BHP Billiton sees strong earnings growth even in low carbon world (Reuters U.S. – September 29, 2015)

http://www.reuters.com/

MELBOURNE – BHP Billiton, the world’s largest miner, said on Tuesday it sees its earnings doubling over the next 15 years, even in a world where carbon emissions are cut to limit global warming to 2 degrees Celsius.

Under pressure from UK investors who fear fossil fuel assets could become worthless under tough climate policies, BHP released analyses of its copper, coal, oil, gas, potash, uranium and iron ore assets showing the company will hold up well under what it considers the most realistic scenarios.

Even with the 2 degrees C limit – equivalent to a rise of about 3.5 degrees Fahrenheit – that has been set for UN climate talks later this year, demand in 2030 for all of BHP’s commodities except thermal coal would be higher than in 2014.

Uranium would be the biggest winner as more nuclear power would be needed, BHP said. “In this scenario, our portfolio remains resilient, and our analysis indicates that margins remain strong and even increase in some commodities,” Chief Commercial Officer Dean Dalla Valle told reporters ahead of an investor briefing in London.

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Glencore Rebounds as Analysts Say $50 Billion Plunge Is Overdone – by Jesse Riseborough (Bloomberg News – September 29, 2015)

http://www.bloomberg.com/

Glencore Plc, the commodities group that’s lost almost $50 billion in market value this year, rallied in London as analysts said the rout probably didn’t reflect its true value and Citigroup Inc. wrote the management should consider taking the company private.

The Swiss company rose as much as 11 percent on Tuesday, clawing back some of the 29 percent slump yesterday driven by concern the company has too much debt to withstand the declines in commodities. Even so, Glencore’s credit-default swaps rose again today, signaling that the company has a 56 percent chance of default in five years, according to data from S&P Capital IQ’s CMA.

“The pummeling of Glencore yesterday was irrational,” Robin Bhar, an analyst at Societe Generale SA, said by phone from London. “Unless you think commodity prices are going close to zero, then this was overdone.”

Glencore has been embroiled in a China-led slowdown that’s hit prices for commodities from oil to copper to coal, heightening investor concern about its debt and sending the shares down 77 percent this year.

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Vale Proposes Dividend Cut Amid ‘Uncertain’ Commodities Outlook – by Paul Kiernan (Wall Street Journal – September 28, 2015)

http://www.wsj.com/

Company proposes cutting second part of 2015 dividend to $500 million from $1 billion

RIO DE JANEIRO—Brazilian mining giant Vale SA proposed cutting dividends even more than planned Monday as it grapples with an “uncertain scenario” for commodity prices.

Vale’s management proposed reducing the second tranche of its 2015 dividend to $500 million, or about $0.10 per share as of Aug. 31. The board of directors is set to review the proposal at an Oct. 15 meeting, and payment would take place on Oct. 30.

If approved, the payment would come in at half the $1 billion that Vale doled out in the first tranche of 2015 dividends in April. The company said in January that it expected to pay $2 billion in dividends this year.

The downturn in prices for commodities like nickel and iron ore, of which Vale is the world’s largest producer, has since proved more lasting than mining companies had expected.

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With Glencore, Commodity Rout Beginning to Look Like a Crisis – by Bradley Olson (Bloomberg News – September 28, 2015)

http://www.bloomberg.com/news

The 15-month commodities free-fall is starting to resemble a full-blown crisis.

Investors are reacting to diminished demand from China and an end to the cheap-money era provided by the Federal Reserve. A Bloomberg index of commodity futures has fallen 50 percent since a 2011 high, and eight of the 10 worst performers in the Standard & Poor’s 500 Index this year are commodities-related businesses.

Now it all seems to be coming apart at once. Alcoa Inc., the biggest U.S. aluminum producer, said it would break itself into two companies amid a glut stemming from booming production. Royal Dutch Shell Plc announced it would abandon its drilling campaign in U.S. Arctic waters after spending $7 billion.

And the carnage culminated Monday with Glencore Plc, the commodities powerhouse that came to symbolize the era with its initial public offering in 2011 and bold acquisition of a rival in 2013, falling by as much as 31 percent in London trading.

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Rio Tinto and BHP Billiton to keep dividends despite pressure, says Macquarie – by Stephen Cauchi (Australian Financial Review – September 28, 2015)

http://www.afr.com/

BHP and Rio Tinto would have to trim their dividends in coming years due to crashing commodity prices, according to research released on Monday by Macquarie, with Rio tipped to be the better performer of the two.

Both companies remain committed to progressive dividend policies, in which dividends rise in line with earnings per share. The dividends would continue, said Macquarie. But the bank nevertheless trimmed its forecasts for both companies.

For BHP, “we now only factor a flat payment of $US1.24 a share for the next three years, a payment of $US6.5 billion”.

For Rio, “we have reduced our dividend growth assumptions … with our dividend compound annual growth rate reducing from 4 per cent to 2 per cent over the next three years.”

BHP’s dividend per share in 2015, averaged over 12 months, was $1.68. Rio’s interim 2015 dividend per share was $1.44.

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UPDATE 4-Copper, Glencore send Zambian kwacha into freefall – by Chris Mfula and Karin Strohecker (Reuters U.S. – September 28, 2015)

http://www.reuters.com/

LUSAKA/LONDON, Sept 28 (Reuters) – Zambia’s currency went into freefall on Monday as prices for its copper exports hit a one-month low, feeding fears that mining giant Glencore might further rein in its extensive operations there.

The kwacha was down more than 17 percent against the dollar at one point, its biggest one-day fall on record, further hampered by a rating downgrade from credit agency Moody’s that the government criticised as unsolicited.

“We have a double-whammy, meaning copper prices continue to soften, and production targets are really at risk because of the Glencore news,” said Kevin Daly, portfolio manager at Aberdeen Asset Management in London.

Glencore’s Mopani Copper Mines is the second largest employer in Zambia after the government, but fears over the mining and trading company’s ability to withstand a prolonged fall in metals prices sent its shares tumbling 25 percent on Monday.

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Glencore Needs a Little Privacy – by Liam Denning (Bloomberg Business – September 28, 2015)

http://www.bloomberg.com/

Could Mick Davis save Glencore?

That might seem like an odd (or churlish) question to ask: After all, it was Glencore’s decision to buy Xstrata, the mining behemoth that Davis built, which saddled the commodity trading firm with a lot of the debt now weighing on its shares.

The latter slumped 27 percent on Monday to about 70 pence each after Investec Securities released a report speculating that depressed commodity prices could wipe out Glencore’s equity value. That report came just days after one from Goldman Sachs throwing doubt on Glencore’s investment-grade credit rating — a big deal for a trading firm. The shares sank below 100 pence for the first time since 2011’s initial public offering, when they priced at 530 pence apiece.

That 87 percent drop since the IPO makes Glencore the worst-performing major mining stock aside from Vale — which at least has the excuse of being listed in Brazil. Apart from Glencore’s balance sheet having made its stock a pinata for analysts, the crisis raises a more fundamental question: Should Glencore exist in its current form?

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Alcoa to split into two as aluminum glut batters legacy business – by Nick Carey (Reuters U.S. – September 28, 2015)

http://www.reuters.com/

CHICAGO – Alcoa Inc (AA.N) said Monday it will break itself in two, separating its faster growing business manufacturing parts for planes and automobiles from its traditional aluminum smelting operations as shareholders seek higher returns amid a commodity slump.

Pressured by a 42 percent drop in its share price this year and a surge in Chinese aluminum exports, Alcoa is splitting into two publicly traded companies focusing on smelting and higher-tech products. It is joining a wave of major corporations which this year have divested business to add shareholder value.

Alcoa shares jumped 2.4 percent to $9.29 as analysts applauded its intensified focus on products for expanding businesses like aerospace and auto.

The stock surge made the 127-year-old company the biggest percentage gainer on the benchmark S&P 500 index.

The global glut of aluminum, which has depressed prices, has battered Alcoa stock, driving the company’s market value this year down to about $12 billion.

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Peru mining protests prompt alarm – by James Wilson (Financial Times – September 27, 2015)

http://www.ft.com/

More than 4,000 metres above sea level in Peru’s central highlands is one of the biggest construction sites in the western hemisphere.

Some 16,000 workers are building Las Bambas, a huge copper mine. It is already 95 per cent complete and when the project owned by MMG, controlled by China Minmetals, starts producing next year it should quickly ramp up to become one of the largest in the world.

The vast mineral wealth of projects such as Las Bambas have made Peru one of the focal points for mining investment in recent years. But while the resources have not changed, the climate has.
Las Bambas may mark the end of a period of substantial mining spending in Peru that has seen one mine, Hudbay’s Constancia, reach commercial levels of production this year, as well as the imminent completion of a big expansion of Freeport-McMoRan’s Cerro Verde copper mine.

“In the past four or five years, we have seen important investments in mining projects,” says Carlos Gálvez, president of Peru’s National Society for Mining, Petroleum and Energy. “But, unfortunately, we are now dropping.”

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Ivory Coast government makes effort to develop potential of gold – by James Wilson (Financial Times – September 27, 2015)

http://www.ft.com/

Sheltered from the tropical sun, laid out metre by metre in metal racks, the rock samples from Amara Mining’s gold project testify to a busy year of drilling.

Analysis of these drill cores will form the basis for investor interest in the UK group and its project at Yaoure, less than an hour’s drive from Yamoussoukro, Ivory Coast’s official capital.

Amara wants to join the ranks of the country’s gold producers, which include two of the largest companies in gold mining, Australia’s Newcrest Mining and Randgold Resources, listed in the UK and the US.

Endeavour Mining, a midsized Canada-listed producer with four west African mines, opened its Agbaou mine in the country last year. Endeavour has a partnership with the privately owned La Mancha group to acquire the Ity mine. A minority shareholding in Ity is held by a high-profile investor, Didier Drogba, perhaps the nation’s best-known footballer.

Notwithstanding these projects, gold mining is uncommon by the standards of the region, where Ghana and Mali have long been established producers.

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Mining losing growth obsession: BlackRock’s Evy Hambro – by Paul Garvey (The Australian – September 26, 2015)

http://www.theaustralian.com.au/

The scale of BlackRock’s resources arm means the brutal retreat in mining stocks over recent years has been particularly painful.

But for Evy Hambro, whose role as the head of BlackRock’s resources unit makes him one of the mining world’s most influential voices, one piece of upside from the carnage has been a return among mining executives to the core principles and philosophies that drove the industry before boomtime exuberance crept in.

Speaking to The Weekend Australian, Mr Hambro relates a recent conversation with the chief executive of one of the world’s big mining companies.

During the boom, the executive said, the share register was invaded by “tourists” who only wanted to focus on growth, growth and growth. That singular focus over time began to creep into the company’s culture.

As a result, the company strayed from its principles, invested a lot of money in acquisitions and capex, and has been struggling with debt and regretting the move ever since.

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Gold Falls on Janet Yellen Speech, Palladium Gains on Emissions Scandal – by Ese Erheriene and Christian Berthelsen (Wall Street Journal – September 25, 2015)

http://www.wsj.com/

Looking ahead, seasonal demand from China is seen lifting the price of gold

Gold edged lower Friday after U.S. growth estimates were nudged higher and Federal Reserve Chairwoman Janet Yellen said a rise in U.S. interest rates is likely to happen later this year.

The tandem developments sent signals of an improving U.S. economy, and stocks and the dollar rose. Gold, a defensive investment that people look to in times of turbulence, loses appeal under improving conditions. Gold futures for the most-actively traded December contract fell $6.70 or 0.6% to $1,147.10 an ounce on the Comex division of the New York Mercantile Exchange.

Ms. Yellen told an audience at the University of Massachusetts that a rate increase could happen before the end of the year. The FOMC has two more scheduled meetings left in 2015 to make its move, one in October and one in December.

As a result, “the dollar strengthened and some selling was noted in gold,” David Govett, head of precious metals trading at Marex Spectron, said in a note.

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Coal prices turn off investors – by Amanda Saunders (Sydney Morning Herald – September 25, 2015)

http://www.smh.com.au/

First it was tobacco, then alcohol, gambling, then asbestos. Sugar might also be on the nose for investors. But right now it is hard to find a more loathed sector than coal.

Not only are the forces of environmentalists lining up against the commodity. But there seems to be no end in sight for depressed prices.

The gas industry turned rogue on their counterparts in coal a few months ago too, attacking the industry in a bid to position itself as a cleaner source of energy.

And in a fresh kick in the guts, news broke out from the United States on Friday that Chinese President Xi Jinping was preparing to announce a cap-and-trade scheme to curb emissions as part of a climate deal with the US, ahead of climate talks in Paris in December.

China is Australia’s biggest coal customer and as China and US face off in a climate change battle, the commodity is likely to be a victim.

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Surveying the ‘golden’ landscape – by David Levenstein (Mineweb.com – September 25, 2015)

http://www.mineweb.com/

To see what this means for the ultimate store of wealth.

Gold prices retreated on Monday after a strong rebound last week after the US Federal Reserve announced that it will not be raising interest rates.

In what has become the most highly anticipated meeting of the Federal Open Market Committee (FOMC), the Fed announced that it was going to maintain its current policies, and left the policy rate at 0.125%. Yet, the accompanying statement and the economic projections came in more dovish than expected. The Fed showed concerns over the negative impacts of the recent global financial market volatility, as well as rapid slowdown in China and other emerging markets, on growth and inflation outlook.

In her press conference, Fed Chairwoman Janet Yellen made it clear that the U.S labour market is close to full employment, and that she’s reasonably confident that the inflation rate will drift back up to around 2% eventually.

While gold prices were given a boost on Thursday and Friday, after the Fed announced that it will not be raising interest rates, the U.S dollar tumbled but later staged a strong recovery towards the weekly close. However the greenback still closed the week as the second weakest major currency, after Euro. The dollar index dipped to as low as 94.06 last week but recovered to close at 94.86.

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Copper comparison to iron ore neglects high-tech demand, OZ Minerals CEO Cole says – by Simon Evans(Sydney Morning Post – September 25, 2015)

http://www.smh.com.au/

Copper has been unfairly maligned by being lumped in with iron ore as the mining boom quickly evaporated, in what has been characterised too simply as a global resources rout, OZ Minerals chief executive Andrew Cole says.

Copper was a commodity of the future, which benefited from rising demand in electronics, electric cars, battery storage and industrial machinery, whereas iron ore was almost entirely dependent on Chinese demand, Mr Cole said.

“China drives iron ore and the correlation is almost one to one,” he said. But the sheer diversity of different uses for copper and the number of countries around the globe seeking it to drive hi-tech advances wasn’t being factored in by investors, he said.

“The more electric cars that are made, the higher the demand for copper.” Copper’s strong underlying fundamentals weren’t being reflected in the share prices of copper miners like the $1 billion, Adelaide-based OZ, he said.

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