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Bigger & Losers Losers – surveying the carnage of mines in Latin America
The losers and losers – look at the carnage of the American mines Latin
Christopher Ecclestone's latest analysis of the effects of falling metal prices on the mines sectors and the economies of major countries of Latin America.
The dramatic fall in prices of base metals may be one two things. The first would be an end to the recovery that has reigned since 2002. The second was a temporary reaction to the liquidity crisis with a semblance of Normality restored some but not all of the brilliance that base metals have experienced in recent years. We believe that these years were not "just a economic upcycle" in the product space, but rather that finally exposed the years upcycle underinvestment in the mining space which led to a strong imbalance supply and demand.
Metals are back to the age before 1973 when they had real value. They are no longer the poor relations of the economy system. These are limited resources in a world of limited resources.
On the second point we agree that the liquidity crisis produced massive distress visited the same base groupies commodity most convinced. When push came to shove, the baby came out with the bath water (if we may mix our metaphors).
While some commentators have understood the Baltic Dry Index of freight as an indicator of an impending disaster, we can not do much better in metals Basic look at the LME, however imperfect and these figures are manipulated. The key factor to note here is that stocks have not really been like for ballistic the past when there was a fall in demand. Then they moved up, and significant percentages of their low we note that zinc from of a stock of three and a half days of global consumption to 4 days of global consumption, hardly ranks as a flood of supply. Stocks are minimal versus "bad days". Some metals, like zinc and nickel is trading at "bad days" inventory levels without reflecting all proportion "Collapse" of the application.
Call us conspiracy theorists, but the space of commodities has been one of the spaces easy to rig prices send signals to the market. If you have a goal of pumping the dollar to produce a false sense of security while should be plunging when it is easier to use the massive gold short CB gold stop for short or spend hundreds of billions to buy treasures? In this case, they seemed to do both and it worked … as long as it works. It is a task worthy of Sisyphus, of course, but indicative PTB despair.
On the other hand, we have our old friends the Chinese are working metals prices for all they are worth. To buy Metal cheap (as they did in dumping rapidly in recent years)? No, buy cheap minors .. is even better. Kill the metal and the owners of the mines will be deferred to the minimum level of pressure when the Chinese ( cnmining ) Are waving a checkbook (and a lot thinner than waving Peru Copper and Northern Peru Copper).
Believing in the course of the bad vibes China as production slows considerably also imply that we should be hacking forecast growth in China of a "modest" 10% in negative territory. No one does, at least all the Chinese, if someone speaks with forked tongue here.
Thus, prices of metals were ground between two millstones of two different sets of TBP.
LATIN AMERICAN MINING
· Some countries are relatively little affected by lower metal prices. The most widely protected, or indifferent, are Argentina, Venezuela and Paraguay
• The Brazil will see its possibilities nickel largely thwarted and faces a tough battle of wills with China on the iron ore pricing. Gold prices are pretty good (and the collapse of the real money large enough) that this activity should sustainable.
· The Bolivia, Mexico and Peru will meet the social pressures due to
important role that the exploitation mining job creation and maintenance of remote communities.
• The Mexico could do with more relief changes to help the miners to their average production costs in dollars.
Ecuador · slow in approving laws means that the Train did not leave without her, but instead has been permanently canceled
· Peru is facing major decisions Once the Chinese come a'hunting distress after Canadian-owned assets. They had better get quick lessons in how to say "no" Mandarin.
· The British are actually quite wealthy. Coal prices remain firm and the internal dynamics means better margins in this sector rather than deterioration in margins. Gold is still in its infancy and there so little was happening that the effect of lower economic activity will only noticed
• We remain bulls on metals prices. The madness of liquidity to solve the financial crisis is here to stay and produced a tidal wave of money that is not yet reached the shore. Precious metals, in particular, be beneficiaries of this waste of resources without creating financial assets corresponding to the return of the money supply further.
· Metal base are subjected to rough handling at the moment combined with a liquidity crisis. Basically once the players are eliminated non-commercial (already achieved, in our opinion), then the eternal supply / demand factors comes into play ability is closed in the lower left and right with supply reduction correspondent. This opens the door to price spikes and, further down the track, derailing the means of many projects in a supply situation even more crowded for two years on almost all metals that we could imagine.
Argentina
Frankly Argentina could not give a damn about the price of metals. Neither the Bajo de la Alumbrera Cerro Castillo or high on the thought processes of the Argentine Ministry officials economy. New mines coming in the last year (Hochschild / MAI San Jose and Marta Mina Heart among others) have added some small income Additional and their start-ups have been honored with enthusiasm by Kirchner (A peasant worthy of the name has a perception of the relevance of gold).
However, Argentina will neither live nor die (or boom or default) on the back of lower or higher metal prices. Indeed, a break (Strike?) For mining companies in their investment programs may serve to focus the attention of some provincial governments who tried to play the role of dog-in-the-manger or experienced conversion to green overnight. Some signs have been the projection to flex … our lyrics for you .. too late!
Lets put things in perspective. Argentina mineral production has been head of gold and copper to date with a little money. The largest project is nearing completion Silver Standard Las Pirquita Jujuy. The money is on the rise. We see its problems were dangerously incestuous with its dependence on the momentum for the money (SLW) ETF. The panic selling has cleared most of the crowd and we think of a new relationship to gold is in preparation. While the average price is above $ 10, we could see a gold price of the company (A trend towards $ 800, but not above) pulling money back towards $ 13, where a lot of money players are still very good. Adding Mine MASC will add to the ranks of Jujuy provinces make a sideline of Nice in royalties and economic trickledown. This reinforces the sense pro-mining in the province while making some of the provinces most sniffy more angry because they can have their cake and eat it too.
In Seeing MASC forward those problems are in Exeter and is promising Aquiline both projects. It should have been more hay while the sun shone with market capitalization as the kicker to win the case of La Navidad gave them.
Having said all that we repeat that Argentina the country should weather the storm metals with little impact (although other storms could sink the ship of state).
Bolivia
Latin leader who has openly expressed its concerns about the price of metals has been Evo Morales, so-called "enemy" minors in the popular denigration. Tumbling zinc was its main objective, but so can he be concerned about any number of metals that Bolivia product. Mining is an important source of jobs (30,000) in the mountainous regions of the country from which he draws most of its support.
As we noted in our recent exhibition on Bolivia, the Morales regime did not show to be aggressive towards foreign minors and is actually considered as pro-mining by those who know. The country still exports Natgas for him, but obviously there will be lower income for individuals and the state of the main categories exports (silver, zinc, lead, tin and antimony). The El Mutun Mountain iron ore may have provided some consolation if it was not in the hands of the slower moving pack of Indians on the planet.
Bolivia knows tighten their belts, but the tightening is not easy when the manna of metals has just begun to flow through (Apex etc.) and so little scuffle not yet on the gravy train had derailed.
Brazil
There is more to the Brazilian economy iron ore that we would not have known what the rage in recent years. The rise of the Brazilian real during the period of expansion a deleterious effect on just about every sector of Brazilian export with the exception of iron ore and soybeans, both of which could exceed currency because of price increases outside the norm. Most other categories of exports went to hell. The footwear industry has been pushed off store shelves worldwide on all Chinese products in the fields of battle. Little concern has been raised because of strong domestic economic growth, fueled by massive cash flow, taking up the slack. Retirement in the real industry now gives the opportunity to start exporting again, and will need to consider that the national economy will now need to return to be fed by its own financial resources rather that the yen carry trade = ephemeral. Brazil's mining sector consists of three elements with the substance: iron ore, nickel and gold. From gold we want to emphasize that Although there are some important names producers (Yamana, Jaguar and Eldorado springing to mind), most of the actors associated with the gold of Brazil in recent years remain in the browser category and none of us know are in the category imminent production. In any case, gold is not too bad in its current price range and all current producers are still viable with the added kicker of lower costs due to diving and retirement real oil prices (although the latter was somewhat dulled by the movement of currencies).
Nickel miners and hopefuls received no joy. As we noted in our article on nickel in Brazil earlier this year there are not many players but the sound it is probable signal of Brazil as a major new nickel province. However, the cataclysmic fall in nickel prices has not bode well for the aspiring a career or producers. Mirabela Nickel, Australian society is most likely to add to production in the very near future. He been looking for a U.S. $ 280mn financing of senior debt (to be underwritten by Credit Suisse and Barclays), but has recently announced an extension of two months the original deadline of December this syndication. We feel ominous rumblings on it unless the rising price of nickel death time fast enough. The company has an agreement with Norilsk however levies that may still cause Mirabela fall into the arms of the bear.
The Bears have already done enough damage with 12mth high as $ 8 and the current price is $ 1.60. Being on the most slippery Explorer time continuum producer Mirabela only taught a lesson on Newton's law of gravity.
Gravity has extracted a heavy toll even more wannabe, International Nickel Ventures. The stock has shrunk by $ 1.20 when we wrote his last at around 17 cents currently. Not likely to do much for the near future.
Thus, the iron ore is the great hope. Only a month ago, Vale was on a roll .. strut all cashed up and ready to share with the Chinese on the resistance rising prices. Of course, he had been bullied price wise, but that too would pass. No luck. Whether by accident or design the rumor goes that the Chinese were not only seeing big rises in the inventory of steel, but that buyers were defaulting on contracts renegade. Suddenly rose from Vale cock feather duster and began to talk about cutting production (but not prices). All that remains to be seen. We reiterate that we believe that the Chinese are numerous authors and various head-fake in the area of commodities this time to continue their long-term goals. The financial community believes that the bad vibes, minors are not. Vale of production cut is the right approach. Better to leave it in the ground rather than let the Chinese get away with during the maneuver. But production is expected to reduce scaleback Brazil's foreign exchange earnings in the form of iron ore, if only temporarily.
In his head fake MMX announced its withdrawal from the Toronto Stock Exchange. We could not help but repress a smile at the recollection of the 1990s and how some countries of Latin America Empresarios like to have their stocks on the market where they can handle them.
Chile
There was more panic in Chile a year ago by the danger of an energy crisis, water crisis and peso super expensive sabotage the real economy. Copper is widely unreal economy Chile that so few of its benefits seep into the 14 million people who are not on this vein. We could imagine that the pressure on water resources and power is turned off (if only temporarily), while the peso was fixed well giving exporters who actually create jobs (mainly Agricultural) a break.
More bad news for copper is bad news for Chile. Codelco announced last week that his Production decreased by 7.83% yoy for the period January to September, to 1.12 million tonnes, mainly due to conflicts with contractors, environmental issues in El Teniente and Andina and lower grades.
Meanwhile Minera Escondida copper mine world, reported its production during the first nine months of this year dropped by 10.4% year on year to 997,000 tonnes due to lower grades, less availability of ore for the cathode outlet and the problems associated with a failure of SAG mill.
In a more dramatic, but of lesser magnitude, the sign of the times the resources ASX Tamaya list, copper miner, went into administration last week stating he was unable to pay its debts in light of prices Copper down. The company is the owner of the mine Punitaqui in Chile. The company reported a AU $ 141.2 million loss in the first half of calendar year 2008.
Instead of copper, in another ad in late October, Coeur d'Alene Mines (CDE) said that he had placed mining activities at its Cerro Bayo mine waiting, tactfully, by rationalizing as due to "immediate attention on expanding and modernization of the mine's mineral reserves and resources and the development of three-year mine plan sustainable at lower costs and production rates higher. EBR claimed he was in the best interest of shareholders of the company to preserve the precious minerals reserves and resources at Cerro Bayo and not continue to sell the silver and gold production at a loss. Chile is much more accustomed to slings and arrows of fortune mining space and should face the current downturn very well.
This process will however cause damage to hordes of small children who have sought to provide the replacement part (on a smaller scale) for some mega mines in Chile, which are grades fall or face the prospect of exhaustion during the next decade. It is a pity that Chile has never bothered to develop mining capital in its own market (unlike the pressure of Lima), while the going was good.
Colombia
Curiously missing from the British debacle for two reasons. Regarding the gold there is little companies involved in this area in the country. Activity rebels kept miners Avid distance until too late for anyone to really get involved. Thus, there are only a handful of explorers Canadian producers do we know.
Coal is a different equation. This product has remained immune to the commodity rout, at least until now. As we noted in our recent note Coalcorp dynamics Colombian coal is one of the tailwinds no headwinds. A major upgrade of the rail system FENOCO results in a dramatic margins improved transportation for minors, and therefore a quantum leap in net margins. Coal in Colombia is something that should be getting much airtime in the next year or two, and just title.
Otherwise, Colombia, for once, comes to stay out of the firing line, literally and figuratively.
Ecuador
Better late than never ever can be for the government of Rafael Correa, who thought it was retaining its freshness on the mining legislation slow. Instead was cool and now looks like ice to turn into an ice age in which Rafael will be the hunter-gatherers found preserved in permafrost.
We noticed a few months ago that some countries felt that high oil prices they has the luxury of avoiding the mining or at least put many obstacles in the way they could have "small but perfectly formed "the mining industry. That was short for us because it actually makes an economy entirely dependent on oil and it has not grasp that oil has not provided a significant number of jobs and oil was always somewhere else in the country, where the operating mining was undertaken. Thus, in specific cases the Ecuadorian population is indigenous highlands left to grow yams while some groups technicians would oil installations in the coastal lowlands and the Amazon.
We have no doubt that the mining legislation will finally get through and it will still be used by the mining industry. The key question is how many miners kept pending Cash burn for so long, will be on hand to touchdown on their projects when the green light appears. A bold policy implies that Ecuadorian projects are even lower on the continuum of production exploration / specimens than those in Venezuela. This means they are more away from production on average than their peers in other countries which makes them even less attractive.
The 800-pound gorilla in the industry is now Kinross to buy Aurelian after putting the hand on mine society Fruta del Norte. Aurelian has established an inferred resource of 13.7 million ounces of gold and 22.4 million ounces of silver to the FDN. Based on the early work of framing and mine planning, the project could cost about 500 million dollars. This is not small change, even by the standards Kinross. They are lucky
in fact, that gold is still in the range where the project appears viable. Ironically, despite the vicissitudes of all stakeholders in Ecuador, the project, although still formative is more likely to be able to gain momentum as many other projects in many other countries, including those who are more advanced studies on the forehead.
Another interesting project in Ecuador, which would "make a difference" is the overall view of copper-gold Corriente (CTQ.to, TEQ) in the copper belt of the same name. This has gone beyond the stage of feasibility and a startup project in the Mirador on the planning board. This could be a draft non-starter until the copper is new momentum.
At least the government of Rafael Correa will boast Mine, after actually sabotaged all the "could-have-been" by their slowness.
Mexico
bad bird omen have a field day with the antics of Argentina and Venezuela and Bolivia are on the list to denigrate those who oppose their politics, but when it comes down to it, Mexico is truly the current "country most likely to … "Latin America. What is the most likely to do so is in the eye of the beholder.
Our analyst Armen Kouyoumdjian macroeconomic risk, which covered the country since the late 1970s used the words "failed state" the other day to give an idea of the direction in which Mexico is adrift. The collapse of metals is came at a particularly bad for Mexico. It has seen its oil prices by more than half at a time of declining production, as immigrants Mexicans send home to significantly reduce remittances from the United States (if not their bags and return home because of lack of work persecution or tightened). The maquiladora industry is attached at the hip with the automotive industry in the United States and is in freefall.
One week recently, Mexico has spent 10 billion U.S. dollars defending the peso. Why bother? It is better to have devoted only to infrastructure projects that work to fight reality. In any case, a weak local currency may help the miners already produced by lowering their comparative costs. We see that large companies in Mexico, Controlador and in vitro that hit the rocks, of the companies in other LatAm parties.
Mining could (and perhaps still is) a very good job creator. It has the advantage of bringing jobs of the road places where nothing happens. Speaking to a Canadian mining company this week, we discussed the village of 250 and asked "what was done with them? "and the answer was" we hired them all "and only in the exploratory phase. It is conceivable the mine in operation could transform the area and the support of a town of 1,000 inhabitants or more.
The story is repeated across northern Mexico and down to a few places further south as Oaxaca.
Mexico is also the country with Canada's junior most common in bulk. It was the product of a big step towards the attitude of government foreign minors and pure prospectivity of the largest mining provinces in world. The Government is right not to pursue a nationalist tactic once in the recognition that minors few servants that the country off the torpor of the gross poor in their promotion of the improvement of local workers or relationships. Of course, the junior most was the most inactive trades that the group short-term cash.
The majors Mexico consists of three main chapters (four if Fresnillo is considered as a truly separate entity from Peñoles) and now a handful of foreign mining a good contribution to job creation, charges and the trade balance in global mining. The crowd is somewhat mitigated by the staging of money and a rebound in gold having found a foothold in the midrange of $ 700.
Once again, we repeat that a weaker currency against the dollar could help. Those who have an excessive dependence on zinc and lead are over a barrel at present and potential El Boleo Baja Mining has been the victim of low copper prices and a freeze in funding, despite a truckload of money in the bank of the agreement with Kores.
The gel can may ease but the magnitude of this (and a few other projects as discussed Geologix San Anton) can not do great good in relation to small and feasible (as Fortuna de San Jose project in Oaxaca).
So Mexico can not be an unalloyed disaster if money can climb back to $ 12, senior short-term, gold holds its ground and copper $ 2 higher. We reiterate that we feel could be a zinc peak more than 80 cents on mass closures currently under construction. This should at least bring comfort to those who depend on by-product credits, though As new projects get stuck in the starting gates.
Peru
The members of the Peruvian government had better start learning Chinese or at least come to a China policy rather quickly because he is about to become a major problem for them. Conquistadores were not mistaken Peru is a treasure of minerals. Peru has the highest prospectivity for large scale mining in a variety metal than anywhere except Australia. The Australians have already informed the Chinese that they can nibble, but can not bite. Peruvians apparently blithely unaware of the care paid for their treasure. The mere fact that the assets are largely in the hands of Canadians (With some serious attention Brazil's Votorantim) does not a case of six of one half dozen the other when the Chinese come calling. Its very nice to have customers for its production, but when it is considered a "sphere of influence", and then monitor. The DRC is a sphere of influence China these days and it is not pretty.
Of course you can always let the Chinese (via Canadian stock market snap basement), then expropriate them later. This is the traditional treatment for foreign arrogant. But maybe they should throw the 1950-70 editions this book and go back and check the 1880s when the British wanted nitrates and Bolivia and Peru have been made to restore through the factotum of Chile.
Back to our conspiracy theory. If you think that the handling of news feeds for metals 'demand' is designed for lower prices and easier to grab a copper mines, not just for some short-term cargoes, and the mines that are in the target range are largely in Peru and they are projects like those of Candente and Chariot Resources.
Clearly enough negotiating the best price in Peru Copper and Northern Peru Copper Canadians with hard nose, as the team of copper in the world, the Chinese must be licking their chops at the prospect to ravage some mine owners who have seen their prices turn turtle. Like any Chinese market stall owner knows the best way to empty when your turtle is on his back waving his legs in the air. Not a prospect enough to Candente or trolley (or their doubles).
It no skin off the Peruvians' nose at this stage to see a change of ownership (in fact it might even accelerate the development), but It is a grave mistake for institutional holders of not properly assess the long-term value of these projects.
Last week The first shot was fired Cardero announces sale of one of its magnetite "Mountains to a private company in China. Maybe head-believe the Chinese and we continue to be surprised by seeing this regulation, but simply emphasizes that the Chinese are looking to secure their supply upstream and intimidate Vale and Rio Tinto's acquiescence on the price of iron ore.
Long term, the Peruvians may rue the day when the barbed around the camps appear with security teams PLA-detached roaming around guns. Not occur here? Arriving in Africa … No africanos somos! For a Chinese mining company executive all the peons you non-Chinese alike! Keep digging and closing the mouth ..
That system Garcia wakes up or not is unclear. Some say it is a great admirer of Deng Ping Xaio … hmmmm .. These quasi-Latin leftists are nothing they are not backwards. Peru has one of the worst jobs to help achieve trickledown mining for the masses. Close Up and personal, local communities, such as around the Caylloma Fortuna mine or prospect of Vena Macusani were treated well, but others (such as those of La Oroya in the area of fallout from the Doe Run smelter) have received the poisoning of their ills. inflation has become Mines
a general inflation and the solution was in denial with some high-Jiggery Pokery statistics with a new flavor to the Argentine maneuver. Administration Garcia should expect it to be a second chance to get this right price mining prepare their return. In the meantime, it is better start learning the Chinese word for "no" and be ready to use.
Venezuela
As Ecuador this country has the irony that he could see a large project that was stalled forward while all around them are in stasis. However, the two mines (Brisas and Las Cristinas) could have been in production years and benefit from gold prices advanced rather than being arrived Johnny Lately the scene. Meanwhile, Hugo Chavez has made a reputation for being capricious and radioactive waste to the minors. His love story is the latest quasi-Russian Rusoro. Embrace the Bear if you dare …
Chavez may yet come to regret his last craze. These two mines (an extract of Gold Reserve and Crystallex another) could be developed as a complex because of their proximity, but frankly who cares? Venezuela has shown his disinterest in the mines, except in political football. Nobody is going to appear on stage and what could will not. Oil in the mid-$ 60
level is good for Venezuela, but not as good as $ 150.
As long as circuses bread and keep the crowd to revolt, so good, but when they really need a business that would have provided mine, they need to invigorate their basketry skills, because mining is not an option in the creation of jobs, or perish the thought, a diversified source of foreign income.
CONCLUSION
One imagines havoc on local currencies that the decline in metal prices (And a few grains) will devastate the economies of countries like Brazil and Argentina. While earnings and exports of these activities will be less, but hardly a bloodbath. There have been no suggestions that we heard that there is a reduced demand for agricultural products either these places. As for Brazil's iron ore should see lower volumes, but they seem determined to stay the course on the price.
The Precious metals are beaten, but Unbowed and they form a large part of the export production of the mining sectors of many countries.
Chile is the first patient in copper prices lower, but we do not perceive any great suffering in the flow because the new Chilean economy has apparently been isolated by distance and the design of mood copper. But there will be a negative effect on employment in the mining region marginal closing and investment flows drying up for exploration.
Confidence wise some of the plans governments in the mining infrastructure had the background that the payer or any indirect. These plans will now be adapted decreased quality and quantity of tissue.
Governments and businesses must keep their cool at the moment and look back to the foundations of their metals, which are almost always good. Meanwhile, beware of Chinese bearing checkbooks, it is not a mutually beneficial trade.
About the Author
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ABC News – Connex Cancellations – 20-1-2009