The BHP show obscures Australian mining's deeper problems |
- The BHP show obscures Australian mining's deeper problems
- Which investors had a good year and why interest rates will probably stay low: Rick Rule
- Bennett unveils 2 plans sparked by Mount Polley
- Palladium skyrockets on Russia tensions, hits 13-year high
- Ivanhoe picks banks to evaluate African copper projects
- Demerged BHP may not hold on to coal assets for long: analysts
| The BHP show obscures Australian mining's deeper problems Posted: 19 Aug 2014 12:58 AM PDT In a trenchant piece for Trading Floor Adam Courtenay argues that with all the focus being placed on BHP's spinoff of what it now considers non-core operations, the Australian industry is losing sight of much more fundamental issues: "Australia's base metals mining industry – we're talking gold, silver, copper, nickel and uranium – is suffering unnecessarily, not because the markets for them have weakened but because the appetite for their discovery has been replaced by more immediately profitable impulses or short-term cost reduction strategies. "According to Dr Rob Hough, one of the country's leading mineralogists, China "will still wish to zinc-coat its cars; it will need more copper for electronics and will want to buy more physical gold and all at a rate that is way beyond what we can even hope to produce now". "In a recent paper from the University of Western Australia's Centre for Exploration Targeting – Where are Australia's Mines of Tomorrow? – authors Richard Schodde and Pietro Guj estimated that about half of Australia's non-bulk commodities resources will expire in the next seven to 18 years. They argue that if it takes seven years on average to convert a discovery into an operating mine, the industry will die without a strong pipeline of projects moving to development stage. "Hough says the challenge for industry, research bodies, and government agencies is clear – miners have to look just a little bit deeper and scratch a little harder. Australia's mining exploration investment has dropped from 21 per cent of global share in 1996, to 12 per cent today. By comparison Canada's has increased from 14 percent to 18 per cent over the same period, while Africa, the Asia-Pacific region and Latin America have increased their expenditures exponentially." Continue reading at Trading Floor  |
| Which investors had a good year and why interest rates will probably stay low: Rick Rule Posted: 18 Aug 2014 02:50 PM PDT  "For those who have been around the sector for ten years and have begun to understand the good from the bad and ugly, those investors have had a very good year indeed." Rick Rule peels back the underlying weakness of the US economy, which he says will result in lower interest rates, and also argues for gold's strength. Michael McCrae spoke with Rule earlier this month coinciding with the release of the Sprott Gold Miners ETF. Rule said that there are some happy investors who have enjoyed a good run in the gold junior space despite the sector being littered with duds.
A lightly edited transcript follows: You expect interest rates are going to stay lower for a while? I do. I think the recovery in the United States is overwhelmingly a function of low interest rates, and it's overwhelmingly a financial recovery. There is some room on the individual balance sheets after four years of deleveraging, which means that we are seeing a bit of pick up in consumer spending. But what we aren't seeing is a pick up in individual income, and the idea that we can have a consumption led recovery without an increase in individual incomes seems to be problematic to me. And in the absence of really dramatic pick ups in consumer spending—and particularly spending in consumer durables—I don't see the types of investment in manufacturing capability or in capacity generated that would lead to increased private sector load demand. The second thing is that while the global financial crisis of 2008 doesn't seem to have caused the government to be to cautious with their own balance sheet. The response by corporate America has been very different. Those balance sheets are absolutely financial fortresses, awash in cash. And I think their need to borrow has declined. Those two things are sort of the free market forces with regard to interest rates. If you look then at the governmental forces I think the picture becomes clearer. In the first instance, very low interest rates—manipulatively low interest rates—of the type that we have now punish savers and reward spenders. And the truth is in a liberal democracy—a rich liberal democracy—there are more spenders than savers, so it makes sense that artificially low interest rates would be an expedient political decision for both parties. The second thing is that with $17 trillion in on balance sheet liabilities and $60 trillion in off balance sheet liabilities at the federal level with additional problems at the state and local level, I think that the government is unprepared to be able to service its debts at a higher interest level. So from my point of view I don't think we are going to see demonstrably higher interest rates until and unless the market begins to demand a higher interest rate for savings. And it would appear that the government has ample room to reverse its tapering course and increase its policy of quantitative easing if needed to to continue to manipulate interest rates down, and it would seem that both the voters and the markets would be willing to tolerate this. It would seem that the big thinkers of the world have managed to convince capital markets that liquidity, i.e. the presence of cash in the system, is a substitute for solvency. And so there seems to be a lot of confidence in the market, which gives the ability to hold the interest rate down. From that assessment, what is the demand for gold going forward? I think the gold markets have bottomed. I think they bottomed last summer. The lower gold prices that we saw I think were, from the middle of 2011 to 2013, were on a macro scale largely due two things: confidence in financial markets, as a consequence of the liquity in those markets, but more importantly, the unwinding of the leveraged long gold positions that some institutions and hedge funds had in the carry trade days of 2010 and 2011.
Gold Price in US Dollars data by YCharts In the middle of last year, I think what we saw was a year and halfs worth of concerted physical buying finally overwhelming the unwinding of the futures market. I think we saw a classic bear market activity, which was a movement of bullion from weakened, leveraged long institutions to strong hands, all cash, leveraged buyers, largely in Asia. We didn't see a capitulation sell off in either gold or gold equities 2013, although we certainly saw an unpleasant market. And the consequence that we didn't J curve down means that we don't have a J curve up. We have a very healthy recovery from my point of view, where advances are subsequently consolidated. So the chart looks like gradually rising stair step, which is a very, very healthy chart, for a bear market that is giving way to a bull market. I am very constructive to the gold market. How are the gold juniors doing? Well I think the gold juniors are doing extremely well. People compare them to where they were in optimal times. Not where they have been recently. And I think we saw the gold juniors bottom perhaps in July of last year. And put in a pretty good first half this year. Individual investors are troubled by the valuation now compared to 2010 and 2011. But people need to realize that those were optimal, not normal conditions.
There are still a lot of problems with the gold juniors. There is no reason for most of the juniors that are listed to exist. You know they are sort of vapour exploration companies. And it would be useful went to listings heaven. But that hasn't happened yet. What is interesting about the market, in good markets and bad, is that the overall junior market is always over-price. in good markets or bad. That face disguises the fact that the best 10% of the companies in the sector could generate so much wealth that they add credibility or in some cases even lustre to the overall market. And people who have been around the sector for ten years and have begun to understand the good from the bad and ugly, they have had a very good year indeed. |
| Bennett unveils 2 plans sparked by Mount Polley Posted: 18 Aug 2014 12:39 PM PDT  Image from Cariboo Regional District's YouTube Channel. The B.C. government is organizing two separate "actions" sparked by the massive Mount Polley tailings pond spill in early August, Bill Bennett, the province's minister of energy and mines, said Monday. The first is a probe into the circumstances of the disaster, to be conducted by an independent panel of three geotechnical specialists with expertise in dams, Bennett told reporters. Panel members include Dirk Van Zyl, a professor at U.B.C.'s Norman B. Keevil Institute of Mining Engineering, Norbert Morgenstern, an engineering consultant, and Steven Vick, an engineer who helped investigate the New Orleans levy failure in connection with Hurricane Katrina in 2005. The second planned action involves independent third-party dam safety inspections, based on the potential impact to the surrounding area should a dam fail, for every tailings pond at all permitted mines in the province, the minister said. "It is a very serious incident, it is a disaster," Bennett said, referring to Mount Polley. "People in B.C. need to know we can mine in this province safely." The catastrophic failure August 4 of the tailings pond wall at Imperial Metals's (TSX:III) Mount Polley copper and gold mine near the community of Likely released 10 billion litres of water and 4.5 million cubic metres of metals-laden fine sand, contaminating several lakes, rivers and creeks in the Cariboo region. Van Zyl described the accident as a dark day for not only B.C. but also the world and said other countries, such as Chile, are interested in and watching related developments. "I can assure you the investigation will be thorough and rigorous," he said, noting the probe will focus on technical matters and changes to mining that should be considered in the province. Bennett, asked if he would resign should the investigations show negligence on the part of his ministry, said that any minister must take responsibility. "Everything is on the table," he said. |
| Palladium skyrockets on Russia tensions, hits 13-year high Posted: 18 Aug 2014 11:03 AM PDT
Palladium hit $900 a troy ounce on Monday for the first time since 2001, taking this year's price gain to 25%. The precious metal has benefited from real and potential supply disruptions in South Africa and Russia, the two main producing countries. Together they account for close to 80% of global supply of palladium and 70% of platinum output, which are mainly used to clean emissions in automobiles. But while one worry is already over (the end to the devastating strike in South Africa last July meant that roughly 10,000 ounces of platinum and 5,000 ounces of palladium have begun to find its way onto the market), fears regarding sanctions against Russia over its intervention in Ukraine have kept prices on the boil. After dipping to $836 an ounce on August 6, as investors took profits, the metal price has soared steadily on fresh speculative interest.
Palladium futures for September delivery jumped 0.3% to $897.10 an ounce at 10:17 a.m. on the New York Mercantile Exchange. Earlier, the price reached $902.75, the highest for a most-active contract since Feb. 22, 2001. The metal climbed for the ninth straight session, the longest rally since July 8. Precious metals analyst at Mitsubishi, Jonathan Butler, said in a note Monday the palladium price had reached its most expensive relative to its sister metal platinum in 12 years. Platinum, also used in auto catalysts, traded at $1,440 an ounce on Monday and is nowhere near record levels. The precious metal hit $2,253 in March of 2008 and has never been above $2,000 since then. |
| Ivanhoe picks banks to evaluate African copper projects Posted: 18 Aug 2014 09:02 AM PDT  Farming at the Kamoa copper project. Africa-focused Ivanhoe Mines (TSX:IVN) has hired BMO Capital Markets Ltd and Morgan Stanley & Co as financial advisers to conduct a strategic review of its copper projects in the Democratic Republic of Congo (DRC). The Canadian company, founded by mining legend Robert Friedland, said Monday the review would primarily focus on the possible introduction of third-party strategic investors or joint-venture parties for the Kamoa and Kipushi copper projects.  Exploration drilling at Kamoa. In May the Vancouver, B.C.-based firm had said among the options it was evaluating to deal with insufficient funds for those ventures were splitting the company's projects into separate publicly-traded entities, asset sales, joint ventures, or alternative stock exchange listings. A few days later it announced it had entered into agreements to raise C$150 million ($137.6 million) to develop the two projects. Friedland, responsible for the discovery and development of the Oyu Tolgoi copper-gold mine in Mongolia before Rio Tinto's (ASX, LON:RIO) acquisition, has big plans for Kamoa and Kipushi. The first one, in the southern province of Katanga, is a proposed underground mine, with an estimated 43.5 billion pounds of indicated copper resources. Kipushi, in the same region, is an underground copper, zinc and lead mine that closed in 1993. Ivanhoe bought the asset in 2011 and has been removing water from the flooded mine and exploring underground. Last year, he committed $24m in share placing to fund these developments, which make up 83% of the Ivanhoe's net asset value, especially Kamoa, said to be the world's largest undeveloped copper deposit. Images courtesy of Invanhoe Mines. |
| Demerged BHP may not hold on to coal assets for long: analysts Posted: 18 Aug 2014 08:07 AM PDT
Analysts are questioning BHP Billiton's (ASX, NYSE:BHP) (LON:BLT) commitment to coal, one of its confirmed "four pillars," as they claim the mining giant may not be able to defend those assets for long after it includes them in the upcoming demerged entity announced last month. ''Over the long term it is structurally very difficult to defend [the coal] assets as being 'tier one' and part of BHP's long-term future,'' Pengana Capital fund manager Tim Schroeders told The Sydney Morning Herald. The firm, which has pursued a strategy of rightsizing and simplifying its business for over a decade, confirmed rumours last Friday, saying the board had chosen as a "preferred option" to demerge BHP's unwanted assets, worth as much as $12 billion, as a separate company. The new company, which is expected to contain BHP's struggling aluminum division, as well as its manganese and nickel businesses across Australia, South Africa and Colombia, may also comprise the Cannington lead and silver mine, as well as the South African coal division. Unit at gunpoint? BHP, which is the world's No. 1 seaborne coking coal producer, has previously defended the coal division on the grounds that the commodity is expected to remain the main source of affordable energy for the fastest-growing Asian economies. It has also argued its Queensland assets are considered among the best quality coking coal in the world. But the division contributed just $746 million of the $21.12 billion earnings before interest and tax that BHP reported for the 2013 financial year. "Any course of action remains subject to detailed review and an assessment of alternatives," CEO Andrew Mackenzie said in April in response to increasing speculation on the future of the firm's coal assets. As part of the circulating rumours, it is said that Mick Davis' new company would be quite keen on bidding for any assets that Mackenzie may want to offload, especially after the former Xstrata boss announced early this year he had $3.75 billion to invest in buying reasonably priced projects. |
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