August Newsletter – 07.08.18




Lundin Mining Initiates Takeover Bid of Nevsun

On July 26, Canadian base metals miner, Lundin Mining Corp. made an offer to acquire all of the issued and outstanding common shares of Nevsun Resources Ltd. for approximately C$1.4 billion (US$1.1 billion). Under the terms of the offer, Nevsun shareholders will receive C$4.75 in cash for each Nevsun share.

Lundin Mining has made numerous proposals to Nevsun, beginning in February.

“Our offer will represent the clearest path for Lundin Mining to acquire the Timok project and for Nevsun shareholders to realize on the value of their investment without dilution and financing risk,” Paul Conibear, president and CEO of Lundin Mining, said. “We believe that the proposed Nevsun acquisition consideration is full and fair value and represents a significant premium to Nevsun’s unaffected share price prior to the announcement of our first proposal.”

However, Nevsun released a statement saying it felt the offer ignored the “fundamental value” of Nevsun.

“Despite the progress we have made in enhancing Nevsun’s value, Lundin’s notional takeover offer represents only a 13% premium to Nevsun’s closing trading price of C$4.21 per share on the TSX on July 16, 2018, and only a 9.1% premium to the volume weighted average trading price of Nevsun’s shares over the 30 days ended July 16, 2018,” said Peter Kukielski, Nevsun’s president and CEO.

He added that Lundin has ignored the recent improvements at Bisha mine, the new Timok Lower Zone and progress at the Timok Upper Zone project.

“The work we have been doing has also been noticed by several strategic parties that have expressed an interest in participating in the development of Timok,” Kukielski added.

Nevsun Resources Ltd. advised shareholders to take no action until the board of directors has made a formal recommendation to shareholders. The offer will remain open for a minimum of 105 days, allowing Nevsun shareholders until November 9 to respond. The board will make a formal recommendation to shareholders within 15 days.


“China’s city of Chaoyang scraps $3.4 billion alumina project” (Reuters)

BEIJING, Aug 2 (Reuters) – The city of Chaoyang in China’s northeastern province of Liaoning says it has cancelled a planned alumina project after a public consultation.
The plant was proposed to process bauxite ore into 10 million tonnes per year of alumina, a compound smelted into aluminium, and would have supplanted Norsk Hydro’s Alunorte project in Brazil as the world’s biggest alumina refinery.

The refinery was scrapped because of “differing opinions” from city residents on its environmental impact assessment, the Chaoyang government said on its website on Wednesday.
It had been earmarked for 23 billion yuan ($3.4 billion) of investment as a joint project between State Power Investment Corp’s (SPIC) aluminium arm, Jinzhou Port Co and the latter’s subsidiary, Jinguo Investment, according to a Chaoyang government statement on May 8, which also said the plant would directly create 2,000 jobs.
Jinzhou Port and SPIC did not immediately respond to emailed requests for comment.
Liaoning was home to China’s first aluminium smelter, at Fushun, which started up in the 1930s, but neither Liaoning or neighbouring provinces Heilongjiang and Jilin currently have any alumina production, according to data from the National Bureau of Statistics. ($1 = 6.8163 Chinese yuan renminbi) (Reporting by Tom Daly; Editing by Christian Schmollinger)



Texas sand dunes go from worthless desert to mega-valuable commodity

A Houston-based supplier of sand for West Texas oil drillers has hit financial pay dirt by mining and processing the sand virtually next door to its customers.

High-Crush Partners, a master limited partnership, had been shipping sand from Wisconsin to oil drillers in the Permian Basin of West Texas, but now operates a facility in the basin, thus enabling it to slash transportation costs and sell the commodity for far less than some rivals.

A High-Crush facility in Kermit, Texas – after just one year of operating – has been able to significantly cut expenses and create a viable billion-dollar sand mining operation.



“Industry News State-Owned Miner Takes up Gold Mining in India” (Metal Miner)

Mining for gold is an expertise of which not too many Indian miners can boast. In fact, it makes up a minuscule portion of overall annual mining activities in the country.

With neighboring China on the prowl for gold mining projects internationally, some recent news has brought some cheer to the gold sector in India.

For the first time, a state-owned miner will take up gold mining in India. Earlier this month, India’s National Mineral Development Corporation (NMDC) won the rights to it at an e-auction. In the process, it beat several biggies, such as Vedanta and Adani. NMDC will dig up a gold mine located in the southern Indian state of Andhra Pradesh.

NMDC is not a newcomer to gold mining. It is developing a gold mine in Tanzania, while its Australian subsidiary, Legacy Iron Ore, is currently in the process of testing as many as 17 gold tenements in the Western Australian region.

The Chigargunta-Bisanatham mine will be an underground operation. First-phase production is expected to begin two years after the permitting process.

According to a report by the Press Trust of India (PTI), the initial investment is estimated to be about U.S. $4.5 billion. The Indian government stands to earn 38.25% revenue on sale value. It has estimated reserves of 1.83 million tons containing 5.15 grams of gold per ton.

Incidentally, India is on the way to formulating a new gold policy, which will promote domestic gold mining.

Industry experts believe that at least 100 tons of gold can be mined annually in India, from the present level of about 1.5 tons (as compared to China’s 450 tons a year). Geologists believe that India sits on vast deposits of gold, as the terrain from Australia to China is very similar, so they see no reason why India cannot step up its gold mining.

Experts want the Indian government to factor in the complete journey of gold, from mines to market, under the new policy.

Very slowly, after a court-imposed e-auction for mining, gold mining has picked up.

One of the first in this business was Vedanta. In February 2016, Vedanta Resources became the first private company to successfully bid for a gold mine in India, in the central Indian state of Chhattisgarh. The mine has gold reserves of 2.7 tons.

Other Indian private miners, in collaboration with international players, have started to move in. More and more are expected to follow in the footsteps of Vedanta and NMDC.

Gold mining will also save the country foreign exchange, since it imports most of its gold at the moment.

A previous government report identified the unrefined gold resource base in the country at 658 tons of metallic gold. The report also stated that this tonnage is spread over 13 different states.
India needs to get its act together on the gold mining front, especially since China is already well on its way. Since 2013, when gold prices plunged 30% in a year, China has been ramping up overseas gold-mining investments.

There is no doubt that developing gold mines is a long-term, risky process requiring years of planning, research and infrastructure development. Miners also need to conduct analyses on how much gold a ton of ore actually contains.

But for Indian companies interested in this, several bottlenecks, including environment permissions, remain.

If a miner has to apply for a gold mining license, it has to take over 100 permissions before getting a permit — a process that takes over seven years.

Hopefully, experts say, this will be history once the new policy is adopted.



Rising oil prices threaten to erode mining sector’s profitability

(Reuters) – Rising oil prices are the latest challenge to the mining sector’s profitability, threatening to eclipse hard-fought efficiency gains during the past two years and increasing metals demand.

Miners use heavy fuel oil to generate electricity at remote sites; they also use it for transport, with large trucks and other equipment guzzling down millions of gallons each day across industry.

Brent crude prices are up 40 percent in the past year, cheering oil industry executives but causing concern among their customers in the mining sector.

The concern is especially acute for underground miners, with power and labour costs about two-thirds of their expenses.

“Let’s be clear: Inflation is going to hit – is hitting all communities and all players across the industry,” Rio Tinto Chief Executive Jean-Sébastien Jacques told investors earlier this week after the company’s profit for the first half of the year missed estimates.


“Meritz extends $325 mn credit to fund $2.25 bn Australia coal mine deal”
The Korea Economic Daily

Meritz Financial Group, a non-banking financial services firm in South Korea, has offered a $325 million subordinated loan to finance the $2.25 billion acquisition of Rio Tinto’s Kestrel coal mine in Australia by a consortium of EMR Capital and an Indonesian coal company.

It was the first buyout financing provided by a South Korean institution for a major mining asset overseas, highlighting South Korean funds’ push into a broader range of global alternative investments.

Rio Tinto, a mining giant, recently announced the sale of its 80% stake in Kestrel underground coal mine for $2.25 billion to the consortium of resources-focused private equity firm EMR Capital and PT Adaro Energy TBK.

For the subordinated loan with a five-year term, Meritz Financial beat the competition from Nomura Securities at the last minute by lowering interest rates by 1% point to 12%.

Additionally, Meritz attached no condition, unlike Nomura which proposed 13% interest rates with a call option attached, MoneyToday, a South Korean newspaper, reported on August 1.

Sources with knowledge of the deal confirmed the report.

The subordinated debt was sold by Kestrel Coal Midco Pty Ltd.

Meriz Securities Co. Ltd., Meritz Fire & Marine Insurance Co. Ltd. and Meritz Capital Co. Ltd. participated in the debt financing, led by Meritz Securities vice chairman Hee-moon Choi.

On top of the subordinated loan, the EMR Capital-led consortium has raised $1.16 billion in senior debt and $1 billion in equity financing to fund the transaction, arranged by Standard Chartered.

The total cost of the deal is estimated at $2.75 billion, including financial expenses, according to the report.

Kestrel coal mine is located in central Queensland, Australia. It produces mainly coking coal, a key ingredient of steelmaking, for export markets.

Meritz Financial Group made an aggressive bet on the subordinated loan, while global investors remain cautious about fossil fuels because of environmental concerns.

But financial industry sources saw no challenge of collecting the debt as long as coking coal prices stay at $110 or above per ton.

Currently, spot market prices of hard coking coal are between $170 and $180 per ton.



How big data can help find new mineral deposits

Scientists from the Deep Carbon Observatory in the U.S. published a study this week where they report the first application to mineralogy of network theory, commonly used in the analysis of the spread of disease, terrorist cell connections, or Facebook connections.

The study appeared in American Mineralogist and it shows how the application of big data analysis to mineralogy can help predict minerals missing from those known to science, as well as where to find new deposits.

“The quest for new mineral deposits is incessant, but until recently, mineral discovery has been more a matter of luck than scientific prediction,” said Shaunna Morrison, lead author of the report, in a media statement. “All that may change thanks to big data,” she added.



KAZ Minerals to buy Baimskoye field in Chukotka for $900 mln

MOSCOW, Aug 2 (PRIME) — Kazakh copper producer KAZ Minerals has signed an agreement to buy the Baimskaya copper project of Roman Abramovich in Russia’s Chukotka Autonomous District for U.S. $900 million in cash and shares, the company said on Thursday.

The sum includes an initial payment of $675 million and a deferred payment of $225 million.

The initial payment consisting of $436 million and 22.3 million of KAZ Minerals’ newly-issued shares is earmarked for a 75% stake in the project, while the remaining 25% will be purchased either with shares or cash depending on the project’s implementation.

The Baimskoye deposit’s JORC resources are estimated at 9.5 million tonnes of copper with an average content of 0.43% and 16.5 million ounces of gold with an average content of 0.23 grams per tonne.

An average annual output at the field over the first 10 years of operations is projected at 250,000 tonnes of copper and 400,000 ounces of gold.

Capital expenditures on the mine development are estimated at U.S. $5.5 billion and could be revised during a feasibility study.