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Commodity Super-Cycle and Decline

Canada’s mining boom takes a back seat to no industry – by Philip Cross (Globe and Mail – April 4, 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.

Instead, mining’s rapid closing-in on manufacturing reflects the continuing
flood of money into this sector, not a relative weakness in manufacturing….
Even in Ontario, the $3.4-billion of investment in mining is half of all the
investment by its manufacturing sector, which is mistakenly held to be the key
to its wealth. (Philip Cross – April 4, 2012)

Philip Cross is a senior fellow at the C.D. Howe Institute and former chief economic analyst at Statistics Canada
 
The recent release of the annual survey of business investment is, for me, among the most important data releases from Statistics Canada. If eyes are the window to the soul for humans, then investment is the window to understanding what firms are thinking, not just this year, but their plans for the future.

As interesting as the overall increase of about 8 per cent in business investment intentions for 2012 was its industrial composition. The surge of energy investment is well-known, led by the oil sands. What is less appreciated is the historic boom in mining investment, which has lifted capital spending in this sector to nearly $16-billion, not far from the $20-billion Canada invests in all of its manufacturing industries.

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Race on to dig new zinc mines as old ones run dry – by James Regan (Mineweb.com – April 3, 2012)

www.mineweb.com

With experts saying zinc could be in deficit by 2017 if not earlier, miners from Australia to Africa to the European Union are racing against time to attract investment in new projects.

SYDNEY (Reuters)  –  Zinc miners are betting a long-running global supply glut of the metal used in steel making will turn into a deficit over the next five years as old mines run dry, sparking massive investment in new projects.
 
From Australia to Africa to the European Union, mining firms are laying the groundwork to dig up an additional 1 million tonnes-plus of zinc annually, nearly one-tenth of world consumption and more than is parked in London Metal Exchange warehouses already overflowing with unsold metal.
 
Zinc could be in deficit by 2017 if not earlier, experts say, as consumption rises in China, steel manufacturing picks up in Europe and North America and – most importantly – several super deposits run dry, forcing buyers to dip into swollen producer and exchange stockpiles.

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[State capitalism] Is it a rival to market capitalism? And how does it affect the natural resources industries? – by Keith Campbell (MiningWeekly.com – March 30, 2012)

 www.miningweekly.com

Since the start of the current global economic crisis in 2008, there has been renewed interest in the concept of ‘State capitalism’, as distinct from ‘market capitalism’. (The term ‘liberal capitalism’ is shorthand for ‘liberal democracy plus market capitalism’.)
 
This interest is centred on China more than any other country, in part because of the country’s ability (so far) to ride out the crisis, in part because of the key role it has played in keeping the global economy running while the developed West has been stagnating and in part because China is, unlike India or Brazil or South Korea, not a democracy. This last factor creates the impression of a ‘Chinese model’ of autocracy plus State capitalism that can be compared and contrasted with the ‘Western model’ of liberal capitalism.
 
There has been considerable debate about the rival merits of these ‘models’ in recent times. Thus, renowned British historian Niall Ferguson, who teaches at Harvard University, in the US, had a recent article on State capitalism in the US academic journal Foreign Policy. In late January, The Economist, of London, had a cover and special report devoted to State capitalism. The topic has also been addressed in the past couple of months by The Wall Street Journal and Bloomberg Businessweek. And these are only some, albeit prominent, examples.

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Gold Fields says skills shortage is mining’s biggest concern – by Ed Stoddard (Mineweb.com – March 26, 2012)

www.mineweb.com

Gold Fields CEO Nick Holland says the escalating shortage of skilled workers is a major concern for executives globally as the industry presses ahead with projects in increasingly tough and remote places.

JOHANNESBURG (Reuters) – A worsening shortage of skilled workers is the top worry for mining executives globally as the industry presses ahead with projects in increasingly tough and remote places, the chief executive of world No. 4 gold producer Gold Fields said.
 
“A lot of people ask me what is my biggest concern. What keeps me awake? Having skilled people available to do the job and go to locations that ordinarily they might not be too keen to go to,” Nick Holland told the Reuters Global Mining and Metals Summit on Monday.
 
“That is one of the biggest challenges. We are looking to build a whole lot of mines in the future. And getting the right skills to build those mines is a challenge, not only for us, but for the various engineering companies,” he said. The Gold Fields project pipeline ranges from Ghana in West Africa to the Philippines.

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Viterra another example of Canadian short-sightedness – by Eric Reguly (Globe and Mail – March 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.

ROME— Canada’s Viterra Inc. (VT-T15.91—-%) attracted lavish takeover attention, to no one’s surprise. The company is one of North America’s premier grain handlers and marketers. It is a huge supplier of fertilizer, seed and other agri-products to Canadian farmers. It owns great chunks of the South Australian grain-handling network. Between Canada and Australia, Viterra is a key player in two of the world’s most important bread baskets.

In short, it was a global champion in the making. Not any more. Early this week, Viterra was blown away like a tumbleweed by Glencore International of Switzerland, the world’s biggest and most aggressive commodities trader. Glencore, which is paying $6.1-billion for its prize, is keeping most of Viterra’s grain elevators, ports and other bits of infrastructure, plus virtually all of the Australian goodies. The rest of the company, such as the fertilizer business, is to be divvied up between Agrium and Richardson International.
 
What a shame. Canada needs global corporate champions. It has, perhaps, three: Bombardier, the world’s third-largest aerospace company, Barrick, the top gold player, and Potash Corp. of Saskatchewan. Potash Corp., the global fertilizer leader, would have disappeared too had the federal government not blocked its sale to Australian mining colossus BHP Billiton in 2010.

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China eyes Canadian uranium mines – by Shirley Won (Globe and Mail – March 22, 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.

Takeover activity is poised to heat up in the Canadian uranium sector as energy-hungry China hunts for feedstock to fuel its growing family of nuclear reactors.

The state-controlled China Daily recently reported that the country plans to buy more uranium mines abroad, and is looking in Canada. China also expects to import more uranium this year as its nuclear program resumes after being halted following Japan’s Fukushima nuclear disaster.

China has 15 reactors in operation and 25 under construction, and plans to build another 50. It imports nearly all its uranium from Kazakhstan, Uzbekistan, Namibia and Australia.

“It comes as a surprise” that China is showing its hand by publicly targeting this country’s miners, which could boost the prices of potential acquisitions, said Versant Partners analyst Rob Chang.

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Brazil’s commodity curse – by Matthew Bristow And Juan Pablo (National Post – March 17, 2012)

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

Bloomberg News

RIO DE JANEIRO. In 2007, Brazilian geologists made the biggest oil find in the Americas in three decades. Buried more than eight kilometres below sea level, the discovery was estimated to raise the country’s crude reserves by 62%.

Brazil was already the world’s natural-resource powerhouse: its biggest exporter of coffee, sugar, orange juice and beef. The prospect of it becoming a major energy power as well prompted then-President Luiz Inacio Lula da Silva to declare amid a rush of patriotism that “God is Brazilian.”

Brazil has struggled for half a century to break its dependence on commodities, grappling with the socalled resource curse. Depending on how profits are managed, the new oil wealth could be a godsend that drives a new era of development or a burden that holds the nation back, said Alberto Ramos, a senior Latin America economist at Goldman Sachs Group Inc. in New York.

“They can be Norway, or they can be many other countries where oil did not bring growth and development,” Mr. Ramos said in a telephone interview. “You’d better be smart and forward-looking about using it, otherwise it might hurt you.”

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The Metallurgical Achilles’ Heel of the United States – by Richard (Rick) Mills (Ahead of the Herd.com – March 2012)

http://aheadoftheherd.com/

“The United States has consistently maintained that a strong domestic minerals and metals industry is an essential contributor to the nation’s economic and security interests…The United States has a fundamental interest in maintaining a competitive minerals and metals sector that will continue to contribute significantly to the nation’s economic strength and military security. The industry represents an $87 billion enterprise that employs over 500,000 U.S. workers and provides the material foundation for U.S. manufacturing.” The 1980 National Academy of Sciences executive summary of “Competitiveness of the U.S. Minerals and Metals Industry” 

A concise summary of U.S. mineral vulnerabilities was presented to the Industrial Readiness Panel of the House Armed Services Committee as early as 1980 by General Alton D. Slay, Commander Air Force Systems Command. He pointed out that technological advances have increased the demand for exotic minerals at the same time that legislative and regulatory restrictions have been imposed on the U.S. mining industry. 

The 1981 report  “A Congressional Handbook on U.S. Minerals Dependency/Vulnerability” singled out eight materials “for which the industrial health and defense of the United States is most vulnerable to potential supply disruptions” – chromium, cobalt, manganese, the platinum group of metals, titanium, bauxite/aluminum, columbium, and tantalum – the first five have been called “the metallurgical Achilles’ heel of our civilization.”

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Wanted: 100,000 mining workers in next decade – by Derek Sankey (Vancouver Sun – March 13, 2012)

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

Canada’s mining sector is entering a period of “significant and sustained growth,” according to a recent report from the Mining Association of Canada (MAC), which will translate into the need to hire more than 100,000 additional workers in the next decade.

“Mining in Canada is playing a leading role in Canada’s economic recovery,” says Pierre Gratton, president and chief executive of MAC. “We are generating significant results, we are creating valuable new jobs and we are optimistic about the opportunities in the future.”

The association estimates that Canada’s mining industry plans to invest a further $139-billion in new projects nationwide in the next 10 years. “Working responsibly and co-operatively, we believe mining will be a good news story for Canada for years to come,” Gratton says.

Demand for commodities in countries such as China and India are driving part of the overall appetite for investment in Canada’s mining industry.

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Metals M&A deals set to increase this year – by Nicolas Johnson (Globe and Mail – March 13, 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.

Corporate takeovers in the metals industry are set to increase this year as companies scramble to fight rising costs and ensure access to key materials from iron ore to rare-earth minerals.

The value of mergers and acquisitions in the sector is on course to rise 23 per cent this year to about $83-billion (U.S.), according to a report by PricewaterhouseCoopers LLP.

The number of transactions is running near a record high, averaging more than two deals per business day in 2011.

Tie-ups are also increasingly crossing continents and industries, as highlighted by an agreement last year between Brazil’s Vale SA, the world’s largest iron-ore producer, and Norway’s Norsk Hydro ASA, a major aluminum company.

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Critical Raw Materials Revisited – by Richard (Rick) Mills (Aheadoftheherd.com – March, 2012)

http://www.aheadoftheherd.com/

A critical or strategic material is a commodity whose lack of availability during a national emergency would seriously affect the economic, industrial, and defensive capability of a country.

The French Bureau de Recherches Géologiques et Minières rates high tech metals as critical, or not, based on three criteria:

  • Possibility (or not) of substitution
  • Irreplaceable functionality
  • Potential supply risks

Demand is increasing for critical metals due to:

  • Economic growth of developing countries
  • Emergence of new technologies and products

Access to raw materials at competitive prices has become essential to the functioning of all industrialized economies. As we move forward developing and developed countries will, with their:

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Optimism for commodities wanes only slightly – by Peter Koven (National Post – March 5, 2012)

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

The operating environment might be rough, but the global mining industry remains optimistic that the commodity boom is going to run for years to come.

The annual Prospectors and Developers Association of Canada (PDAC) conference, the industry’s largest event, began Sunday in Toronto with a commodity outlook. A crowd of 28,000 to 30,000 people is expected to attend this year, the most ever.

The conference, which serves as a barometer for the mining industry, comes during a challenging period for most companies.

Producers are facing enormous cost escalation at their operations and development projects, while junior companies (which dominate the conference) are still struggling to raise money.

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Even amid a commodity bull market, gloom still hangs over mining industry [Don Coxe] – by Peter Koven (National Post – March 3, 2012)

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

Exactly a decade ago, Don Coxe walked to the podium at the annual BMO Capital Markets mining conference and told dubious investors that a massive bull market in commodities was about to begin. The reaction was predictable.
 
“Nobody would speak to me at that time, because they thought I was stark raving mad,” Mr. Coxe, BMO’s strategy advisor, says today with a laugh.
 
The skepticism was understandable at that point, as commodities were still in a 20-year bear market that annihilated portfolios. Mr. Coxe, however, saw that something significant was happening in the developing world, particularly China. He was also delighted to see that everyone disagreed with him.
 
“I did some interviews with mining people and couldn’t find anyone who believed in the business. That was a requisite. Because it meant there would be no new capital spending for a few years [leading to supply shortages],” he says.

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Don Coxe on why Buffett has gold all wrong – by Martin Mittelstaedt (Globe and Mail – February 28, 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.

Commodities are once again on a tear.

Gold has been surging, and is closing in on $1,800 (U.S.) an ounce. Crude oil  is trading comfortably above $100 a barrel, and even better for commodity bulls, there is pain at the pumps for drivers, with gasoline prices in many parts of Canada around $1.30 a litre. Copper, the metal with a degree in economics, is within striking distance of $4 a pound. Corn, soybeans, wheat – practically everything in commodity land is enjoying buoyant prices.

Can these good times continue?

For answers, we turned to one of Canada’s best known commodity gurus, Donald Coxe, strategy adviser to Bank of Montreal. He is the guiding light behind two commodity-focused closed end funds that trade on the Toronto market, one specializing in agriculture, the other in a wider range of materials that also include precious metals, base metals and energy.

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Climate change boosts need for bigger presence in Arctic: Canadian navy head – by Bill Graveland (Toronto Star – February 20, 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.

CALGARY—The head of the Royal Canadian Navy says Canada needs to bolster its military presence in the Arctic to prepare for a boom in human and economic activity resulting largely from climate change.

Global warming is thought to be occurring faster in the North than anywhere else. The gradual disappearance of sea ice is opening up commercial shipping as well as previously inaccessible areas rich with oil, natural gas and mineral resources.

“From a naval perspective, climate change probably means there will be more open water, so the Arctic Ocean will really emerge as the Arctic Ocean,” Vice-Admiral Paul Maddison, Commander of the Royal Canadian Navy, said in a recent interview.

“It also means . . . that the circumpolar route will probably open to international shipping from Asia to Europe sometime in this century — probably a lot earlier than most people predicted a few years ago,” he said.

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