World’s copper producer issues 10-yr and 30-yr bonds to fund mines overhaul

World’s largest copper producer, Chile’s Codelco, issued on Monday 10- and 30-year dollar-denominated bonds to secure funding for its multibillion-dollar upgrade projects only five months after saying it didn’t need to raise money this year or next.

IFR, Refinitiv’s capital markets news service, said the new paper were issued in New York with a price range of between 150 to 180 basis points over equivalent US Treasuries.

The move is part of the state-owned copper giant’s fresh funding strategy that includes taking out loans and selling non-structural assets. 

Codelco borrowed last month $300 million and sold two bonds for a combined $180 million of funding.

World’s copper producer issues 10-yr and 30-yr bonds to fund mines overhaul

It also a 37% stake in natural gas port terminal GNL Mejillones for $193.5 million.

The Santiago-based miner’s change of heart surprised some analysts as chairman Juan Benavides had said in April the company had sufficient funding this year and next to develop planned multibillion mine upgrades, key to maintain its production at current levels.

Ore grades have plummeted at Codelco’s aging mines, prompting the urgent need for overhaul schemes.

The company has already kicked off one of its most ambitious plans — the $5.6 billion conversion of the giant Chuquicamata open pit mine into an underground operation.

The next major mine overhaul is a $5.5 billion new level at El Teniente underground mine, the company’s largest, which fell under new CEO Octavio Araneda’s mandate in his previous role.

Taken from Codelco’s presentation May 2019.

In the company’s pipeline of so-called structural projects are also a $1.3 billion expansion at the Andina mine, a $1 billion upgrade at Salvador and the expansion of Radomiro Tomic, which doesn’t have an estimated capital expenditure yet.

Codelco, which hands over all of its profits to the state, holds vast copper deposits, accounting for 10% of the world’s known proven and probable reserves and about 11% of the global annual copper output with 1.8 million metric tonnes of production.

Cobalt price boost as electric vehicle loadings surge

After hitting near decade highs in March last year within a stone’s throw of $100,000 per tonne, cobalt prices fell off a cliff.

Glencore’s decision last month to mothball the world’s largest cobalt mine breathed new life into the market, but so far the response has been relatively muted with the metal still trading in the mid-$30,000s.

Even at these levels, cobalt is a pricy raw material for electric vehicle manufacturers and battery makers have been working hard to find a substitute for cobalt, or at least reduce the required loading.

First generation Nickel-Cobalt-Manganese (NCM111) batteries had a chemical composition of 1 part nickel, 1 part cobalt and 1 part manganese. NCM batteries with lower cobalt content (622, 523 chemistries) are quickly becoming the standard in China, which is responsible for half the world’s electric car sales, and a much greater proportion of EV battery manufacture.

The industry is now fast moving towards even higher nickel content at the expense of cobalt and manganese with the market share of NCM811 increasing rapidly although it still only represents a tiny portion.

Tesla is a proponent of nickel-cobalt-aluminium (NCA) technology which requires less than a third the amount of cobalt and the EV pioneer says the batteries in its latest model already match NCM811.

A new report by Adamas Intelligence suggest despite the ongoing thrifting of cobalt in batteries deployed by EV manufacturers, the per vehicle loading of cobalt jumped by 45% in the first half of this year compared to H1 2018.

The Toronto-based research company, which tracks EV registrations and battery chemistries in more than 80 countries says cobalt deployed per vehicle has gone from 2.1 kg in 2018 H1 to 3.1 kg in 2019 H1. 

Strong battery electric vehicle sales relative to hybrids, plus the Chinese industry’s growing adoption of NCM cathode chemistries in place of lithium ion phosphate (LFP) was behind the increase says Adamas.

Overall in 2019 H1, 7,200 tonnes of battery-grade cobalt were deployed globally in batteries of all newly-sold passenger EVs combined, an increase of 81% over last year according to the report.

Source: Benchmark Mineral Intelligence Cobalt Price Assessment August 2019

Brazil to lay criminal charges against Vale, auditor in dam burst

Brazilian authorities will lay criminal charges against iron ore giant Vale (NYSE: VALE), 13 of its employees and German auditor TÜV SÜD, accusing them of fraud in relation to a deadly dam burst at the company’s Córrego do Feijão mine in January.

Federal police said the companies presented fake documents backing the stability of the dam whose collapse killed nearly 250 people and unleashed a gush of mining waste on a nearby towns.

Federal police said the companies presented fake documents backing the stability of the dam that collapsed in January.

Penalties for these kinds of crimes can be of up to 18 years in jail.

The Rio de Janeiro-based company reacted to the news by saying it was “aware of the police investigation,” but wouldn’t comment further until it analyzes “the full content of the report.”

Police also said it didn’t rule out the possibility of charging executives from both Vale TÜV SÜD with homicide and environmental damage in coming days, local O Globo reported.

Seven people from Vale and six from Tüv Süd are being indicted, according to the paper.

The world’s top iron ore producer is also facing a lawsuit by a group of investors who argue that Vale did not disclose information about risks facing the dam in the state of Minas Gerais to the market, even though it was aware of it,

Earlier this year, Vale’s announced a $107-million compensation (400 million Brazilian real) to workers impacted by the rupture of the dam and said would spend R$1.8 billion ($471 million) by 2023 on several projects to stabilize remaining structures at the Córrego do Feijão mine.

Other programs include reducing tailings flow into the Paraopeba river and ensuring proper disposal of tailings and rebuilding public facilities. The projects are expected to generate around 2,500 jobs. 

SL Mining to halt operations at Marampa iron ore mine in Sierra Leone

SL Mining, a subsidiary of US commodity trader Gerald Group, is allegedly planning to halt operations as early as next week to help it offset the impact of a Sierra Leone’s ban on export from the company’s Marampa mine, imposed in July.

Despite an international court recently ordered the West African nation to lift such prohibition, authorities remain firm, claiming that SL Mining has failed to maintain the mine’s agreed work schedule or make royalty payments. 

The company, which rejects the government’s claims, told employers that without being able to export, it was not possible for them to remain in operations.

“The [Sierra Leone’s government] continues to ignore the terms of the London’s court final order, failing to engage in a meaningful discussion with SL Mining,” it said in a letter published by The Sierra Leone Telegraph.

“SL Mining’s sole shareholder, the Gerald Group, has invested a great deal of money and efforts in Sierra Leone over many years and yet, was only allowed to make three successful shipments in a highly favorable market before being struck [by the ban],” it said.

The move would leave more than 1,000 locals on forced leave.

SL Mining’s first iron ore concentrate from Marampa, branded “Marampa Blue’, set sail from Freetown Port on June 16.

Located in the Port Loko District, in the country’s north, SL Mining is engaged in the exploration, development and production of a high-grade iron ore concentrate with >65 percent Fe content.

The company estimates that Marampa, permitted since 2017, holds about 1 billion tonnes of iron ore with a potential lifespan of 30 years.

Following a steady growth until 2012, foreign direct investment in Sierra Leone was severely impacted by an Ebola outbreak.

The country’s economy currently faces serious challenges, the latest World Bank’s report shows. Those issues include falling government revenue as a result of low export and lack of investments in key sectors of the economy, including mining.

Iron ore price plunges, “panic” selling of coking coal

Benchmark iron ore prices sank on Thursday as doubts about the efficacy of Chinese economic stimulus resurfaced, while coking coal prices plummeted amid oversupply and import restrictions imposed by Beijing.

The Chinese import price of 62% Fe content ore fell 3.3% on Thursday to $93.23 per dry metric tonne according to Fastmarkets MB, after coming close to triple digits last week.

“What has happened has definitely irked policymakers in China. That puts a lot of pressure on coal imports for the end of the year.”

Vivek Dhar, commodities analyst for Commonwealth Bank

On the Dalian Commodities Exchange iron ore futures closed down 4.6% at 638 yuan (just under $90 a tonne) and Shanghai rebar – the world’s most traded steel contract – lost more than 3%.

The Australian export price of metallurgical coal (FOB hard coking coal Fastmarkets MB) used in steelmaking tanked 7% to $122.50 a tonne. That’s down almost $70 a tonne compared to the start of the year.

Fastmarkets MB in a market report says the availability of ample cargoes of lower quality seaborne coking coal and a lengthy, uncertain customs clearing process “have raised the possibility of traders engaging in panic selling”:

“There seems to be some panic selling among traders who are concerned about a further drop in demand with the import quotas at Chinese ports nearly exhausted,” a buyer source in the country said.

Import volumes remain strong, for now

China’s iron ore purchases in August totalled just under 95m tonnes, up 4.2% from July and 6.2% from last year, customs data showed, marking the highest level of imports since January 2018.

Iron ore imports are set to reach another record in 2019, with annualized shipments running at 1.12 billion tonnes, despite the fall in output following the deadly dam burst in Brazil in January.

Beijing’s imposition of import quotas and onerous customs procedures was aimed at shoring up local coal miners, but to date it has had little impact.

The country imported 220m tonnes of coal (steam and coking coal) during the first eight months of the year compared to 280m tonnes for all of 2018.

Montel quotes Vivek Dhar, commodities analyst for Commonwealth Bank in Melbourne as saying higher prices for domestically-produced coal is behind the strong import numbers, but Beijing is keen to limit imports to around last year’s volume:

“What has happened has definitely irked policymakers in China,” said Dhar. “That puts a lot of pressure on coal imports for the end of the year.”

At least two northern ports – Qinzhou and Fangcheng – had already imposed additional customs delays, he said, with a chilling effect on imports likely to gain in the coming months. 

SolGold’s projects safe after Ecuador courts rejects mining referendum

Doubts around the fate of SolGold’s (LON, TSX:SOLG) projects in Ecuador have been cleared up after the country’s Constitutional Court rejected a fresh request to make mining permits subject to popular approval.

The ruling, covering the southern province of Azuay, said the petition to seek local consultation to ban mining was too broad and potentially misleading. Further, it ruled that any referendum which could result in other nationally enjoyed constitutional rights being restricted, were inadmissible.

It’s the second time a request to hold a referendum about mining is denied, which is seen as a victory for companies seeking to exploit some of the world’s largest untapped reserves of copper.

The decision follows a June verdict that rejected community consultation in Imbabura, the northern province that is home to SolGold’s flagship copper and gold Cascabel project —potentially one of Ecuador’s biggest mines.

The resolutions represent a victory for companies seeking to exploit some of the world’s largest untapped copper reserves. According to SolGold, they also set a “strong precedent” for any future petitions for consultation that imply changes to the country’s constitution.

Azuay province hosts several mining projects, including Canada’s INV Metals’ (TSX-V: INV) Loma Larga gold, silver and copper project. The Toronto-based company said late on Wednesday it would kick off its financing and permitting efforts for its proposed mine, one of five projects deemed strategic for Ecuador by the Ministry of Energy and Non-renewable Resources.

SolGold’s 100%-owned Sharug project, which the Australian miner believes has considerable potential for the discovery of a world-class orebody, is also located in Azuay.

On top miners’ radar

The Cascabel copper-gold project has piqued the interest of major miners, including BHP (ASX, NYSE:BHP). The world’s largest mining company last year acquired a 6.1% stake in SolGold, increasing its exposure to copper.

The move pushed Australia’s largest gold producer, Newcrest Mining (ASX: NCM), to up its holding in the company, consolidating its position as SolGold’s top shareholder.

While Ecuador has gained ground as a mining investment destination in the past two years, existing and future projects risk delays and potential halts due to growing local opposition to the extraction of the country’s resources, a report by Fitch Solutions Macro Research shows.

As mining projects face headwinds from rising tensions, investors’ courage will be tested, the study concluded, which could thwart Ecuador’s plan to attract $3.7 billion in mining investments in the next two years, significantly up from the $270 million it received in 2018.

BHP boss’ pay cut by almost 25% after worker’s death, runaway train

BHP’s chief executive, Andrew Mackenzie, saw his annual pay shrink by almost a quarter after an unexplained death at one of the company’s Queensland mines and a runaway iron ore train cost him a portion of his short-term bonus.

Mackenzie, 62, had his short-term bonus reduced by more than $1 million from 2018 to $1.3 million. His base salary was kept at $1.7 million, taking his total earnings, including other benefits, to $3.5 million, from $4.6 million in 2018.

According to BHP’s 2019 annual report, the death of a 49-year-old worker at its Saraji coal mine on New Year’s Eve last year, the cause of which it was unable to determine, was the main reason for the pay-cut. It was the first time in more than 15 years that the company had failed to pinpoint the cause of a fatal accident, BHP said. 

While BHP returned a record dividend to shareholders, Andrew Mackenzie received no long-term bonus payment in the financial year ended in June 2019.

The forced derailment of a fully-laden iron ore train in the Pilbara, which destroyed two locomotives, 245 cars and 2 km (1.2 miles) of track, also weighed on Mackenzie’s bonus size. 

Other issues mentioned in the report were equipment failures at BHP’s Olympic Dam in South Australia and Escondida mines in Chile. 

While BHP returned a record dividend to shareholders, Mackenzie — at helm of the world’s largest mining company since 2013 — received no long-term bonus payment in the financial year ended in June 2019.

The news come as the Melbourne, Australia-based mining giant is mulling a change to the CEO’s  remuneration policy.

Changes proposed by the company, the world’s biggest miner by market value, include a reduction in Mackenzie’s long-term incentive plan as a proportion of his base salary and a cash award with a longer-term focus than current short term incentives, BHP said. Those changes would result in a 12% cut to maximum annual remuneration, it said.

Other modifications planned include a cut to the CEO’s pension contribution rate and the introduction of a two-year post-retirement shareholding requirement.

BHP plans to present the remuneration policy changes to investors at annual shareholder meetings in the U.K. and Australia later this year.

Short on female target

The diversified miner fell short of its target of boosting female employees 3% a year, which is part of an ambitious goal of achieving gender equality within its ranks by 2025.

BHP increased its proportion of female employees 2.1% in the 2018-19 financial year, which resulted in the company having 1,156 more women employees on July 1 than at the same time last year.

The hiring efforts bring the female proportion of the company’s total workforce to 24.5%t, up from 22.4% last year.

In its sustainability report, released in conjunction with the annual and economic contribution reports, BHP said 37.7% of the people hired this year were women. The figure represents an improvement from the 10.4% it welcomed on board in 2015, yet is lower than the 39.8% it registered last year.

Barrick takes Acacia Mining back as buyout deal sealed

Canada’s Barrick Gold (TSX:ABX)(NYSE:GOLD) is acquiring all outstanding issued shares it doesn’t already own in Acacia Mining (LON:ACA), which gives the gold giant full control of the African miner.

The Tanzanian gold producer’s shares were suspended from trading on the London Stock Exchange’s main market, before being cancelled on Thursday.

The move follows Friday’s approval of the takeover by an UK court, which removed the last hurdle for Barrick’s takeover of Acacia, which spun off from the gold giant in 2010.

Acacia directors Peter Geleta, Rachel English, Steve Lucas Deborah Gudgeon Alan Ashworth and Adrian Reynolds will resign from the board.

Graham Shuttleworth and Martin Welsh have joined the board as directors, Barrick said.

THE ACQUISITION ENDS ACACIA’S NEAR-DECADE PRESENCE ON THE LONDON STOCK EXCHANGE. SHARES WILL BE DELISTED WITH EFFECT FROM SEPT. 18

Barrick’s original offer, submitted in May, valued Acacia at only $787 million. In July, the gold giant bowed to pressure from the African gold miner’s shareholders and submitted a sweetened $1.2 billion-offer.

Including the special dividends, which depend on asset sales, the fresh offer represented a 60% premium to Acacia’s share price at the time of the indicative takeover pitch.

As Acacia’s majority shareholder, with a 63.9% stake, Barrick led discussions over alleged unpaid taxes with the Tanzanian government, which has refused to deal directly with the local miner.

The parties reached a framework deal in February, which would see Acacia paying $300 million to settle the tax claims and splitting returns from its operations 50/50 with the country going forward.

Acacia complained about being left out of the negotiations, but Barrick’s chief executive, Mark Bristow, said it was the only way forward.

“It’s a tragedy,” he said in June. “We’re dealing with a complete breakdown of relationships.”

Acacia was ordered in July to stop using the tailings storage dam at its North Mara mine due to seepage from the facility.

Three of the company’s employees remain in jail in Tanzania awaiting charges for alleged corruption.

Barrick, the world’s No. 2 gold miner, is forging ahead with plans to sell about $1.5 billion in assets by the end of 2020. At the same time, it’s looking to buy more top-tier gold projects, in Canada and elsewhere, and invest in copper assets.

Sirius Minerals shares crash after scrapping $500m fundraising plan

Sirius Minerals (LON:SXX), the British company building a huge fertilizer mine beneath a national park, lost almost more than half of its market value on Tuesday after it announced it had cancelled plans to raise the $500 million needed to move ahead with the Woodsmith project.

The company has said in August it was “delaying” the bond offering due to turbulent global markets, including Brexit and the UK government refusal to back the polyhalite mining project.

The decision casts serious doubts on the mine’s future and it could leave Sirius, as some analysts half-joking have said, with a “huge and useless hole in the ground.” 

The London-based firm had said it had enough cash to last only until the end of September. That’s why the miner now has no other option than to slow down the pace of construction and so gain some time to “assess and incorporate optimizations to the project development plan and to develop a different financing structure for the funds required,” as the company’s chief executive officer, Chris Fraser, put it.

The miner noted it had sufficient liquidity — about £180m ($223m) in cash reserves — to explore all of its options during a six-month strategic review period.

It would, however, return the proceeds of a $400m (£322.2m) bond issued in May 2019 to investors, it said.

The company hinted it wouldn’t be in the position it is today have the UK government not turned down a request to guarantee $1bn of bonds. That would have “enabled the company’s financing to be delivered as planned,” it said.

Sirius’ shares fell as much as 63% in early trading to 3.69p, taking the year-to-date value drop to 83%. About 14 years ago, the stock was changing hands at 6.46p. In 2016,it hit 45.23p, and by early afternoon London time, it was at 4.63p, less than half its closing price on Monday. 

SIRIUS’ WOODSMITH MINE is set to BE ONE OF THE WORLD’S LARGEST IN TERMS OF THE AMOUNT OF RESOURCES EXTRACTED — around 10 MILLION TONNES PER YEAR OF POLYHALITE, A FORM OF POTASH USED IN PLANT FERTILIZERS.

“Sirius Minerals’ decision to cancel its high yield bond undoubtedly represents a major blow to the company’s plans to develop its ambitious Woodsmith polyhalite mine,” Humphrey Knight, senior potash analyst at CRU told MINING.COM.

“Although the company pointed to challenging market conditions, the high yield nature of the bond demonstrates that the project has numerous risks associated with it, many of which are unique,” Knight noted.

The CRU potash expert highlighted among the Woodsmith project’s unique challenges the fact that the market for the commodity it will produce, polyhalite, remains very small.

“Sirius’ planned production is around 30 times larger than the total polyhalite market size in 2018. The company’s plan to rapidly increase production to over 10 million tonnes only a few years after starting operations also added to concerns of significant disruption to wider fertilizer markets — even with its numerous offtake agreements,” Knight warned.

He noted that while Sirius may come up with new, less risky financing routes, the underlying uncertainties around polyhalite, such as potential market size and pricing, will remain.

Russ Mould, from investment platform AJ Bell, said the Sirius decision to scrap the planned bond sale was “devastating”.

“It’s terrible news for a very large number of retail investors who had put their faith in the company,” Mould said. “Many of these shareholders live close to the mine and invested as a show of support in a project that had the potential to greatly improve the local economy.”

World’s largest polyhalite mine

The Woodsmith mine, poised to be one of the world’s largest in terms of the amount of resources extracted, is set to generate an initial 10 million tonnes per year of polyhalite a form of potash that is used in plant fertilizers. Output is forecast to reach 13 million tonnes in 2026.

The operation involves sinking two 1.5km shafts below a national park on the North York Moors and is expected to create about 1,800 jobs during construction, as well as 1,000 permanent positions once it opens in May 2021.

The ore will be extracted via the two mine shafts and transported to Teesside on the world’s longest underground conveyor belt, via a 37km-underground tunnel. It will then be granulated at a materials handling facility, with the majority being exported to overseas markets.

Sirius Minerals gives itself six months to find alternative plan for potash project.
This is how Sirius plans to extract polyhalite. (Courtesy of Sirius Minerals.)

The 8 times since Black Monday stocks investors wish they’d held gold

Climbing higher on the back of safe haven buying, the price of gold camped out above $1,500 an ounce on Monday after the strike on Saudi oil infrastructure added further worries to already unnerved markets

A recent study by the World Gold Council, shows during times of stress on financial markets gold usually outperforms equities. In fact, the metal has done so during eight of the last nine shocks to financial markets starting with 1987’s Black Monday on Wall Street through to last December’s rout on US markets.

The WGC points out in a report looking at gold as a commodity investment, that the metal tends to find favour during good times but is also negatively correlated with other assets during so-called risk-off periods:

This dynamism reflects gold’s dual nature as both a consumer good and an investment. When economic conditions are benign, expenditure tends to increase on items such as jewellery or technological devices, and this works in gold’s favour.

During times of systemic risk, however, market participants seek high-quality, liquid assets that preserve capital and minimise losses. This can also benefit gold by boosting investment demand and driving up prices.

Last year stock markets suffered their worst performance since the Great Recession a decade ago, with almost all the selling happening in the final months of the year.

During the fourth quarter of 2018, the S&P 500 index of the largest US companies fell 14%, commodities fell 9%, but the price of gold rose 8%.

** The VIX is available only after January 1990. For events occurring prior to that date, annualised 30-day S&P 500 volatility is used as a proxy. Dates used: Black Monday: 9/1987-11/1987; LTCM: 8/1998; Dot-com: 3/2000-3/2001; September 11: 9/2001; 2002 recession: 3/2002-7/2002; Great recession: 10/2007-2/2009; Sovereign debt crisis I: 1/2010-6/2010; Sovereign debt crisis II: 2/2011-10/2011; 2018 Pullback 10/2018–12/2018. Commodities is the Bloomberg Commodity Index.