Wednesday, September 28, 2011

Nautilus Minerals, Solwara 1 Usher In New Era In Deep Sea Mining (Autonomous Vehicles, High Mineral Grades & Vast Resources of Rare Earth Metals/Diamonds)

   Nautilus Minerals is the first among only a handful of mining companies aiming to commercially exploit the ocean floor by 2014. Known as Seafloor Massive Sulfide Deposits, the deep sea ore formations occur at places such as hydrothermal vents located at mid ocean ridges. Deep sea mining is a relatively new concept that last received widespread attention in 2010 when China's rare earch metals embargo on Japan raised interest in metal rich manganese nodes located beneath the ocean floor (China controls 95% of the world's rare earth metal supply). Update on China's rare earth metal quota: The first group of companies passing stringent environmental tests, have received their export quotas for the 2012 year and it totals 10,546 tons which isn't bad considering more than 10,000 more tons is expected in upcoming tranches and that rare earth export demand amounted to only 14,750 tons in the Jan to Nov period of 2011 or 49% of the 2011 government conceived quota (30,184 with total production capped at 93,800 tons). It should be noted however that China haulted production at three mines in September which account for 40% of production, and that China only has 37% of the the world's proved reserves despite being the source of 97% of global supply (as recently as the 1980's California was a major source but lower prices forced many mines to close).
Deep sea mining appears to be economically viable, with copper concentrations reportedly higher than at a number of other mines including the one in Chile that received notoriety in October when 33 trapped miners were rescued. (NY Times: Rare-Earth Minerals Hold Promise for Seabed Mining) Manganese nodules are manganese-iron based potato sized sedimentary rocks containing rare earth metals (between the sediment grains), elements which have a myriad of uses in everything from computers and lasers to rechargable batteries (electrodes). Another advantage deep sea miners have: Organizations like the International Seabed Authority which oversee environmental management, don't have regulatory authority over the mineral resources meaning companies can apply for exploration leases without worrying over whether their conservation practices adhere to another's strict guidelines (the vents are home to tubeworms and clams as well as microbes which feed off the sulfides). Interest in deep sea mining began in the 1980's (oil in the 1940's) and came as a result of a recognition that deep ocean ore contains high copper grades. One of the reasons it took so long for companies to begin mining projects is a lack of submersible, deep-water vehicles used in mapping and sampling. Advancements in autonomous/remote operated vehicles have since removed those barriers. (Yale:Deep-Sea Mining is Coming: Assessing the Potential Impacts by Erica Westly)

Some background information on ocean floor mining: Sea floor deposits can be found anywhere from the surf zone to a depth of 5,600 m. Interest in deep sea mining has experienced rapid growth evidenced by the rise of companies which develop underground mining technology (5-fold increase in Cape Town's IHC Marine and Mineral projects between 1998 and 2008). (Mining Weekly: Australia will be first to excel at mining ocean floor for gold, copper, top Canadian professor predicts) Oil drilling went offshore in the 1940's followed by diamonds many years later (De Beer's mines at a grade of 0.1 carats/sq meter off the coast of South Africa which is higher than average grades on land) and a brief period in the 1970's when gold was mined offshore from Alaska. Offshore mining presents great opportunities considering that 70.8% of the world's surface is covered by water and that for many countries, land offshore exceeds their dry land base. In terms of polymetallic mining, Toronto-based Nautilus isn't the only company engaged in exploration. There's also London's Neptune Minerals (licenses cover more than 278,000 km2 in New Zealand, PNG, Micronesia and Vanuatu) circa 1999 and Toronto-based private firm Marine Mining Corp. which searches off the coast of Ghana for gold circa 1993. Rio Tinto was one of the first mining companies to trial autonomous vehicles in 2007 (used in aluminum mining/smelting), since then they have implemented their use at various mining sites including the Port Dampier iron-ore facility where operations are conducted by huge remote controlled stackers and reclaimers. Also of note: Molybdenum is the 54th most abundant element in the Earth's crust and the 25th most abundant element in the oceans.

Nautilus is notable in that it is the world's first company to start a seafloor polymetallic mining project, the copper-gold project known as Solwara 1. The project, located 1600 meters below the Bismark Sea of Papua New Guinea could usher in a new era in deep sea mining. Nautilus owns many other projects as well with more than 600,000 km2 in possible liceneses in the pacific ocean between Tonga and Papua New Guinea (in Fiji it is joint ventured with Tech Resources).
Solwara 1 grades (indicated) 6.8% copper, 23 g/t for silver and 4.8 g/t for gold (out of 670,000 tonnes of massive sulfide deposits) but inferred resource grades jump to 7.5% copper, 37 g/t for silver and 7.2 g/t for gold with initial annual production estimated at 1.2 million tonnes (ore).In 2008 Ian Lipton of Golder Associates Pty Ltd estimated resources at: Copper: 870,000 lb indicated (1.3M lb inferred); Gold: 134,000 ounces indicated (300,000 oz inf); Silver: 643,000 ounces ind (1.55M oz inf); Zinc: 7.67M lb ind (22.93M lb inf). source: page 149 of 275 of Nataulus Solwara 1 Offshore Porduction System Definition and Cost Study June 21, 2010. About 60% of the total resource is inferred.
Solwara 1 last received board approval in April 2011 just after a strategic partnership was formed with shipping company Harren & Partner. The joint venture provides Nautilus with a floating platform from which production machinery will be remotely operated, the platform will also serve as a production support vessel housing a dewatering plant/anchoring barges. There are 2 joint ventures overseeing construction and chartering of the vessel, one is 70% owned (other 30% by Petromin) by Nautulis, the other is under 45%. The production support vessel won't be delivered until the first half of 2013 just 2 quarters prior to commencement of production; The build program is 30 months long and started after Nautilus's board approved the project. The shipping joint venture cost a total of $127M of which only about $35-$40M will be Nautilus's responsibility ($75M is with Germany's Harren). The total capital cost of

Tuesday, September 20, 2011

Since 2001 The Price of Gold Is Up 600% linked To Central Bank Purchases & Investment Related Demand, overall Net Hedging by Mining Companies Up Only Twice in Last Five Years (quarterly)

   Since April 10, 2001 when the price of gold hit a low of about $256/oz it has been steadily increasing on the back of higher investment related demand (represented 37% of total demand in 2010 up from just 4% in 2000), higher overall demand (3,812.2 tonnes 9% higher than 2009), and greater interest shown in the yellow metal by Asia (China's demand for bars and coins accounted for 13.5% of all gold demand by value, that's up 70% in just one year). (World Gold Council) Jewelry accounts for roughly 50% of gold demand down from 85% in 2000 but up from 43% in 2009. In the first quarter of 2011 Chinese demand for gold (25% of all gold demand) exceeded demand from Indians (23% of global gold demand) who were previous to that the largest consumers of gold (90.9 metric tons compared to India's 85.6 metric tons, China's represented a doubling over the previous year) (China Is Now Top Gold Bug); In 2010 consumer demand in India led all countries, it accounted for 25% (963.1 tonnes) of all global demand for gold, that's up from 16.6% the year before. In other countries like Greece, economic turmoil is causing demand for bullion to spike. (Financial Times: Greek savers rush for gold)

China: If, as many suggest, the People's Republic of China lets the RMB increase in value relative to the USD, that will weaken demand for gold in the short term as investors see the new exchange rate as a sign of economic stability but in the long run, the stronger RMB will increase Chinese demand for Gold due to its greater purchasing power. Also, a stronger RMB will raise Chinese import demand, indirectly propping up gold demand abroad too.

Because of weakened global reserve currencies (euro/usd) and a low portion of portfolios (1% but begining to show growth) and central bank reserves in gold (central banks sold much of their holdings in the early 2000's/since 2009 they have become net buyers) gold prices are in the midst of a long term upward trend. (Pierre Lassonde, Franco-Nevada) In 2009 central banks held 17.5% of all gold estimated to exist above ground (940M out of 5.5B ounces). As recently as 2005 central banks gold selling contributed as much as 14% of the gold supply. (Seeking Alpha: Gold Soars on Falling Supply and Rising Demand) In early to mid 2011, the central banks of Mexico (99.1 tonnes), Russia (41.8 tonnes), South Korea (25 tonnes) and Thailand (just over 9 tonnes) were among the largest buyers of physical gold. As of 2011 the world's largest exchange traded fund, SPDR Gold Shares ranks 6th among all entities in terms of its gold reserves, it owns 1213.9M tonnes of gold which is 4.5% more than China (1161.6M), 30.96% more than Russia (926.9M) and 97.5% more than India (614.6M). SPDR has just over half of all the gold held by gold etf's. (cnbc: The World's Biggest Gold Reserves)

While gold demand is rising from all areas (consumer, jewelry, central banks, industry: total up 9%) total supply is not (up only 2% in 2010) and that's putting even more pressure on the price. ( Output from gold mining makes up about 60% of the supply (gold output from mining declined in the seven years leading up to 2008). Another reason to expect higher prices; Companies are closing their hedge books (Barrick Gold led the charge in 2009 it cost them $5.6B, AngloGold Ashanti in October 2010 after it raised $1.58B to close it, Kinross Gold removed 90,000 ounces hedged in the first quarter of 2011 however it was the only major company to do that in 2011). Total gold hedged by miners amounts to 4.88 million ounces (1Q 2011); The first quarter of 2011 was just the second of 21 quarters since 2006 to show any increase in net hedging. (Gold miners hedge in Q1, big sales unlikely: report) Also to consider, the ceo's of Newmont Mining and AngloGold Ashanti the second and third biggest gold producing companies, predict that gold will exceed $2,200 an ounce by 2012. (reuters: Mining CEOs expect gold prices to keep rising)

If, as Franco-Nevada suggests, Asian central banks increase their minimum weighting in gold to 15% another 17,000 tonnes would be added to demand over the next few years. Gold ETF's could hoard more gold too with interest in physical gold higher than at any point in their history (in the USA they only date back to November 18, 2004, StreetTracks Gold Trust exchange-traded fund but since then they accounted for 2,300 tonnes of net demand). Gold companies for the most part have wide profit margins making them popular among both institutional investors and others.

Thursday, September 15, 2011

Europe's Five Largest Utility Companies & Changes To Their Generation Capacity by fuel, Revenue, Profit (2009-2011) (EDF, EON, RWE, GDF Suez, Iberdrola), Profits Down Due to Low Electricity Prices

For the largest utility company in Europe (2nd largest in the world) (CNBC) √Člectricit√© de France (EDF), 55.5% of 2010 sales came from France compared to 57.7% the year before. EDF leads the electricity market in both France and the UK (33.2 million customers between them). Though large EDF's generating capacity relies more heavily on one fuel type (nuclear) than any of its competitors; It gets 75% of its generating capacity from nuclear energy (90% of its nuclear capacity is in France (France is the world's largest net exporter of electricity). Also of note, EDF is the world's leading operator of nuclear power and Europe's leading hydro electricity producer.

European utility stocks have been hammered lately, a direct result of earnings losses (hindering profits in Europe are low electricity prices which are expected to decrease even further in the near future (down to as low as €50 by 2015); Europe has contemplated electricity price fixing, in terms of industrial demand European countries already keep prices low so as to help their companies stay competitive, for households though it's a relatively new thing (Europe could be concerned that households can't afford further increases). Also affecting results: a warmer winter in France (GDF Suez said in its 2011 2Q report that the winter was 30.5% warmer than it was in 2010 and that was the main reason sales there dropped 8.5%/demand for gas 24% lower to 131 TWh, electricity 3% lower to 18.3 TWh). EON's stock fell 35% between January 1 and September 1, 2011 while the stock price of RWE AG (second largest German utility) fell 49%. However, revenue stream continues to be strong for most utilities but that's mostly because a number of them including GDF Suez (International Power) and Iberdrola (Elektro in Brazil (distributor) for $2.4 billion) have made significant acquisitions (also, a greater focus on renewables will benefit the companies in the long run as it makes them less dependent on natural gas imports while also removing them from carbon penalties). GDF Suez's organic ebitda growth in the first half of 2011 was -1.1% but new addition International Power was up 27% (business in America) and that boosted GDF's overall ebitda by over 8% (671m euro). According to broker data, in Germany baseload power for 2012 is at €58.95 ($84.16) per megawatt-hour. (RWE, EON May Be Long-Term Underperformers, Barclays Says)

EDF and GDF Suez also differ in terms of their international business. Most of EDF's generation capacity comes from domestic operations within France while GDF Suez receives less than 10% from France (the rest comes from places abroad like Africa/Asia and America (Canada is a significant source of wind power; about 182 MW worth in the first half of 2011). On August 9, 2011 it was announced that China Investment Corp paid €2.3 billion for a 30% interest in GDF Suez's exploration and production business. GDF Suez also produces oil, over 50M barrels in 2010. GDF Suez recently acquired 70% of International Power giving French companies a lot of control over power production in Great Britain (the other French company EDF has close to 8 million customers in the UK).

Wednesday, September 7, 2011

Smaller Profit Margins & Mega Refineries Force Companies Out of the Refining Business (Sunoco, Shell, PBF, Chevron), Higher Italy Bond Yield Pressures ECB to Buy More Government Bonds, Barrick Gold Makes New Discovery

&nbsp&nbsp U.S. gas station operator Sunoco (4,900 stations) officially ended its 117 year old refinery business by putting its last two refineries up for sale (335th bbl/d Philadelphia, 178th bbl/d Marcus Hook). During the last two years the refining business segment showed profit in only two quarters. The last two refineries sold by Sunoco were Ohio's 170,000 b/d Toledo refinery to PBF Energy in December 2010 (third refinery acquired by the NJ based company in 2010 for $400M ($200M cash) with an additional $125M based on future profitability). That was preceded by the sale of Tulsa, OK refinery in June 2009 to Holly Corp. for $65M. The two remaining assets are significant, in 2010 they accounted for about 40% of all refining done on the east coast of the United States.
Sunoco's exit comes amidst declining refinery profit margins (dubbed the crack spread, earnings realized from turning 3 bbls of crude into 2 bbls of gas and 1 barrel of distillate) industry-wide, stemming from higher cost imports (though cheaper shale oil from Canada is helping refineries in the midwest; 74% of gasoline pump prices come from the crude oil itself while refining costs account for about 10%). (Energy Information Administration, US Govt) Profit margins have also been affected by what Royal Dutch Shell calls 'mega refineries' in India, China, the Middle East and Japan that are designed to export. Shell is another major company that has downsized its refining business; In March 2011 it sold the 270,000 bbl/d refinery in Britian to India's Essar Energy for $1.3B, then later in April it announced the closure of its Clyde refinery in Sydney, AUS (the sale comes at a time when Shell is investing billions of dollars in the Canadian oil sands to raise production output and purchasing gas plants: two in Qatar). (Exxon, Shell use soaring profits to buy output growth) Also, BP is trying to unload its 430,000 bbl/d refinery in Texas City, Texas and another in Carson City, California while Chevron sold a 210,000 bbl/d refinery in Pembroke, UK. With the exception of a temporary rise in margins around 2005/2007 they have been in a long term decline, since at least the 1990's. (CNN: Refining more gas won't bring prices down) February 2012 update: Crack spreads are slowly recovering, they were $6.8/bbl in the fourth quarter of 2011 and a number of international refineries responded by increasing capacity. more info at Keystone pipeline rejection creates opportunity
In Canada, an increase of C$1 in the price of a barrel of crude oil raises pump prices by about 0.63 cents/liter with only 0.03 cents of that due to the GST tax (gas taxes applied also vary depending on what part of the country you're in). (March 2010: National Energy Board of Canada-Gasoline Pricing-Energy Facts) In June 2008 taxes accounted for the following proportion of pump prices in these countries: Canada 24%, USA 9.6%, Japan 34.7%, Spain 45.4%,

Thursday, September 1, 2011

The 20 Largest Banks & Financial Institutions in the World (most globalized) as of September 1, 2011 (revenue, assets, profit, ranked last fiscal half)

TD Bank data is from the February to July 2011 period. % change in market value over the last year represents the change in stock, which isn't necessarily in dollars (for example ICBC stock fell 8% in Chinese currency, but the Chinese currency rose 6.3% in value over the period meaning that its USD market value only fell by a couple percentage points). When USA, NYSE, or ADR is shown it means the stock is already in USD. Just missed the list: Unicredito Italiano (Unicredit Group), Assicurazioni Generali (Generali Group), Royal Bank of Scotland, Royal Bank of Canada. Not included in the list is Japan's largest finance company Mitsubishi UFJ Financial Group because it's more of a holding company than a bank (otherwise it would've made it with $60B in market cap, $51B in annual revenue, -$1.7B profit in 1h11 (first loss in half since 2009) and $2.2T in assets).

Update:  On September 3, 2012 the data was updated for the 6 -months ending June / July 2012. Visit new article for more information.

                     The last year has been tough on banks, many suffered from losses in Greece (Societe Generale, for example reported 18% less profit in 2011 first half even though the 2010 period included €1.8 worth of risky assets from Greece alone and the bank was coming off a €7 billion fraud loss/euro was worth 5% less). But things are looking up, major European institutions like Intesa Sanpaolo and Credit Agricole, British banks Lloyds, Barclays and especially American ones such as Bank of America, appear to be oversold; They still have a large and growing revenue