Commodity Super-Cycle and Decline – Page 62

China growth spurs rebound in mining deals – by Brenda Bouw and Tamara Baluja (Globe and Mail – July 14, 2011)

July 14, 2011

The Globe and Mail is Canada’s national newspaper with the second largest broadsheet circulation in the country. It has enormous impact and influence on Canada’s political and business elite as well as the rest of the country’s print, radio and television media. Brenda Bouw is the Globe’s mining reporter.

China is reigniting the mining sector with its near double-digit economic growth, working through inventories and triggering a rebound in commodity prices that is inspiring a new round of deal-making in the industry.

The world’s largest commodities consumer reported robust second-quarter growth of 9.5 per cent on Wednesday, surpassing expectations and helping send both stock markets and metal prices higher.

Copper, considered an indicator of global economic activity, slumped below $4 (U.S.) a pound in May amid widespread worries that China’s moves to tackle inflation could derail the country’s breakneck growth. But copper prices have rebounded sharply, reaching $4.40 Wednesday and closing in on the record $4.62 reached in mid-February, as the Asian superpower confounds skeptics.

China’s latest growth figures “should dampen fears that the economy is heading into a hard landing and they suggest that policy makers can afford to stay focused on tackling inflation for a while longer,” said Mark Williams, senior China economist at Capital Economics. That is expected to keep driving demand for commodities used to help build infrastructure and everyday goods such as appliances and automobiles.

Flurry of metal deals signals bold outlook – by Brenda Bouw (Globe and Mail – July 12, 2011)

July 12, 2011

Miners bet commodities boom has legs by unveiling a handful of takeovers

A sudden rebound in mining acquisitions signals a return of confidence in the industry after weeks of uncertainty and volatile prices that froze deal activity in the sector.

As commodity prices begin to bounce back from a recent fall, miners are betting once again on strong and steady demand from fast-growing nations such as China, India and Brazil to prevent another severe global economic downturn.

The positive outlook driving these new deals comes despite worries that inflation and debt problems around the world will weigh on the economy and metal prices down the road. Stock markets dropped sharply Monday on renewed concerns about solving Europe’s debt crisis.

The largest deal announced Monday was Peabody Energy and ArcelorMittal SA’s joint $5-billion (U.S.) bid for Australia’s Macarthur Coal Ltd., the world’s biggest producer of pulverized coal, a type of metallurgical coal, amid strong demand forecasts for the steel-making ingredient.

New commodity bull market ready to charge ahead – by Simon Avery (Globe and Mail – July 4, 2011)

July 4, 2011

Resources

A resurgence in global growth will fuel a new bull market later this year for commodities ranging from copper to corn, according to a leading market watcher. While prices for several key raw materials have recently taken a tumble, “it’s always tricky to assume commodity prices have peaked, unless you get a major, major slowdown in global economic growth,” says Patricia Mohr, economics and commodity market specialist at Bank of Nova Scotia. “I think that what is probably occurring is a mild growth slowdown.”

The Scotiabank Commodity Price Index dipped 2.6 per cent in May from a month earlier, led by a 3.9 per cent decline in oil and gas prices. But it still remains 56 per cent above its low in April, 2009.

The most important factor determining future prices is the outlook for China. The country accounts for 40 per cent of world demand for the four key basic metals – copper, aluminum, zinc and nickel – while the U.S. consumes less than 10 per cent. “China really does dominate the commodity outlook,” Ms. Mohr says.

[Resource Shortages] Time to Wake Up: Days of Abundant Resources and Falling Prices Are Over Forever – by Jeremy Grantham (GMO Quarterly Letter – April 2011)

June 20, 2011June 18, 2011

GMO is a global investment management firm committed to providing sophisticated clients with superior asset management solutions and services. As of March 31, 2011, GMO managed nearly $108 billion* in client assets using a blend of traditional judgments with innovative quantitative methods to find undervalued securities and markets. (GMO website)

Jeremy Grantham, who co-founded GMO in 1977, is the chief investment strategist and is an active member of GMO’s asset allocation division.

Summary of the Summary

The world is using up its natural resources at an alarming rate, and this has caused a permanent shift in their value. We all need to adjust our behavior to this new environment. It would help if we did it quickly.

Summary

 Until about 1800, our species had no safety margin and lived, like other animals, up to the limit of the food supply, ebbing and flowing in population.

 From about 1800 on the use of hydrocarbons allowed for an explosion in energy use, in food supply, and, through the creation of surpluses, a dramatic increase in wealth and scientific progress.

 Since 1800, the population has surged from 800 million to 7 billion, on its way to an estimated 8 billion, at minimum.

 The rise in population, the ten-fold increase in wealth in developed countries, and the current explosive growth in developing countries have eaten rapidly into our finite resources of hydrocarbons and metals, fertilizer, available land, and water.

NickelOdious – by Jon Nadler (Kitco Metals – June 13, 2011)

June 17, 2011

Jon Nadler is a Senior Metals Analyst – Kitco Metals

A further decline in crude oil prices conspired to drag most of the commodities’ complex to lower value ground as the new trading week commenced. Thus, precious metals lost chart altitude levels as well, despite the minor, 0.15 loss recorded in the US dollar index this morning.

Part of the early selling pressure was related to investors’ raising cash to cover margin calls incurred in the wake of the sixth consecutive losing session in the equity markets on Friday. However, at the end of the day (or, shall we say, the beginning thereof) reports that China’s economy is slowing (and perhaps more than just a tad) coupled with posturing by Saudi Arabia that it might ratchet supplies of black gold higher in coming weeks were the prime catalysts for the price dips we witnessed this morning.

As regards China, the prospects of a possible “hard landing” by that country’s economy were brought into discussion once again. NYU’s Dr. Nouriel Roubini said that he does not see the combination of China’s reliance on fixed investment (now running at about half of its GDP), its lurking “massive non-performing loan problem” plus its huge amount of overcapacity as resulting in any kind of a rosy outcome. For Dr. Roubini, the period after the year 2013 presents a “meaningful probability” for a Chinese economic “runway disaster” unless the aforementioned issues are tackled and resolved.

Papua New Guinea [Ramu nickel laterite project] and China’s New Empire – by Geoffrey York (Globe and Mail – January 3, 2009)

June 16, 2011

MADANG, Papua New Guinea

When Chinese engineers landed in Papua New Guinea in 2006 to inspect their latest mineral acquisition, they faced an arduous journey through the tropical wilderness. They drove over crumbling roads to the Ramu River, then found natives with dugout canoes to paddle them upstream. Next, they hired another team of locals with machetes to slash a rough trail for eight hours through the steamy jungle, dodging poisonous snakes and malaria-carrying mosquitoes.

“It was terrible,” recalls Wang Chun, the chief engineer. “You couldn’t breathe.”

Today, less than three years later, a series of small Chinatowns has emerged in the jungle — complete with Chinese food, Chinese satellite television channels and crews of Chinese migrant labourers living in cheap dormitory huts. Where once was wilderness, you find the workers of China Metallurgical Group Corp., toiling seven days a week and chattering about their families back home in Beijing and Sichuan.

It hasn’t been easy. The state-owned mining company has dealt with violent clashes with local landowners, striking workers, attacks from the media and unfriendly police who arrested more than 200 Chinese technicians on charges of illegally entering the country.

NEWS RELEASE: Rare earth supply crunch a wakeup call for mining companies everywhere: Ernst & Young

June 15, 2011

Click here for: Technology minerals: The rare earths race is on!

Demand for specific minerals set to jump more than 60% in the next five years

(Montreal, 11 May, 2011) Soaring demand for rare earth metals – used in the production of everything from smart phones to computer hardware to energy-efficient lights – is generating new but risky opportunities for mining companies in Canada and around the world, Ernst & Young says.

“Rare earth metals are feeding the production of high-tech and green products. Demand is expected to jump more than 60% in the next five years alone,” says Zahid Fazal, partner and leader of Ernst & Young’s mining practice in Quebec. “The problem is China accounts for virtually all rare earths production, and their export restrictions are driving prices higher. What’s more, Chinese domestic consumption of rare earth materials is predicted to outpace supply between 2012 and 2015.”

Fazal says the situation represents a unique opportunity for Canadian and other companies to rebuild the supply chain outside of China. While this could help prevent a supply shortage and keep a lid on soaring prices, these projects are higher risk and that brings additional challenges into the mix.

Magnetic North: The Canadian (Mining) Miracle – by Mark P. Mills (Forbes – June 12, 2011)

June 13, 2011

www.forbes.com

Mark P. Mills is a founding partner in energy-tech-focused Digital Power Capital, a private equity firm focused on new technologies that arise from the convergence of power and the tools, materials and software of the digital age.

In child psychology birth order is often considered significantly determinative. Younger siblings often learn lessons watching the elder ones, well, screw up. Canada is almost a full century younger than its North American sibling. What exactly is going on above the 49th parallel? First quarter 2011 my Canadian brethren and sisters (full disclosure, je suis Canadien) delivered a 3.9 percent GDP growth rate against an enervating 1.8 percent U.S. rate. Just a few short years ago, nobody would have predicted this.

Nearly one-third of Canada’s GDP is export-based with nearly half of that coming from minerals, metals and fuels. It is a nation extracting value from its natural environment, not ‘plundering’, as Canadians’ respect for their land is deep and abiding. And America benefits, receiving three-fourths of Canada’s exports.

Of particular interest these days is the re-invigorated gold rush in that vast northern expanse. No surprise. Gold is expensive again, bouncing around $1,500 an ounce.

PwC Annual Review of Global Trends in Mining Sector – Mine 2011: The game has changed

June 7, 2011

07 Jun 2011

PwC firms provide industry-focused assurance, tax and advisory services to enhance value for their clients. More than 161,000 people in 154 countries in firms across the PwC network share their thinking, experience and solutions to develop fresh perspectives and practical advice. See www.pwc.com for more information.

For a copy of the report click here: Mine 2011: The game has changed

Excutive Summary

Welcome to PwC’s eighth annual review of global trends in the mining industry—Mine. These reviews provide a comprehensive analysis of the financial performance and position of the global mining industry as represented by the Top 40 mining companies by market capitalisation.

Last year we highlighted the growing optimism in the mining industry and demand fundamentals that were driving the industry back to boom times. The 2010 results have delivered on this expectation, but it is clear that the game has changed.

The mining industry has entered a new era. Demand continues to be stoked by strong growth in emerging markets. Supply is increasingly constrained, as development projects become more complex and are typically in more remote, unfamiliar territory. The cost base of the industry has permanently changed as lower grades and shortages of labour take effect.

To keep up with demand, the Top 40 have announced more than $300 billion of capital programs with over $120 billion planned for 2011, more than double the total 2010 spend.

PwC NEWS RELEASE: Top 40 global mining companies’ total assets could exceed $1 trillion in 2011

June 7, 2011

For a copy of the report click here: Mine 2011: The game has changed

Largest Canadian-based miners increased revenues by 38% in 2010: PwC report

TORONTO, June 7, 2011—The top 40 global mining companies—including nine headquartered in Canada—increased their total assets to US$943 billion in 2010 and are poised to break through the US$1 trillion mark in 2011 driven by record levels of cash, and property and equipment on company balance sheets, according a new PwC report released today.

The financial results of the Top 40 in 2010 are spectacular. Total revenues increased 32% to US$435 billion, breaking the US$400 billion mark for the first time. Net profit rose 156% to US$110 billion and operating cash flows grew by 59%, leaving more than US$100 billion cash-on-hand at year end.

The report also found the Top 40’s total year-end market capitalization increased 26%, driving up the market capitalization of the smallest company on the list to US$11 billion in 2010 from US$6.5 billion in 2009.

The top Canadian-based mining firms significantly contributed to the overall Top 40 financial totals. Together, the nine Canadian companies increased revenues by 38%. Net profit increased a staggering 1,536% to US$8.9 billion and operating cash flows grew 224%. However, the 2009 base for comparison is low as a result of Barrick Gold settling its gold sales contracts that year.

Quebec to Spend Billions to Develop Resources in Northern Regions- by Ian Austen (New York Times – May 10, 2011)

May 27, 2011

www.nytimes.com

OTTAWA — Quebec province, anticipating renewed interest in its natural resources, rolled out on Monday an ambitious 25-year plan to develop its vast but largely untouched northern and Arctic regions.

The region is well endowed with mineral resources, woodlands and potential hydroelectric developments, but it lacks the roads, railways, ports, communications links and other infrastructure necessary for their exploitation.

The plan initially commits the province to spending 2.1 billion Canadian dollars ($2.2 billion). It also calls for a variety of measures, including the establishment of an investment fund, which Quebec hopes will initially lead to the development of at least 11 mines and ultimately produce overall investment of 80 billion Canadian dollars.

While the proposed project, known as Plan Nord, includes banning any industrial activity in a large portion of the mainly pristine region, the program has the potential to put the province at odds with environmentalists. Similarly, while consultations are already under way between the province and the area’s large native Canadian population, the development of their traditional lands may pose potential political difficulties.

The running out of resources myth – by Brian Lee Crowley (National Post – May 27, 2011)

May 27, 2011

The National Post is Canada’s second largest national paper. This article was originally published in the Financial Post on May 27, 2011.

Brian Lee Crowley is the managing director of the Macdonald-Laurier Institute, a national public policy think-tank based in Ottawa. www.macdonaldlaurier.ca

Markets and ingenuity will ensure supply

The premise behind the question “Are we running out of natural resources?” is terribly mistaken. There is indeed a finite quantity of fossil fuels and other resources in the Earth’s crust. But that does not mean that we will ever run out of them. In fact, human beings will likely cease using fossil fuels long before we have used them up, and this transition is independent of any policy designed to speed up the development of alternative energy sources.

Fears that we are running out of commodities are not new. In the 18th century, Thomas Malthus predicted that mass starvation would result from an inability of the food supply to adjust for rapid population growth. In the 1970s, the Club of Rome predicted massive shortages of natural resources due to overconsumption and overpopulation, with disastrous effects on human health and material well-being. In 1980, The Global 2000 Report to the President noted that: “If present trends continue, the world in 2000 will be more crowded, more polluted, less stable ecologically, and more vulnerable to disruption than the world we live in now.… ”

But the ecosystem hasn’t collapsed. We haven’t run out of oil. We are still successfully feeding ourselves. Our incomes are rising and our health status is improving around the globe. Why?

[Quebec] Mining’s future looks bright – by Robert Gibbons (Montreal Gazette – April 27, 2011)

May 27, 2011

www.montrealgazette.com

Quebec is embarking on expansion driven by growth in Asia-Pacific region and Latin America

Quebec’s mining industry may well be on the cusp of historic long-term expansion, despite fears that surging commodity markets may stumble with a slowdown in China’s growth, the Japanese nuclear crisis, North African and Mid-East turmoil and Europe’s debt.

Bank of Canada governor Mark Carney thinks the global commodity boom will continue for many years, though with plenty of volatility on the way, based on economic expansion in the Asia-Pacific region and in Latin America.

And Rio Tinto Group CEO Tom Albanese, leader of one of the world’s top three mining firms and frequent visitor to China, outlines the main driving force for higher base metals and iron ore prices:

About 2.5 billion Asians are yearning after more cars, refrigerators, roads, bridges and infrastructure, communications, aircraft and homes, absorbing lots more steel, copper, zinc and many other metals. India and other populous Asian countries are urbanizing on the Chinese model and adding to the pressure.

How Will Resources Constrain Asian Growth? – Jack Lifton (Resource Investor.com – December 9, 2011)

May 24, 2011

ResourceInvestor.com is a free service for the global community of individual and institutional investors, financial and mining professionals, and other stakeholders who can use the website for important research on natural resources investment strategy.

Jack Lifton is a leading authority on the sourcing and end use trends of rare and strategic metals. He is a founding principal of Technology Metals Research LLC and president of Jack Lifton LLC, consulting for institutional investors doing due diligence on metal-related opportunities.

Jack Lifton

The absolute importance of access to natural resources for a country’s future, can be well-illustrated by speculating on what could happen to China’s seemingly unstoppable growth, if the production rate of all metals does not grow in parallel to the world economy.

Figure 1 below, appeared last month in the Wall Street Journal, in an article by the distinguished British historian Niall Ferguson, titled “In China’s Orbit”. It projects GDP growth over the next 40 years for the world’s currently wealthiest (the USA) and the world’s two most populous nations (China and India). In his article, Professor Ferguson touches upon the extraordinary growth in China’s demand for metals over the last generation, but he doesn’t either examine the situation in depth nor draw any conclusions about this rate of growth as a limiting factor on the possibility of further such growth. Look at the chart, and I will then make a few remarks.