Financing crunch leaves Codelco's investment plans in pieces
CALAMA, CHILE, SEPT 7| BY FABIAN CAMBERO
Markets| Mon Sep 7, 2015 11:52am EDT
An article about Codelco and it's mine life extension & expansion project budget being cut due to tough copper market. Discusses real timelines vs. company propaganda on such.
The bind in which Chile and Codelco are caught is emblematic of the problems facing resource-dependent emerging market economies as the commodities boom collapses.
Codelco's chief executive, Nelson Pizarro, acknowledged last month that some of the firm's plans "need to go into intensive care" as he announced a redesign of the $6.8 billion Andina mine expansion to cut costs, improve water use and make it more acceptable to environmental activists.
Codelco told Reuters that would mean a two-year set-back.
In Calama, a small and modest city in the heart of Chile's copper belt, a union spokesman at the company's flagship Chuquicamata said its $4.2 billion transformation into an underground mine was running two years behind schedule and that the firm's targeted 2019 completion date was unrealistic.
"There is no way the construction can hit the deadlines," said Jaime Graz, head of the mine's main union.
The setbacks to Andina and Chuquicamata come on top of already announced delays at two other projects, Radomiro Tomic and El Teniente.
Cobre Norte (Chuqui, MHM, and Radomiro Tomic) is in deep trouble. Mine life extension projects at Chuqui and R/T are running behind schedule, and the ore is running out.
I bring this Sept 2015 article up because April 2016 YTD Chile copper output is beginning to flounder, and not all because of rains, but due to falling (deleting) ore grades.
Behind schedule and the Chuqui & R/T ore is running out faster and faster. That means a large chunk of Codelco's forward copper (and moly) output is in trouble.
Copper market will pick up on this reality soon enough.
Yes, I ranted, and ranted about their stupidity. Perron defies logic. He is a moron.
Total, complete, re#arded, moronic putz.
But they should still nibble at the secured and unsecured notes w. open market purchases.
A 'liquidity event' is the only thing that gets them thru 12/17, at this juncture.
This is something that will become standard fare in Chile...that being falling copper output.
Codelco, revised their corporate website, and updated lots of information about their operations on it.
This is but one nugget they've put out there regarding their existing operations, as posted in their Projects description category.
In this case, Radomiro Tomic mine is discussed (part of their Cobre Norte division), and the following explains the rationale for their mill investment decision.
Translated into English:
"Investing great efforts to achieve the maturity of this operation is due to oxidized reserves have clearly begun its cycle of exhaustion. According to the Business Plan Radomiro Tomic, the oxides are completely depleted in 2017. However, nature has been very generous with this Division and so far we have estimated at 5 billion tons of sulfides with an average grade resources 0.45%."
The majority of the copper output this mine puts out, individually, will begin to drop very soon. In 2015, R/T produced 315k mt. copper cathode, down progressively from the 2011 'high-water' mark of 470k mt. Forward output numbers will begin to drop sharply, long before Codelco can complete construction, commissioning, ramp up a new mill on site to offsite vanishing cathode output.
It's mines like this, in Chile, that are floundering. And the reason Chile's copper output will fall in the next several yrs. Reductions in Chile's output fly in the face of present analyst understanding of Chile's copper production profile. Most assume that profile will be 'flat to up' every year, year in, year out. Like it always has. That is not the case.
So I smile as Codelco puts out more info resembling the truth regarding the "real" status of their mine portfolio. It's something they've tried to avoid for a very long time now, largely at the behest of the present gov't of Chile (who seeks to avoid alarming Chilean population on the health of Codelco).
Not good (politely saying it) also translates into a more direct expression: chupa bolas de burro
Lowest monthly total for output (copper) since Feb 2013......
Down -8% on the month YOY and down -4.7% thru April 2016 YTD vs. same period last year.
And as an added bonus:
Lowest monthly total for output (moly) since April 2015......
No wonder it's going up in price.
Final numbers from Cochilco will be proximate to INE numbers.
Abajo -8% interanual.
No hay exceso de oferta de cobre putos.
Have a nice day...........:)
Bonded copper inventory in China was less than 560k last week. It too has been falling.
Bonded stocks were much higher in the past.
On 3/25, this spooky Chinese inventory all the copper bears were foam about the mouth about stood at 394,777 mt. Oh did they bears shriek about gluts, and China collapsing at any moment. Proof positive was the "glut" of inventory in SHFE warehouse. Oh, look at it's grown since Jan 1st they shrieked........
On 5/13, it was 286,210 mt.
On 5/20, it was 257,334 mt.
On 5/27, it now stands at 221,212 mt.
Down another 36,122 mt on the week, representing a fall of -14% week over week.
Down approx. -44% from two short months ago.
China better order up some more copper before they run out, and fast !!!!
SHFE stocks are now down to only 7 days usage.
And I'm sure they order more copper in May 2016 than they did in May 2015.
Why you ask? A) it's cheap, B) they need it, C) it won't be cheap in the future.
Here's a little secret: The copper isn't being exported back into the LME system like Reuter's and Bloomberg idiots once wrote would happen.
And no, it's not being returned to the foreign miners China's importers bought it from either.
It's being used.
Has anyone seen the rate of increase in Chinese property construction growth thus far in 2016.....?
You should look it up.
China's once fabled "COPPER GLUT" to fizzling faster than a collective fart from a bloviating Goldman Sach's commodity analyst does in a hurricane. And the bloviating Goldman Sucks analysts know it, which is why (at least) Bloomturd won't write a single story about the collapse of Chinese copper inventory stocks in over a month. Smells fishy to me.
With an economy of $16 trillion GDP, and about $10.6 trillion in total US public debt (late 2008), we had a chance to climb out of the hole.
However, Komrade Kenya has us up to $20 trillion on the credit card, and our economy's GDP is what (?), $18 trillion, and pretty much stagnant. That debt (according to the CBO) is set to soar when he's out-of-office.
Unless entitlement programs are trimmed for large segments of the population, we're doomed financially.
Sale-leasebacks on whole industrial facilities are all the rage in the alternative leasing / finance industry, have been since about 2010. These parties have gone way beyond just leasing real estate. It's a real concept, otherwise I wouldn't have brought it up as cash-generating option available regarding Numb Nuts Metals Co.
A sale-leaseback would not be conducted on a depleting asset like a mine. LMC is a perfect industrial property for leaseback potential.
However, TC has in the past sold forward production from TCM (about $55mm worth) in 2007.
I would rather they sell a slice of MM, as it's probably the most desirable asset they own. The TCM needs to get permitted before they'd consider any sale of it.
Maybe they can sell Endako, but it wouldn't bring much.
The moly market has to be bifurcated between China and ROW (rest of world) first.
Looking at ROW: At those rates of usage growth, market will be balanced in '16, but slipping to a deficit in '17 of about 10-15mm lbs.
That should be enough to get prices rolling w. vigor in '17.
Assuming sub-par demand growth of only 3% in both '16 & '17, small deficit in ROW for '16, and a 15-20mm lb. deficit in '17.
Given reported tightness in ROW markets, my guess is demand is a bit higher then your 2%, but moly demand operates in 'fits and starts'. Tariffs and other measures are shutting the door on Chinese dumping of imported steel in Europe and the US. Prices for stainless 316 have been increasing in both markets, and the increases are sticking. I think the hit to moly usage from lower energy capex has bottomed, as US (and world) rig counts off sharply from two years ago.
That capex can only get cut once. Some of it comes back.
Longer term, the real shortfalls in ROW moly supply begin to materialize '17-'19, as Sierra Gorda output peaks (about '17) and begins to slip (exhaustion of high grade moly ore, with resultant lower grades in future) and slippage at Chuquicamata on gradual pit exhaustion taking it's toll on % of feed to mill from Chuqui pit vs. R/T sulfides conveyor.
Some offsets come from Sierrita coming back online by 2018. Henderson is impaired, and needs a major mine capex (about $600mm) to live much beyond 2019 at reduced rates.
All this changes if Sierra Gorda changes up their mine plan in lieu of poor recoveries experienced in present shallow ore deposits being mined, and the fact they've squelched Phase II investment (planned to be completed by 2020). My guess is they rebalance their copper / moly target mix (2017) by stockpiling ore presently being mined (low copper/high moly) can chase higher copper / lower moly ore. I say that because they just hinted (w. Q1 results) they are looking at exactly that strategy.
Toromocho is going down 5/31 for four days....
Spence just went on another 24 hr. strike following two others earlier this month...
Cerro Colorado had some strike actions in Jan 2016...
Escondida late last year...
Codelco's Cobre Norte division last year (twice).
Las Bambas local community planning indefinite strike actions starting 5/27 for employees, contractors, delivery and transport vendors, and protests and blockades after land dispute talks broke down...
Cerro Verde had a 48hr strike in April, with union saying their 'grievance' (weak profit sharing) remains unresolved, with future strikes being discussed.
Starting to look like a trend for '16.
Upcoming Labor Negotiations Might Boost Platinum, Copper Prices
Commodity Trade Mantra
May 25, 2016
At the same time, Chile’s copper sector is facing a similar issue. With the country’s national mining body Sociedad Nacional de Minería (Sonami) noting that over half of the country’s largest miners are facing labor negotiations soon.
Sonami’s president Alberto Salas said at a recent industry event that over 50 percent of Chile’s largest miners are due for wage talks over the next 12 months.
That includes the world’s largest copper miner, Codelco — which faces negotiations with 9 different unions across its various operations. Anglo American also has talks upcoming with 4 unions, while miners like Antofagasta, Kinross, BHP Billiton and Glencore all have separate labor negotiations scheduled.
Chilean Labor Reform Threatens Shake-up in Copper Industry
February 22, 2016 6:30 PM
Chilean copper miners who have grown reliant on cheap outsourced workers are bringing more of them in-house or bracing for salary hikes ahead of the expected passage of a pro-worker reform bill.
The reform is set to boost the bargaining position of unions representing outside contractors, making strikes among outsourced workers more common and difficult to break, analysts and lawyers say.
Oil is going higher. Grains going higher. Gold going higher.
That will attract interest from institutions looking for commodity exposure.
Inflows into commodity index funds should be robust this year. And about 3% of all those funds pouring in.......goes directly into copper.
That should help copper, no matter the games being played with it.
Clancy the Revolutionary War Hero would debate otherwise.........
Of course, he's still chaffing having donated $250 bucks to Bernie the Commie, only to learn that Bernie's warchest of campaign cash will be kept as he retires (soon) in the Caribbean.
John Shmuel | May 24, 2016 3:18 PM ET
Citigroup said commodities have “turned a corner” as it raised its outlook for the prices of gold, oil and grains Tuesday.
The brighter outlook comes as oil prices pushed closer to the $50 a barrel mark, with Brent futures trading at US48.55 a barrel — the highest price this year.
“Commodities markets appear to have turned the corner and, led by the petroleum market, are accelerating their price recovery from the lows of the last year, especially since this past January,” said Citi analysts in a note to clients.
Citi also cast doubt that oil prices would retest any of the lows seen when the market bottomed out in February. Until recently, analysts warned that oil prices could crash again as global supply remained abundant and OPEC refusing to cut it output.
But abundance has been replaced by tighter supplies, as wildfires in Alberta have halved Canadian production and civil unrest in Nigeria and Libya are curbing output there.
Citi said those factors mean that it now forecasts oil will hit US$50 a barrel in the third quarter, rather than its previous call of Q4. The bank also raised its 2016 forecast for gold by US$100 to US$1,250 an ounce. It also hiked its platinum forecast from US$980 to US$1,000.
Goldman Sachs also grew more bullish on commodities last week. The investment bank said the sudden tightening in the oil market had caught it off guard and raised its outlook for oil prices this year. Goldman Sachs had previously been one of the biggest bears on commodity prices.
Citi warned Tuesday, however, that prices for oil and gold remained volatile, as they have been for the past two years. While it sees higher prices, the potential for wild swings this year remain high.
“The past few years have demonstrated that changes in market sentiment can be abrupt and can affect both price direction and cross commodity and cross asset correlations,” Citi analysts wrote.
100% face saving.
By Vera Ye | May 25, 2016, Wednesday
China’s top securities regulator said it would tighten oversight on commodity futures trading to clamp down on speculation, and vowed to open up commodity-derivatives market to offshore investors as it seeks to become a price maker on a global scale.
“Recently, domestic markets saw excessive trading volume and wild price swings in some commodity futures. We’ve guided exchanges to take a number of measures targeting speculative activities,” Fang Xinghai, vice chairman of China Securities Regulatory Commission, told a derivatives market forum at the Shanghai Futures Exchange today.
A speculative frenzy in March and April sparked a surge in prices of China’s steel, rebar, coking coal, and iron ore futures. That was followed by a rapid slide after the regulator intervened and introduced a slew of cooling-down measures such as tightening trading rules, raising transaction fees, and barring suspicious accounts from trading.
“The measures have achieved a notable effect, and exchanges should keep a close eye on commodity futures trading to crack down on illegal activities and maintain market order,” Fang said.
Commodity prices going down (2015) - China regulators happy.
Commodity prices going up (2016) - China regulators NOT happy, and take action to limit speculation and rising commodity prices.
It's almost surreal what passes for "normal business activity" these days.