While the long term outlook for diamond mining is good, short term difficulties, not least in funding exploration, may make life difficult for some of the smaller players in the sector.
Author: Lawrence Williams
Posted: Wednesday , 30 Jan 2008
In his summary of the past year's activity in the diamond sector and his predictions for the year ahead, David Hargreaves, consultant mining and gemstones specialist for Hoodless Brennan, speaking at Mining Journal's 20:20 Diamond Day reckoned that diamond junior explorers "didn't have much to smile about". While prices have been firmer and the long term outlook looks very positive he feels that diamond explorers without production at present or in the immediate future will continue to find things tough going in the year ahead.
Over the years the market in diamonds has been relatively stable. Last year increase in supply was roughly matched by demand, but even so stockpiles are at historically low levels. But a fall-off in demand in the US, brought on by the current economic woes, left polished inventories in the jewellery sector higher. With the US accounting for around 50 percent of the market, the country's economy is extremely relevant to the current demand situation. Longer term though, rapidly growing economies like those of China and India which currently have a very small per capita diamond offtake, are likely to play an ever increasing role in the sector - but perhaps this won't really impact for a few years yet.
Meanwhile, Hargreaves believes, there are too many diamond mining juniors coming to the market with too little money and he feels a number of these will not survive the year.
Overall though, the established diamond miners are seeing production fall off as mines mature and start having to move from being big open pit operations to underground mines where the economics are different and overall production tends to reduce. The decline in production from the big mines is not yet being offset by large new diamond mines being brought into production and the general consensus is that the demand to supply gap will continue to increase in the next few years.
Looking at specific countries, Australia looks to be shedding about 25 percent of its annual output, Russia is struggling to maintain reserves, while much of Africa with key diamond producers Sierra Leone, Angola, Central African Republic, Liberia and the DRC all have inherent political and logistical problems which make diamond mining fraught with uncertainty, although there are indications that some of these may at least now be moving in the right direction.
South Africa has come up with some surprises though. De Beers has closed many of its older operations which might have led to a big production decline, but many of these have been snapped up by enterprising smaller mining companies which could lead to the country not only maintaining production, but increasing it.
Canada has Snap Lake and Victor coming on stream which should help it maintain its position in the production league table while Namibia is the scene of increasing activity as is Lesotho and potential is also being shown by increasing activity in Tanzania while there are interesting prospects in Finland adjacent to some of the largest Russian mines and in the same geological structures.
Because the diamond trade has been such a well controlled market over the years, t has not been subject to the peaks and troughs of the base and precious metals sectors and at the moment a steady rise in prices is not enough to make it as attractive to investors as other mined commodities, although the risks are probably lower too,
In the junior sector - where as one of the other presenters, Stephen Grimmer of Karelian Diamonds, which is working on some major kimberlites in Finland pointed out, the risks may be great, but the rewards from picking a good development can be great - Hargreaves reckons that the current financial squeeze could find second and third round funding difficult, if not impossible. "Those with production and cashflow will find it easier to raise finance for expansion or acquisition, a trend now developing. But it puts the conglomerates and the majors in the driving seat" says Hargreaves.
So saying there were some exciting presentations from some of the smaller mining companies presenting at the Diamond Day. African Diamonds and Firestone Diamonds both have very well advanced projects in Botswana where history has shown that there is a much higher success rate in finding economic kimberlites than in many other areas. In both cases some of their projects are joint ventured with De Beers which gives them a little more financial clout, and in its AK6 diamond pipe the former has what wll probably prove to be the next big Botswana diamond mine (owned 66% by De Beers though). Diamond Corp and Rockwell Diamonds both have their major operations in South Africa, with the former already in production at the Lace Mine, working tailings, but developing an underground operation too. Kopane Diamonds is in Lesotho working the Liqhobong pipe and again development is well advanced and here there is the bg added incentive of turning up bonanza stones, which command a huge premium per carat price.
Overall the diamond sector is in a situation where, as Hargreaves says, "Short term uncertainty conflicts with long term demand". However he also points out that premium value diamonds as gemstones are "wanted not needed" and thus demand is prone to the ups and downs in the world economy. Overall though, the long term demand to supply scenario looks very positive for the diamond sector, but ‘jam tomorrow' does not necessarily make for the best investment policy.
Lithium has been removed due to my involvement in the acquisition of lithium prospects in Africa. Contact Carel van der Merwe at email@example.com or +27 62 538 7750 if interested.
Africa > Algeria - Angola - Benin - Botswana - Burkina Faso - Burundi - Cameroon - Central African Republic - Chad - Congo (Brazzaville) - Congo (Kinshasa) - Côte d'Ivoire - Djibouti - Egypt - Equatorial Guinea - Eritrea - Ethiopia - Gabon - Gambia - Ghana - Guinea - Guinea-Bissau - Indian Ocean Islands - Kenya - Lesotho - Liberia - Libya - Madagascar - Malawi - Mali - Mauritania - Morocco - Mozambique - Namibia - Niger - Nigeria - Rwanda - Sao Tome and Principe - Senegal - Sierra Leone - Somalia - South Africa - Sudan - Swaziland - Tanzania - Togo - Tunisia - Uganda - Zambia - Zimbabwe
While the long term outlook for diamond mining is good, short term difficulties, not least in funding exploration, may make life difficult for some of the smaller players in the sector.
Posted: Thu, 31 Jan 2008
[miningmx.com] -- SOUTH African gold output at Gold Fields will be reduced by up to 164,250 oz worth R1bn at current prices because of the power crisis in that country amongst other issues, CEO Ian Cockerill said on Thursday.
A 10% reduction in power usage by mines demanded by South African power utility Eskom will reduce gold production and lead to shaft closures and restructuring, Gold Fields said in December quarter results, which showed a three percent decline in output, tightly contained costs and a massive leap in net earnings.
Eskom on 25 January declared force majeure on its power supply, causing mines across the country to shut their operations. Power has been steadily increased to the mines since then and is currently between 80% and 90% of normal usage.
lead to shaft closures and restructuring
"At the South African operations, subject to the availability of power, which at the time of writing is 80%, production is likely to be about 20 to 25% lower than the December quarter," Cockerill said in the results.
"This is due to various factors, the slow start up after the Christmas break, the week-long stoppage due to the power shortage in January, and production losses across all the South African operations due to continued power shortages." An analyst pointed out that holiday breaks during the March quarter generally resulted in a reduction of between eight and 10% reduction in output anyway. "It puts that figure from Gold Fields into perspective and I think this is the company preparing for a round of retrenchments," the analyst said.
Production at the South African operations decreased to 657,000 oz from 689,000 oz in the September period. Attributable international output increased to 303,000 oz from 297,000 oz.
Eskom and the mining industry have agreed that the mines, amongst the largest users of power, will cut their demand by 10%.
“The 10% reduction by Eskom will impact on gold production and may regrettably lead to shaft closures and restructuring,” Cockerill said. “Current power shortages in South Africa will impact production in the March quarter and into the foreseeable future.”
“The ongoing power shortages in South Africa will require a combination of aggressive energy saving and energy efficiency projects to achieve a 10 per cent reduction in electricity use, and possible participation in Eskom’s Emergency Demand. “
Gold Fields’ net earnings shot up to R1.94bn in the quarter against the previous quarter’s R429m and R767m in the same period a year earlier.
Gold output was down three percent to 960,000 oz, mainly because of reduced output from the South African operations offsetting a net recovery in the offshore mines.
“During the December quarter we saw a welcome recovery at our international operations. Regrettably the South African operations, in particular Driefontein, were adversely affected by a number of safety related work stoppages,” Cockerill said.
Total cash costs were up just three percent in the quarter.
Cockerill said of the outlook for the international operations in the March quarter: "Production is forecast to increase marginally and costs will be slightly higher due to increases in power and diesel input costs."
Posted by Carel van der Merwe at 31.1.08
As Zimbabwe raises its official gold price to Z$100 million a gramme annual gold output has declined again to 7 tonnes and may almost halve again in 2008.
Author: Tawanda Karombo
Posted: Wednesday , 30 Jan 2008
The Zimbabwe government has increased the official gold support price to Z$100 million per gramme at a time when the country's overall gold output for 2007 has slumped to just seven tonnes
from the previous year's 11 tonnes.
The increase is however still behind the Zimbabwean parallel market gold price of around Z$160 million a gramme.
The local currency has also taken a severe knock in recent weeks with the greenback fetching Z$6 million while the official exchange rate is still pegged at Z$30,000 to the US dollar.
Mining executives who spoke to Mineweb have however stressed that "although the increase in the gold support price by the government is welcome and a step in the right direction, it will soon be further eroded by inflation".
Harare has since stopped producing inflation and related statistics, a move that analysts say is a last resort to hide the Southern African nation's humiliating inflation figures.
Announcing the output figures for gold, the chamber of mines said gold and other minerals mining houses had been hamstrung by incessant power outages and the non-availability of foreign currency.
Metallon Gold chief executive Collin Gura echoed the same sentiments. Metallon accounts for about 50 percent of the country's overall gold production.
Zimbabwe's gold output is predicted to further decline to an all time low of four tonnes for the current year.
Apart from frequent power cuts, miners in Zimbabwe - which boasts the world's second largest platinum reserves after South Africa as well as important gold, nickel and coal deposits - have had to grapple with a skewed exchange rate, foreign currency shortages and the threat of nationalization.
Posted: Wed, 30 Jan 2008
[miningmx.com] -- BOTSWANA has long been known to have extensive coal deposits, and though the figure must be treated with great reserve, the latest estimate is that they total 212 billion tonnes, which would be two-thirds of all known deposits in Africa.
Trouble is, Botswana is bang in the middle of the subcontinent, in a country with little infrastructure, a small population, and some distance from either domestic markets or seaports. At present, only about one million tonnes of coal a year is mined in Botswana. But as the coal price soars and energy becomes scarce, that could change.
It certainly will if Asenjo, a 50-50 partnership between Western Australia's Aquila Resources and Jonah Mining, in turn a 50-50 partnership between Sam Jonah's Jonah Capital and Sentula Mining (the former Scharrig Mining), has its way. In Johannesburg this morning, Asenjo unveiled its ambitious plans for the three deposits it holds in Botswana.
Together, these could contain some 6.7 billion tonnes, though again reservations are needed. Asenjo COO Malcolm Campbell is "reasonably confident" that they'll be confirmed, but admits the figure is based on data some of which dates back as far as 1930. Asenjo has in fact just let a drilling contract to Geosearch Botswana for 300-plus boreholes totalling about 30,000 metres of drilling over an area of 2,200 sq km. (Asenjo originally held permits over 4,700 sq km, but had to relinquish half in terms of Botswana legislation.)
While the Dukwe deposit in the north of Botswana is the shallowest of the three, Asenjo is giving priority to Western Mmamabula, which is less than 100km north of Gaborone and reasonably close to the north-south rail line. The deposit contains an estimated 4.1 billion tonnes of Grade A thermal coal at depths of 45m to 300m and seam widths of up to 4.5m.
The timetable envisages initial exploration and modeling to be completed by the end of this year, with a prefeasibility study and listing following by March 2009. By then Asenjo hopes to have established 25% of inferred reserves at all three sites, with another 25% in the indicated category at Mmamabula.
A bankable feasibility study could take another 18-24 months, so it'll be at least four to six years before coal starts to flow through to the market in substantial quantities.
And just what market could that be? Campbell is cagey on the specifics, but there are many possibilities.
Mmamabula is virtually equidistant from the Namibian coast and Richards Bay. Several current or projected port expansions and other infrastructure projects could make it attractive to export through Namibia or even Luanda. And there could be local industrial users.
But the big potential should be to fill gaps in subcontinental energy supply. This could take two forms.
One is electricity generation. Mmamabula could well be capable of producing the 4 million to 6 million tonnes/year that would be needed for a 2,500MW-3,000MW power station – and even if that doesn't materialise, it's an indication of the scale on which the partners are thinking.
The other is a coal-to-liquids plant. By mid-year Asenjo hopes to sign a memorandum of understanding with the South African brains behind a new technology being tested in a pilot plant at Golden Nest in China.
Campbell was surprisingly uninformative on whose those brains are, but it takes only seconds on the internet to learn that they're researchers from Wits University's Centre of Material & Process Synthesis, led by professors David Glasser and Dianne Hildebrandt.
Either eventuality is years from fruition and will cost billions, but they do offer hope for light at the end of the tunnel. And where Asenjo leads, will others follow?
Asenjo may have the pick of the deposits, but there's upwards of another 200 billion tonnes out there. Botswana's sitting on a resource that could in time not only replace diamonds as its main source of minerals revenue, but outstrip South Africa's own coal industry.
Published: 30 Nov 07 - 0:00
The Democratic Republic of Congo (DRC), which has a tenth of the world's copper reserves, must create sound legal systems, if it is to attract more private investors and kick-start growth, the World Bank says.
The DRC needs to improve its legal framework in order to create a completely different climate' of investment, says Jean-Michel Happi, the World Bank's representative in the Central African country.
The DRC is considered one of the worst places to do business, Happi says.
The country, which also has the world's biggest cobalt deposits, this year cancelled a title deed held by London-based Central African Mining & Exploration and said an agreement with Brinkley Mining plc would not stand.
Mines Minister Martin Kabwelulu has since said Central African's permit is not immediately threatened.
After two civil wars between 1996 and 2003, which left four-million people dead and ruined the economy, the DRC is relying on private investment to rebuild basic infrastructure and services.
The DRC treats serious investors fairly, Kabwelulu said in a November 6 interview.
"We are happy to work with investors who respect the rules. There is absolutely no reason why they should worry,'' he said.
A government commission this year reviewed over 60 mining contracts and on November 8 submitted a report to Cabinet
suggesting changes which would help increase State revenue and improve transparency in the industry.
Companies such as Freeport McMoRan Copper & Gold, the world's second biggest copper-miner, and BHP Billiton, the biggest mining company in the world, are having their contracts reviewed.
The chairperson of the Commission for the Review of Mining Contracts, Alexis Mikandji, says the body has recommended that 23
contracts should be cancelled and 38 changed.
London-based human rights group Global Witness last month said the review process lacked transparency and risked simply
‘rubber-stamping'' existing deals.
The World Bank was not associated to the commission, Happi says. He cannot not comment on the report, as he has not
seen a copy, he adds.
New Era (Windhoek)
30 January 2008
Posted to the web 30 January 2008
By Charles Tjatindi
Rössing Uranium Limited plans to produce its own electricity amid the current power crisis facing the country.
Rössing wants to convert excess heat produced by a proposed on-site acid plant into electricity. This is in line with phase one of the mining company's 'Life of Mine Expansion' project, which is aimed at extending the life of the mine to 2026.
Plans are in full swing, with the draft social and environmental impact assessments (SEIA) of the project already completed. Sensitisation meetings on the impact of the proposed developments have been held with stakeholders and members of the public.
The mining company estimates that the proposed acid production plant will be able to produce 12 megawatts of electricity at full capacity. Because the plant will only require about four-and-a-half megawatts of electricity to be operational, the mining company plans to divert the excess megawatts for other uses. The excess amount of electricity is bound to be used in other areas of the company's mining activities, which are heavily dependent on electricity for operation. Rössing is adamant that the initiative would reduce the burden placed on the country's sole power supply utility - NamPower.
Other projects that form part of the Life of Mine Expansion Project include an ore sorter, and mining at a new site - referred to as SK4. The results of the first phase of the SEIA produced positive feedback from stakeholders and members of the public, with most of them in favour of the initiative.
However, a few concerns were raised, which include fears of bacteria in the cooling water, noise pollution and vibrations. Noise and vibrations are also the main negative points at the ore sorter, although the mining company hopes that this would be minimised by proposed mitigation measures.
The proposed new mining site is also bound to face challenges from environmental conservationists, as the site for this development is a relatively untouched site. The biggest concerns will be the impact of the mining activities on the endemic animals - mainly insects and on plants. The disposal of waste rock is another potentially problematic factor.
Depending on the outcome of the final SEIA, production at the new mining site could begin as early as April this year. The new mining site will remain in production for at least three years.
The dimensions of the SK4 pit will be 600m by 300m and approximately 140m to 150m deep.
Preliminary gold production figures from China suggest that it has not yet quite overtaken South Africa as the World's largest gold producer, but that day is not far away.
Author: Dorothy Kosich
Posted: Wednesday , 30 Jan 2008
RENO, NV -
The Vice Secretary General of the China Gold Association said Tuesday that the nation's 12.67% increase in gold production to 270.49 tonnes last year was a record, but still not enough to surpass the world's top gold producer South Africa.
The countries had been neck-to-neck in gold production for the second half of 2007, prompting GFMS to estimate that China had already become the world's largest gold producer. However, China's gold output was just short of South Africa's 272 tonnes, although South African gold production was impacted by declining ore grades, power cuts, accidents, and increased labor costs.
According to China's National Development and Reform Commission, China's gold production has increased 34.845 tonnes during the past five years. The commission said five major gold deposits were discovered in China last year, while other traditional large gold producers, including South Africa, the United States and Australia, have reduced their gold output in recent years.
Within the past year, junior miners China Goldmines plc (LSE: CGM), Jinshan Gold Mines Inc (TSX: JIN), a Robert Friedland company, and Australia's Sino Gold Ltd (ASX: SGX) have all commenced commercial gold production in China.
Strange Chinese rumblings at Katanga Mining, in the Democratic Republic of the Congo.
Author: Barry Sergeant
Posted: Tuesday , 29 Jan 2008
What's really going on at Katanga Mining (KAT CN, C$14.80 a share), busy merging with Nikanor (NKR LN, £4.76), its neighbour in Katanga Province, Democratic Republic of the Congo? Congolese Mines Minister Martin Kabwelulu told Reuters, in Kinshasa, that he had signed a loan deal with China which could lead to the development of DRC-parastatal "Gécamines' Mashamba and Dikuluwe copper/cobalt projects".
These are known, to Katanga Mining, as the Dima Pits, which include Dikuluwe, Mashamba East and Mashamba West. The official line from Katanga Mining is that the pits, which are anything but small, but all flooded, "will form part of Katanga Mining's production during later years and a dewatering schedule will be developed accordingly".
So who owns Mashamba and Dikuluwe? Pressed for an answer on Tuesday, Katanga Mining reacted with a statement to the effect that it was currently in meetings with Gécamines over the friendly merger of the Katanga Mining and Nikanor assets. "As part of these negotiations", Katanga Mining added, "a transaction is contemplated whereby the Dikuluwe and Mashamba West deposits in the southwest portion of the KCC [Kamoto Copper Company] concession, which were scheduled for mining approximately 12 and 15 years from now respectively, will be transferred to Gécamines. It is contemplated that any transaction will be on commercial terms reflecting full value of the assets transferred".
China's ambassador to the Congo, Wu Zexian, reportedly told Reuters following the signing of the deal: "These are large projects and the mines are large. In my opinion it's surely in the billions. That is certain". Last year, a China-based "loan" to the DRC was announced, in an amount of $5bn, but Congolese and Chinese officials have since shied away from confirming the total value of loans and investment on offer.
According to those familiar with the latest deal, the "new" DRC venture is in fact with a consortium of Chinese companies. In a nutshell, Chinese interests - such as Sinohydro Corporation and China Railway Engineering Corporation - will invest around $3bn in infrastructure, and $3bn into the mining deposits, which are held as to 32% Gécamines and 68% as to the Chinese consortium. Then there is a further $3bn earmarked by the Chinese consortium for future investment in infrastructure.
Based on an unpublished document, the Gécamines-China mining JV includes cuvette ("basin") Mashamba, cuvette Dima, Synclinal Dik Colline "D", Kolwezi, containing in total 8.1m tons of copper, and 203 000 tons of cobalt. The deal also includes "a trouver" (literally, "has to find") "Au" (gold), in an amount of 372 tons. The total value of the metals indicated is given as $3bn.
According to those familiar with the situation, Gécamines has structured some kind of a swap with Katanga Mining over the relevant Dima assets, but no details are yet available on what's on the other side of the swap. Before Katanga Mining shareholders start salivating, it should be pointed out that Katanga Mining only ever had the rights to a limited depth in Dikuluwe and Mashamba; the rest belongs to Gécamines.
For many decades Gécamines (and its predecessor) ran Luilu, the substantial hydrometallurgical facility in Kolwezi (now owned by Katanga Mining). The plant was fed with concentrate feed from KOV (now in Nikanor) and Dikuluwe-Mashamba as oxides, and from Kamoto underground (Katanga Mining) as sulphides. (The Kamoto open pit and KOV lie alongside each other, with the inevitability that Katanga Mining and Nikanor were always going to merge.)
In days gone by, the sulphides were roasted to sulphates and then leached together with the oxides. Sulphate was then mixed with water to form sulphuric acid; as such, the wonderful system under discussion had a net acid consumption of zero. Such a system would be no small advantage in the modern world, given shortages of sulphuric acid.
Now that Katanga Mining has merged with Nikanor, the combined entity possesses both the oxides from KOV and the sulphides from Kamoto, once again allowing processing to proceed with zero net acid consumption. This would have made it a lot easier to swallow the deal that Gécamines has struck with Chinese interests.
By Jane Louis
23 Jan 2008 at 03:49 PM
Global platinum demand is expected to continue outpacing supply in the next two years, hitting a deficit of 181,500 ounces by this year-end before closing the gap slightly to a shortage of 175,000 ounces in 2009.
The supply deficit will keep supporting platinum’s recent rally to record-high prices, especially as more production disruptions are expected. The sector was plagued by accidents and strikes this past year, and mining unions have already said they will not hesitate to strike again if safety violations aren’t addressed.
Click here for RI coverage of Johnson Matthey’s Platinum 2007 Interim Review.
By Sven Ridley-Wordich
27 Jan 2008 at 02:19 PM GMT-05:00
AMSTERDAM (ResourceInvestor.com) -- In the next few days, British Dutch oil and gas major Shell [NYSE:RDS-B] could be faced with increased problems. Nigeria, Shell’s major upstream operations area, is set for new discussions regarding Shell’s operations and investments.
The last days, Nigerian news sites have been buzzing with assessments on the possibility of an increased crisis between the oil major and the Nigerian government, as both parties seem to be heading toward different targets. On Friday, January 25, Shell’s CEO Jeroen van der Veer and Nigeria’s president Umaru Yar’Adua will meet in Davos, Switzerland, where both are taking part in the annual meeting of the World Economic Forum.
Some days ago, Van der Veer said he is prepared to discuss all issues pending, such as renewed contract discussions, the gas flaring issue and possible new investment schemes. Analysts, however, think both leaders will also discuss the growing unease Shell and others are feeling about the unwillingness of the Nigerian government to deal effectively with the Niger Delta uprising, which has resulted in the shutdown of more than 450,000 bpd of crude oil.
The latter not only threatens the future of Nigeria as main producer in the region, but also costs the oil and gas operators billions of dollars. In a move to regain the overhand in the conflict, oil and gas companies have asked the Yar’Adua led government to set up effective ways of countering the uprising and bring back on-stream the vast amount of oil production. Van der Veer has repeatedly stated that Shell will not restart production or even assess new investments in the country if the current security situation improves. Shell and its compatriots have been hit by kidnappings, theft and total breakdown of operations due to the unrest in the Niger Delta.
Nigerian politicians have always been wary to address the unrest as main parts of their constituencies are supporting or actively involved in the growing unrest. International operators are currently facing lower production capacity, increased costs and out-right violence in the country. As a result, Shell has already stated that it will consider divesting part of its operations and cut costs and jobs in the country. The latter would mean that Nigeria would be faced by a part pull-out of its main international oil and gas operator in the worst-case scenario. Even a more subtle approach by Shell, such as cutting the overall workers volume, will have a negative impact in the already economically weak Niger Delta region.
In contrast to expectations, Nigerian officials have reacted with total rejection. In a move to quell possible violence in the area, the Nigerian government has announced it will implement new contract stipulations and investment requirements. The existing production contracts are to be reassessed, most probably resulting in less-favorable terms for the operators. If the latter will be put in place for the already existing multibillion offshore oil and gas projects, a crisis will emerge. International investors will not be interested anymore to put their own high value operations at risk if returns are not secure.
The depth of discussion of these issues between Yar’Adua and Van der Veer is unclear, but it seems the bilateral relation is heading for a breakup. Nigeria even has increased the pressure even more by stating that it would press Shell to invest more in the country’s downstream. The latter has been presented as a request, but is seen by some analysts as a new ultimatum. How far companies such as Shell are wiling or able to commit themselves to this new environment is unclear. No rational investor will increase his investment in a project while risks have gone up exponentially. At the same time, Shell cannot pull out totally without losing a huge part of its international production capabilities and reserves. In the past few years, national governments and their oil companies have learned that international operators are in a corner. Nigeria has the possibility to reap more rewards without losing too much, but Shell could lose its future.
The current stalemate seems to be heading for a crisis. Shell is not the only IOC in conflict with Abuja. In the coming weeks, a possible new issue could emerge related to the strict implementation of the gas flaring deadline set by Nigeria. IOCs all have indicated that the deadline is not feasible, but Abuja refuses to delay. Possible further production shutdowns or threats to end contracts could be the result. The already-low production volumes coming from Nigeria will be hit hard if no solution is being found. Oil prices will show an effect too, as other producers won’t be able to counter the loss of Nigerian oil the coming months.
By: Creamer Media Reporter
Published: 30 Nov 07 - 0:00
Diversified mining company Xstrata's commitment to growth remains at the heart of its strategy to create value, CEO Mick Davis commented in the group's interim report earlier this year.
He said that the focus over the past few years on acquisition led growth was driven by the company's analysis of the nature of the business cycle and of the potential value creating opportunities that it had identified across the industry. Davis added that Xstrata would continue to benefit from the acquisition opportunities arising from ongoing consolidation of the mining industry and that activities in the past few years have extended the options available to the company in its quest for growth.
Xstrata's internal growth projects, which constitute a potential $28-billion investment pipeline comprising low cost, high return brownfield opportunities in every commodity business together with 15 major greenfield growth projects demonstrate this.
The company's strategy going forward is based on the opportunistic pursuit of potential value adding acquisitions at the commodity business and group levels, the on going delivery of significant value from existing and new operations and the realisation of Xstrata's internal growth projects pipeline.
Davis highlighted Xstrata Nickel's offer for the LionOre project as a demonstration of the company's devolved business model, which enables the pursuit of a range of bolt on acquisition opportunities, led by business development teams within the commodity businesses. These do not diminish the company's capacity to seek out large, transformational transactions led from the corporate centre.
He said that the decision not to raise a second offer in response to Norilsk's higher bid also underlined the company's discipline in making value creation the key criteria for any acquisition.
Improving existing assets to grow the value of the company's operations is key to creating value from Xstrata's portfolio, commented Davis.
In the first half of this year, the Thayer Lindsley nickel mine and Alumbrera copper operation achieved incremental extensions to mine life, the development of Handlebar Hill zinc lead mine was announced to supplement ore from existing Mount Isa operations to the concentrator, and a number of small projects were implemented to increase production and lower unit costs.
Meanwhile, significant value was extracted from the Falconbridge and Tintaya acquisitions. He said that head office synergies were on track to exceed the company's target of $75-million a year and that there had been considerable progress in realising the operational synergies from the copper and zinc businesses.
Davis commented that 2007 saw the continued optimisation of the portfolio. Non core exploration properties inherited from Falconbridge have been rationalised, realising $65-million to date. The former Falconbridge aluminium assets were sold to Apollo Management LP in April for $1,15-billion.
Davis said that Xstrata's growth portfolio supports a 12% yearly growth rate to 2013, which matches the rate at which the Chinese economy is expected to grow over this period.
Low-risk brownfield projects constitute just under 50% of the company's total pipeline, "complemented by a diversified suite of major greenfield projects that together will enable Xstrata to benefit significantly from an extended period of strong demand and robust commodity prices". The $28-billion total indicative capital expenditure associated with these projects represents nearly 50% of Xstrata's current market capitalisation. Expansionary capital of $4,5-billion has already been approved, with a further $7-billion in the approval process.
Of the alloys division, Davis commented that the Lion smelter, which uses Xstrata's proprietary low cost Premus technology, was successfully commissioned in 2006. He said that the infrastructure platform at Lion provides Xstrata Alloys with the potential to double production capacity by 2015 over 2006 levels at bottom quartile operating costs through two further phased expansions.
Xstrata Coal's portfolio constitutes a range of incremental, low cost, brownfield growth options with short lead times, and includes the significant expansion potential at the Cerrejôn and Rolleston operations. Davis said that these projects could add over 41-million tons or 54% to annual production by 2015 at an indicative capital cost of $2,3-billion.
Meanwhile, the South African Goedgevonden project and the Wandoan project in Queensland Near, constitute longer term greenfield growth opportunities.
Once fully operational, Goedgevonden will be one of the lowest cost export thermal coal operations in South Africa, commented Davis. Xstrata's partnership with ARM Coal to develop Goedgevonden enabled the company to secure capacity at the Richards Bay Coal Terminal and the project is the first major new coal mine in South Africa to be granted new order mining rights.
The Queensland Wandoan project has the potential to produce over 20-million tons of thermal coal a year over an expected life of 30 years. Located in the Surat basin, the mine is thought to be suited for integrated gasification combined cycle generation and other low emissions technology. A decision on the mine will follow the completion of environmental and technical feasibility studies in 2009, with possible production from Wandoan expected from 2011.
Davis commented that Xstrata's Copper division has the potential to more than double production over the next five to seven years, owing to its significant portfolio of greenfield expansion projects and high return brownfield expansions of existing assets.
He reported that the Collahuasi joint venture, identified through the Falconbridge integration process and developed in partnership with Anglo American and the Collahuasi management team, could unlock significant potential. Work under way could enable Collahuasi to more than double production to one million tons a year.
Meanwhile, high returns were expected from the 15% expansion at Lomas Bayas and the plans to double production at Tintaya from 2010 through the development of the Antapaccay satellite deposit. Both projects have low implementation risk and make use of existing infrastructure.
Diversification of risk across five major projects in different geographies constitutes the strength of Xstrata Copper's greenfield growth potential.
The El Morro and Tampakan projects, which are currently in the feasibility study stage, are expected to produce first copper at the end of 2011. Meanwhile, the prefeasibility study for the El Pachón project is on track for completion by the end of this year and conceptual studies under way for the Las Bambas and Frieda River projects are expected to lead to prefeasibility studies within the next 18 months.
In the nickel division, Xstrata Nickel had accelerated plans to expand the former Falconbridge nickel operations as well as the range of brown and greenfield projects in the portfolio. Brownfield expansion projects at Raglan, Nickel Rim, Fraser Morgan and Falcondo represent a potential 30% increase in capacity by 2010 and are expected to improve the cost position of Xstrata Nickel's operations. Davis said that the Koniambo, Araguaia and Kabanga greenfield projects have the ability to double current nickel production over the next five to ten years.
Finally, Davis commented that approved expansion projects at Xstrata's zinc operations support a 51% expansion of the zinc output mined in 2006.
He said that this would be delivered through a two phase expansion of Mount Isa Zinc, the recent restart of the Lennard Shelf operations, expansion of McArthur River and development of the new Perseverance mine.
Xstrata's ambitious Mr. Davis (Source: Miningmx)
Posted: Tue, 07 Aug 2007
[miningmx.com] -- MICK DAVIS, Xstrata plc’s 49-year-old boss, has the mark of ceaseless ambition writ large upon him. According to one report he puts in a 70-hour week and is most productive after 11pm. For further evidence, just look at Xstrata. In 2001, the company was sinking in $500m of debt. It now has a market capitalisation of $45bn.Xstrata has come from virtually nowhere. Within six years it currently finds itself jostling for the attention of investors who might previously have selected Rio Tinto, Anglo American or BHP Billiton. While it’s true Xstrata’s share price has been lifted by a buoyant commodity market it’s also worth knowing this is the second time Davis has built a company from scratch. The first was Billiton, where Davis played the brainy finance director to Brian Gilbertson’s charismatic CEO, although the chitchat has it Davis had more to do with the shift of Gencor’s assets to London than Gilbertson himself. Says Ian Hannam, of JP Morgan, in a report in The Times of London: “There are four people who claim they brought Billiton to London:– Gilbertson, myself, Adrian Coates (head of metals and mining at HSBC) and Davis. The answer is: it was Davis. He saw the opportunity and managed to persuade Gilbertson that it would create a platform to build a new company to rival Rio.” Davis left Billiton when it became clear the finance position was to be headquartered in Melbourne and not London, as first agreed. Within months he was persuading Swiss group Glencore to allow the coal assets contained in its failed Enex IPO – shortly after 9/11 – to fall to a struggling company in which Glencore had a 40% stake and which Davis would list in London. Xstrata, then close to breaking bank covenants, was reborn. Growth has been substantially through acquisition. According to a report dated 17 May by Paul Galloway, an analyst at UBS, Xstrata was easily the highest geared firm – at 69% – among all the British miners. Average net:debt gearing of British miners is currently around 21%. Last year alone Xstrata completed cash acquisitions totalling $19.6bn, including the $17bn takeover of Canadian company Falconbridge. This year it’s made a $5.6bn bid for LionOre Mining and a successful $322m bid for Gloucester Coal, an Australian company.
Nov 29th 2007 | JOHANNESBURG
De Beers sells one of its most famous mines
Petra Diamonds Not time to stop digging just yet
RICHARD BURTON probably knew nothing of the small South African town of Cullinan when he bought yet another chunky diamond for Elizabeth Taylor in 1969. But the rock, still known as the Taylor Burton, was found there, together with a quarter of the world's diamonds over 400 carats. The Cullinan mine has also produced what is still the largest rough gem in the world—the whopping 3,106-carat Cullinan Diamond—parts of which adorn England's Crown Jewels. Now the mine itself, like so many of the diamonds unearthed there, is about to change hands. On November 22nd De Beers, the diamond giant that has owned the mine since 1930, said it was selling it to a consortium led by Petra Diamonds, one of South Africa's emerging diamond producers, for 1 billion rand ($147m) in cash. Provided regulators approve the deal, the transfer should take place by the middle of next year.
De Beers is selling because the mine is no longer profitable, despite attempts to turn it around. But Petra reckons the mine still has another 20 years of production in it and plans to extract at least 1m carats a year. The unexploited “Centenary Cut” deposit, which lies under the existing mine, could yield a lot more. This is good news for the mine's 1,000 or so employees and for the town, which has depended on the diamond business since Sir Thomas Cullinan discovered a prospect there in 1898 that contained kimberlite, a rock that can be rich in diamonds. The mine, established in 1903, is one of 30 or so kimberlite diamond mines in the world, and is believed to be still the world's second-most-valuable diamond resource.
Petra is a relatively small outfit, listed on London's Alternative Investment Market, that specialises in buying mines that bigger companies see as marginal. Its trick is to extract better returns by rationalising production and processing, and keeping operating costs and overheads down. Petra has already bought two of De Beers's loss-making South African mines—both of which are now profitable—and is finalising the 78.5m rand acquisition of the group's underground operation in Kimberley (the town that gave kimberlite its name), which stopped working in 2005.
It already operates four mines in South Africa and has promising exploration in Angola (a joint-venture with BHP Billiton), Sierra Leone and Botswana. Petra expects to produce over 1m carats by 2010—quite a jump from 180,474 carats in the year to June. The company has yet to make a profit, but expects to be making money by the middle of next year.
In the 1990s De Beers decided that it was no longer a good idea to try to monopolise the diamond market. It started focusing on higher returns rather than market share, and has been revamping its mine portfolio, selling off mines that are no longer profitable and investing in more enticing operations, such as its mine off the west coast of South Africa, its Voorspoed operation in the Free State province, and two new mines in Canada.
This has opened the way for a new class of diamond firm that operates in the vast middle ground between the world's handful of large producers (De Beers, BHP Billiton, Rio Tinto and Alrosa) and a multitude of much smaller exploration firms. The Cullinan deal should entrench Petra in this middle tier, alongside firms such as Kimberley Diamond and Trans Hex. But even if it does reach its target of 1m carats a year, Petra will still not be able to match the sparkle of the giants. Last year De Beers produced 51m carats from its mines in Botswana, Namibia, South Africa and Tanzania, which amounted to 40% of the world's diamonds by value.
Source : La Société - Actualité publiée le 28/01/08 à 11:27
Xstrata Copper announces a 28% increase in the total estimated Mineral Resource at the Collahuasi copper mine in Chile, one of the world's largest copper deposits. Additional resources have been defined as a result of a successful drilling programme in 2007 and represent the equivalent of an additional 11 million tonnes of contained copper metal.
"The impressive results of last year's exploration programme are a credit to the Collahuasi management team and confirm Collahuasi's position as one of the world's great copper deposits, with enormous potential to expand its resource base further," said Xstrata Copper Chief Executive Charlie Sartain.
"This significant increase in resources clearly supports the business strategy approved and announced by the shareholders last year to more than double annual production to over 1 million tonnes of copper progressively over the coming years," he said.
The upgraded Mineral Resource of 5.19 billion tonnes at an average grade of 0.83% copper includes for the first time 746 million tonnes at a grade of 1.06% from the Rosario Oeste deposit. This compares to the previous Mineral Resource of 4.05 billion tonnes at an average grade of 0.80% copper as of 31 December 2006.
The Mineral Resource includes Ore Reserves of 2.20 billion tonnes at a grade of 0.82% copper, a 25% increase in tonnage from Ore Reserves of 1.76 billion tonnes at 0.89% copper at 31 December 2006.
By: Mariaan Olivier
Published: 25 Jan 08 - 11:35
Precious metals miner Aquarius Platinum has stopped underground operations at its Everest mine after mining contractor Shaft Sinkers Mining (SSM) abandoned the contract, it said on Friday.
The company cited “industrial relations” and “financial issues” as reasons for this move.
“With immediate effect, Aquarius Platinum South Africa (AQPSA) has assumed management of the Everest mine’s underground operations and the management are implementing contingency plans to resume production at the mine on January 28,” it stated.
As a result of the dismissal and shut down of operations, production losses were to date estimated to be 12 000 platinum group metal (PGM) ounces, and until operations were back to normal it would not be possible to quantify the total lost production at AQPSA.
Shaft Sinkers had entered into a transaction to sell its contracting subsidiary, SMM, to JIC Mining Services in August.
AQPSA explained that SMM workforce had raised ”significant concerns” over the deal, when they returned from the traditional Christmas and New Year break, which had led to a series of go-slows and unprotected strike action. The mine’s output declined to a level of around 50% of the pre-Christmas output, it stated.
AQPSA said that SMM had dismissed significant numbers of employees last Friday, which brought the production to a stand still at the mine.
The company notified AQPSA on Thursday that it was abandoning the contract, completely halting production on the mine.
Geosearch operates 115 rigs and employs about 1 400 people.
South Africa / Stanley Mining Services
0011 267 244 2286/8/9
ZAMBIA – NDOLA OFFICE
MALI – BAMAKO OFFICE (also serves Burkina Faso and Guinea)
West African Drilling Services Pty Ltd
Zone Industrielle-Route De Sotuba (Location)
Porte No 2410
P.O. Box E3863 (Postal)
Bamako, Mali, West Africa
223 221 4832 or 223 221 2125 FAX: 223 221 2126
Guinea – Kiniero Site
Guinea – Lero Site
MALI – SADIOLA SITE
Stanley Mining Services Pty Ltd
Plot No. 109 (Location)
Bin Haki Street
P.O. Box 2372 (Postal)
255 (0) 78 4529634-7 FAX: 255 (0) 78 4560465
Democratic Republic of Congo
Posted by Carel van der Merwe at 27.1.08
December 26, 2007 1:18 PM ET
LUSAKA, Zambia (AP) - Rising interest in nuclear power and high uranium prices have led to new uranium exploration and mining across southern Africa, home to the uranium-rich Karoo Basin. Here's a glance at some of the countries attracting attention.
Though it is believed to hold 7 percent of the world's uranium deposits, South Africa's uranium production has been dropping. Faced with domestic energy shortages, the South African government earlier this year proposed expanding uranium mining and processing throughout the country and constructing new nuclear power plants. Under the policy, South Africa, which gave up its nuclear weapons program in the 1990s, would only grant mining rights to foreign companies if there is enough uranium to meet local power demands. In 2007, Uranium One Ltd., of Canada, opened a new mine in South Africa.
Namibia produced 3,067 metric tons of uranium in 2006 -- the sixth-highest total in the world -- according to the World Nuclear Association, an industry group. Namibia's Rossing open pit mine is the third largest uranium mine in the world, and accounted for 7.8 percent of world production in 2006. Langer Heinrich mine began production in 2006.
In northwestern Zambia, Equinox Ltd. is hoping to mine uranium along with copper in the Lumwana mine. In southern Zambia, several companies are searching for uranium deposits. The Zambian government is completing new uranium mining regulations.
Botswana is now seeing uranium exploration by foreign mining companies like Bannerman Resources Limited and Uramin Inc.
The government has allowed Australia's Paladin Resources to develop the Kayelekera uranium mine in northern Malawi, a move that prompted protests and legal action from some human rights advocates, over environmental and safety concerns and tax revenue concerns. Malawi has not previously been a uranium producer.
Reports of illegal mining and environmental concerns dog the uranium industry in Congo. The country has long been a uranium producer; its Shinkolobwe mine was the source for some of the uranium that went into the atomic bombs that the United States dropped on Japan during World War II. Local diggers have continued working in Shinkolobwe mine despite a presidential decree again ordering it shut several years ago. In November, a government official suspected of ordering up to 17 tons of radioactive waste dumped in a river in the southeast of the country was arrested.
The search for uranium on the continent goes beyond southern Africa. Niger is Africa's biggest producer of uranium, and the fourth largest uranium producer in the world, trailing only Canada, Australia and Kazakhstan. The country produced 3,434 metric tons of uranium in 2006.
© 2007 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.
A week of huge impacts on the world economic sector and not least on the gold, platinum and base metals sectors.
Author: Lawrence Williams
Posted: Saturday , 26 Jan 2008
What a week to return from a 14-day holiday in laid-back Goa! Markets crashing and partially recovering, a 0.75 percent US Fed interest cut, a rogue trader losing Soc Gen $3.5 billion and Africa's economic powerhouse descending into banana republic chaos through incredibly bad forward planning by its state-owned electricity utility, resulting in virtually all the country's major mines being shut down for safety reasons. What are we due for next week?
Hopefully things may calm down a bit as traders sit back and assess the global economic situation and the commodities sector a little more rationally - but perhaps that's too much to ask for. There are obviously winners and losers out there - metals commodities are mostly seeing signs of strength, but the stock markets in general are in an extremely nervous state with most observers believing that there is more adverse financial news to come and wondering if the U.S. can really stave off a recession.
As far as the mining sector is concerned, the southern African power supply crisis is likely to have the biggest impact. It's not only South Africa which is suffering, but also Zambia, Zimbabwe, Botswana and now Namibia which are having problems - the latter because it had previously relied on South African grid power for a key proportion of its electricity needs and has been told that this cannot continue. Zambia is getting some relief by importing power from that model of democratic stability the DRC!
Where does this African chaos leave the metals commodity sector? The commodities most likely to be affected are copper and cobalt, primarily from Zambia , diamonds from Botswana, uranium from Namibia and most of all platinum and gold from South Africa.
But it is not only current production that is being affected, but planned expansions and new projects will be strongly impacted as extra power consumption from national grid supplies will just not be available until perhaps the middle of the next decade. This means that new operations in particular, if they are to go ahead, will require to install massive independent power generation facilities which are expensive to purchase or hire and to run and could seriously affect capital and operating costs and make some projects unviable. With banks being cautious about providing major loan facilities while the global credit crunch continues, there are bound to be major delays in bringing many of southern Africa's new projects on stream which will be giving number-crunching commodities analysts a fair amount of work to do over the next month or so as they will have to rework their new metals supply forecasts.
As we pointed out here yesterday, the biggest short term impact is likely to be in the platinum group sector. South Africa is by far the dominant world supplier due to its huge reserves on the Bushveld Complex northwest of Johannesburg, and with some interesting new areas being opened up too nearer the Botswana border. Because of the power crisis the country's three biggest producers, Anglo Platinum, Impala and Lonmin have all closed their operations until they can be assured of continuity of power supplies which, according to power utility Eskom, may yet take two to four weeks.
There is no doubt, though, that systems will be put in place to enable the mining companies to restart and maintain their operations sooner rather than later as mothballed power stations are brought back on line, maintenance work is accelerated and major industrial users manage to save power consumption in all possible areas. But, new projects are likely to suffer badly as the country just can't afford to supply major new power consumers until the system can support them.
As the markets realised yesterday, the overall impact on the world gold sector, despite South Africa's major contribution to world supply, is not as significant to the global commodity sector as the initial surge in the gold price might suggest, and the gains were rapidly cut back for the yellow metal to close at lower levels. But the impact on world platinum supplies could be tremendous.
Platinum supply is already seen as being in deficit and even a temporary shutdown of the major producing mines will have a significant short term impact. But perhaps more importantly virtually all the projected new mine supply increases under way are in South Africa and some of these projects are now bound to be delayed through lack of power or altered economics. This will adversely affect future supply predictions and as a consequence platinum group metals prices will remain stronger for longer. Perhaps platinum ETFs may prove as good a way as getting into this investment sector as any as projected earnings for the miners themselves may not be as good as past estimates would suggest as expansions are delayed.
The power problems in Zambia will also have an important impact on copper supplies, and of cobalt, although here the ‘rescue' with power from the DRC being specifically targeted at the Copperbelt operations may mitigate the effects somewhat, but here again new copper projects in the whole southern African region will be delayed. Projected new uranium production in Namibia will also likely be held up, which could herald a slight recovery in yellowcake prices.
In crises like these there are always going to be those who gain. But be aware that the positive increases in price likely as a result of the power crisis may not benefit those producers who are also having their costs and production programmes adversely affected!
The South African power crisis is having a huge impact on the country's economy as well as on global commodity markets, while major miners are suffering big falls in share prices.
Author: James Macharia
Posted: Saturday , 26 Jan 2008
JOHANNESBURG (Reuters) -
Power cuts stopped production on Friday at South Africa's gold and platinum mines, including many of the world's biggest, sending prices for precious metals soaring and denting the rand.
President Thabo Mbeki's government called it a national emergency as the outages hit the mainstay of Africa's biggest economy, the world's No. 2 gold miner and top platinum producer.
"This is a disaster in terms of production and economic growth," said Fidelis Madavo, analyst at the Public Investment Corporation fund. "The government has to find an emergency solution to this problem."
The government, sapped by a power struggle within the ruling African National Congress, has faced growing criticism for failing to end two weeks of blackouts in homes and businesses.
Critics say the outages result from years of underinvestment in power generation for the booming post-apartheid economy despite warnings from state utility Eskom [ESCJ.UL], which told miners on Thursday night it could not guarantee supply.
The power cuts brought precious metal mining to a near standstill and cut ferro-alloy and coal production and exports.
The rand fell over two percent against the dollar and South Africa's Top-40 share index closed 0.36 percent firmer at 24,192.11 points after dipping to a low of 23,775.63.
Anglo Coal South Africa evacuated all its miners for fear they might be trapped due to the sweeping power outages -- feeding a vicious circle because the country relies on coal for most of its electricity generation.
"It is the view of cabinet that the unprecedented, unplanned power outages must now be treated as a national electricity emergency," Public Enterprises Minister Alec Erwin said.
The country's top-three gold miners, AngloGold Ashanti
The damage was not limited to the mining industry. For days homes have been plunged into darkness for up to six hours a day, and traffic has been snarled up as traffic lights failed, leaving South Africans infuriated with Eskom.
Eskom said the gap between power demand and supply capacity reached an unprecedented 4,000 MW (megawatts) on Thursday. It said one of its main problems was a shortage of coal.
Gold Fields said it would lose 7,000 ounces of gold a day, while rival Harmony said it would lose about 300 kg of gold output, or 60 million rand, a day.
Global miner BHP Billiton
The world's No. 1 platinum producer, Anglo Platinum (Angloplat)
Analysts expressed concerns that South Africa's booming economy, which grew near a three-decade high at 5.4 percent in 2006, could struggle to maintain its recent growth rates, which are key to reducing chronic high unemployment and poverty.
"In our view the lack of investment in generating capacity despite a strong economic growth outlook has exposed questionable central management," JP Morgan analysts Steve Shepherd and Allan Cooke said in a research note.
"By the government's own admission, Eskom has been warning of this situation for years."
Government officials assured investors and the public that healthy economic growth could continue with some changes in energy consumption and that the power crisis would not threaten the country's ability to host the 2010 soccer World Cup.
Eskom plans to invest 300 billion rand ($43 billion) in power generation and infrastructure over the next five years.
Shares in AngloGold and Harmony fell as much as 7 percent, while Gold Fields lost 9 percent. Angloplat's stock fell 2 percent, while rival Implats shed 3 percent. (Additional reporting by Muchena Zigomo, Serena Chaudry, and Phumza Macanda; editing by Paul Simao and Matthew Tostevin)
-- Posted Monday, 3 December 2007, Source: GoldSeek.com
Many resource investors had expected they would be able to retire when gold reaches its all-time high of $850. It appears that few, if any, were able to do that in November when gold finally touched that level. While gold reached an all-time high, few gold stock names managed to do the same. Smaller juniors mining companies, in particular, failed to live up to the expectations priced in by investors and remained laggards.
We see several reasons for this: rising production costs; aggressive feasibility study assumptions; a worrisome number of start-up productions problems; and even resource data falsification. Unfortunately, these negatives are not happening to the small and unnoticeable companies, but the sector “blue chips” (those companies with over one billion dollars in market capitalization).
Production costs are rising for a vast majority of producers. Only a few companies have been able to stabilize or reduce their production costs in the past year. To add to that, recent events in the mining sector undermined management credibility and weakened investor confidence in the whole sector.
First, Southwestern Resources announced that it had determined that there were errors in previously reported assay results for its Boka Project and as a result, it withdrew all of its previously announced results for the project. Southwestern Resources was covered by many respected analysts and newsletter writers. When the stock crashed from $15 in 2006 to most recently $0.59, this caused the first crack in investor confidence. Can resource companies be trusted when assay results may be false or misleading?
The second hit came from a number of junior producers, and especially, the famous multi-bullion Gammon Gold. The company started production in 2007 and the cash costs were beyond disappointing. In fact, they were losing money on mining gold and silver. This was in some ways justifiable as start-up production can be challenging. Yet the company continued to promise improvements with every press release but none have come to date even after a change in management. The feasibility study promised the project to be highly economic at lower metal prices. But so far, the Ocampo project has been anything but profitable and the Gammon Gold stock fell from over $18 in early 2007 to under $8 today. The result: investor confidence in many junior producers has been shattered.
Novagold is the most recent disaster. The blue chip development stage copper-gold focused company announced a suspension of construction at Galore Creek since it had determined that the project was uneconomic at current consensus long-term metal prices. The 2006 feasibility study estimated $1.74B in capital costs and called for production to begin in 2012. The new estimate projects $5B in capital costs and 18-24 months longer in construction time. Could costs rise almost three fold in just one year or were assumptions used in the feasibility aggressive or misleading? The company’s explanation does not sound reasonable, which is a contributing factor to why the stock price was halved in just one day.
As a result, the RSG Gold Exploration II Index, which consists of 26 companies with established resources having demonstrated economic viability, a performance leader until recently, has now become a laggard. The index is flat for the year, while gold is up 23%.
A noticeable underperformance of the Exploration II index when compared to the Gold Bugs Index (HUI) began in August, as is clear from the chart below. The first leg down was reasonably explained by a lack of liquidity and flight to safety. In September, the index staged a strong rebound before getting hammered on the Novagold news.
A sharp second leg down occurred mostly due to Novagold, which had the largest market capitalization in the index and was therefore, the largest component in the Exploration II Index. But even excluding Novagold from the index, similar Exploration II companies got hammered by association.
There is a striking similarity between the recent events in the mortgage/banking industry and the developments in the junior mining industry.
Despite the fact that the two industries are positioned on completely different ends of the investment spectrum, both are highly dependent on their ability to effectively raise large amount of capital and therefore, on the integrity of their collateral. For the mortgage/banking industry, collateral is financial paper (Mortgage Backed Securities and Asset Backed Securities) backed by underlying properties and creditworthiness of the homeowners. For the junior mining industry, “collateral” is the in-ground resource supported only by technical documentation (technical reports, feasibility studies, etc.), the quality and reliability of which is essential.
When the integrity of the paper-documented underlying assets is suspect, it is very difficult for either industry to raise capital and continue operations. For the junior exploration and development stage companies, the ability to raise capital through debt or equity offerings is absolutely essential for financing their expensive exploration programs as well as for mine development and construction.
The reputation of the whole junior mining industry has come under question following the events described above. As a result, credibility and the track record of the companies’ management are now more important than ever. Greater transparency and better communication with investors are the first two steps that need to be taken in order to start rebuilding trust in the industry. The recent announcement by Gammon Gold that the company will issue ongoing monthly key performance indicator updates is a step in the right direction. We hope others will follow suit and help restore investor confidence.
Posted: Fri, 25 Jan 2008
[miningmx.com] -- GOLD and platinum hit all-time highs on Friday on dollar weakness, supply concerns, firm oil and expectations of more interest rate cuts in the United States.
Spot gold hit an intraday high of $914.50/oz surpassing last week's record peak. Gold was last quoted at $907.00/907.70/oz in New York on Thursday.
Platinum hit another record high of $1,618.50/oz on investment demand, gains in gold and after Lonmin slashed its sales outlook for the year. The metal was last quoted at $1,606/1,611/oz in New York.
The benchmark platinum future in Tokyo rose by its daily 120 yen limit to 5,350 yen a gram to track the cash market.
"Platinum is confronted by a big supply and demand problem. The price will be very strong in the future. Within a month, the next price target is $1,650," said Yukuji Sonoda, precious metals analyst at Daiichi Commodities in Tokyo.
Miners in South Africa, the world's largest platinum producer, have had to deal with electricity outages as power utilities struggled to keep up with rising demand.
Lonmin, the world's No.3 platinum producer, cut its sales outlook for the year after first-quarter refined platinum output slid by nearly a fifth due to safety shutdowns and persistent processing problems.
Sonoda said expectations of further US interest rates cuts, which have underpinned a recovery in stocks markets after a rout at the start of the week, have encouraged investors to buy commodities.
"That's a very good environment. By the end of June, gold will reach $1,000," said Sonoda, who also expected more investors to shift to gold from government bonds.
Gold had tumbled to a three-week low of $849.50 on Tuesday as falling energy and equity prices forced investors to sell the metal to cover margin calls, but the Dow Jones industrial average has since recorded two consecutive days of gains on hopes for interest rate cuts and a fiscal stimulus package.
Fed policy makers are scheduled to meet on January 29-30. A hefty emergency rate cut this week boosted sentiment in precious metals.
"After breaking the high, we may look at $950," said Ronald Leung, director of Lee Cheong Gold Dealers in Hong Kong.
Gold could find solid support at around $908/oz on Friday and resistance was seen at $915, said Leung.
The euro was steady around $1.4760 bolstered after European Central Bank policymakers rejected talk of lower interest rates on Thursday and restated an intent to control inflation risks.
Oil extended its rally towards $90 a barrel after US lawmakers confirmed an economic stimulus plan that helped quell fears of a recession.
The physical sector came to standstill in Hong Kong, but bullion dealers in Singapore saw sales of scrap from jewellers in Indonesia, which is Southeast Asia's largest gold consumer.
Posted by Carel van der Merwe at 25.1.08