Glencore gives investors $2.9bn in dividends after ‘strongest’ results ever

Miner and commodities trader Glencore (LON:GLEN) said Wednesday it would pay shareholders $2.9bn in dividends after achieving what it called its “strongest results on record”, which attributed mainly to a sharp recovery on commodity markets and a strong performance from its marketing unit.

The 2017 results leave Ivan Glasenberg, the head of the Swiss company, well positioned to continue doing what he knows best — deals.

Speaking after the publication of annual results, Glasenberg said the company was on track to generate around $10 billion of free cash flow this year, which could be used to pursue more acquisitions if opportunities arise.

The Swiss firm not only has the firepower to strike deals, but is better positioned than any of its peers to capitalize on its exposure to battery minerals, particularly copper and cobalt.

“We work opportunistically,” Glasenberg said according to FT.com. “Right now there is no big idea on the radar screen, but look at what happened last year — opportunities presented themselves and we were able to move on them. Going forward we will do the same.”

Last year, the company stroke deals worth more than $4 billion in copper, oil, zinc and coal. This left Glencore clearly more exposed than any of its peers to battery minerals, particularly copper and cobalt, which are needed for electric vehicles and other new technology.

And the company expects to produce even more of those metals over the next three years, with anticipated output growth of 25% for copper, 30% for nickel and 13% for cobalt.

Glencore posted full-year overall adjusted profit of $14.8 billion and said its trading business gained 3% to exceed $3 billion for the first time since 2008. Net debt, in turn, decreased by 31% to $10.7 billion, the bottom of the company’s $10-$16bn target range.

Not surprisingly, the company’s shares skyrocketed on the news, gaining almost 4% to trade at 399.3 pence by 9:42AM London time, the biggest intraday gain since August.

“We look to the future with confidence,” said Glasenberg in a statement. “We believe our unrivalled positioning in ‘Tier 1’ commodities and ‘Tier 1’ assets will continue to create compelling value for all stakeholders,” he said.

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BHP takes top spot in brand value ranking

Brand Finance, a business valuation consultancy based in the UK, released its annual ranking of the most valuable mining, iron, and steel brands which highlighted the rebranding efforts of Australian mining company BHP. Its brand value increased by 29% to a hefty $5.1 billion in 2018. Other companies did not fare as well – Glencore, Vale, and Thyssenkrup took a significant hit to its brand value this year.

Last May, BHP unveiled a new campaign called ‘Think Big’, to establish the company’s role in Australia’s economy and community. The launch of ‘Think Big’ was at the same time as the company shortened its name from BHP Billiton to BHP. According to David Haigh, CEO of Brand Finance, China’s growing demand for higher quality iron ore imports is “benefiting the industry’s largest brands such as BHP and Rio Tinto. Challenger brands will need to define their competitive advantage to capture a greater proportion of the ever-growing Chinese market.”

Although still securing second place, Swiss commodity trading and mining company Glencore lost some traction since being the most valuable brand of 2017, with its brand value dropping by 11% to $3.7 billion. The reason for this steep decline was due to Glencore’s negative press after a mass data leak from offshore law firm Appleby. The International Consortium of Investigative Journalists (ICIJ) got hold of this information, and published “Paradise Papers”, exposing details related to Glencore’s operations in the DRC and Australia. Allegations against the company include criminal complaints against Glencore obtaining a copper mine in Congo, and cross-currency swaps, commonly used to evade tax payments. The law firm said, “Appleby has thoroughly and vigorously investigated the allegations and we are satisfied that there is no evidence of any wrongdoing, either on the part of ourselves or our clients.”

POSCO, a steel-making company headquartered in South Korea, also dipped 4% – bringing it to $3.6 billion and maintaining its third-place position from last year. Other significant developments include Baowu Steel, formed from the merger between Baosteel and Wuhan Iron, doubling its brand value to $2 billion. Aluminium producer Alcoa rebranded to Arconic and dropped 13 places after taking on a new direction to concentrate on designing and building processed metal parts. The waning of Alcoa-branded revenue streams made its brand value decreased by 57%.

Among the lower ranking brands on the list were Vale, a Brazillian mining company, and Thyssenkrupp, a German steel producer – decreasing by 11% and 25% respectively. Thyssenkrupp is embarking on a new joint venture with Tata Steel, as they merge under a new holding company based in the Netherlands – the impact of the merger on both brands remains to be seen.

The criteria for rating brand value is based on measuring enterprise value, branded business value, and brand contribution.

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Gold price drops most since December 2016

Gold price drops most since December 2016

Volatility has not only returned to equity markets.

Gold on Tuesday suffered its worst trading day since December 2016 according to MarketWatch. A week ago the price of gold gained the most since financial markets were shocked by Britain voting to leave the European Union in June 2016.

The most active gold futures contract on the Comex market in New York dropped to a low of $1,330.60 an ounce in lunchtime trade, down 1.9% or more than $25 an ounce compared to Monday’s settlement. Volumes were brisk with 34.5m ounces of April delivery gold traded by early afternoon.

Source: Bloomberg

The drop came after a surge in the value of the US dollar as currency traders returned to their screens after a long weekend in the US. The price of gold and the US dollar usually move in the opposite direction.

The US dollar bounced back on Tuesday with the index against the country’s major trading partners recovering to 89.7.  The US dollar’s all-time peak of 164.7 was reached in February 1985. That coincided with a bottom in the price of gold of $284.25 an ounce.

The yield on US benchmark 10-year Treasurys rose to a four year high of 2.9% last week and could cross the psychologically important 3% level as soon as this week. Inflation-adjusted yields on US government bonds have a strong inverse correlation to the gold price. The last time yields topped 3% was just over five years ago.

US equity and bond markets have been in turmoil with huge swings up and down after employment data released at the beginning of the month indicated inflation may be returning after years in the doldrums. Higher CPI numbers are likely to force the Federal Reserve to pick up the pace of interest rate hikes this year. Gold is viewed as a storer of wealth and a hedge against inflation.

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Southern Copper wins auction for massive Peru copper project

An auction for the $2 billion Michiquillay copper project in Peru attracted 10 interested companies according to Peru’s government investment agency Proinversión with Southern Copper Corp declared the winner on Tuesday .

Reuters reports Southern Copper won the tender with a proposal to transfer $400 million to the government and pay 3% royalties. Southern Copper is controlled by conglomerate Grupo Mexico. Southern’s chief executive told Reuters in September that Michiquillay has arsenic impurities, requiring a “slightly higher” investment to clean up the area.

According to Proinversión, the other companies that pre-registered for the tender included Peru’s Buenaventura, local units of Rio Tinto, Teck Resources and Hudbay Minerals, as well as Compania Minera Milpo, a company controlled by Brazil’s Votorontim. Milpo had offered $250 million in transfers and 1.875% royalties. Eight companies did not end up bidding.

The Michiquillay copper project, located in the country’s northern Cajamarca region, was originally scheduled to be auctioned off in November, but Proinversión pushed the date back twice amid political turmoil in the South American nation. Peru is the world’s second biggest copper producer behind Chile with annual output of 2.4m tonnes of the orange metal.

In its 2011 annual report, Anglo envisaged a 187,000 tonnes per year operation at Michiquillay with expansion potential to 300,000 tonnes copper per year

According to Proinversión, mineral resources at Michiquillay are estimated at 1.1 billion tonnes of copper with an average grade of 0.629% and a cut-off of 0.4% copper. The asset also holds gold, silver and molybdenum.

Anglo American (LON:AAL) acquired the rights to Michiquillay in 2007 for $400 million, but the mining giant pulled out of the project in December 2014. In its 2011 annual report, Anglo envisaged a 187,000 tonnes per year operation at Michiquillay with expansion potential to 300,000 tonnes copper per year.

Anglo announced last year that it’s bringing forward construction plans for its Quellaveco copper project in Peru, which is set to produce an average of 220,000 tonnes per year (300,000-plus in the first few years) starting as early as 2020.

Peruvian production

Buenaventura said in December it could develop Michiquillay by sharing infrastructure with two other proposed mines in the region – Conga, owned by Buenaventura and Newmont Mining, and the China Minmetals copper-gold project Galeno.

Buenaventura produced 127,000 tonnes of copper in 2016, mostly through its 20% stake in Freeport McMoRan’s 500,000 tonnes per year Cerro Verde mine in the country. Its Yanacocha mine, another Newmont-Buenaventura joint venture, is seeking to produce more copper as its gold production diminishes.

Newmont halted construction work at Conga in November 2011 after violent protests against the $4.8 billion project forced the country’s government to declare a state of emergency. Conga could be a 500,000 tonne-plus operation while production at Galeno, which comes with a $2.5 billion price tag, is pegged at more than 400,000 tonnes per year. Earliest date for production at Galeno is 2021.

A recent study counted 18 major new and growth copper projects in Peru, including expansion at Southern Copper’s Toquepala and Chinalco’s Toromocho mine. Already the world’s number two producer of the metal, the …read more

Barrick exec. to chair Global Mining Standards and Guidelines Group

Barrick Gold’s Chief Innovation Officer, Michelle Ash, has been appointed as the new chair of the Global Mining Standards and Guidelines Group (GMSG), an industry body that seeks to improve communication, facilitate collaboration and foster a more sustainable and efficient future of mining.

Ash, who for the past two years served on the GMSG Leadership Council, will assume the new post in May this year, the group said in the statement.

“The success of the mining industry is dependent on continued collaboration and innovation,” says Ash. “So when I was asked to become Chair of GMSG, whose work on collaboration and alignment is absolutely vital to the mining industry, I was both honoured and delighted.”

“Michelle has been extremely supportive of GMSG and her work at Barrick and vision for the mining industry mirrors our objective of driving a more open, collaborative industry,” says Heather Ednie, GMSG Managing Director. “She is a leader both in innovation and transformation who doesn’t lose sight of the people and processes that make the technology happen.”

Ash’s international experience and qualifications include more than 20 years in the mining and manufacturing sectors with a focus on business improvement and change management. In January 2016, she joined Barrick, overseeing the company’s innovation program looking both at how innovation can drive productivity in the existing business as well as how it can be harnessed to deliver alternative business models. She was named to the 2016 list of “100 Global Inspirational Women in Mining” by Women in Mining UK.

“As Chair of GMSG, I will be aiming to not only help support the group of companies currently involved, but also expand GMSG’s membership in emerging mining powerhouses such as China, Africa and South America,” Ash says. “Helius Guimaraes, as Chair, has built on the work of those before him, adding his vision and dedication, while supporting GMSG projects that hit at the heart of what is important for our industry as we adopt new technologies and innovations. I hope that I can carry on and expand on that work with a greater emphasis on setting up the industry to successfully navigate the changes in social and technical processes still to come.”

Ash will serve as Vice-Chair, effective immediately, and will succeed Guimaraes, General Manager of Data Strategy at Rio Tinto, as Chair in May. Guimaraes will then serve as Outgoing Chair for two years.

“We are grateful to Helius for his dedication and efforts in expanding GMSG’s influence,” Ednie says. “He has been a tremendous help in promoting issues that matter in our industry and recruiting like-minded partner organizations.”

Of his successor, Guimaraes says: “Michelle will truly be an asset to GMSG as we continue to pursue our focus on delivering value to our members, expanding our global footprint and driving innovation and collaboration across the industry. Together, we will continue to boost the level of engagement in our working groups, ensuring value realization from the guidelines we produce.”

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Jack Chan's Weekly Precious Metals Update

chanhui12-20

Source: Jack Chan for Streetwise Reports 02/20/2018

Technical analyst Jack Chan charts the latest movements in the gold and silver markets.

Our proprietary cycle indicator is down.

The gold sector is on a long-term buy signal. Long-term signals can last for months and years and are more suitable for investors holding for long term.

The gold sector is on a short-term sell signal. Short-term signals can last for days and weeks, and are more suitable for traders.

Speculation is in bull market values.

This is a massive bottoming pattern four years in the making.

Silver is on a long-term buy signal.

SLV is on a short-term sell signal, and short-term signals can last for days to weeks, more suitable for traders.

Data supports overall higher prices.

Summary
The precious metals sector is on a long-term buy signal. Short term is on sell signals; a pullback is in progress. The cycle is down. COT data is supportive for overall higher metal prices. We are holding gold-related ETFs for long-term gain.

Jack Chan is the editor of simply profits at www.simplyprofits.org, established in 2006. Chan bought his first mining stock, Hoko Exploration, in 1979, and has been active in the markets for the past 37 years. Technical analysis has helped him filter out the noise and focus on the when, and leave the why to the fundamental analysts. His proprietary trading models have enabled him to identify the NASDAQ top in 2000, the new gold bull market in 2001, the stock market top in 2007, and the U.S. dollar bottom in 2011.

Want to read more Gold Report articles like this? Sign up for our free e-newsletter, and you’ll learn when new articles have been published. To see a list of recent articles and interviews with industry analysts and commentators, visit our Streetwise Interviews page.

Disclosure:
1) Statements and opinions expressed are the opinions of Jack Chan and not of Streetwise Reports or its officers. Jack Chan is wholly responsible for the validity of the statements. Streetwise Reports was not involved in any aspect of the article preparation or editing so the author could speak independently about the sector. The author was not paid by Streetwise Reports LLC for this article. Streetwise Reports was not paid by the author to publish or syndicate this article.
2) Jack Chan: We do not offer predictions or forecasts for the markets. What you see here is our simple trading model, which provides us the signals and set-ups to be either long, short, or in cash at any given time. Entry points and stops are provided in real time to subscribers, therefore, this update may not reflect our current positions in the markets. Trade at your own discretion. We also provide coverage to the major indexes and oil sector.
3) This article does …read more

Undersea mining's bizarre origins – a CIA cold war plot

While the United Nations’ International Seabed Authority (ISA) in charge of issuing mineral exploration licences has granted 26 so far, Papua New Guinea remains the only country to have granted an operating permit for ocean floor mining.

Canada’s Nautilus is on track to start operations at its Solwara gold, copper and silver project in the Bismarck sea off PNG in early 2019, making it the first undersea mine on the planet.

A Russia K-129 submarine had sunk 1,500 miles north-west of Hawaii

But modern-day seabed mining has a strange history.

An extraordinary BBC report details how in 1974, US spies launched an operation to salvage a Soviet submarine carrying nuclear missiles under the guise of a Howard Hughes-financed seabed manganese mine.

A Russia K-129 submarine had sunk 1,500 miles north-west of Hawaii and the CIA devised an elaborate plot dubbed Project Azorian to recover the vessel without alerting Russia about their intentions.

The cost was $500 million, a staggering amount at the time, and the plot was so detailed that it even sparked a frenzy in the stock of purported undersea mining companies that appeared in the wake of the Hughes endeavour.

Read the whole story here

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Mining M&A jumps to 4-year high – expect more in 2018

Mining M&A jumps to 4-year high – expect more in 2018

The value of global mining and metals deals hit a four-year high in 2017, according to accountancy firm EY, boosted by a jump in money raised on stock exchanges to a six-year high.

Mining and metals deals totalled $51 billion last year, up 15% from 2016. Activity was dominated by coal and steel transactions. However, the volume of deals fell 6% as M&A focus in the sector started shifting from divestment to strategic acquisitions.

“The focus for most of the sector in 2017 was consolidating balance sheet strength and maintaining capital discipline,” EY said in a quarterly report on the sector, published on Monday.

Coal transactions surged 156 % to $8.5 billion as the world’s move to renewables prompted miners to shift away from thermal coal.

With the buzz around new world critical minerals and battery technology, deals in lithium, copper and cobalt are expected to feature high on the agenda of management teams across the industry

One of the biggest coal deals last year was Rio Tinto’s sale of its Coal and Allied mines to Australia’s Yancoal for $2.7 billion.

Steel deals doubled to $13.3 billion, mainly comprising large Chinese mergers and divestments in Latin America. The report said overall China continued to be a key driver of activity, leading deals by value both as an acquirer ($18.7b, 36.5%) and as a target ($13.6b, 26.6%).

Gold transactions fell 34% to $7.3 billion as the volume of transactions fell 13% to 134 deals done. The number and value of deals in copper, nickel, potash all fell, while silver-lead-zinc and iron ore saw more activity.

Source: EY Mergers, acquisitions and capital raising in the mining and metals sector. Feb 2018.

Money raised by mining companies from IPOs and stock exchange listings rose to $2.8 billion, the highest in six years but still nowhere near the $17 billion raised in 2011 at the height of the commodities boom. Follow-on equity issues also rose to the highest since 2013 at $31 billion in 2017. Debt and loans together constituted $218 billion of the total money raised last year.

For 2018 EY expects deals to be fuelled by the industry’s return to investment-led strategies aimed at building portfolios rather than the divestment-oriented deals that dominated in 2017. Companies’ working capital requirements are also set to increase.

“Some of this activity will be to shape portfolios for future growth and sustain shareholder returns,” said EY global mining and metals transactions leader Lee Downham, “but the return of transformational consolidation across the industry is unlikely as capital discipline is maintained”:

Alongside this capital discipline, we began to see the emergence of investment strategies, with capital earmarked for organic projects and increasingly considered for acquisitions.

“With the buzz around new world critical minerals and battery technology, deals in lithium, copper and cobalt are expected to feature high on the agenda of management teams across the industry,” according to the report.

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Moody's bullish on base metals, US steel

Base metals should continue to do well in 2018 along with the US steel industry, though American coal will continue to lose ground to natural gas.

These are the key conclusions of Moody’s Investor Service, which released a recent report summarizing commentary from analysts at a Jan. 18 teleconference.

Probably the most positive aspects of the report, with the least conditions attached, relate to base metals. According to Moody’s, the recovery in base metals that began in 2016 and gained momentum in 2017, spurred by global economic growth, is likely to continue this year, driven by China which holds sway as a major base metals importer and exporter. However Moody’s points out that Chinese growth in 2018 is expected to slip to 6.6% from 6.9% in 2017, due to a slowing of stimulus measures that propelled infrastructure and property investment last year. Still, it expects that stronger Purchasing Managers’ Indices (PMIs) will remain strong in other economies, “providing better support to the market fundamentals than has been seen over the last several years.” In other words, base metals prices should remain strong. Moody’s gives a nice summary of what occurred within the base metals complex in 2017 and the factors that are driving prices up:

Prices rose across almost all the metals in 2017, as each responded to specific drivers including labor disruptions, mine closures and capacity curtailments in China, and legislative changes in other countries. This, in conjunction with actions such as reducing capital expenditures and dividends, enabled the industry to repair and strengthen balance sheets by materially reducing the amount of debt in the capital structure after years of excessive spending and value destruction.

Emerging mega trends, such as the increase in demand for copper, nickel, lithium, and cobalt tied to expected increases in production of electric vehicles, is also driving some of the current price momentum. Reduced investment in mined production over the past few years has led to a potential deficit in some of these metals, and meeting expected demand appears to present a challenge.

With respect to the US steel industry, Moody’s pointed out that higher drill rig counts created better demand for steel drill pipe producers such as US Steel Corp. – which allowed the company to almost break even in Q4 2017. Construction markets also grew steadily although margins for long producers of rebar were compressed by high imports. Demand for steel in autos is expected to be solid in 2018, while the piping and tubing sector should see better prices. Hot rolled coil steel prices have risen in 2018 to around $740 a ton from an average $620 in 2017.  But a confluence of factors including China restarting steel mills idled in the winter, has Moody’s lowering the price range to between $650 and $700 per ton.

Moody’s also mentions increasing steel imports, which rose 15% to 35 million tons in 2017, “on widening spreads, improved energy sector dynamics and a rise in imports ahead of the outcome of an investigation by the Commerce Department into national security …read more

New shaft will extend EU's largest gold mine to 2035

The biggest gold mine in the European Union is getting a new lease on life, thanks to a shaft sinking project that will increase throughput.

Reporting its fourth-quarter and full-year results last Thursday, Agnico Eagle Mines (TSX,NYSE:AEM) said it will invest 160 million euros on expanding its Kittilä gold mine in Lapland, northern Finland, including the construction of a kilometre-deep mine shaft.

“The expansion project is expected to increase the efficiency of the mine and decrease or maintain current operating costs while providing access to the deeper mining horizons”: Agnico Eagle Mines 

Lower gold grades in the mining area for 2018 and 19 has meant lower expected production from the mine in the next two years – 10,000 ounces less this year and 20,000 next year. As a result the Toronto-based company approved a plan in 2017 to increase throughput 25% from 1.6 million tonnes per annum to 2mtpa by 2021. Higher rates will be achieved through a new 1.4 kilometre shaft and a modification to the 4,500 tonnes per day mill, as well as other infrastructure and service upgrades.

Agnico Eagle adds the increased throughput rate is further supported by additional drilling that has yielded favourable results in the Rimpi and Sisar zones.

“The expansion project is expected to increase the efficiency of the mine and decrease or maintain current operating costs while providing access to the deeper mining horizons.  In addition, the shaft is expected to provide access to the mineral resource areas below 1,150 metres, where recent exploration programs have shown promising results,” the company stated.

The new shaft will have hoisting capacity of 2.7 mtpa (2.0 mtpa of ore and 0.7 mtpa of waste), while the mill expansion involves installation of a secondary crushing circuit, new thickener and reactor capacity, and minor modifications to the existing grinding circuit and autoclave.

The improvements will boost average annual gold production by 50,000 to 70,000 ounces per year starting in 2021.

In 2016 Kittilä, located about 150 kilometres north of the Arctic Circle, produced 202,508 ounces. It contains proven and probable reserves of 4.5 million ounces as of the end of December. Gold deposits were discovered in 1986 by Finnish geologists and underground mining has taken place there since 2010, states a project page.

Agnico Eagle beat its 2017 guidance of 1.68 million ounces by producing a record annual gold output of 1.71 million ounces. All in sustaining costs for the year were $804 per ounce, lower than the most recent guidance of $845 per ounce. The company grew its mineral reserves last year (net of production) by 3.1% to 20.6 million ounces, with grades increasing by about 7.7%, due to the conversion of resources to reserves at Amaruq, in Nunavut, Canada. Gold production is expected to increase in 2018 and 2019 as the Meliadne mine in Nunavut starts up and production at Meadowbank, also in Nunavut, extends into 2019. Production is expected to reach about 2 million ounces in 2020.

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