December Newsletter – 02.12.19



  • Rio spending $4 billion on iron ore pipeline amid China demand
  • 4 charts that say this time the copper price surge could last
  • China’s Rare-Earth Boost Threatens U.S., Australia Growth Plans
  • Gold rally foiled again as payrolls torpedo weekly gain
  • Chile’s SQM to decide on future of lithium holdings in Maricunga by year’s end – mining minister
  • China’s Zijin Mining to buy Canada’s Continental Gold for $1 bln amid security risk
  • Nornickel and Trafigura test metal trading using tokens
  • Rio pushes back the life of Kennecott copper operation with $1.5 billion investment


Rio spending $4 billion on iron ore pipeline amid China demand

Bloomberg News

Rio Tinto Group (ASX: RIO) lifted its spending on new iron ore projects in Australia to more than $4 billion with the approval of a replacement mine at a key hub, providing a further sign of the industry’s confidence in demand led by China.

London-based Rio will invest $749 million to bring the Western Turner Syncline Phase 2 project into production from 2021, according to a statement Wednesday. It will help extend the life of operations around the Tom Price mine, which began exporting in 1966.


pic1 Behre Dolbear newsletter 09.12.2019

While the new project is aimed only at replacing output that’ll be lost from aging pits, Rio will have options to boost volumes from its $2.6 billion Koodaideri development, Chris Salisbury, iron ore chief executive officer, said in a phone interview. The Western Turner project was accounted for under capital expenditure guidance outlined last month, he said.

Australia’s top miners continue to see potential to leverage low production costs and a dominant position in the seaborne trade to generate strong profits from iron ore, even as they forecast China’s steel output to reach a peak.

Demand for ore is being supported by infrastructure projects in China launched earlier in 2019 and by ongoing property development, Salisbury said. There’s also been a more limited impact from the nation’s traditional winter output curbs on steel mills intended to limit pollution, he said.

“We haven’t seen significant effects of those so far in the season,” Salisbury said. “We are pleased with the level of demand at the moment.”

Rival BHP Group is spending about $3 billion on its South Flank mine and Fortescue Metals Group Ltd. is investing more than $3 billion in two developments, including the Iron Bridge project that’ll add output of higher-quality materials. Rio last year approved the Koodaideri project and also $820 million of spending for its share of work to sustain output from the Robe River joint venture.

The latest investment by Rio highlights “the ongoing commitment toward capital required to maintain existing” volumes and product quality in Australia’s Pilbara region, RBC Capital Markets analyst Paul Hissey said in a note. Potential for an iron ore surplus from 2020 and the prospect of continued slowing in China’s economy mean RBC was cautious about the market over the medium and long term, he said.

Rio forecasts its iron ore shipments to rise as much as 5% in 2020 and expects to have capacity to hit a long-standing target for annual cargoes of 360 million tons by 2022. Iron ore accounts for about 43% of its revenue.

“Our iron ore business does continue to deliver industry leading margins,” Salisbury said. The investments are “a commitment to the importance of iron ore to the overall Rio portfolio,” he said.

Rio’s investment in the Western Turner project will add a new crusher and a 13-kilometer (8-mile) long conveyor belt, trimming the need for road haulage and helping cut the mining hub’s greenhouse gas emissions, the producer said. The plan will also protect the future of the company’s flagship Pilbara Blend iron ore product. The investment means Rio’s approved spending on new iron ore projects is more than A$6 billion ($4 billion), according to Salisbury.

(By David Stringer)


4 charts that say this time the copper price surge could last

The price of copper surged on Friday after reports showed the US economy in robust health on the back of strong payroll numbers – the best reading since January – and progress in trade talks with China.

In afternoon trading in New York, copper for delivery in March continued to climb, hitting $2.7535 a pound ($6,070 a tonne), up 3.4% on the day and the highest since July.

Copper was also buoyed by an improvement in sentiment among large-scale investors in copper futures like hedge funds and a drawdown of stocks, a note from Capital Economics on Thursday points out.

The combined position on the LME and COMEX futures markets switched to a net long recently after hitting a record number of net shorts (bets that copper could be bought back at lower price in future) at the end of the third quarter.

Caroline Bain, Chief Commodities Economist at the London-HQed firm, says the prospects for copper prices in 2020 are positive:

For one, copper supply is probably less ample than the “apparent consumption” data indicate.

And while mine supply growth is likely to recover in 2020 and 2021, it should remain weak by past standards.

pic2 Behre Dolbear newsletter 09.12.2019

China’s Rare-Earth Boost Threatens U.S., Australia Growth Plans

By Yvonne Yue Li  and Jason Scott

  • More suppply could lower prices, hindering project development
  • Materials are used in everything from phones to fighter jets

Surging rare-earth production in China is presenting a new challenge to budding efforts in the U.S. and elsewhere to undercut the Asian giant’s dominance in a market for exotic materials used in everything from smartphones to fighter jets.

China said this month it’s raising its annual mining quota for rare-earths to 132,000 tons, 10% above last year’s record high. It’s a move likely to weigh on global prices, dealing a blow to rivals including the U.S. and Australia, countries that agreed just last week to jointly accelerate new projects in a push to diversify the supply chain.

If you’re reading this story on a smartphone, you probably have China to thank for it. The Asian nation generates about 70% of mined rare earths and controls 90% of a $4 billion global market for materials used in magnets and motors that power phones, wind turbines, electric vehicles and military hardware.

With the U.S. and China locked in trade talks, there were fears China may restrict access to the materials. Instead, it is bulking up, potentially pushing companies elsewhere “into a tight cash situation” just as they seek to invest in new projects, said Ryan Castilloux, managing director at critical metals consultancy Adamas Intelligence.

Gold rally foiled again as payrolls torpedo weekly gain

Bloomberg News

Just when it looked like gold’s rally had gotten back on track, the US payrolls report came along.

The number of jobs added to the economy jumped 266,000 last month, the most since January, according to a government report Friday that topped all estimates in a Bloomberg survey calling for 180,000 jobs.

Gold has struggled to sustain recent rallies as resilient US economic data and bets on progress toward a U.S.-China trade deal limit demand for the metal as a haven. That weakens the case for more cuts on U.S. borrowing costs, further damping the appeal of the non-interest-bearing precious metal. Prices are down more than 6% from a six-year high reached in September.

pic3 Behre Dolbear newsletter 09.12.2019

The jobs report “is a blow-away number: It means there will be no more interest-rate cut, which is bearish for gold,” says Phil Streible, senior market strategist at RJO Futures.


Chile’s SQM to decide on future of lithium holdings in Maricunga by year’s end – mining minister

SALAR DE AGUILAR, Nov 28 (Reuters) – Chile has asked top lithium miner SQM to decide by year’s end what it will do with its holdings in the Maricunga salt flat, the country’s second richest in lithium, the country’s mining minister told Reuters.

pic4 Behre Dolbear newsletter 09.12.2019

Though Maricunga’s 90 square miles (145 sq. km) make it less than 5 percent the size of the lithium-rich Salar de Atacama in northern Chile, high-grade deposits of the ultralight battery metal nonetheless make it attractive to miners. But fractured ownership has slowed development.

“We have asked SQM, which has holdings on the flat, to participate in a work group to determine what it will do with them,” Mining Minister Baldo Prokurica told Reuters.

Prokurica said he had asked SQM to respond by “year’s end.”


China’s Zijin Mining to buy Canada’s Continental Gold for $1 bln amid security risk

BEIJING/TORONTO, Dec 2 (Reuters) – China’s Zijin Mining Group Co Ltd has agreed to buy Canadian miner Continental Gold Inc for C$1.3 billion ($1 billion), but a top executive with the target company said elevated security concerns in Colombia pose a risk to the deal.

State-backed Zijin’s offer for Continental, announced on Monday, aims to secure Continental Gold’s flagship Buritica gold project in Colombia.

“Zijin doesn’t have any experience in Colombia, and we have obviously had some incidents in the past,” Continental Chief Financial Officer Paul Begin told Reuters.

“But if a major security incident happened at any project, it would be considered a material adverse change and they would have an out if they wanted to,” he said.

Four employees of Colombia-focused Continental were killed in a single month last year, one near Buritica and the others at a different exploration site.

Zijin’s cash offer of C$5.50 per share represents nearly a 13% premium to Continental’s Friday’s close.

Continental’s shares were up nearly 10% in Monday afternoon trading in Toronto.

The deal marks the second acquisition of a Canadian gold miner in as many weeks as miners look to boost reserves and take advantage of firmer bullion prices. Last week, Canada’s Kirkland Lake Gold Ltd offered to buy Detour Gold in an all-stock deal valued around C$4.3 billion.

The Buritica project has measured and indicated gold reserves of 165.47 tonnes and an inferred reserve of 187.24 tonnes, Zijin said. Zijin expects its gold reserves to exceed 2,000 tonnes after the purchase, with output eventually increasing by about 20%. It expects the Buritica project to generate robust profit and cash flow after becoming operational in 2020.

Buritica, whose high-grade ore and hearty output estimates make it a rare find, is shaping up as a key test for the future of large-scale underground mining in Colombia, whose mostly unexplored mineral riches have miners rubbing their hands.

Continental Chief Executive Ari Sussman said the project is expected to reach production next year and the “timing is right for Continental to sell to a more experienced mine operator.”

In a separate statement, Newmont Goldcorp Corp said it would tender its 19.9% stake in Continental.

The deal also requires Canadian and Chinese government approvals, Begin said.


Nornickel and Trafigura test metal trading using tokens

Bloomberg News |

MMC Norilsk Nickel PJSC, the biggest palladium and refined nickel producer, has started testing a platform for digital metal tokens that may eventually account for a fifth of its sales.

Clients including Trafigura Group Ltd., Traxys SA and Umicore SA have been involved in the tests, Chief Executive Officer Vladimir Potanin said in an interview near Moscow. Potanin, Russia’s richest man, wants Nornickel to become the first major mining company to offer digital sales of metals to help make trading easier.

The commodities industry is looking to digital trading systems using ledger technology to help cut costs and administration and track materials through the supply chain. The platform will allow clients to purchase tokens backed by metals, which can then be swapped for physical supplies. One benefit is that if a customer doesn’t need all its contracted amount, it could more easily sell the unwanted volume to someone else, rather than enter potentially difficult negotiations with the supplier.


“We are simply packing existing business links into a new and modern form,” Potanin said.

Nornickel first announced plans for crypto tokens a year ago, but needed a venue for trading. Potanin then invested in a start-up to develop a blockchain platform built by International Business Machines Corp. and based on Hyperledger Fabric for metals trading.

Nornickel aims for the tokens to account for as much as 20% of its metals sales, possibly within the next couple of years. The start-up includes other investors in the U.K. and Russia, and more details will announced in March or April, according to Potanin, Nornickel’s biggest shareholder. Potanin said his investments in digital projects are about $100 million.

The platform will offer all the metals that Nornickel produces, rather than just palladium-backed tokens, and other industrial partners may join later, the CEO said. Trafigura and Traxys confirmed that they have taken part in testing.

“We believe this product will attract investor interest in metals that they have not had an ability to access efficiently,” Traxys CEO Mark Kristoff said by email. The company “looks forward” to rolling it out to clients in 2020, he said.

While tokens backed by commodities aren’t new, they’re usually done by small and mostly non-industrial companies, said Kirill Chuyko, head of research at BCS Global Markets.

Since Russia hasn’t yet adopted a law on digital financial assets, the platform may be introduced first in places like the U.S., United Arab Emirates, Switzerland, or Singapore, Potanin said. Russian businesses and the central bank have agreed on draft legislation, which Potanin hopes will be passed soon, he said.

President Vladimir Putin last month asked the government to support the further development of digital assets, according to a letter from a lobby group of Russia’s biggest companies.

“The quicker adoption of this law will create certain advantages for the country,” Potanin said. “Russia can become a digital leader.”

Separately from Norilsk Nickel, a platform for intellectual property that Potanin is working on with his consultant, New York-based BCG Digital Ventures, should be ready in the first half of next year. Some companies, including gold producer Polyus PJSC, have shown interest in the platform, where start-ups and industrial companies can offer their ideas, Potanin said.


Rio pushes back the life of Kennecott copper operation with $1.5 billion investment

Rio Tinto’s Kennecott copper operation in the US is set to keep operating to 2032 following a $1.5 billion investment.

The investment will further extend strip waste rock mining and support additional infrastructure development in the second phase of the South Wall Pushback project, to allow mining to continue into a new area of the orebody and deliver close to 1 Mt of refined copper between 2026 and 2032, according to the mine.

The first phase of the South Wall Pushback, which is expected to be complete in 2021, extended production from 2019 to 2026. Some $300 million remains to be spent of a $900 million investment.

“It is a world-class project that will generate attractive returns and allow further exploration of the deposit and options for mine life extension,” Rio said.

This additional investment will commence in 2020 and is included in the company’s group capital expenditure guidance of $7 billion in 2020, and $6.5 billion in both 2021 and 2022 as development capital, it said.


comm1 Behre Dolbear newsletter 09.12.2019comm2 Behre Dolbear newsletter 09.12.2019comm3 Behre Dolbear newsletter 09.12.2019