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Commodity Super-Cycle and Decline

NEWS RELEASE: GE Launches Global Mining Business Unit

• Geoff Knox named CEO of GE Mining
• Showcases technologies designed to address environmental challenges, bringing efficient, high productivity and low emission equipment to the industry
• Follows recent and planned acquisitions of Fairchild International and Industrea Limited

LAS VEGAS, NV (Sept. 24, 2012) – GE Transportation (NYSE: GE) today unveiled its newest business unit, GE Mining, that will be headquartered in Brisbane, Australia. The announcement was made at MINExpo 2012 by Geoff Knox, CEO of GE Mining.

The Company recently acquired Fairchild International, which manufactures underground mining equipment, and is finalizing the acquisition of Australian-based Industrea Limited (ASX: IDL, OTCQX: IULTY), a provider of safety and productivity-enhancing mining equipment and services. GE will reach a global customer base with enhanced products based on its clean propulsion systems, energy storage offering and world-class system integration capabilities.

As the global mining industry expands to deeper, more remote and extreme locations, its challenges grow more complex. GE’s portfolio of products and services are uniquely positioned to maximize resources, drive efficiencies and help make the world work better, allowing mines to:

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Africa next: The quest for Africa’s riches – by Geoffrey York (Globe and Mail – September 24, 2012)

The Globe and Mail is Canada’s national newspaper with the second largest broadsheet circulation in the country. It has enormous influence on Canada’s political and business elite.

LUBUMBASHI, DEMOCRATIC REPUBLIC OF THE CONGO – Driving north in Africa’s copper belt, Mark Crandon marvels at the new factories and offices along the highway. “It’s crazy,” he says. “None of this was here three weeks ago.”

upermarkets and shopping malls are opening too. They’re fresh fuel for his theory that anyone can make money in this corner of Africa. “You could almost blindly open any business here and it would be a success,” he says . There’s just no competition.”

It’s an unlikely place for a foreign investor to be raving about. The Democratic Republic of the Congo is one of the world’s most corrupt, impoverished and war-torn countries. Millions have died in the military and political chaos of recent years. Yet even here, the lure of the Africa boom is proving irresistible.

In the copper-belt city of Lubumbashi, the nouveaux riches of the mining industry can be spotted at upscale businesses such as La Plage – a glitzy suburban mall with a gelato shop, high-priced supermarket and cafés, not to mention a swimming pool and an artificial sand beach with parasols and volleyball nets.

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What the rise of Asia means for Canadians – by John Ibbitson (Globe and Mail – September 24, 2012)

The Globe and Mail is Canada’s national newspaper with the second largest broadsheet circulation in the country. It has enormous influence on Canada’s political and business elite.

OTTAWA — When Canadian, Asian and American leaders and thinkers meet in Ottawa this week to discuss this country’s place in the new Pacific century, many in the room will not like what they hear. Global leadership is pivoting from the West to the East faster than anyone could have imagined. Canada’s future – and your job – hinge on pivoting with it.

“Canada has been obsessed with the United States and Europe for the past 200 years. Now, frankly it has got to shift its focus to Asia,” Kishore Mahbubani said. The Singaporean academic, who is recognized globally for his writings on the Asian renaissance, is speaking at the conference, organized by the Canadian Council of Chief Executives.

Such a shift “requires a major psychological reorientation on the part of Canadian minds,” Mr. Mahbubani observed. “But if they don’t wake up, they’ll be left behind.”

The conference takes place in the wake of a proposal, reported in Saturday’s Globe and Mail, from Chinese ambassador Zhang Junsai that Beijing and Ottawa begin work on a free-trade agreement.

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Canada’s Mining Sector: A Global Powerhouse Contributing to the Country’s Prosperous Future – by Pierre Gratton

Pierre Gratton is President and CEO of the Mining Association of Canada (MAC). This speech was given to the Vancouver Board of Trade on September 7, 2012.

Thank you.  It’s a pleasure to be back and to reconnect with so many friends and colleagues, past and present.

Thanks everyone for coming to spend some time today to hear about the powerhouse that is Canada’s mining industry and why I firmly believe there’s a prosperous future for our industry – despite current volatility and price declines.

I want to impress upon you three key points: 

1) the super cycle is not over, it is taking a pause;

2) Canada is a free trader, thrives on trade and has to avoid the trap of protectionism and

3) we need to continue the steps we have begun to optimize Canada’s future as a mining powerhouse.

Before we talk about the future, let’s rewind a bit. It’s with hindsight that one can look back at a period and observe that it represented a major turning point in human history.  The Enlightenment, the Industrial Revolution, the first World War and the end of European colonialism, World War II and the rise of US domination. 

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NEWS RELEASE: Australia’s mining sector in the balance

Baker & McKenzie launches global report examining the challenges and  opportunities facing the world’s key mining destinations

Australia, 17 September 2012 – Baker & McKenzie, the world’s largest law firm, has launched a report highlighting significant concerns about the future of Australia’s mining sector.

The Firm surveyed more than 300 senior industry leaders across six key mining jurisdictions – Australia, Brazil, Canada, China, Indonesia and South Africa – and the research suggests that investors in Australia are more pessimistic about the future of mining investment in this country than those investing in the other jurisdictions surveyed.

Of the executives commenting on Australia, 75% said that investing in the mining sector has become more complicated and costly due to factors such as increasing regulatory and environmental obligations, complex and uncertain project development requirements and the rising costs of mine development and operation.

The level of Commonwealth and State Government involvement in the Australian mining industry is also causing concern to investors, with 61% of respondents believing that the Government is too involved in the industry and 72% believing that sovereign risk is on the increase. 

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China helping nickel: analyst – by Carol Mulligan (Sudbury Star – September 18, 2012)

The Sudbury Star is the City of Greater Sudbury’s daily newspaper.

Three key drivers will boost commodity prices in the second half of 2013 — China, China and China — says an economist with TD Securities. China consumes about 40% of the world’s nickel and copper, and its economy is “not c o l l a p s i n g ,” despite some naysayers, says Bart Melek.
 
China has $3.6 trillion in reserve, a minimum debt to gross domestic product ratio and a “big political incentive” to keep growing, Melek told about 100 people at a breakfast meeting Monday of the Sudbury Area Mining Supply and Service Association.
 
Stability is important in the one-party state, whose government is determined to keep people employed and food on the table, said Melek. China has also embarked upon a five-year plan to move 20 to 25 million of its citizens every year from rural areas to cities. That requires more housing and transportation services that require copper, nickel and iron ore.
 
China’s economy may be growing more slowly than it was, but it’s still growing three to four times as fast as our economy, said Melek, head of commodity strategies at TD Securities. Melek is forecasting economic stability in the United States as well, because of a monetary policy to hold interest rates at 0% to 2015.

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China’s imports shrink as slump worsens – by Joe McDonald (The Associated Press/Toronto Star – September 11, 2012)

The Toronto Star has the largest circulation in Canada. The paper has an enormous impact on federal and Ontario politics as well as shaping public opinion.

BEIJING, CHINA—China’s imports shrank unexpectedly in August in a sign its economic slump is worsening and the Chinese president warned growth could slow further, prompting expectations of possible new stimulus spending.

Imports declined 2.6 per cent from a year earlier, below analysts’ expectations of growth in low single digits, data showed Monday. That came on top of August’s decline in factory output to a three-year low and other signs growth is still decelerating despite repeated stimulus efforts.

The weakness in China’s demand for imports is bad news for exporters in Southeast Asia, Australia, Brazil and elsewhere that are counting on its appetite for oil, iron ore, industrial components and other goods to offset anemic Western markets.

Analysts expect Chinese growth that fell to a three-year low of 7.6 per cent in the latest quarter to rebound late this year or in early 2013. But they say it likely will be too weak to drive a global recovery without improvement in the United States, which is struggling with a sluggish recovery, and debt-crippled Europe.

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Asian trade data point to dire outlook for mining stocks – by Scott Barlow (Globe and Mail – September 6, 2012)

The Globe and Mail is Canada’s national newspaper with the second largest broadsheet circulation in the country. It has enormous influence on Canada’s political and business elite.

Recent trade data illustrate a near-collapse in Asian exports to the European Union which, if it continues to accelerate, would signal the end of the mining supercycle.

Over the past decade, Canadian mining stocks have closely tracked the path of Asian export data, highlighting the importance of Asian manufacturing growth on demand for base metals.

The incredibly sharp decline in exports from South Korea and China to Europe suggest a dire outlook for Canadian mining stocks and sustained selling pressure in the sector.

“Asia’s export growth to the E.U. fell from –5.0 per cent in June to –15.6 per cent in July, and the trajectory is becoming as steep as during the global financial crisis” writes Nomura economist Rob Subbaraman.

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‘Supercycle’ fears hit mining groups – by Helen Thomas (Financial Times/CNN – August 28, 2012)

 http://edition.cnn.com/

(Financial Times) — Anglo American set the sombre tone. Falling prices and rising costs enfeebled the mining group’s businesses in the first half of the year, halving earnings.

First among its diversified cadre to report, the miner last month pruned its spending plans on high-profile growth projects. It is now — as earnings season approaches its conclusion — a familiar tale. The mining industry faces a number of negative factors that are squeezing earnings, curtailing cash flows and forcing management teams to make tougher choices.

The backdrop to the lacklustre results is the concern over whether the so-called “supercycle” is drawing to a close after years of surging Chinese demand combining with supply constraints from decades of under-investment to send prices higher for commodities such as copper, coal and iron ore.

BHP shelves Olympic Dam expansion The debate is crucial to mining companies and their investors. Over the long term, the performance of mining equities is largely correlated with commodity price fluctuations. Increases in costs, especially wages and payments to governments, tend to lag behind booming profits as prices rise, putting severe pressure on the sector’s profitability.

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China’s inventories pile up as demand flat-lines – by Carolynne Wheeler (Globe and Mail – September 3, 2012)

The Globe and Mail is Canada’s national newspaper with the second largest broadsheet circulation in the country. It has enormous influence on Canada’s political and business elite.

BEIJING — You know it’s going to be a bad year for China’s exporters when all manner of goods – including the kitchen sinks – are gathering dust in storerooms.

“Of course [the slowdown] is affecting us,” Du Huayao, the manager at Foshan Nanhai Bigao Sanitary Ware Co. Ltd., which makes bathroom and kitchen fixtures, said in a telephone interview from his factory in Guangdong province.

“Sales this year from the foreign market have dropped from one-third to two-thirds.” Compounding Mr. Du’s woes is China’s slowing property market, which has pulled down his domestic sales as well. The company has already laid off 20 of its original 50 workers and has slowed production. “We don’t even have inventory built up now. Last year we did, but this year, the business was so bad that we dared not produce too much.”

As the country’s economic growth slows and its exports to North America and Europe drop off, inventories of everything from iron ore and copper to cars, liquor and designer goods are growing. Chinese exports grew just 1 per cent in July.

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The fundamental attraction of gold and gold stocks – Don Coxe – by Peter Byrne (Mineweb.com – September 1, 2012)

www.mineweb.com

Don Coxe* explains how demographic shifts are affecting the price of gold and delves into the logic of investing in gold as a long-term strategy. Interview with The Gold Report.

TORONTO –  The Gold Report: What fundamentally attracts you to gold?
 
Don Coxe: There are many serious reasons why I like gold, but one very important reason has to do with the shift in the share of world gross domestic product away from the highly industrialized nations toward emerging economies in Asia. For thousands of years, people in China and in India have respected gold. The Western countries, on the other hand, were captivated some decades ago by economists who claimed that gold had become irrelevant as money. But the Chinese and Indian people hoard gold as a store of value and trade it as a treasured commodity.
 
TGR: Are the pricing mechanisms for gold shifting toward control by the East?
 
DC: Consider an art auction. If a bidder who 10 years ago only bought one painting suddenly buys 50 paintings, that bidder will greatly influence subsequent bids for the art. In China and India there are suddenly many more wealthy people than they’ve had for millennia.

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Opinion: Emerging markets offer risk, but also reward for investors – by Michael Schaab (Vancouver Sun – August 30, 2012)

The Vancouver Sun, a broadsheet daily paper first published in 1912, has the largest circulation in the province of British Columbia.

Michael Schaab, CA CFA, is a vice-president and portfolio manager at Leith Wheeler Investment Counsel Ltd. in Vancouver. The article is not intended to provide advice, recommendations or offers to buy or sell any product or service.
 
With fewer analysts and investors in the mix, the chance of finding undervalued investments is greater
 
Emerging markets are often touted in investment circles and the business media. Yet many investors are unsure of how to invest in emerging markets, or even whether they should. These markets are alluring but can be mysterious, misunderstood or simply difficult to access.
 
With a prudent strategy, however, emerging markets can strengthen an investor’s portfolio. Before adding exposure, investors should understand the tenets of emerging-market investing, its risks and rewards and a proper approach to investing in them.
 
So, what is an emerging market? It’s a country or region that is less developed financially and economically than “developed” markets. Meanwhile, its economy is growing rapidly.

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Anglo CEO [Cynthia Carroll] Doubles Down on New Mines Amid Falling Demand – by Jeremy Kahn (Bloomberg Markets Magazine – September 2012)

http://www.bloomberg.com/

Driving northeast from Santiago, the road corkscrews toward the shark’s-grin skyline of the Andes Mountains. In winter, Santiago’s smart set plies this route, heading for virgin-powder days and pisco-sour nights at La Parva ski resort. Most have no inkling that in a high mountain valley just over the ridgeline, excavators the size of houses have sculpted the mountainside into a steeply terraced pit 1,800 feet deep, Bloomberg Markets magazine reports in its September issue.

This is Los Bronces, one of the world’s richest copper mines. Anglo American Plc (AAL), the London-based company that owns Los Bronces, spent $2.8 billion from 2007 to 2011 to double the size of the mine. And Los Bronces is just one of four megaprojects that Anglo Chief Executive Officer Cynthia Carroll has initiated or pushed through construction since she took over in 2007 — each representing a wager in excess of $1 billion on the continued rise of China, India and other emerging markets.

Los Bronces is also at the center of a legal battle between Anglo and Codelco, the Chilean state-owned mining company. The dispute — over whether Anglo can block Codelco from exercising an option to buy half of Anglo’s Chilean subsidiary — has spooked Anglo investors and weighed on the company’s share price, which dropped more than 15 percent from the time the controversy erupted in October to August 8.

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Gold, China and the commodities super cycle – Jim Rogers – by Geoff Candy (Mineweb.com – August 29, 2012)

www.mineweb.com

“The Chinese will buy a lot more gold over the next decade”

GEOFF CANDY: Welcome to this week’s edition of Mineweb.com’s Gold Weekly podcast. Joining me on the line is Jim Rogers – he’s a renowned author, commentator and investor. Jim, gold prices in dollars hit their highest point since mid-April on Monday, largely on hopes of further stimulus from the Federal Reserve. Are we likely to see these hopes dashed once more, do you think or are we likely to see something different post the Jackson Hole meeting?
 
JIM ROGERS: Well I have no idea what’s going to happen at Jackson Hole. I do know that the Federal Reserve is going to continue to print more money, whether they announce it or not because that’s all they know to do, it’s the wrong thing to do for all of us – for the world, but they don’t know any better. So whether they announce it or whether they call it something different, who knows. Until the world economy gets better these guys don’t know anything else to do so they’re going to print more money.
 
GEOFF CANDY: Is there any way to get the world economy better – one gets the sense that we’re almost at an impasse at this stage?

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W(h)ither mining’s big five diversifieds? – by Lawrence Williams (Mineweb.com – August 23, 2012)

www.mineweb.com

After a hugely successful decade, bar some occasional ill-timed acquisitions, the major diversified miners are beginning to see earnings dive as China draws in its industrial horns.

LONDON (MINEWEB) – The big five western diversified mining companies – BHP Billiton, Rio Tinto, Vale, Anglo American and Xstrata, may have been the place to make blue chip resource stock investments really pay off over the past 10 years or so of the global mining and minerals supercycle, but could their stellar performance be coming to an end?

Certainly the latest financial figures coming out suggest that things may be turning down for all of them – some had been falling back earlier – but there looks to be the definite possibility that matters might well get worse before they get better – particularly with China, on which the top three are heavily dependent, perhaps beginning to rethink its industrial structure.

The success of the diversified miners has not been due to gold, despite the latter’s sterling performance over the past 12 years – indeed none are heavily invested in primary precious metals mining – nor even in copper or other base metals in which all do have major interests, but primarily in the bulk-mined iron ore and coal which have been the principal contributors to their profit growth over the years – but with iron ore and coal prices slipping back quite sharply in the light of the Chinese downturn the fall-off in revenues is already beginning to have a serious impact and causing the miners to take a more cautious view on near term capital spending on new mines and expansion projects.

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