Stopping the helium fire sale

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.

Molycorp stock is following rare earth prices over a cliff

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.

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

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.

China gold imports up sharply, country set to become world’s biggest user of bullion | MINING.com

Gold imports to China from Hong Kong were up 59% in March, according to the Hong Kong Census and Statistics Department.

Exports to China were 135.53 tonnes for the first three months of this year, up from 19.7 tonnes a year ago.

Analysts use import data from Hong Kong census department to gauge overall gold demand in China.

World Gold Council is projecting that China may become the world’s biggest user of gold.

Lawrence Williams at Mineweb wonders if gold is being used by China to reduce its central bank’s overweighting of US dollars.

“If historical precedent is being followed, a significant proportion of Chinese government-held gold may be being held in a secondary account which is not reported in the official reserve figures,” writes Williams.

Gold has not had a good week. Since the leadership changes in Europe over the weekend, gold has been off 2.49% to $1,601.29/oz.

Gold has moved sideways since the start of the year. It spiked at $1,783.93/oz in late February but has since slid to about the same price it started in January.

via China gold imports up sharply, country set to become world’s biggest user of bullion | MINING.com.