Posts Tagged ‘China’

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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More pain for the dollar as China & Australia line up FTA ?

Australia China Free Trade AgreementWith China having superceded Japan as Australia’s biggest trade partner last year, the proposed Chinalco investment in mining giant Rio Tinto, could soon be part of a much larger strategic effort by the two nations, that ultimately could be a threat to the US dollar. Today, The Australia China Business Council released an independent study that shows a successful bilateral trade agreement with China would boost Australia’s gross domestic product by A$146bn ($114bn) over 20 years.

China has been on an extended spending spree for the last 18 months, with it making strenuous efforts to acquire shares in strategic assets regarding mineral & energy deposits. With China making investments in operations in South America, Africa, Australia & Central Asia, all paid for with USD from its estimated $1 Trillion cashpile.

“The Australia China Business Council has long advocated increased liberalisation between Beijing and Canberra, and this report confirms our view that a comprehensive agreement would yield major results for the Australian economy,” ACBC national chairman Frank Tudor said in a statement.

China became Australia’s largest trading partner in 2008, with two-way merchandise trade totaling A$57.92 billion. Australian exports of agricultural, mineral & energy products were valued at A$26.93 billion while imports from China of A$31.00 billion comprised manufactured products including computer & electrical equipment, industrial products & clothing. Canberra and Beijing have held 13 rounds of talks on a trade agreement over the past four years, with both parties seemingly keen to expand trade.

As we reported a few weeks ago, China is now looking to accelerate its nuclear energy program, with officials announcing they would begin construction of an additional five extra power plants this year on top of the 24 already under construction and 11 already in operation. As we previously noted, both Rio Tin to & BHP Billiton would be the major benefactors in any increase in uranium requirements from China. With uranium channeling higher on global markets, analysts are bench marking $70 per pound later this year, uranium exports from Australia could be worth $12 Bn a year in the near future.

Beijing has recently put in place currency swaps with Hong Kong, South Korea, Indonesia, Malaysia, Argentina & now Brazil. The purpose of the swaps varies from county to country. But the main benefit is that China can conduct more of its trade using its own currency and not the USD. It could also be argued that it is operating vendor financing deals in which China supplies currency to countries from which it buys a huge amount of commodities. Nouriel Roubini wrote an interesting piece recently in the New York Times, where he argues that the renminbi, although not an internationally traded currency, seems to have aspirations to become one.

Any uptick in Ozzie-Sino trade would seem to make a currency swap deal a foregone conclusion, Australia is now inextricably tied to the Chinese economy, as exports to China have increased on average by 24.8 percent annually over the last 10 years. Lets not forget that Chinalco is a government owned operation & the proposed deal would be China’s largest Foreign Direct Investment, worth a potential $19.5 Bn.

To conclude, each factor on it’s own is not enough to spark off fears that the renminbi will be all powerful in the very near future. However, where I come from there is a saying “many a meikle makes a muckle” & the Chinese strategy should not wholly be ignored. If, as I contend, Australia & China head down the path of trading in each others currency, this will be the start of something big.

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Chinese steel market warms up, Vale is perfectly placed

valeCompanhia Vale do Rio Doce (Vale) has recently been climbing back from lows caused by the severe drop in demand for its principle feedstock, iron ore. However, there are signs that the Brazilian mining giant may be turning the corner, as the Baltic Dry Index (BDI) has begun to show some activity off the back of speculation that the steel industry is picking up, particularly in Asia.

Vale said steel output across Asia declined by only 8.9% in the first quarter, despite the Japanese recession. This would indicate continuing strength in Chinese demand, compared to North American steel output falling by 52% & European output declining by 44%. Furthermore, Vale said its first-quarter copper output was unchanged year-on-year, aided by Chinese consumer demand for durable goods.

Steel demand is set to stabilize in the latter part of 2009, leading to “mild” recovery in 2010, according to the World Steel Association. German car registrations in March rose to the highest since 1992 after the government began paying owners to trade in old vehicles for new models. Sales in China of cars, minivans and multipurpose vehicles rose to a record in April. Car makers are the fourth-biggest steel consuming indutry, according to the association.

“The first-half will be pretty poor, but by the third or fourth quarter demand will improve,” said Peter Fish an analyst at UK based metals consulting company MEPS International Ltd. “The time is approaching when so-called destocking, in which customers use up inventories, ends and new orders will be made”

China’s imports of iron ore also spiked dramatically in February & March,  as larger iron ore producers such as Vale & Rio Tinto have been selling their iron ore to Chinese customers at a discount. Based on comments from the China Iron & Steel Association, it’s possible that small Chinese steel mills are taking advantage of the opportunity to buy higher-grade imported ore at attractive prices. Previously, imported ore was only available to large mills.

A recent report in Tradewinds shows that Vale chartered 25 Capesize vessels last month for chinese delivery, which should point to flows of iron ore resuming, although a base price for 2009 has still not been agreed with Chinese steelmakers. At present, iron ore is being sold on the spot market at roughly 20-40% discount from 2008 highs of $200 per tonne, by Rio Tinto & BHP Billiton. Valke on the other hand has dropped production & delivery in step with falling demand & has maintained last years benchmark pricing.

Chinese negotiators from Bao Steel had tried to force prices down to 60% of last years benchmark, however it would seem that Vale’s stance regards shipment may have forced China’s hand, as demand for steel is growing. Vale (NYSE : VALE) finished trading on Friday at  $17.42 off of a YTD low of $11.90 on heavier than norma buying activity.

For me Vale is in a much more enviable position than its two main competitors, Rio Tinto & BHP, as they have expended a lot of energy in last years failed takeover bid. Rio Tinto in particular is saddled with huge amounts of debt & no doubt is coming under a lot of political pressure form its would be Chinese bail out “sugar daddy”. I firmly belive that Vale will be able to add at least 50% to its stock price this year & is one of the best value buys in the commodities sector right now.

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Miners to benefit from change to Indonesian law

copper-miningUnder Indonesian law, foreign mining companies operating in the country are required to sell 51% of their local holdings back to the government after 5 years of commercial operation. However, Newmont (NYSE : NEM), will only be asked to relinquish 17% of its subsidiary, PT Newmont Nusa Tenggara (PTNNT), as 20% of this entity is already held by a local partner. An international arbitration panel on March 31 gave Newmont and minority partner Sumitomo Corp. a 180-day deadline in which to divest 17% of PTNNT to local buyers, ruling that the companies were in default of their contract of work for failing to meet divestiture schedules in 2006-2008.

With the Indonesian government estimating the total value of PTNNT at $4.9Bn , Newmont & Sumitomo are locked ina valuation battle with the governmet & local companies, who are keen to pick up a share in the companies gold & mining concerns. Some 10% of PTNNT is earmarked for regional governments in Sumbawa, the location of the company’s Batu Hijau copper and gold mine, and the central government will have first right of refusal on the rest of PTNNT.

“We are still discussing the pricing formula” for the stake in PTNNT, with other government departments” Bambang Setiawan, director general at the Department of Energy and Mineral Resources “the department is also conducting preliminary negotiations with Newmont over the sale of the unit as yet it is unclear when a deal might be reached.”

It’s not all grim news for Newmont though. This week, Indonesian officials met regards mining rights in areas of protected forest. As we have written before, (Indonesia the long road back), The country has vast natural resources that Indonesia is keen to exploit, using the above formula to develop modern facilities in the country. Now ministers are expected to pass a decree that will allow mining companies to carry out underground mining activities in areas of protected rainforest.

“The presidential decree will give legal basis so that underground mining is allowed in protected forest areas.The existing law only forbids open-pit mining in protected forest areas,”  said Setiawan.

Information from the mining & energy ministry show that Indonesia has mineable nickel reserves of 547 million tonnes, 112 million tonnes of bauxite and 43 million tonnes of copper,  tin stand at 336,911 tonnes, measured in terms of refined tin, while gold reserves were 4,341 tonnes,

Two other mining majors that will also look to profit from this law change are Rio Tinto (NYSE : RTP) & Freeport-McMoran (NYSE : FCX).

Rio Tinto is currently looking to develop a new nickel operation on the island of Sulawesi, Rio estimate that the mine could produce up to 46,000 tonnes of nickel metal a year, estimated investment costs stand at $2 Bn. Sulawesi is densely forested & the change in law should mean that the company can expand its operations significantly.

Meanwhile, Freeport-McMoran has been active in Indonesia for a much longer time. PT Freeport Indonesia has operated the Grasberg mining complex since the early 70’s, Grasberg is one of the world’s largest single producers of both copper and gold & as Freeport claims, contains the largest recoverable reserves of copper and the largest single gold reserve in the world. Grassberg will continue surface mining until 2015, at which time it will then begin sub-surface mining, according to Freeport’s website.

Indonesia looks to be well on the way to attracting large amounts of FDI into its commodity sector, providing an economic boost to local populations spread across this vast country. India & The Emirates have already committed to investing $4Bn into an aluminium smelting plant, with fully integrated power & logistics last year, with the relaxation of the rules governing mining concessions, the country could well benefit from China’s projected expansion.

Chinese officials nervous about US economy

The New York Times reports that Beijing is becoming increasingly nervous about its high stakes in America’s economic well being: Reversing its role as the world’s fastest-growing buyer of United States Treasuries and other foreign bonds, the Chinese government actually sold bonds heavily in January and February before resuming purchases in March, according to data released during the weekend by China’s central bank.

China’s foreign reserves grew in the first quarter of this year at the slowest pace in nearly eight years, edging up $7.7 billion, compared with a record increase of $153.9 billion in the same quarter last year. China has lent vast sums to the United States — roughly two-thirds of the central bank’s $1.95 trillion in foreign reserves are believed to be in American securities. But the Chinese government now finances a dwindling percentage of new American mortgages and government borrowing.

In the last two months, Premier Wen Jiabao and other Chinese officials have expressed growing nervousness about their country’s huge exposure to America’s financial well-being. Chinese reserves fell a record $32.6 billion in January and $1.4 billion more in February before rising $41.7 billion in March, according to figures released by the People’s Bank over the weekend. A resumption of growth in China’s reserves in March suggests, however, that confidence in that country may be reviving, and capital flight could be slowing.

The good news: the U.S. will become less dependent on China. The bad news: America has to get its money from somewhere.

Although many Americans have complained in recent month about their dependence on China, the Chinese – interestingly enough – feel it is the other way around. One of the Chinese government’s top monetary economists, Yu Yongding,told the NYT he believes that the balance of financial power between the two countries is “mainly in favor of the United States.”

“If you owe your bank manager a thousand pounds, you are at his mercy. If you owe him a million pounds, he is at your mercy.”

It will be interesting to see how both sides will deal with the economic crisis; it’s difficult to imagine that it will not have a tremendous influence on their relationship.

China Mobile starts to push 3G strategy & partnerships, good news for Dell ?

china-mobile1Following on from the 3G licence distribution that we reported on MyStockVoice late last year, China looks to 3G market to stimulate economy, market leader China Mobile has unveiled a number of new partnerships & device releases that show the direction it is taking in the medium term. After the on-off discussions with Apple regarding the iPhone, the wireless carrier seems to be pitching heavily into the PC hardware vendors, as well as choosing suppliers to expand its TD-SCDMA network to cover rural mainland China.

China Tech News reports this morning that China Mobile (NYSE : CHL) has selected six PC makers, including Lenovo Group, Founder Technology, Tongfang, Haier, HP, & Dell, as its 3G netbook partners. What is more interesting is the strategy behind this, following Western mobile operators who have been pushing mobile broadband dongles since 2007, China Mobile will offer subsidies to users who buy its 3G netbooks. Consumers will be able to enter  the serial numbers of the device and the numbers of the built-in TD-SCDMA module of the netbook, with their mobile phones to activate the 3G services.

Dell (Nasdaq : DELL) have already announced their first joint hardware offering with CHL, the Inspiron Mini 10. Dell is obviously keen to tap into the huge potential of the Chinese mobile internet market, IDC has forecasted that the market will explode by 276% in 2009 alone. This carries on from existing deals Dell has struck with Vodafone, AT&T, Starhub & Maxis.

“Dell actively listens to its customers to provide highly stylized, personalized products with unparalleled connectivity. China Mobile’s fast mobile broadband 3G service perfectly complements the wireless and entertainment capabilities of the sleek, portable Inspiron Mini 10.” — Michael Yang, vice president & general manager of Greater China Consumer

“China Mobile is China’s only operator solely focusing on mobile communications with the world’s no. 1 network and the largest customer base. We are happy to add Dell’s Inspiron Mini 10 to our growing number of 3G mobile broadband devices, providing travelers and social networkers with easy and convenient wireless Internet access.” -– He Zhili, Marketing Director of CMCC

Now with the Chines propensity to build homegrown standards, TD-SCDMA being a prime example, China Mobile looks as though it is ready to turn its back upon the traditional handset vendors. Rumours abound that it is looking into releasing its own mobile operating system, Open Mobile System (OMS), which is based on Google’s Android, however utilising operator specific variations at all layers. In a final snub to Apple, CHL is also rumoured to be building it’s own app store to support OMS. As Dell has not made made any significant inroads, to date, into the Western mobile markets, China Mobile could provide a much needed distribution channel. There are positives for both parties, Dell is new to the handset game & so would be expected to be flexible in how it develops handsets, China Mobile has a distribution base of more than 470 million subscribers, a very juicy number.

Market research firm Interfax has reported that Lenovo has already been tapped up to partner with China Mobile on an Android based handset :

“We will collaborate with China Mobile to launch an Android phone, and we will cooperate closely over research and development relating to the open source platform,” Wang Yan, a brand manager at Lenovo Mobile, said.

Meanwhile, China Mobile is forging ahead with its network rollouts, AsiaInfo Holdings, Inc. (Nasdaq : ASIA) has announced that it has been selected to provide networking equipment with 11 China Mobile subsidiaries, to support China Mobile’s Phase II TD-SCDMA rollout. The new system will support wireless broadband service, data card service, mobile video and other 3G-related services. In 2007, AsiaInfo provided BOSS software for Phase I of China Mobile’s TD-SCDMA network construction, thus becoming the first vendor to develop billing and customer relationship management software to accommodate China’s 3G rollout.

“Pushing forward the construction and operation of the TD-SCDMA network is one of China Mobile’s key goals for 2009, and our longstanding relationship with the carrier brings us a number of opportunities in the 3G realm,” said Steve Zhang, AsiaInfo’s president and chief executive officer.

Spending on wireless infrastructure equipment in China is expected to rise to $6.2Bn in 2009, up 13.2% from $5.5Bn in 2008. In contrast, global carrier spending on wireless infrastructure gear in 2009 is expected to decline by 3.5%to $39.7Bn, down from $41.1Bn in 2008. It is clear that a lot of companies are banking on 3G in China & China Mobile’s dominance of the sector to see them through to 2010, when the wireless markets will look to expand in resppnse to consumer demand. Dell’s courting of China Mobile could be a big pay day for the computer manufacturer, as traditional routes to market dry up on declining retail spending in Western markets, China could provide a much needed fillip. Personally I am not ready to move on Dell just yet, however, it will be interesting to see what falls out of this relationship & I will be monitoring closely.

South America : Copper cartel on the horizon ?

blackboard_copper22With global copper prices sinking from a 2008 high of $4 per lb, down to todays miserly, $1.25 per lb, it is hardly surprising that the two major copper producing countries in South America are looking at ways to buoy up their operations. Last week, Peruvian president Alan Garcia dropped some strong hints that Peru & Chile should coordinate on copper production , in order to achieve greater control of prices on international markets.

“I believe that as countries with a strong mining presence in the world we must work in a joint manner, because when brotherly countries produce and compete with the same metal, the only thing we achieve is a fall in the price of copper, and we are both losers”, said Garcia

Demand growth in China, the world’s largest user of the metal used in plumbing and wiring, slowed to an estimated 9.8 percent in 2008 from 26 percent in 2007. Freeport-McMoran amongst others has shelved projects including a $450 million expansion at its Chilean copper mine El Abra. Freeport owns 51 percent of the mine and Codelco the remainder. The decline cut net income at Chile’s state-run Codelco, the world’s top copper miner, by nearly half to $4.5 billion in 2008.

In December, Jose Pablo Arrelano, CEO of Codelco stated copper prices will be “depressed” next year and demand almost “stagnant” as the international economic crisis leads to higher stockpiles of the metal. This will undoubtedly hurt other players in the commodities market, including BHP Billiton (NYSE – BBL) & Freeport McMoran (NYSE – FCX), Freeport McMoran have made some inroads to looking at the problem, the board announced in early December ,a  Revised Operating Plan in Response to Weak Market Conditions. Which is basically a slow down in extraction & refining in both its North & South American operations.

In Chile & Peru, copper extraction looks like a loss leader at the moment, in aggregate across all units, costs in 2009 are predicted to range from between $0.85 – $1.45 per pound. BHP have similarly looked at cutbacks regards copper extraction, the world’s biggest mining company, has delayed plans for an energy plant in Chile that it planned to build to supply two of its existing copper mines.

As discussed in an earlier post, Aussie-Canuck operator Equinox opened the largest copper mine in Africa last year, at Lumwana in Zambia, which when it comes fully online in early 2009, will be churning out 172,000 tonnes of high yield concentrate per year, which can only bring about additional competition for Codelco, BHP & Freeport, especially as Equinox has hedged production at $2.00 for the first three years of operation at Lumwana & have an estimated existing extraction cost of $0.80.

Chile may be able to weather the storm as Otto at Inka Cola puts forth in this article, the country has one of the highest per capita reserves in South America, totalling $26.49Bn, he further argues that Chile has an additional  $23Bn “tucked away in overseas accounts to call on.” Which is a considerable cushion to see out 2009, as Codelco & Arrelano await  global copper demand to turn positive in 2010.

Peru on the other hand does not look as if it will fare so well, although looking at Otto’s chart, they have a reasonable level of foreign reserves, the Andean nation is beset by rising unempolyment & a lack of foreign investment. Peru’s largest miner Southern Copper (NYSE – PCU) posted  a $125 million net loss in the fourth quarter, compared with a $311 million profit in the year-ago period, due to demand destruction. It is estimated that more than 9,000 miners have been laid off in Peru, whilst new projects have been suspended, including Southern Copper‘s plan to invest $1 billion in the Tia Maria mine. These cutbacks have already helped slow Peru’s growth rate to a projected 5% in January.

The question is, will Garcia’s plan, if it comes to fruition be timely enough ? We have seen how long it has taken OPEC production cuts to start to have an effect on the market price of crude. Of more concern for Garcia will be the new productive mines being opened in Zambia by Equinox at Lumwana & also the the Chinese backed Chambishi mine, which is operated by China Non-Ferrous Metals Mining Corporation (CNMC). The expected copper ore output is one million tons per annum, with a projected service life of 25 years. China has also embarked on an acquisition spree of late, which had also brought it interests in Australian miners such as Rio Tinto. Garcia will also have to play a careful game, as China is estimated to have committed to investing over $6 billion in Peru’s mining sector over the next five years. Politics come into play of course & the Chinese are expert in this field, my gut is that production cuts will come, although China will no doubt be exempt from any surging price changes in the near future.

My feel is that the copper mining stocks will remain low for a good time to come, much has been made of the Chinese stimulus bill, however, there is no guarantee that this will come to fruition any time soon, as & when it does kick in, China will be adequately supplied by its current investments in South America & Africa, as discussed in this piece. I am however, a little more bullish on the mining sector in general & have just initiated a position in the S&P Metals & Mining Index (ETF –  XME ,) which looks as though it may be building momentum for a bullish 2009.