March Newsletter – 05.03.19
Miners ‘Lifeblood’ Looks Poised to Flow Back Following Pot Craze
- TD sees more mine deals attracting new risk capital to sector
- Renewed generalist interest is still in early days, bank says
Marijuana companies have mesmerized retail investors, depriving the mining sector of the risk capital that’s typically been its “lifeblood.” But two mega-deals and a dramatic hostile battle in the gold space may finally give moribund mining stocks a shot in the arm.
That’s the basic position of TD Securities mining investment bankers, who say current market conditions and historical precedents make them optimistic generalist investors will return in greater numbers to mining stocks.
“Consolidation will reinvigorate investors’ interest in the sector,” Michael Faralla, head of global mining for TD Securities, said in an interview at Bloomberg’s office in Toronto. “They’ll see that as being a good thing to create stronger companies.”
Retail investors have historically held 15 percent of most mining equities, driving their liquidity, TD Securities’ Deputy Chairman Rick McCreary said in the same interview. However, “we have seen all those sorts of liquidity of trading go into the cannabis side.”
Vale’s CEO, other executives, to step down after Brazil dam burst
RIO DE JANEIRO (Reuters) – Brazilian iron ore miner Vale SA Chief Executive Fabio Schvartsman and several other senior executives resigned on Saturday in what the company described as a temporary move, after one of its mining dams burst in January, killing hundreds.
Vale said Schvartsman offered his resignation, which the board “immediately accepted” after state and federal prosecutors recommended their removal late on Friday.
The move comes slightly over a month after a tailings dam broke at Vale’s Corrego do Feijao mine in the interior Brazilian state of Minas Gerais, likely killing over 300 people and releasing massive amounts of toxic sludge.
It was the second deadly burst at a Vale-linked tailings dam in Minas Gerais in four years.
The resignations came after documents emerged in recent weeks showing that Vale knew it had an elevated risk of rupture and that inspectors felt they were under pressure to certify the structure as safe.
Earlier this week, newspaper Folha de S.Paulo reported that a Vale manager had told executives the integrity of the structure had worsened, though the company vigorously denied the report.
The company said it had appointed Eduardo Bartolomeo, executive director of base metals, as the new head of the firm.
Also resigning were Vale’s head of ferrous minerals and coal, Peter Poppinga, planning director Lucio Flavio Gallon Cavalli and Silmar Magalhaes Silva, the head of a geographic division at Vale.
Vale said its board met on Friday night and Saturday morning following the prosecutors’ recommendation.
In a letter sent to the board by Schvartsman and published by newspaper Folha de S.Paulo, in which he asked to be removed from the position of CEO on a “temporary” basis, the executive vigorously defended his conduct.
“I am absolutely convinced that the way I have acted personally, as well as the rest of our executive board … has been absolutely appropriate, correct, and, mainly, loyal to our non-negotiable values of upholding operational security as a company,” the letter read, according to Folha.
Vale did not immediately respond to a request for comment.
How the Cobalt Market Fell Victim to Allure of Electric Cars
- Record cobalt prices unleashed a modern-day gold rush in Congo
- Glencore is confident market will rebound after ‘blip’ in 2018
Cobalt prices were surging so much last year that thieves were carrying out elaborate heists at warehouses in Europe’s busiest port. Now, prices are in free fall and mining companies are taking the financial hit.
The story of what happened is the classic boom-bust in commodities. In the case of cobalt, it was Elon Musk’s vision of electric cars gaining mass appeal and an ensuing rush of money to bet that the world will need a lot more cobalt, a critical component of lithium-ion batteries.
Adding to the allure was a widely-held view that cobalt supply is constrained. Geologically speaking, the metal isn’t rare, but almost exclusively produced as a byproduct of copper and nickel mining. The idea that more cobalt supply depended on higher prices for those metals turned out to be a myth.
Instead, the surge in cobalt prices triggered a boom in supply from the Democratic Republic of Congo. Prices have plunged more than 60 percent from a peak in April 2018, to $15.88 a pound, according to Fastmarkets MB.
Vale dam burst — Implications for the iron ore marketplace and Brazilian exports
S&P Global Market Intelligence
The Corrego do Feijao dam burst on Jan. 25 is the second such disaster at Vale SA operations since Nov. 5, 2015, when Samarco Fundao dam failed. We assess the market scenarios that may develop in this fast-moving situation and conclude that the market will be balanced by marginal Chinese operations. In the immediate aftermath, the disaster added US$15/t to spot prices for 62% Fe iron ores, while the company’s share price went from trading at an industry premium to eroding all gains made since Jan. 1, 2018.
From the supply chain side, S&P Global Market Intelligence Panjiva data shows Brazil’s total iron ore exports average 32.1 million tons per month in the 12 months to Nov. 30, so while the outage will be disruptive it may prove manageable.
Zinc demand and production to increase over the next four years
Data and analytics company GlobalData has forecast that worldwide zinc production will grow at a compound annual growth rate of 3.8% between this year and 2022. This growth will be underpinned by production increases and the opening of new mines in Canada, China, India, Kazakhstan and Mexico, and will result in total global production of 15.7-million tons in 2022.
“After declining substantially in 2016, global zinc mine production increased in both 2017 and 2018, reaching 13.2-million tons and 13.4-million tons respectively,” pointed out GlobalData senior mining analyst Vinneth Bajaj. The 2018 production increase was driven by a 9.9% increase in Australian production, an 8.5% increase in Peruvian output, a 7.9% rise in Indian production and a 5.9% increase in the US.
The rise in production in Australia was the result of increased output from MMG’s Dugald River project (MMG was previously the Minerals and Metals Group and is a subsidiary of China Minmetals Corporation, which holds some 74% of the company) and from the commissioning of two other projects. These were the New Century mine (belonging to Australian miner New Century Resources) and the Hellyer Tailings project (which belongs to Australia-based, but London NEX Exchange listed, NQ Minerals).
“However, the market has remained in a severe deficit, impacted by several mine closures and production cuts over price concerns,” he observed. Production of zinc in China was believed to have fallen, although only slightly (by 1%), as a result of environmental measures. China is the world’s largest zinc producer. The consequence was that total production was still 1.1-million tons below the global demand, which had reached 14.5-million tons. Demand for zinc has been growing in Belgium, China, Germany and the US.
Junior mining sector facing mass exodus, says Kaiser
About half the current population of TSXV junior miners don’t have enough cash to keep the lights on for another year, investment guru John Kaiser said at PDAC 2019.
While junior resource company funding recovered from 2016 to mid-2018, it had since been weak, putting many in the sector on a “path to extinction”.
Kaiser said the cannabis-crypto bubble that had in the past few years sucked the oxygen out of the juniors’ room had now passed and was no longer an excuse. But what exactly would bring investors with risk capital back to resource juniors remained a very complex issue, he said.
Kaiser believes institutional money will not come back to the sector until a distinct multi-year uptrend has become visible, something which in his view is unlikely to happen for metals other than gold in a current macro environment of trade protectionism. This was potentially bad news for “optionality plays” in the short term, he said.
The junior sector had been so badly beaten down even the ‘PDAC curse’ failed to materialise over the past two years.
Kaiser coined the term to refer to buoyant stock prices in the first two months of the year leading up to the PDAC event, that crashed soon after. This occurred in 2003, 2006, 2009 and 2016.
INNOVATION AND TECHNOLOGY
ANDRITZ’s AI mineral processing concept named #DisruptMining 2019 winner
ANDRITZ, and its artificial intelligence-backed mineral processing facility operation concept, has been named #DisruptMining 2019 winner at the event in Toronto, Canada.
The company was one of three finalists selected to pitch to a panel of judges at the live finale, which took place last night.
ANDRITZ, which is a leading supplier of machines and automation solutions worldwide, has developed a unique and continuous way of training artificial intelligence to operate a mineral processing facility using ANDRITZ’s digital twin, Goldcorp, which hosts the event on the sidelines of the Prospectors and Developers Association of Canada’s annual gathering, said.
“The AI is trained to respond to a variety of situations, making it capable of adapting to changing inputs and improving upset recovery time,” Goldcorp said. The trained AI’s ability to quickly process information and recommend data-driven solutions will allow for the improvement of the operation, such as start-up and shutdown, and assist operators to achieve plant-wide optimisation, the company added.
Todd White, Goldcorp Chief Operating Officer and Executive Vice President of Operations, previously said: “#DisruptMining continues to represent the best of innovation in the mining industry. These finalists demonstrate break-through thinking and help build digital momentum in mining. The industry needs to help accelerate the development of these kinds of technologies.”
Pala sees ‘inflection point’ for mining tech
One of the major players in the mining equipment, technology and services (METS) investment space over the past 15 years is seeing “an inflection point for technology adoption” creating new opportunities for investors.
But after getting a threefold return on the US$360 million sale of Gemcom to Dassault Systemes in 2012, Pala is not rushing into new deals just yet.
Managing partner Stephen Gill told Mining Journal the Zug-based private equity firm had reservations about METS companies reliant on surging mining capital expenditure over the next few years, for growth and profits. Vladimir Iorich-based Pala previously timed investments in Orica, Boart Longyear, Norcast Wear Solutions and other METS companies for lucrative exits.
Long-term North American contract-mining investment, Dumas, has been more of a challenge.
Pala made a small investment in Vancouver-based mining technology start-up, Minerva Intelligence.
But Gill said Pala was not looking to become a mining-technology venture capital firm – not yet, anyway.
Inmarsat and Knight Piésold join forces for remote tailings dam monitoring
Inmarsat says it will partner with Knight Piésold UK to deliver highly accurate tailings dam monitoring, analysis and real-time management capabilities for the mining industry.
The collaboration agreement with Knight Piésold, a member of the international geotechnical, tailings management and engineering consulting group, will combine Inmarsat’s satellite-enabled Internet of Things (IoT) solution, with Knight Piésold’s leading consultancy, Inmarsat said. “This will enable smarter decision making, improved safety standards and will support regulatory compliance; offering a new approach to the way tailings dams are currently audited and managed,” it added.
This pact comes only weeks after the tragic breach to the tailings dam at the Vale-owned Feijão mine in Brumadinho, Brazil, and a number of mining companies have published data on how they monitor these facilities.
Inmarsat said: “Mine tailing audits are typically carried out at infrequent intervals, with employees and third-party consultants making long distance trips to collect data and audit the status of the dam.
“The solution makes data available between site visits to any accredited users, anywhere in the world. This means that current, on-site auditing practices can now be supplemented with a remote, customisable, ‘daily management cycle’, with auditor recommendations and real-time decision-making now available to on-site engineers.”
Inmarsat’s solution collects data from a range of industry standard sensors via edge connectivity such as Long Range Wide Area Network, before it is transferred across Inmarsat’s L-band satellite network to a single cloud dashboard. This enables mining companies and national regulators to gain a comprehensive view of the status of their dams with granular metrics such as pond elevation, piezometric pressures, inclinometer readings and weather conditions displayed in one place, no matter where the mine is located, according to the company. The solution is also highly versatile and features sensor-agnostic capabilities, so it will work with both existing sensors and new devices, Inmarsat said.
Richard Elmer, Regional Manager for Knight Piésold UK, said: “The current tailings auditing and management business consists of semi-annual or annual site visits with recommendations based on these visits. Instrumentation data is often collected on-site and mining companies are largely reliant on human activity for the collection, storage and analysis of the data.
“Our collaboration with Inmarsat provides our clients access to the latest and best available technology for real time data collection and analysis. We see this as a game changing improvement in how companies monitor their current tailings storage facilities and we are proud to be at the forefront of this latest industry innovation.”