Commodity Super-Cycle and Decline – Page 53

BHP Billiton puts $68-billion worth of projects on hold as profit plunges – by Elisabeth Behrmann and Jesse Riseborough (Bloomberg News/National Post – August 22, 2012)

August 22, 2012

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

BHP Billiton Ltd., the world’s biggest mining company, put approvals for about US$68 billion of projects on hold after second-half profit plunged 58% as metal prices declined and costs rose.

Net income dropped to US$5.5 billion in the six months ended June 30 from US$13.1 billion a year ago, according to Bloomberg calculations that were confirmed by the Melbourne-based company. That beat the US$3.5 billion median estimate of four analysts surveyed by Bloomberg.

BHP doesn’t expect to approve any spending on major projects this fiscal year, including the Olympic Dam expansion, which would have created the world’s largest uranium mine, the company said Wednesday. It joins Rio Tinto Group and Xstrata Plc in booking declining profits amid sluggish global growth.

“Given current investor sentiment towards high-capex, long-dated projects, the move not to approve Olympic Dam and Outer Harbour will be taken positively,” Richard Knights, an analyst at Liberum Capital Ltd., told Bloomberg. “The problem for BHP management is at some point they will have to weigh up the market’s desire for short-term returns and their prerogative as a major mining company to commission long-dated projects.”

Junior miners in grip of bear market – by Gordon Hamilton (Vancouver Sun – August 14, 2012)

August 15, 2012

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

Exporation strong but slowing Chinese demand, eurozone crisis hamper financings

Junior mining companies are going through the toughest bear market since the 2008 financial meltdown, according to the Association for Mineral Exploration British Columbia.

In a quarterly letter to members posted on the association’s website, AME B.C. president Gavin Dirom said tough economic conditions have hit the sector again, prompted by worries about Europe’s sovereign debt crisis and China’s slowing demand for copper.

“Although the global mineral exploration and development sector may still be in a multi-year commodity super-cycle, very challenging equity financing and bear market conditions were the reality during the second quarter of 2012,” Dirom said in the open letter to members. “Members of AME B.C., especially prospectors and junior explorers, are experiencing the impact of these tough economic conditions.”

Dirom noted that equity capital raised on Toronto’s venture capital exchange, the TSX-Venture, was down 62 per cent in the period January to May over the same period of 2011. “Gold companies, for example, were only able to raise $445 million through equity placements in May and June, which is the lowest two-month total since late 2008.”

NEWS RELEASE: B.C. seizing on global demand for mining (May 16, 2012)

August 12, 2012

For the B.C. Mineral Exploration and Mining Strategy, click here: http://www.empr.gov.bc.ca/Mining/Documents/MiningStrategy2012.pdf

VANCOUVER – A long-term plan designed to develop the mining industry and create jobs to support B.C. families was announced today by Minister of Energy and Mines Rich Coleman.

“British Columbia is poised for a new phase of growth, investment and job creation, which will enable us to reach across the Pacific and tap into growing demand in Asian markets,” said Premier Christy Clark, who is presently on her second Asia Jobs and Trade Mission promoting resource development to overseas customers. “Long-term growth in our mining industry will translate into strong economic growth for our communities, First Nations and the province, and thousands of well-paying jobs that will benefit families in British Columbia.”

The new B.C. Mineral Exploration and Mining Strategy outlines a plan to create eight new mines and expand nine existing ones by 2015. The mining strategy’s six overarching goals are:

• Enhancing B.C.’s competitive edge.
• Streamlining regulatory processes.

From Resource Curse to Blessing – by Joseph E. Stiglitz (Project Syndicate Website – August 2012)

August 9, 2012

http://www.project-syndicate.org/

Joseph E. Stiglitz, a Nobel laureate in economics, has pioneered pathbreaking theories in the fields of economic information, taxation, development, trade, and technical change.

KAMPALA – New discoveries of natural resources in several African countries – including Ghana, Uganda, Tanzania, and Mozambique – raise an important question: Will these windfalls be a blessing that brings prosperity and hope, or a political and economic curse, as has been the case in so many countries?

On average, resource-rich countries have done even more poorly than countries without resources. They have grown more slowly, and with greater inequality – just the opposite of what one would expect. After all, taxing natural resources at high rates will not cause them to disappear, which means that countries whose major source of revenue is natural resources can use them to finance education, health care, development, and redistribution.

A large literature in economics and political science has developed to explain this “resource curse,”and civil-society groups (such as Revenue Watch and the Extractive Industries Transparency Initiative) have been established to try to counter it. Three of the curse’s economic ingredients are well known:

Sobering 12 months for Top 10 global mining companies – by Lawrence Williams (Mineweb.com – August 8, 2012)

August 9, 2012

www.mineweb.com

While the stock prices of the world’s top mining co.s are well below their 52 week highs it does still leave them in a strong position with respect to M&A opportunities.

LONDON (Mineweb) – While few mining company stocks have ever got back to their peaks prior to the mega-crash of Q3 2008, there had been a decent recovery, but as the global recession has bitten and commodity prices have, for the most part, been hit hard, the biggest global mining companies have seen their stock prices, and market capitalisations fall.

While most are now off their recent low points, they have still suffered badly being on average around 30% below their 52 week highs. Even so, the overall market situation, coupled with their strong balance sheets and cash generation abilities, does give them some great opportunities to build at the expense of those further down in the pecking order.

Compared with a year ago the order among the top companies has changed only a little – notably top potash miner PotashCorp moving above top gold miner, Barrick Gold, and copper and gold miner Freeport McMoRan when ranked by market capitalisation and a bit of a shakeout at the bottom. However the differentials between some of the bigger ones have narrowed – in particular between Rio Tinto and Vale. Rio got marked down heavily when it made its ill-timed (market wise) takeover of Alcan now nearly 5 years ago. It has made a recovery from this and could be poised to move back into the global No. 2 position in the years ahead.

China tightens rare earths controls in move that might inflame tensions with US, Europe – by Joe McDonald (The Associated Press/Canadian Business Magazine – August 08, 2012)

August 8, 2012

Founded in 1928, Canadian Business is the longest-publishing business magazine in Canada.

BEIJING, China – China’s government has further tightened curbs on production of rare earths used in mobile phones and other high-tech products in a move that might inflame trade tensions with Washington and Europe.

Regulations issued this week say mines and smelting companies must meet minimum output levels to continue operating. The state newspaper China Daily said Wednesday that might result in 20 per cent of the country’s production capacity to be shut down.

China has about 30 per cent of the world’s rare earths deposits but accounts for more than 90 per cent of production. It alarmed foreign manufacturers by imposing export curbs in 2009 while it tries to build up a domestic processing industry to capture more of the profits that go to U.S., Japanese and European companies that transform rare earths into mobile phone batteries, camera lenses and other products.

Chinese officials have expressed hope foreign companies that use rare earths will shift production to China and share technology with local partners.

What Makes a Critical Metal “Critical” or a Strategic Element “Strategic”? – by Michael S. Fulp (The Mercenary Geologist – August 6, 2012)

August 8, 2012

http://www.themercenarygeologist.com/

I was a keynote speaker at the recent Murdock Capital Partners Critical Metals / Strategic Elements Symposium in New York City. This is my second gig at one of convener Tom Dean’s on-going series of symposia and I thank him for continuing support. Although the venue is small, intimate, and limited to 75 attendees, the investor quality is second to none, particularly in the amount of money represented and managed. In my presentation I categorized the metals critical to modern-day civilization and reviewed the minor metals that are increasingly used by society in new technological applications.

Recently a plethora of alternative names have been proposed and promoted for what were once known as the specialty or minor metals. These mostly obscure elements span the gamut from the lightest to the heaviest on the periodic table. In my opinion, analysts and investors alike have become confused by these newly-invented misnomers.

Much of the confusion can be blamed squarely on two recent reports from the United States government.

In December 2010, the US Department of Energy (DOE) produced a report entitled “Critical Metals Strategy”. It identified seven rare earth elements and three minor metals (lithium, indium, and tellurium) that are or could become in high demand and short supply from 2011-2025. The DOE list and analysis was predicated on future growth fueled by Obama’s proposed subsidies of the electric and hybrid vehicle, wind turbine, solar, and fluorescent lighting industries.

China: Is it really our economic saviour? – by David Olive (Toronto Star – August 7, 2012)

August 7, 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.

It might seem that for Canada, the commercial stakes in China have never been higher. Same goes for our European and American peers, all eager to crack a Chinese market of burgeoning affluence.

The Tangier Lobster Co. of Nova Scotia, whose seasonal workforce ranges from 14 to 22 employees, is determined to boost Chinese exports to compensate for a drop in sales to a U.S. mired in economic malaise.

And Stephen Harper seeks a greater degree of Canadian economic sovereignty with his relentless promotion of the proposed Northern Gateway pipeline, connecting Athabasca’s tar sands with booming markets in Asia. Oil sales to China would help break our dependence on the U.S. as sole buyer of our petroleum exports.

Yet, while it’s difficult not to marvel at a rapid industrial revolution in the world’s largest country, I fear we exaggerate China’s potential.

Commodity Super-Cycle will last for at least a decade-Don Coxe – by Dorothy Kosich (Mineweb.com – August 6, 2012)

August 6, 2012

www.mineweb.com

“Commodities have revived because they are real and really useful to the dynamic emerging economies,” says global commodities specialist Don Coxe.

RENO (MINEWEB) – Copper miners and gold miners with high-quality reserves in the ground in politically secure regions are becoming more and more valuable, said BMO Capital Markets’ Don Coxe in his August edition of Basic Points.

“The commodity story is essentially a scarcity story,” said Coxe. As global living standards improve, the problem will be finding and producing enough metals and minerals to sustain economic progress.

Noting that gold was priced below $1,000 an ounce as recently as three years ago, Coxe observed that analysts “are agreed that nearly all gold companies now need at least $1,250 an ounce to make any money on current production when the costs of new capex are factored in.”

There’s a Pink Gold Rush for Potash: Fadi Benjamin – by Peter Byrne (The Energy Report – July 31, 2012)

August 1, 2012

http://www.theenergyreport.com/

After a tough five years, the price of agricultural potash is rebounding. Demand for fertilizer is on the rise in China, Brazil and the United States, and mining firms are rushing to find new sources of the pink potassium salts. In this exclusive interview with The Energy Report, Fadi Benjamin, mining analyst with Northern Securities Co., shares his top picks in the junior space and talks about the pros and cons facing entrants in an industry dominated by a handful of seniors.

The Energy Report: Fadi, the International Fertilizer Industry Association is reporting that the fertilizer market is on the mend, with demand for potash rising 3.7% per year. Today, U.S. potash prices are at about $575 per metric ton (mt), compared with $380/mt last year. What caused the upswing?

Fadi Benjamin: Let’s look at what caused the potash crash: Back in 2008–2009, potash prices had risen to almost $1,000/mt, driven by Chinese demand. Crop prices were relatively low at $3.50 corn, $10.25 soy and $4.44 wheat. Farmers around the world retaliated as they could not justify the economics of these high potash prices and low crop prices. Many farmers, particularly in North America, took a “potash holiday.” They stopped applying the mineral to cropland for a couple of years. The holiday was possible because crops do not consume all of the fertilizer immediately, and the remainder stays in the soil as a reserve. But now, all around the globe, the potash content in soils is too low.

Q&A with ‘Anti-Bono’ Zambian economist Dambisa Moyo [China resource competition] – by Rick Westhead (Toronto Star – July 29, 2012)

July 30, 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.

Q: How long did you research and report your book?

A: It took me about three years. I did probably 80 interviews with hedge funds, policy makers. Of those, probably 30 interviews were with Chinese officials. I spend about 80 per cent of my time in developing markets. I’m in Africa once a quarter and China two or three times a year. So over the course of writing the book, I probably spend three or four months in China. I felt like I had a good connection with people. I’ve seen Chinese mines, been on their oil rigs.

Q: China’s Prime Minister Wen Jiabao has said that without reforms China could face another Cultural Revolution. It’s very strong language from such as prominent leader. Did you get a sense from your time in China of what kind of opposition the government faces?

A: Not in the way you or I think about it, but there’s been a lot of transformation in China’s political system while we haven’t been watching. We are all sort of hyper-focused on issues like: are they going to have democratic elections where every Chinese stands in a line, queues around the block and elects a president? While we’ve been focused on that, there have been a whole lot of reforms going on.

China’s “Race for Resources”: Dambisa Moyo Sees Commodity Conflicts and Scarcity Ahead – by Aaron Task (Daily Ticker – July 23, 2012)

July 28, 2012

Much has been made about China’s huge investments in resource-rich Africa in recent years and Chinese President Hu Jintao pledged another $20 billion in loans during his visit last week.

But it’s not just Africa where China is looking to secure access to commodities, notes international economist Dambisa Moyo. “There’s not a single region left untouched,” she says in the accompanying video, noting China’s extensive trade with Brazil, its recent “laptops for pork” deal with Canada, pacts with Kazakhstan and Russia for uranium and oil, as well as land-development in Australia. And on Monday, Canada’s major oil producer Nexen announced it has agreed to be acquired by China’s CNOOC in a $15.1 billion deal, giving the Chinese oil company a strong position in the North American oil market.

“Simply put, the Chinese are on a global shopping spree,” Moyo writes. “And its voracious commodity appetite is unlikely to abate significantly even if China’s economic growth rates were to cool.”

China slowing down? Don’t worry about it – by Drew Hasselback (National Post – July 25, 2012)

July 26, 2012

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

Earlier this month we saw some figures that suggest China’s rapid economic growth is starting to slow. China’s second-quarter GDP rose by 7.6%, slower than the 8.1% reported in the first quarter.

The slowdown in headline GDP might shock those who are banking on China’s future prosperity to sustain commodity prices. But Canadian lawyers doing business in that part of the world are less worried about it.

For one thing, Canadian lawyers have learned not to focus too narrowly on China, but rather to target the business opportunities available through Asia. “Your focus is on China because of the GDP numbers, but this is Asia, and the Koreans are still very involved in this,” says Jay Kellerman, a mining lawyer with Stikeman Elliott LLP in Toronto.

For another, Canadian lawyers have come to understand that business flows to and from China can be choppy. Much of Canada’s resource business is built on the foundation laid by the oomph Chinese demand has built into commodity prices. News of a slowing Chinese economy might set off alarm bells for an already nervous resource industry — but this doesn’t necessarily translate into concerns over deal flow.

Mining boom to peak, slowdown ahead-Deloitte Access – by Dorothy Kosich (Mineweb.com – July 23, 2012)

July 23, 2012

www.mineweb.com

Some planned mega-mining projects are at risk of being shelved due to a slowdown in Chinese metals/minerals demand, rising costs, and Australian politics, warns Deloitte Access Economics.

RENO (MINEWEB) – A report by one of Australia’s leading private-sector economic forecasters says the mining investment boom is about to peak and a slowdown is on the horizon within the next two years.

The quarterly Deloitte Access Economics Business Outlook highlighted the broad trend of “the increasing realization that China is no a permanent gravy train. Its future growth is less certain-perhaps particularly so in the short term-and its long term growth may be less resource intensive than some commentators had earlier expected.”

“Costs have risen fast and potential profits are being dialed down as commodity prices deflate and analysts reassess both shorter and longer term commodity demand from emerging Asia. That doesn’t necessarily say that some of the next found of mega mining projects may not get the green light,” said Deloitte Access.

Continuing commodities super cycle not all about China any more – by Geoff Candy (Mineweb.com – July 18, 2012)

July 19, 2012

www.mineweb.com

Analysts feel the commodities super cycle is not behind us, but global population growth will see the centre move from China to other areas of the developing world.

Groningen – Despite pronouncements that the era of high commodity prices is coming to an end and concerns that China’s economy is finally beginning to show signs of fatigue, there are still a number of commentators that see some legs left to the commodities super cycle.

The commodities super cycle, as a concept, began coming to the fore about a decade ago, around the same time that China began to crouch down in preparation for its massive industrial leap forward. And, over the last 10 years we have seen significant growth in the prices of certain commodities. As the table below from Standard Chartered illustrates – bear in mind that these prices are estimates given that we haven’t yet come to the end of 2012 but the trend has undoubtedly been up.

From the table it is clear that the commodities that have risen the most in price terms over the last decade are the ones most in need during the Chinese industrialisation.