May Newsletter – 26.05.2020
- General Motors, LG Chem Form Ultium Cells Battery Joint Venture
- Xi’s Hong Kong power grab deftly masks domestic shortcomings
- Gold price up as pressure builds on US-China relations
- Rising US-China tensions halt copper price rally
- Russian central bank seeks to reverse diamond deal
- Tanzania allows Barrick to ship gold concentrate
- Gold giant Australia is firing back up a record exploration boom
- Afghan gold mining: Is blockchain a solution for violence and volatility?
General Motors, LG Chem Form Ultium Cells Battery Joint Venture
It’s been just over five months since General Motors GM and LG Chem announced the formation of a new joint-venture to produce lithium ion cells for electric vehicles. The new venture which the companies are investing $2.3 billion into now has a name, Ultium Cells LLC and site work has begun for the factory to be constructed near Lordstown, Ohio.
Rendering of the Ultium Cells LLC production facility near Lordstown, OH GENERAL MOTORS
The new facility is expected to have a production capacity of 30 GWh annually. That would be enough cells for more than 330,000 vehicles with an average of 90 kWh per vehicle when production is up to speed in 2023.
GM recently announced that development work on the first of its new generation of EVs, the GMC Hummer EV, Cadillac Lyric and Cruise Origin has continued during the work at home period of the pandemic and all are expected to start production on time beginning with the Hummer in mid-2021. Initially, these and other vehicles that have yet to be shown will use cells sourced from other LG Chem production facilities, transitioning to the supplies from Ohio as they become available.
Xi’s Hong Kong power grab deftly masks domestic shortcomings
With a single stroke, president shuts down critics in his party and justifies US tensions
Delegates applaud as Chinese President Xi Jinping arrives for the opening session of China’s National People’s Congress at the Great Hall of the People in Beijing on May 22. (Xinhua via AP)
NEW YORK/HONG KONG – China’s new national security legislation for Hong Kong threatens to eviscerate the “one country, two systems” principle under which the territory has been run since 1997.
But the move allows Chinese President Xi Jinping to distract from a multitude of domestic troubles. It gives him a way to drum up public support and silence political rivals – and a justification for tensions with the U.S. that have flared anew.
Mass protests in Hong Kong could well result, as could more punitive measures by the international community. But for Xi, any external consequences pale beside his No. 1 priority: staying in office. He needs to shore up his power base ahead of the Chinese Communist Party’s 2022 National Congress, where he seeks to secure a third term.
“Xi’s top 10 priorities are all domestic,” said Isaac Stone Fish, senior fellow at the New York-based Asia Society’s Center on U.S.-China Relations.
“His constituency is the six other members of the Communist Party’s Politburo Standing Committee, the Chinese elite and the People’s Liberation Army, more than Mike Pompeo,” Stone Fish said, referring to the American secretary of state who has ramped up criticism of Beijing in recent days.
In his annual speech Friday to the National People’s Congress, Chinese Premier Li Keqiang said that “we will establish sound legal systems and enforcement mechanisms for safeguarding national security in the two special administrative regions” of Hong Kong and Macao.
Li had said in a government work report last year that the two territories’ governments and chief executives had Beijing’s “full support in exercising law-based governance.” He had no such words for them this year, signaling greater involvement in the region by the mainland government.
In a statement issued Friday, Pompeo condemned China’s proposal to “unilaterally and arbitrarily impose national security legislation on Hong Kong.”
It marks “a death knell for the high degree of autonomy Beijing promised for Hong Kong,” he said.
Gold price up as pressure builds on US-China relations
Gold rebounded on Friday as ongoing concerns about the economic fallout of the covid-19 pandemic were compounded by fears of rising political tensions between China and the US.
Spot gold rose 0.4% to $1,733.55 per ounce by 12:20 pm EST Friday, after falling 1.4% in the previous trading day. Gold futures rose 0.8% to $1,736.20.
On Thursday, the Chinese government announced its intention to impose a national security law that criminalizes political dissent in the city of Hong Kong, which could fuel further protests and escalate the ongoing US-China spat over the source of the coronavirus.
GOLD HAS HELD ITS GROUND ABOVE THE KEY $1,700 PER OUNCE LEVEL, BUILDING IMPETUS TO REACH ITS 2011 PEAK IN THE COMING QUARTERS
US senators later responded by introducing a bipartisan bill that would sanction Chinese officials and organizations that enforce the new security measures in Hong Kong. The bill came just one day after the Senate passed a bill that would make it more difficult for Chinese-based companies to list on US stock exchanges.
Amid the growing political and economic uncertainties, bullion — often considered insurance under such circumstances — surged to a fresh seven-year high earlier this week.
“China’s aggressive stance on Hong Kong security could exacerbate already tense relations (with US) and a possible confrontation between US warships and Iranian freighters headed for Venezuela are key concerns heading into the long weekend, prompting investor buying,” Tai Wong, head of base and precious metals derivatives trading at BMO, told CNBC.
Gold has held its ground above the key $1,700 per ounce level, building impetus to reach its 2011 peak in the coming quarters, Fitch Solutions said in a note.
“Lower-for-longer interest rates with quantitative easing in full swing, macro and geopolitical uncertainty and strong investor flows should continue to support gold prices on a 6-12 month horizon,” Fitch said.
Meanwhile, physical gold demand picked up in top Asian hubs this week as economies eased lockdown measures and investors continued to buy gold as a hedge against a deteriorating economic backdrop.
Rising US-China tensions halt copper price rally
Industrial metals fell back on Friday as warnings about rising tensions between the world’s two largest economies overshadowed a massive economic stimulus announced by Beijing, the world’s top commodities consumer.
Copper trading in New York fell by 3.6% to $2.37 a pound ($5,225 a tonne) in lunchtime trade, halting a rally that saw the bellwether metal gain nearly 20% from lows hit in mid-March.
CHINA’S MOVE THIS WEEK TO TIGHTEN ITS GRIP ON HONG KONG TORPEDOED ANY HOPES OF A PROMISED PHASE TWO TRADE SCHEDULED FOR LATER THIS YEAR
Covid-19 dealt a serious blow to the Trump administration’s January trade deal, which included promises by China of hundreds of billions of dollars of US imports of goods and commodities, particularly oil and gas.
China’s move this week to tighten its grip on Hong Kong torpedoed any hopes of a promised phase two trade scheduled for later this year; instead a new set of sanctions is now likely in response.
Peter Boockvar, chief investment strategist at Bleakley Advisory Group told CNBC that Trump “is listening to his hawkish advisors like trade advisor Peter Navarro”:
“The problem now is the global economy was much better when we had this tariff stuff before and was able to absorb it, and now we’re much less able to absorb it.
“Trump is acting out and deflecting and blaming ahead of the election about who got us into this pickle. China is now the archery target for this virus and Trump is going to let the world know: ‘It wasn’t me, it was them.’”
China’s “new infrastructure”
Weakness in the copper price came despite an announcement on Friday of a Chinese stimulus package similar in size than the nearly $700 billion pumped into the economy during the 2009 global financial crisis.
In a note, Capital Economics says that the economic measure were more aggressive than expected and points out how China’s physical infrastructure expanded since 2009:
The network of paved roads has almost doubled in size and the freeway network has more than doubled. China has built a high-speed rail network and expanded the regular network by a third. Ninety airports have been built. And developers have built 75 million urban homes.
Given its widespread use in transportation, electrical grids, manufacturing and construction, copper demand could receive a massive boost by the plan, which is heavily focused on infrastructure spending.
Moreover, a large chunk of the investment is destined towards so-called “new infrastructure” mentioned by Chinese Premier Li in today’s announcement, says Capital Economics.
That refers to, among other things, building out 5G networks, “next generation information networks” and charging facilities for electric cars.
All of which need copious amounts of copper.
Russian central bank seeks to reverse diamond deal
Russia’s central bank said on Monday it was seeking to reverse a $1.45 billion deal between Lukoil and Otkritie Holding as part of efforts to recover some state money spent on a bailout of Otkritie bank.
The central bank spent several trillion roubles in 2017 rescuing three private banking groups, including Otkritie bank. Earlier in 2017 Lukoil, Russia’s second-biggest oil company, sold its Arkhangelskgeoldobycha diamond mining business to Otkritie bank’s parent, Otkritie Holding, for $1.45 billion.
IN 2017 LUKOIL SOLD ITS ARKHANGELSKGEOLDOBYCHA DIAMOND MINING BUSINESS TO OTKRITIE BANK’S PARENT FOR $1.45 BILLION
Lukoil and Otkritie Holding did not immediately respond to a Reuters request for comment.
The central bank said the deal was co-financed by Otkritie bank and that Otkritie Holding, which was not part of the bailout, does not service the debt.
The central bank said contesting the deal would allow the state to reduce the funds spent on the Otkritie bank bailout.
Russia’s federal anti-monopoly regulator on Monday said that a lawsuit contesting the diamond deal had been filed in a regional court in Arkhangelsk in the north of Russia.
Tanzania allows Barrick to ship gold concentrate
The Bulyanhulu mine opened in 2001 and is currently only producing gold from a tailings re-treatment operation.
Barrick Gold (TSX:ABX) (NYSE:GOLD) will finally be able to ship gold concentrate containers out of Tanzania, which have been sitting at Dar es Salaam Port for three years due to a dispute over taxes between the country and the gold giant’s now defunct subsidiary, Acacia Mining.
The decision comes four months after reaching a deal with Barrick, which ended the tax row and granted the government a stake in three gold mines operated by the Canadian gold giant through a joint venture — Twiga Minerals.
BARRICK HAS PAID TANZANIA $100M TOWARDS THE $300M AGREED IN THE JANUARY DEAL, WHICH ENDED A TAX DISPUTE ORIGINALLY INVOLVING THE NOW DEFUNCT ACACIA MINING
“This is a striking example of what a true partnership can achieve in building a sustainable business capable of creating long-term value for all stakeholders,” president and chief executive officer, Mark Bristow, said in the statement.
The shipping of about 1,600 containers of gold and copper concentrate from the Bulyanhulu and Buzwagi mines resumed in April, Barrick said. The first $100 million received from had been paid to the government, as part of the $300 million-settlement agreed on January 24.
The Toronto-based miner said the initial payment will be followed by five annual payments of $40 million each.
“Contrary to the past, where these claims were handled by the mine, the compensation process is being overseen by a committee representing Twiga, the government, the local authorities and the affected communities,” Barrick said. “This will ensure that the process is transparent and that issues are dealt with fairly and promptly.”
The wait has played in Barrick’s favour, as gold prices have climbed by about 9% since the end of January as investors seek safe-haven assets amid the coronavirus pandemic.
The company, the world’s no. 2 gold miner, is forging ahead with plans to sell about $1.5 billion in assets by the end of 2020. At the same time, it’s looking to buy more top-tier gold projects and invest in copper assets.
Gold giant Australia is firing back up a record exploration boom
Gold miners in Australia — set to leapfrog China next year to become the top producer — are resuming a pandemic-disrupted exploration spree as prices surge amid a dearth of major discoveries.
“Gold does really well in volatile times, so my sense of this is we’re on the cusp of a fairly major boom,” said Rob Bills, chief executive officer of Emmerson Resources Ltd., which plans to restart exploration drilling this week as the nation continues to ease Covid-19-related curbs. “Those companies that have got cash will turn the tap on fairly quickly.”
Spending on gold exploration in Australia rose to a new record in the final quarter of 2019, while the annual total of more than A$1 billion ($656 million) was about 20% higher than the previous year, according to government estimates. It’s much needed as there have been no major global gold discoveries in the past three years and only 25 in the last decade, S&P Global Market Intelligence said in a report this month.
Gold explorers are eager to restore activity amid forecasts the metal will trade higher for the next several years, even while other industries, and some large metals producers, have announced plans to trim capital expenditure amid caution over the pace of a post-virus recovery.
Restrictions on travel between — and within –Australia’s states, led the mining sector to largely halt on-the-ground exploration work as measures to curb the spread of the virus were introduced from March.
This left Perth-based Emmerson’s main field geologist stranded on the island state of Tasmania, while progress on remote projects in the Northern Territory has been impacted by actions aimed at protecting indigenous communities.
Newcrest Mining Ltd., the country’s top gold producer, is developing plans to restart exploration programs stalled in countries including Chile and Ecuador, according to an emailed statement. Some activities at isolated sites in Western Australia and Canada have continued during the shutdowns.
A lack of major new discoveries also may be a driver in a spree of deal-making that’s hit the gold sector in the past two years. The boom may be an indication that “large, new, economically discoverable gold mining deposits simply no longer exist,” according to Adrian Courtenay, a fund manager at Odey Asset Management LLP.
Gold could hit $2,000 an ounce and will remain elevated over the next five years as governments launch stimulus programs, according to Newmont Corp., the world’s largest producer. Investors including VanEck also forecast gold prices to advance.
Afghan gold mining: Is blockchain a solution for violence and volatility
A decade-long struggle to replenish Afghan gold and copper mining in the mountains of Afghanistan will meet a disappointing end on Tuesday when the stakeholders in the now-bankrupt venture meet virtually to discuss the terms.
Centar Ltd, a company that engaged in Afghan gold exploration and mining activities, was the brainchild of the former investment banker and mining trader from JP Morgan, Ian Hannam. With an envisioned support and approval from the government of Afghanistan, an unrewarding expedition was embarked to develop sizable gold and copper deposits in the region.
Today, a project with over $30 million worth capital injection made in the past few years, is facing an untimely end. Tons of Centar’s heavy-duty drilling and mining machines dragged to the mountainsides of north-east Afghanistan with the help of a considerable taskforce, and collaborative efforts are now in the custody of the fundamentalist religious group, Taliban.
Leveraging Afghan gold mining for a free America
However, Centar’s original vision was not doomed to fail right from the start. Hannam, an ardent investment banker but a mining dealmaker at heart, realized very early the only way to free America from the clutches of Afghan gold mining bureaucracy. He persuaded SAS to cash in on natural resources and raise the living standards.
He even convinced the former operational regiment’s commanding officer, Lt Colonel Richard Williams, to be on his team and lead the initiative as Centar’s chief executive. William’s whatever-it-takes attitude, together with Hannam’s spotless track record as a financial advisor and an exceptional knowledge of the Aghan gold mining industry, made a formidable team.
At that time, Afghanistan had trillions of dollars worth iron ore, gold, and copper fields. This lucrative opportunity then caught the attention of the Polish billionaire entrepreneur, Jan Kulczyk. Named as the wealthiest Pole in 2015, Kulczyk bought 25 percent ownership of Centar and became its chairman.
Unfortunately, the lack of political stability in Afghanistan and America’s constant change of heart cost the company its much-needed Afghan gold mining license. Even though the firm continued with test drilling, it soon ran out of dough.