Mark Latham Commodity Equity Intelligence Service

Tuesday 26th July 2016
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    A Year After Iran Deal, Oil Flows But The Money’s Stuck

    A jump in oil exports, business deals signed with global companies and inflation tamed: One year since Iranian negotiators gathered with the world’s top diplomats to unveil their nuclear accord and Iran’s economy is on the mend. That’s the good news for President Hassan Rouhani in the final year of his first term.

    Not so welcome are the foreign banks deterred from lending by remaining U.S. sanctions, Congressional threats of new curbs, and the billions of dollars held in foreign accounts yet to reach Iran. Jobs are scarce.

    “On the whole, the economic consequences have been disappointing but there was over-optimism,” says Robert Powell, Middle East and Africa regional manager at the Economist Intelligence Unit. “Many in Iran probably expected too much, too soon.”

    Oil is the bright spot

    Oil sanctions were the weapon designed to force Iran to the negotiating table over its atomic program. Six months after they were lifted, Iran’s producing 3.8 million barrels a day, 2 million of which are exported. Holding out against efforts by some OPEC members to freeze bloc output and lift prices, it has regained 80 percent of market share held before the U.S. and European Union tightened crude sanctions in 2012, says Mohsen Ghamsari, National Iranian Oil Co.’s director of international affairs.

    Exports have “arguably surpassed expectations,” says Powell. Yet oil’s slumping value means revenue is expected to be less than half of what it was in 2011. That’s about $50 billion in 2016 against $119 billion five years ago, according to EIU estimates.
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    Oil and Gas

    Russian oil industry close to major taxation overhaul

    Russia is planning to overhaul its oil industry tax, introducing a profit-based system designed to boost government revenue and lift output from 2018, according to documents seen by Reuters and industry sources.

    The current tax is currently based on production and exports. Companies have long been lobbying for profit-based taxation, saying it will spur production and it better reflects exploration costs and risks.

    The proposed tax system could be applied first to pilot projects with total production of between 10 million tonnes and 15 million tonnes per year (between 200,000 barrels per day and 300,000 barrels per day).

    Low oil prices and western sanctions have left holes in the state budget. Under the new scheme, the budget may still lose up to 50 billion roubles ($771 million) if it is introduced under an oil price of $50 per barrel. But the loses could be eliminated if production increases by a third.

    According to a document obtained by Reuters, the energy ministry and the finance ministry have worked out the new system for both mature and new fields. An industry source confirmed the authenticity of the document, which was dated June 30.

    The energy ministry told Reuters "the issue is still under discussion".

    A source close to the finance ministry said all the proposals are subject to change, and the industry source said there are several unresolved issues.

    "Debates are still raging about whether to hike the export fee for fuel oil or not," the industry source said, requesting anonymity as he is not authorised to speak publicly on the issue.

    A rise in fuel oil fees will hit companies that have lagged behind a massive modernisation of refineries that was launched in 2011 to improve the quality of oil products.

    The industry source said next year's rate of mineral extraction tax for gas giant Gazprom was also still being discussed.

    Russian Energy Minister Alexander Novak has said the finance and energy ministries have overcome disagreements over a new tax system for the sector.

    The finance ministry, the custodian of the state budget, had opposed the idea of profit-based tax, claiming that will allow producers to conceal income in order to minimise tax payouts.

    The new system for brownfields may cut tax by between 16 and 20 percent depending on the oil price, while the internal rate of return for greenfields in Eastern Siberia is seen rising to 19.3 percent, up from 16.9 percent under the current tax system.

    According to the draft proposal, several greenfields which are currently benefiting from lower taxes will increase their payment into the budget by 6 percent.

    The source also said it was not clear which greenfields would could continue benefiting from the lower tax rate.

    "For example, the government is still discussing (Lukoil 's) Imilor and Shpilman new fields," the source said.
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    Oil heads back to $30/bbl and probably lower

    There was never any fundamental reason why oil prices should have doubled between January and June this year. There were no physical shortages of product, or long-term outages at key producers. But of course, there was never any fundamental reason for prices to treble between 2009 - 2011 in the Stimulus rally, or to jump nearly 50% between January - May last year.

    Instead, prices once again rose because financial players expected the US$ to decline
    They realised this meant they could make money by buying oil on the futures market as a 'store of value'
    Now, as the US$ has started to recover, they are selling off these positions
    And so oil prices are falling again

    The problem is that the financial volumes swamp the physical market - they were 7x physical volume at their 2011 peak- and so they destroy the oil market's key role of price discovery based on the fundamentals of supply/demand. As I worried in an interview back in March:

    'Now the central banks are doing it again. And so, once again, oil prices have jumped 50% in a matter of weeks, along with prices for other major commodities such as iron ore and copper, as well as Emerging Market equities and bonds. In turn, this will force companies to buy raw materials at today's unrealistically high prices, as the seasonally strong Q2 period is just around the corner. Some may even build inventory, fearing higher prices by the summer.

    'If this happens, and prices collapse again as the hedge funds take their profits, companies will ... be sitting on high prices in a falling market in Q3 - just as happened in January. Only Q3 could be worse, being seasonally weak, and so it may take a long time to work off high-priced inventory.'Today, just as I feared, the hedge funds are indeed now unwinding their bets and leaving chaos behind them. As Reuters reports, they have already 'slashed positive bets on US crude oil to a 4-month low':

    Russia has confirmed the myth of an OPEC/Russia oil production freeze is now officially dead
    US oil and product inventories hit an all-time high of almost 1.39bn barrels
    China's gasoline exports have doubled over the past year, and its diesel exports tripled in H1
    Saudi Arabia's Oil Minister has warned 'There are still excess stocks on the market - hundreds of millions of barrels of surplus oil. It will take a long time to reduce this inventory overhang'

    Even worse is that the world is now running out of places to store all this unwanted product, as Reuters reported earlier this month:

    'Storage tanks for diesel and heating oil are already so full in Germany, Europe's largest diesel consumer, that barges looking to discharge their oil product cargoes along the Rhine are being delayed'.

    Similarly, the International Energy Agency has reported a major backup of gasoline tankers at New York harbor, due to storage being full, whilst Reuters added that tankers are being diverted to Florida and the US Gulf Coast to discharge.

    Plus, of course, the recent rally has proved a lifeline for hard-pressed oil producers, who have been able to hedge their output at $50/bbl into 2017. As a result, companies have started to increase their drilling activity again, and are expected to open up many of the 4000 'untapped wells' - where the well has been drilled, but was waiting for higher prices before it was sold.

    Yet wishful thinking still dominates oil price forecasts. $50/bbl has always been the 'Comfortable Middle' scenario, as we noted in the Demand Study - and most companies and analysts are most reluctant to break away from this cosy consensus. Yet even in February this year, only 3.5% of global oil production was cash-negative at $35/bbl - just 3.4mbd. Today's figure is likely even lower, as costs continue to tumble.

    And in the real world, oil prices have already fallen more than 10% from their $50/bbl peak. Unless the US$ starts to fall sharply again, it seems highly likely that prices will now revisit the $30/bbl level seen earlier this year. Given the immense supply glut that has now developed, logic would suggest they will need to go much lower before the currently supply overhang starts to rebalance.
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    BP’s second quarter profit slips on lower oil prices

    UK oil giant BP on Tuesday posted a lower profit for the second quarter of 2016 of $720 million on an underlying replacement cost basis, compared with $1.3 billion for the second quarter of 2015.

    According to the oil company, compared with a year earlier, the underlying second quarter result was impacted by lower oil and gas prices and significantly lower refining margins, but this was partly offset by the benefit of lower cash costs throughout the group as well as lower exploration write-offs.

    The Brent oil marker price averaged $46 a barrel in the second quarter, up from $34 in the first quarter but still significantly lower than $62 a year earlier. While improved from the previous quarter, refining margins were the weakest for a second quarter since 2010, BP said.

    Underlying operating cash flow for the quarter – before pre-tax Gulf of Mexico payments – was $5.5 billion. This underlying cash flow resulted from continuing reliable operation of assets, BP explained.

    BP’s cash costs over the past four quarters were around $5.6 billion lower than in 2014 and BP continues to expect these costs for 2017 to be $7 billion lower than in 2014. Organic capital expenditure for the first half of 2016 was $7.9 billion; full year 2016 capital expenditure is now expected to be below $17 billion.

    BP on Tuesday announced an unchanged dividend for the quarter of 10 cents per ordinary share ($0.6 per ADS), expected to be paid in September.

    Earlier in July BP announced that it had made progress in resolving outstanding claims from the Deepwater Horizon accident and oil spill, including claims associated with the Plaintiffs’ Steering Committee settlement and by individuals and businesses that opted out of and/or were excluded from that settlement.

    The progress made in resolving the opt-out and excluded claims was confirmed by a court order of July 14, 2016. As a result, BP said it can now reliably estimate all remaining material liabilities in connection with the incident.

    BP has taken a net post-tax non-operating charge in the quarter of $2.8 billion. This includes a pre-tax non-operating charge of $5.2 billion associated with the Deepwater Horizon liabilities and other positive tax credits. Including fair value accounting effects and inventory gains, this resulted in a reported loss for the quarter of $1.4 billion.

    Including this quarter’s $5.2 billion pre-tax charge, the total cumulative pre-tax charge for the Deepwater Horizon incident is $61.6 billion. This now includes BP’s estimation of all material liabilities associated with the incident; any liabilities not covered by this charge are not expected to be material to BP.

    Bob Dudley, BP group chief executive said: “We are very pleased to have finally drawn a line under the material liabilities for Deepwater Horizon. We will always be mindful of what we have learned from that tragic accident.”

    Dudley added:“As we look forward we expect the external environment to remain challenging, but we have a strong pipeline of new projects which will add 500,000 barrels of oil equivalent a day of new production capacity by the end of next year. Beyond this lie further opportunities, including a number which we expect to deliver through innovative structures such as the recently announced Aker BP venture.”

    The oil company’s production for the quarter was 2,090mboe/d, 1.0% lower than the second quarter of 2015.

    Looking ahead, BP said it expects third-quarter reported production to be lower than the second quarter due to seasonal turnaround and maintenance activities and the impact of the plant outage at the Enterprise Pascagoula gas processing plant in the Gulf of Mexico.

    Attached Files
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    Shell to cut 25 percent of deep-water Gulf jobs

    Royal Dutch Shell says it’s cutting one-quarter of its deep-water Gulf of Mexico workers, the oil company’s latest bid to reign in costs amid anemic crude prices.

    The move to shed 200 out of its 770 Gulf of Mexico employees and contractors, located across the United States, is part of Shell’s broader plan to cut 2,200 jobs by the end of the year as it makes room for BG Group, the British gas producer it acquired for $50 billion this year.

    It’s part of an “ongoing effort to maintain safety, identify efficiencies and increase accountability in our global operations,” said Kimberly Windon, a Shell spokeswoman, in an emailed statement. Some of Shell’s deep-water Gulf employees may be transferred internally to other areas.
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    Golar, Schlumberger create FLNG JV

    Golar LNG, one of the world’s largest owners and operators of LNG carriers, and oilfield services giant Schlumberger on Monday created OneLNG, a joint venture aiming to “rapidly develop low-cost gas reserves” to LNG.

    The two companies have agreed an initial investment commitment to cover the estimated equity needed to develop the first project.

    In addition, the parties will, on a project-by-project basis, discuss additional debt capital as required, according to a joint statement issued on Monday.

    Golar and Schlumberger have 51/49 ownership of the joint venture, the statement reads.

    Commenting on the formation of the JV, Golar vice chairman, Tor Olav Troim sad it provides a union of Schlumberger oilfield services technology and production management business, and Golar’s FLNG solution.

    According to the statement, the two companies have reviewed the current market opportunities coming to a conclusion that “40 percent of the world’s gas reserves can be classified as stranded”, which is the market the JV is looking to cover.

    To remind, Golar LNG and Schlumberger signed a memorandum of understanding to cooperate on developing greenfield, brownfield and stranded gas reserves in January.

    Both companies reinforced the commitment to the cooperation despite Schlumberger’swithdrawal from the Fortuna FLNG project agreement with Ophir.

    In terms of the newly formed joint venture, both companies said they are “confident that the JV would conclude 5 projects within the next 5 years.”
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    Exxon moves on Mamba: another big LNG project.

    Mozambique's long-delayed offshore gas project with Italy's Eni could be approved within months, sources close to the deal said, sparking investments with the potential to transform one of the world's poorest countries into a major energy player.

    Mozambique made one of the world's biggest gas finds in a decade in 2010 but negotiations with operators Eni and U.S. firm Anadarko have dragged on for years due to disputes over terms and concerns about falling energy prices.

    But Eni has in recent weeks struck deals with contractors and Mozambique's government which could help it to make a final investment decision (FID) on Oct. 31, industry sources said.

    Eni declined to comment. The company's Mozambique concession is split between two huge gas fields, called Coral and Mamba. Eni has previously said it expects to make FID on Coral this year and Mamba in 2017.

    Reserves in Mozambique's Rovuma Basin amount to some 85 trillion cubic feet -- enough to supply Germany, Britain, France and Italy for nearly two decades. It is likely to take at least five years after FID before gas production begins.

    Samsung Heavy said last week it was in exclusive talks with Eni to provide a floating liquefied natural gas (LNG) platform as part of a consortium with Technip and Japan's JGC, in a contract worth around $5.4 billion.

    General Electric has also been approved as a contractor, two sources said.

    Negotiations with government over tax terms and the funding of the Mozambique national gas company have also made moved forward in the last two months, the sources said.

    Eni has already reached a deal to sell the gas to BP.

    "There has been significant progress in the last few weeks. It's making investors a lot more optimistic FID isn't too far away," one banker involved in the deal told Reuters.


    The last major sticking point is how Eni will finance the $11 billion development, the sources said.

    Eni is expected to raise several billion dollars by splitting its concession in two and selling up to 20 percent of its Mamba gas field, and the operating rights, to Exxon Mobil , sources involved said.

    Any sale by Eni would provide a much-needed capital gains tax windfall for the Mozambican government during a period of economic crisis and as it struggles to make repayments on $1.35 billion in controversial foreign loans.

    The International Monetary Fund suspended aid to Mozambique in April because of the hidden debt.

    "There's definitely been more urgency on the government side to get these gas deals moving," one industry source said.

    While Eni will drill and process gas from floating offshore platforms, Anadarko is building sprawling LNG facilities on the northern Mozambican mainland, causing complications due to local residents who will need to be relocated.

    Anadarko submitted a plan to resettle thousands of mostly farmers and fishermen who will be displaced by the LNG project last month, one of the last hurdles to jump before getting the go-ahead on a $24 billion project, two sources said.

    Mitch Ingram, who was previously with BG, was hired by Anadarko last year to head its LNG business. Ingram's experience has given investors more confidence about Anadarko's ability to raise financing, the sources said.

    Anadarko's project is expected to lag Eni's and its final investment decision is unlikely this year, the sources said.

    Attached Files
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    India’s Top Gas Utility Seeks to Defer Gazprom LNG Contract

    GAIL India Ltd. is seeking to defer a 20-year contract to buy liquefied natural gas from Gazprom PJSC until the Russian company’s Shtokman project begins production, officials at the South Asian country’s biggest gas transporter said.

    New Delhi-based GAIL signed a contract in 2012 to buy 2.5 million metric tons a year of LNG from Gazprom starting in 2018 and 2019. The Russian exporter was to supply LNG from the Shtokman project under the contract, according to GAIL’s website.

    Now that the Arctic project is on hold, Gazprom has offered to supply LNG from other sources, said the GAIL officials, who asked not to be identified citing company policy. The Indian company is insisting on supplies from Shtokman and has said it will consider lifting LNG from other sources at a renegotiated price that is closer to spot-market rates, the officials said.

    GAIL is struggling to find buyers for its gas amid an abundance of cheap alternative power generation supplies, including coal. The price of spot LNG to Asia during the past year has fallen 28 percent amid a global glut.

    Reuters earlier reported GAIL was seeking to delay the gas purchase deal with Gazprom.

    Attached Files
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    SABIC and ExxonMobil Evaluating Petrochemical Joint Venture on U.S. Gulf Coast

    SABIC and an affiliate of Exxon Mobil Corporation (ExxonMobil) (NYSE:XOM) are considering the potential development of a jointly owned petrochemical complex on the U.S. Gulf Coast.

    “The proposed venture would capture competitive feedstock and reinforce SABIC’s strong position in the value chain.”

    If developed, the project would be located in Texas or Louisiana near natural gas feedstock and include a world-scale steam cracker and derivative units.

    Before making final investment decisions, the companies will conduct necessary studies and work with state and local officials to help identify a potential site with adequate infrastructure access.

    “We are focused on geographic diversification to supply new markets,” said Yousef Abdullah Al-Benyan, SABIC vice chairman and chief executive officer. “The proposed venture would capture competitive feedstock and reinforce SABIC’s strong position in the value chain.”

    Neil Chapman, president of ExxonMobil Chemical Company, said: “We have the capability to design a project with a unique set of attributes that would make it competitive globally. That is vitally important as most of the chemical demand growth in the next several decades is anticipated to come from developing economies.”

    ExxonMobil and SABIC have worked together for 35 years in major chemical joint ventures in Saudi Arabia.
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    GeoPark Announces Further Development Drilling Success in Colombia

    GeoPark Limited , a leading independent Latin American oil and gas explorer, operator and consolidator with operations and growth platforms in Colombia, Chile, Brazil, Argentina, and Peru1, today announced the successful drilling and testing of the Jacana 4 development well in the Jacana oil field in the Llanos 34 Block (GeoPark operated with a 45% working interest) in Colombia.

    GeoPark drilled and completed the Jacana 4 development well to a total depth of 10,370 feet. A test conducted with an electric submersible pump in the Guadalupe formation resulted in a production rate of approximately 1,950 barrels of oil per day of 16 degrees API, with 1% water cut, through a choke of 40/64 mm and wellhead pressure of 70 pounds per square inch. Additional production history is required to determine stabilized flow rates of the well. Surface facilities are in place and the well is already in production.

    The Jacana 4 well followed the recent successful Jacana 3 appraisal well, which extended the size of the Jacana field. Jacana 4 was drilled to TD in a record-time of 8.8 days at a total drilling and completion cost of $2.9 million. At current oil prices, Jacana 4 is expected to have an IRR greater than 200% and a repayment period of less than six months (before year-end 2016).

    GeoPark has identified approximately 40-45 additional drilling locations to fully develop the oil reserves in the Tigana and Jacana oil fields in the Llanos 34 Block.

    Attached Files
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    Shale Gas: Food For Thought For Disbelievers

    A Marcellus well has produced 17 Bcf of natural gas in less than 4.25 years online. Many other wells in the play have already produced over 10 Bcf.

    In the most prolific sweet spot, the average cost to find and develop natural gas is estimated to be just $0.25 per Mcf.

    Across the play, the current average cost to bring production online is less than $0.50 per Mcf.

    The Marcellus and Utica represent one of the world’s most economic and abundant natural gas fields, with major mainlines already in place to deliver gas to destinations.

    One of the slides in Cabot Oil & Gas' recent presentation caught my attention. The slide shows cumulative production to date from the top twenty wells in Pennsylvania. The "biggest" well of the twenty has produced 17 Bcf of natural gas to date. The "smallest" has produced 10 Bcf.

    Image titleSeveral observations are worth noting.

    First, as the title indicates, 17 wells of the 20 belong to Cabot and were drilled in the play's dry gas sweet spot in Susquehanna County. In other words, these wells by no means provide a representative sample for the entire play but rather prove the magnitude of leading-edge wells in a select, albeit very large, sweet spot.

    Attached Files
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    Genscape sees rise in Cushing inventories

    Genscape Cushing inventory +1.14MM for week ended July 22

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    North Dakota rig count up 10 percent

    The number of rigs actively exploring for or producing oil and natural gas in North Dakota is up 10 percent from last week, state data show.

    State data shows 32 rigs actively exploring for or producing oil and gas as of Monday, an increase of 10 percent from last week. The move in North Dakota mirrors developments elsewhere in the United States, where relative stability in crude oil prices, since a collapse below $30 in early 2016, is building confidence in the industry.

    Data from Baker Hughes show the number of active rigs for the week ending July 22 increased for the fourth straight week. Crude oil prices moved lower last week after Baker Hughes released its data as traders worried a recovery in rig counts would push markets back toward the supply side.

    Morgan Stanley said in a research note that crude oil prices are near their lowest level since the middle of May and higher crude oil inventories, coupled with higher rig counts, could add negative pressure to the price for oil.

    The North Dakota figures may show a lag time in a balancing under way in the oil market between supply and demand. Rig counts in North Dakota, which hosts parts of the Bakken shale oil basin, hit a historic low early this year after oil sank below $30 per barrel.

    May rig counts in North Dakota were at or near record lows. However, in a monthly report, the North Dakota Industrial Commission's Oil and Gas Division said rig counts are down nearly 90 percent from their all-time high.

    North Dakota is the No. 2 oil producer in the United States behind Texas. State lawmakers hold a special session next week to review revenue options in the face of lower crude oil prices. Without a course correction, the state estimates its general fund will be short about $310 million by the end of the current biennium.
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    Chesapeake eyes Freeport-McMoRan acreage

    Freeport-McMoRan Oil & Gas has a deal in place to sell shale US acreage to joint venture partner Chesapeake Energy, according to sources.

    Eight years after a predecessor company paid Chesapeake $3.3 billion for the original position.
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    Halcon Gets Majority Buy-in for “Pre-Packaged” Bankruptcy

    MDN told you in May that Halcon Resources, a Utica Shale driller that “guessed wrong” by leasing 140,000 Utica Shale acres in the northern part of the play (in Ohio) and currently doesn’t drill on any of that acreage, was preparing to file for bankruptcy.

    In June Halcon outlined how they will go about filing–converting some $1.8 billion of debt into shares of stock/ownership in the company. It’s called a “pre-packaged bankruptcy” because the company gets all of the debt holders to agree before the plan is filed. Stockholders (i.e. owners) on the other hand, get screwed. Their stocks become worthless at the end of the process.

    Halcon issued a statement outlining their progress. They now have enough debt holders signed up to move forward with filing the pre-packaged bankruptcy…
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    Alternative Energy

    China nuclear giant CGN wins French wind power contract

    China nuclear giant CGN said Monday that it had partnered with French new-energy firm Eolfi on a winning tender for a floating wind power project in France.

    A consortium led by CGN European Energy and Eolfi won the 24MW project, which will be in the sea off the island of Groix in Brittany, it said.

    French authorities also approved another 24MW floating wind farm off the Mediterranean coast at Gruissan choosing a bid by French renewable-energy company Quadran Group.

    Both projects have four floating wind turbines.

    The projects will be France's first industrial-scale offshore floating wind power projects.
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    Base Metals

    Southern Copper boosts copper output by 23% in Q2; zinc, silver also jump

    Southern Copper increased production of copper in the second quarter on gains at its Buenavista mine in Mexico.

    Southern boosted copper output by 23.3% to 227,504 mt in the quarter from 184,535 mt a year ago, the Phoenix-based company said Monday in a statement. Zinc production jumped 43% to 19,994 mt, while silver rose 27.5% to 4.1 million oz. Molybdenum fell 8% to 5,305 mt.

    Southern said it sold copper at $2.13/lb on the Comex, down 23% from a year earlier, while zinc fell 13% to 87 cents/lb and molybdenum declined 7.5% to $6.89/lb. Silver prices rebounded 2.7% to $16.83/oz.

    The company trimmed cash costs net of byproducts to 91 cents/lb in the quarter from $1.12/lb a year earlier. Capital expenditures increased by 21.6% in Q2 to $341.6 million, with the bulk of spending on the $3.5 billion Buenavista expansion.

    Buenavista, where the company has invested $3.2 billion to date, is expected to produce 4,600 mt of molybdenum and 460,000 mt of copper this year. The mine's 188,000 mt/year concentrator, which will also produce 2.3 million oz/year of silver and 21,000 oz/year of gold, is now fully operational.

    The company added work is 98% completed at the $340 million, 80,000 mt/year Quebalix heap leaching project, where $248.4 million has been spent to date. The project is slated for completion in Q3.

    In Peru, the $1.2 billion, 100,000 mt/d Toquepala concentrator plant, where the company has invested $431.1 million to date on an expansion to 235,000 mt/d, is due for completion by Q2 2018. A $40 million HPGR system at the mine will be completed by end-2017, Southern said.

    The company has invested $102.2 million to date on a $165.5 million, 43.8 million mt/year conveyor belt and a 43.8 million mt/year crusher at its Cuajone mine, to be completed by Q2 2017.

    Southern posted a $222 million Q2 profit, down 24.7% due to a 3.5% decline in sales to $1.34 billion and higher sales costs. The company is counting on its $1.4 billion Tia Maria copper project in Peru and expansions at three of its mines to boost annual copper production to 1.2 million mt by 2018.
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    Copper finds medical support

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    German firm to start metal trading platform for spot deliveries

    Newly-established German company Metalprodex GmbH said on Monday it planned to start a trading platform for the buying and selling of base metals for immediate physical delivery.

    The aim is to start offering an electronic trading platform in September which can provide delivery of physical metal within two days, Metalprodex managing director Janko Linhart said. No exact start date has yet been set.

    The platform aims to offer an additional service which is not available on markets such as the London Metal Exchange, Linhart said. It would not be aimed at financial investors.

    "We aim to offer a platform for physical trade when the buyers really need the metal now," Linhart said. "This sort of physical trade is currently undertaken by telephone, email or fax or even over a beer. We will offer a transparent platform for metal trades needing spot delivery."

    Market participants will provide the metals traded, he said. There will be no short selling and sellers will have to have metal they are selling available immediately, he said.

    He said the initial focus would be on aluminium, copper, lead and zinc in standard 25-tonne lot sizes.

    The main locations for delivery will include Rotterdam, Hamburg, Szczecin, Barcelona, Genoa and Istanbul.

    Metal producing companies, recycling smelters, metal consuming industries, traders and warehouses have already expressed interest, he said.

    No names of likely trading participants are being revealed. Dutch warehousing company C. Steinweg will provide warehousing services.

    Trading will be in euros and prices will be set regionally, Linhart said.
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    Steel, Iron Ore and Coal

    BHP bids for Anglo American's coal assets as prices recover

    BHP Billiton, the world's largest mining group by market capitalisation, is among bidders for Anglo American's Moranbah and Grosvenor mines in Queensland, which could cost as much as $1.5 billion, reported the Sydney Morning Herald.

    Other bidders include Coronado Coal and AMCI. The buyers are competing for these two Australian coking coal mines against the backdrop of firming coal prices as China moves to force through domestic coal production cuts.

    The spot price for premium Australian coking coal has recovered to around $95/t, with the prospect of success in China's drive to refashion its coal industry prompting some forecasters such as Macquarie Bank to raise to its near term forecasts for coking coal by as much as 5%, and thermal coal by as much as 12%.

    Part of the reason for the optimism is the faster than expected impact of China's moves to cut output of poorer quality coal.

    Major Chinese coal producers such as Shenhua have jointly launched a company to help cut overcapacity, consolidate state-owned coal resources and push state-owned coal companies to restructure and upgrade. Earlier this year, China said it would close 100 million to 150 million tonnes of steel capacity and 500 million tonnes of coal production in the next three to five years.

    The firmer outlook for coal prices comes as Anglo American has delayed the decision on a winning bidder until August, while the bidders conduct extended due diligence on the mines, sources said. A group led by Glencore has dropped out of the race.

    Anglo's chief executive Mark Cutifani wants to raise $3 billion to $4 billion from asset sales to reduce debt and refocus the company as a miner of diamonds, platinum and copper. The company announced in April the $1.5 billion divestment of its Brazilian niobium and phosphate unit to China Molybdenum, after selling interests in Australian coal mines including Foxleigh, Callide and Dartbrook.

    Anemka Resources, the mining investor backed by Warburg Pincus, and a pairing of Apollo Global Management and Xcoal Energy & Resources also bid for the metallurgical coal assets, according to the sources. No final decisions have been made, and talks could still fall apart, the sources said.

    Coronado Coal, backed by Houston-based private investment firm Energy & Minerals Group, in January completed the purchase of West Virginia coal assets from Cliffs Natural Resources for $174 million in cash and the assumption of certain liabilities.

    AMCI, founded by Hans Mende and Fritz Kundrun as a coal and metals trading company, owns assets including a coal mine near Newcastle and a stake in the West Pilbara iron ore project in Western Australia, according to its website.

    Anglo American owns 88% of the Moranbah North mine, in Queensland's Bowen Basin and has annual output of 4 million tonnes of coking coal, according to the company's website. The nearby Grosvenor project delivered its first coal seven months ahead of schedule, the company said in May.
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    China put 1 Mtpa coal-to-glycol capacity into operation last year

    China's newly-added coal-to-glycol production capacity reached 1 million tonnes per annum last year, following the operation of a number of new projects.

    China planned to construct 41 coal-to-glycol projects with total annual production capacity 10.26 million tonnes by 2020. Coal-to-glycol would become an important raw materials source for China's polyester chemical fiber industry, sources said.

    China has been relying on imports for around 70% of its glycol demand since 2005. China imported 4 million tonnes of glycol in 2005 and 8.77 million tonnes in 2015, representing an average annual growth rate of 8%.

    The demand for glycol is around 12 million tonnes annually in China, but the annual capacity is just 6 million tonnes. Traditional oil based glycol suffer seriously shortage of supply, resulting in only 30% of self-sufficient rate.

    However, falling international oil prices and the high investment with low output have brought much pressure to the coal-to-glycol industry in China.

    Moreover, only a few of polyester chemical fiber enterprises completely use coal-based glycol products for their production, mainly due to differences between coal-based glycol and oil products. Taken together, although the output of coal-to-glycol is increasing, the coal-to-glycol industry is still under pressure in China.
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    Kumba generates cash in tough half-year

    Anglo American company Kumba Iron Ore on Tuesday reported headline earnings a share of R3-billion in the six months to June 30, when its financial performance was supported by strong cash generation.

    The company, which will from September 1 be led by new CEO Themba  Mkhwanazi, following Norman Mbazima’s decision to step down after four years, achieved a cash breakeven price within the targeted range of $34/t.

    Kumba cut R3.1-billion off its cost base and strengthened its balance sheet to a net cash position of R548-million.

    Consistent with the revised Sishen mine plan, production was cut by 21% to 17.8-million.

    Kumba suffered two fatalities in the half-year whenGrahame Skansi, a drill operator at Kolomela mine, andGideon Dihaisi, a learner electrician at Sishen mine, lost their lives.

    The company reported that the first half of 2016 had been “exceptionally challenging” operationally as a result of the transition to the revised 2016 mine plan at Sishen and the consequential major reduction in the workforce. The revised mine plan necessitated an extensive redeployment of mining equipment resulting in a 30% reduction in the mining fleet. Kumba is considering the future use of the equipment.
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    Chinese steel makers turn losses into profit in H1

    Listed Chinese steel firms have turned losses into profit, showed their half-year performance reports, following huge losses last year.

    The favorable turn was mainly benefited from the upturn in both steel prices and sales amid notable effects of the de-capacity policy, as well as their efforts in cutting costs in the first half of this year.

    Of the 17 key steel firms that have released their half-year reports, only three firms were in deficit.

    It was reported that Jiugang Hongxing, a big loss-maker last year, has turned into profit in the first half, while Ansteel’s profit nearly doubled compared with the same period last year.

    Jiugang Hongxing earned almost 500 million yuan ($74.9 million) in the second quarter this year and made the net profit of 227 million yuan for the first half, following a loss of 270 million yuan in the first quarter and 7.4 billion yuan loss last year.

    Ansteel reported a net profit of 300 million yuan in first half year, with net profit of 915 million yuan in the second quarter, up 93.55% year on year.

    Jiangsu-based Shagang Group increased its anticipation of net profit from 15-25 million yuan to 50-75 million yuan for the first half of the year. It posted a surge of about 8 to 13 times in the second quarter’s net profit, compared with net profit of 5.46 million yuan in the first quarter.

    With increasing steel prices, many steel mills have turned loss into profit since March. Data from China Iron and Steel Association showed, China's key steel mills reported net profit of 2.745 billion yuan in March, 8.383 billion yuan in April and 8.522 billion yuan in May.

    Over January-May, total net profit of key steel mills stood at 8.736 billion yuan, up 738% on year. The deficit firms accounting for 28.28% of the total, down from 41.41% the same period last year, showed the CISA data.
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