Tuesday, April 22, 2014

Anglo American Looking To Rid Itself Of High Cost Platinum Operations

the recent takeover of union negotiating rights on the platinum mines by the fledgling, highly aggressive, AMCU, and the subsequent now 13 week-long strike which has closed the Rustenburg mining operations, appears, according to media reports, to have focused Anglo's mind on how to rid itself of this troublesome part of its operations, which requires a significantly higher platinum price to make it decently profitable. According to a report in the Financial Times the Rustenburg mines Anglo is looking at divesting, or perhaps closing down, only provide around 20% of its total platinum output and gold miner spinoff from Gold Fields, Sibanye Gold has already expressed an interest in acquiring platinum assets. 
But what the strike, with its initial demands to double the miners' basic wage, has done is enable Anglo to present an ever-stronger case to government to rationalise its Rustenburg operations by closing down unprofitable sections and heavily reduce its highly labour intensive workforce - a move which when it was first promulgated back in 2012 met with considerable official government opposition. The other option is, of course, to sell the operations off assuming it can find a willing buyer and agree tp terms. Cutting thousands of jobs in a country where unemployment within the black majority runs at a very high level is, to say the least, politically problematical, so selling the mines off and let someone else take these difficult decisions may be the easy way out!
There is no easy way out except to close down shafts that do not make money at current platinum prices. This will constrict supply and eventually result in a higher platinum price. However, as in most places on earth everything is political so the companies have to justify why they will want to lay off thousands of workers and close mines. Of course it is irrelevant in the long run what the government or the unions want. You cannot mine a metal at a loss indefinitely as eventually you go bankrupt no matter how many laws or proclamations are issued by some ridiculous government minister. In previous articles I have said that eventually pgm prices would be heading higher due to constrained supply and the closing of high cost mines in South Africa. It seems the first shot has been fired by Anglo.

Saturday, April 19, 2014

Hitting the nail on the head

Burning Platform:

As I watch the hordes of hideous brain dead zombies shuffling across the apocalyptic landscape seeking to satiate their basest cravings I can’t help but see the parallels with the millions of mindless tattooed obese slobs waddling across mall parking lots past vacant store fronts staring zombielike at their iGadgets as they seek to satisfy their basest desires at Macy’s and Chipotle. A virus has overspread our country causing a vast swath of the population to gratuitously assuage their every want without thinking of the consequences. The sickness is caused by being imprisoned for twelve years in government run public schools, watching thousands of hours of propaganda emitted by the corporate media, viewing hundreds of brain cell destroying reality TV shows, reading and sending thousands of texts and tweets, and being overwhelmed by the delusional belief spending more than they make, saving nothing, and piling up mountains of debt is the path to success in our contaminated society.

Pretty good article and I agree with most of it. Nevertheless I just cant get too excited about things that I cannot control. Could an average citizen of Rome that was living in the midst of its decline change things? The events that are taking place in the US as it continues its decline are events that have occurred in every declining empire. Time and effort are better spent protecting ones family and ensuring sufficient precautions are taken to a have a plan and to be prepared to control what one can control in ones own life.

Platnium Deficit To Last Four Years

A labor dispute that all but shut platinum mines in South Africa since January is extending the longest shortfall in global production since 2005, which Morgan Stanley predicts will take at least four years to fix. 
For a third straight year, makers of auto parts and jewelry will use more of the metal than is mined. Credit Suisse Group AG on March 31 raised its deficit forecast for this year by 25 percent to 836,000 ounces, after concluding the strike in South Africa, the world's top producer, will prevent more than 1 million ounces from being retrieved in 2014. 
Lonmin Chief Executive Officer Ben Magara said earlier this month it would buy metal on the open market "as a last resort." The company runs operations from Johannesburg. Impala, the second-biggest producer, said it is losing 2,800 ounces a day after work was halted at the Rustenburg Lease mines, which accounted for 58 percent of mined output. 
"We are getting to the stage where we will not be able to meet the normal requirements of our customers," Johan Theron, a spokesman for Impala, said yesterday from Johannesburg. "We have been supplementing deliveries from the inventory, but soon that may not be possible if the strike continues.
The problem is that if the companies agree to the unions demands than the mines will not be profitable and will have to be shut. The price would rise in that situation but the companies would be hesitant to reopen the mines until a long period of high prices ensued. Long story short platinum group metals will be going higher.

Disclosure: I am long SAPLF.

Friday, April 18, 2014

Mongolian Prime Minister Writes Letter To Rio Tinto Regarding Oyu Tolgoi Mine

Dear Mr. Walsh, 
I, as Prime Minister of Mongolia, would like to note that the Government of Mongolia is making solid endeavors to move our joint Oyu Tolgoi project to next stage with the introduction of new team and new approaches for the last one and half years. Even though we are making progresses through our mutual efforts, there are further accomplishments still needed for a successful Oyu Tolgoi. 
Thus I am addressing you directly as we are reaching a significant stage to strengthen the relationship between your company and Mongolia. While the start of production of Oyu Tolgoi in 2013 was a great achievement and an important milestone, it is of the utmost importance for my Government and for Mongolian people that Oyu Tolgoi proceed as soon as possible with the underground mine development. We are thus most supportive of the Project Financing needed for next stage of this most important project. 
Through the both parties' constructive discussions, there are only a very limited number of issues that remain outstanding between the Rio Tinto (RT) and Erdenes Oyu Tolgoi (EOT). We are confident that these issues can be readily solved in accordance with normal international business practices as was stated in the EOT letter to RT of 19 February, 2014. 
We stressed the importance of RT maintaining positive stance in addressing public, but instead of that we have received a press release proposal from Mr. Jean Sebastian Jacques, which was insisting for request to extend lenders' commitment to 31st December 2014. It is unfortunate that we are acknowledged the doubtful approach for finalizing the project financing in such extended period of time. 
Even though the updated Feasibility study will be delivered in Q2 2014, we are willing to complete the discussions immediately in Ulaanbaatar or London, with the full mandate to finalize the project financing before the lenders' commitment deadline of March 31, 2014. 
The Government of Mongolia remains fully committed to the continued and successful operation of the open pit mine, the financing and development of the underground mine.
The Oyu Tolgoi project is of utmost importance to Mongolia and so is our partnership with Rio Tinto. I believe that now is the time to open a new chapter in our relationship and work in harmony to develop the Oyu Tolgoi project for the benefit of all stakeholders and of the Mongolian people.
It appears that the government of Mongolia is beginning to get a bit desperate as they are now almost pleading with Rio Tinto to re-start the phase 2 construction on the OT mine. They need this issue resolved so that it will send a message that Mongolia is not adverse to foreign investment. In addition pressure is mounting on the central bank and the currency. FDI has to pick up or the Mongolian economy is going to suffer later this year.

Saturday, April 12, 2014

Palladium trading at highest level since 2011

Palladium continues to move higher as the miner strike in SA continues. The metal is looking more and more bullish and appears to have broken out on the weekly chart. From everything I am reading regarding the strike, it appears that even when a settlement is reached the mining companies are going to use the excuse of higher labor costs as a reason to begin shutting down high cost operations and money losing shafts. This will further constrain the supply of pgms and should help to further increase the price. For some reason I could not get the chart to load. You can see the breakout over at my SA instablog here if interested.

Friday, April 11, 2014

Japan reverses policy on nuclear power

Bangkok Post:
The government of Prime Minister Shinzo Abe decided on a national energy policy Friday that supports the use of nuclear power now and in the future, retracting a nuclear phase-out goal introduced by its predecessor after the 2011 Fukushima Daiichi disaster.
The Basic Energy Plan sets the stage for the government to move ahead to restart nuclear reactors, all of which are now offline amid safety concerns, while reaffirming the continuity of the country's spent fuel recycling projects that have not made headway.
The move has been expected since the pro-nuclear Liberal Democratic Party returned to power in December 2012, but the government spent several more months than initially expected before deciding on the plan as draft documents stirred controversy among lawmakers who saw them as too strongly pro-nuclear in tone.
As for the policy direction over the next 20 years or so, the government said it will "proceed with the reactivation of nuclear power plants" that have satisfied what the government calls the world's toughest regulatory standards, and at the same time pledged to "reduce nuclear dependence as much as possible."
It also left open the possibility of allowing the construction of new reactors, saying in the plan that the government will "assess the amount of nuclear power that should be secured" to ensure a stable energy supply in a resource-scarce country.
This was inevitable as I had been saying for some time. The simple fact is that the Japanese economy was having to spend huge amounts of money importing LNG and coal to make up for the offline nuke plants. A responsible restart of some of the reactors was always going to happen or the lights were going to go out in Japan. It does not appear that all the reactors will be restarted but this should be the catalyst for a rising uranium price later in 2014.
Disclosure: I am long URA, CCJ, URPTF.

Sunday, April 6, 2014

Myanmar to be one of the fastest growing countries in SE Asia in 2014

Irrawaddy Times:
The ADB on Tuesday released its annual Asian Development Outlook report, estimating that Burma's gross domestic product grew by 7.5 percent in 2013-14 and predicting higher growth of 7.8 percent both this year and next. 
"Growth [in 2013] was supported by rising investment propelled by improved business confidence, commodity exports, buoyant tourism, and credit growth, complemented by the government's ambitious, structural reform program," the Bank said. It noted that, with new offshore natural gas fields now online, gas now makes up 40 percent of the value of Burma's exports, or US$3.6 billion a year.
The economy is benefiting from the recent oil and gas tenders that were issued recently and the wireless licenses that were granted last year. It would appear that electricity availability and build out of affordable housing and office space are going to be a concern for a while. However these are opportunities long term not liabilities. Still waiting for news on when the Myanmar stockmarket will be up and running. Singapore based Yoma Strategic Holding is a pure play on Myanmar but it has been in a trading range after it had its runup a couple of years ago.

Takers vs. Makers

No editorial comments needed as this video speaks for itself.

Rick Rule updates view on Platnium and Palladium

In South Africa, Rick believes labor disputes will plague the industry until big miners are simply forced to shut down. These strikes and violence are symptoms of how harsh conditions have become in platinum and palladium mines as they go ever deeper to produce ore. These companies still generate insufficient cash flow to pay their workers well.
The strike itself is a result of the fact that the industry does not earn enough at current platinum and palladium prices. So the miners can't earn a living wage. Both sides are stuck between a rock and a hard place.
There are two competing unions vying for the affections of workers. Neither of these can change the underlying economics of platinum production. In fact, both probably view the workers as tools to a political end, rather than a constituency to be served.
The strikes are really an illustration of the industry itself. If platinum and palladium prices do not rise, mines will close down and workers will be unemployed. There is no way to maintain production rates without sustaining capital investments, but you can't make those investments without being profitable. Thus, the price has to go up to maintain current production.
The bottom line is that most of the mines in SA are simply too high cost to continue producing at current pgm prices. The unions in SA do not realize this as they have their judgment clouded by political concerns. If the mining companies agree to the doubling of entry level wages they will have to shutdown shafts. If they do not agree they will have to shutdown shafts. Regardless, the high cost production will have to be put out to grass and that will cause a price rise which will eventually stimulate investment in mines. I continue to like Sylvania Platinum as they have no mining risk due to the company being a processor of old mining dumps. As the pgm prices rise they will benefit as their production is relatively low cost, they have completed the majority of their capital spending, and they are optimizing operations and lowering costs. Yes the company is in SA but it has not been affected by much of this labor unrest.

Wednesday, April 2, 2014

Cub Energy reports 2013 yearend results and updates operations

Cub Energy:

Production averaged 1,542 boe/d (95% natural gas) for the year ended December 31, 2013 for
an increase of 27% over 1,210 boe/d in 2012;

Exit rate of 2,070 boe/d for the year ended December 31, 2013 for an increase of 35% over
1,531 boe/d in 2012;

Current production of approximately 1,800 boe/d;

Achieved average natural gas prices of $11.26/Mcf and condensate price of $87.90/bbl for the
year ended December 31, 2013;

A shallow pool gas discovery was made on the RK licence with the RK-22 well in western
Ukraine which was tied-in and brought on production in late 2013;

A new pool gas discovery was made on the Makeevskoye licence in eastern Ukraine in the
Serpukhovian Zone with the M-16 well and was tied-in and on production in 2013;

Tested gas on a new reservoir on the Olgovskoye licence in eastern Ukraine with the O-15 well,
which was also tied in and brought on production in 2013. This deeper pool discovery has the
potential for offset development;

Krutogorovskoye licence in eastern Ukraine was successfully converted to 20-year production
licence; and

The expansion of the Makeevskoye and Olgovskoye production and processing facility was
completed in 2013. Gas began flowing on March 6, 2014 resulting in increased capacity to 68
MMcf/d from the previous 30 MMcf/d and it’s expected to take 30 to 60 days to become fully

Things are progressing well at the company as the management expects to exit 2014 with a production rate of approximately 2,800 boe/d. Elections in Ukraine are next month and the whole Crimea thing is already receding from the news and will end up being a non-event. I expect no further Russian incursions into Ukraine anytime in the near future. Once the market realizes this I would expect an upward revaluation of Cub Energy.