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Commodity Super-Cycle and Decline

Northern Vision: Northern Development during the Diefenbaker Era [Roads to Resources] Thesis – by Philip Isard

China, India and many other developing countries are industrializing and urbanizing their economies. This has unleashed a global demand for minerals, oil and gas and other resources – a commodity super-cycle. In the past year, the Conference Board of Canada and other agencies have published various reports about the need for northern infrastructure develpment to tap into the rich resources across the north.

This is not a new concept. John G. Diefenbaker had a northern vision in the late 1950s and implemented policies including the “Roads to Resources” initiative to take advantage of then world demand for resources due to the cold war, pent-up American consumer demand and the rebuilding of war- torn economies and the industrialization of Japan, South Korea and other smaller economies. – (Stan Sudol)

This thesis was presented to the University of Waterloo ,by Philip Isard in fulfillment of the thesis requirement for his degree of Master of Arts in History, Waterloo, Ontario, Canada, 2010. Click here for this very insightful thesis: http://uwspace.uwaterloo.ca/bitstream/10012/5032/1/Isard_Philip.pdf

Abstract Summary of  Philip Isard’s Thesis

At the inauguration of John G. Diefenbaker’s 1958 election campaign, the Prime Minister announced his ‘Northern Vision,’ a bold strategy to extend Canadian nationhood to the Arctic and develop its natural resources for the benefit of all Canadians. In some ways, the ‘Northern Vision’ was a political platform, an economic platform as well as an ideological platform.

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Transport Infrastructure and Ontario’s North: Floating New Ideas – by Livio Di Matteo (December 15, 2011)

Livio Di Matteo is Professor of Economics at Lakehead University in Thunder Bay, Ontario. Visit his new Economics Blog “Northern Economist” at http://ldimatte.shawwebspace.ca/

One of the persistent themes in Northern Ontario economic history is transportation and access.  From the days of the fur trade, to the arrival of the railroad and later on the onset of modern highways and air travel, transportation has been essential to accessing natural resources and getting them out to market.  Yet, Northern Ontario’s transport network has borne the marks of being tailored to economic resource exploitation rather than linking together people.  The network has been designed to move resources and goods out of the region rather than facilitate travel and communication within the region.  This has been a factor in the regional divisions within a vast and sparsely populated region.

A new report by the Conference Board of Canada titled Northern Assets: Transportation Infrastructure in Remote Communities highlights the challenges of northern Canadian transportation in general and particularly the new changes being wrought by climate change such as permafrost degradation.  While the report focuses on a case study of Churchill, Manitoba, many of the issues also apply to remote rural resource communities in Northern Ontario particularly with respect to the dawn of resource exploitation in the Ring of Fire.

According the report, transportation infrastructure is more expensive to build and maintain in Canada’s North and climate change is disrupting existing rail and winter-road links. 

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NEWS RELEASE: Better Northern Transportation Links Will Be Expensive But Are Essential For Economic And Social Development

Go to the Conference Board of Canada website for Northern Assets: Transportation Infrastructure in Remote Communities

Ottawa, December 15, 2011 – The high cost of building and maintaining transportation infrastructure in Canada’s North means that governments and private investors must make hard choices and find ways to balance competing interests, according to a new report from the Conference Board of Canada’s Centre for the North.

“The long distances and harsh climate can make investments in transportation infrastructure difficult to justify, but better connections to and within the North are essential for both job growth and access to public services like health care and education,” says David Stewart-Patterson, Vice-President, Public Policy. “What happens in the North matters to Canada as a whole, and better road, rail, air and marine links are key to enabling Northern communities to achieve their full potential.”

The report, Northern Assets: Transportation Infrastructure in Remote Communities, offers six recommendations for policy-makers:
• Assess the full value created by infrastructure as well as its life-cycle costs;
• Recognize and address conflicting public, business, community, and individual interests;

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NEWS RELEASE: $304 million in mining royalties in 2010-2011: QUÉBEC HAS COLLECTED IN A SINGLE YEAR MORE THAN IT DID IN THE 10 PREVIOUS YEARS

A demanding mining regime that enables Québec to obtain its fair share from its natural resources

Montréal, September 15, 2011 – “The new mining royalty regime enables us to attain the objectives that we set, i.e. to obtain from mining companies fair compensation for our natural resources without discouraging investment,” Minister of Finance and Minister of Revenue Raymond Bachand said today at a technical
information session held jointly with Minister of Natural Resources and Wildlife and Minister responsible for the Plan Nord Clément Gignac.

Minister Bachand indicated that the mining royalties the government collected reached $304 million in 2010-2011, more than double the $133 million originally forecast in the 2011-2012 Budget.

The difference stems from the payment by mining companies of additional amounts during the last two months of the 2010-2011 fiscal year. Several factors account for the additional revenues: aside from changes in the royalty regime, i.e. an increase from 12% to 14% for part of the 2010-2011 fiscal year and the application of the mineby-mine principle, they are also attributable to an increase in the volume of resources mined and higher prices for the resources.

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The renaissance of the Canadian iron ore industry – by Michael R. Skutezky BA LLB, (Canadian Mining Journal – December, 2011)

The Canadian Mining Journal is Canada’s first mining publication providing information on Canadian mining and exploration trends, technologies, operations, and industry events.

Michael R. Skutezky BA LLB, Professional Corporation, practicing in association with Ormston List Frawley LLP Toronto.

‘It’s all about China, demand, scale, logistics, off-take and capital’

The global iron ore phenomenon in the context of the commodity super-cycle currently being experienced is a result of the continuous growth of a very large emerging market – China.

China’s iron ore resources are poor (both in terms of grade and size) and its production cost is high in a global environment where the industry concentration in the upstream iron ore sector is very high (the Big Three oligopoly has about 60-70% of the market) while the downstream steel sector is very low (the top three producers constitute slightly above 10% market share).

Over the last decade, China contributed more than 90% to the growth of the global steel industry, representing 500Mtpa on the 566Mpta total increase of global crude steel production on an annual basis during this period.

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PwC Report: Minerals and metals scarcity in manufacturing: the ticking timebomb – by Malcolm Preston and Joseph Herron

This is the foreward to PwC’s recent report on resource scarsity: Minerals and metals scarcity in manufacturing: The ticking time bomb

Malcolm Preston is PwC’s Global Sustainability Leader and Joseph Herron is PwC’s Global Industrial Products Leader

The world’s growing population, an increase in GDP levels and changing lifestyles are causing consumption levels to rise globally – creating a higher and higher demand for resources. Governments and companies are
becoming increasingly cognisant of the scope, importance and urgency of the scarcity of both renewable and nonrenewable natural recources including energy, water, land and minerals.

The interrelationships between these resources are strong, which means that both the causes of scarcity and the solutions to it are complex. There can be a fine line between ‘just in time’ and ‘just not there’.

Policymakers are starting to take action on the issue of resource supply. The European Union is pursuing a number of initiatives to mitigate the risks of minerals and metals scarcity by using scarce minerals and metals more efficiently in applications, by recycling, and by developing substitutes. It is also pushing for trade policies that favour international open markets for scarce minerals and metals.

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Quadra Takeover Up for Grabs With Escalating Price Driving Deal – by Tara Lachapelle and Liezel Hill – (Bloomberg.com – December 8, 2011)

http://www.bloomberg.com/

Quadra FNX Mining Ltd. is poised to secure the largest takeover price increase in North America as the cheapest copper bid on record leaves room for Vale SA (VALE3) or Antofagasta (ANTO) Plc to make a competing offer.

Poland’s KGHM Polska Miedz SA agreed this week to buy Quadra for C$2.28 billion ($2.26 billion) including net cash, valuing the Canadian miner at 5.2 times net income, the lowest for a copper takeover of similar size, according to data compiled by Bloomberg. The price is also a 36 percent discount to net asset value, based on analysts’ estimates compiled by Bloomberg. After closing 5.4 percent above the bid yesterday, Quadra is more likely to draw a higher offer than any other deal greater than $500 million in North America, the data show.

While the Vancouver-based company agreed not to solicit rival proposals to KGHM’s C$15 a share in cash, Quadra may still lure offers from Vale (VALE5) or Antofagasta with its copper deposit in Chile and mines in the U.S. and Canada, according to Stifel Nicolaus & Co. With analysts expecting Quadra to reach C$18.28 in the next 12 months as an independent company, a bidding war may push the price tag to as much as C$28.25, 88 percent higher than the current agreement, said Salman Partners Inc.

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NEWS RELEASE: Rare earth metals scarcity: A ‘ticking timebomb’ for the world, asks PwC?

Click Here For: Minerals and metals scarcity in manufacturing: The ticking time bomb

  • Chemical, energy and auto industry in ‘red alert’ over disruption of supply
  • Manufacturers will struggle to keep up with demand
  • 14 raw materials named as ‘critical’

London, 7 December 2011 — Seven core manufacturing industries could be seriously affected by a shortage of minerals and metals, which could disrupt entire supply chains and economies, according to new PwC research.

PwC surveyed some of the largest manufacturing businesses across manufacturing, chemicals, automotive, energy/renewable energy, aviation, metals, infrastructure and high-tech hardware to see what impact such a scarcity would have, and where, over the next five years.

Of these, business leaders in automotive, chemicals, and energy sectors fear they will be hit hardest according to PwC’s Minerals and metals scarcity in manufacturing: A ‘ticking timebomb’, report.

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PwC Website: Minerals and metals scarcity in manufacturing: The ticking time bomb

Click Here For: Minerals and metals scarcity in manufacturing: The ticking time bomb

The fine line between ‘just in time’ and ‘just not there’

With a growing population, increasing GDP levels and improving lifestyles, we’re consuming more and more. Renewable and non-renewable resources—energy, water, land, minerals—are in ever-higher demand. And since the relationships between these resources are strong, both the causes of, and the solutions to scarcity are complex. Which, for a manufacturing organisation with a global supply chain, can spell trouble.

Minerals and metals scarcity—explosive prices, delivery delays

In Minerals and metals scarcity in manufacturing: The ticking time bomb, we explore the impact that minerals and metals scarcity is likely to have on seven manufacturing industries. We interviewed senior executives in many of the leading organisations that are central to the future growth of these industries to gauge the relevance and effects of this scarcity.

We found that the supply of many minerals and metals is struggling to keep up with rapid increases in consumption, resulting in price hikes and delivery delays. For example, dysprosium, an essential component of super magnets, and tantalum, an important component in aircraft and medical equipment, automotive electronics, mobile phones and LCD screens, have both experienced explosive price increases in recent years.

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Investors question ‘cheap’ takeover offer for Quadra FNX – by Brenda Bouw (Globe and Mail – December 7, 2011)

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.

Quadra FNX Mining Ltd. has agreed to a $3-billion takeover by Polish copper producer KGHM Polska Miedz SA, triggering criticism the company is accepting a low-ball offer due to an overly cautious view of the metal’s prospects.

The $15-a-share, all-cash bid offers a 40-per-cent premium to Quadra’s recent stock price. But some investors believe it’s a stingy offer that undervalues the company’s assets, which include the promising Sierra Gorda copper project in Chile and operations in Sudbury, Ont.

“Unless the operations are running much weaker than expected, we do not see why one of the most bullish copper companies is selling out so cheap,” said Cormark Securities analyst Cliff Hale-Sanders. .”

Toronto-based hedge fund West Face Capital Inc., which said Tuesday that it owns a 6-per-cent stake in Quadra, called the bid opportunistic. “Given the fact that the shares were trading at $16 a few months ago, it is puzzling that the board did not attempt to contact any other purchasers or run a process,” said chief executive officer Greg Boland.

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Quadra FNX agrees to $3.5-billion takeover [by Polish miner KGHM Polska] – by Peter Koven (National Post – December 6, 2011)

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

Canadian copper miner Quadra FNX Mining Ltd. has agreed to be acquired by Polish mining giant KGHM Polska Miedz S.A. in a $3.5-billion all-cash deal. The offer is worth $15.00 a share and is a 32% premium over Quadra’s closing price on Monday. However, Quadra shares traded at higher levels early this year.

The stock jumped 36% to $15.40 in early trading in Toronto, just slightly above the KGHM offer, as investors speculated on the possibility of a higher bid.

Paul Blythe, Quadra FNX’s chief executive, said in a statement that the two companies held talks earlier this year about a joint venture to develop Quadra’s giant Sierra Gorda project in Chile. Then in recent weeks, KGHM made a proposal for the whole company.

“The proposal represents a significant premium to the current share price and we are recommending that our security holders vote in favour of the transaction,” he said.

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NEWS RELEASE: KGHM begins process of acquiring Canadian mining company [QuadraFNX]

Lubin, 6 December 2011

KGHM Polska Miedź S.A. intends to acquire the mining company Quadra FNX, listed on the Toronto, Canada stock exchange. As a result of entering into today’s agreement, the process of friendly acquisition of this company has begun. KGHM will come into possession of world-class ore bodies and
operating copper mines situated in Canada, the USA and Chile. The value of
this transaction amounts to USD 2,83 billion, and will be financed by the cash resources of KGHM.

The acquisition of Quadra FNX will increase production next year by the KGHM Group by approx. 25%, i.e. 100 thousand tonnes of mined copper, and ultimately by nearly 50%. Total mineral resources will increase by more than 8 million tonnes of copper, i.e. by 28%, putting KGHM into fourth place globally. KGHM is also considering the production of other metals, such as nickel and molybdenum.

There will also be a significant increase in the production of gold and other precious metals. Thanks to the acquisition of attractive mining projects, over several years the KGHM Group will substantially reduce its costs of production. This acquisition will strengthen the position of KGHM on the copper market, and will enable the growth of the company, as foreseen by the Company’s strategy, in the mining sector.

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Consulting sector buzzing – by Norm Tollinsky (Sudbury Mining Solutions Journal – November, 2011)

Sudbury Mining Solutions Journal is a magazine that showcases the mining expertise of North Bay, Timmins and Sudbury. 

Euro zone debt, American stagnation and a slowdown in China paint a picture of economic doom and gloom, but Northern Ontario’s mining engineering consulting firms have never been busier.

Sudbury and North Bay staff with Hatch, Stantec, Wardrop, AMEC and Knight-Piésold are busy working on projects across Canada and around the world, and are bullish about the next few years.

The engineering consulting sector in northeastern Ontario constitutes an important sub-section of the region’s mining cluster, employing upwards of 600 engineers, scientists, technicians and administrative staff.

This wasn’t always the case.  Wardrop, now part of Pasadena, California-based Tetra Tech, started out with a three-man operation in 2001 and today has 50 employees at its Sudbury office. Stantec, formerly McIntosh Engineering, had one or two people in Sudbury in 2008 and now has 92, with approximately 100 more in North Bay.

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From camels to flying carpets – by David Robinson (Sudbury Mining Solutions Journal – November, 2011)

Dr. David Robinson is an economist at Laurentian University in Sudbury, Canada. His column is from Sudbury Mining Solutions Journal a magazine that showcases the mining expertise of North Bay, Timmins and Sudbury.  drobinson@laurentian.ca

Mining and the trade in metals shaped the ancient world. And in almost every case, the transportation system for the metal industries was the most advanced you could find at the time.

Whether it was camels moving copper to Jerusalem from mines in Edom, or Phoenician ships ferrying tin from the Tin Islands to the growing cities of the eastern Mediterranean, mining and advanced transportation have gone together like love and marriage. Transportation innovations of the 19th century shaped the mining industry of the 20th century. Without rail, for example, the vast interior deposits of iron, copper and other metals would have been far more costly to deliver to a growing global market. Cities like Sudbury simply could not exist.

The shipping needs of one modern company show the scale of the transportation services required by miners. Vale exports iron ore to China in “capesize” freighters (too large to pass through the Suez Canal) that carry up to 400,000 deadweight tons – the equivalent of 4,000 ore cars. In 2006, Vale ordered a dozen of these for $1.6 billion.

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World’s Largest Miners [Rio Tinto, BHP-Biliton and Vale] like Potash – by Richard (Rick) Mills (Aheadoftheherd.com – November, 2011)

Richard Mills is host of www.aheadoftheherd.com and invests in the junior resource sector.

As a general rule, the most successful man in life is the man who has the best information 

Miners are looking to enter the potash business, or expand existing operations, as they look for increased demand from developing nations such as China, India and Brazil. 

BHP Billiton – In the spring of 1869 a German Chemist named Charles Rasp immigrated to Australia for his health. Unable to find work in his chosen trade Charles learned to ride a horse and began wrangling sheep. One day, while out riding his horse at Broken Hill, he discovered mineralized rock. He took out a mining lease, punched holes in the ground and eventually found rich veins of silver. The Broken Hill Proprietary Company – BHP – was incorporated in 1885 while mining silver and lead at Broken Hill in western New South Wales. 

Billiton was a mining company that got its start in September 1860 when the articles of association were approved by a meeting of shareholders in the Groot Keizerhof Hotel in The Hague, Netherlands. Shortly afterwards the company acquired the mineral rights to the tin-rich islands of Banka and Billiton off the eastern coast of Sumatra. 

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