The good, the bad, the ugly: miners’ ability to stay afloat in the current context

A report by Fitch Ratings states that, in the current context of geopolitical tensions, natural disasters and epidemics like that of the novel coronavirus, mining companies that have competitive cost structures and ample leverage headroom should be able to withstand commodity price risk.

On the other side of the spectrum, miners whose credit profiles are less efficient and who have limited financial flexibility are expected to be walking on the tightrope given the possibility of such exogenous events disrupting supply/demand conditions.

“Prices for copper, aluminium, iron ore and zinc meaningfully declined after the COVID-19 outbreak due to the possible effect on Chinese demand,” the market analyst reports. “In some cases, prices fell below Fitch’s 2020 rating case assumption of $5,900/tonne for copper, $1,750/tonne for aluminium, $75/tonne for iron ore and $2,300/tonne for zinc. Fitch expects the coronavirus outbreak to dampen China’s GDP growth this year but the scale of the impact remains uncertain.”

The good

In the view of the New York-based firm, giants BHP (NYSE: BHP), Rio Tinto (ASX, LON, NYSE: RIO) and Anglo American (LON: AAL) have low-cost assets and ample leverage headroom at current rating levels which should make them less vulnerable to longer than expected price weakness.

Similarly, Brazil’s Vale (NYSE: VALE) and Nexa Resources (TSX, NYSE: NEXA), as well as Mexico’s Southern Copper (NYSE: SCCO), are well-positioned to manage through a period of price weakness due to their strong balance sheets and low-cost structures.

The bad

On a completely different boat are Peru’s Volcan (BME: XVOLB) and Chile’s Codelco – the world’s no.1 copper producer – considered to be vulnerable due to a failure to reduce debt and/or the effect of lower prices on cash flow and the ability to internally fund Capex.

The ugly

According to Fitch, Canada’s First Quantum (TSX: FM) is also significantly exposed to copper price risk, given its concentrated price mix and limited leverage headroom. “However, increased production from the ramp-up of its Cobre Panama greenfield project, the ability to reduce Capex and limited near-term maturities will support cash flow generation and limit pressure on liquidity during a challenged operating environment,” the report states.

If the coronavirus epidemic leads to restrictions in mining operations and the transport of products, curtailed capacity and building of surplus inventory, miners’ ability to stay afloat will depend on their cost position and level of leverage headroom

Phoenix-based Freeport-McMoRan (NYSE: FCX), which partially owns the massive Grasberg copper and gold mines in Indonesia, is not so badly positioned either due to its exposure to gold, which is a natural hedge. In addition to this, the company’s Latin American assets are average cost but its US assets are higher cost.

“Freeport-McMoRan significantly reduced debt over the past several years, has sufficient liquidity and has proven its willingness to curtail loss-making operations and cut dividends, if necessary,” Fitch highlights.

More unstable is the forecast for Russia’s Rusal, the world’s second-largest aluminium company by primary production output, because even though the company has a low-cost position in aluminium, its operating and financial profile weakened in 2019 due to prolonged low commodity prices, cost inflation and slower-than-targeted debt reduction.

Peru’s mining sector slowed down in 2019

Peru’s mining sector fell by 0.05% in 2019, a report by the National Institute of Statistics and Informatics shows.

According to the government agency, a 0.84% contraction in the metallic mining subsector is to blame for the downfall. In the world’s No. 2 copper producer and sixth-largest gold producer, such a drop carries so much weight that the 4.6% growth experienced by the oil and gas subsector wasn’t good enough to make up for it. 

In 2019, Peru produced almost 2.5 million fine metric tons of copper or 12% of the global output of the red metal

An analysis by news agency Infobae states that tensions between the United States and China are in part responsible for the decline in the mining sector, as the Asian country is Peru’s main commercial partner.

For 2020, however, the outlook seems more positive as the energy and mining minister Juan Carlos Liu said that mining sector investments are expected to amount to approximately $6.3 billion across several initiatives, compared to $6.1 billion last year.

Overall, 2019 saw the South American country’s economy experiencing its weakest year in a decade, with the GDP growing only by 2.6%, a stark difference when compared to the 4% growth of 2018.

A 25% dive in the fishing sector, the nation’s second most important economic driver, is also to blame for the slowdown, the Institute of Statistics said.

Despite this, Peru’s economic growth is still way above the average in the region, estimated at 0.1% by the United Nations Economic Commission for Latin America and the Caribbean. 

How to effectively address illegal gold mining – study

A study by researchers at the National University of Singapore found that increased enforcement and the offer of an alternative agriculture-based livelihood are unlikely to deter illegal gold miners in Myanmar.

“It is simply too profitable,” they wrote in a paper published in the journal Conservation Science and Practice.

Even though Myanmar is known as the world’s largest producer of jade, gold mining -and illegal gold mining in particular- has been growing in recent years. This situation has pushed the government to launch a series of initiatives to drive people away from unregulated operations.

The importance of mining to Myanmar’s economy is expected to increase following the opening of the country to global investment after political reforms were launched in 2011

But NUS scientists were curious about the costs imposed by enforcement, the level of enforcement required to make informal gold mining unprofitable, and the potential benefits associated with alternative agriculture-based livelihoods. Thus, they interviewed 226 people involved in the gold mining industry in the Homalin township in northern Myanmar. These miners operate along the Chindwin River and the Uru River basins, many on sites abandoned by the formal sector.

The idea behind the survey was to understand their motivation to participate in mining, assess the profitability of informal mining, and estimate losses associated with law enforcement. Participants included mine owners and workers in both the formal and informal sectors and local farmers.

The researchers found that while police inspections impose costs associated with wasted time and loss of equipment, informal gold mining is so profitable that miners can rapidly recoup these costs. So much so that there is even room for them to pay fees and taxes to local authorities and communities instead of formally to the government.

They also found that many of the miners already balance mining with agriculture, so government plans to provide agricultural land are unlikely to deter them.

Furthermore, as many of the miners were internal migrants and willing to migrate again for economic opportunities, policies to replace informal mining might simply shift it to new regions within Myanmar.

How to effectively address illegal gold mining - study
Illegal gold mining site in Myanmar. (Image by Graham Prescott, courtesy of the National University of Singapore).

However, according to the researchers, some solutions can be implemented. “Given that most informal miners operate on mine sites abandoned by the formal sector, one approach could be to allow informal mining on these sites and focus instead on preventing the expansion of informal mining to forests and wetlands,” Graham Prescott, the lead author of the paper, said in a media statement. “Technologies that eliminate mercury emissions, such as the use of mining retorts could also be introduced to the informal mining communities.”

In the experts’ view, such an approach represents a win-win situation because informal gold miners would benefit from the legitimization of their livelihood, protection against eviction and better health and safety practices, while society could benefit from the compliance with environmental regulation to prevent the expansion of mining in environmentally sensitive areas and reduced mercury emissions.

Mexican mineworkers march against Americas Gold and Silver Corp.

Local media in Mexico report that about 400 people marched over the weekend in the Cosalá municipality, located in the northwestern state of Sinaloa, in support of some 200 workers from the San Rafael mine who have been on strike since January 26, 2020.

San Rafel is a low-cost silver-zinc-lead underground mine that is part of the Cosalá operation owned by Americas Gold and Silver Corporation (TSX: USA) and managed by Minera Cosalá SA de CV. The operation also includes the Los Braceros processing facility, the El Cajón project, several other smaller past-producing mines and numerous mineralized showings.

If it remains open, the San Rafael mine is expected to double current silver production and exceed 1 million ounces by 2021, driven by output growth from the recently developed Main, Central and Upper zones

According to El Universal newspaper, the striking workers are demanding safer working conditions, environmental protection measures, and a collective agreement that includes increased wages, productivity bonuses and medical services. During the weekend protest, they were joined by colleagues from the neighbouring Durango and Zacatecas states.

It is reported that protesters also said that the company was favouring the union led by Javier Villarreal, from the Confederation of Mexican Workers, and that they wanted to be led by the Mining, Metallurgical, Siderurgical and Similar Workers Union, known as Los Mineros, which is led by Napoleón Gómez Urrutia, a senator from the left-wing, ruling Morena party.

But Americas Gold and Silver Corporation has said that it is following the decision made by the workers themselves to elect Villarreal’s union back in 2019 and that it is complying with the collective agreement.

In a five-page communiqué signed by the communications department of Minera Cosalá SA de CV and made public by the news site Línea Directa, the miner explained how it is complying with all safety measures required by law and how it is providing proper medical and health services to its employees, including private insurance and emergency training. 

The letter also says that Cosalá does weekly inspections to monitor the environmental impacts of its operations and participates in local green initiatives and other activities to support community development.

But the subsidiary of Americas Gold and Silver has alerted – via another media statement published by Expansión – that if the strike and the rallies continue, together with a blockade launched a week ago at the mine, it will have to permanently shut down San Rafael and its processing plant. 

Back on February 3, 2020, the Toronto-based firm announced a temporary halt to its operations. Management also said that even though the blockade was illegal and that it had already filed the legal motions with the Government of Mexico at the state and federal levels, it was open “to having good-faith discussions with the proper representatives of the certified union.”   

Scientists propose framework to mitigate mining’s impact on climate change

A new framework that will allow mining companies to better monitor, gather and assess emissions data, as well as to identify measurement gaps and evaluate and apply mitigation strategies, is expected to help reduce the industry’s impact on climate change.

Developed by researchers at the University of Queensland and presented in a paper in Nature Geoscience, the guidelines address climate change-related issues by accounting for sources and sinks of greenhouse gas emissions and proposing mitigation pathways.

The researchers estimated that greenhouse gas emissions associated with primary mineral and metal production were equivalent to approximately 10% of the total global energy-related greenhouse gas emissions in 2018

“Rising standards of living have led to increasing demand for mining activities to provide the minerals and metals required by many technologies,” Mehdi Azadi, lead author of the study, said in a media statement. “While the mining sector contributes to global emissions, it is also increasingly affected by climate change. Our framework examines the sources of GHG emissions across the mining supply chain – from mining, ore processing, transportation, to waste management – and identifies ways to improve mitigation strategies.”

According to Azadi, fugitive emissions reduction, resource efficiency, energy usage, and biological solutions are the four major pathways for GHG mitigation in mining.

“The industry needs accurate data to reduce its carbon footprint and improve risk management,” the expert said. “[The proposed] pathways will allow policymakers and miners to create flexible plans for addressing GHG emissions by taking into account operational requirements and external factors. The framework is flexible enough to be tailored to a specific commodity, mining operation, climate or country.”

In the researcher’s view and that of his colleagues, carbon accounting of mining is becoming urgent now because minerals for clean energy infrastructure are being widely explored.

“Understanding the full carbon budget of extraction is important in considering a range of potential supply sources and processing technologies,” Saleem H. Ali, co-author of the study, said.

Nickel price under pressure in 2020 – report

A report by Wood Mackenzie argues that despite the global continued investment in new battery plants, weaker demand for nickel sulphate or NiSO4 tied to last year’s cut in Chinese electric vehicle subsidies will translate to more discounts in the metal’s price in 2020.

“We previously noted that premiums for NiSO4 might come under pressure due to stronger supply. While that did materialise, the unexpected and immediate mid-year downgrading in Beijing’s EV subsidy programme had a greater impact,” Wood Mackenzie’s Head of Nickel, Andrew Mitchell, wrote in the report. “EV sales were reduced by half, China’s EV sales target of 1.5 million units was derailed and this cut demand for batteries and, therefore, precursor materials, including NiSO4. The impact will extend well into 2020.”

According to Mitchell, further discounts on NiSO4 are to be expected in the coming months and it is even possible that some sulphate refiners will switch a portion of chemicals output back to metal production.

Nickel price under pressure in 2020 - report
First Quantum wants to switch Ravensthorpe back on, having placed it on care and maintenance in 2017. (Image courtesy of First Quantum Minerals).

“We believe the 27% surge in EV-related demand for nickel chemicals was exaggerated last year and that growth will be restricted to only 3-4% in 2020,” the expert said.

In the market analyst’s view, despite some mine closures, supply is going to remain stable and, thus, a price spike is not in the forecast.

Wood Mackenzie explains that while Vale (NYSE:VALE) works on the closure of its VNC high-pressure acid leach or HPAL operation in New Caledonia – which has been losing about $9 million a month -, First Quantum Minerals (TSX:FM) aims to switch Ravensthorpe back on, having placed it on care and maintenance in 2017.

Since the process at Vale’s operation is not immediate, its HPAL plant should produce 22 kt nickel through the year. Meanwhile, Ravensthorpe’s output is predicted to reach 9 kt nickel in mixed hydroxide precipitate in 2020, increasing to 20 kt in 2021.

“Thus, between them, these two operations could increase the availability to battery chemicals streams of nickel in MHP by 20-25 kt in 2020,” the report reads.

Keeping an eye on Indonesia

Besides pricing issues, Wood Mackenzie also foresees other challenges related to the supply side of things, particularly when it comes to the three new HPAL plants that are scheduled to enter production in 2021 in Indonesia.

The plants’ viability is going to be put to the test due to the restart of the Indonesian nickel ore export ban which means that, once ore stocks are depleted, Chinese nickel pig iron or NPI production will decrease sharply.

“However, this decline could be more than counterbalanced by expansion in Indonesian NPI,” Mitchell said. “Even though the Indonesian nickel ore export ban began on 1st January, we expect about 6Mt of Indonesian ore to arrive in China in the first part of this year.”

The analyst argued that besides what China will be getting from Indonesia, the Asian giant is expected to receive some 30 Mt from the Philippines. These two inputs, combined with ore stocks already available in the country, should bring nickel-in-NPI production in China to 526 kt, with monthly production levels expected to be sustained at 50 kt through the first half of 2020 before declining to 30 kt as ore supply becomes tighter.

“The potential future production of NPI in Indonesia is staggering. We currently anticipate output of 500-520 kt nickel in NPI in 2020 compared with 360 kt in 2019 as 18 RKEF [rotary kiln–electric arc furnace] lines became operational across three industrial parks,” WoodMac’s document states.

Infinity Lithium’s JV fined in Spain

Tecnología Extremeña del Litio, a JV between Australia’s Infinity Lithium (ASX: INF) and Spain’s Valoriza Minería, is being asked to pay a €2,500-fine and to restore an area where it carved roads and installed drilling platforms in its quest to further explore the San José / Valdeflórez lithium project in western Spain.

A resolution by the counsellor for Ecological Transition and Sustainability of Extremadura’s regional government dismissed an appeal filed by the company against the sanction.

San José’s resources have been estimated in 111.3Mt at 0.28%Li and 0.61%Li2O

According to news agency Europa Press, the issue was initially raised by the former General Directorate of Environment, based on a complaint presented in January 2018 by the Sierra de la Mosca Neighbours Association. The Directorate’s file was also informed by a report compiled by technicians with the Environmental Protection Service.

The file states that between 2016 and 2018, Tecnología Extremeña del Litio opened new roads and greatly modified existing ones without having presented an environmental impact assessment before the authorities. The soil in the areas where the paths were carved out are under special protection and some segments are of archaeological significance. reached out via email to Infinity Lithium and asked whether it is going to accept the sanction or pursue further legal action before justice tribunals but did not receive a response by publication time.

The San José industrial lithium project is located near Cáceres. The plan is to develop it by open-pit methods with the ore treated and refined onsite to produce high-quality, battery-grade lithium hydroxide.

According to Infinity Lithium’s website, its goal in the long term is to supply the European lithium-ion battery supply chain and EV industry.

Cupric oxide gives clues on how to design better batteries, vehicles

A study on how oxides and gases interact suggests looking at these interactions to find ways to produce better catalysts, improved batteries, longer-lasting vehicles and other higher-quality products.

Led by a team from Binghamton University, the Brookhaven National Laboratory and the National Institute of Standards and Technology, the study presents a new way to look deeper into how gas molecules affect the atoms beneath the surface of a material.

To test their hypothesis, the scientists analyzed cupric oxide, a copper oxide that many researchers are interested in because it is more abundant and affordable than noble metals such as silver, gold and platinum, and it is used for numerous processes such as methanol production.

The team examined the reaction between hydrogen and copper oxide using atomic-scale transmission electron microscopy. The technique allowed them to see the surface and subsurface simultaneously and in real-time, showing that structural oscillations are induced in the subsurface by loss of oxygen from the oxide surface.

“This study shows how the reaction from the surface propagates to deeper atomic layers. We look at it from a cross-section so we can see atoms both in the top layer and subsurface layers more clearly,” said the senior author of the study, Guangwen Zhou, in a media statement. “We can’t care just about the surface but also the deeper layers if we want to understand the process better. If we know these reaction mechanisms, we can design better materials.”

Worst drought in years pushes Anglo to sign water deal with Codelco

Global miner Anglo American (LON: AAL) recognized that the severe drought affecting Chile’s central region has impacted its Los Bronces copper mine.

In its Q4 2019 production report, Anglo said Los Bronces’ production dropped by 28% due to water scarcity, a situation that also caused a 44% decline in the plant’s processing capacity.

“Production from Los Bronces decreased by 28%, to 71,700 tonnes with a 44% reduction in plant throughput (7 million tonnes vs 13 million tonnes) resulting from lower water availability,” the quarterly document states. “Chile’s central zone continues to face unprecedented climate conditions, with 2019 being one of the driest years on record and the driest since the start of the current decade-long drought.”

According to Anglo, the negative results at Los Bronces were partly offset by strong mine performance, in particular a step-up in shovel productivity and planned higher grades (0.99% vs. 0.81%)

Los Bronces closed 2019 with an overall production drop of 9%, as it was only able to generate 335,000 tonnes of fine copper. Guidance for the year had been set on 359,000 tonnes. 

Given these results, Anglo decided to go ahead with a water deal with Codelco’s Andina division, a massive mine adjacent to Los Bronces. 

The agreement between the two miners entails that clean water from Andina’s Ovejería tailings pond is to be transported seven kilometres by truck to Los Bronces’ tailings facility, known as Las Tórtolas.

According to local media, Codelco has said that this is a good use for the resource because its industrial water either accumulates in the pond or evaporates as is not apt for agricultural use or human consumption.

Los Bronces is operated by Anglo American together with Codelco and it is among the world’s largest copper mines. It sits at 3,500 metres and just 65 kilometres from Santiago.

Waste heat recovery could back clean energy power at mine sites

Diesel genset efficiency optimization is sparking interest among miners, a new report by THEnergy reveals.

The approach is based on conventional steam turbine technology, but advances have allowed it to be deployed at a smaller scale. 

The principle behind it is addressing the issue of diesel engines being able to convert only 40% of the fuel energy into electricity, while the rest is not used. Waste heat recovery can reduce diesel consumption by approximately 7%. 

According to THEnergy, the method is already proven in applications like biogas engine heat recovery, biomass combustion, industrial waste heat, and geothermal heat.

“Waste heat recovery is the low hanging fruit in the diesel reduction game,” said Thomas Hillig, the consultancy’s managing director, in a media statement. “Renewables have recently opened the door for new approaches because they have increased the acceptance of more capital-intensive solutions in the mining industry.”

In Hilling’s view, heat recovery can go hand-in-hand with renewable energy approaches for diesel reduction. 

“In a time when cost optimization and carbon mitigation are gaining importance, the question is not which of the two solutions to choose. The answer is to combine both solutions together,” the expert said. 

Waste heat recovery could back clean energy power at mine sites
Gensets could back these existing clean energy solutions at mine sites. (Image courtesy of THEnergy).

THEnergy’s document explains that the heat recovery solution works by connecting two standard 20-foot shipping containers to the exhaust gas stack of diesel gensets. What happens next is that the e-box generates electricity from the waste heat. The electricity is fed into the local grid, so that diesel gensets do not need to produce this power and subsequently consume less fuel.

Since the e-box converts waste heat, it is a zero-carbon technology which addresses the drive for cleaner mining. A single e-box saves 300,000 litres of diesel per year. This is approximately the same as a 0.7 MW solar power plant in a rather sunny region. Annual CO2 reductions amount to 800 tons per e-box. 

“In the quickly growing market of renewable energy solutions for remote mines, efficiency improvements of gensets can generate competitive advantages for mining companies and energy providers by pulling all the cost-efficient diesel reduction levers of onsite power plants,” said in the report Henning von Barsewisch, CEO of Triogen, a supplier of decentralized power generation equipment derived from the steam turbine process. 

Henning explained that the e-box solution has successfully been field-tested for mining applications and is now being deployed at the remote site of a blue-chip mining company.