Australian (ASX) Stock Market Forum

"The best place to be is in commodities"

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Rubber Inventories in Producing Countries to Drop on Drought
>>> By Supunnabul Suwannakij
>>> February 10, 2014

Rubber stockpiles in Thailand, Indonesia and Malaysia are low and may decline further when the low-production season starts, said a group of top suppliers, asking members to refrain from cutting prices. Futures gained.

Inventories available for sale in the three countries are “low contrary to what is being reported in the media,” International Rubber Consortium Ltd., a unit of a group that comprises government officials, growers and exporters, said after a Feb. 8 meeting. The low level “would be further aggravated in the coming months with wintering expected to be severe,” it said, referring to the dry period when trees shed leaves, reducing latex yield.

The Southeast Asian countries, representing about 70 percent of world supply, failed to agree on new curbs last year after reducing exports by 300,000 metric tons in the six months through March to boost prices, according to International Tripartite Rubber Council, of which IRCO is the marketing arm. The global benchmark in Tokyo entered a bear market last month as supplies exceeded consumption of the commodity used in tires.
...

Source >>> Bloomberg
*****
 
14. 02. 14
Vietnam’s cocoa dream
>>> by Duy Anh <<<

Never before has Vietnam seen so many foreign invested projects in cocoa production like now.
The “big guys” in the world now eye Vietnam as the newly emerging material area.
Vietnam once followed the one-century path to become the world’s biggest coffee grower.
Will the same thing repeat with cocoa ?
...

Source >>> http://english.vietnamnet.vn/fms/business/95558/vietnam-s-cocoa-dream.html
*****
 
That Was The Week That Was ... In Australia
16 Feb 2014

>>> by Our Man in Oz <<<


Minews. Good morning Australia, investors in your gold stocks must have been smiling last week.

Oz. They certainly were. The gold index on the ASX had its best week in more than a year, stacking on 9.3 per cent with most companies joining in the party. Interestingly, the good news should continue to roll on next week because the gold price kept rising after we had stopped trading.

At the close on Friday, the gold price was sitting around US$1,306 an ounce. By the time we woke on Saturday morning the price had been pushed up to US$1,319/oz and there was a whiff of optimism in air that US$1,400 is the next stop.

Minews. That’s certainly something to look forward to, but let’s focus on what we know rather than what we’re hoping for.

Oz. Well, what we do know is that gold companies rose on the ASX last week at more than double the pace of the wider mining market, which was itself up a very respectable 4.7 per cent thanks largely to Rio Tinto’s dividend-driven bounce. The overall market, as measured by the all ordinaries, was up a pleasing 3.5 per cent.

Minews. That’s much better than the losses posted over previous weeks.

Oz. No doubt about that. Most sectors of the mining industry contributed in some way, including nickel, copper and iron ore stocks.

Before calling the card, which will obviously start with gold, it’s worth focussing on an assortment of the stars without worrying about their preferred commodity.

Minews. Good idea.

Oz. Chalice Gold (CHN), a stock which made its name and generated its strong cash balance in the north African country of Eritrea, was back in favour last week as a result of an interesting acquisition in Canada. On the market, Chalice added A3 cents (20 per cent) to A17 cents, a price which is still A2 cents less than the company’s cash backing even after the Canadian deal.
...

Source >>> www.minesite.com
*****
 
Dividend Declarations From Rio Tinto And Anglo American Show That The Industry Is In A Healthy State

>>> 16 Feb 2014

>>> by Rob Davies


The results season for 2013 has kicked off and is allowing investors to see how the mining companies have coped with the prices, costs and volumes over the last year.

Good results and high margins would suggest commodity prices have scope to come down a bit, while losses or low margins indicate that commodity prices have limited downside.

Rio Tinto kicked off with by declaring an 11.2 per cent increase in operating profit from iron ore. This is good news, but worried investors wonder how long these returns can be maintained.

However, Anglo American could only manage to maintain profits at its Kumba Iron Ore division as volumes shrank two per cent, which indicates that this facility is struggling to operate at the current rate.

To increase production would require more capital. So Kumba gives a good guide to total marginal operating costs. On the other hand a return on capital employed of 24 per cent in Anglo’s manganese division demonstrates it is a healthy operation and would merit expansion if demand was strong enough.

Anglo experienced an 89 per cent decline in operating profits in the coal division, resulting from a 24 per cent decline in hard coking coal prices. That is a good indicator of how sensitive these bulk commodities are to price changes.

Thermal coal was not quite so bad. Even so, a 32 per cent drop in operating profit from a 17 per cent fall in prices is still painful. Rio managed broadly to maintain its profits from thermal coal.

But both companies suffered at their copper divisions. Anglo’s unit offset weaker prices by a 17 per cent increase in production to leave profits unchanged. At Rio there was a 17 per cent fall in operating profits to US$2.4 billion.

The damage done by weak nickel prices was demonstrated by the US$44 million operating loss in this division in Anglo American. Wisely, the company is planning to use this period of low prices to rebuild some furnaces. It makes good sense to restrict supply in times of weak prices.

An operating profit of US$464 million instead of the US$120 million loss last year in the platinum division of Anglo American is evidence of what can be done to reduce costs, albeit helped by a weaker currency.

Finally, a US$1,003 million operating profit from diamonds shows just what can be done when rising production and higher prices are combined with lower costs.

Even Rio, which gave up trying to sell its diamond mines, was able to record 142 per cent increase in operating profit to US$257 million. That is a good demonstration of the power of operational leverage in favourable markets when low margin mines suddenly start to have reasonable margins after all.

Aluminium has been a tale of woe for Rio, but the 38 per cent increase in operating profit to US$1.9 billion from the aluminium division gives some hope that the bottom of this market may not be far away or may have already been reached.

Analysts will spend many happy hours digesting these results and revising forecasts.

It is clear though that the industry is in a healthy state and, as the dividend declarations show, able to generate solid cash flows.

There are some commodities that are suffering but action is being taken to address the issues in nickel and aluminium. Copper and iron ore remain the cash cows. They won’t always.

But until a lot more capital is devoted to increasing supply it is hard to see prices drifting far from the full marginal costs of production. And that is good news for low cost producers.


>>> Source >>> www.minesite.com
 
>>> Gold: Merk, Paulson, PIMCO, Soros et al
>>> Friday, Feb 14, 2014
>>> by Frank Tang <<<

Hedge fund Paulson & Co maintained its stake in the world's biggest gold-backed exchange-traded fund, SPDR Gold Trust, in the fourth quarter, even as others exited when bullion prices posted their biggest annual loss in 32 years.

Well-known manager George Soros bought shares in Barrick Gold Corp, one of the world's top gold mining producers, while other institutional investors, including PIMCO, continued to cut their exposure to gold investments.
...


Source >>> http://www.reuters.com/article/2014/02/14/hedgefunds-filings-gold-idUSL2N0LJ1VW20140214
 
That Was The Week That Was ... In Australia

22 Feb 2014

>>> by Our Man in Oz <<<


Minews. Good morning Australia. That firmer tone we’ve talked about recently seems to have continued last week.

Oz. It did, but more selectively. The overall mining sector was up, though that was mainly thanks to strong performances from the leaders, BHP Billiton and Rio Tinto.

It was the two biggest miners which contributed most of the 2.8 per cent rise in the metals and mining index, offsetting a surprise 1.6 per cent fall in the gold index, in what should have been a strong week for gold stocks thanks to the higher gold price.

Minews. If gold didn’t lead the way what did?

Oz. A bit of everything really. A few iron ore companies had a good week, as did a mix of nickel and coal stocks, backed up by some strong individual performances from a handful of gold explorers.

Perhaps the most interesting number of the week could be found in the all ordinaries index which measures the overall Australian market. It added 1.5 per cent to 5,449 points which is just short of a six year high.
...

Source >>> www.minesite.com
 
France’s New State-Owned Mining Vehicle Is Unlikely To Mount A Serious Challenge
To The Established Major Mining Companies | 24 Feb 2014

>>> by Rob Davies <<<


It wasn’t so many decades ago that large state-owned companies dominated the mining industry. Today that situation is reversed, with only Codelco of Chile maintaining that position.

The likes of Gecamins and ZCCM demonstrated the fundamental conflict that exists between a corporate entity trying to compete in a global market and to maximise local employment at the same time.

So it is curious that France’s interventionist-minded Minister of State for Industry, Arnaud Montebourg, announced last week that his Government will invest €400 million into a state mining company.

This enterprise, to be called the National Mining Company of France, will prospect for resources in France, French overseas territories and in Africa, central Asia and South America.

Top of the list of targets will be rare earth elements, lithium and gold.

M. Montebourg believes that Francophone countries in Africa would rather do business with the French state than multinationals, according to the Financial Times.

Any PR company will tell you that €400 million is hardly enough to pay for a road show let alone a half decent exploration programme so the ambitions of this new enterprise are quite limited.

More relevant is that this news came in the same week that BHP Billiton announced its interim results.

The contrast could not be starker. BHP Billiton was pleased to report a 28 per cent fall in capital and exploration expenditure to US$7.9 billion, underlining the point that expansion rates can now start to come down after the breakneck pace of the last decade or so.

Alongside that the company reported a 31 per cent increase in underlying attributable profit to US$7.8 billion.

To drive the point home BHP Billiton noted that over the last decade it has delivered a compound annual growth rate of 17 per cent and turned US$100 invested in its shares into US$466.

It is hard to avoid the impression that the French have, rather belatedly, espied a bandwagon disappearing into the dust ahead and decided to set off in leisurely pursuit.

That is not to say the game is over for mining.

BHP Billiton makes the point that competition for capital will act to increase returns. Its new hurdle rate for projects is a rate of return in excess of 20 per cent.

That alone will rule out lots of small projects, in places like Francophone Africa that have neither the scale, nor the business environment to deliver large enough returns for the majors.

It is possible that the new French company will get some projects off the ground, but they will be small scale and conflicted by the need to keep local politicians happy.

Any mines developed will not make large returns or disrupt the global commodity business in the way the old state owned companies in Zambia and Zaire used to.

Although it is possible to read these results as suggesting complacency and more relaxed times as the balance sheet is strengthened by reducing debt, that is probably a mistake.

Mining companies always need to replace their assets to feed the hungry mill.

And with Rio Tinto estimating that Chinese steel demand won’t peak until 2030, and then at one billion tonnes, there is still plenty of demand for commodities.

There might even be enough scraps left on the table to keep the French happy.

Source >> www.minesite.com
*****
 
Junior Graphite Mining companies: options for the output

A Junior Graphite Mining company has 2 options:

They can set up their own sales & marketing team and then travel worldwide to try to get long term end user customers. The issue they have with this option is that most of the time the end user customers only want some of the grades they produce, such as the large flake particle size grades; and thus the Junior Graphite Mining company now has to find customers for all the remaining particle size grades the end user customers do not want to take and this is where they have a difficult time.

The second option is to sign a sales & marketing agreement with a well established existing graphite company and make sure the agreement covers all grades the Junior Graphite Mining company will produce. Then the only issue the Junior Graphite Mining company has is hoping that the average sales price for 100% of the production is above their cost to mine, dry, screen, bag and prepare shipments.

[Notes: 1. The comments are from Mr. Stephen Riddle, CEO, Asbury Carbons (USA); 2. Those comments are valid for the Junior Graphite Mining companies, worldwide.]
 
>>> 3 Mar 2014

>>> Will The Ukraine Blow The Commodities Recovery Off Course?

>>> by Rob Davies <<<


The bounce back in asset prices in February was a delight for most investors.

Unfortunately, the clouds of conflict in the Ukraine make it look as if the bounce will be short-lived. And, while the recovery was welcome it has not overcome the deeper problems that caused the sell-off in January.

US growth in 2013 has been revised down to 2.4 per cent as consumer spending only increased by 2.6 per cent and not 3.3 per cent in the last quarter. That still gives the impression of a distinctly weak recovery.

The woes in emerging markets seem to be spreading further and are now lapping at the doors of China. The 1.4 per cent devaluation of the renminbi last week to 6.14 may or may not have been engineered by the authorities. But it is a sign that even this economic power house is not immune from the financial problems.

Another emerging market, Brazil, used these tough times to raid its biggest mining company for cash.

Vale, the large iron ore miner, eventually succumbed to state pressure and settled an outstanding tax dispute by handing over US$6.5 billion to the Brazilian Government. Like its peers it reported bumper results for 2013, as underlying earnings increased 15.4 per cent to US$12.3 billion.

It is also copying its rivals by reducing its capital expenditure, from US$16.2 billion in 2012 to US$14.2 billion in 2013.

Although the end markets for commodities are finding it hard to maintain growth rates, the mining industry has reacted well by seeking to reduce the pace of expansion.

It needs to. The increase in nickel production by Vale in 2013 of 24,000 tonnes to 260,200 tonnes was one reason why the nickel market recorded its second biggest surplus since 1985.

The oversupply rose from 94,500 tonnes in 2012 to 172,200 tonnes in 2013. That resulted in refined nickel production reaching 1.94 million tonnes.

While that is a small market in global terms it is still a high value commodity at US$14,550 a tonne. That surplus has led to a rise in inventory, but at 270,000 tonnes it is not too bad. Indonesia, which accounts for 14 per cent of the refined nickel market, is a country that will certainly be hoping that recovery is not too far away.

One metal that is seeing its inventory declining quite rapidly is zinc. Having been over one million tonnes, inventories have now shrunk by a quarter to stand at 761,725 tonnes. That tightening is an important reason why its price has held up well this year and is currently trading at US$2,100 a tonne. Its sister metal lead has a similar price at US$2,115 a tonne.

Other sections of the industry are also working to deal with conditions that are not as buoyant many would like.

Aluminium probably has one of the worst imbalances so it is encouraging that Rusal will reduce its volumes in 2014 by 10 per cent to 3.5 million tonnes, the lowest in eight years.

But it is unfortunate that all the detailed planning and fine tuning of mine, smelter and refinery capacity can be blown off course by political events.

It can only be hoped that the self-interest of all concerned will act to persuade them to reach a peaceful accommodation in the Ukraine and allow the economic recovery to be maintained.

>>> Source >>> www.minesite.com
 
>>>>> That Was The Week That Was ... In Australia <<<<<
>>>>> 2 Mar 2014

>>>>> by Our Man in Oz
...
Minews. Did any mining sectors receive special attention, good or bad?

Oz. The best performer for the week was uranium, and it’s a long time since we saw that, with interest growing after reports of Japan re-starting its mothballed fleet of nuclear reactors, and continued strong uranium demand from China.

Worst was iron ore with stocks hit by a slide in the iron ore price which has been so long coming that most investors had forgotten the warnings of a supply glut which first surfaced about two years ago.

Minews. Let’s start the price call with any outstanding individual moves and special deals.

Oz. Paladin (PDN), the local uranium favourite despite its appalling record of heavy losses, rode the Japan reactor story with aplomb, adding A10 cent (24 per cent) to A52 cents.

Berkeley (BKY) wasn’t far behind in the uranium stakes with a A5 cent (17 per cent) rise to A33.5 cents, though the best percentage performance came from the Namibian-focussed explorer, Deep Yellow (DYL) which added A1.1 cents (58 per cent) to A3 cents.
...

>>>>>>>>>>>>>>>>>>>>>>>>>>>>> Source: www.minesite.com
 
>>> PDAC: The Greatest (Mining) Show On Earth Is Attracting Ever Greater Numbers Of Chinese And Koreans

>>> 3 Mar 2014

>>> by Axel Blackrod <<<


In March each year the prospectors and developers of the mining world come from all continents to attend the PDAC in Toronto.

This year there are 30,000 attendees with 560 trade exhibitors and 540 mining companies showing their wares in the huge Toronto convention centre beside the train tracks at Union station.

All those with an interest in mining are here.

Notably new this year was the Kazakhstan national mining company with a display of projects available for western investors, a private Russian company (GV Gold) from Yakutia seeking investors and a stock market listing, and several Chinese companies with stands looking to attract projects. The latter were busy.

The past year has seen many of the junior exploration companies falling on hard times as their share prices have more than halved and cash reserves are approaching the threadbare.

They man their stands and show their projects, many of which have made no progress in a year. The promoters are looking for a recovery in interest from the retail investor.

But the major mining companies are there with a different agenda. They have the big booths and meeting rooms nearby, and to them the great opportunity is for the junior company to offer them participation by joint venture where the major can dictate the terms.

The majors like Newmont, Kinross, Barrick and GoldCorp have the cash and need to replace depleting reserves and the juniors have projects that need funding but have no cash. The market is not a fair mistress.

But the new element this year is the organised Chinese or Korean buyer. There are several groups of Chinese operating in an organised manner. They tend to be led by attractive English speaking ladies, and to have geologists and engineers in the group who visit the booths of companies with big emerging market copper or gold projects.

While your correspondent was at the Marengo mining (TSXV:MRN) booth, the lady was asking questions and collecting information and one of the geologists was taking photographs of the exhibits.

The lady leader explained that they were attending on behalf of a major Chinese group that wanted to invest in advanced projects capable of near term production but still needing funding.

Unbelievably, five minutes later two Korean representatives of a major smelter came to the same booth. Apparently the Marengo stand had six Chinese and two Korean visits on the first day.

This points to an interesting dichotomy, or trichotomy, in the resource sector.

The large Asian state-owned enterprises are looking to have major investments in large new projects in the emerging markets and are competing with the mining majors.

The Chinese in particular are becoming more aggressive and are establishing companies listed on the Canadian stock market such as China Metallurgical Exploration Company, in direct competition with the majors.

Or, more commonly, they are taking a stake in junior exploration companies. Sinotech, for example, has built up a 24 per cent stake in Golden Share (TSXV-V:GSH). They are establishing footholds in the major mining market to compete.

This surely presages a shift in market dynamics. The junior exploration stocks have had a major shaking out since the PDAC last year and are often now trading at between 50 per cent and 60 per cent lower than a year ago.

The majors are mostly up about 30 per cent in 2014 to date.

So it is obvious that if acquisitions can be made at these ratios then resources of gold, copper or whatever can be acquired materially cheaper with greater certainty and faster than through the internal exploration efforts of majors.

So your correspondent believes that the casual meetings at PDAC will lead to courtships and marriages between the juniors with known resources and majors with the need to replace reserves.

But the new factor is the Asian demand which the majors should see as a clear and present danger to their dominant position.
...

Source >>>>>>>>>>>>>>>>>>>>>>>>>> www.minesite.com
 
That Was The Week That Was ... In Australia
8 Mar 2014

>>>>> by Our Man in Oz


Minews. Good morning Australia, parts of your market seem to have done well last week but there might be a bumpy start next week.

Oz. You’re obviously referring to the strong performance by nickel and uranium stocks which were the highlights of the week we’re reviewing, and the fact that the copper price fell sharply after we closed on Friday.

Minews. That’s right, plus the ongoing concern over what’s happening in Ukraine.

Oz. China, far more than Ukraine, is what keeps investors awake at night in this part of the world. In fact, it can even be argued that the unpleasantness in Crimea and elsewhere along the border with Russia is being treated as a positive for the Australian mining and oil sectors.

That fall in the copper price on Friday, reportedly the biggest drop in two years, was a result of a major corporate failure in China which can be tied back to concern about the slowing pace of growth in China.

The Ukraine factor, including threats from Russia about cutting off gas supplies to Europe, boosted Australian energy stocks, including uranium explorers, while nickel producers rose sharply as Indonesia’s ban on unprocessed ore exports started to bite and thoughts turned to Russia putting its foot on nickel supplies from Norilsk.

Minews. It’s certainly a complex, and fast moving situation, perhaps we should just stick to what we know rather than what might happen.

Oz. Good idea, and what we do know is that nickel stocks were the star of last week thanks to the price of the metal taking a brief peek above the US$7.00 a pound level before easing back at the close on Friday.

Gold stocks also did well thanks to a US$20 an ounce rise in the price, and even some copper stocks were up, though they are certain to be hit by sellers on Monday.

Overall, the Australian market ended the week up fractionally, with the all ordinaries index adding 0.5 per cent. The mining index, largely thanks to falls by BHP Billiton and Rio Tinto, was down a modest 0.8 per cent. Gold stocks did best overall with the ASX gold index up 4.5 per cent.
...

Source >>>>> www.minesite.com
 

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