July Newsletter – 06.07.2020
- Germany’s plan to exit coal by 2038 made law
- Chinese miners’ deal frenzy seen stalling on regulatory hurdles
- Factbox: Recent flurry of M&A by China’s big miners
- Oyu Tolgoi loses some of its underground reserves following updated feasibility study
- Chile’s desalination projects delayed by COVID-19
- Indonesian coal miners to cut 50 million tons of production due to weak prices
- Landslide at Myanmar jade mine kills at least 162 people
- BHP completes first blockchain iron ore trade with China’s Baosteel
- Mongolia’s economy is stuck between China, Russia and US
- Four Charts That Show Copper’s Comeback Has Room to Roll On
Germany’s plan to exit coal by 2038 made law
Germany’s lower house of the parliament passed on Friday a bill to phase out coal-fired power stations in the country by 2038.
The new law entails over €50 billion ($56 billion) for mining companies, power plant operators, affected regions and employees to mitigate the impact of moving from coal to renewables as power source.
“The fossil fuel age is irrevocably coming to an end in Germany with this decision,” Economy Minister Peter Altmaier told lawmakers inside the chamber, urging opponents not to “talk it down.”
Coal-fired power plants operators will be able to compete in auctions to be held from September this year to 2027 for closure compensation payments.
They will also be paid for switching from coal to gas, which emits less CO2.
Plants that are less than 10-years old can apply for direct payments or a transition into a network reserve in exchange for compensation.
All plants must cease operations by 2033.
The law, which also implies shutting down the mines that feed those plants, sees the government paying up to €40 billion ($45bn) in structural aid to the affected coal states of Brandenburg, North-Rhine Westphalia, Saxony and Saxony-Anhalt over the next 18 years.
Chancellor Angela Merkel’s administration will take further measures worth up to €4.8 billion ($5.4bn) in compensation to employees affected by the coal exit law until 2043, and a further €6 billion to utilities.
Germany’s drawn-out timetable, however, has ignited criticism. Climate activists are not pleased to see coal plants only gradually taken offline over the coming 18 years. They also condemn what they say are “over-generous” payments to energy companies that more than compensate any lost profits.
Analysts have also pointed out that the phase-out plan adds challenges to the European Union’s efforts to cut its greenhouse gas emissions sooner — by at least 40% by 2030.
Most of the 28 EU states aim to become carbon-neutral by 2050 — that is, carbon emissions should be balanced by carbon-reduction measures. Poland, however, relies heavily on coal and has a temporary exemption.
Chinese miners’ deal frenzy seen stalling on regulatory hurdles
TORONTO/MELBOURNE (Reuters) – Growing scrutiny by mineral-rich Australia and Canada may cut short a deal frenzy led by China’s state miners and limit Beijing’s role in gold sector consolidation, bankers and analysts said.
Shandong Gold Mining Co (600547.SS) (1787.HK) and Zijin Mining Group Co Ltd (601899.SS) (2899.HK) have driven a wave of acquisitions from the Canadian Arctic to South America to West Africa this year.
Canada and Australia have recently tightened restrictions on investment by state-backed firms, fearing economic dislocation caused by the coronavirus pandemic will make it easier to buy strategic assets. No specific countries have been named under the revised guidelines.
“The concerns are almost entirely (with) China,” said Gordon Houlden, a former Canadian diplomat with extensive Chinese experience who heads the University of Alberta’s China Institute.
The restrictions could also dampen appetite for deals in strategic minerals, bankers and analysts said.
Chinese companies’ bids for Australian lithium companies are facing regulatory pushback while last month China’s Goldsea Group abandoned its pursuit of gold miner Alta Metals (AME.AX) after Australia’s Foreign Investment Review Board (FIRB) sought more time to review the deal.
FIRB’s decision is “highly disappointing,” Graeme Testar, director of PCF Capital Group in Perth, told Reuters. “This is gold, it’s not on the critical minerals list.”
Factbox: Recent flurry of M&A by China’s big miners
Reuters) – China’s big miners are snapping up gold mines and strategic minerals in a deal binge that comes as governments in mineral-rich Canada and Australia tighten restrictions on foreign investment.
Here are some of the recent deals and their status:
– Shandong Gold Mining Co in May offered C$230 million (132 million pounds) to buy Canada’s TMAC Resources. The deal requires Canadian government approvals.
– Shandong Gold on June 18 offered A$321 million ($221 million) for Ghana-focused miner Cardinal Resources Ltd. The deal is subject to review by Australia’s Foreign Investment Review Board.
– Zijin Mining Group Co Ltd on June 12 agreed to buy Toronto-listed Guyana Goldfields for C$323 million ($238 million). The deal is subject to approvals.
– Zijin Mining on June 7 acquired a 50.1% stake in Tibet Julong Copper Co Ltd for $548 million.
– Zijin Mining in February completed its C$1.3 billion acquisition of Colombia-focused Continental Gold.
– China’s Goldsea Group said on June 24 it will let a takeover bid by its local unit for Australian gold miner Alto Metals lapse after the country’s foreign investment board sought extra time to consider the deal.
– China’s Baogang was blocked from taking up a $20 million stake in rare earths miner Northern Minerals which owns the advanced Browns Range heavy rare earth project in Australia’s north.
– Privately held Yibin Tianyi Lithium Industry in May completed a A$10.7 million investment in lithium hopeful AVZ Minerals, which has a project in the Democratic Republic of Congo. The deal was amended after Australia’s FIRB advised that an earlier proposal for a 12.1% stake in AVZ faced rejection for being “contrary to the national interest.”
Oyu Tolgoi loses some of its underground reserves following updated feasibility study
An updated feasibility study on the development of the underground mine at Oyu Tolgoi, in Mongolia, has confirmed that the huge copper-gold project will be delivering sustainable production later than initially planned and this output will come with a higher capital expenditure bill.
Majority owned by Rio Tinto through its 66% stake in Turquoise Hill Resources, Oyu Tolgoi is currently being mined as an open-pit operation (producing 146,346 t of copper and 241,840 oz of gold in 2019), yet previous studies have indicated a combined open-pit and underground operation could up the tally to around 500,000 t/y of copper.
Back in July 2019, Rio Tinto included an update on the underground project saying first output was expected to be achieved between May 2022 and June 2023, a delay of 16 to 30 months compared with the original feasibility study guidance in 2016, while preliminary estimates for development capital spend was $6.5-$7.2 billion, $1.2-$1.9 billion up on the $5.3 billion previously disclosed.
The updated feasibility study issued this week from Oyu Tolgoi LLC (owned 66% by Turquoise Hill and 34% by the Mongolian government), which is in the process of being submitting to the Government of Mongolia in accordance with Mongolian regulations and standards that require mining companies to submit updated feasibility studies every five years, includes a delay of 21 to 29 months for first sustainable production compared to the original feasibility study guidance in 2016 and an increase of $1.3-$1.8 billion from the original $5.3 billion development capital.
This process has also seen 1.22 Mt of copper, 850,000 oz of gold and 7.01 Moz of silver removed from the Hugo Dummett North reserve base compared with the December 31, 2019 calculation, with some 80,000 t of copper, 70,000 oz of gold and 550,000 oz of silver added to the Hugo Dummett North Extension reserve base.
Chile’s desalination projects delayed by COVID-19
Seven desalination projects for the mining industry are likely to be delayed due to the COVID-19 pandemic, according to Chile’s copper commission Cochilco.
Amid the health crisis, mining companies with assets in Chile decided to halt or slow expansion plans until further notice, and according to Cochilco’s review this would result in up to a two-year delay in the startup of the plants.
Spence Growth Option
Australia’s BHP originally planned to have a desalination plant for its Spence copper mine ready by the end of 2020, but the pandemic’s impact could push back plans until next year. The project, located in Antofagasta region, would supply up to 1,600l/s.
The US$620mn construction contract has been awarded to a JV formed by Japan’s Mitsui and Spain’s Tedagua.
The US$1.3bn expansion of Antofagasta Minerals’ copper mine, in Coquimbo region, includes a desalination plant with 400l/s capacity, which before the pandemic was advancing according to schedule.
Earlier this year, the company accelerated expenditure on the project and has said that works are set to finish in 2021.
Controlled by Mantos Copper and currently in the feasibility stage, the desalination plant which will add 260l/s to current capacity is now expected to be ready in 2022 and not in 2021.
Quebrada Blanca phase II
Originally planned for 2022, the Teck Resources’ plant in Tarapacá region is now expected to be delayed until 2023. Its initial capacity will be 850l/s but could be increased to 1,300l/s.
The copper mine expansion was suspended in March after having reached 29% progress.
The desalination plant of state copper miner Codelco will be delayed by a year to 2023. Its initial capacity is put at 630l/s with potential to reach 1,956l/s.
At the end of 2019, Codelco scrapped the original US$1bn tender won by a consortium led by Japan’s Marubeni.
The initiative will supply the Chuquicamata, Radomiro Tomic and Ministro Hales mines in Antofagasta region and all Codelco’s facilities in Calama.
Jorge Cantallopts, director of studies and public policies at Cochilco, told BNamericas that the delay could impact Codelco’s northern division due to the drought that currently affects the country.
Located in Atacama region and controlled by Capstone Mining, the desalination plant for the copper and iron project should be ready in 2024 instead 2022. The plant will have capacity of 30l/s and is currently in the feasibility stage.
Controlled by Freeport-McMoRan, the 500l/s desalination plant should be ready in 2027 and not in 2025. The project does not yet have an approved environmental impact study.
Indonesian coal miners to cut 50 million tons of production due to weak prices
Miners in Indonesia, the world’s top coal exporting country, have decided to cut domestic production by 50 million tons this year in their bid to increase global coal prices, which have been falling during the health crisis.
The Indonesian Coal Mining Association (APBI) has forecast coal production to fall short by 11 percent to 530 million metric tons this year. However, members are planning to further lower production to 480 million tons due to weak prices, the APBI announced on Wednesday.
Indonesia’s benchmark coal price (HBA) hit US$52,98 per ton in June, the lowest price in the last four years, according to Energy and Mineral Resources Ministry data.
Heavy equipment owned by PT Berau Coal is used for coal mining activities at an East Kalimantan mining site, Binungan.
Landslide at Myanmar jade mine kills at least 162 people
At least 162 people were killed Thursday in a landslide at a jade mine in northern Myanmar, the worst in a series of deadly accidents at such sites in recent years that critics blame on the government’s failure to take action against unsafe conditions.
The Myanmar Fire Service Department, which coordinates rescues and other emergency services, announced about 12 hours after the morning disaster that 162 bodies had been recovered from the landslide in Hpakant, the center of the world’s biggest and most lucrative jade mining industry.
The most detailed estimate of Myanmar’s jade industry said it generated about $31 billion in 2014. Hpakant is a rough and remote area in Kachin state, 950 kilometers (600 miles) north of Myanmar’s biggest city, Yangon.
”The jade miners were smothered by a wave of mud,” the Fire Service said.
It said 54 injured people were taken to hospitals. The tolls announced by other state agencies and media lagged behind the fire agency, which was most closely involved. An unknown number of people are feared missing.
Those taking part in the recovery operations, which were suspended after dark, included the army and other government units and local volunteers.
BHP completes first blockchain iron ore trade with China’s Baosteel
LONDON (Reuters) – BHP Group has completed its first blockchain trade in iron ore with China Baoshan Iron & Steel Co Ltd, in a transaction worth around $14 million.
BHP and technology firm MineHub said in separate statements on Monday that blockchain – a digital ledger that forms the backbone of many cryptocurrencies such as bitcoin – would boost efficiency and transparency. They did not say whether BHP has used blockchain before for other uses.
For the past several years, commodities groups have been seeking to save money by using blockchain to digitise a sector that still uses millions of paper documents, but have come up against obstacles.
BHP said that the trial transaction using the MineHub platform was worth about $14 million and was delivered in June. The platform processed contract terms, exchanged digital documents and provided real-time cargo visibility, it added.
“The bulk commodity industry needs a digital revolution to reduce physical documentation processes,” said BHP sales and marketing officer Michiel Hovers.
Last month, the world’s top listed miner BHP said it had made its first yuan-denominated sale of iron ore to China Baoshan Iron & Steel, known as Baosteel and the listed arm of the world’s biggest steelmaker China Baowu Steel Group.
BHP added at the time that it expected to complete its first blockchain transaction with the Chinese company soon.
Mongolia’s economy is stuck between China, Russia and US
William Pesek is an award-winning Tokyo-based journalist and author of “Japanization: What the World Can Learn from Japan’s Lost Decades.”
Mongolia is famed for producing many of the globe’s top contortionists, able to bend and twist their bodies into unbelievable shapes. You can count Prime Minister Ukhnaagiin Khurelsukh among them after his landslide reelection last week.
Khurelsukh’s Mongolian People’s Party retained a supermajority, grabbing 62 of 76 parliamentary seats. He now faces an even tougher feat: bending and twisting government policies into the impossible positions needed for Mongolia to thrive in the years ahead, as the coronavirus hits its economy and the country negotiates its uncomfortable position between three powers — China, Russia and the U.S.
To the south, China buys roughly 90% of the iron ore, copper and gold that drives Mongolia’s $13.5 billion economy. To the north, Russia, a patron since the Soviet era, is the source of virtually all Mongolia’s energy. Far geographically, but close geopolitically, sits the U.S., a mentor for a nation often called an “oasis of democracy” in a decidedly autocratic neighborhood.
Donald Trump’s reign has of course complicated this dynamic. The U.S. president’s odd affection for Russia’s President Vladimir Putin, his ambivalence toward China’s President Xi Jinping and his trade war now extending to Europe have Mongolia on edge. Suddenly, this “third neighbor” — as locals call major powers beyond China and Russia — is just as erratic as the two directly on its border.
Khurelsukh’s government must contend with yet another external force: mining giants agitating for bigger profits from Mongolia’s underground treasure. The immediate flashpoint is arriving at a truce with Rio Tinto concerning Oyu Tolgoi, a joint gold and copper project in the Gobi Desert. How Ulaanbaatar handles the taxation of minerals and the terms of mining agreements will send a loud signal to foreign investors.
Four Charts That Show Copper’s Comeback Has Room to Roll On
Copper’s enjoyed its best quarter in nearly a decade, backed by a demand recovery in top consumer China that’s set to stretch supplies just as the Covid-19 pandemic threatens output in key producer Chile.
The bellwether metal rebounded from a more-than-three-year low in March, entered a bull market this month, and extended gains to $6,000 a ton for the first time since January. Prices are rallying as Chile’s miners grapple with a virus outbreak that’s slowed output. Meanwhile, China’s post-virus recovery is drawing down global stockpiles and fueling bullish investor sentiment.
Here are four charts that showcase copper’s remarkable comeback, and suggest that the rally may yet have room to run. Prices will trade above $6,000 a ton in the fourth quarter, according to Morgan Stanley, citing better-than-expected demand in China and “severe” mine disruption.
As the month, quarter and half neared an end on Tuesday, copper traded as much as 0.9% higher at $6,016.50 a ton on the London Metal Exchange. Backed by the metal’s gain and a global equity rally, miners have seen vast gains this quarter, with Freeport-McMoRan Inc. up 64% and Antofagasta Plc up 21%.
Roaring Right Back
The supply-and-demand double whammy has stoked a 21% rally this quarter that outstrips the performance of most other materials. Over the same period, the Bloomberg Commodity Index has risen less than 4%.