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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Mongolia backtracks on state ownership of mining companies

May 14, 2012 By

Mongolian elections are set for the end of June and in the run-up draft legislation put forward new provisions to cap foreign ownership of domestic companies at 49%, rules similar to Zimbabwe’s indigenization policy.

Fearing a backlash by foreign investors in the mining sector – the foundation of the country’s economy – Mongolian legislators on Tuesday watered down many of the provisions, reports Reuters, “although mining, media and banking projects will still be subject to stringent restrictions.”

“A provision saying that projects worth more than 100 billion tugrik ($80 million) should be subject to majority Mongolian ownership has also been removed,” the news agency reported adding that many believe the proposed new law will be toned down further before it is enacted.

Last year gross domestic product in the nation of fewer than 3 million people expanded by 17.3% and this year it should easily top 20% thanks to billions of dollars of foreign investment in the country’s coal, copper and gold mining industry.

The unhappiness about foreign involvement in the resource industry seems to have been sparked by a takeover bid by Chalco, China’s largest aluminum firm, of SouthGobi Resources, a coking coal producer.

That $925 million deal is now on ice pending a government review and the suspension of some of SouthGobi’s licences. SouthGobi is majority owned by Canada’s Ivanhoe Mines.

The SouthGobi fiasco is not the first time Mongolian politicians have interfered in the mining industry.

After a shambolic bidding process that stretched as far back as 2007, Mongolia struck a deal with US giant Peabody Energy, China’s Shenhua and a Russian-Mongolian consortium in July last year to develop the western block of Tavan Tolgoi, the world’s largest coking coal deposit.

Barely two months later the country’s National Security Council threw out the agreement after losing bidders complained and in March stopped talks with foreign miners altogether.

West Tsankhi alone holds 1.2 billion tonnes of high-quality coal used for steelmaking and Shenhua, the world’s largest coal miner with 53 operating mines, said in March it is still confident of signing a deal post elections.

Given the reaction to Chalco and calls by some politicians that Mongolia develop West Tsankhi itself, that optimism may be misplaced.

Mongolia also still hopes to privatize its Erdenes-TT mining company which controls the remainder of the 6 billion tonne Tavan Tolgoi resource.

The government was hoping to raise as much as $3 billion through a listing in London, Ulan Bator and Hong Kong, but that process has also been thrown into disarray by the upcoming elections.

Tavan Tolgoi is not even the largest mining investment in Mongolia. That honour goes to Oyu Tolgoi, a $13 billion copper-gold-silver-project.

In October Ivanhoe and partner Rio Tinto dodged a bullet when the Mongolian government said it was rethinking a 2009 deal that gave Ivanhoe and Rio Tinto a 66% stake in Oyu Tolgoi and that it wanted half of the mine, already three-quarters built.

via Mongolia backtracks on state ownership of mining companies | MINING.com.

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

May 14, 2012 By

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.

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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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