August Newsletter – 06.08.19
Brazil’s Vale posts surprise loss after new dam burst charges
SAO PAULO, July 31 (Reuters) – Brazilian miner Vale on Wednesday said it swung to a quarterly loss as the company announced more than $2 billion in fresh writedowns related to two deadly dam bursts the company suffered in a less-than four-year period.
Vale reported a second-quarter net loss of $133 million after a year-ago profit of $76 million and compared with a Refinitiv mean forecast of $2.84 billion.
Barrick gains PNG reprieve
Barrick Gold (TSX: ABX) has gained a reprieve in Papua New Guinea which will effectively allow it to continue operating its Porgera joint venture while a mining lease extension is considered.
Porgera’s current lease expires on August 16.
Barrick said on Friday the country’s National Court had ruled the provisions of the 1992 Mining Act applied to Porgera, which meant the mine could continue operating while its application for a 20-year extension was being considered.
The mine is operated by Barrick Niugini, a joint venture between Barrick and Zijin Mining, and Mineral Resources Enga owns 5%.
Barrick said its president and CEO Mark Bristow was in PNG along with Zijin executive director and senior vice president George Fang, to discuss the proposed extension with the government and Porgera special mining lease landowners.
The pair said Porgera had been a “key driver” in PNG’s regional, provincial and national economies for the past 30 years and had contributed more than US$1.27 billion in taxes and royalties.
In a separate statement also released on Friday, Bristow said he had met with recently-elected prime minister James Marape and reiterated a call for a partnership approach, a message he had also delivered last month to host governments in Africa.
He said Marape’s view PNG should receive a better share of the benefits generated by the development of its mineral resources was “in line with Barrick’s own commitment” to ensuring the value created by its operations should reward all stakeholders, especially its host governments and communities.
He said he was travelling to the mine on the weekend to continue discussions with local stakeholders.
“I am confident that we shall be able to reach a broad agreement on the terms of the lease extension, and that we shall develop the kind of partnership that will ensure that Porgera continues to benefit the country and community for many years to come,” Bristow said.
Porgera is expected to produce 240,000-260,000 ounces of gold this year. Production in the March quarter was 66,000oz, down 6% compared with the previous period due to lower grades mined, power supply disruption and planned maintenance; and production was lower again at 61,000oz for the June quarter according to preliminary results.
Barrick’s shares are close to a 52-week high, closing on Friday at C$22.33 to capitalise it at $39 billion (US$29 billion).
Governor Perez stuns Antioquia explorers with 85% mining ban
Luis Perez, the governor of Antioquia, Colombia, stunned explorers Friday when he signed a local ordinance that effectively cancels all mining titles and concessions in 85% of the territory of the department, with the exception of construction materials.
The news came out as officials from the ANM National Mining Agency were in department capital Medellin to host an event to award the first qualified person designations to Colombian geologists
ANIMATION: Gold ETF winners and losers since 2003
Physical gold-backed exchange traded products, commonly referred to as ETFs, or exchange traded funds, have transformed the gold market over the last 16 years.
The burgeoning industry that kicked off in 2003 deserves some credit for the metal’s subsequent bull run simply because ETFs make it so easy to invest in the metal.
SINCE ITS INCEPTION 16 YEARS AGO THE INDUSTRY HAS GROWN TO 110 PHYSICALLY-BACKED ETFS HOLDING GOLD WORTH $115 BILLION
Gold bullion holdings hit a record 2,840 tonnes or 91.3 million troy ounces in November 2012. The value of vaulted gold peaked a month earlier at just over $157 billion, but 2013 was the industry’s annus horribilis when investors pulled out more than 900 tonnes.
With the gold price close to six-year highs, holdings are expanding again with 127 tonnes of net inflows worth $5.5 billion in June, lifting the total to 2,548 tonnes worth $115.4 billion at ruling prices.
Around half of ETF gold is held by individuals (although it’s hard to track) and some like to call gold ETFs “the people’s central bank”: combined investor holdings are only behind the official gold reserves of the US and Germany (not counting the IMF’s gold) and on par with France and Italy’s hoard.
Roughly $2 billion worth of ETFs are traded each day and there are 110 gold-backed funds listed around the world. The industry’s 800-pound gorilla is SPDR Gold Shares (GLD). In 2011 when gold was hitting record highs above $1,900 an ounce, GLD became the largest ETF in the world — briefly surpassing the venerable SPDR S&P 500 trust.
The industry is dominated by funds in New York and London, but 16 countries now offer gold ETFs (select countries by clicking on the legend).
CHART: Gold price risk index is flashing red
Frankfurt-based sentix, a leader in the field of behavioural finance, has been compiling sentiment indices since 2001 by surveying more than 4,500 institutional and private investors.
In a blog post published today, sentix analyst Patrick Hussy says the research firm’s overall risk index for gold is flashing red and registering a “clearly tense risk constellation” (eine deutlich angespannte Risikokonstellation in the original, which sounds even more severe).
“The overall risk index for gold amounts to -1.13 standard deviations (inverted representation in the chart) and points to risks of setbacks.
“In almost all sub-indices of the sentix risk radar for the gold price, “conspicuous” values are recorded.
“The sentiment is overexcited, the technical oscillators all overbought. The positioning has also picked up recently and investors are now noticeably “long”.
The sentix experts caution gold bulls to wait for a period of consolidation before getting back into the market, but emphasizes that they are not calling an end to the rally in the gold price and “the strategic bias continues to be tightly upward.”
After the more than $100 rally over three weeks in June, gold has traded in a narrow band between $1,420 and $1,440 an ounce, which seems to suggest gold bulls have been able to curb their enthusiasm and haven’t succumbed to irrational exuberance.
The Elite Club That Rules the Diamond World Is Starting to Crack
Being chosen as a De Beers buyer has long been considered the industry’s highest achievement, but the once lucrative profits are vanishing.
It’s one of the world’s most exclusive clubs, known over the years as the Syndicate, the Central Selling Organization and the Diamond Trading Company.
For more than a century, De Beers has sold most of its rough diamonds to a select number of customers, a list that reads like a who’s who of the opaque gem-trading world. Tiffany & Co., Graff Diamonds and Signet Jewelers Ltd. all own subsidiaries in this group, guaranteeing a steady supply of gems with the pedigree of being vetted by De Beers.
In the diamond trading world, becoming one of De Beers’s elite buyers is viewed as essential to achieving success and making money. Now, it’s no longer so easy.
De Beers sells its gems through 10 sales each year in Botswana’s capital of Gaborone, and the buyers—known as “sightholders”—have to accept the price and the quantities they’re offered. It’s a system that originated in the 1890s and designed to benefit both miner and customer, who receives the diamonds at a discounted rate.
But the discount has been shrinking. In some cases the prices have been higher than the going trading rate, forcing customers to sell at a loss, according to people familiar with the matter. Some sightholders now struggle to make money from a business that was once highly lucrative.
The problems in the diamond industry are twofold. High-end jewelry sales are stagnating as other luxury offerings, like shoes, handbags and resort vacations, crowd the field. It’s also harder for diamond trading companies to find financing because banks are abandoning the sector after being hit by frauds and bad loans.
LEGAL AND REGULATORY
Australian Indigenous group to sue the government over mining operations in the Northern Territory
At the opening on the Garma festival on Aboriginal land in Australia’s Northern Territory, Galarrwuy Yunupingu, the leader of the Gumatj, one of 13 Yolngu clans of North East Arnhem Land, said before the Minister for Indigenous Australians Ken Wyat that he and his people will be suing the commonwealth government to seek compensation for the loss of native title.
The sue is related to mining activities carried out in their traditional territory by the North Australian Bauxite and Alumina Company, known as Nabalco, and the world’s second-largest miner Rio Tinto (ASX, LON, NYSE: RIO).
Gove operations. Photo by Rio Tinto.
According to Yunupingu, over 50 years ago, mining companies arrived in the Gove peninsula without the permission of the landowners of the place and they took possession of whatever spaces they wanted to with the blessing of the federal government. In doing so, they damaged ancient Aboriginal sites and artifacts.
Back in 1963, Nabalco established a large-scale bauxite mine and refinery in the area, despite a legal fight -known as the Bark Petitions- put forward by the Yolngu before the Australian parliament.
Thus, the new title claim would target royalties received from Nabalco from the launching of the Gove operations until 1971 and from 1971 onwards, when Rio Tinto took over the mine.
The Gumatj, however, have received a fraction of the total revenue drawn from the site since 2011 when, together with the Rirratjingu and Galpu peoples, they signed the Gove Traditional Owners Agreement with Rio Tinto. The deal also contemplates the provision of employment, training and contracting business opportunities, and land and environmental management. It also promotes the protection of cultural and significant sites.
The lawsuit that relates to historical operations at Gove is expected to be based on the precedent set by the Timber Creek native title case back in March, which ruled on a $2.5 million compensation over a series of acts carried out between 1980 and 1996 by the Northern Territory government which were found to have “impaired or extinguished” native title rights and interests, including several actions that led to “cultural loss.”
Iron ore prices help Rio Tinto fork out $1bn divvy, despite Oyu Tolgoi’s setback
Rio Tinto (ASX, LON, NYSE: RIO) surprised investors on Thursday with a $1 billion special dividend on the back of strong prices for iron ore, its main commodity, and despite an $800 million write-down on its massive Oyu Tolgoi underground copper project in Mongolia.
The world’s second largest miner reported a $4.93 billion underlying profit in the six months to June, up 12% on the same period last year — its best half-year earnings since 2014.
It also said it would raise its interim dividend to $1.51 a share from $1.27 a share a year ago, continuing to benefit mining investors amid prices for iron ore trading above $120 a tonne, their highest in more than five years.
Net profit, however, dropped by 6% to $4.13 billion as Rio wrote down $800 million from its investment in an underground expansion at Oyu Tolgoi, located in Mongolia’s southern Gobi Desert.
INNOVATION AND TECHNOLOGY
Pressure needs to be applied to platinum mining industry to go green, conference hears
JOHANNESBURG (miningweekly.com) – The need for pressure to be applied to the platinum mining industry to go “green” was expressed at the recent Nedbank CIB Mark Research Conference on fuel cells in Cape Town.
While platinum group metals (PGMs) are used to stop air pollution in the world, steps have only started to be taken by some members of the PGM mining industry itself to halt the emission of carbon into the air at mining operations.
Ivanplats senior VP Gerick Mouton expressed the view that if pressure to protect the environment did not come about as a consequence of government policy, the major buyers of PGMs, for example, the BASFs and the Johnson Mattheys of the world, would want to ensure that they were buying a green metal that they could sell to their catalytic converter clients.
If they pushed hard to ensure that the PGM ounces they bought were green, it would, in turn, pressurise PGM mining companies, as the suppliers, towards ensuring that mines operated as cleanly as possible.
“Things don’t happen if there’s no pressure. Pressure has to be applied for things to change and I think that’s what the industry needs,” Mouton told the conference, which was attended by Mining Weekly Online.
Earlier, Royal Bafokeng Platinum CFO Hanré Rossouw had told the conference that consumer awareness of the need to protect the environment was become sharper across all age groups.
Rossouw said it was the responsibility of the South African PGM mining industry to be able to truly say that “this is good green platinum”.
“Eighty per cent of the world’s platinum still comes from Southern Africa so it is the source, ultimately ,of the platinum bought in London, but if the consumer, whether it be in Japan, Europe or the US, can’t be sure that this came from a sustainable source, they are not going to buy it, and the supply chain is going to suffer,” Rossouw said.
Winu continues to intrigue Rio
PERTH (miningweekly.com) – Diversified miner Rio Tinto has released more exploration results for its Winu copper find, in Western Australia, with its latest round of drilling intercepting copper grades of up to 0.48%.
The miner told shareholders on Thursday that results from the recent 42 drill holes continued to indicate relatively wide intersections of vein-style copper mineralisation associated with gold and silver beneath relatively shallow cover.
The mineralisation remains open at depth and to the east, north and south, with Rio having defined a current strike length of around 2.1 km. Drilling is ongoing with eight diamond rigs and three reverse circulation rigs in operation at Winu.
In addition to the exploration work, Rio is also conducting cultural heritage surveys and has started preliminary technical studies on the project, including environmental baseline studies, geotechnical and metallurgical testwork.
The miner is also conducting exploration within the broader Paterson province, on its wholly-owned licences and joint venture licences.