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Commodity Super-Cycle and Decline

Chinese investors warned about African mining risks – by Toh Han Shih (South China Post – December 16, 2013)

http://www.scmp.com/business/commodities

Resource-rich continent attractive to China, but potential investors are told to proceed cautiously

Chinese companies are keen to pour money into mining projects in Africa, but investors have received a fresh warning about the risks in the continent’s mining sector. Speakers at the recent Global Resource Investment Conference in Shenzhen told of some of the problems that can beset projects in resource-rich Africa.

“There are many potential Chinese clients who are interested in investing in mines in Africa, but there are lots of challenges,” said Cindy Pan, a lawyer at international law firm Dentons.

Pan cited poor infrastructure, political instability, corruption, cultural differences, as well as other political and legal risks. She cited the case of a Chinese company that invested in a mine in the Democratic Republic of Congo, where officials made repeated demands for bribes.

One Chinese company bought a mine in Mozambique, where the acquisition contract included a clause that allowed the government to buy 15 per cent of the mine, Pan said.

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Chinese investors looking beyond slump in mine sector – by Toh Han Shih (South China Post – December 13, 2013)

http://www.scmp.com/business/commodities

Despite falling prices, those with a long view and deep pockets on the mainland and in HK are buying projects worldwide, especially for gold

Despite the bearish mood in the global mining sector, participants at a conference in Shenzhen this week said mainland and Hong Kong investors are snapping up mines around the world.

One of them is Samuel Chan Wing-sun, vice-chairman of YGM Trading, a Hong Kong-listed garment firm, who acquired 59 per cent of Crater Gold Mining about 12 months ago and was appointed Crater Gold chairman in February, John Hung, an adviser to Crater Gold, said at the Global Resource Investment Conference. Crater Gold is an Australian-listed firm with gold mines in Papua New Guinea and a metals mine in Australia.

Stewart Cheng Kam-chiu, a nephew of Hong Kong tycoon Cheng Yu-tung, had agreed to co-underwrite a continuing rights issue of A$2.1 million (HK$14.8 million) for Crater Gold, Hung said.

“Before Sam came in, the company suffered from a lack of funds,” he said. “At the moment, it is very difficult to raise funding in Australia because market sentiment is very soft for gold mining companies.

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The keys to exploration success and mining the market – Friedland – by Alex Williams (Mineweb.com – December 5, 2013)

http://www.mineweb.com/

In a wide ranging conversation with Rick Rule, Robert Friedland discussed among other things, the mining cycle, the need not to punish creatives and institutional stupidity.

LONDON (MINEWEB) – Ivanhoe Mines founder, Robert Friedland urged investors to take a longer term view of the mining industry, on Wednesday, reminding them that the current bear market will turn, at the final event of this year’s Mines & Money Conference in London.

In a conversation with investor Rick Rule, chairman of asset manager Sprott US Holdings, Friedland called the bottom for mining stocks. “This is very much what a bottom feels like,” he said. “Most of the CEOs of the major mining companies have had their heads cut off and used as bowling balls by their chairmen, so the major companies are risk-averse and the junior companies are living in an anaerobic environment where capital is really difficult to achieve.”

“This is going to result in a spectacular bull market,” Friedland said. “It could take a year or two before there’s a sudden and violent turn for the better, but the school of fish will turn.”

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Chinese firms want to buy coal assets overseas, but on the cheap – by Sonali Paul (Reuters U.S. – December 1, 2013)

http://www.reuters.com/

MELBOURNE, Dec 2 (Reuters) – Chinese companies are on the hunt to buy overseas coal mines as Beijing’s switch to cleaner fuels stokes demand for higher-quality coal produced in countries such as Australia, according to people familiar with the firms’ strategies.

A renewed appetite for acquisitions by the world’s biggest coal consumer will be a big boost for miners who are trying to dispose of assets worth billions of dollars to boost shareholder returns. These include Rio Tinto, which has put Australian and Mozambique coal operations on the block, and Linc Energy , which is selling its New Emerald Coal business.

The Chinese, however, are not rushing to buy. They see asset values coming under further pressure as coal prices remain depressed amid a supply glut that has already driven prices down about a third since 2011.

“We have clients who are interested in taking stakes in coal assets. But the view is the market’s not going to get any better for two years. So why buy something today when it’s going to be a lot cheaper in eight months’ time,” said Sam Farrands, a Hong Kong-based partner at law firm Minter Ellison.

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Worst Raw-Material Slump Since ’08 Seen Deepening: Commodities – By Elizabeth Campbell (Bloomberg News – December 2, 2013)

http://www.bloomberg.com/

The commodity slump that spurred bear markets in everything from gold to corn to sugar this year will deepen by the end of December as prices head for their first annual loss since 2008, if history is any guide.

The Standard & Poor’s GSCI Spot Index of 24 raw materials fell in December 83 percent of the time since 1971 when the benchmark gauge was posting losses for the year through November, data compiled by Bloomberg show. The average December loss was 3.9 percent, which if it happened this time would mean a 7.8 percent drop for the year.

Investors pulled a record $34.1 billion from commodity funds since the end of December, according to EPFR Global, which started tracking the flows in 2000. Ample rains boosted global crops, increased mine output spurred supply gluts in metals and the U.S. is extracting the most crude oil since 1989. Economic growth in China, the biggest user of everything from soybeans to zinc to cotton, is poised to slow for a third year in 2013, according to economist estimates compiled by Bloomberg.

“It’s likely that the trend will hold through the end of the year,” said Michael Cuggino, who manages about $11 billion of assets at Permanent Portfolio Family of Funds Inc. in San Francisco. “Investors see anemic or slowing economic growth in the world’s mature and emerging-market economies, while there’s more supply on hand. That translates to lower prices.”

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Free enterprise must fight for its life in the new Cold War – by Diane Francis (National Post – November 30, 2013)

The National Post is Canada’s second largest national paper.

The new cold war is underway and pits free enterprise against state capitalism. Countries like Canada, the U.S. or Germany have fostered their multinationals and they have acted as de facto instruments to grow their economies through trade success.

But countries like Russia, South Korea, China, Singapore and others operate like gigantic holding companies armed with “soft economic weapons” that include oligarchs, national champions, state-owned enterprises, protectionism, diplomatic initiatives and sovereign wealth funds.

Unfortunately, too few western leaders have a glimmer of understanding about this and are failing to devise policies to counteract and defend their economies.

But there is a glimmer in Canada and this week Ottawa announced what it calls a Global Markets Action Plan. In essence, the scheme will put trade before foreign policy in terms of External Affairs efforts.

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BHP Billiton confident of Chinese demand – by Peter Ker (Brisbane Times – November 20, 2013)

http://www.brisbanetimes.com.au/business

Chinese demand for Australia’s natural resources may prove to be stronger than currently believed, according to BHP Billiton chief executive Andrew Mackenzie.

Speaking at the opening of the mining giant’s new headquarters in Melbourne, Mr Mackenzie said early indications from the Chinese government’s recent economic policy summit were positive for Australia and its mining industry.

”If you read the small print – and no doubt we will hear more about this in a couple of weeks – from the third plenum that has just happened in China, I think even more than we might think they are going to require us to supply the resources to continue to develop not just China but much of north Asia as well,” he said.

”These resources are going to be fundamental to them securing the economic prosperity they crave for themselves and their citizens.”

The speech was delivered to a high-powered audience of current and former political leaders, including former prime minister Paul Keating, former treasurer Peter Costello and current parliamentary secretary to the Treasury Steve Ciobo, who read a message from Prime Minister Tony Abbott.

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Bottom nears as China lays foundations for future bull run, says Mohr – by Simon Rees (MiningWeekly.com – November 19, 2013)

http://www.miningweekly.com/page/americas-home

TORONTO (miningweekly.com) – Scotiabank believes the bottom for key base metals commodities is approaching, although 2014 and 2015 are likely to remain lacklustre, Scotiabank’s VP economics and commodity market specialist Patricia Mohr told delegates at the Mine Latin America conference last week.

“I think we’re approaching the bottom in this cycle … I’m hoping that we’ll see the bottom for some of the key base metals in early 2014,” Mohr said.

“I think it’s fair to say that the next two years are likely [to present] quite lacklustre conditions for many of the key base metals,” she added. “But I think the bull run in base metal prices will probably return in the second half of the decade.”

WATCHING THE WHEELS

Mohr stressed the importance of China. “As an economist, I now spend more time looking at the outlook for China than I do for the USA,” she said.

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The Commodities Supercycle and Your Grocery Bill – by Moises Naimnov (The Atlantic – November 18, 2013)

http://www.theatlantic.com/

From the cost of coffee to global power shifts, how commodity prices shape our world.

As you shop for Thanksgiving dinner this year, you may long for the good old days when food was cheaper. This isn’t just your nostalgia speaking. Over the past decade, food prices have increased at a very fast clip. According to the U.N.’s Food and Agriculture Organization, the global food price index has increased by 125 percent since 2000.

To understand why, consider the seemingly intractable prices of global commodities markets—your standard agricultural goods like coffee, sugar, and wheat, or resources like crude oil and coal that are used to produce or transport those goods. Not only do these complex commodities markets determine the cost of what we eat, but their high prices can fuel the kind of social unrest that in some countries has toppled governments.

These markets are as volatile and hard to forecast as the effects of their swings are contradictory. Commodities are both the origin of major fortunes as well as the reason behind financial crashes. Their gyrations also drive major shifts in geopolitical power—they can boost the influence of some countries while weakening others.

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COLUMN-China reforms to extend commodity boom, boost competition – by Clyde Russell (Reuters India – November 18, 2013)

http://in.reuters.com/

(The opinions expressed here are those of the author, a columnist for Reuters.)

Nov 18 (Reuters) – China’s planned economic and social reforms should have the effect of extending the decade-long boom in demand for commodities, while at the same time making that demand more price sensitive.

While the 60-point reform plan still needs to be fleshed out, initial indications are that the appetite for resources by the world’s biggest commodity buyer is far from finished. From a longer-term perspective the most important parts of the plan include lifting the restrictions on rural migration to smaller cities and easing them for medium-sized cities.

This alone should ensure that China’s demand for iron ore, copper and other base metals remains robust as housing and infrastructure is created across the country to cater for rising urbanisation.

Much of this activity will also fly beneath the radar, as it will take place away from the mega-cities such as Beijing and Shanghai, but this doesn’t mean the commodity demand will be any less real.

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3 Major Reasons Why China’s Commodities Super-Cycle Is Toast – by Stuart Burns (Metal Miner.com – November 14, 2013)

http://agmetalminer.com/

Some would argue the super-cycle is already over and in terms of double-digit growth, it almost certainly is.

But even Chinese growth of 7% today is sucking up commodities at a faster rate than 10-12% was in 2007, simply because it is 7% of a much bigger GDP number.

Miners have taken heart from recent rises in the rate of GDP growth to sustain their belief the economy has bottomed and will continue to rise into next year. And indeed it may: as we wrote recently, the Chinese economy is benefitting from a mini-stimulus this summer that supported investment in infrastructure and seems to have boosted the fortunes of the crucial construction industry.
But – and you know there is nearly always a but with us – some are not so sanguine about China’s medium- to longer-term growth prospects.

The Chinese communist party is meeting this month for the third plenum of the party’s 18th Central Committee to announce policy initiatives aimed at steering the economy through the major challenges it will face over the next 10 years and beyond.

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Betting on end to glut, miners hunt for new zinc deposits – by James Regan (Reuters U.S. – November 4, 2013)

http://www.reuters.com/

SYDNEY – (Reuters) – A global hunt is on to find new deposits of zinc as China buys more of the metal to rust-proof new cars and coat steel used to build bridges and skyscrapers.

Multinationals such as Swiss-based Glencore Xstrata (GLEN.L), Belgium’s Nyrstar (NYR.BR) and China’s MMG (1208.HK) are funding new mines from Africa to the Yukon on expectations that an oversupply of zinc will turn into a deficit.

Along with mining veterans such as former Newmont (NEM.N) head Pierre Lassonde, who holds a stake in Canada’s Foran Mining (FOM.V), they are also investing just as ageing mines accounting for a tenth of world consumption start to shut.

Even old workings are being rehabilitated, including silver-zinc mines built by Hunt brothers Nelson and William in Canada in the 1970s. The Texan duo famously hoarded silver to corner the market and control global prices, only to go bust when silver prices crashed in 1980.

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Friedland in show-stopper ahead of SA listing – by David McKay (Miningmx.com – October 29, 2013)

http://www.miningmx.com/

“People are saying the super-cycle is dead; they are completely idiotic…” Robert Friedland

[miningmx.com] – DEMONSTRATING all the brio that allowed him to raise $504m for mining in two of the world’s riskiest mining domains – the Congo and South Africa – entrepreneur Robert Friedland urged his audience at the Joburg Indaba to ignore the ‘idiots’ who thought the commodity super-cycle was dead.

“People are saying the super-cycle is dead; they are completely idiotic,” said Friedland who added that South Africa as an investment destination was also safe. “The review of mining legislation [in South Africa] has raised some concerns, but nationalisation has ben kicked into touched. Shouldn’t that give us comfort?”, he said.

“You can’t argue that the state should protect its own interests. The referee must be independent, the playing field level. Once investors have confidence in policy stability, the rest must follow,” he said.

Friedland was hitting all the high notes once again promoting this time Ivanhoe Mines, the Toronto-listed exploration and development company that is planning to build South Africa’s largest platinum mine, the so-called Flatreef project, as well as a copper project in the Democratic Republic of Congo (DRC), known as Kamoa.

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BHP’s outlook optimistic, AGM hears – by Matt Chambers (The Australian – October 24, 2013)

http://www.theaustralian.com.au/

BHP Billiton says the global economy is picking up, with positive signs in the US and Japan, boding well for plans to drive an 8 per cent increase in overall production over the next two years and for shareholders hoping for capital returns.

In the company’s annual general meeting in London tonight, BHP chairman Jac Nasser and recently installed chief executive Andrew Mackenzie gave an optimistic outlook for global growth and the demand for the iron ore, petroleum, copper and coal that BHP produces.

“The (2012-13) period was challenging, with slowing global growth and weaker commodity markets,” Mr Mackenzie told the first BHP annual general meeting he has fronted as chief executive since taking over from Marius Kloppers this year.

“However, we are already seeing signs of recovery in the global economy.” Mr Mackenzie said a productivity drive pursued by the miner in the wake of shareholder calls for restraint as Chinese growth slowed last year was paying off.

BHP was now confident of boosting production by 8 per cent, based on converting all its production to copper equivalent, over the next two years, he said.

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Metal bulls pin their hopes on zinc as mines close – by Martin Sandbu (Financial Times – October 22, 2013)

http://www.ft.com/home/us

So you think the commodities supercycle is over? For zinc bulls, it may be just beginning.

The price of zinc has remained subdued since the financial crisis even as copper, gold and tin rose to record highs. But the metal, used to rustproof steel in everything from cars to building materials, is gaining an increasingly vocal following among analysts and investors who believe that it could witness a sharp rally in the coming years.

“Certainly when you compare it to other metals, I would say the outlook for zinc is one of the most constructive,” says George Cheveley, a metals and mining portfolio for Investec Asset Management.

Wood Mackenzie, a leading consultancy, predicts that zinc prices will average more than $3,500 a tonne from 2016-2018 – compared with just $1,940 so far this year.

After years of falling prices, a zinc boom could deliver sizeable profits to major miners such as Glencore Xstrata, the world’s biggest producer and trader of zinc; Canada’s Teck; as well as trading houses such as Noble Group which have carved out positions in the market.

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