Some countries are patient and like golden eggs, some however like Turkey and seems that Queenslanders like Turkey a great deal indeed!

• BHP has raised the issue of serious sovereign risk of doing business in Australia for the first time since the Whitlam years.
• BHP has suspended new investment in its coal mines in both Queensland and NSW.
• BHP has stated that the Queensland government’s decision to raise coal royalties is no longer competitive or predictable, resulting in BHP not making significant new investments in the state.
• BHP is not even providing annual sustaining capital expenditure guidance at this time.
• BHP is “actively reviewing operational plans, existing commitments and logistical practicalities”.
• Meanwhile other nations are forging ahead with new mine developments
• Three new royalty tiers added (see below) with the maximum rate of royalty increased from 12.5% to 40%

The Government in the Budget Papers states that “The addition of the new tiers is not expected to have any material impacts on the coal industry or viability of producers, given the increases are applied only at relatively high prices.” As always I do wonder if the government will be there to provide price support for industry when prices ultimately return to levels which are unprofitable? The new impost will raise an additional AU$1.2 billion in 2022-2023.

Previous Coal Royalty Rates

New “Fair” Coal Royalty Rates

Below is a  summary of comments made here by Goldman Sachs Global Head of Commodities Research, Jeff Currie, who had been a prominent advocate of an oil supercycle in the early 2000s, is now once again predicting a new super cycle in commodities.

• The Commodity markets have seen two super cycles in the past 70 years, and Jeff Curry, Global Head of Commodities Research at Goldman Sachs, believes we are on the cusp of a third.
• Jeff believes that a super cycle is nothing more than a CAPEX cycle. There is a close relationship between global CAPEX and global GDP and metal prices.  When you look at a chart of Global CAPEX/Global GDP to capture a CAPEX cycle this is highly correlated with metal prices.
• The super cycles of the 1960s and 2000s were driven by the ‘new economy equity bubbles’ of the time – be it the Nifty 50, the .coms, or the Chinese admission to the WTO. These equity bubbles choked off capital to the old economy, oil, has, metals, mining and the rest of them and they became very under invested and all it took was a demand event. In 1968 it was the Great Society and in the 2000s it was China’s admission to the WHO and this time it was COVID stimulus – but they all did the same thing – draw down inventories and exhaust spare capacity leaving the market vulnerable to future demand growth.
• The super cycle is different this time around due its overlay of environmental policy. This has made it difficult to attract capital into the sector, and Jeff believes it is due to a bad taste left in investors’ mouths from the oil and commodities sector having destroyed 54 cents of every dollar invested over the previous decade.
• Some argue that a super cycle requires three indicators – surging demand, surging prices, and surging supply – and that the Commodities markets currently fail all three tests. Jeff argues that the lack of investment in the Commodities sector has led to a surge in prices, and that the demand for green capex this decade is bigger than the demand for capex during the China boom of the 2000s.
• The surge in current demand has been driven by the disproportionate stimulus during COVID being provided to low income households which consume a lot more commodities keeping the demand side strong. The Chinese driven surge in demand was the metals demand boom to construct cities and infrastructure.  The current surge in demand is due to EVs and decarbonization and green technologies. 
• The super cycle may be affected by the world’s transition to low-carbon energies, but Jeff points out that the Pariah Commodities of coal and tobacco prices have been shocked to the Moon due to their lack of investment.
• He believes that current policies are not leading to the decline in demand that has been forecasted, and that peak oil demand will not be seen until the early 2030s. The eulogy for oil is premature. 
• The final factor that may affect the super cycle is global interest rates. Jeff believes that when interest rates are zero, investors focus on long-term growth opportunities, but that higher interest rates bring the focus in to near-term activities, making putting a drill bit in the ground more profitable than tech opportunities.
• The recent rise in interest rates has had a significant impact on the global economy, particularly in the commodity markets. Higher interest rates mean that people have to make choices when it comes to investing, and they often choose to invest in physical assets such as oil, metals, and agriculture. This is because these assets offer a better return than financial assets in a higher rate environment.
• Higher interest rates make that long term tech story not very interesting, but they make near term oil, gas, metals, agriculture old economy boring assets far more interesting in a higher rate environment. Higher rates mean a better return in the physical world than the financial world.
• In the medium-term, it is best to invest in a diversified commodity index, such as the BCOM index, in order to ensure that the investor is not making a sector call.
• In the short-term, Russian oil supply has proven to be resilient, but the upcoming products ban could cause a disruption in the market. The expected 600,000 barrels per day of lost supply could lead to a spike in prices post February 5th.
• Finally, looking to the long-term, Europe’s natural gas inventories have been lifted after a warmer winter, but with Russian Pipeline gas curtailed for many months now, the upcoming winter will be the real test for Europe. Gas prices may not retest the 2022 highs, but the reopening of Europe and China have created a positive outlook for commodities in the next six to twelve months.

and its all for this – Sample 200024

During Vietnam and the Thai-Cambodian war the Border regions of Cambodia were heavily mined, with mines produced exclusively in China –  at least 8 million of them.  In the last 30 years the Cambodian Government and private de-mining charities have been systematically demining the country.  Demining which is very labour intensive now achieves 250 km² of clearance per year in Cambodia.

A total of five provinces and the capital had been declared mine-free as of December, as Cambodia’s 2025 goal of becoming mine-free approaches.  Stung Treng, Kep, Prey Veng, Preah Sihanouk and Tbong Khmum were declared mine free in December 2022 and Kampong Cham, Takeo, Kampong Chhnang, Kampot, Svay Rieng, and Kandal are expected to be mine-free in 2023.

Unexploded ordnance (UXO, sometimes abbreviated as UO), unexploded bombs (UXBs), and explosive remnants of war (ERW or ERoW) are explosive weapons (bombs, shells, grenades, land mines, naval mines, cluster munition, and other munitions) that did not explode when they were employed and still pose a risk of detonation, sometimes many decades after they were used or discarded. 

The major contributor to the Cambodian UXO legacy was the aerial bombing campaign conducted by the United States Airforce during the Vietnam War.  The most intense bombing was area denial along the Vietnamese border and the extent of this bombing can be see in the following images.  The total ordnance dropped was 2.8 Mt (6.1 billion pounds) comprising 2.5 million individual munitions carried in 230,000 sorties.

Land mine clearance organizations include

• Halo Trust
• Cambodia Mine Action Centre
• Landmine Relief Fund
• APOPO
• Cambodian Self-Help Demining

Copper concentrates come in two “flavours” – Clean and Complex.

Clean copper concentrates have more than 20% copper and possibly gold and silver and low levels of the deleterious elements As, As, Bi, Cd, Cl, F, Pb, Hg, U and Zn. In addition, asbestos (referred to as fibre) is present in a small number of mine product streams. The Complex Concentrates have high levels of one or more deleterious elements. Each of the deleterious elements will have a threshold level in the offtake contract where the smelter will charge a penalty in addition to the treatment and refining charges. The penalty accommodates the increased costs of disposal and safe disposal.

There is frequently an upper limit for some deleterious elements, above which the smelter may refuse to accept the concentrate. 

The most common deleterious element in copper concentrates is arsenic. Globally 65% of copper concentrates have less than 0.1% As. Above 0.2% arsenic, copper concentrates are considered to be Complex Concentrates and will be charged penalties. In the last decade, as new mine copper production has slowed the quantities of Complex Concentrates entering the market increased significantly while smelter capacity for these concentrates has declined.

Complex concentrates from Marcapunta in Peru (8% As), Chelopeche in Bulgaria (6% As) and Chuquicamata in Chile (1.2% As) have been the main producers. They have been joined more recently by production form Toromocho in Peru (1% As) and Ministro Hales in Chile (4% As).

Smelting Treatment Options

Prior to the 1990s there were many smelters that would accept copper concentrates with high deleterious element concentrations. However due to environmental concerns, liability concerns, tightening regulations and smelter closures at La Oroya in Peru, San Luis de Potosi in Mexico, Tacoma in the USA, Rönnskär in Sweden, PASAR in the Philippines and Kosaka in Japan, the number of smelters that will now regularly accept Complex Concentrates has declined very significantly.
Smelters that will now accept Complex Concentrates include Tsumeb in Namibia, Altonorte in Chile, Guixi in China and Horne in Canada. For complex concentrates that contain more than 1% arsenic, the Dundee Precious Metals smelter in Namibia at Tsumeb is now the only smelting option.

Most of the smelters which would previously accept high arsenic concentrates utilised roasters to fume of the Arsenic to produce arsenic trioxide (for which there is a limited market) and calcined copper with much reduce arsenic levels. Only Tsumeb still operates such a process facility.

Codelco installed an Outotec Partial Roaster (a fluid bed roaster) at its Ministro Hales mine in 2013 to reduce the as content of the copper concentrates. It is located close to Codelco’s Radomiro Tomic and Chuquicamata operations. Initially the project comprised an open pit mine, a 50 kt/d mill to produce 163 kt/a Cu and 287 t/a silver over a 14-year mine life. The ore contains a significant amount of arsenic (around 1.6-1.9% As) that results in production of concentrate with arsenic content just above 4%. To reduce the arsenic levels, a 550 kt/a fluid-bed roaster was constructed to safely process copper concentrate and recover arsenic for further confinement. In addition to calcine and sulphuric acid, the roaster produces flue dust (around 4% volume) containing 22% Cu.

Hydrometallurgical Treatment Options

There are a number of hydro-metallurgical treatment options (few of which have achieved commercial success) which do not involve roasting where the objective is to produce a residue containing arsenic in a form which is stable within a tailings dam. These process routes include atmospheric leaching, bio-oxidation and pressure leaching. Dundee Precious Metals prior to its acquisition of the Tsumeb smelter had attempted to permit a pressure oxidation circuit at its Chelopeche mine in Bulgaria but faced opposition for the usual socialist “ecological” groups.

Teck Aurubis have trialled their proprietary high pressure oxidation technology, CESL, on concentrates with up to 10% arsenic and report greater than 99% deportment of arsenic to leach residues.  Arsenic components in the residue have been identified as ferric arsenate and scorodite – both of which are considered the most stable forms for arsenic fixation. Teck Aurbis have achieved >97% copper and >90% Au and Ag recovery, LME grade copper cathode and gold and silver Dore production.

Blending Options

Due to the limited capacity and high costs of the smelters capable of accepting high arsenic concentrate, blending of clean and complex concentrates to produce a product that is below the smelter deleterious element thresholds has become a significant business opportunity. Generally, this is below the 0.5% Chinese threshold and the main blended concentrate target is Chinese smelters.

In 2014 Codelco set up a strategic alliance with Ocean Partners to blend high-As copper concentrate from its Ministro Hales mine with clean third-party concentrate bought in by both companies, at Ocean Partners’ concentrate blending facility in Taiwan.

In the near term it appears likely that the percentage of concentrates subject to arsenic penalties will increase, as will the percentage of Complex Concentrates in the market. In response to this Glencore has opened a new copper concentrate blending facility in Taiwan and a number of Chinese smelters are looking at locating blending and scrap processing operations in the region.

While copper futures trade in largely directionless, trading in a tight range there has been considerable action in the concentrate markets.

Reuters reports that the 10-member China Smelters Purchase Team (CSPT) has set treatment and refining charges at $55.00 per tonne and 5.5 cents per lb respectively for third-quarter deliveries. This is a significant move down from $92 and 9.2 cents in Q1 2019. This suggests considerable tightness on the copper concentrate supply side and could spell some grief and likely closures for higher cost smelters.

According to the International Copper Study Group (ICSG)  the issues with the supply side are the dearth of new mine production combined with lower head grades in Chile and markedly lower output at Grasberg where the operation is in the process of transition from open pit to underground.

Mine Production

ICSG in its latest study concludes that world mine production declined by about 1% in the first four month of 2019, with concentrate production declining by 0.5% and solvent extraction-electrowinning (SXEW) by 2.5%:ICSG in its latest study concludes that:

• What little growth there was during the period was offset by declines in Chile and Indonesia;
• Chilean production declined by 3.2% due to lower head grades;
• Indonesian concentrate production declined by a massive 50% due to a transition from open pit to underground operations are the Freeport McMoran operations in Irian Jaya;
• While DRC and Zambian production staged significant 11% production growth in 2018, production in the reporting period only managed 2.8%;
• Production in Peru, Australia, China and Mongolia increased in response to improved grades and recoveries;
• Mine production increased by 3% in Africa, 2% in North America and 6% in Oceania but declined by 4% in Asia , 1.5% in South America and 3% in europe.

Refined Production

ICSG in its latest study concludes that world refined production remained unchanged in the first four month of 2019 with primary production (electrolytic and electrowinning) declining by 0.2% and secondary production (from scrap) increasing by 0.5%. The decline in world production was due to:

• A 33% decrease in Chilean electrolytic refined output due to temporary smelter shutdowns whilst undergoing upgrades to comply with new environmental regulations;
• A decline of 33% in India’s production that was negatively impacted by the shutdown of Vedanta’s Tuticorin smelter in April 2018;
• A 23% decrease in Zambian refined output due to power supply interruptions, smelter outages and the introduction on 1st January 2019 of a 5% custom duty on copper concentrate imports;
• Reduced output in major producing countries including Germany, Japan, Peru and the United States due to smelter maintenance shutdowns.

Refined copper declines during the period were offset by growth in Chinese output and increases in Australia, Brazil, Iran and Poland . These declines during the period were offset by growth in Chinese output and increases in production due to recovery from production constraints in 2018.

ICSG concludes that:

• World refined copper balance in the first 4 months of 2019 saw a 150,000 deficit;
• China’s bonded stocks are thought to have increased by 140,000 tonnes, compared with the same period in 2018;
• Copper stocks held at LME, COMEX and SHFE totalled 417,600 tonnes an increase of 19% over the prior period
• The average LME price was down 2.7% from the may average

Hungarian National Asset Management Inc., (“MNV”) has announced the public tender for the Recsk Deposit and assets in Hungary.

The Recsk Cu-Au-Pb-Zn-Ag-Mo property in Hungary hosts arguably one of the largest and highest-grade undeveloped copper-gold porphyry and skarn systems in Europe.  With 240,000 metres of drilling, two 8 metre internal diameter, 1,200-metre-deep, concrete lined shafts and 9 kilometres of underground development, the Recsk deposit is estimated to contain 5.6 million tonnes (12 billion pounds) of copper and 4 million ounces of gold. 

Recsk_Tender_Review_20180927.1

Cmi Capital Limited

Cmi Capital is available to assist a suitable party to participate in the tender.  Cmi Capital held extended discussions with the Government of Hungary prior to the announcement of the tender and as such has a unique understanding of the deposit and the political and economic environment.  Cmi Capital or an associated corporation seeks a long-term concentrate offtake agreement on commercial terms and may at its sole discretion provide up to US$250 million in an offtake pre-payment repaid from production with the usual customary terms and conditions following completion of an advanced economic & technical study.

Natural Resource Governance Institute has issued a report on revenues received from listed mining companies in Ghana.  As many who have done the cashflow analysis have long known that a free carried interest, funded out of cashflow is a less than effective tool for garnering rent from resource projects. Projects can often take many years to repay capital and if this period corresponds with low or stagnant commodity prices then dividend payments may be low.  In effect the state is fully exposed to commodity price and operational risks.  A better solution is a competitive royalty, fee and taxation environment which is adequately regulated. 

One of the issues with a carried interest is that this often involves representation on the board of the operating entity and as such creates immediate conflicts of interest for directors and heated domestic competition for these positions.   That said, there are often political arguments for a carried interest, arguments about national interest.  In addition it has been argued that being represented on the board of the operating entity allows governments to “keep an eye on” the operator.  A better solution is robust oversight by a suitably trained and funded Department of Mines.

ghana-gold-mining-revenue-analysis-company-disclosures

In Ghana the majority of international mining companies, including Asanko Gold, Golden Star Resources, Endeavour Mining, Kinross Gold, Perseus Mining and Xtra-Gold Resources, have disclosed payments-to-governments reports under the Extractive Sector Transparency Measures Act (ESTMA) in Canada. In addition Gold Fields, AngloGold Ashanti and Newmont Mining have made voluntary disclosures regarding the payments they make to the Ghanaian government.

Data were sourced from companies complying with the Canadian, Extractive Sector Transparency Measures Act (ESTMA).

In 2017 nearly three quarters of the payments to Ghanaian government entities by ESTMA companies in the gold sector arose from royalties, with five companies paying a total of USD 57 million. A further 22 percent of the payments from these ESTMA companies were in the form of corporate income tax. While six operating companies paid royalties in 2017, only two, Kinross Gold Corporation and Endeavour Mining paid corporate taxes.

Ghana’s Vice President Mahamudu Bawumia has questioned the utility of the government’s 10 percent equity interest in mining operations, stating at the IMF’s Regional Economic Outlook for sub-Saharan Africa, that the lack of revenue generated from the government’s equity share was because “many of the mining companies say they are not making profits to pay dividends but they keep mining, notwithstanding the fact that they are unprofitable.”³‘

The government of Ghana holds these shares and the non-tax revenue unit of the Ministry of Finance collects the revenues. The government is provided this equity interest without having to make financial contributions to the development or operations of the project. The government has equity share interests in every gold mining operation in the country bar those owned by Newmont Mining or AngloGold Ashanti following the signing of updated mining development agreements. In the case of AngloGold Ashanti, the government has a stake of 1.55 percent in the global company AngloGold Ashanti Limited.

The NRGI report concludes that “the payments-to-governments disclosures made by international mining companies operating in the country suggest that if revenue generation is the primary purpose of this state equity participation, then the government may want to reconsider this approach”.  This has been evident to many in the industry for a very long time.