April Newsletter – 24.04.19



Case closed: Newmont Goldcorp becomes world’s No. 1 gold miner

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Newmont Mining’s $10 billion acquisition of Canada’s Goldcorp closed Thursday, giving birth to Newmont Goldcorp Corporation (NYSE: NEM)(TSX: NGT), the world’s largest gold producer by market value, output and reserves.

The mammoth company, to be led by Gary Goldberg until the end of the year, will mine in the Americas, Australia and Ghana, producing between 6 and 7 million ounces of gold annually over the next ten years and beyond.

A key reason for the business combination was the synergies and cost-savings the merged company could achieve. Newmont Goldcorp expects to immediately start delivering on an estimated $365 million in expected annual pre-tax synergies, supply chain efficiencies and other improvements. This is expected to include the sale of $1 billion to $1.5 billion of assets over the next two years.

Newmont Goldcorp is now the world’s largest gold producer by market value, output and reserves, as well as the only bullion producer listed in the S&P 500 Index.

“We’ve met our goal to become the world’s leading gold business, and we’ll maintain that position by executing our winning strategy. That strategy focuses on constantly improving safety and efficiency at our current operations while we continue to invest in expansions and exploration to fuel next generation production,” said Goldberg, who is retiring by the end of the year.


Mick Davis a step closer to mining iron ore in Guinea with Liberia deal

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Niron Metals, an investment vehicle co-founded and headed by the former boss of Xstrata Mick Davis, has struck a deal with Liberia allowing it to use a rail and port to export iron ore from Guinea’s Zogota deposit, previously owned by BSG Resources (BSGR).

Gaining access to the shipping route, the same Guinea has vetoed for years for the much larger Simandou project, could help Davis bring the proposed mine into production quickly and relatively cheaply.

Gaining access to the shipping route, the same Guinea has vetoed for years for the much larger Simandou project, could help Davis bring Zogota iron ore mine into production quickly and relatively cheaply.

“This MOU is an important milestone in our plans to develop the Zogota project,” Davis said in an emailed statement. “We intend to complete our feasibility study within six months and continue to work with relevant stakeholders to bring Zogota rapidly into production for the benefit of all.”


Vale to reopen Brucutu within 72 hours

Vale SA (BZ: VALE3) has just announced a court ruling that will allow “the complete return” of its key Brucutu mine operations within the next 72 hours.

However the miner has not changed its revised sales guidance, despite the restart set to bring 30 million tonnes per year of production back online, saying its Northern System had been impacted by bad weather.

Vale had declared force majeure over a number of iron ore and pellets sales contracts after Brucutu was suspended in February, in the fallout from the fatal Brumadinho tailings dam failure in January that killed hundreds of people.

It had hoped to restart the operation last month but was stalled by a court injunction.

A short time ago, Vale said the Minas Gerais Court of Justice president decided to partially suspend the Court of Santa Bárbara injunction, specifically regarding the ruling on the immediate interruption of any activity that could lead to an increased risk of rupture of the tailing dams at the municipality of São Gonçalo do Rio Abaixo.

“The above mentioned decision will allow the complete return of the Brucutu mine operations in the next 72 hours, which is equivalent to a yearly production volume of 30Mtpy,” Vale said.

However it did not lift its revised annual sales guidance, saying heavy rains in March and April had affected shipments and rail transportation, impacting production volumes at its Northern System.


Copper price jumps to 9-month high on red-hot China data

The price of copper jumped on Wednesday after upbeat industrial activity data from China, consumer of half the world’s industrial metals, provided evidence that Beijing’s stimulus program is finally filtering through to the real economy.

Copper for delivery in May added more than 2% to touch a high of $2.9955 per pound ($6,604 per tonne) on the Comex market in New York. It’s the highest level since early July last year.

China’s GDP grew at a 6.4% clip in the first quarter compared to last year, handily beating expectations of continued slack in the economy which is growing close to the slowest pace in nearly three decades.

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A coal miner’s less-is-more lesson for frackers

Bloomberg Opinion

Arch Coal Inc. has a novel approach to beating the market: by not getting any more valuable. The miner’s stock has risen by almost 50 percent since October 2016, when it emerged from bankruptcy. Its market value, however, is roughly where it began.

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The variable is the share count. Arch authorized a buyback program in April 2017 and by the end of 2018 had repurchased almost 30 percent of its stock.

It adds up to a compelling return. Say you bought 1,000 shares of Arch for about $68,500 the day before the first buybacks were authorized. Assuming you participated in the repurchases since then, today you would still own almost $64,000-worth of stock. In the meantime, though, you would have pocketed roughly another $25,000 of buyback proceeds and dividends – adding up to a healthy annualized pre-tax rate of return of just over 17 percent.

Arch has been careful to emphasize the higher spending shouldn’t preclude continued payouts to shareholders

Arch likely bought back more of its stock in the first quarter (results are due next week). It had $166 million remaining under its current authorization as of mid-February and consensus forecasts imply $328 million of free cash flow through 2019 and 2020. Taking off some for dividend payments and maturing debt, that would fund enough repurchases at the current price for Arch to have bought in more than 40 percent of the company by the end of next year, relative to where it started.

There’s a good reason for this kind of strategy. The U.S. thermal coal market is so sickly that the White House has been coming up with ever more creative ways to subsidize it. While a fifth of coal-fired power generation has closed since 2012, more than half of the remaining capacity faces negative operating margins at current forward curves, according to analysis released by Bloomberg New Energy Finance earlier this month. And even though the absolute tonnage of coal stockpiled by U.S. power plants has halved since the start of 2016, relative to demand it has barely changed.

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Uranium Imports Aren’t a Threat, Obama’s Energy Chief Says


A former U.S. energy secretary dismissed the idea that an influx of foreign uranium imports is a threat to national security, rejecting what could be a justification for future import quotas to protect domestic suppliers.

“I have never considered uranium to be a major security issue,” Ernest Moniz, who led the Department of Energy under former President Barack Obama, said in an interview. “I think uranium supply — especially a commodity like that, that you can store lots and lots of it — I don’t consider it to be a driving national security issue.”

The Commerce Department, at the behest of two small domestic uranium producers, Energy Fuels Inc. and Ur-Energy Inc., recently concluded an investigation of whether imports of the radioactive metal harm national security. Moniz said the ability to stockpile uranium undercuts the argument from domestic miners that the U.S. relies too heavily on foreign producers for its future supply.

These two companies asked the White House to reserve 25 percent of the domestic market for U.S. producers using the same law the Trump administration cited last year to bypass Congress to levy tariffs on steel and aluminum imports.

Nuclear reactor operators, which import nearly all of their uranium from countries including Canada, Russia, and Kazakhstan, argue that such a move could increase their costs by as much as $800 million a year. That would translate send about 6.7 gigawatts of nuclear capacity into negative margins, according to research published today by BloombergNEF.

If the Commerce Department finds imports of uranium threaten national security, President Donald Trump would have authority to impose an import quota or some other trade remedy — or do nothing at all.


Section 232 uranium review submitted to Trump

The US Department of Commerce (DOC) has completed and submitted to the White House its report on the investigation it led into the effects of uranium imports on national security.

The two uranium juniors that petitioned the DOC to undertake the so-called Section 232 review, Ur-Energy and Energy Fuels have welcomed the development, stressing the merits of requesting the review remain strong.

US president Donald Trump has 90 days from April 14 to act on the DOC’s recommendations.

In the petition the firms proposed Trump implement two remedies with an aim to preserve US national security and help the domestic uranium mining industry recover from years of low pricing.

That includes a quota reserving 25% of the domestic market for US-mined uranium and a ‘Buy American’ policy for US government entities that consume uranium. “We believe that president Trump will recognise the danger of imported uranium and act before it is too late,” the companies said in a joint statement.

The US remains the world’s largest consumer of uranium, with nuclear power plants providing 20% of the energy mix and nearly 60% of all its carbon-free electricity. In contrast, in 2019, the US domestic industry is expected to produce less than 1% of the uranium it needs to generate electricity.

The companies ramped up the political rhetoric. “Uranium imports, increasingly from state-owned enterprises in adversarial countries like Russia and its allies, created a stark national security crisis,” they said.

“More than 60% of newly mined uranium around the world now comes from state-owned enterprises that unfriendly nations control. The once robust American uranium mining industry is disappearing because a flood of state-subsidised imports has made fair competition impossible.”



Tax cut for Resolute in Mali

Resolute Mining has won a significant tax rate reduction from the Mali government with the signing of a new mining convention for the Syama project.

Resolute will now incur an income tax of 25% rather than 35%, with the “tax stability regime” signed also protecting against future adverse changes and ensuring that should a more favourable tax regime become available, the ASX-listed company will have the option to adopt.

Resolute has an 80% stake in Syama, with the Mali having the balance.

Total royalties payable are to remain at 6% and the joint venture “will also remain exempt from Malian Customs Duty on the importation of fuel which based on current consumption equates to an annual saving of about US$20million (equivalent to $0.40 per litre)”.

A new mining convention was due to be signed after the original one signed in the late 1980s expired.

Underpinned by a large new automated underground mine, Resolute aims to produce about 300,000 ounces per annum for 14 years at Syama at all in sustaining costs of $746/oz.



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