing share of light crudes in recent imports. The tender is not linked to any emergency release coordinated by the International Energy Agency.
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    Indian Oil Corporation purchases 30% of its crude from spot market

    Economic TimesIndian Oil Corporation, the nation's largest refiner and fuel retailer, now purchases 30% of its crude requirements in the spot market, compared to 20% last year, helping it lower procurement cost and gain flexibility in responding to the consumer demand.

    IOC's move is part of the larger shift among refiners towards the spot market as longterm price contracts put them at a disadvantage in a sharply falling crude oil environment.

    In 2014-15, most refiners were saddled with huge inventory losses due to falling prices that hurt their profits. The volatility in crude prices, which have halved in a year, is a headache for refiners, which aim to counter this by enhanced spot purchases.

    Mr AK Sharma, director (finance), said that "It (spot purchases) is saving us money. This also gives us flexibility in terms of the types of crude we want to purchase, depending on the demand of the products. Otherwise, you have to buy and process and sell the kind of things there is no demand for."

    Mr Sharma said that the company now has enhanced flexibility on which crude to buy and when depending on the intensity of the demand for products like diesel, petrol, naphtha and LPG as some variety of crude oil are more suited to produce certain kinds of products in higher quantity. So now, IOC is able to better respond to the consumer demand and is less caught in situations when it would produce something more because of the supply of the crude and less because of the demand. The purchase term agreements for refiners usually last a year with prices fixed every month on the basis of a formula dependent on the average prices in the international market topped by a premium.
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    Halliburton profit beats as costs fall, revenues miss

    Halliburton Co, the world's No.2 oilfield services provider, reported a better-than-expected quarterly profit as deep cost cuts helped offset the impact of a drop in drilling activity.

    The company earned 31 cents per share on an adjusted basis, higher than analysts' average estimate of 27 cents, according to Thomson Reuters I/B/E/S.

    However, total revenue fell nearly 36 percent to $5.58 billion, missing analysts' estimate of $5.64 billion.

    Revenue nearly halved in North America in the third quarter ended Sept. 30, mainly due to weak drilling activity and pricing. The region accounts for nearly 50 percent of the company's revenue.

    Net loss attributable to the company was $54 million, or 6 cents per share, in the third quarter, compared with a profit of $1.20 billion, or $1.41 per share, hurt mainly by charges related to asset write-offs and severance costs.

    "We are pleased with our third-quarter results, especially the resilience of our international business, where we outperformed our largest peer on a sequential a

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    Financing for Russia's Yamal LNG plant stalls - sources

    Efforts to secure financing for Russia's Yamal LNG plant have stalled, with the owners baulking at costly Chinese loans and Western sanctions hampering alternatives, two Russian banking sources said, warning the search could drag into next year.

    The quest to bankroll the $27 billion project ahead of a planned 2017 launch is seen as a test of Russia's ability to secure foreign loans at a time when the country's access to capital markets is severely limited by Western sanctions over its involvement in the conflict in eastern Ukraine.

    The lead Russian company in the project -- Novatek , Russia's largest private gas producer -- is under U.S. sanctions, making it harder for it to find cash for an export project that envisages three liquefied natural gas (LNG) production lines with a capacity of 5.5 million tonnes a year each.

    Novatek has a 50.1 percent stake in what will be only Russia's second LNG plant. France's Total and China's CNPC hold 20 percent each. And last month, Novatek agreed to sell a 9.9 percent stake to the China Silk Road Fund.

    Originally, Novatek, where a close ally of President Vladimir Putin, Gennady Timchenko, is a co-owner, had expected to raise up to $20 billion from Chinese banks, with the first funds expected by the end of 2014.

    But two Russian banking sources, who declined to be named, told Reuters they saw little movement on a deal for now.

    One of the sources said that Yamal LNG was not happy with earlier offers from the banks and had been forced to relaunch the bidding process.

    "Chinese money is expensive, so Novatek and Total would like European banks to take on the larger share of financing which is complicated by sanctions," the source said.

    He said it was unclear whether the loans would be provided by the end of the year.

    "There is no movement at the moment," another source said. "Of course, everything could be done in the course of one night ... but so far it looks unlikely that there will be anything before the year-end."

    Russia's state development bank VEB has pledged $3 billion in banking guarantees, while the country's Sberbank and Gazprombank preliminarily agreed to provide $3 billion and $1 billion in loans, respectively.

    "The delay in announcing project financing for Yamal LNG also raises concerns about the project's timing and possible increased equity investment in the project," Goldman Sachs said in a research note on Monday.

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    Oil Search Quarterly Sales Decline 30% as Energy Prices Slide

    Oil Search Ltd., the target of a takeover bid from Woodside Petroleum Ltd., posted a 30 percent decline in third-quarter sales after a drop in energy prices.

    Revenue fell to $379 million from $538.2 million a year earlier, according to a  statement from Oil Search on Tuesday. Sales dropped 3 percent from the June quarter. Output rose to a record 7.42 million barrels of oil equivalent, the company said.

    Oil Search, which has a stake in the Exxon Mobil Corp.-operated liquefied natural gas project in Papua New Guinea, is among companies grappling with a slump in prices amid a surge in new supply. Benchmark Brent crude averaged $51.48 a barrel in the third quarter, compared with $103.59 during the same period in 2014.

    “We are aiming to reduce costs and enhance production while continuing to move forward with our high-value growth opportunities,” Managing Director Peter Botten said in the statement. “The company is in an excellent position to withstand sustained low oil prices and capitalize from an oil price recovery.”

    Oil Search last month rejected Woodside’s $8 billion takeover approach as too low. The offer is “fully priced,” Chief Executive Officer Peter Coleman said last week, amid speculation Woodside will increase its bid.
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    Reports Of The Energy Industry's Demise Greatly Exaggerated: Wood Mackenzie

    We took a stab at assessing the impact of October borrowing base redeterminations on a set of high yield borrowers on which we get the most questions.  Reading accounts in the press you might believe that upstream operators are buckling under crippling debt loads. We beg to differ. Most of the high yield borrowers in the upstream space are reasonably well positioned to continue drilling even at current oil and gas prices.  Our analysis suggests just a handful of these upstream companies will have to make asset sales, renegotiate lending terms or curtail drilling activity further. And we certainly don’t expect the October borrowing base redeterminations to have meaningful influence on oil supply.

    Reserve-based lending (RBL) is a form of revolving credit extended by banks to operators on the basis of their oil and gas reserves in the ground .  Twice a year, in April and October, banks re-assess the value of those reserves and adjust the credit lines. With the steep decline in oil prices, there has been much attention this time around on the October redetermination. The “hit” based on oil price assumptions this October versus this past May should be around 20%. However,most companies have the capacity to absorb this, either because they have that unused capacity on their credit lines and/or cash on the balance sheet.

    Credit lines are determined nearly entirely on the value of the cash flow streams from producing wells. While cash is generally being consumed at the corporate level, what some stories miss is that adding producing wells extends companies’ ability to borrow. With the focus on the cash burn, many forget to take into account the resulting additions to the borrowing base, which partially offset that cash burn. It is this piece of the puzzle that can allow upstream companies to drill at the current pace for longer than many imagine. When we layered this additional production into our analysis, what was already a manageable liquidity situation for most became even more so.

    Although it seems irrational to drill new wells into such low oil prices, it is not as irrational as you might imagine.   Equity markets are valuing public companies at oil prices well above those you see on your screen, roughly US$65 to US$70 or higher, so companies drilling wells at US$45 to US$50 are only responding to the incentives set out for them by the capital markets. Banks may only be valuing reserves at US$50 for the purpose of lending, but the US$65 to US$70 equity market valuation provides incentive for operators to drill – and to add producing reserves.

    So don’t believe what you hear about the demise of the upstream oil and gas industry. All but a few are well positioned to continue their current pace of drilling activity.  Increasing their production base in turn grows upstream companies’ borrowing bases.  Meanwhile, equity markets are pricing higher oil prices and stand by to fund shortfalls. Those industry obituaries will have to be put on hold for the time being.

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    Alternative Energy

    2.1GW of solar PV under construction in Chile

    A total of 741 MW-AC of solar PV was operational in Chile at the end of September, according to the latest report from CIFES, the nation’s renewable energy center. This means that Chile’s PV capacity grew by 144 MW from the 597 MW in operation that CIFES reported for the end of August.

    Additionally, 2.11 GW-AC of solar PV is under construction. These projects are on schedule to be completed between October 2015 and August 2017, according to data from Chile’s National Energy Commission (CNE).

    CIFES also reports that in September, Chilean solar PV generated 131 gigawatt-hours, representing 2.3% of electricity generation in the nation’s main grids. Once the projects under construction are completed this should rise to over 8%, which is higher than Italy, Greece or Germany at present. Depending on the rate of development in those nations, this could put Chile at the highest level of any medium-to-large nation on earth.

    Last week Chile’s government put out a roadmap calling for solar to represent 19% of electricity generation in 2050, with all renewable energy sources including large hydro making up 70% of generation.
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    Chinese firm Sany Group to invest $3 billion in renewable energy sector in India

    China-based Sany Group, a global manufacturing company, on Thursday committed investments of US$3 billion (Rs 20,000 crore) for the period 2016-20 towards development of 2,000 megawatt of renewable energy projects (for offshore wind power generation).

    Besides generating 4.8 TWh (terawatt hour) of power annually, the project is estimated to generate 1,000 jobs and prevent carbon emissions of around 3.6 million tonnes per year. (1 TWh is equal to 1,000,000 MWh).

    Sany's India operations are its largest setup outside China. The company has a manufacturing plant in Chakan, Pune, where products such as crawler cranes, concrete pump, transit mixer amongst others are manufactured.

    Liang Wengen, chairman, Sany Group, said: 'Green Energy industry in India is growing and we see this as a huge opportunity to introduce our wind energy business in the country. We have invested in a potential market like India, and are excited about the future growth and potential for future investment.'

    - See more at:

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    Coffee Rots as Farm Workers Quit to Build Colombian Highways

    Colombian coffee growers face soaring labor costs and harvesting delays as pickers leave for better-paid construction jobs.

    Producers of the famed arabica beans brewed by companies including Starbucks Corp. are paying workers twice what they received two years ago. Still, the labor shortages are leaving coffee beans on trees longer, allowing them to fall to the ground, where beetles can bore into the cherries.

    “For every three workers we need, we have two,” said Juan David Rendon, head of the Andes Coffee Cooperative, whose members have about 35,000 hectares (86,000 acres). “Infrastructure in Colombia has been demanding a lot of manpower.”

    Farmers are now paying laborers as much as 600 pesos (21 cents) a kilo that they pick, Rendon said in a telephone interview.

    Construction has replaced oil and mining as the main motor of economic growth in the Andean nation. Farm labor may become even more scarce when work begins on President Juan Manuel Santos’ $17 billion highway program known as 4G, which aims to build 1,300 kilometers of new roads by 2018 and cut travel time between industrial centers and ports.
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    Precious Metals

    Petropavlovsk makes progress on debt reduction

    Gold miner Petropavlovsk hit its amended production targets in its latest three months as it focuses on the high grade ounces at its Russian mines.

    The miner has adopted a high margin production strategy to ensure meets it debt repayment schedule.

    In line with this new plan, gold production fell to 114,500oz in the three months to September compared to 150,100oz a year ago.

    Net debt was cut by US$255mln to US$675m compared with a year ago and Pavel Maslovskiy, chief executive, said it was “progressing well” with its target to reduce net debt to US$600mln by the end of the year.

    Total gold production for the first nine months of the year was 354,700oz (456,500oz)

    Sales for this period were 343,500oz (460,900oz) at an average price US$1,198/oz. For the latest quarter, sale prices averaged US$1,153/oz.

    For the full year Petropavlovsk said cash costs would be US$600 per ounce with all-in-sustaining costs 15% higher and all-in-costs 5% above that.

    Maslovskiy added: “Operationally, Q3 works were carried out in line with the group's plan across all our mines with the exception of Pioneer.”

    Here, access to the high-grade area required a new set of technological parameters but now 150,000oz of gold is expected to be recovered by the end of the year.

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    Osisco Gold: $30.5M TECK Royalties Deal

    Osisko Gold Royalties is buying a portfolio of Canadian royalties held by Teck Resources for C$30.5M cash.

    The portfolio consists of 31 royalties, most of which are NSR royalties and a production royalty on properties in E Canada, including those on Richmont Mines' producing Island Gold Mine in N Ontario and Integra Gold's Lamaque property in the Abitibi. Others cover Metanor Resources’ Hewfran Block in N Quebec, NioGold Mining’s Marban property in Malartic, Lake Shore Gold’sFenn-Gib project in N Ontario and Northern Gold Mining’s Garrcon property, also in N Ontario.
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    Base Metals

    China copper production rises 2.3 pct in Sept

    China's refined copper production rose 2.3 percent in September from the previous month, hitting a three-month peak due to increasing output at some new smelters and higher supplies of raw material.

    Refined copper production reached 680,235 tonnes in September, the highest since June and rising from 664,954 tonnes in August, data from the National Bureau of Statistics showed on Tuesday.

    "Some new smelters have been gradually increasing production," said Ye Yugang, an analyst at Jinrui Futures. He added that some older smelters had also stepped up production after completing repairs in the summer.

    That pushed up overall output slightly despite other smelters curbing production due to weak metal prices.

    Jiangxi Copper has said it would cut output by 10 percent over the next few months. Jinchuan Group has crimped production due to problems in a sulphur facility.

    Supplies of raw material copper concentrate also rose as imports jumped 5.2 percent in September, supporting metal production.

    Copper output was likely to climb slightly in October, even though domestic demand was still lukewarm due to the slowing economy, Ye said.

    Meanwhile, refined zinc production increased 1.1 percent to 536,745 tonnes in September, rising for the second straight month.

    Demand for zinc is expected to improve in coming months because of Beijing's plans to increase investment in infrastructure projects, supporting prices ZN-1-CCNMM, industry sources said.

    Production of primary aluminium fell 1.2 percent in September from the previous month to 2.72 million tonnes, the lowest since May this year.

    Low prices have continued to prompt high-cost smelters to cut aluminium production, with Aluminum Corp of China (Chinalco) shutting its biggest facility. Still, the cuts were not big enough to push up domestic prices as new low-cost capacity came onstream.

    Spot aluminium in China AL-A00-CCNMM has hovered around six-year lows since the third quarter, trading below 11,000 yuan per tonne on Tuesday, the lowest since late 2008.

    Low prices and weak domestic demand also weighed on production of lead, nickel and tin.

    Refined lead production dropped 1.6 percent from the month before to 313,620 tonnes in September, falling for the third straight month.

    Refined nickel output stood at 28,376 tonnes in September, down 11 percent from the previous month and the lowest since March this year.

    Refined tin production fell 3.6 percent to 14,380 tonnes in September, reversing a rise of 6.1 percent in August.
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    Top Philippine nickel miner says prices may have hit bottom

    Global nickel prices may have hit bottom and production cuts could hasten a recovery in the metal that has lost nearly a third of its value this year, the CFO of the Philippines' top nickel ore miner said.

    "It's likely that we've already seen the bottom this year, so there could be potential upside next year," Emmanuel Samson, chief financial officer of Nickel Asia Corp, told the Reuters Global Commodities Summit on Monday.

    "It's difficult to imagine that prices are sustainable at current levels considering an estimated 60 percent of producers are losing money today. Of course, if some producers cut production that would definitely help prices recover faster."

    The price of refined nickel, used to make stainless steel, has fallen 31 percent on the London Metal Exchange this year, reflecting weaker demand in top consumer China.

    The Philippines became the biggest supplier of nickel ore to China after Indonesia banned shipments in January 2014. Nickel ore is used to make nickel pig iron (NPI), a cheaper substitute for refined metal in producing stainless steel.

    Nickel ore miners are faring better than refiners, Samson said, with current ore prices still higher compared to levels prior to the Indonesian ban. LME nickel has dropped about 30 percent to around $10,450 a tonne over the same period.

    Chinese growth of between 6 percent and 7 percent should be enough to sustain the country's stainless steel demand at around current levels, maintaining appetite for Philippine nickel ore, he said.

    Samson said the Philippines could not fully meet China's demand for nickel ore, as it lacked big volumes of high-grade material that Indonesia used to supply.

    Stocks of Indonesian ore in China, piled up just before the ban took effect, were expected to be depleted by year-end.

    "NPI producers in China will be completely dependent on Philippine ore, which is not sufficient to cover NPI capacity. Chinese stainless steel producers would have to rely more on other sources of nickel such as ferronickel or pure nickel," said Samson.

    Nickel Asia, partly owned by Japan's Sumitomo Metal Mining Co Ltd, is keen to acquire more assets, but is keeping its sights at home. The miner said in April it would acquire stakes in two smaller miners to expand its resource base by 24 percent.

    "We are always on the lookout for new nickel properties locally," Samson said.

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    Steel, Iron Ore and Coal

    China Jan-Sep coal industry FAI down 16.5pct on year

    China’s fixed-asset investment (FAI) in coal mining and washing industry stood at 297.2 billion yuan ($46.7 billion) over January-September, down 16.5% year on year, showed data from the National Bureau of Statistics (NBS) on October 19.

    The decrease is faster than a 14.4% drop over January-August this year.

    Private investment in the sector contributed 166.7 billion yuan of the total, falling 16.8% from the previous year, compared to a 12% decline over January-August.

    Meanwhile, fixed-asset investment in all mining industries across the country posted a year-on-year drop of 8% to 932.7 billion yuan over January-September. Of this, private investment in mining industries contributed 528.8 billion yuan during the same period, falling 12.3%.

    The NBS data showed a total 106.5 billion yuan was spent on fixed assets in ferrous mining industry during the same period, down 20.8% from the previous year; while investment in oil and natural gas industry rose 5.5% on year to 225.9 billion yuan.

    The fixed-asset investment in non-ferrous mining industry witnessed a year-on-year decline of 3.2% to 116.5 billion yuan during the same period, data showed.
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    China Sep coke output down 8.8pct on yr

    China produced 36.73 million tonnes of coke in September, decreasing 8.8% from a year ago and down 1.66% from August, showed data from the National Bureau of Statistics (NBS) on October 19.

    That was the eighth straight yearly decline, mainly attributed to low operation rates of coking plants amid weakening demand and sluggish market on the whole.

    Over January-September, total coke output of China reached 338.48 million tonnes, down 4.7% year on year, the NBS data showed.

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    Shenhua Jan-Sep coal sales down 18.3pct

    China’s coal giant Shenhua Group saw its coal sales fall 18.3% from a year ago to 278.9 million tonnes over January-September, it said late October 19.

    Sales in September stood at 31.3 million tonnes, decreasing 17.4% on year and down 11.3% from August.

    Coal output of Shenhua fell 10% on year to 210.6 million tonnes over January-September, with September output dropping 10.1% on month and down 10.8% on year to 22.2 million tonnes, the thirteenth consecutive year-on-year decline.

    Shenhua has been moderately cutting the output of inefficiency coal mines and coal trades, impacted by flat demand from downstream sectors amid slack market in recent years.

    Shenhua provided a 10-15 yuan/t discount of its coal products for buyers, following other large groups’ price cut, effective October 9.

    The group’s major product 5,500Kcal/kg NAR coal was offered at 390 yuan/t at present, down 26.3% from 529 yuan/t at the start of the year.

    Large coal producers intensified price competition of shipped coals, in order to take more market shares amid worsening profitability, the analyst said.

    In September, Shenhua saw 16.9 million tonnes of coal shipped through ports, falling 11.1% on month and down 19.5% on year; the volume between January and September fell 13.7% from the year prior to 153.4 million tonnes.

    Of this, the shipment at its exclusive-use Huanghua port fell 16.4% on year to 83 million tonnes over January-September, with September shipment at 10 million tonnes, rising 1% from August but down 18% on year.

    The group exported 800,000 tonnes of coal over January-September, a year-on-year decline of 33.3%, with September exports at 100,000 tonnes, unchanged from the year prior.

    Coal imports of Shenhua slumped 98.2% on year to 100,000 tonnes over January-September, with September Imports at 100,000 tonnes, down 50% on year.

    In addition, Shenhua’s power output in September stood at 16.34 TWh, rising 2.9% on year but down 12.57% on month; that over January-September fell 4.2% on year to 153.69 TWh.

    Its electricity sales stood at 15.17 TWh in the same month, up 3.2% on year and down 12.72% on month; sales in the first three quarters of the year fell 4.2% on year to 143.08 TWh.
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    India in talks to buy coking coal mines in South Africa

    India is talking to South Africa to buy coal mines there to feed its expanding steel industry, Coal Secretary Anil Swarup said, adding that New Delhi also hopes to stop imports of coal used to generate power in three years as domestic output jumps.

    After years of poor production crippling power supply, state-run Coal India is boosting output at a record pace to meet Prime Minister Narendra Modi's goal of connecting to the grid millions of Indians who still make do with kerosene lamps.

    But India, which wants to triple its steel capacity to 300 million tonnes by 2025, does not have enough reserves of coking or steelmaking coal, prompting Coal India to look at assets abroad, Swarup told the Reuters Global Commodities Summit on Monday.

    "They are presently in negotiations with people in South Africa," Swarup said. "We imported around 80-90 million tonnes of coking coal last (fiscal) year and if that is the amount that can come through a mine owned by Coal India, it would consider it."

    Swarup declined to give any investment figure but said money was not an issue for Coal India, which had cash and bank balance of more than $8 billion for the year ended March 31.

    Overall coal imports into India, the world's third-largest buyer, fell for the third straight month in September in a country used to seeing shiploads coming in as new power plants started. Coal India's output grew 32 million tonnes to 494.2 million tonnes in the fiscal year 2014/15, the biggest volume rise in its four-decade history.

    "In three years we should be able to mine (all the power-generating) coal we require," Swarup said. "The quality of coal that is not available will still be imported."

    India is looking to more than double its total coal output to 1.5 billion tonnes by the end of this decade, with 500 million coming from the private sector. Swarup said India is working out details to open up the nationalized sector and allow private companies to mine and sell coal.

    The turnaround in India's coal industry has been a highlight of Modi's tenure in office since May last year, and the prime minister is keen that output grows further.

    "He is extremely engaged," Swarup said. "We are reasonably satisfied, though there is still a long way to go."

    But environmentalists are worried that the world's third-largest polluter was leading a pan-Asian dash to burn more of the dirty fossil fuel amid international efforts to contain global warming.

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    Vale iron ore output hits new record

    Brazil’s Vale, the world's biggest iron ore producer, posted Monday a new record-high in seaborne production, with 88.2 million metric tons mined in the third quarter, which beat analyst estimates.

    The Rio de Janeiro-based miner also said it has suspended higher-cost mining operations accounting for about 13 million tonnes of annual production.

    They will mostly be replaced by ore coming on-stream from three new lower-cost mines in Brazil's southeastern state of Minas Gerais, as it finishes the expansion of Carajás, the world's largest iron-ore complex, next year.

    The move aims to improve profit margins in the face of weak global iron ore prices.

    Along with rivals BHP Billiton and Rio Tinto, Vale has been increasing production despite falling iron ore prices in an effort to corner the global market, forcing out higher cost producers.

    The glut in global iron ore supply has seen prices drop from a high of nearly $200 per tonne in 2011 to forecasts of below $50 within two years.

    Iron ore delivered to China averaged about $55 a ton in the third quarter, compared with more than $90 a ton a year earlier, according to The Metal Bulletin Iron Ore Index, hurting revenue for producers.

    On Monday, the Chinese import price for 62% iron content fines at the port of Qinqdao lost $ $0.46 or 0.8% of its value to $53.3 a tonne, way below the record-highs of 2011.

    Vale, also the world's No.1 nickel producer, said output of the base metal dropped 0.7% in the quarter to 71,600 tons, the survey shows. Output for copper, the industrial metal used in wiring and plumbing, declined 5.3% to 99,300 tons.

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    Odisha caps 75 mn tonnes iron ore despatch for 2015-16

    Business Standard recently reported that Odisha has capped iron ore desptach from the Joda and Koira circles at 75 million tonnes for 2015-16 on the back of improved infrastructure in mining circles. Iron ore despatch for Joda circle is capped at 44.35 million tonnes, while the limit for the Koira circle during 2015-16 is 30.65 million tonnes. A notification in this regard would be brought out soon

    The decision to cap the despatch was taken by a committee under the chairmanship of chief secretary after several rounds of meetings.

    Joda and Koira are two of the most prolific ore producing sectors spread across the mineral-rich Keonjhar and Sundargarh districts in the state.

    As of now, only 46 out of 143 iron ore mines are operational in the state. Of the 46 operational mines, eight are captive mines while the rest 38 are merchant mines. The merchant mines have a combined production capacity of 106.07 million tonnes a year.

    Iron ore production in Odisha crashed to 47.35 million tonnes in 2014-15 compared to 77.91 million tonnes in 2013-14 as several key mines remained under shutdown due to the Supreme Court's order.
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    Vedanta makes first shipment of 88,000 tonne iron ore from Goa

    Vedanta’s Iron Ore division shipped its first cargo of iron ore today after resuming mining operations at its Codli, Bicholim and Surla mines in Goa. The first shipment of 88000 tonnes is exported to China via the vessel “Ao Hong Ma”. Vedanta’s Iron Ore division is the first iron ore mining company to start operations in Goa after three years due to the ban on mining.
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    Finland's Outokumpu sells stake in Chinese mill to cut debt

    Europe's largest stainless steel company Outokumpu is selling a 55 percent stake in Shanghai Krupp Stainless (SKS), Chinese joint venture mill, for 370 million euros ($420.5 million) to reduce debt, it would sell all but 5 percent of its 60 percent stake in the venture with Baosteel Group, which owns the remaining 40 percent.

    The loss-making Finnish company last month trimmed its result forecast, citing nickel prices and weak deliveries in Europe and the United States, raising investor concern over its debt levels.

    "This is definitely good news for Outokumpu. The share in SKS ... was not part of Outokumpu's core operations. On top, the company got a really good price for it," said Antti Viljakainen, equity research analyst at Inderes.

    "The sale reduces Outokumpu's risk profile, which has risen due to its weak profit development this year."

    Outokumpu said it would sell the 55 percent stake to Lujiazui International Trust Co, which would reduce Outokumpu's gearing by about 30 percentage points from 96.4 percent at the end of July.

    Outokumpu is struggling to turn around its business after the unsuccessful acquisition of Thyssenkrupp's Inoxum unit in 2012. The company has suffered technical problems at its plant in the United States and the business in the region has also been hit by increasing imports from Asia.

    "While the sale of SKS has given Outokumpu time to push through its strategic change, in the long term it does not solve the company's main problems, which are in the United States," Viljakainen added.
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    POSCO Q3 profit edges up 0.5 pct, steel supply glut continues

    South Korean steelmaker POSCO said its third-quarter operating profit crept up 0.5 percent from a year earlier, beating estimates, as more stable iron ore input costs helped it absorb weak steel product prices and a continuing supply glut.

    POSCO, the world's sixth-biggest steelmaker, said on Tuesday operating profit for July-September was 638 billion won ($566 million) on a parent-only basis, above a consensus forecast of 608 billion won compiled by Thomson Reuters I/B/E/S. The closely watched parent-only measure refers to earnings from steel business, and excludes profit from affiliates.

    The third-quarter profit was up from 635 billion won in the same period a year earlier, and ahead of 608 billion won in the April-to-June quarter.
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