August Newsletter – 27.08.19
Trump’s Greenland interest throws mining into focus
Denmark may have rebuffed President Donald Trump’s offer to purchase Greenland this week, but the two countries have expressed desire to strengthen cooperation in the Arctic, including in the northern territory.
Aside from security and strategic benefits for the U.S., Greenland’s abundance of rare earth metals presents both a political and economic opportunity. Particularly for any U.S. efforts to diversify away from dependence on China’s raw materials that are used in everything from smartphones and LCD screens to missiles and hybrid vehicles.
In fact, Greenland’s mineral resources minister, Erik Jensen, said there is untapped potential for mining there, which holds more than 38 million tons of the world’s rare earth deposits.
“There’s some part of Greenland that’s still not explored. But I know that South Greenland has a lot of opportunities and we would like to develop this opportunity with other countries that would like to invest in Greenland’s mineral resources,” he said.
“We have good cooperation with the United States and we would like to cooperate further and more with the United States … and we hope that work will develop in other areas for benefit for Greenland.”
Further development of the industry would also allow Greenland to diversify its own economy from a focus on fisheries and related industries. Greenland currently relies on Denmark for two-thirds of its budget revenue.
While there is potential for Greenland to take a bigger slice of the mining industry, China is the biggest player in the rare earth elements space. More than 70% of them are mined and processed in the country. That means, for now, American giants like Apple and Lockheed Martin are dependent on the country’s supplies.
“Given that the U.S. is so entirely dependent on rare earth elements and its imports of China … this gives China an incredible secret weapon in the trade wars,” said Dwayne Ryan Menezes, managing director of the Polar Research and Policy Initiative.
“China is able to use that economic tool at its disposal to further its resource diplomacy. China’s done this in the past: In 2010 due to a territorial dispute with Japan, [it] blocked production which caused prices of rare earth elements to soar.”
For Greenland, the trade spat with China could be a catalyst to develop closer ties with other nations like the U.S. interested in its vast natural resources. And, Menezes said this development could be the first time China finds a rival in the rare earths space.
China Molybdenum Says Giant Congo Copper Mine Is Losing Money
The Chinese operator of the Democratic Republic of Congo’s largest copper producer has told employees that it’s struggling to make money as the collapse of cobalt and copper prices hits miners in the country.
China Molybdenum, which operates the giant Tenke Fungurume mine, said falling metal prices combined with higher taxes and royalties, and rising costs meant it was now in a “deficit zone.” The company said it had also been hit by problems with production equipment.
“In the first half, the company did not achieve its production targets,” its Tenke Fungurume Mining unit said in the letter seen by Bloomberg News. “In addition, the metal prices, copper and cobalt, are at the lowest level. The company is in a deficit zone.”
China Molybdenum’s warning to employees comes as Congo’s entire extractive industry is under pressure after a revised mining code was signed into law in March last year, raising taxes and canceling a clause that would have protected producing mines against fiscal changes for another decade. The government then imposed a 10% royalty tax on cobalt producers eight months later.
Glencore Plc said earlier this month that it will shutter its Mutanda project for about two years in a bid to put a floor under the cobalt market, which has seen prices fall more than 70% since April last year.
Those setbacks highlight how quickly cobalt has shifted from a prized asset to a headache. After quadrupling in two years, prices have collapsed to the lowest since 2016 as new supplies pour into the market. The copper price has dropped by about 5% over the past year.
“Despite the adverse environment and difficulties painted above, in order to preserve jobs and keep current benefits, the new management team, with the support of shareholders, has developed a business revitalization and development plan to face the risks,” China Molybdenum’s unit said.
The Financial Times earlier reported that the company had sent a letter to employees.
Copper price bears “overlooking decent fundamentals”
The price of copper came under pressure again on Thursday amid worries about a global economic slowdown, particularly in manufacturing, vital to overall demand for the bellwether metal.
In early afternoon trading in New York, copper for delivery in July was at $2.5475 a pound ($5,615 a tonne), not far off levels last seen in 2017.
Trade worries have dogged copper price bulls for the better part of a year, but more recently weak data from China, the US and Germany, the world’s top three consumers of industrial metals, has intensified the sell off.
The US manufacturing purchasing managers index (PMI) fell to below 50 today, the lowest reading since 2009 and the first sign that slowing growth in the sector may be turning into outright contraction of activity.
China, which imports more than half the world’s copper, posted the weakest industrial output growth in 16 years in July (although at 4.8% expansion year-on-year, still the envy of developed economies), while the month before German industrial production registered its biggest annual decline in nine years.
A new report by Oxford Economics argues that the copper market’s “decent fundamentals are getting overlooked amid the gloomy backdrop for financial markets”:
The latest Copper Study Group data flagged up a 1% fall in global copper mine production in the first four months of 2019. Also, copper is constrained by a weak global pipeline of mine projects, and production in Chile was down 1% y/y in both May and June, partly due to strike action.
Spot treatment charges (which fall during periods of tightness) are currently down 37% y/y.
We expect the copper market to be in deficit this year and as a result prices look oversold relative to fundamentals.
In another sign of underlying weakness in demand, global copper inventories have been rising steadily after hitting four-year lows in January. Stocks in London Metal Exchange supervised warehouses around the world jumped by 11% over just the past month.
Kazakhstan extends 20% uranium cut through 2021
The world’s largest uranium producer, Kazakhstan’s JSC National Atomic Company (Kazatomprom), has extended country-wide 20% production cuts through to at least 2021, it said Tuesday.
According to Kazatomprom data, the full implementation of the move will remove up to 5,600 tonnes uranium from global primary supply in 2021. The company’s 2021 output will remain below 23,000t on a 100% basis, which is expected to be in line with production in 2019 and 2020.
Frustrated by persistent oversupply keeping global spot prices low, Kazatomprom in January 2017 announced plans to pare production by 10% for that year. An expanded 20% production cut followed in December 2017, for 2018-2020.
That reduction was equal to about 7.5% of estimated global output for 2018, given Kazakhstan accounts for about 23% of global output.
Other major producers such as Canada’s Cameco followed suit, and several of its significant operations, including the world’s largest high-grade natural uranium mine at McArthur River in Saskatchewan’s Athabasca Basin, remain on care and maintenance.
“Keeping production levels flat for now supports a return to long-term sustainability in the market, which will benefit all stakeholders. Delaying the return to planned output levels also demonstrates our commitment to the value-over-volume philosophy at the core of our strategy,” Kazatomprom CEO Galymzhan Pirmatov said.
The company said it had not decided on a course of action for post-2021 production and it was monitoring the market closely. “Kazatomprom does not expect to return to full production until a sustained market recovery is evident, and demand and supply conditions signal a need for more uranium,” it said.
Spot uranium has not traded above US$30/lb since early 2016 and has been locked in a range-bound crawl at the mid-$20-level, occasionally dipping below $20/lb.
Project developers and majors alike have indicated they need at least $45/lb to incentivise new development or a restart of mothballed operations.
The industry is also closely monitoring for the outcome of US president Trump’s Nuclear Fuel Working Group, which is expected to report back on or before October 10.
The president in July vetoed a recommendation by the commerce department to require US power producers to source up to 25% of their uranium from domestic producers, instead creating a working group to review and refine the country’s nuclear fuel supply chain. All options are still on the table and import quotas could still be one of the outcomes, which could create a separate domestic price point for US-produced material.
LEGAL AND REGULATORY
China eases restrictions on gold imports – sources
- China issued import quotas last week
- Quotas are for smaller amounts than usual
- Imports down 300-500 tonnes since May
- Yuan at 11-year lows as economy slows
LONDON/BEIJING, Aug 22 (Reuters) – China has partially lifted restrictions on imports of gold, bullion industry sources said, loosening curbs that had stopped an estimated 300-500 tonnes of the metal worth $15-25 billion at current prices from entering the country since May.
China’s central bank had for several months curtailed or not granted import quotas to commercial banks responsible for most of the gold that enters the country, Reuters reported last week.
Sources said those measures had possibly been designed to reduce capital outflows and bolster the yuan, which has slumped to 11-year lows against the dollar as a trade dispute with the United States batters China’s economy.
The central bank began to issue quotas again last week, but for lower amounts of gold than considered normal, three people with direct knowledge of the matter in London and Asia said – without specifying exact amounts.
No pot of gold for locals as China mines Sierra Leone
MASUMBIRI, Sierra Leone (Thomson Reuters Foundation) – When the Chinese gold miners came to Masumbiri town in northern Sierra Leone, everyone lined up for jobs.
Teenagers lied about their age. Women and girls went to cook and clean at the miners’ camp, a gated compound on a nearby mountainside overlooking rice fields.
Dayu, a private company that started working in Sierra Leone last year, was just the latest in a line of Chinese firms drawn to the mineral-rich ground of the West African state’s Tonkolili district in search of gold.
“The people were happy at first because of the employment,” said Hassan Tholley, Masumbiri’s weary-looking chief, sitting on his porch alongside village elders in the dirt-road town.
Hundreds of young men in hard hats were soon bringing home pay checks and the town of 5,000 people had a cell signal and water pumps for the first time – all courtesy of Dayu.
But 18 months into the multi-million dollar project, locals said the income they earned did not make up for their loss of land and that poverty was worsening.
Like many African countries, Sierra Leone has courted foreign companies which pay governments big fees for mining rights, while locals often feel they have no say nor benefit.
China is by far the biggest importer of minerals from sub-Saharan Africa; it invested about $30 billion in metals mining on the continent in the last decade, nearly 15% of it in Sierra Leone.
Gold mining has been a relatively small industry in Sierra Leone compared to diamonds or iron ore, but is growing with companies such as Dayu, which says it has the biggest underground gold mine in the country – its only project.
Various smaller Chinese outfits, some operating illegally, have also been mining gold in the area alongside the big firms.
“Looking at the mining, there should have been a lot of development in these communities,” said Mohamed Smooth Bangura, a Tonkolili district councilman.
On the pot-holed, mud track toward Masumbiri, rusted signs announced mining companies that have come and gone. The only new roads, cars or buildings for miles around were at the Chinese camp.
INNOVATION AND TECHNOLOGY
Misconceptions around AMD remain a threat to the environment
Acid mine drainage (AMD) has become one of South Africa’s largest environmental threats, as AMD has caused considerable damage to the natural environment and communities living near mining areas, says engineering consultants WSP Africa’s hydrology, environment and energy senior associate Karen King.
She explains that, while areas such as the Modderfontein spruit and the Robinson lake in the old Witwatersrand area, in Gauteng, have been affected the most, the effects of AMD are still being felt across a large geographical area.
While a large volume of AMD has been and will continue to be treated to increase its pH to neutralise it, King acknowledges that this will not solve the broader problem, as water of an acceptable quality is not produced from the treatment. Although the acid in the water is neutralised, the result is highly saline water.
King, therefore, emphasises the implementation of two treatment processes – ion exchange and reverse osmosis.
Ion exchange is the process during which metals are removed from water, while reverse osmosis is for desalination of the water.
King notes that government has tasked State-owned entity the Trans-Caledon Tunnel Authority (TCTA), with financing and implementing bulk raw water infrastructure projects in South Africa to treat AMD in the West, Central and Eastern basins.
King adds that government has been conducting various investigations to find a feasible solution to the treatment of AMD since about 2010.
TCTA is managing three operational AMD treatment plants, namely the Central Basin Plant in Germiston and the Western Basin Plant in Krugersdorp, which have been operational for a few years, as well as the Eastern Basin Plant, which is the largest of the three plants with the capacity to clean 110 mℓ of water a day and put the water back into the Vaal river system. All three plants use short-term neutralisation, which involves ion exchange and the high-density sludge processes.
While King advocates for the continuation of water treatment, she notes that “addressing the issue and treating AMD to standards that are acceptable will be an ongoing, very extensive, expensive and complex undertaking”.
She further declares that the effects of AMD, despite treatment to greater levels, cannot be entirely reversed.
California rare earths miner races to refine amid US-China trade row
The owner of the only US rare earths mine is going on a hiring spree as it looks to significantly boost production, part of a strategy to build out American refining capability after China raised tariffs on the minerals amid an escalating trade war.
By next year, MP Materials aims to be the first US company to refine rare earths since 2015 when Molycorp Inc, the former owner of California’s Mountain Pass mine, went bankrupt, executives said.
THE TRUMP ADMINISTRATION HAS LABELED RARE EARTHS CRITICAL FOR NATIONAL DEFENSE AND ORDERED THE PENTAGON TO SUPPORT DOMESTIC PRODUCTION
The mine has relied on China for rare earth processing, fueling national security concerns. China is the world’s largest processor and producer of the 17 specialized minerals used to build weapons, consumer electronics and a range of other goods. There are no known substitutes.
In June, China more than doubled tariffs on US rare earths imports for refining to 25%. On Friday, Beijing said it would add an additional 10% on top of that tariff rate starting next month, the latest tit-for-tat exchange in a protracted dispute between the world’s top two economies.
The Trump administration has labeled rare earths critical for national defense and ordered the Pentagon to support domestic production.
“What China has recognized is that this is a strategic industry,” said James Litinsky, co-chairman of MP Materials.
The company plans to boost its headcount by next year to about 400, up from about 200, and is already producing 68 percent more rare earth concentrate than under Molycorp.
But that concentrate – more than 50,000 tonnes per year – is today shipped to China for processing.
To resume refining in California, privately-held MP Materials is spending $200 million to restart mothballed equipment at the mine and build a large roasting oven.
“The tariffs are very painful, but we remain profitable,” Litinsky said.
After processing, rare earths need to be turned into rare earth magnets, found in precision-guided missiles, smart bombs and military jets. But China controls the rare earths magnet industry, too.
Litinsky and peers are betting that by bringing rare earths refining back to the United States, it will encourage other investors to build magnets and other related parts in the country as well.
The mine originally opened in 1948 and has gone through a series of owners, including Chevron Corp, before Molycorp went bankrupt.
MP Materials also plans to re-open the Mountain Pass chlor-alkali facility, which was built by Molycorp, Litinsky said.
The facility will recycle wastewater and produce hydrochloric acid and caustic soda to use in the rare earths separation process, saving the facility the added cost of buying the chemicals on the open market.
The company’s new roaster will bake rare earth ore at high temperatures to effectively leach out the high-value minerals.