Mark Latham Commodity Equity Intelligence Service

Friday 11th December 2015
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    McKinsey Says Saudi Arabia Can't Wait for World to Get Better

    Saudi Arabia can’t afford to wait for oil prices to recover and needs to accelerate economic measures to avoid rising unemployment, deficits and debt, McKinsey & Co. Inc. said in a report released Thursday.

    The country requires public and private investments of as much as $4 trillion as part of a strategy to boost productivity and create jobs, the report said. Based on current trends, Saudi Arabia “could face a rapid economic deterioration over the next 15 years.” Even a public spending freeze and halt to hiring foreign workers would still leave the country facing falling household incomes, rising unemployment and weakening finances.

    “This is a call to dramatically accelerate reforms which ultimately will provide a more sustainable future,” Jonathan Woetzel, a McKinsey Global Institute director and main author of the report said by phone. “Waiting for the world to get better is not an option.”

    A slump in crude prices, the government’s main source of revenue, is pushing the world’s biggest oil exporter into its first deficit since 2009 and its foreign reserves to a three year low. The International Monetary Fund predicts that Saudi’s savings, $640 billion at the end of October, would run out after five-years under current spending policies. In response, the government is planning to cut spending on infrastructure projects, and tapping debt markets to fund the deficit.

    The bulk of the $4 trillion in investments needed would come from the private sector and should focus on mining and metals, petrochemicals, manufacturing, retail, tourism, healthcare, finance and construction, according to McKinsey. If this level of investment were achieved the country could double the size of its economy and create six million new jobs by 2030.

    Failure to make progress on productivity-boosting measures would lead to the government’s finances “deteriorating sharply,” according to the report. Reserves would drop and public debt could reach as much as 140 percent of GDP.

    “Even freezing spending would still mean burning through its reserves at a rapid pace and lead to the a decline in average incomes,” Woetzel said.
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    China to lower on-grid thermal power tariffs by 0.03 yuan/KWh

    China’s State Council has approved the proposal submitted by relevant department to lower on-grid thermal power tariffs, sources reported, citing sources familiar with the matter.

    The cut across the country may be 0.03 yuan/KWh ($0.0047/KWh) on average, starting from January 1, 2016, China Time reported on December 7, in accordance with the coal-power linkage mechanism.

    If implemented, it would dent profit of thermal power generating companies, with estimated profit decrease of 125.1 billion yuan, based on the thermal power output of 4,170 TWh in 2014.

    The nation’s five top generators of the country – Huaneng, Datang, Huadian, Guodian, and China Power Investment -- may see their profit reduce more than 50 billion yuan, one senior official with one of the companies was cited as saying.

    The tariff cut reflected the decline in coal prices under a coal-power price linkage mechanism, under which the on-grid power tariffs would be adjusted if coal prices fluctuate more than 5% in a period of one year, according to a document released by the State Council on December 25, 2012.

    Local governments strongly recommended cutting on-grid power tariffs, in order to ease financial pressure of enterprises, following a slump in coal prices.

    China’s four major listed coal-fired power generators – State Power Corp., Datang, Huaneng and Huadian – all posted decline in revenue in the first three quarters of the year, mainly due to the drop of power output and the cut of on-grid power tariffs from the second quarter.
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    Oil and Gas

    OPEC points to larger 2016 oil surplus as group's output hits multi-year high

    OPEC pumped more oil in November than in any month since late 2008 and forecast little increase in demand for its crude next year, pointing to a larger supply surplus even as low prices hurt rival producers.

    The Organization of the Petroleum Exporting Countries in a report also forecast supply from non-member countries will fall more sharply next year, which would suggest its strategy, reaffirmed last week of defending market share, is working.

    OPEC's report follows an acrimonious OPEC meeting on Dec. 4, where it rolled over a policy of pumping crude to safeguard market share, despite oil prices LCOc1 that have more than halved to $40 a barrel in 18 months due to excess supply.

    A year ago, Saudi Arabia pushed though an OPEC decision to defend market share instead of cutting output to support prices, hoping to slow growth in rival supplies such as U.S. shale oil.

    "U.S. tight oil production, the main driver of non-OPEC supply growth, has been declining since April," OPEC said in the report. "This downward trend should accelerate in coming months given various factors, mainly low oil prices and lower drilling activities."

    Supply outside OPEC is expected to decline by 380,000 barrels per day (bpd) in 2016, the report said, as output falls in regions such as the United States and former Soviet Union. Last month, OPEC predicted a drop of 130,000 bpd.

    But OPEC also increased its 2015 non-OPEC supply growth forecast by 280,000 bpd, citing upward revisions to output from the United States, Brazil, Russia and the UK, among other countries.

    As a result of the report's changes to 2016 and 2015 non-OPEC supply forecasts, demand for OPEC crude next year is expected to average 30.84 million bpd - just 20,000 bpd more than OPEC expected previously.

    OPEC production, which has surged since the policy shift of November 2014 led by Saudi Arabia and Iraq, is far higher than forecast demand. Supply rose by 230,000 bpd in November to 31.70 million bpd, said the report, citing secondary sources.

    That is the highest monthly rate since late 2008 when Indonesia was still an OPEC member, according to a Reuters review of OPEC's previous reports on the group's website. The latest figure does not yet include Indonesia, which rejoined OPEC last week boosting its ranks to 13 countries.

    With extra barrels coming from OPEC and no sizeable increase in demand for OPEC crude, the report points to a 860,000-bpd supply surplus next year if the group keeps pumping at November's rate, up from 560,000 bpd indicated in last month's report.

    OPEC left its 2016 oil demand growth forecast unchanged, predicting global demand would rise by 1.25 million bpd, marking a slowdown from 1.53 million bpd in 2015.

    Read more at Reuters

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    OPEC Says Crude Production Rose to Three-Year High in November

    Output from the Organization of Petroleum Exporting Countries rose by 230,100 barrels a day in November to 31.695 million a day, the highest since April 2012, as surging Iraqi volumes more than offset a slight pullback in Saudi Arabia. The organization is pumping about 900,000 barrels a day more than it anticipates will be needed next year.

    Benchmark Brent crude dropped to a six-year low in London this week after OPEC effectively scrapped its output ceiling at a Dec. 4 meeting as de facto leader Saudi Arabia stuck to a policy of squeezing out rival producers. Members can pump as much as they please, despite a global surplus, Iran’s Oil Minister Bijan Namdar Zanganeh said after the conference. Brent futures traded near $40 a barrel in London on Thursday.

    Non-OPEC supply will fall by 380,000 barrels a day next year, averaging 57.14 million a day, with an expected contraction in the U.S. accounting for roughly half the drop, the organization said Thursday in its monthly report. It increased estimates for non-OPEC supply in 2015 by 280,000 barrels a day.

    The group maintained projections for the amount of crude it will need to pump next year at 30.8 million barrels a day.

    Iraqi production increased by 247,500 barrels a day to 4.3 million a day last month, according to external sources cited by the report, which didn’t give a reason for the gain.

    Iraq has pushed output to record levels this year as international companies develop fields in the south, while the semi-autonomous Kurdish region increases independent sales in the north, according to the International Energy Agency. Production had dipped in October as storms delayed southern loadings and as flows through the northern pipeline were disrupted, according to Iraq’s Oil Ministry.

    Production in Saudi Arabia slipped by 25,200 barrels a day to 10.13 million a day in November, OPEC’s report showed.

    The report didn’t make any reference to how OPEC’s data will re-incorporate output from Indonesia, which rejoined the organization on Dec. 4 after an absence of seven years.
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    China's crude oil stockpiles at 26.1 mln tonnes - stats bureau

    China's oil reserves stood at 26.1 million tonnes, or 190.5 million barrels, in mid-2015, the country's statistics bureau said on Friday.

    The figures include strategic and some commercial volumes.

    China made its first announcement on the size of its strategic reserves in November 2014, putting them at 91 million barrels at the time.

    Read more at Reuters
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    BP, Chevron Back $2 Billion North West Shelf Development Phase

    BP Plc, Chevron Corp. and the other partners in Australia’s largest oil and gas venture approved a $2 billion expansion in the project, the fourth major gas development at the North West Shelf in the past seven years.

    The Greater Western Flank Phase 2 off the north-west coast will develop 1.6 trillion cubic feet of gas from six fields, the operator of the North West Shelf, Woodside Petroleum Ltd., said Friday in a statement. This project will start production in the second half of 2019, Woodside said.

    The North West Shelf, which accounts for more than a third of Australia’s oil and gas production, represents investments of more than $34 billion, according to the project’s website.

    The six equal participants own a 16.67 percent share. In addition to Woodside, BP and Chevron, the partners are BHP Billiton Ltd., Royal Dutch Shell Plc and Japan Australia LNG (MIMI) Pty, which is a joint venture between Mitsubishi Corp. and Mitsui & Co.
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    Production starts at APLNG

    The $24.7-billion Australia Pacific liquefied natural gas (APLNG) project, offshore Queensland, has started LNG production at its Curtis Island facility. 

    ASX-listed Origin Energy reported on Friday that the project remained on track to export its first cargo by the end of the year. “With first LNG production, APLNG has now achieved its last major milestone prior to exporting LNG to customers in Asia,” said Origin CEO for integrated gas David Baldwin. 

    “The Origin-operated upstream activities, which deliver gas to Curtis Island, are fully operational and performing well, and Origin, along with partners ConocoPhillips and Sinopec, are now focused on achieving first export.” The APLGN project comprises two processing trains, each with a 4.5-million-tonne-a-year nameplate production capacity.
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    Statoil acquires Alfra Sentral stake, becomes main operator in Eagle Ford

    Statoil acquires Alfra Sentral stake, becomes main operator in Eagle Ford

    Norwegian operator Statoil has become the sole operator in the US Eagle Ford shale play after striking a number of deals with Repsol.

    The company has acquired the Spanish players 13% interest in the acreage, as well as assuming operatorship of the BM-C-33 licence in Brazil’s Campos basin.

    Statoil said it has also farmed down a 15% interest to Repsol in the Gudrun field on the Norwegian Continental Shelf.

    It will still remain the operator and largest equity holder with a 36% interest.

    The operator will also acquire a 31% equity share in the UK licence for Alfra Sentral, a field which spans the UK-Norway maritime border.

    John Knight, Statoil’s executive vice-president for global strategy and business development, said: “We are delighted to be deepening our relationship with Repsol. In the current challenging market environment, these are innovative, value-enhancing transactions which will help control costs and strengthen Statoil’s portfolio for the long term.

    “Statoil has ambitious goals for future activity, production and value creation on the Norwegian Continental Shelf and this deal supports our long term ambition.

    “We are bringing a strong partner into Gudrun, an important NCS asset, and our increased interest in the Alfa Sentral development will strengthen our efforts to develop the important Sleipner area towards 2030”.
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    ConocoPhillips expects 25 pct lower capital spending in 2016

    ConocoPhillips, the largest U.S. independent oil company, said on Thursday it expects its 2016 capital expenditure to be 25 percent lower than this year's estimated budget, as it responds to a slump in oil prices.

    The company forecast 2016 capital budget of $7.7 billion, and also said it expects to raise $2.3 billion from non-core asset sales.

    A more than 60 percent fall in oil prices since June last year has forced oil and gas companies to scale back spending.

    Global exploration and production spending is expected to fall by 11 percent in 2016, adding to a 20 percent decline in 2015, according to analysts at Evercore ISI.

    Conoco said it expects 2016 production to grow 1-3 percent from an estimated 1,515-1,525 thousand barrels of oil equivalent per day (MBOED), on an adjusted basis, this year, excluding Libya.

    The company raised $600 million from asset sales in the first three quarters of the year, and has agreements in place to raise another $1.7 billion from asset sales.

    Read more at Reuters
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    Centrica says to spend less than planned after upstream cost cuts

    Centrica, Britain's largest energy utility, expects to spend less than the 1.05 billion pounds ($1.6 billion) it had previously envisaged, mainly due to a cut in upstream investments, the company said on Thursday.

    Centrica, which owns Britain's main household energy supplier British Gas, was forced to cut its dividend earlier this year as it has been hit hard by a fall in energy prices and slowing demand.

    It said it was on track to deliver full-year earnings in line with expectations despite a second round of retail price cuts made in August. This year's adjusted operating cashflow is set to exceed 2 billion pounds, Centrica said, compared with 2.7 billion pounds in 2014.

    "We are seeing underlying performance improvement against a softening commodity market," said Chief Executive Iain Conn, the former head of BP's downstream refining and marketing business who took over at Centrica at the start of the year.

    Centrica expected its 2015 organic capital expenditure to come in slightly below its target as its spending on exploration and production, its most expensive investments, was on target to be less than 800 million pounds.

    This would fall below 600 million in 2016, Centrica added.

    Analysts welcomed the results as positive and shares in Centrica were trading up nearly 3 percent at 0832 GMT at 212.2 pence.

    "We regard today's statement as relatively positive, and we continue to think that Iain Conn and his team are moving Centrica in the right direction," said Whitman Howard analyst Angelos Anastasiou.

    After joining Centrica in January, Conn initiated a strategic review that will include 1 billion pounds worth of upstream and wind power divestments. It didn't provide further details on Thursday.

    The utility, whose market share has been attacked by smaller rivals, said its customer account numbers were largely unchanged since the middle of the year.

    Many utilities across the European continent are at a crossroads requiring a new business strategy as the decades-old model of centralised, predictable energy supplies and consumption is giving way to a modern and more flexible system.

    Germany's E.ON and RWE, two of Europe's largest utilities, have taken the drastic step of separating their conventional power plant and 'renewable' energy businesses.

    Britain's energy suppliers also face tighter regulation on the back of a competition investigation that could impose a limit on the most expensive energy tariffs.

    Read more at Reuters
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    Argentina Shale Poised for Boom with 'Super Well' and Pro-Industry President

    The discovery of a 'super well' in Argentina's prized Vaca Muerta shale and the presidential victory of a pro-industry candidate raises the stakes in this market-defying venue and positions the only junior on the scene for massive gains.

    The 'super well'- discovered in October by state-run YPF in partnership with Chevron (NYSE: CVX) in the Vaca Muerta block in Neuquen--offsets Madalena Energy Inc.'s (MVN.V) Couron Amargo acreage, where this last remaining junior in the sea of supermajors is conducting a multi-well horizontal program.

    And shortly after the super well discovery, Argentina's shale prospects in general-and Madalena's high-profile plays here-got another bit of long-term good news: Conservative pro-business candidate and former Shell executive Mauricio Macri won Argentina's November presidential run-off elections, paving the way for a new government which is intent on seeing the shale boom through.

    The news could not have come at a better time for Madalena, which is now preparing its first multi-stage frac well in the Vaca Muerta, not only right next to the YPF/Chevron 'super well', but also offsetting Shell's impressive horizontal drilling results.

    This small, ambitious and highly intuitive Canadian energy company is sandwiched right in between the biggest players in the world, who are coming up with discovery after discovery.      

    All eyes are on Madalena as it drills with two rigs in Argentina's high-impact Curamhuele block, targeting two unconventional plays, and another rig at Coiron Amargo. While majors such as Chevron, Shell and ExxonMobil (NYSE: XOM) are hard at work here, it is Madalena that stands out for investors because it is the only remaining junior in this big game.

    Argentina is home to 27 billion barrels of recoverable oil and 802 trillion cubic feet of natural gas and its two shale basins could end up being bigger than the Eagle Ford and Bakken.

    Productivity is high and domestic oil and gas prices are fixed above international benchmarks, while costs per well could decline by 25 to 30 percent. Regulated oil prices are around $75-$77, despite low global prices.  

    In addition to this, the government's $11-million-plus incentivized oil program has spurred steady growth.

    Macri's party, Cambiemos plans to continue this price initiative, which was originally set to expire on 31 December.

    Madalena Energy is the only small independent with positions in key unconventional Argentinean resources; it is debt-free, generates substantial operational cash flow and has a rapidly increasing production and resource.

    Focused on drilling four strategic resource plays this year and next, Madalena has been described as a 'sleeper' that awakened earlier this year with successful horizontal test results on the Loma Montosa oil resource play at Puesto Morales.

    The junior will also be drilling back-to-back horizontals on its Coiron Amargo block, which is a prime Vaca Muerta shale play that also has attractive conventional development across multiple light oil pools-even more so now with the 'super well' discovery.

    Madalena is gearing up in the first part of 2016 to conduct a multi-stage frac and test of this Curamhuele well to delineate and unlock 365 million barrels of oil equivalent of risked recoverable resources where the Company has over 500 net horizontal locations in the Lower Agrio Shale alone.

    If all the drilling activity isn't enough to make a believer out of any shale skeptic in this market, Madalena'sQ2-2015 financial and operational results will. They realized a Q2 2015 oil price of CDN $96.33/bbl and$6.28/mcf for natural gas. They also managed to increase oil and gas production by 155 percent from 2014, to 3,996 boe/d, and a 30 percent increase in revenues to $83.50/boe, up from $64.08/boe from the same time last year.

    All this while corporate operating netbacks were over $37/boe in Argentina, with funds flowing from operations an impressive approximately $6.2 million (not including a one-time charge).

    Even in a tough energy market, it has been a solid year for Madalena, with each new discovery and each new horizontal well drilled by the supermajors right next to its own land position further de-risking operations and making this one of the most valuable juniors in the international energy sector.
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    Cenovus Energy to lower capital spending in 2016

    Canadian oil producer Cenovus Energy Inc said it expects to lower its capital budget for 2016 by 19 percent, from its estimated budget for this year, in response to tumbling crude prices.

    The Calgary-based company expects to spend between C$1.4 billion ($1.03 billion) and C$1.6 billion in 2016, down from its estimated 2015 budget of C$1.8 billion-C$1.9 billion.

    Cenovus, which jointly operates Foster Creek and Christina Lake oil sands projects with ConocoPhillips, plans to use about 80 percent of its 2016 budget to sustain capital investments, with the remaining budget to be allocated mainly to oil sands growth projects.

    The company said even if Brent crude prices remain in the $40 per barrel range through 2016, company expects to continue to fund its current dividend level.

    Brent futures were trading at $40.16 per barrel on Thursday.

    The company, which has already been cutting jobs, said it will focus on achieving additional cost reductions next year.
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    Alternative Energy

    UK proposes huge VAT hike for solar panels

    The UK Government has proposed a massive VAT hike for solar panels and wind turbines.

    The news comes as the European Commission said the UK’s legislation was not consistent with EU laws and referred it to the Court of Justice of the European Union.

    The UK currently applies the reduced VAT rate of 5% for the installation of energy-saving materials (ESMs) in domestic properties, including insulation, heating controls, solar panels, wind turbines and ground and air source heat pumps.

    Under the new proposals, solar panels, water turbines and wind turbines would be charged at the standard VAT rate of 20%.

    HM Revenue & Customs (HMRC) has launched a consultationand is seeking views from interested parties until 3rd February 2016.

    It states: “The measure is likely to affect fewer than 500,000 individuals (and households) and the impact on affected individuals (and households) is anticipated to be negligible.

    “We estimate that there are roughly 3,000 businesses will also incur one-off costs updating their invoicing systems to account for the change in the tax rate… These costs are therefore expected to be negligible”.

    The reduced rate will however continue to apply to those “who have a social need”, relevant housing associations and installations in all buildings “used solely for a relevant residential purpose”.

    The HMRC document adds: “The revised legislation as drafted will mean that there could be a different VAT treatment depending upon the status of the customer (for example, whether or not the customer is a ‘qualifying person’).

    “However, the different treatment will only arise in cases where the supply includes installed materials and the cost of the materials element of the supply is greater than the labour installation cost. All other supplies will be unaffected.”

    The new proposals are expected to come into effect on 1stAugust 2016.

    The Solar Trade Association claims the move could add £900 to the cost of a typical 4KW solar installation, which is currently around £6,400.

    Head of Policy Mike Landy said: “This requires urgent action from both the UK Government in London and the European Commission in Brussels.

    “Instead of just accepting the EU ruling, HMRC needs to push back and argue for solar to keep its reduced VAT rate. The Department of Energy and Climate Change and the Treasury also need to take this massive hike in end prices into consideration in their imminent decision on how far to cut the Feed-in Tariff for solar.”
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    Brazil sugar group Tonon files for bankruptcy protection

    Brazil sugar and ethanol producer Tonon Bioenergia SA, which operates three mills with a total capacity to process 8.2 million tonnes of cane per year, has sought court protection against creditors, the company said late on Wednesday.

    Tonon said its debt, largely denominated in dollars, soared following the recent weakening of Brazil's currency. The sugar group's debt in Brazilian reais jumped by 69 percent by the end of September to 2.66 billion ($707 million) compared to the same time a year earlier.

    "The main objective of this request is to restore the capital structure and preserve business continuity," the company said in a statement.

    More than 70 mills in Brazil have filed for court protection against creditors in the past three years as a long period of low sugar and ethanol prices has hurt their profitability.

    More recently, the local currency's weakness, despite increasing the return in reais on sugar export deals, has raised indebtedness for companies with a large share of their liabilities denominated in dollars.

    Tonon also said tough financing conditions in the Brazilian market further harmed its ability to manage its finances. To tackle inflation running in double-digits, the central bank has signaled it could raise interest rates in January from a nine-year high of 14.25 percent.

    Tonon's request comes at a time when international sugar prices are finally recovering from their lowest values in more than five years and local ethanol prices hit the highest levels since 2011. ($1 = 3.76 reais)

    Read more at Reuters
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    U.S. government forecaster maintains outlook for strong El Niño this winter

    U.S. government forecaster maintains outlook for strong El Niño this winter

    A U.S. government weather forecaster on Thursday said the El Nino weather phenomenon that is underway is expected to remain strong through the Northern Hemisphere winter 2015-16, before tapering off during the late spring or early summer.

    The Climate Prediction Center (CPC), an agency of the National Weather Service, in its monthly forecast broadly maintained its outlook for strong El Nino conditions likely to persist through the winter.

    "El Niño has already produced significant global impacts and is expected to affect temperature and precipitation patterns across the United States during the upcoming months," CPC said.

    The phenomenon is a warming of ocean surface temperatures in the eastern and central Pacific that occurs every few years, triggering heavy rains and floods in South America and scorching weather in Asia and as far away as east Africa.

    Japan's weather bureau said earlier Thursday that El Niño is now at its peak and weather would return to normal by summer.

    Read more at Reuters

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    Precious Metals

    Goldcorp caught in middle of Mexican gang war

    Goldcorp Los Filos gold and silver mine in Mexico's Guerrero state, the same region where 43 students were kidnapped and massacred last year, is at the centre of a turf war between two criminal gangs.

    Goldcorp, the world's most valuable listed gold mining company, has operated the mine near the town of Carrizalillo since 2007, but residents say the $3 million the community receives annually has seen rival gangs enter the area to extort workers, contractors and landowners.

    Guerrero has the country's highest homicide rate and a police crackdown in mid-2014 on Los Rojos, the gang controlling the town of 1,000 at the time, opened the door for a rival gang, Guerreros Unidos, to move in. Both groups are offshoots of the Sinaloa cartel which was headed by infamous narco kingpin Joaquin "El Chapo" Guzman.

    According to Reuters "at least 26 people" have been killed in the ensuing tit-for-tat feud over control. In March this year, three Goldcorp employees were kidnapped for ransom and later found dead.

    Speaking to Reuters, Goldcorp’s Latin America director for corporate affairs and security, Michael Harvey, claimed the corporation is doing everything it can:

    “Even though we can and do advocate with local authorities for the respect of human rights in the vicinity of our operations, we cannot take on the role of government.

    “The violence carries both a terrible human cost to the communities, and a financial cost to Goldcorp as we are obliged to invest in additional security for our operations and personnel.

    "It is essential to protect the jobs provided by legitimate investment so as to give community members economic opportunities other than crime."

    Last year, Goldcorp had to suspend operations for about month, during negotiations with landowners that led to a deal where Goldcorp pays "the equivalent of 4 ounces of gold per hectare in rent to 175 landholders and a communal land fund," according to Reuters.
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    Lonmin says $400m rights issue undersubscribed

    Beleagured platinum producer Lonmin said on Friday its deeply discounted $400 million share issue was undersubscribed with about 71% taken up.

    The company, which is seeking cash to stay afloat, said it had received acceptances for 19 billion new shares as of December 10 out of 27 billion shares it is selling to shareholders at 1 pence each.

    The rights issue was underwritten by HSBC, J.P. Morgan Cazenove and Standard Bank. Lonmin said they now need to find subscribers for the balance of nearly 8 billion new shares by no later than December 14.
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    Base Metals

    Aurubis forecasts significant drop in 2015/16 profit

    Aurubis, Europe's biggest copper smelter, expects its operating pretax profit to decline significantly in its current financial year due to a recent drop in copper prices, it said as it published quarterly results on Friday.

    The group posted a 32 percent rise in its operating pretax profit for the fiscal fourth quarter through end-September to 82 million euros ($89.7 million), missing the average of estimates of 94.8 million in a Reuters poll.

    Analysts on average see the figure coming to 336 million euros for the 2015/2016 fiscal year, the poll showed.

    Read more at Reuters
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    China Hongqiao Group cuts aluminium output as prices tumble

    Aluminium producer China Hongqiao Group said on Thursday it will cut annual capacity by 250,000 tonnes immediately, the latest smelter to pledge to curb supplies as the loss making industry combats record low local prices.

    The output cut, representing 6 percent of the company's total capacity, mirrors similar moves over the past month by the copper, zinc and nickel industries and followed a meeting of 14 major Chinese aluminium smelters in the southwestern city of Kunming in Yunnan province.

    "We will not consider resuming production of the (250,000 tonnes) capacity," a China Hongqiao official told Reuters.

    Aluminium futures in Shanghai closed slightly higher on the news, although the reaction was largely muted as the latest cut in the world's top producing country was considered too small to make a dent in a global stockpile glut estimated at 14 million tonnes.

    Still, the move reflects the deepening pain across the industry with Shanghai prices down more than 20 percent in 2015 and on course to fall for a sixth straight year.

    Wan Ling, an analyst at research consultancy CRU, said there is likely to be "more production cuts at plants with high cost and big losses, especially those using grid power."

    "The reduction will be supportive to prices but difficult to say it is enough to push up prices."

    China Hongqiao is not the first major Chinese smelter to reduce output this year. Chalco and SPIC have already made cutbacks. According to CRU data, China has closed 3.65 million tonnes per year of primary aluminium smelting capacity.

    It wasn't clear if the other 13 smelters at the meeting would follow China Hongqiao's lead.

    Traders and analysts said that at least one smelter and local governments were resistant to broader cuts. The smelter was not losing money, while local governments preferred to offer subsidized power because they depend on the sector for economic growth.

    It also suggests that some aluminium makers are worried the government won't intervene to help out despite their pleas for the state reserve to scoop up some of the excess that has punished prices.

    Some smelters are keen to avoid shutting potlines - a series of connected electrolytic cells that turn alumina into aluminium - a costly and complicated move, while state aid may be on the table, traders said.

    The news sent Shanghai aluminium prices higher before closing nearly flat. The most-active February contract on the Shanghai Futures Exchange closed up 0.1 percent at 10,375 yuan ($1,612) a tonne, but it reached 10,600 yuan earlier in the day, the highest in six weeks.

    China's state stockpiler was considering buying more than 1 million tonnes of aluminium from local smelters, Reuters reported in late November, an initial sign that Beijing could agree to the first major bailout in its embattled metals industry since 2009.

    Read more at Reuters
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    Steel, Iron Ore and Coal

    China's state planner calls for vigorous enforcement of dirty coal ban

    China's state planning commission urged better enforcement of a ban on dirty coal, calling for violators to be more vigorously punished, as the world's largest energy consumer continues to grapple with rampant air pollution.

    The National Development and Reform Commission (NDRC) called for the proper implementation of the ban on the import and local sale of coal with high ash and sulfur content, in a statement dated for Nov. 30 and posted on its website on late Wednesday.

    "Environmental protection departments should strengthen inspections for enforcement of coal emissions meeting targets, and more vigorously punish violations," the NDRC said in the statement.

    The ban on the import and sale of lower grade coals came into effect in January 2015.

    The restrictions are most stringent in the affluent and polluted cities around the Pearl River Delta in the south, the Yangtze River Delta in the east, and the capital city, Beijing, in the north.

    China relies on coal to provide 64 percent of its energy, contributing to the choking smog smothering its major cities.

    The capital issued its first air pollution "red alert" this week, banning heavy vehicles, restricting the number cars on the road, advising schools to cancel classes, and requiring outdoor construction to stop.

    China, also the world's biggest emitter of carbon dioxide, has said it will cap coal consumption at around 4.2 billion tonnes by 2020, lowering the fuel's share in its energy mix by increasing the use of renewable energy.

    Read more at Reuters
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    India imported 17mln T coal in Nov

    India imported around 17 million tonnes of coal in November through 29 major ports, up 7.6% month on month, according to data released on December 8 by Indian shipbroker Interocean.

    Of the total, 13.2 million tonnes was thermal coal, rising 20.6% from October, and 3.8 million tonnes was coking coal, down 21.8%, data showed.

    Mundra port on the west coast received highest coal shipments at 1.9 million tonnes in November, falling 15% from October, consisting only of thermal coal.

    Goa port on the west coast received the highest coking coal shipments last month of 888,644 tonnes, up from 1.04 million tonnes in October.

    The coal was mainly imported from Indonesia, Australia, South Africa and the US.
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    Daqin Nov coal transport down 22.1pct on yr

    Daqin line, China’s major coal-dedicated rail line, transported 29.24 million tonnes of coal in November, a decline of 22.11% on year—the 15th consecutive year-on-year drop, and down 1.85% from October, showed the latest data on December 10.

    In November, Daqin’s daily coal transport averaged 975,000 tonnes, up 1.46% month on month.

    Over January-November this year, Daqin accomplished a coal transport volume of 364.1 million tonnes, a decline of 11.56% from the year prior. That was 86.68% of its annual target, which was set at 420 million tonnes.

    In 2014, Daqin line accomplished a total coal transport volume of 450.2 million tonnes, up 1.11% on year, accounting for 27.42% of the nation’s total.

    Daqin Railway Co., Ltd planned to buy 70% shares of Shanxi Taixing Railway Co., Ltd. with 3.16 billion yuan ($494.4 million), which was held by its parent Taiyuan Railway Administration , it said late November 24.

    The 164.26 km Taixing railway line, starting from Fenhe station in Taiyuan to Baiwen Station in Luliang city, had a designed transport capacity of 40 million tonnes per year, with preliminary capacity at 38 million tonnes.

    It has been completed construction and is expected to start commercial operation in 2016.
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    BC Iron shuts iron ore mine as price sinks

    Australian iron ore miner BC Iron Ltd on Friday said it was suspending operations at its Nullagine joint venture, the second company in the country to take such a step this year due to plunging prices for the steelmaking ingredient.

    Oversupply and a slowing economy in top consumer China have hit iron ore markets hard, piling pressure on smaller producers such as BC Iron, which owns 75 percent of the Nullagine joint venture in Western Australia. Fellow Australian miner Fortescue Metals Group holds the rest.

    The partners commenced exports in early 2011, using a Fortescue rail line to haul up to 6 million tonnes of ore annually to Port Hedland, where it is shipped to overseas buyers. That volume is a fraction of the amounts churned out by the nation's top producers Rio Tinto and BHP Billiton .

    "BC Iron is a price taker and unfortunately ... the iron ore market is such that we have had to make this decision," said BC Iron managing director Morgan Ball.

    The company and other miners have increasingly relied on a weaker Australian dollar, cheap freight rates and lower costs associated with a drop in oil prices to maintain satisfactory margins.

    But a sharper-than-expected decline in ore prices has tested the ability of all but the lowest-cost miners to stay afloat.

    Iron ore for immediate delivery to China's Tianjin port this week stood around $37.50 a tonne .IO62-CNI=SI, according to The Steel Index, the lowest level since it began collecting data in 2008.

    UBS recently estimated BC Iron's break-even cost at $52 a tonnes.

    BC Iron said it expected its cash balance to stand at A$42-47 million ($64.6 million) at year-end, compared to A$71.8 million on Sept. 30.

    The closure comes after Atlas Iron suspended production in April and laid off two-thirds of its employees, resuming only after securing financial backing and selling the bulk of its output forward at fixed prices.

    Meanwhile, Fortescue last month put its break-even costs at around $37 a month, dangerously close to current prices. That compares with around $27-$28 a tonne for Rio Tinto and BHP.

    Read more at Reuters
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    Mechel aims for approval of restructuring deals on March 4

    Indebted Russian miner Mechel said on Thursday it had called an extraordinary general meeting (EGM) for March 4 when it expected shareholders would be able to vote on debt restructuring deals with its banks.

    "We aim to reach final agreements with Sberbank before sending out the materials for the EGM," a spokesman for the miner added.

    However Sberbank, one of Mechel's key creditors, said in a statement it was still discussing debt restructuring with Mechel and was yet to reach a final agreement.

    Mechel, which employs over 60,000 people, had to ask its lenders to delay debt repayments after Russia's economic downturn and a decline in coal and steel prices put an end to its strategy of borrowing heavily to finance large investments.

    Mechel said it had called the EGM to vote on deals between the company and VTB, Gazprombank, Sberbank and a banking syndicate. The company plans to start distributing materials for the EGM from Feb. 4.

    Read more at Reuters
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