Archive for the ‘1’ Category

Testing a concept

Trialling something out ….

Uranium hunt on for both Russia & China

Since the opening up in the mid-1990s, uranium exploration in Mongolia by international companies has not been  subject to any clear national policy or close regulation.

In the last few years, however, the Government has sought to exercise more control over the whole mining sector and earlier this year it set up MonAtom to undertake uranium exploration and mining on behalf of the state, as well as to pursue nuclear energy proposals. It will hold the state’s equity in uranium and nuclear ventures, under the Mongolian Nuclear Energy Agency.

In mid-July, after consultation with the International Atomic Energy Agency, Parliament passed a Nuclear Energy Law to regulate the exploration and mining of uranium and give the state a greater degree of ownership and control of those resources. Along with this the Government set up Dornod Uran, a joint venture company between MonAtom and Russia’s ARMZ to develop two uranium mines in Mongolia — Dornod and nearby Mardai. A Japanese partner, evidently Marubeni, is also expected to be later involved in the work of this joint venture.

The development is of particular interest to Russia due to its proximity to the Priargunsky operations, allowing possible creation of a ‘single infrastructure. At least until mid-August, Canadian based Khan Resources owned a 69% share in the Dornod project, mostly through its 58% subsidiary Central Asian Uranium (CAUC). The balance of CAUC, which holds Mongolia’s only uranium mining license, was owned by MonAtom and ARMZ, each with 21%.

A definitive feasibility study released in March 2009 showed that the $333 million project was sound, on the basis of 24,780 tons of indicated resources, including 20,340 tons of probable reserves. Annual production of 1,150 tons over 15 years from 2012 was envisaged.

However, the Nuclear Energy Agency has announced that the joint venture of MonAtom with ARMZ will develop the project to annually produce about 2000 tons. Khan is uncertain where it stands, having apparently been dispossessed as it sought to negotiate an investment agreement with the Government.

Gurvanbulag is another deposit, about 30 km away, which has been held by the Canadian Western Prospector Group. This March the company agreed to a $25 million takeover by China’s CNNC International, a 74% subsidiary of CNNC Overseas Uranium Holding and through it, of SinoU. MonAtom appears to be positive about this development.

As an aside, I think the photo above says a lot about Sino-Russ relations ….

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EU toughens stance on FTA, India could miss the boat

european unionAfter nearly three years of negotiations, Indian & The European Union (EU) hopes of concluding a Free Trade Agreement by the close of this year are fading fast.

It is thought unlikely that Delhi & Brussels can hammer out any meaningful resolutions before the EU-India Summit next month.

The talks have historically been bogged down over a number of issues; for example Europe wants India to sign up to stringent food safety criteria, which Delhi is reluctant to enforce on it’s own producers & also wants India to relax rules on foreign investment & ownership in Indian companies.

Additionally, India has made great efforts to ring fence government procurement including public utilities at state, provincial & local government level as it seeks to onshore these areas for Indian service companies. At the same time, India is also trying to get Europe to relax it’s Schengen controls with regards to Indian nationals seeking employment across the 27 member states, as Europe has it’s own issues regards catering to emigration from new member states to more develpoed countries, it obviously wants to keep this issue at arms length.

None of this wrangling has been helped by the financial crisis, expecially from a European point of view, whilst India has also been distracted as it attempts to jockey for position with China on a global scale, whilst on a domestic level social movements, including fishermen & labor unions, are building up strong campaigns against the Free Trade Agreement.

What should not be ignored is that India is being forced to again become more competitive in global markets if it wisheds to continue it’s economic growth plans. Plenty of other Asian economies are looking to Europe as destinations for products & export markets, not just China. Another area of contention that has not yet received any significant attention from Delhi is sustainable developmentclimate change issues raised by members of the European Parliament, who in turn, are being pressured by environmental groups across the Union.

The bottom line is that the EU is India’s largest trading partner, accounting for approximately €77 billion in trade in goods & services in 2008, whereas India is ranked tenth in the list of EU’s main trading partners. Understandably the EU is concerned at India’s attempts to force what is effectively one way economic traffic further. The danger for India is that it’s near neighbours in SE Asia including Korea, Taiwan & emerging tigers Malysia, Indonesia & Vietnam will get a head start.

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Nigerian Stock Exchange down by 30% so far in 2009

nigerian stock exchange2009 is shaping up as a transitional one for Nigerian capital markets, with investors still cautiously trading as the effects of slower economic growth and restructuring in the dominant banking sector play out.

In September, the Nigerian Stock Exchange (NSE) clocked up a turnover of 9.05bn shares, with a total value of N66.01bn ($434.2m), with 123,106 deals completed, according to the bourse’s monthly report. This represented an 8.7% decline in trading volume from the previous month, and a 4.0% fall in value, following respective drops of 0.1% and 5.03% in August.

The overall picture for the first three quarters of 2009 is sharply down on the same period of last year, with volumes falling to 75.3bn shares traded, 45.6% lower than 169.63bn units in January-September 2009, and value dropping to N508.7bn ($3.3bn), down 74.5% on N2.23trn ($14.6bn).

The Nigerian Stock Exchange All-Share Index (NSE ASI) fell 944.10 points, or 4.1%, through September to 23,009.10. The index has fallen 29.84% from 31,450.78 at the close of 2008.

Meanwhile, market capitalisation totalled N7.81trn ($51.8bn) at the end of September, dropping 1.43% on the month and down 18.3% from N9.56trn ($63.6bn) at the end of last year, though comfortably above the 2008 nadir of N6.21trn ($41bn).

There are several reasons for the NSE’s sluggish performance, most of which fundamentally stem from the impact that the global economic crisis has had on Nigeria. The IMF has forecast that the country’s growth will be trimmed to 2.9% this year, from 6.0% in 2008 and 7.0% in 2007, while declining oil revenues have slowed the flow of cash into the economy and government coffers. Furthermore, the tightening of credit worldwide has seen capital flows to shrink, while investors have retreated, particularly in some emerging markets.

There are also domestic issues that have affected the NSE’s performance, which, like many of the world’s markets, has yet to show strong signs of recovery. Part of the slow turnabout may be due to a partial correction that has lingered in the markets, following meteoric 74.73% growth in market capitalisation in 2007.

The country’s banking sector, which has been notoriously vulnerable to crisis, has also hampered growth. Banks dominate the NSE, accounting for 71.3% of transactions by value in September; four of the five biggest companies on the bourse are banks, alone accounting for nearly 17% of market capitalisation. The IMF praised Nigeria’s banking sector in June, saying that “Financial stability has been sustained in the face of severe pressures related to global and domestic developments. This success reflects the well-capitalised banking system and crisis-related actions of the central bank.”

Nonetheless, Nigeria’s banks have been far from immune. The NSE has reflected the impact of the tightening in liquidity and the drying up of interbank lending on banks. The results of the Central Bank of Nigeria (CBN) stress tests over the summer, which five banks failed due to large non-performing loan portfolios, prompted a $2.5bn bailout, the resignation of senior management and a suspension of trading for the banks involved.

With analysts now expecting another wave of consolidation, with 23 banks potentially being reduced to 15, investors may continue to hold back until the dust has settled and potentially expensive mergers and acquisitions have gone through.

Ongoing concerns about regulation and irregularities may also be holding the exchange back from full-blooded recovery. On October 19, it emerged that the Securities and Exchange Commission (SEC) was mounting an investigation into price manipulations by certain unspecified “market operators” unbeknownst to the NSE and brokers. The SEC is due to call those accused for questioning on November 9, the organisation said in a statement, adding that it “would impose appropriate sanctions on erring operators found to have engaged in acts that have brought disrepute and erosion of investors’ confidence to the capital market”. Those accused of committing criminal acts will be reported to the Economic and Financial Crime Commission.

While the equity market has had a difficult year, investors have sought to move into the growing government bond sector, seen as a safe haven in uncertain times. Demand for government debt has soared through 2009. In the first nine months of the year, Federal Government of Nigeria (FGN) bond turnover totalled 13.31bn units worth N14.02trn ($93.2bn), more than doubling from 6.81m units and N6.82trn ($44.8) in the same period of 2008. Total bond turnover reached N1.9trn ($12.5bn) in September alone.

The bond market’s dynamism has increased pressure for the relaunch of a corporate bond market, which Nigeria has not had for two decades. With demand on the NSE still relatively low, bond issues would be an excellent way for companies to raise capital. Some reform of legislation would be necessary, though changes are already in the pipeline, including easing asset-allocation rules for pension funds, which would give them more scope to invest in highly rated bonds.

Given its past vulnerability to capital flight and financial sector instability, Nigeria’s capital markets have rebounded better than expected in the wake of the global crisis. Local press has reported increased bullishness in October, which could indicate rising positivity in the domestic and global economy. NSE officials have also noted the opportunities for value-buyers, and, with long-term growth prospects excellent, many companies’ shares are likely to appeal as recovery stocks at present. As the efforts of the well-respected CBN reinforce banking sector progress, confidence should return to the market, at least towards those institutions with a clean bill of health. Meanwhile, the bond market goes from strength to strength, but the process of reform, and the drive to cut out malpractice, is still far from over.

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VALE sets capex of $13Bn for 2010

vale_logoThe board of Emerging Voice perrenial favourite miner Vale has approved a  bullish capex budget of US$12.9bn for 2010, an increase of 29.3% compared to the US$10bn invested in the 12-month period ended June 30, 2009, the company reported in a release.

“The investment plan continues to reflect the focus on organic growth as the priority of our growth strategy,” the release said.

About 76% of the budget is being allocated to research and development, and greenfield and brownfield projects, compared to an average of 71% over the last five years. The company said its output index – which encompasses the operational performance of all minerals and metals produced – is estimated to increase at an annual average rate of 12.6% during the 2010-14 period, compared to 11% per year in 2003-08.

Vale (NYSE:VALE) which is the world’s largest iron ore producer and second largest miner by market capitalisation also has plans to boost the production capacity of it’s copper, coal and fertilizer assets. Current projections for production for output in 2014 is expected to reach 450Mt of iron ore, 380,000t nickel, 650,000t of copper, 30Mt of coal, 3.1Mt of potash and 6.6Mt of phosphate rock, the release said.

In order to increase competitiveness, Vale also said it “will continue to invest a sizeable amount of funds in railroads, maritime terminals, shipping and power generation.”

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China in “Scramble for Africa”



Chinese interest in acquiring “strategic assets” continues unabated, with recent acquisitions & investments in a number of companies in Australia & South America.

As we saw in last weeks bullish approach regarding Nigerian oil, China is looking a little further afield & it’s all seeing eye has settled upon Africa. The latest country to be courted is the Republic of Guinea as China seeks to gain access to the West African nation’s large mineral deposits.

The impoverished nation possesses more than 25 billion tonnes of bauxite ore, with more than 150 mineable deposits having been prospected to date. Additionally, Guinea’s mineral wealth includes more than 4 billion tonnes of high-grade iron ore, significant diamond and gold deposits & as yet undetermined quantities of uranium. Bauxite exports account for more than 75% of GDP, according to Wiki sources.

Guinea’s Minister for mines was quoted in the Financial Times as saying that the Guinean government is in talks with the China International Fund (CIF) regards a $7Bn investment into a number of projects including infrastructure, minerals & oil.

“Instead of just giving natural resources… in exchange for promises of developing our infrastructure, we decided to take the joint venture approach and co-own not only the infrastructure development companies and projects, but also whatever natural resource companies or projects are developed jointly.” said Mohamed Thiam “All the government’s stakes in various mining projects will be put in that mining company. Future mining permits or concessions that the government decided to develop on its own will be put in that company,”

China still doesn’t seem to be too picky regarding who it does business with, as the present Guinean government is a military dictatorship that has recently put down a bloody coup last month. 150 people were killed on September 28, when troops opened fire on a crowd  gathered in  the capital Conakry, in order to protest at ongoing corruption in Captain Moussa Dadis Camara‘s rule.

Sidya Toure, who leads the only effective opposition & is a former prime minister was quoted “I do not understand how you can believe that we can inject this kind of money into the economy of Guinea where the total gross domestic product is only three billion dollars.”

CIF is also planning to form a consortium with the Guinean government & near neighbour Angola’s state oil company Sonangol to look at prospecting for oil off Guinea’s coast. As we reported previously, West Africa has become a hotbed of speculation & investment, as new oil fields are coming under development in Ghana, Angola, & Senegal. It is considered likely that offshore Guinea will also provide new hydrocarbon deposits that can be exploited.

What is interesting is that CIF on the face of things, does not seem to be an officially backed government company, whereas all the recent deals have been undertaken either by the Chinese Development Bank or via large state owned enterprises such as CNOOC or Chalco. CIF is registered in Hong Kong & an inspection of the website gives very little information on the structure of the entity.

Last November, as it became clear that the global economy was heading into a recessionary period, central government in Beijing implemented a 4 Trillion yuan/$586 Bn stimulus package, aimed at cushioning the blow of decreasing exports on the economy whilst also improving industrial efficiency at all levels, with energy receiving a special focus.

Adopting various measures such as tax reductions, rebates, fiscal subsidies, improved access to credit & direct government expenditure, central government has been encouraging state owned oil companies such as Petrochina & CNOOC to expand foreign investment in upstream opportunities, whilst increasing domestic refining capacity & oil product stockpiles.

We have seen a number of examples of this with Russia signing a 20 year $25Bn oil supply contract in February, which will see Rosneft supplying up to 300,000 bpd of oil via it’s East Siberia-Pacific Ocean (ESPO) oil pipeline to China. This was closely followed by the China Development Bank extending a $10Bn loan to Brazil’s state owned company Petrobras in return for securing strategic oil supply contracts & this month CNOOC has made a bid to acquire more than 16% of Nigeria‘s stated oil reserves.

It would appear that sentiment is currently running against Western based IOC’s & countries in emerging markets that have currently untapped or underdeveloped  hydrocarbon deposits are enjoying the ability to play interested parties off against one another. What is interesting to me is the fact that China seems to be playing Guinea at arms length via what is in effecr a shell company, allowing them to hold up a clean pair of hands on an international basis.

This desire to secure resources at what would seem “any cost” should, in our opinion, receive close attention from both a geo-political & investment point of view. IOCs will not be able to compete in areas where there are no rules, particularly in Africa, whilst it looks like China will circumvent accepted norms using any available route to acheive their aims.

Original article published at MyStockVoice

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What goes up must come down, is copper running out of steam ?

gravityCopper prices are at an all time high, coming off of deep lows in December 2008 of $1.25 lb, 3 month delivery is currently trading in Shanghai at $2.90 lb / $7,431 per tonne, extending the metals five week winning run. Shanghai copper looks to end the week almost 8.5% up, its strongest 5 day performance in more than two months. But are there stormy times ahead? Chilean mining giant Codelco, which is the worlds largest producer of the red metal, has just announced results for H1 2009.

Copper production including output from its 49% stake in El Abra, rose 16% to 822,000 tonnes in the first half of 2009, from 715 000 tons in same period in 2008. However, it seems all is not as sunny as the production figures would lead us to believe.  Codelco has seen its profits sink by 82% in the first half from $4.11 Bn to $722 Mn, due to lower copper prices. A worldwide slump in molybdenum prices from $72 to $20 year on year, has also not helped things along either. Although copper has had a good run, the question is, has it run out of steam, with Chinese buyers supposedly easing away from contracts, having fuelled the boom by stockpiling since November last year.

Not the case according to Codelco Chief Executive Jose Pablo Arellano. He is bullish & feels that copper demand is likely to continue due to ongoing requirements from China and stimulus programs in the world’s leading economies.

“The key factor in the rise in prices is China, in the next few quarters, we should see the stimulus programs in the United States, Europe and Japan start to have an effect, something we haven’t seen yet.”

But what of US based Freeport McMoRan (NYSE:FCX), Codelcos main rival & erstwhile partner ? Last month, Freeport beat analysts expectation by a long margin, but again the upbeat news needs to be examined a little more closely. Net earnings for the quarter were $588 million, or $1.38 per share, compared with $947 million, or $2.25 per share in the same quarter of 2008, with revenues dropping to $3.68 billion from  $5.44 billion, or 38%. Revenues were bolstered by gold sales, as the company ramped up production from 265,000 ounces in Q2 2008 to 837,000 ounces this year, but is debatable if this pace can be sustained, never mind improved upon. In In June, Chief Executive Richard Adkerson told Reuters there was no sign of recovery in the developed world that would lead to a restart of its idled U.S. copper operations, despite a pick-up in Chinese buying.

FCX has been riding high of late & I am kicking myself having looked for an entry at the $45 mark back in early June, only to be beaten by the market surge that has occurred. Bears should not be too dismayed however, as it looks as though play is going to start running the other way. Inventories on the London Metal Exchange have been on the decline since March, mainly due to companies like Freeport scaling down operations, whilst feeding the Chinese appetite. March is also when we started this huge bull run, which in my opinion is starting to look a little fatigued & toppy. One of the major indicators that I have been looking at on a weekly basis is the price of copper versus declared inventory on the LME. As you can see, inventory declinbe petered out in early July & we are now seeing that inventory starting to climb.

LME Copper

Now looking at FCX from a technical standpoint, its pretty obvious that it has been performing well in it’s channel (hat tip to anyone that has been long since March ), but it has also significantly not managed to break through the upper Bollinger band. It’s headed there right now, with a closing price yesterday of $66.07, the upper Bollinger is marking time at $66.87 & my expectation is that FCX is going to fail & pull back relatively sharply, with first major support at the $60 mark. If it falls through that level, I can see it triggering off a steady fall to the $52-$54 range, any “bad” news from China or any of the developed economies, will put on added pressure. According to Short Squeeze, short interest in FCX has increased by 8% in the last month, which is always an indicator that something is on the horizon, especially in a stock that is 80% held by institutions.


So to summarise, China is not buying in the volumes it was, US / Europe / Japan recovery is a long way off, Codelco made huge losses whilst bolstering production & Freeport has only made positive steps due to cost cutting & stepping up gold production, not withstanding its problems at it’s flagship Grasberg mine in Indonesia. That gold production doesn’t have a lot of headroom either. I’ll be keeping a very close eye on this & if significant volumes start selling through to $65, I’ll be riding down the ladder as far as I can.

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