Stopping the helium fire sale

May 14, 2012 By

A quick sell down of the US Government’s stockpiles of helium in the 90s crowded out the private sector and left the US with dangerously low levels of a key industrial material.

Early this month the U.S. Senate Committee on Energy & Natural Resources started considering changes to the way the government manages helium.

Helium is not only being used in party balloons, but it is also a key component in medical devices, industrial welding and high tech manufacturing. And don’t forget scientific research to launch all those weather balloons.

The National Helium Reserve, the world’s only underground helium storage facility, is a depleted gas field located 19km northwest of Amarillo, Texas. Unrefined or crude helium sales from the reserve supply roughly half of all domestic helium needs and one third of global helium demand each year.

The reserve is close to gas fields in southwest Kansas, Oklahoma and the Texas panhandle that contain high amounts of helium, which is separated from natural gas as a byproduct. Helium is collected, piped and injected underground.

Back in 1925 when airships were considered leading flight technology, the reserve was established by the US government as a strategic supply of gas. Later in the 1950s, the helium reserve became important to the US space program.

By the mid-90s a billion cubic metres of gas had been collected but the reserve was also deeply in debt. Congress passed the Helium Privatization Act of 1996 directing the government to start liquidating the reserve to payoff a US$1.4 billion debt.

The committee believes that the current sales structure distorts the private helium market and is creating uncertainty for commercial, Federal, medical and scientific users of helium.

“The proposed legislation would remove this market distortion for the benefit of industry, private, and Federal users. Additionally, the debt will be paid off prior to the mandated final sell off date, which may result in the expiration of the funding mechanism that provides the operating expenses for the reserve. According to the BLM, this may occur as early as mid-year 2013,” said the committee in a statement.

Proposed legislation would extend authorization of the reserve beyond 2015 when the operation was set to expire. The Bureau of Land Management would set helium prices at fair market value. Selling at market rates will also hopefully spur the development of private sources of helium.

via Stopping the helium fire sale | MINING.com.

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Molycorp stock is following rare earth prices over a cliff

May 14, 2012 By

Strong revenue growth and a production ramp-up failed to give Molycorp a boost on Friday with the stock falling almost 2% by the close.

The Colorado company, in the process of restarting full-scale mining and processing at Mountain Pass in California, after the close on Thursday announced Q1 revenues tripled to $84.5 million despite a drop in average rare-earth oxide selling prices.

Average prices were significantly up compared to Q1 2011 but fell 20% to $95 a kilogram from $120 a kilogram in the final quarter of last year.

In a conference call Molycorp CEO, Mark Smith said margins are expected to face further “headwinds” this year, particularly during the first half.

Molycorp also said it is on track to achieve its Phase 1 annual production rate of 19,050 tonnes by the end of Q3. Its ultimate production target is 40,000 tonnes.

Friday’s share price slide brings Molycorp’s losses over the past 12 months to 60.1%. The counter was changing hands in New York for $24.93 down 1.97% on Friday affording it a $2.45 billion market capitalization. Molycorp shares were worth $34.71 a month ago and hit a high of $77.54 on May 3 2011.

Molycorp remains on track to become the largest rare-earth miner outside China which accounts for more than 90% of rare earth production in the world, and is also the biggest consumer.

Molycorp’s mould-breaking deal with Neo Material Technologies in March gave Molycorp access to advanced rare earth processing capabilities, specifically the Toronto company’s patented magnet technology, and a sales channel into China for the 17 elements.

Some analysts believe the vertical integration achieved by a Molycorp-Neo Material tie-up is an industry game changer that will kick-start demand after a period where REE consumers in the automotive, high tech and green energy industries scrambled to find alternatives.

Others have in the past pointed to the fact that China’s total dominance of production means that they can change market dynamics easily and quickly.

Rather than easing the pressure on manufacturers who need rare earths or stimulating the market, China’s strategic decisions on quotas and industry consolidation are aimed at cutting off at the knees development of mining projects outside its borders.

The declines in rare earth oxide prices have accelerated this year with some more abundant rare earth elements such as lanthanum crashing by more than 70%. While heavy and scarcer REEs such as dysprosium have generally held up better, many have also experienced price declines of 50% or more.

via Molycorp stock is following rare earth prices over a cliff | MINING.com.

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Qatar plonks $4 billion on Xstrata and hands Glasenberg another victory

May 14, 2012 By

The Financial Times reports that the oil and natural gas rich nation of Qatar has plans to up its stake in Xstrata, currently negotiating a $90 billion merger with Glencore International, to over 10%, which would make the country’s sovereign wealth fund the diversified miner’s second largest shareholder.

Swiss commodities giant Glencore already owns 34% of Xstrata. Glencore is offering 2.8 shares for every one of Xstrata, but aside from second largest shareholder BlackRock, other institutional investors have threatened to block the deal.

The Qatari fund has been responsible for almost 40% of all the trade in Xstrata since February and has built up an 8% stake. London-listed Xstrata is worth over $52 billion.

Qatari support should provide Glencore CEO Ivan Glasenberg the necessary backing he needs to push through the deal. Glasenberg and Xstrata CEO Mick Davis have embarked on a roadshow to sell the deal over the summer.

The FT reports 75% of shareholders must vote in favour of the deal with Glencore prevented from voting:

People familiar with the matter said that Qatar Holding, the investment arm of the Qatar Investment Authority, first met Ivan Glasenberg, Glencore’s chief executive, in late 2010 to discuss an investment but the two sides failed to reach agreement.

Instead, the people added, Qatar Holding decided to replicate a strategy it had used in the past, buying a stake in Xstrata – of which Glencore owns 34 per cent. This offered a way to gain exposure to the mining sector and the prospect of a holding in Glencore when, as expected, the two agreed to combine.

Qatar is expected to continue building its stake to 10 per cent and could go higher, the people said.

via Qatar plonks $4 billion on Xstrata and hands Glasenberg another victory | MINING.com.

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China wants to take over the world’s largest undeveloped iron ore project

May 8, 2012 By

A private group of Chinese magnates is planning to take Guinea’s Simandou, the world’s largest undeveloped iron ore project, from Rio Tinto (NYSE:RIO), reports The Australian.

According to The Sunday Times, China International Fund (CIF) and Angola’s state oil company would propose to take ownership of Simandou from Rio by having the Chinese-controlled and London-listed Bellzone Mining Plc (LON:BZM) offer Guinea $700 million in cash. The amount is equivalent to the sum Rio paid the West African country under an agreement reached last year.

But the World Bank’s private sector development financing arm, International Finance Corporation, is coming to Rio’s recue.

The Washington-based IFC, which acquired its stake in Simandou in 2006, has announced today its plans to invest $150 million of equity in the highly wanted project, as the joint venture between Rio and China’s Chalco races towards first production.

Rio Tinto has been exploring in Guinea since 1996, but intensified its plans for building Africa’s biggest mining development at Simandou in 2007, when markets were thriving and BHP Billiton tried an unsuccessful hostile $135 billion purchase offer.

Although the Anglo-Australian miner intended to be in production by next year, financial difficulties and the previous Guinea government’s decision to strip half of Rio’s tenements, threatening the one that holds the Simandou deposit, have delayed it.

The company is developing a railway, a mine and a port in order to ship its first cargo of the steelmaking raw ingredient by mid-2015, increasing iron ore output to 95 million metric tons a year from Simandou in the future.

Simandou will turn Guinea into the world’s third-largest iron ore producer after Australia and Brazil.

via China wants to take over the world’s largest undeveloped iron ore project | MINING.com.

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What do Americans think about gold?

May 3, 2012 By

Precious metals have been relatively quiet this week. After posting its best weekly gain in two months, gold is trading slightly lower at about $1,650 per ounce. Meanwhile, silver is trading near $30.50 per ounce. Gold and silver are currently taking a pause, but have been in a bull market for more than a decade and apparently Americans are taking notice.

According to a recent Gallup poll, gold leads four other types of investments when Americans were asked to pick the best long-term investment. The poll found that 28 percent of Americans view gold as the best investment vehicle for the long-term, compared to 20 percent selecting real estate. Paper assets such as stocks and savings accounts were tied for third place with 19 percent, as bonds finished last with only 8 percent. The new findings were part of Gallup’s April update of its annual Economy and Personal Finance poll.

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Although gold prices have declined from their nominal highs made last year, the safe-haven metal still remains the top pick. Gallup explains, “Investing in gold has gained in popularity in recent years as low interest rates have made traditional savings instruments less attractive, and instability in the stock and real estate markets has undermined the mass appeal of those options. Meanwhile, the rising trajectory of the price of gold over the past several years apparently offers more of the returns and stability investors seek. Although gold prices dipped in the last quarter of 2011 after hitting an all-time high of $1,924 per ounce in September, and have yet to fully recover, more Americans continue to consider gold the best long-term investment among the major options available to consumers.”

While the Gallup poll findings may raise red flags for contrarian investors, the percentage of Americans that viewed gold as the best investment actually declined 6 percent from last year. Furthermore, what Americans say and do are completely two different things. Gold ownership still remains low by historical standards and according to sales by the United States Mint, there is no rush to buy American Gold Eagles, the most popular bullion coin in the country. In April, the U.S. Mint sold 19,000 American Gold Eagles, the lowest monthly amount since 2008. For the first four months of 2012, the U.S. Mint sold 181,000 Gold Eagles, compared to 358,000 sold in 2011. Furthermore, gold held in the SPDR Gold Trust, the world’s largest gold backed ETF, recently fell to a three month low of 1,274.09 tonnes.

Even though short-term volatility and a lack of understanding may scare many Americans away from investing in gold and silver, the fundamental reasons for owning either precious metal have not changed. In a world of uncertainty, gold and silver can still be used to diversify and preserve wealth.

via What do Americans think about gold? | MINING.com.

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Near-record for mining M&A in 2011 to be followed this year by an “African Renaissance”

April 26, 2012 By

Near-record for mining M&A in 2011 to be followed this year by an “African Renaissance” – PwC

by Cecilia Jamasmie | March 5, 2012

If 2011 was a near-record year for mining mergers and acquisitions (M&A), with over 2,600 deals worth $149 billion announced in the global mining sector, 2012 will be remembered as the year of the “African Renaissance,” concludes the latest PricewaterhouseCoopers’ report released this morning.

Despite a weak macro backdrop and falling commodity prices, 2011 M&A deals volumes in mining were close to historic highs and values were 33% higher than 2010, says PwC’s Global Mining 2011 Deals Review & 2012 Outlook: On the road again.

Canada led the way in mining deals making, with 30% of all 2011 global mining acquisitions involving a Canadian buyer, a greater stake than any other one country.

In terms of sectors, gold generated much of the M&A activity, driven in large part by record cash flows spurred on by the high price of bullion, and the desire for big producers to seek new supplies.

“Buyers were plentiful, bidding wars ensued and valuations were high, all of which are unexpected in an environment of resource price erosion,” says John Nyholt, Canadian Mining Deals Leader, PwC.

Territorialism

Mining companies didn’t tend to look to far when it came to deals. PwC reveals that geographic clustering remains prevalent in the sector.

“With the exception of a small number of outliers, the developed and growth worlds are biased towards transacting within their own regions. Very little ‘cross-pollination’ occurred between the two worlds,” says Nyholt.

Regarding Western-led deals, 72% involved acquisitions of projects in another developed world region. Sixty-one per cent of Canadian-led acquisitions involved projects in Canada. The report also indicates that the trend of Western miners’ bias to “playing it safe” may be a barrier to long-term growth, given that roughly three quarters of known reserves lie in countries outside the developed markets.

“Numbers don’t lie. Developed nations have to ask themselves– What is the long-term cost of not doing more business in these markets?,” adds Nyholt.

In 2011, key growth market buyers represented 24% of acquisitions, nearly 50% higher than the total deal value at the 2006 market peak.

“While these markets aren’t yet dominant, with each passing year, growth market miners increasingly become forces to be reckoned with,” says Mr. Nyholt.

To effectively approach a growth market and reduce the risk of a deal cancellation, PwC recommends Western entities, especially boards and shareholders, “reconsidering the manners in which the balances of risk and reward are weighed.”

African Renaissance

According to the report, the global mining industry will continue to see high M&A volumes and values. One particular region emerges this year, according to PwC’s forecast, as the one that will attract most deals: Africa.

The company predicts that an increasingly friendly investor climate will prompt an “African Renaissance,” characterized by increased investment into Africa’s mining sector.

PwC’s vision matches the survey’s results published on Friday by The Economist Intelligence Unit, which said that two-thirds of institutional investors interested in frontier markets see Africa as holding the greatest opportunity.

“With demand for new projects, rising production costs and declining developed world reserves, miners will seek out targets to build scale and achieve cost efficiencies,” says Nyholt.

The “top five” resources (gold, copper, coal, iron ore and silver) are expected to be busy, says the report. However, it’s not likely that M&A valuations in the gold sector will be bid up to bridge the gap between the price of gold and the price of gold equities.

via Near-record for mining M&A in 2011 to be followed this year by an “African Renaissance” – PwC | MINING.com.

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Broadcast live today: How James Cameron’s company will mine asteroids

April 26, 2012 By

Broadcast live today: How James Cameron’s company will mine asteroids | MINING.com.

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