Posts Tagged ‘mining’

BHP & Rio Tinto to extract billion dollar contracts as well as uranium

australian-flagAustralia could be looking at a new multibillion-dollar export market as China looks for a steady supply of uranium, which it needs to underpin a massive expansion in its nuclear power industry. Chinese officials this week announced they would start building five extra power plants this year on top of the 24 already under construction and 11 already in operation. Australia could add A$17 billion ($12 billion) to gross domestic product by 2030 by maximizing suppliers to meet rising global demand for nuclear energy, the Uranium Association said last month.

The acceleration of China’s nuclear programme stems from mounting concerns about climate change, energy security and the more immediate task of kick-starting the economy as part of the Government’s 4 trillion yuan stimulus plan.

Vice-Premier Zhang Dejiang announced at a Beijing conference this week that China would “accelerate the development of nuclear power and increase the ratio of clean energies like nuclear power”.

Analysts say the country’s dearth of uranium is “the tiger in the road” to fulfilling its nuclear power ambitions and that Australia is the most obvious solution.

“There are not enough uranium resources in China to support the aggressive nuclear power development plan for the next 20-30 years,” said Professor Liu Deshun, of China’s Institute of Nuclear and New Energy Technology. “Australia has the uranium resources that could be exported and in China we have the demand,”

Chinese companies are lining up to invest directly in Australian uranium mining & exploration companies and have begun signing long-term supply contracts with Australia’s established mining companies, betting on the expansion plans receiving Government approval.

Australian Minister for Resources, Martin Ferguson, indicated the Federal Government was unlikely to stand in the way, subject to environmental and investment tests. Today, ERA (Energy Resources Australia), a Rio Tinto (NYSE : RTP) subsidiary, is expected to say more about a new plant to extract uranium from low-grade ore and an exploration pit for the expansion of its Ranger Mine in Kakadu, which already produces 10% of the world’s uranium.

Next week BHP Billiton (NYSE : BHP) will move a step closer to a massive expansion of its Olympic Dam mine in South Australia, the world’s biggest proven uranium reserve , with the release of an environmental impact assessment. Extending into the Yeelirrie deposit in Western Australia, which is estimated to  have a 10 to 12-year lifespan and a resource of 35,000 tonnes of uranium, will put BHP at the head of the pack, when it comes to talks with the Chinese buyers. This as a result of the WA government lifting a siy year ban on uranium extraction in the state.

Chinese analysts have said the country’s nuclear power expansion plans will not succeed unless China secures the necessary uranium supplies. Australian analysts say the local mine expansions are unlikely to proceed without the certainty provided by long-term supply contracts to China.

“The two go hand in hand,” said John Wilson, uranium analyst at Resource Capital Research.

Uranium was trading at $41 per lb yesterday & now analysts are benchmarking the yellow cake as being able to reach the $70 per lb mark in the near future.

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Zambia : follow up on Lumwana copper mine

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President Rupiah Banda of Zambia, Africa’s biggest copper producer, said on Friday foreign mining firms should set up copper processing facilities to process finished products for export. Banda was speaking in Solwezi, 700 km northwest of the capital Lusaka, where he commissioned the Lumwana copper mine, a unit of Australia’s Equinox Minerals Ltd (EQN.TO: Quote) (EQN.AX: Quote).

As we reported earlier (All that glitters is not gold) copper production is expected to peak at 170,000 tonnes at the mine this year.

“What the government expects is for foreign investors in the mining sector to consider investing in metal processing facilities that add value to your metal,” the state-run Zanis news agency quoted Banda as saying. “Time is ripe for investors to consider processing the copper and add more value by selling finished products made in Zambia to the international market.”

Banda said his government would provide the necessary support to investors seeking to process copper in a bid to raise more revenue and create jobs.

Zambia has previously provided tax relief on imported equipment and machinery and also waived a 16 percent value added tax to investors in the mining sector to woo more foreign investments.

Banda hailed Equinox Minerals for continuing to develop the Lumwana copper mine even when the global financial crisis was affecting the operations of the industry following a slump in world metals prices.

Banda said Equinox Minerals had spent $1 billion developing the Lumwana mine in 12 years, including a new town in the area.

“This shows the trust (Equinox Minerals) has in our mining industry regardless of the ups and downs,” Banda said.

Copper mining is Zambia’s economic lifeblood and the mines are a major employer in this country of 12 million people.

Courtesy of Reuters

Chile leads the way for South American ETFs

london-metal-exchangeWhilst suffering from shrinking export markets, led by the all important 20% supply of global copper, a shrinking economy & climbing unemployment; Chile continues to buck global trends, with ratings agency, Moody’s Investors Service making it the first investment- grade country to be awarded a higher credit rating this year. The South American country’s $22 billion of savings in wealth funds has put it in a position to recover more quickly from the global credit crisis than other, similarly rated nations, Moody’s said yesterday in raising Chile’s foreign debt to A1 from A2 with a positive outlook.

This has been the result of a canny economic long game by President Michelle Bachelet, while near neighbours have splashed out on the commodities boom over the last decade, Chile has followed a prudent path of pumping  profits from state owned copper giant Codelco into soverign funds, providing the nation with a $22Bn cushion against global turmoil. That cushion is equal to roughly 13% of Chile’s GDP ($154Bn), so Chile looks as thought it should weather the storms of 2009 quite nicely.

“Nobody else compares with Chile,” Moody’s analyst Mauro Leos said in a phone interview from New York. “Like everywhere else, they’re getting hit hard. But because of the work they did ahead of time, they can go from a 5 percent surplus to a 5 percent deficit without any additional borrowing.”

Also helping is the price of copper on global markets, which is on a slow uptick, & an expectation that China’s economic recovery package will drive demand for the metal towards the end of 2009, this is reflected in current long term copper contracts on the London Metal Exchange. Central government has acted promptly, with Bachelet committed to a $19.5Bn package incorporating tax cuts & subsidies that should help stymie economic contraction. Even with copper prices at all time lows, economists think that Chile can still exit the current crisis without hitting recession.

Codelco announced its full year results earlier this month, generating a pre-tax profit of $4.968 Bn to December 2008, it is estimated that Codelco has provided an average of $7.5Bn per annum in revenues for the last 4 years. This follows Fitch rating $600M of the company’s debt as “A” back in January.

According to Fitch : “The company had USD 4.6 billion of total debt, of which USD 1.3 billion was classified as short-term. Codelco has adequate liquidity, backed by a track record of accessing debt in the local and international markets and a well-diversified debt maturity profile. Short-term debt is expected to be refinanced through a combination of the 2019 notes, bank loans from undrawn facilities and cash flow from operations.”

Chile’s banking sector is also helping stem the flow, business loans grew sharply in January, despite a deep economic slowdown amid the financial crisis, the country’s superintendent of banks said on Monday. Gustavo Arriagada told lawmakers that loans continued to grow, though at a slower pace, as Chilean banks, in counterpoint to their Western counterparts pass on a series of aggressive from the central bank to customers

“Although we have seen tighter credit conditions in the last few months and a fall in requests for credit, that is due to factors like an increase in risk and worsening of employment conditions and client income,” Arriagada said in his presentation.

This has led analysts to rethink their strategy regards South America, the single country ETF –  iShares MSCI Chile Investable Index : (NYSE : ECH) has seen some good buying activity of late, even if there is a 15% weighting towards Codelco within this product. ECH managed to add 5% over the last five days, with a huge spike in trading in yesterdays surge on the US markets. Along with Brazil / EWZ & Mexico /EWW, it looks as though Chile could be an interesting mid to long term long within the country specific ETFs.

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.

Bolivia’s Lithium quandary

battery-lithium-cr20321In one of the more remote regions on the planet, high in the Andes, lies the Salar de Uyuni, the famed salt flats stretch across more than 4,000 square miles in Potosi, Bolivia, well known for the fabulous wealth in silver extracted there by the Spanish in colonial times. Now a new age of mining could bring a 21st century El Dorado for the impoverished South American nation, as geologists believe that more than half the world’s reserves of lithium may  lie under the salt pans.

Government officials claim that Bolivia possesses the world’s biggest lithium reserves, and they also believe the country is poised to profit from car manufacturers which are driving to develop electric cars that will run on lithium ion batteries.

“Bolivia will become a big producer in six years of batteries,” Luis Alberto Echazu, the minister of mining and metallurgy, said in an interview. He ticked off three companies that he said have expressed interest in investing in the government’s lithium venture: Sumitomo, Mitsubishi and Bollore, a French company.

Lithium is the lightest metal and the least-dense solid. It’s typically extracted from beneath salt flats, currently about 70% of the world’s supplies come from Chile and Argentina. The U.S. Geological Survey says 5.4 million tons of lithium could potentially be extracted in Bolivia, compared with 3 million in Chile, 1.1 million in China. Independent geologists estimate that Bolivia may have further lithium deposits at Uyuni and its other salt deserts, though high altitudes and the quality of the reserves could make access & extraction difficult.

While estimates vary widely, some geologists say electric-car manufacturers could draw on Bolivia’s lithium deposits for decades. More importantly, the US is estimated to have less than 400,000 metric tonnes available for expoloitation within its borders. While lithium batteries don’t currently power hybrid vehicles, analysts think that the fuel-efficient electric cars of the future likely will use them. With an estimated 20,000 tons of lithium carbonate expected yearly from the salt flats, a rising demand for lithium for electric car batteries, and with the price of a ton of lithium up from $350 in 2003 to $3,000 this year, a potential bonanza beckons for socialist President Evo Morales. 

“There are salt lakes in Chile and Argentina, and a promising lithium deposit in Tibet, but the prize is clearly in Bolivia,” Oji Baba, an executive in Mitsubishi’s Base Metals Unit, said in La Paz. “If we want to be a force in the next wave of automobiles and the batteries that power them, then we must be here.”

Mitsubishi is not alone in planning to produce cars using lithium-ion batteries. Ailing car manufacturers in the United States are pinning their hopes on lithium. General Motors (NYSE – GM)  plans to roll out its Volt in 2010,  pairing a lithium-ion battery along with a petrol engine. Nissan, Ford and BMW, among other carmakers, have similar projects.

Demand for lithium, has climbed as makers of batteries for BlackBerrys, iPhones, laptops & other electronic devices use the mineral. But the automotive industry holds the biggest untapped potential for lithium, analysts say. Since it weighs less than nickel, which is also used in batteries, it would allow electric cars to store more energy and be driven longer distances.

However, President Evo Morales & Bolivias powerful popular movement are suspicious of foreign companies & have a track record of arbritary dealings with foreign concerns, as Brazil found out in 2006, when Morales nationalised all natural gas concerns in Bolivia, including operations by UK producer BP (NYSE – BP). The end result being that foreign companies have halted all investment in Bolivian opportunities.

“There are fairly significant barriers to developing the resource in Bolivia,” said Timothy McKenna, vice president of investor relations at Rockwood Holdings, one of the three major lithium producers in Latin America.

At the La Paz headquarters of Comibol, the state agency that oversees mining projects, Mr. Morales’s vision of combining socialism with advocacy for Bolivia’s Indians is prominently on display. Copies of Cambio, a new state-controlled daily newspaper, are available in the lobby, while posters of Che Guevara, the leftist icon killed in Bolivia in 1967, appear at the entrance to Comibol’s offices.

“The previous imperialist model of exploitation of our natural resources will never be repeated in Bolivia,” said Saúl Villegas, head of a division in Comibol that oversees lithium extraction. “Maybe there could be the possibility of foreigners accepted as minority partners, or better yet, as our clients.”

A potential model may already be in place, India’s Jindal Steel & Power signed a $2.1 billion deal in 2008 for the exploitation of iron reserves in south-eastern Bolivia, near the border with Brazil. This will allow Jindal, India’s leading steel producer, to develop 50% of El Mutun, widely believed to be the biggest untapped iron ore deposit in the world, along with steel making facilities. With an estimated 40 billion tons of iron ore reserve, El Mutun is expected to generate $200 million a year for Bolivia, plus up to 21,000 jobs when the commercial production of steel begins in 2010. It is heavily rumoured that Jindal won the concession due to its environmental track record. In 2007, Jindal was awarded India’s National Energy Conservation Award in the Integrated Steel Plants Sector for its success in protecting the environment by adopting eco-friendly processes and activities.

The opportunity to enrich the nation is there & a careful balance between foreign technological & financial assistance in developing the deposits, whilst providing an economical & ecological bias for Bolivia is obviously required. The real question is can Morales walk the tight rope between populist politics & reality ? My opinion, he will get there, as has recently been seen, collapsing oil prices have had a major negative effect on Venezuela  & Hugo Chavez influence in the region & beyond. So one route for Foreign Direct Investment looks to be closed. Morales is a sharp operator & I can see him letting foreign firms into partnership with Comibol, but definitely on Bolivian terms.

Emirates & India pair up on Indonesian aluminium venture

nalcoIndia’s largest aluminum maker, state owned National Aluminum Company  (NALCO), and United Arab Emirates government-linked RAK Minerals and Metals Investment (RMMI) plan to invest $4 billion  to build a smelter and supporting infrastructure, including a power plant, in Tanjung Api-api, South Sumatra, Indonesia. $2.5 billion  of the planned investment will be spent on the smelter and the remaining $1.5 billion on a power plant, a port and railway. The smelter is designed to process 1 million tons of alumina a year and is expected to produce 0.5 million tons of aluminum annually. The alumina will be imported from India, which produces about 2.1 million tons of alumina per year. The proposed dealwill see RMMI taking a 24% stake in the Sumatran based project signed by NALCO & the Indonesian province last December.

RMMI signed a seperate infrastructure investment deal in February with the South Sumatran Government. This involves the Emirates firm investing into the Tanjung Api-Api industrial city project, which encompasses a new seaport, railway infrastructure & industrial complexes for the exploitation of coal, rubber & palm oil resources. In return for the investment, RMMI will receive fast track approvals for land acquisition & associated planning developments, additionally, the MOU commits the Sumatran Government to facilitating the acquisition of mineral off take agreements, as South Sumatra is the largest coal producing area in Indonesia, this is a very attractive deal for RMMI.

Madhu Koneru, Managing Director, RMMI, said: ‘This is one of the most exciting turnkey projects that RAKIA is undertaking and we believe that it has the potential to become a catalyst for our future organic growth in Asia. We are getting extra ordinary support and encouragement from Governmental authorities and leaders of Republic of Indonesia, including the citizens and regional administration of Banyu Asia regency and South Sumatra Province, which can help RAKIA and RMMI to implement this project within record time.’

Nalco, India’s key aluminium producer and a public listed company (BOMBAY – NALU)  –  in which the Government of India holds majority stake, has  25 years of experience in mining bauxite, alumina refining, power generation and aluminium smelting. The company operates an opencast bauxite mine of 4.8 million mtpa, which serves the alumina refinery at Damanjodi. The capacity of the mine will go up to 6.3 million mtpa by middle of next year under an expansion project that is currently in progress. The excess capacity of alumina refining, will be used to feed the new project in Sumatra.

 

“The smelter requires a lot of electricity and we have a lot of energy in India…but still we find that it make senses to put the power plant near coal mining here in Indonesia,” B.L. Bagra, NALCO’s director, told reporters. He said the power plant will help to keep the cost of production from the aluminium smelter competitive.

Copper prices leave producers feeling “wired”

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Copper futures for March delivery fell 2.35 cents to $1.4050 a pound on the Comex division of the New York Mercantile Exchange today. Copper, which reached a record $4.2605 a pound on May 5, has dropped 54 percent this year. Copper had more than quadrupled in the six years through 2007. The decline over the last six months,gives copper the worst- performance among metals tracked on the Reuters/Jefferies CRB Index of 19 commodities.

 

Copper prices will be “depressed” next year and demand almost “stagnant” as the international economic crisis leads to higher stockpiles of the metal, Chilean  state owned Codelco Chief Executive Officer Jose Pablo Arrelano was quoted in Bloomberg today

Demand won’t recover until 2010, Arellano said today in a speech in Santiago. Prices for the metal, will return to “normal” in 2011 as the surplus declines, Arellano said, without specifying a price. Codelco is the world’s largest copper producer by 2007 output. Global stockpiles are rising as wordlwide economic expansion slows to 2 percent or less this year and next. Before a “violent drop” cut copper prices by two-thirds since May, Codelco had forecast a gradual decline, he said. The company has sold a smaller share of its production for 2009 than the 80 percent usually committed by this time.

This will undoubtedly hurt other players in the commodities market, including BHP Biliton (NYSE – BBL) / (ASX – BHP) & Freeport McMoran (NYSE – FCX), Freeport McMoran have made some inroads to looking at the problem, the board announced in early December , 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, said yesterday that it has delayed plans for an energy plant in Chile that it planned to build to supply two of its copper mines.

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

Chile, the world’s biggest copper supplier, and the rest of the world will weather “tough” months ahead, Chilean President Michelle Bachelet  said last week. Copper demand in the U.S. may weaken further, while the pace of demand growth in China may be cut by almost half to between 5 percent and 6 percent, Eduardo Titelman, EVPof the Chilean Copper Commission, said in an interview last week.

Demand growth in China, the world’s largest user of the metal used in plumbing and wiring, slowed to an estimated 9.8 percent this year from 26 percent in 2007, the commission said. Freeport-McMoRan 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.