Mining Blog

There’s a new entry on the From Money to Metal wikisite.
Cahya Mata Sarawak (CMS) is a private company, controlled by the family of the Sarawak state Chief Minister Abdul Taib Mahmud (“Taib”).

In late 2011, the Malaysian government anti-corruption commission annonunced an investigation into bribery by Taib and a number of companies, which had allegedly obtained fraudulent conracts to construct the notorious Bakun dam, and obtain hydro-power, specifically for alumininum smelting.

Among the latter companies are China’s huge metals and mining conglmerate,Chinalco; and Rio Tinto.

In February 2012, Sarawak Report released results of its own probe into CMS’s dealings with Rio Tinto Alcan.

The UK-Australia listed company obtained a license to construct a major smelter at Simalajau in 2007, using electricity from Bakun.

According to Sarawak Report, the previously-announced joint venture between Rio Tinto and CMS is nothing of the sort, and the Taib family controls virtually the entire enterprise.

If that proves to be true(and there is some documentary evidence to support the accusation) it may be one reason why Rio Tinto has so far stalled on implementing the deal.

According to Sarawak Report:

“[Rio Tinto Alcan] spokesmen have made plain that they have yet to move to the stage of feasibility studies and environmental and social impact assessments for this Simalaju smelter project.

“However, they can be under no illusion that in conducting prospective business with CMS they are proposing to enter into a joint venture partnership with one of the world’s most notoriously corrupted and politically exposed companies.

“Taib stands to make billions (as usual), but what is in this project for local people?

“Taib Mahmud himself is being formally investigated by his own federal government’s anti-corruption commission (MACC). So what on earth do Rio Tinto Alcan think they are doing even considering entering into such a deal with a company that is blatantly owned by Taib?”

Meanwhile, an investigation by Al Jazeera revealed that – far from being snapped up by customers – the majority of energy which might be produced from the Bakun dam hasn’t secured any major takers.

Dam engineers, interviewed by Al Jazeera, “could not explain how the massive amount of power [it] produces could be used in a sensible way”.

Sources: http://www.minesandcommunities.org/article.php?a=11521&l=1 http://www.minesandcommunities.org/article.php?a=11321

She’s the richest female in Asia and bidding fair to become the wealthiest woman of the world.

This year, Gina Rinehart’s estimated personal pickings are likely to double – to at least $20 billion.

This is thanks to a 15% investment recently made by South Korean steelmaker POSCO in her Roy Hill iron ore mine; her 50-50 joint venture with Rio Tinto in the Hope Downs operations; and $125 million in iron ore royalties she banks each year.

Late last month Ms Rinehart also acquired around 13% in the Australian Fairfax Media group, potentially making her the country’s second most powerful media mogul after Rupert Murdoch.

Understandably, this announcement raised a flurry of speculation as to whether Ms Rinehart would seek to impose her rightwing views on some of the country’s most respected media.

In recent years she’s ranted against the introduction of mineral resources and carbon taxes and in support of cheap migrant labour – even for the establishment of a special economic zone for northern Australia.

So far the jury’s out.

However, as noted by Business Spectator (3 February 2012) Gina Rinehart is very much her father’s daughter.

In his 1979 book “Wake Up Australia” mining magnate Lang Hancock said the best way to break the power of governments was “…by obtaining control of the media and then educating the public.”

See: http://moneytometal.org/index.php/Gina_Rinehart

NB: The From Money to Metal wiki does not normally include information on multilateral development bank financing of the mining sector.

However, a report from Bankwatch on European Development Bank-backed projects in Kyrgyzstan and Mongolia is worthy of note.

http://bankwatch.org/news-media/blog/rushing-gold-can-leave-people-behind-ebrd

Declaring that “Rushing into gold can leave people behind, Bankwatch’s
Central Asia officer, Vladlena Martsynkevych, says:

“A look at mining projects in Kyrgyzstan and Mongolia reveal a need to carefully revise the European Bank for Reconstruction and Development [EBRD]‘s involvement in the exploitation of natural resources.

“[A] clear strategy for the EBRD’s engagement in the mining sector indeed bears no small meaning if they decide over whether or not to support investments that may end up hurting people and their livelihoods, damaging local environments and/or adding to climate change.

“To the shame of the bank, it hasn’t updated its guidelines for metals mining since 1999! ”

Although Bankwatch welcomes the fact that the EBRD is finally working on a new Mining Operations Policy,it says:

“Surely, the bank has made mistakes in the past and, looking ahead, the stumbling blocks for mining projects that contribute to a development beyond GDP growth won’t just disappear”.

Bankwatch has just published two reports, offering in-depth examinations of the impacts of EBRD-supported mining developments in Kyrgyzstan * and Mongolia **.

Kyrgyzstan’s Kumtor gold mine is described as ” an enormous – and enormously profitable – mine in the Kyrgyz Tian-Shan mountain range, an environmentally extremely fragile area with two glaciers, nearby national parks and a transboundary river.

“Being supported by the EBRD since 1995, the operator of the mine Centerra Gold has neglected worrying environmental impacts, among others on the glaciers. It has also not been taking full responsibility for the damages that several accidents at the mine have done to the local population. Moreover, revenues for local authorities have been avoided, leaving only limited opportunity for jobs for people in the communities nearby.

“In its communication with civil society, Centerra Gold has been nontransparent and unresponsive and the EBRD has not done enough to improve that. On the contrary, the bank has more than once been too uncritical about persisting problems and too trusting in Centerra’s “self-monitoring” “.

So far as Mongolia is concerned, Bankwatch points out that:

“In terms of local impacts, water scarcity is the biggest issue: Mining companies like to point out that aquifers are abundant and unrelated to shallow water sources. The fact is, though, that there is just no clear evidence whatsoever – neither for nor against a danger of impacts on water sources. The current practice of first come-first served may well result in an unpleasant awakening in a few years (for the local population more so than for the mining companies).

” The [EBRD]…finances the Ukhaa Khudag coal mine that’s within the Tavan Tolgoi coal deposit and [is] examin[ing] a potential investment in the Oyu Tolgoi gold and copper mine project. Both are located in the South Gobi region and near the Mongolian-Chinese border.

“Additionally, in December the Bank approved a USD 350 million loan for the Tsagaan Suvarga copper mine and is about to decide next week on a 55 million loan and equity investment in the Tayan Nuur iron ore mine.

Bankwatch urges EBRD to be “very careful not to contribute to Mongolia’s potential overdependence on commodity exports. To illustrate the bias towards natural resources: Total EBRD investments in Mongolia were EUR 338 million by the end of 2010. The loan to Tsagaan Suvarga from 2011 alone will double that figure. With an equally sized investment in Oyu Tolgoi [owned by Ivanhoe Mines and Rio Tinto] in the 2012 project pipeline it will be hard to strike a balance in the EBRD portfolio with minimal investments in other sectors of the Mongolian economy.

“Rather than following the trend that’s anyway happening, the EBRD could help Mongolia diversify by diversifying its own portfolio in the country. There are lots of other important areas that need investments in Mongolia and that don’t profit from an international business hype: agriculture, infrastructure, municipal and environmental services”.

* http://bankwatch.org/publications/kumtor-gold-facilities-kyrgyzstan-comments-water-environmental-and-related-issues

** http://bankwatch.org/publications/kumtor-gold-mine-kyrgyzstan-bringing-risks-regional-water-systems

Following the launch at the end of 2011 of the report “Bankrolling Climate Change” [see posting on this blog dated 30 November 2011], which exposed the top 20 climate killer banks financing the global coal industry, BankTrack has now made the underlying financial data publicly available.

This concists of 1405 financial transactions, involving 93 international banks in the financing of the top 31 coal mining companies and the top 40 coal fired electricity companies in the world since early 2005 – coming to a total of 232 billion Euro. It was collected from annual reports, filings, financial press articles as well as specialised international financial databases.

The original data is organised and available in an excel sheet organised by utility company and by bank. Says BankTrack: “This allows you to have access [to] and know which are the financiers of a coal company you’re campaigning on, or…which coal companies the bank(s) you’re campaigning on have financed since 2005.”

You can find this data in the excel sheet on this page of the BankTrack website :

http://www.banktrack.org/download/climate_killer_banks/copy_of_climate_killer_banks_data_24_11_final.xls

The report itself can be found on this other page :

http://www.banktrack.org/show/news/bankrolling_climate_change

You can also contact: yann@banktrack.org for any question you have on the topic.

In an Open Letter to the governor of the Bank of England, a high-profile UK coalition of investors, policicians and scientists has warned Sir Mervyn King that “overexposure to high-carbon assets by London-listed companies risks creating a ‘carbon bubble’”

Mervyn King chairs the UK Financial Policy Committee (FPC), set up in 2011 to “identify and take action to remove or reduce systemic risks to protect and enhance the resilience of the UK financial system.”

The letter claims that: “The global drive to reduce carbon emissions could mean billions of pounds of fossil fuel reserves will rapidly lose value” and cause “a major problem” for institutional investors and pension funds.

Using terminology only too familiar to the financial chaos and collapse of 2008 onwards, the coalition says that the huge reserves of coal, oil and gas held by London-listed companies are “sub-prime” assets, posing a systemic risk to economic stability.

“These high-carbon assets pose significant strategic challenges for the future prosperity of Britain that just can’t be ignored,” said investment manager James Cameron, who is a member of the UK Prime Minister’s business advisory group.

“Investors continue to pour cash into unsustainable assets without understanding the risks associated with these investments, such as climate change, local pollution, fossil fuel price volatility, political risk and catastrophes such as Deepwater Horizon.”

The letter is also signed by the government’s former chief scientific adviser Sir David King, Zac Goldsmith MP, former environment minister John Gummer and 17 others. It urges action to investigate the risk of the “carbon bubble”.

The letter’s authors point out that “five of the top 10 FTSE 100 companies are almost exclusively high-carbon and alone account for 25% of the index’s entire market capitalisation” and that this risk will exist in other indices and in bank loan books.

“We need to prevent the deep and profound harm that could be wrought by an overexposure to high-carbon assets and a rapid shift in their values,” said Ben Caldecott, head of policy at investment company Climate Change Capital, who signed the letter along with Aviva Investors. “Unlike sub-prime mortgages before the financial crisis, this time regulators must act to prevent the build-up of systemic risk in our financial system.”

Another signatory, David Nussbaum, chief executive of WWF-UK, noted that other assets held by investors could be damaged by climate change: “It’s clear that we cannot burn all the fossil fuels currently listed on the world’s financial markets without seriously impacting the value of other listed assets – which would affect the future pensions on which we’ll all depend.”

In a separate report, published last week, the Carbon Tracker Initiative reveals that coal reserves held by 16 London-listed companies will release 45bn tonnes of CO2 when burned, equivalent to 86 years of annual UK emissions, which are the tenth highest in the world.

Concern over the long-term risk posed by high-carbon assets has also been raised in the US, where the Investor Network on Climate Risk, a group of 100 institutional investors with collective assets of $10 trillion, recently said:
“In order to fulfil our fiduciary duty to safeguard the long-term interests of our clients and beneficiaries, we believe that it is essential to take action now that will result in substantial reductions in global greenhouse gas emissions within a timeframe that minimises the risk of serious impact.”

[Source: Guardian, 18 January 2012].

For many years, the “received wisdom” on investing in gold has been that it’s a “safe haven”, or a “hedge against inflation” in times of economic uncertainty.

With the euro in (or close to) a feared collapse, you’d therefore expect funds and speculators to be snapping up the gilded metal – and the price to rise even further than during the past few months.

But not a bit of it – according to an article this week in Moneynews (19 December 2011).

This tells us that the price of gold bullion has dropped more than 17 percent from the all-time high reached in September, “as strapped hedge funds and sovereign funds sell the precious metal to raise money and the strong U.S. dollar strips it of its safe haven status”.

In fact, some experts are predicting the gold price “could go as low as $1,000 an ounce in the foreseeable future”.

Michael Murphy, CEO of hedge fund, Rosecliff Capital, has told CNBC that, though” gold was a safe haven, a hedge and a speculative trade all at the same time” nonetheless,”traders are finding better hedges, better safe havens, and better speculative commodity plays than long [betting long on]gold.”

Stephen Weiss of Short Hills Capital agrees, saying that: “When an asset is thought to work in any market, that is the surest sign of a bubble”, adding: “I believe we will hear about massive central bank selling to put currency in markets.”

A recent Reuters poll of hedge fund managers, economists and traders also shows they believe the price of gold price will dip below $1,500 an ounce in the next three months. But they don’t consider it’s played out by any means – although they don’t think the price will reach another peak until late 2012 “at the earliest”.

In the meantime, if the basic rules of supply and demand are followed, we’d expect at least some high-cost gold mining projects to be delayed, or even go to the wall.

However, some well “cashed up” gold-focussed mining companies will doubtless be looking to acquire further control of lower-cost deposits, or buy into junior exploration companies,taking advantage of a drop in their share price. And then wait for the market to rebound.

How the mighty have fallen!

Well, they’re far from being completely down, down-under. However, Gina Rinehart, Australia’s richest woman (and the richest woman in mining) has seen her personal fortune reduce by around A$1.6 billion over the past six months.

And Glencore’s Ivan Glasenberg must be crying all the way from the bank as his personal stake in the London-listed giant commodities trader and mining company, falls by more than 25%.

The list on which these calculations are based was published this week by Australia’s SmartCompany, and are compared with those published last May by the Business Review Weekly (BRW).

Notable, too, is the link made between Rinehart, and Angela Bennett & Michael Wright – number 15 in the list, and the world’s second biggest mining company, Rio Tinto. Bennett and Wright are siblings who inherited a family firm that receives $100 million in annual royalties from the Anglo-Australian company’s iron ore operations in the Pilbara region of Western Australia.

(Note that references to the Ricest Australians not directly involved in the minerals industry have been cut out of the article below).

RICH PICKINGS: Tracing Rinehart’s commodity rout
James Thomson
Business Spectator
9 Dec 2011

Falling iron ore prices have failed to prevent Gina Rinehart from retaining top spot on SmartCompany’s special end-of-year rich list.

While the iron ore empress has seen her fortune fall below the magical $10 billion mark, Rinehart remains Australia’s richest person, with an estimated fortune of $8.5 billion.

That means her fortune has dropped by around $1.8 billion since the publication of BRW’s Rich 200 edition in May, but she isn’t the biggest loser for the year.

That title goes to Glencore chief executive Ivan Glasenberg, who has been on an incredible wealth roller-coaster.

He emerged from the float of the commodities trading giant with a fortune of about $9 billion, and was listed on the BRW list with a fortune of $8.8 billion in May. But a 27 per cent fall in the value of Glencore shares has seen the value of his holding fall to $6.6 billion, down a whopping $2.6 billion.

In total, the 15 billionaires at the top of the BRW list have seen their value fall by a total of $7.9 billion, from $67.2 billion on May 26 to $59.3 billion based on current estimates.

That’s a fall of 11.8 per cent, which is actually markedly worse than the 8.1 per cent fall in the benchmark ASX 200 index over the same period.

Here’s how the end-of-year rich list stands. BRW’s Rich 200 valuations from May have been used as a base and have then been adjusted for share price movements. These are estimates only.

1. Gina Rinehart – $8.5 billion

Given Rinehart’s fortune is tied to that of her joint venture partner Rio Tinto, so the big miner’s share price provides a handy proxy for Rinehart’s very private fortune. Recent falls in commodity prices have taken a toll.

2. Ivan Glasenberg – $6.2 billion

The 27 per cent fall in Glencore’s share price since listing in May has eaten into its CEO’s fortune. As with Rinehart, falling commodity prices have played a big part.

4. Andrew Forrest – $4.7 billion

Twiggy’s fortune has followed the iron ore price down, with $1.48 billion of his wealth eroding since the BRW Rich 200.

6. Clive Palmer – $4.6 billion

Getting a line on Palmer’s mainly undeveloped coal interests isn’t easy. We’ve used a 9 per cent drop in the price of Queensland coal as a guide, meaning a $450 million fall in his fortune.

10. Chris Wallin – $2.8 billion

As with Palmer, a 9 per cent fall in the coal price has taken a small chunk off Wallin’s fortune.

11. Len Buckeridge – $2.7 billion

The Perth building billionaire’s fortune is hard to line up. We’ve used fellow building company Brickworks as a company and its shares have risen slightly since May.

15. Angela Bennett & Michael Wright – $1.8 billion

As with Rinehart, Rio Tinto provides the best proxy for the wealth of this brother and sister combination.

“It has taken about a year, but on Wednesday shares of Patagonia Gold PLC will be listed on the Toronto Stock Exchange” noted Barry Critchley in the Canadian Financial Post (FP).

But despite having a market capitalization of more than $600-million, it is hard to see how this company could deliver “production”, other than by a small test plant in Lomada de Leiva, Santa Cruz (Bill Humphries, chief executive of the gold company, set a target of 200,000 ounces of production by 2015).

Patagonia Gold has been proudly mentioned as a “national” company by the Mining Secretary of Argentina, Jorge Mayoral. It was formed after Brancote Holdings sold the Esquel project to Meridian Gold in 2002. According to FP, “another goal of listing on the TSX is to increase the ownership of Patagonia held by North American investors. Currently it’s about 7% but figures can at least triple that”.

Patagonia Gold is fairly tightly held:

The Miguens family from Argentina has a 38% stake; BlackRock 9.5%; Insiders 6%; Barrick 3.5%; and Van Eck 3.5%.

The company failed to develop the Huemules project near Esquel, Chubut, after the Meridian debacle in 2003.

In response to massive protests, the government passed a ban on mining exploration in the western part of the province (where the Huemules project is located) in 2005.

Patagonia Gold also owns vast concessions in the central part of the province, near Pan American Silver’s Navidad project. In the same area, Lonmin Plc developed the Angela mine (once the third producer of gold in Argentina), closed back in 1992. Sir John Craven, former director of Lonmin Plc, is now on the board of Patagonia Gold.

For the Spanish version of this posting, see:
hhtp://www.orosucio2.blogspot.com

Late last month (24 November), the Canadian Metals Economics’ Group (MEG) issued its 22nd edition of its “Corporate Exploration Strategies report.

The report recorded mining exploration budgets as “having risen 50% over the past year, surging to new all-time high, with the estimated total 2011 budget for nonferrous metals exploration amounting to some U$18.2 billion, despite increased volatility in recent months”.

Said MEG: “Most countries are seeing increased exploration investment in 2011, and explorers are demonstrating a higher tolerance for risk despite additional concerns and uncertainty about security, policy, and tenure in many countries.

“Of the 120 countries for which we documented exploration spending by the industry, those commonly perceived to be high risk account for 23% of the 2011 aggregate exploration total, up from less than 16% in 2010. The potential reward often increases the industry’s appetite for risk during periods of increased exploration spending, but exploration in high-risk countries, particularly early-stage work, is usually the first to be cut when risk levels or uncertainty increases.”

But MEG says that, although “the proportion of overall exploration spending dedicated to early-stage and generative work has been fairly stable over the past three years”, it is nonetheless “at just a third of overall allocations…historically low.”

The Group also warns that “the number of large-scale assets advancing to development has not risen proportionately with [an] increased focus on late-stage projects, contributing to constraints on meaningful production increases for most metals.

“The apparent decline in grassroots efforts relative to late-stage and minesite exploration over the past cycle and the considerable time needed to advance a new discovery to production mean that the pool of viable, large-scale assets available for actual development is unlikely to grow in the near future”.

Today (30 November 2011) – at the Climate Change conference of parties in Durban – the German environmental organisation urgewald, the South African social and environmental justice organisations groundWork and Earthlife Africa Johannesburg, and the international network BankTrack publish new research on the portfolios of the world’s leading banks, relating to their financing of coal.

Called “Bankrolling Climate Change” the study identifies what it terms “the top twenty climate killer banks” – led by JP Morgan Chase (no surprise there since it’s the leading international bank to put its financial muscle behind mining in the general), followed by Citi and Bank of America.

Says Heffa Schueking of urgewald: “We chose to look into coal financing as coal-fired power plants are the biggest source of man-made CO2 emissions and the major culprit in the drama of climate change.In spite of the fact that climate change is already having severe impacts on the most vulnerable societies, there is an abundance of plans to build new coal-fired power plants. If banks provide money for these projects, they will wreck all attempts to limit global warming to 2° Celsius.”

The organisations – using data provided by the Profundo research group – examined the portfolios of 93 of the world’s leading banks and looked into their support for 31 major coal-mining companies (representing 44% of global coal production) and 40 producers of coal-fired electricity (which together own over 50% of global coal-fired generation capacity). The total value of coal financing provided by these banks since 2005 (the year the Kyoto Protocol came into force) amounts to 232 billion Euro.

The top twenty banks hail from the United States, the United Kingdom, Germany, France, Switzerland, China, Italy and Japan.

Apart from the Big Three (mentioned above), the culprits are, in descending order:

Morgan Stanley, Barclays Bank, Deutsche Bank, Royal Bank of Scotland, BNP Paribas, Credit Suisse, UBS, Goldman Sachs, Bank of China,
Industrial and Commercial Bank of China, Crédit Agricole / Calyon,
UniCredit / HVB, China Construction Bank, Mitsubishi UFJ Financial Group, Société Générale, Wells Fargo, and HSBC.

The study points out that: “Coal-fired power plants are not cheap to build. Typically, a 600 Megawatt plant will cost around US$ 2 billion. Power producers therefore rely heavily on banks to provide and mobilize the necessary capital for coal plants.

“Our figures clearly show that coal financing is on the rise,” comments Tristen Taylor of Earthlife Africa Johannesburg. “Between 2005 and 2010, coal financing almost doubled. If we don’t take Banks to task now, coal financing will continue to grow,” he warns.

The study looks into the statements of the top “climate killer” banks and also examines their existing climate policies. “Interestingly, almost all of the top twenty climate killer banks in our ranking have made far-reaching statements regarding their commitment to combating climate change,” says Yann Louvel of BankTrack. “However, the numbers show that their money is not where their mouth is.”

He also notes that the policies many banks have adopted and the voluntary initiatives they have signed on to – such as the “Carbon Principles” or the “Climate Principles” – have failed to make any difference in the composition of the banks’ portfolios.

The study calls on banks to become “responsible climate actors” and to quit coal, while shifting their portfolios to renewables and energy efficiency and set and implement ambitious CO2 reduction goals for their financed emissions.

For further information or interviews, contact:

Heffa Schücking, heffa@urgewald.de, Tel: (49)-160-96761436

Yann Louvel, yann@banktrack.org, Tel: (33)-688-907868

Bobby Peek, bobby@groundwork.org.za, Tel: (27)-82-4641383

Tristen Taylor, tristen@earthlife.org.za, Tel: (27)-84-2502434

For more information on all the banks listed in the report (apart from the Chinese ones), go to:

http://moneytometal.org/index.php/A_data_base