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Thursday, September 8, 2011

Indian consortium hoping to be preferred bidder

Thursday, 08 Sep 2011

The bid submitted by a consortium of Indian steel and mining companies, led by Steel Authority of India Limited, for mining concessions of the Hajigak Iron Ore Mines located near Bamiyan in Afghanistan is among the six bids opened by the ministry of mines of Islamic Republic of Afghanistan.

Structure of Indian consortium
SAIL - 20%
NMDC - 18%
RINL - 18%
JSW - 16%
JSPL - 16%
JSW Ispat - 8%
Monnet Ispat & Energy - 4%

The consortium has bid for all the four blocks at Hajigak offered by MoM, Afghanistan. Announcement of preferred and reserved bidders is expected to be made by Afghanistan on or about October 4th 2011.

As per the Request for Proposal issued by MoM, Afghanistan there will be total and annual exploration expenditure requirements over at least a three year period with annual minimums of USD 5 million or more. Bids will be evaluated on various parameters related to bidding company's credentials and benefits accruing to Afghanistan such as royalty, commitment towards corporate social responsibility, etc. Emphasis has been laid on development plans which proposes expansion from iron mine/processing facilities with transport assets to vertically integrated processes including making steel. However, the weightage assigned to individual parameters has not been disclosed by the MoM, Afghanistan.

Upon receiving the news of bid opening, Mr CS Verma chairman of SAIL said that "This is the first time that Indian public and private sector companies have come together to jointly bid for an iron ore asset abroad. With Afghanistan holding strategic interest for India, we hope that our endeavor to obtain mining licenses there will be a stepping stone towards the larger objective of contributing to the much-needed economic growth of the country. This will pave the way for more such collaborative efforts in the future by Indian companies for obtaining raw material assets in other countries."

The five other bids submitted by parties from various countries for the include ACATAC, LLC of the USA (3 blocks), Behin-Sanate Diba of Iran (4 blocks), Gol-e-Gohar Iron Ore of Iran (1 block), Kilo Goldmines Ltd. of Canada (1 block) and Corporate Ispat Alloys Ltd of India (1 block).

Indian iron ore mining mess - Probe uses satellite images

Thursday, 08 Sep 2011

The CBI took recourse to satellite imagery to trace huge amounts of iron ore stacked illegally around Obulapuram Mining Company.

While OMC promoters claimed they had been excavated from the Obulapuram mines, investigators discovered that most stocks found there had been transported illegally from mines dotting the Karnataka to Andhra Pradesh border.

The satellite images, a CBI source claimed, nailed the lie of the OMC promoters. The source said that "It was clear that iron ore from other mines had been carted to Obulapuram mines and shown as an OMC product.”

While Obulapuram mines are located in Andhra Pradesh's Ananpur district, OMC's head office is located in neighboring Bellary, which falls in Karnataka. Besides Janardhana Reddy, his brothers Karunakara and Somsekhara are the co promoters of OMC.

CBI, along with the Survey of India, had earlier this year been asked by the Supreme Court to undertake a survey of the iron-ore mines leased to the Reddy brothers in Anantpur district. As part of the survey, the two agencies are learnt to have taken recourse to satellite imagery.

The Reddys are accused of mining far beyond the 25.9 hectares their company was allowed. CBI alleges the Reddys dug deep into the Bellary Reserve forest area, which includes portions of both Anantpur district of Andhra Pradesh and Bellary in Karnataka.

Mr Janardhana and his brother in law Mr Sreenivas Reddy the managing director of Bellary Mining Corporation, were on Monday arrested by CBI for illegal mining by OMC. They have been remanded to judicial custody.

(Sourced from ET)

ArcelorMittal slashes workforce at Brazil mill

Thursday, 08 September 2011

Brazilian newspaper O Estado de S. Paulo reported Wednesday that ArcelorMittal has dismissed 45 workers from its longs mill ArcelorMittal Acos Longos in Juiz de Fora in the Brazilian state of Minas Gerais, essentially cutting 5 percent of the workforce.

Reduced demand for domestically-produced steel in Brazil driven by high foreign steel imports has been cited as the main reason for the cutback.

The workforce reduction in Brazil follows the temporary shut down the blast furnace at its plant in Eisenhüttenstadt, Germany, due to recently slow demand.

Tags: longs , Germany , Brazil , Europe , South America , ArcelorMittal , production , steelmaking , European Union

India's GVK bid for Australia's Hancock delayed over valuation-sources

Thu Sep 8, 2011

SYDNEY/MUMBAI, Sept 8 (Reuters) - Efforts to finalise a $2 billion-plus bid by India's GVK Power & Infrastructure for two Australian coal mines owned by Hancock Prospecting have been delayed due to differences over valuation, sources familiar with the situation said on Thursday.

GVK had been due to announce the long-awaited deal this week but Hancock's owner, Gina Rinehart, had sought last-minute changes to the agreement, one of the sources told Reuters.

GVK's negotiations to buy the Alpha Coal and Kevin's Corner mines began in February. Deadlines for exclusive talks between the two sides have been extended repeatedly throughout the year, according to other sources.

Finalising the deal had been delayed mainly due to "some valuation issues", one of the sources told Reuters.

A second source said there was no indication how long it would take to resolve the latest differences or whether they might lead to the deal's collapse.

Hancock and GVK did not immediately respond to calls for comment.

India's Economic Times said last month GVK planned to pay $2.2 billion for the mines. As part of the deal the company would pay $900 million to develop transport infrastructure to carry the coal to the port, the newspaper said.

A $1.2 billion loan would be provided by banks to back the bid, banking sources told Thomson Reuters' Basis Point.

The banks include ICICI Bank , Axis Bank , Bank of Baroda and Bank of India. Standard Chartered had dropped out of financing of the deal, sources said.

India holds 10 percent of the world's coal reserves, but local supplies are falling short of demand as the country builds more power plants, and as domestic coal projects run into environmental and land acquisition delays.

Indian energy firms have been scouting for coal assets overseas to feed power plants at home, and have been raising funds for potential overseas acquisitions and expanding facilities.

Indonesia Medco to start coal output for China demand

Thursday, 08 Sep 2011

Reuters reported that Indonesia largest listed oil firm, Medco Energi will start to produce coal this year aiming for 500,000 tonnes of output by end-2011 to ship to China.

Mr Arie Prabowo Ariotedjo head of its mining unit said "This will be our first coal production project. We are selling it to China through a European trader, adding that its field at Nunukan in Eastern Kalimantan province will start production in three months.”

He said that the firm aims to lift production to 1 million tonnes a year by 2014. Coal output in Indonesia, the world top exporter of thermal coal is estimated to grow at least 10% annually over the next five years with industry groups expecting production to reach 340 million tonnes this year.

The mine at Nunukan is on a 6,500-hectares site and has proven source of 8 million tonnes of coal. Medco is also looking to acquire other coal sources and is ready to inject USD 18 million for the first phase of production.

Medco whose main energy activity centres on oil and gas will join the ranks of Indonesian coal firms such as Asia top thermal coal Bumi Resources which expects to produce 66 million tonnes of coal this year.

(Sourced from Reuters)

Petrosea adds US$730 million contract

Thursday, 08 September 11

Coal mining contractor PT Petrosea Tbk (PTRO), a majority owned subsidiary of energy integrated company PT Indika Energy Tbk (INDY), has secured a US$730 million additional coal mining contracting from PT Adimitra Baratama Nusantara from initial contract of US$200 million, according to Insider Stories.

Petrosea, in an official statement to Indonesia Stock Exchange, said the additional contract has been signed by Petrosea on August 25 2011, renewing the previous agreement signed on August 19 2009 and January 18 2011. Under the additional contract, Petrosea is obliged to produce 14 million tons coal and 126 million bcm at Sanga-Sanga, East Kalimantan.

Adimitra Nusantara has guaranteed at least 5-year contract to make Petrosea optimizes new heavy equipments, which is in line with higher production.

Petrosea is 99.39% controlled by Indika Energy, a company that is owned by two stellar businessmen Agus Lasmono Sudwikatmono and Wiwoho Basuki Tjokronegoro.

By end of June 2011, 86.29% of Petrosea consolidated revenue were contributed by coal mining or worth US$96.99 million, services of US$8.25 million, and engineering and construction of US$6.13 million.

Petrosea booked US$112.39 million revenue in the first half of this year, a 26.58% increase from US$88.79 million a year earlier. Adimitra Nusantara contributed US$28 million revenue to Petrosea.

(sourced Insider Stories)

Wednesday, September 7, 2011

Afghanistan’s Hajigak Iron Ore Deposit Draws Bids From India, Iran, Canada

Wed, Sep 7,2011
By Eltaf Najafizada and James Rupert

Afghanistan’s richest iron-ore deposit drew bids from an Indian government-backed group, two Iranian contenders and Canada’s Kilo Goldmines Ltd. (KGL), an Afghan official said.

Afghanistan’s mines ministry opened the bids yesterday for the estimated 1.8 billion metric tons of ore at Hajigak, 100 kilometers (60 miles) west of Kabul, said Abdul Jalil Jumriany, a ministry director-general. The tender is the biggest on offer in a country that the U.S. government estimated last year holds $1 trillion in untapped minerals.

Seven Indian steel and mining companies, led by state-owned Steel Authority of India Ltd. (SAIL) and NMDC Ltd. (NMDC), offered a bid that is part of an effort by Prime Minister Manmohan Singh’s government for a bigger role in a nearby country whose stability it calls essential.

In neighboring Pakistan, the politically powerful army “would have concerns about India having such a new role” in Afghanistan, said Bashir Ahmed, a senior fellow and retired army brigadier at the Institute of Regional Studies in Islamabad.

“Many in the Pakistani establishment are quite sensitive to India’s presence in Afghanistan,” seeing it as a security threat, he said.

The Indian group includes state-owned Rashtriya Ispat Nigam Ltd., and private-sector companies JSW Steel Ltd. (JSTL), Jindal Steel & Power Ltd. (JSP), Monnet Ispat Ltd. and JSW Ispat Steel Ltd. A separate Indian contender is Corporate Ispat Alloys Ltd., said Jumriany in a text message listing the bidders.
Iranian Interest

Two Iranian bidders are Gol-e-Gohar Iron Ore Co., one of Iran’s biggest iron ore producers, and Behin Sanate Diba Co., a privately run group of 10 investment, mining and industrial companies, some of which are partly state-owned, said Leyla Rashno, the group’s director for tenders.

Rashno declined in a phone interview in Tehran to say whether the group’s bid has been encouraged or backed by Iran’s government.

Toronto-based Kilo Goldmines, which trades on Canada’s TSX Venture Exchange, focuses mainly on gold mining in the Democratic Republic of Congo.

The other bidder for Hajigak is Acatco LLC, whose owner, Afghan-American businessman Nasir Shansab, lives near Washington and said in a phone interview his partnership, which employs 30 people, would bring in unnamed additional partners to develop the mine.
Indian Strategy

Indian authorities decided to facilitate their country’s group because “it makes business and strategic sense to have a presence in mining in Afghanistan,” Indian Mines Secretary S. Vijay Kumar said in January. Hajigak also may offer India an investment foothold in Afghanistan to rival that of state-owned Metallurgical Corp. of China Ltd., which is developing the country’s biggest copper deposit, at Aynak.

India and Afghanistan accused Pakistan’s army of secretly backing the July 2008 Taliban bomb attack on India’s embassy in Kabul, one of at least three deadly attacks on Indians in the city since that time. Pakistan denied the accusation.
Stalled Parliament

The mines ministry will this month recommend one bid to receive the license, plus one alternate, or reserve, bid, for each of four blocks at Hajigak, a ministry statement said. Ministry spokesman Jawad Omar said the awards will require approval by the cabinet and by Afghanistan’s parliament, where sessions have been stalled by a dispute over which candidates should be seated following disputed elections a year ago.

Hajigak is a range of treeless mountain ridges with a thin population of villagers who graze animals and farm the valleys below. The costs of developing mines will be increased by the need to build paved roads or rail lines to connect the site to potential markets.

While the ultimate cost of mining Hajigak is unclear, Indian companies “should have every reason to go for the Hajigak mines” if the cost of acquisition is about $1 to $1.5 per ton, said Ravindra Deshpande, an analyst with Mumbai-based Elara Securities Ltd.

While the bidders do not include the world’s biggest mining groups, which President Hamid Karzai’s government had hoped to attract, the six contenders represent progress in attracting investors’ interest. Afghanistan canceled a previous tender last year when only one of seven initial competitors showed up to visit the Hajigak site.
Corruption Issue

The U.S. Defense Department has backed efforts to draw in international investors that it says are essential to stabilizing Afghanistan. Still, the decade-old war and corruption remain obstacles. Afghanistan last year tied with Myanmar for the second-worst ranking among 178 countries in Transparency International’s perceived corruption index.

Karzai’s government has pledged to manage and publish its mining contracts under the provisions of the Extractive Industries Transparency Initiative, or EITI, a voluntary anti- corruption regime, Mines Minister Wahidullah Shahrani has said.

EITI, based in Oslo, Norway, advocates rules for improving the transparency of contracts and payments in mining and oil and gas extraction. The group rates 11 countries, including Nigeria, Norway, Liberia and Azerbaijan, as fully compliant, while 23 states, including Afghanistan, Kazakhstan and Indonesia, are pursuing the two-year process to achieve that status.

(sourced Bloomberg)

Tata Power trips on Mundra

September 7, 2011
By Priya Kansara Pandya, BS

Mumbai: Higher coal realisations or a meaningful rise in output from Indonesian mines could help partly offset the increase in costs for the Mundra UMPP.

Tata Power touched a 52-week low of Rs 995.2 on September 5, amid growing concerns about the impact of higher imported coal costs on its flagship Ultra Mega Power Project (UMPP) at Mundra in Gujarat’s Kutch district, after the change in mining laws by the Indonesian government. And, recent reports suggest the Gujarat government, which had signed to buy about 2,000 Mw from there, is not in a mood to pay the higher costs. Although the company is speaking to the Union government for a rate increase (as is Reliance Power for its UMPP in Andhra Pradesh), as well as planning other measures to mitigate the impact, the Street is not impressed.

According to analysts, the Mundra UMPP is expected to incur losses, given the current rate structure and new higher costs. However, part of the costs will be compensated by higher coal realisations, due to its stake in Indonesian coal mines. In this backdrop, analysts are cautious in the medium term, despite an 18 per cent correction witnessed last month. Some have even downgraded their price targets and ratings.

New rules
The Indonesian government recently implemented the Indonesian Coal Price Regulation, which requires prices for all transactions to be benchmarked against a set of international and domestic indices and all sale contracts to be modified retrospectively by September.

Mundra (capacity of 4,000 Mw), India’s first UMPP, is expected to be fully commissioned by 2012-13 (two units of 800 Mw each are expected to be commissioned by March 2012). It was awarded to Tata Power through competitive bidding, on a rate of Rs 2.26 per unit. It has a 10.11-million tonne annual coal supply contract with its Indonesian coal companies (30 per cent stake each in KPC and Arutmin), part of which would be used in Mundra UMPP. In the original coal supply contract, Mundra UMPP was to get 75 per cent of the coal at index-linked prices, while the balance 25 per cent was to be supplied at a lower price (about $40 per tonne), fixed for five years. After five years, the entire quantity would come at market prices.

With the change in mining policy, the fuel costs are expected to rise by about $30-40 per tonne and, hence, the project is estimated to incur losses if the company is unable to pass on the higher costs. Analysts peg the gross impact of this move on Mundra’s profitability at about $500 million over five years.

Meanwhile, the management has presented its case to the Indonesian government and has also asked the Union power ministry here to discuss the higher cost of coal with state electricity boards (SEBs). Analysts say the government is unlikely to intervene, as other private players would then ask for the same treatment. While the company is also looking at options such as blending cheaper low-calorific coal to rationalise the cost, the move could impact efficiency of the plant, say analysts.

However, all is not over for the company. Losses at Mundra would also be mitigated through better financial performance of the coal business, thanks to higher coal realisations. The net impact on the combined valuation of Mundra and the mines is around five per cent.

Australia's Port Hedland shipments up 15.3 pct in August vs July


SYDNEY (Reuters) - Iron ore shipments from Australia's Port Hedland, one of the world's largest export terminals, jumped 15.3 percent to 20.22 million tonnes in August from July, data released by the port authority showed on Tuesday.

Shipments to China, the port's biggest destination, rose to 14.3 million tonnes from 12.62 million in July.

Billiton is the port's biggest user followed by Fortescue Metals Group Ltd .

S.Africa's miners may strike against Xstrata

Sep7, 2011

JOHANNESBURG (Reuters) - South Africa's National Union of Mineworkers (NUM) said on Tuesday it had referred its dispute with coal producer Xstrata over an employee share ownership programme to arbitration and may strike if the talks fail.

"The NUM and Solidarity (trade union) have agreed to take the matter to (arbitration), paving the way for a possible massive strike action against the company," Eddie Majadibodu, NUM 's Chief Negotiator at Xstrata, said in a statement.

The unions are opposing the company's stand that employees should benefit from the share ownership programme according to their grades.

(sourced Thomson Reuters)

Vale open to sell or lease its large iron ore vessels - Report

Wednesday, 07 Sep 2011

Dow Jones reported that Brazilian iron ore miner Vale SA is open to selling or leasing on a long term basis the ownership of its very large ore carriers as it doesn't intend to be a major freight operator.

Vale currently has 34 vessels under constructions, 16 of which are being built by international shipowners and will be operated exclusively for the company under long term contracts.

The remaining 18 ships, which are being built in South Korean and Chinese shipyards, may be transferred or leased to international shipowners, including the Chinese.

A Rio de Janeiro based press officer for Vale said that "Our goal is to encourage the construction of vessels which are more efficient, with higher standards of operational safety, environmentally friendly these vessels allow for a reduction of 35% in carbon emissions per transported tonne and contribute to reduce the freight volatility in the market."

(sourced from Dow Jones Newswires)

BHPB approves 11 major projects in 2011

Wednesday, 07 Sep 2011

BHP Billiton approved 11 major projects for a total investment commitment of USD 12.9 billion during the 2011 financial year. Following the progression of the Jansen Potash Project into feasibility during the March 2011 quarter, BHP Billiton also announced an additional USD 488 million of pre-commitment funding to support development of the project in Saskatchewan, Canada.

The progression of these projects forms a meaningful component of the Group’s anticipated organic growth program that is expected to exceed USD 80 billion over the five years to the end of the 2015 financial year.

Industry wide cost pressures remain a feature of the development landscape and reflect stronger producer currencies as well as underlying inflation on raw material and labour costs. BHP Billiton approved revised capital budgets and schedules during the 2011 financial year for the Esso Australia Resources Pty Ltd operated Kipper (USD 900 million, BHP Billiton share) and Turrum (USD 1.4 billion, BHP Billiton share) Petroleum projects and the BHP Billiton operated Worsley Efficiency and Growth (USD 3.0 billion, BHP Billiton share) alumina refinery expansion (all Australia).

Three major projects delivered first production in the twelve month period: namely the New South Wales Energy Coal MAC20 Project, the Douglas Middelburg Optimisation Project in South Africa Coal and Angostura Gas Phase II (Trinidad and Tobago).

Iron ore and oil prices set to dip in 2012 - Westpac

Wednesday, 07 Sep 2011

Mr Bill Evans China chief economist of Westpac said that iron ore prices are set to dip next year after unprecedented stockpiling of the steel making commodity. He also said the oil price could fall because of weaker global growth.

Mr Evans said the iron ore price was higher than he would have expected, given that the brakes were being put on China's investment property boom after a dangerous surge in residential construction to levels almost double that of underlying demand.

Mr Evans told the RIU Good Oil conference in Fremantle, Western Australia said that "The area where you would have expected to see the greatest slow down would be in the iron ore price and that's as strong as ten men ... but I'm saying I would expect prices to start to turn down. I suspect there's a degree of stockpiling at the moment. Inventories are very high, the highest they've ever been. That can easily turn."

Mr Evans said that China would take a breather with iron ore purchases in the next 12 months but that its appetite would return as the Asian superpower continued its unprecedented industrialization, provided authorities staved off a return to high inflation.
He said that "They've been unsuccessful so far in containing inflation pressures, so there's this balancing act about wanting to increase housing affordability. So (the government is also) discouraging the investment bubble in housing as well as wanting to contain inflation pressures, and balance that off against maintaining decent growth momentum.”

Mr Evans said the long term oil price would likely rise to USD 100 a barrel from about USD 83 a barrel currently as industrial production in OECD countries fell.

He was more skeptical about the short term outlook for oil saying global growth the critical factor driving the oil price would fall below trend next year at 3.5%.

(Sourced from AAP)

India's SAIL-led consortium bids for Afghan iron mines


MUMBAI (Reuters) - A consortium of Indian steel and mining firms led by the Steel Authority of India Limited (SAIL) has bid for four blocks of mines in Afghanistan, SAIL said in a statement on Tuesday, proposing to set up a steel plant in the country.

The Hajigak mines, which are estimated to have a reserve of 1.8 billion tonnes of magnetite with 62-63 percent iron content, have attracted five other bids targeting various numbers of blocks, the statement said.

The announcement of preferred and reserved bidders is expected around Oct. 4, the statement added.

(sourced Reuters)

Macarthur Coal still hoping for rival to Peabody Energy ArcelorMittal bid - Report

Wednesday, 07 Sep 2011

The Australian reported that Macarthur Coal's board is still hoping for a higher takeover bid, despite reaffirming its recommendation of the sweetened offer of Peabody Energy and ArcelorMittal.

Mr Keith De Lacy chairman of Macarthur Coal said that "As previously advised, Macarthur had pursued discussions with third parties, which had expressed interest in putting forward a superior proposal for Macarthur's shares. The directors advise that as at today, no superior proposal has been received. Although it remains possible that a superior proposal might be made, there can be no assurances that any will emerge."

Macarthur also noted that Mr Zeng had made no recommendation or statement about the intentions of Citic Group on the takeover bid. The deal with PEAM Coal, a 60:40 JV between Peabody and ArcelorMittal, has a no shop, no talk condition, but the target's recommendation assumes the absence of a higher bid.

Macarthur also used the target statement to warn shareholders of ongoing uncertainty about the regulatory environment it operated in. It said the mining and carbon tax and land access issues could reduce profitability.

Mr De Lacy said that "By accepting the PEAM offer, Macarthur shareholders are able to crystallize cash value for their shares and remove any ongoing exposure to market, regulatory and other risks that Macarthur Coal may face in the future, assuming that the PEAM offer becomes unconditional."

Many believed a rival offer for Macarthur was likely, with 25% shareholder Citic Group the key to any alternative bid. But with no firm deal apparent, the target's board accepted Peabody and ArcelorMittal's increased price.

The USD 4.9 billion, USD 16 a share bid had been raised from the USD 15.50 offer launched on August 1st 2011.

(sourced from TheAustralian)

S.Africa coal exports rise m/m in Aug to 6.987 mln T

Sep7, 2011

JOHANNESBURG, Sept 6 (Reuters) - South Africa's Richards Bay Coal Terminal (RBCT) exported 6.987 million tonnes of coal in August compared with 4.36 million tonnes the previous month, RBCT data showed on Tuesday.

South Africa -- a major exporter of coal to power stations in Europe and Asia -- had 3.996 million tonnes of stock at the terminal at the end of August, RBCT said.

(sourced Reuters)

Polo Resources recovery hit by Bangladesh coal plans

Wednesday, 07 Sep 2011

The past week has been one of convalescence for Polo Resources, the Aim-quoted resource investment company that holds stakes in companies involved in coal, gold and iron ore.

After falling casualty to investors’ risk-off attitude in early August. The recovery began in mid-August when Polo announced a doubling of a special dividend to 2p a share following the GBP 100 million sale of Caledon Resources.

(Sourced from

South Africa mining sector two biggest risks

Wednesday, 07 Sep 2011

Many governments are looking at ways to get more money from miners as companies report record profits. The higher the returns and the higher the profits, the greedier governments become. As commodity prices rise governments try to boost their share of the proceeds from their countries energy and mining sectors.

Country risk
Where the political and economic stability of the host country is questionable and abrupt changes in the business environment could adversely affect profits or the value of the company’s assets.

Resource nationalism
The tendency of people and governments to assert control, for strategic and economic reasons, over natural resources located on their territory.

The major benefit for developing countries from natural resource development comes in the form of:
1. Employment/wages
2. Government revenues - taxes, royalties or dividends

There can also be indirect benefits such as knowledge and technology transfers. Foreign investments can also involve infrastructure investments, sometimes on a massive scale, like electricity, water supplies, roads, railways, bridges and ports.

The PricewaterhouseCoopers Mine 2011 survey highlights what governments across the globe are looking at in regards to the world’s top 40 miners:

1. Achieved net profits of USD 110 billion last year
2. Halved their debt
3. Built cash reserves of USD 105 billion
4. Announced capital programs of USD 300 billion for 2011

In 2011, resource nationalism became the number one risk for mining companies.

Miners are an easy target as mining is a long term investment and one that is especially capital intensive mines are also immobile, so miners are at the mercy of the countries in which they operate. Outright seizure of assets happens using the twin excuses of historical injustice and environmental/contractual misdeeds. There is no compensation offered and no recourse.

Mr Mike Elliott Ernst & Young Global Mining & Metals Leader said that “Resource nationalism is taking other forms as well, including greater controls on foreign participation, mandated beneficiation, use it or lose it demands and mandated government participation.”

The result is a spate of recent news regarding resource nationalism:

1. A government backed ouster of Brazilian mining giant Vale SA’s CEO, Roger Agnelli. Brazil’s government is considering a proposal that would make it easier to raise or lower mining royalties depending on economic conditions and minerals prices as part of a broad overhaul in Brazil’s mining sector which includes revamping the licensing process and boosting state income from mining companies.

2. Panamarecently repealed part of its mining code allowing investments from foreign governments.

3. A handful of African countries have also increased tax revenue from miners in recent years ie Ghana plans to double royalties on mining to increase government revenues.

4. South Africa is pushing to nationalize its mines and banks. The Youth League wants the government to take 60% of private mining assets without compensation to distribute wealth and create jobs. As part of an empowerment driveSouth Africa’s mining charter already calls for 26% of the mining industry in Africa’s largest economy to be transferred to black owners by 2014.

5. Papua New Guinea introduced a plan to hand state ownership of mineral and energy resources to landowners a move that may prove disastrous to foreign miners and their shareholders.

6. President Hugo Chavez nationalized Venezuela’s gold industry.

7. Peruvian president Humala (recently elected) promised, during his election campaign, to initiate windfall taxes on mine profits and to harden tax and royalty regimes.

8. AustraliaandChileare proposing fresh tax or royalty regimes.

9. In the past 12 to 18 months at least 25 countries have increased or announced intentions to increase their government take from resources via taxes or royalties.

10. Zimbabwenow requires foreign owned companies indigenize their operations in the country by transferring at least 51% ownership to locals. Youth Development, Indigenisation and Empowerment Minister Saviour Kasukuwere rejected a number of foreign companies plans and set a 14 day ultimatum for the submission of what he considers acceptable plans.

Mr Scott Jobin-Bevans president of Prospectors and Developers Association of Canada said that “We know it’s tempting, at a time when government debt is mounting and metal prices are rising, for some governments to try to grab an even higher proportion of the revenue from mining. But we urge governments to remember that the cumulative effect of these unreasonable tax hikes will be to push up world prices and slow global growth.”

(sourced from Resource Investor)

Shenhua Group Wuhai Coking Company released coal EXW price

Wednesday, 07 Sep 2011

Shenhua Group Wuhai Coking Company released coal ex-works price on September.6 2011.

1) Ex-works price of coking coal (A<10.5%, V:27%,S<1%, G>80%) stands at CNY 1,310 per tonne (free on truck).

2) Ex-works price of 1/3 coking coal (A<10.5%, V: 28-30%,S<1.0%,G:80-85%) stands at CNY 1,280 per tonne (free on truck).

3) Ex-works price of fat coal (A<10.5%, V: 28-32%, S<1.8%, G>90%) stands at CNY 1,210 per tonne (free on truck).

4) Ex-works price of fat coal (A<10.5%, V: 28-32%,S<2.5%,G>90) stands at CNY 1,030 per tonne (free on truck).

17% VAT included.

(source steelhome)

Tuesday, September 6, 2011

Glencore Raises Optimum Stake to 23.9% as It Boosts Price Paid for Shares Q

Tue,Sep 6, 2011
By Jesse Riseborough

Glencore International Plc, the largest publicly traded commodities supplier, raised its stake in Optimum Coal Holdings (OPT) Ltd., buying shares at 12 percent above the price it proposed last week.

Glencore’s Piruto BV unit purchased 24.6 million shares on the market yesterday at 38 rand ($5.34) apiece, taking the Baar, Switzerland-based company’s stake to 23.9 percent, it said today in a statement. Glencore acquired 14.1 percent of Optimum on Aug. 29 and on Sept. 1 proposed a cash offer of 34 rand a share that valued the South African company at $1.2 billion.

Under takeover regulations, “if an offer is made by Glencore or any of its concert parties for the remaining shares in Optimum within a period of six months from the date of this announcement, the offer consideration will not be lower than 38 rand per share,” according to the statement.

Optimum Coal is South Africa’s fourth-largest coal exporter and owns mines and port capacity. Glencore said last week it had secured agreements that may expand its holding to 43.5 percent.

Glencore gained 2.3 percent to 385.2 pence at the 4:30 p.m. close in London trading. Optimum fell 2.6 percent to 37.01 rand in Johannesburg. An offer of 38 rand a share would value the company at about $1.34 billion.

(sourced Bloomberg)

Sri Lanka, India US$500mn coal plant deal inked

Tue, 06Sep, 2011

Sept 06, 2011 (LBO) - Sri Lanka's state-run Ceylon Electricity Board and India's National Thermal Power Corporation inked a deal to build a 500MegaWatt coal plant in the island's northeast coast.

The 50/50 joint venture will begin construction at Sampur in Trincomalee, in late 2012 and is expected to be commissioned in 2016, CEB chairman Wimaladharma Abeywickrama said.

Sri Lanka's power ministry secretary M M C Ferdinando said the plant would cost 500 million US dollars.

Each partner would put 15 percent of the cost - about 75 million US dollars - as equity and the balance would come from multilateral and bilateral lenders and commercial sources.

The shareholder agreement was inked Tuesday in Colombo. The plant is structured as a build operate own (BOO) project.

India's power secretary Uma Shankar said financial closure would be in achieved in the next few months.

India is also giving a 200 million dollars loan to Sri Lanka's government to cover CEB's equity, jetty construction to unload coal and interconnection to the national grid.

India's envoy to Colombo Alok Kantha said the joint venture company would be registered after the signing and the preliminary work will be wrapped up for remaining agreements to be signed early in October.
The power purchase agreement, an agreement with Sri Lanka's Board of Investment and an implementation agreement have been already negotiated, he said.

The power purchase agreement (PPA) is based on 80 percent availability (plant factor), Shankar said.

Ferdinando said about 65 percent of Sri Lanka's power comes from thermal and the rest from renewable sources, mainly large hydros.

Officials say the plant will try to reduce its environmental impact.

"Ambient temperature around the plant will be about two degrees higher," NTPC chairman Arup Roy Choudhury said.

"We will try to make it as environmentally friendly as possible."

Sri Lanka is now operating a 300MW coal plant on the west coast of the island with Chinese financing, which will be upgraded to 900MW.

sourced Lankabusinessonline

ArcelorMittal to shut down BF No1 at Eisenhuttenstadt

Tuesday, 06 Sep 2011

Reuters reported that ArcelorMittal will shut down a blast furnace at its plant in Eisenhüttenstadt in Germany in the next few weeks due to weaker steel demand.

It said that "Due to the current seasonal slowdown and some regional demand fluctuations in Europe, ArcelorMittal is optimizing production flows and aligning production capacities to seasonal demand. Consequently, the small BF No1 at ArcelorMittal Eisenhüttenstadt will be temporarily shut down until the demand situation supports a re start."

European steel makers produced high volumes of steel in the first half this year as a restocking cycle boosted demand, but as restocking came to an end the excess supply made steel prices fall. In order to support prices steel producers are now cutting their output.

Mr Jim Lennon head of commodities research at Macquarie said that "All leading indicators have definitely been suggesting slower growth in Europe and demand had to be cut in order to stabilize prices. We have seen pockets of weakness in Europe and steel makers have to respond by pulling supply out of the market to support prices."

According to data from the World Steel Association, steel production in Europe was at 14.579 million tonnes in July, down from 15.700 million in June.

Chinese and global steel production fell slightly from the previous month but remained near record levels in July, in what is usually a seasonally slower quarter and despite concerns that oversupply and the economic slowdown may weigh on prices.

(sourced from Reuters)

Pellet plants must for captive iron ore mines in Jharkhand

Tuesday, 06 Sep 2011

ET reported that Jharkhand has emerged as the first state to make it mandatory for companies with captive iron ore mines to set up pellet plants to utilize their increasing deposits of iron ore fines.

Availability of surplus iron ore in the state has also prompted the state's industry department to consider providing special incentives for industries to set up pellet plants.

Talking to ET, additional chief secretary (mines and geology) Mr AK Sarkar said it has formulated a policy that all captive iron ore mines will set up pellet plants to ensure the surplus deposit of fines are used in the interest of the state.

He said that "This way the environmentally hazardous fines will be used in the pellet plants and thus check pollution. At the same time, it will generate additional revenue and employment opportunities in the state.”

Mr Sarkar said that "Two companies Steel Authority of India and Usha Martin had been regularly seeking permission to dispose of their huge stocks of iron ore fines. While SAIL has generated a deposit of about 20 million tonnes of fines, Usha Martin has about 2 million tonnes. In view of their repeated requests, the state has decided to give them and all captive mine owners, a one time permission to sell their surplus stocks, but with certain conditions.”

He said that the government's move is likely to attract new investment in pellet plants. The industry secretary said while SAIL's Bokaro unit is in talks with POSCO for starting pelletization, Essar, Sesa Goa and Adhunik group have also shown interest in setting up pellet plants. Many other companies have also shown interest.”

He added that "Pelletization will check pollution and hence is more advantageous for the state.”

The blanket ban on sale of iron ore fines by captive iron ore mines in Jharkhand has resulted in some captive mines gathering huge stocks of fines.

(Sourced from ET)

Coking coal prices from Australia soften after large purchasers from Mongolia

Tuesday, 06 Sep 2011

ET reported that a cut in production by steel producers and higher purchases of coking coal by large countries, from Mongolia, has led to a softening of benchmark coal prices from the traditional coal producing country, Australia. The fall in coal prices will give steel companies, including those from India, a chance to recover lost margins after the sharp erosion in profits seen in previous quarters due to high iron ore and coal prices.

Prices of coking coal had surged to above USD 300 a tonne, from USD 200 in 2010, due to supply restrictions from Australia following flooding of mines and increased demand from China. With China now buying more coal from Mongolia, demand for Australian coal has fallen, leading to a softening in prices.

Mr Jayant Acharya, commercial director JSW Steel, said that "There is a pressure on Australia as large purchasers such as China and South Korea have started buying from alternate markets. Moreover, coal prices at USD 300 to USD 310 were too high for steel companies, who did not find it viable at that level."

China alone bought 35 million tonnes of coal from Australia in 2010. This year they have already bought 30 million tonnes from Mongolia, which is fast emerging as an alternate destination for critical resources. Even South Korea, that is home to large steel producers such as POSCO has been looking at Canada and the US for its coal supplies. Both iron ore and coking coal account for three fourths of the cost of production of steel.

Mr Jayant Acharya said that "There is a substantial drop in prices when compared to the peak levels of USD 330 or even USD 315 per tonne in the previous quarter. Since it is for hard coking coal which is the best grade, prices of other grades of coal too will be affected. However, at this stage, it is indicative of where prices could be headed. We will have to see whether other major mining companies also follow suit and lower prices."

International reports said Anglo American has settled October to December 2011 quarter for hard coking coal at USD 285 due to the downward price trend in the backdrop of weak global steel prices.

(Sourced from Economic Times)

Goldman Sachs is bullish on coal and iron ore

Tuesday, 06 Sep 2011

Goldman Sachs has lifted its price forecasts for iron ore and coking coal, Australia's two biggest exports, despite growing concern about the health of the global economy.

Goldman said that demand from China and other emerging markets was "holding up well", pointing to a bright outlook for the bulk commodities.

Analyst Mr Malcolm Southwood said that "This is important because, even with raw materials consumption in developed economies still below pre GFC levels, the growth in consumption in emerging markets means that for most major commodities new global records of offtake will be set this year.”

He added that "Commodities that are supply constrained should remain attractively priced and for some of them, further upside looks likely."

Rio Tinto this week predicted iron ore demand would outstrip the existing production of Australia and Brazil within eight years.

This, and expectations of continued high prices, has sparked a multi billion dollar ramp up of operations in Western Australia's Pilbara region by BHP Billiton, Rio and Fortescue Metals Group, driving up wages and other costs.

Miners last month noted cost inflation, but Mr Southwood said this raised the support levels for commodity prices.

Growing fears about Europe's debt crisis and the US economy, which shook stockmarkets last month, had prompted the US Federal Reserve to pledge to hold interest rates near zero and hint at more stimulus, he said.

(sourced from TheAustralian)

China to issue 2nd batch of coal export quotas for 2011

Tuesday, 06 Sep 2011

The National Development and Reform Commission will soon release the second batch of coal export quotas for 2011 totaling 20 million tonnes.

The coal exporting enterprises involved include China National Coal Group Corp., Shenhua Group Corporation Limited, China Coal Import & Export Group Co Ltd and China Minmetals Corporation.

(source steelhome)
China steel information centre and industry database

Chile government gives nod for five coal mines

Tuesday, 06 Sep 2011

Local media report the Chilean government has given approval for the first of five coal mines to be constructed at Isla Riesco, a coastal precinct almost at the most southern tip of the country.

The first mine, Mina Invierno, is part of a USD 500 million project underwritten by the Copec and Ultramar companies. The partners aim to eventually supply 30% of Chile’s coal requirements from the Isla Riesco Island project which has a life expectancy of more than 25 years.

Chile’s opposition has flagged that it intends to oppose the project on the grounds of environmental impact, particularly on vulnerable species like the huemul (species of deer), puma and condor.

(sourced from coalportal)

CIL bid to develop old coal mines delayed

Tuesday, 06 Sep 2011

ET reported that Coal India is considering switching to a global open tender mode for developing its abandoned mines, a development that could inordinately delay the project. CIL was hoping to float these joint ventures by the middle of 2010.

Coal India is seeking to develop some 18 old mines with a total reserve of 1.6 billion tonnes of high quality coking and thermal coal under joint venture arrangements with global underground mining companies.

It had sought preliminary expressions of interest and had short listed 10 companies. The short listed firms included ArcelorMittal India, Rio Tinto, Titan Mining Company, JSW Steel, JSW Energy, Monnet Ispat, Essar Mineral Reserves, SNT Mining and Sunflag Iron & Steel. CIL had received between six and 10 applications of interest for every mine offered under BCCL and CCL jurisdiction, while for ECL it was between 2 and 7.

But since CIL drew no response from them in the first round of tendering, it was forced to relax some conditions in the second phase, which is now under way. However, if this round also fails, the company may go for open global tendering, a process under which anybody can bid and there will not be any preliminary short listing.

A CIL was quoted as saying that "It has now been decided that if the second round of tendering also yields no result, open global tendering route will be resorted to.”

The manager said that "None of the interested parties responded to the notice inviting tenders for joint ventures. Rather, some of the parties gave some suggestions for softer tendering conditions. Those suggestions were examined and accepted to the extent possible. The second round of limited tendering is in process.”

The abandoned mines include 6 of Eastern Coalfields, 8 of Bharat Coking Coal and 4 of Central Coalfields mines.

(sourced from ET)

TNPL postpones bid opening until 12 Sept'2011

Tue,Sept06, 2011

TNPL has postponed submission of the offer until 12 September 2011 on request from the supplier, an Indian trader said.

Due to Ramadan holidays in Indonesia, Indonesia has closed for business almost one week since 26 August 2011 and re-opened today for business activities. Coal suppliers were faced difficulties to obtain the necessary supporting documents from their respective suppliers to fulfill TNPL's tender requirements.

Tamil Nadu Newsprint and Papers Limited (TNPL), is seeking to procure 240,000 MT +/- 5 percent of non-coking imported coal with gross calorific value (ADB) 6000 Kcal/Kg, on delivered at TNPL factory siding at Pugalur basis.

Total tendered quantity to be delivered in four shipments starting from October 2011 - February 2012. The price should be quoted on C&F Tuticorin basis inclusive of all port charges.

According to the tender terms, the quality of coal should be Gross Calorific Value (adb) 6000 Kcal/Kg basis and will be rejected if GCV is below 5600 kcal/kg. The Inherent Moisture (adb) of around 10 pct, Total Moisture (arb) 15 pct basis and above 23 pct will be rejected. The Ash content (adb) 8 pct max , Sulphur (ADB) 0.8pct max and Volatile Matter (adb) 25 to 45 pct and above 45 pct will be rejected.

Suppliers are requested to submit offers by September 12, 2011 instead of 5th September 2011.(cs)

If you believe an article violates your rights or the rights of others, please contact us.

sourced coalspot

Chinese imported iron ore stocks hit record in week to Sept 2

Tuesday, 06 Sep 2011

Reuters quoted according to data from industry consultancy Mysteel said that inventories of imported iron ore at major Chinese ports rose 0.5% to a record 95.59 million tonnes by the end of this week.

Inventories originating in Brazil fell slightly but that was offset by increases in deliveries from India and Australia.

Following is a table showing iron ore port stock movements in the last seven days.

Country of OriginStockpilesChange

In million tonnes

(Sourced from Reuters)

The case against Janardhan Reddy

Tue Sep 06 2011
Johnson T A

Bangalore: Between the financial year 2006-07 and 2010-11, the Andhra Pradesh-based Obulapuram Mining Company (OMC) of former Karnataka minister G Janardhan Reddy did not receive a single permit from the mining department in Karnataka to export iron ore.

Yet, data gathered by investigating agencies from 10 different ports in south India for the period shows that the OMC — with iron ore mining leases only in Andhra Pradesh — exported 71,61,455 MT of iron ore by claiming its point of origin as mines in Karnataka.

If there is one key fact nailing Reddy and his company in the CBI investigations, it is the disparity in the data for exports by the former minister’s company.

Much of the details of what is emerging as a widespread mafia-style iron ore smuggling business, spanning Andhra Pradesh and Karnataka, comes from the collation of information by investigating agencies as varied as the Karnataka Lokayukta, the Income Tax department and the Enforcement Directorate.

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Investigations by the Karnataka Lokayukta that resulted in a July 27 report have already highlighted the fact that OMC was being supplied iron ore by an elaborate network of front companies linked to Reddy and his associates involved in criminal smash and grab tactics in Karnataka. Lokayukta sources said the details of their investigation was provided to the CBI in an information sharing arrangement that is gradually unravelling the illegal mining mafia.

“The investigating team has reported that these export details requires further investigation. It has also stated that CBI is dealing with the matter in this regard and the said agency may take note of it,’’ the Karnataka Lokayukta report of July 27 had stated.

Lokayukta sources said Reddy finds himself at the centre of investigations along with B V Srinivasa Reddy, who is a partner and MD at OMC, on account of their day-to-day role in the activities of the company and as the brains behind it.

Others like Reddy’s brother, MLA Karunakara Reddy and their close associate B Sriramulu who resigned as an MLA on Sunday, played a less direct role but were direct beneficiaries of the illegal activities and could find themselves in the loop of investigations, sources said.

Apart from the fact that OMC exported iron ore obtained from unexplained sources the company is also accused of resorting to under invoicing during the course of their export activities between the years 2007-08 and 2008-09. The total loss to the national exchequer for the period from under invoicing has been put at Rs 215.12 crore by the Karnataka Lokayukta’s probe team.

Among other crucial findings that will have a bearing on the CBI probe in Andhra Pradesh into the mining business of Reddy and associates are the findings of the Income Tax department and Lokayukta on the activities of several benami companies linked to the Reddys.

One firm called Sri Bhakta Markandeshwara Minerals (SBMM) from Hospet in Bellary has a man called Kashi Vishwanath as its owner on paper. Investigations have shown that SBMM and at least two other similar benami companies are actually run by a man called Karapudi Mahesh who allegedly transports iron ore looted from mines in Bellary to ports around South India for export. Details from bank transactions and personal diaries of Karapudi Mahesh have revealed that he made regular payments under a “risk amount” column to a person identified in his diary as “G J Reddy Sir”.

In another illegal arrangement for obtaining iron ore, three companies, Devi Enterprises, Madhushree Enterprises and Sree Minerals, are alleged to have been floated as front companies of OMC. These companies were run by close associates of Reddy including OMC managing director B V Srinivas Reddy and Ali Khan, Reddy’s personal assistant.

These companies are alleged to have arm-twisted their way into legitimate mining areas, disputed mining sites, forest land or dormant mining sites and extracted iron ore for OMC’s supplies or export on their own. Payments made for the analysis of iron ore by Devi Enterprises and Madhushree Enterprises on behalf of OMC demonstrates that these companies were working as part of a mafia group, according to the Lokayukta report.

In 2009-10 alone, the illegal mining mafia from Bellary through its network of operatives and operations is alleged to have illegally exported a total quantity of 73,99,314 MT of iron ore from various port costing the exchequer an approximate loss of Rs 1849.82 crore at an average price of Rs 2500 per metric ton.

(By IndianExpress)

JSW Steel faces concerns over iron ore supplies

Lack of secure sources leaves steel maker exposed to the vagaries of volatility in commodity prices

Tuesday, Sept06, 2011
John Satish Kumar

Mumbai: Friday’s Supreme Court order allowing the auction of iron ore stockpiles in Karnataka provides JSW Steel Ltd some respite. The nation’s third largest producer of steel had just enough inventory to run its Vijayanagar plant for about 10 days.

Vice-chairman Sajjan Jindal​ will still be a worried man.

The Karnataka anti-graft watchdog’s report on illegal iron ore mining that forced B.S. Yeddyurappa to resign as chief minister accuses the company of avoiding hundreds of crores or rupees in state levies on the mineral.

Apart from this, following reports of largescale ecological damage because of illegal mining, the Supreme Court has halted iron ore mining in resource-rich Bellary, Tumkur and Chitradurga—from where JSW sourced nearly all of its iron ore to make steel. (On Monday, the Central Bureau of Investigation arrested mining baron and former Karnataka minister Gali Janardhan Reddy, also named in the Lokayukta’s report, on charges related to his mining operations that are headquartered in Bellary.)

The blows aren’t isolated events. They are a culmination of the company’s management waking up late to the reality of runaway commodity prices and its inability to extract captive mining concessions from a state in which it has invested billions over the past 17 years, say analysts.

An email sent to the company went unanswered and efforts to reach senior management proved futile.

Resource security

JSW’s 10 million tonnes per annum (mtpa) steel plant at the historic Vijayanagar town lies at the heart of the high-grade iron ore belt in the Bellary-Hospet region. It was set up there for its proximity to the resource.

But while geographical proximity can be a blessing for resource procurement, JSW hasn’t been able to win any mining leases in the region.

It only has a 10% iron ore security from its holding in Vijayanagar Minerals Pvt. Ltd, its joint venture with the Karnataka government-run Mysore Minerals Ltd. It has no local coking coal mines either; the fuel is used in furnaces to melt iron ore into steel.

“They really have no option but to depend on NMDC and the other suppliers,” said Rakesh Arora, managing director and head of research at Macquarie Capital Securities (India) Pvt. Ltd.

The Supreme Court has allowed state-run NMDC Ltd to continue mining in the region so local steel makers can keep their plants running, though the Lokayukta has named India’s largest iron ore producer as well in its report, accusing it of under-invoicing high-grade iron-ore exports.

“Given the location of their (JSW’s) plant, which isn’t close to any port, they don’t have the option of buying an overseas mine and importing the ore back in here,” Arora added. Vijayanagar’s closest ports are located 400km away in Goa.

The worries reflect in the stock’s performance. JSW shares have lost nearly half their value this year. On Monday, the shares inched up 0.72% to Rs. 725.80 while the benchmark Sensex on the Bombay Stock Exchange lost 0.64%.

The importance of having one’s own raw material assets needs to be seen in the context of iron ore prices. The price of spot iron ore in China has risen to $237 (Rs. 10, 878) a tonne from $74 in June 2006, when the data was first available on Bloomberg.

The worst is possibly yet to come. Australian miner Rio Tinto, the world’s second largest iron ore producer, estimates steel makers will need an additional 800 million tonnes (mt) of iron ore in the next eight years to meet demand, which would need a doubling of production.

India doesn’t lack deposits to feed its hungry steel industry. The country has about 25 billion tonnes of quality reserves, the sixth largest in the world, and is the fourth largest producer of the commodity, according to an Ernst and Young report.

But available mining leases are taken up by miners or some of the older steel makers while new investors like South Korea’s Posco and ArcelorMittal have been waiting for years for allotments. Stricter environmental and land acquisition laws also delay mine allotments.

Steel makers like JSW that don’t have secure sources leave themselves exposed to the vagaries of volatility in international prices. To be fair to the company, in the first decade of the Vijayanagar plant’s operation, iron ore prices were much lower, and while mining concessions were available, there wasn’t a compelling argument to secure backward linkages, say analysts in the company’s defence.

But JSW was slow to wake up to the reality of China’s mammoth steel making machine.

“Initially, iron ore wasn’t a high-priced commodity so no one was worried too much about availability in that area, which is why JSW Steel lost out on the opportunity in buying their own mines,” Arora said.

“Secondly, mining and environment legislation has become stricter, so obviously that is taking a toll on production. Given all these conditions, which were not anticipated earlier on and by the time they woke up to the reality of iron ore prices, nothing was available,” he added.

JSW’s loss, China’s gain

The spurt in ore prices has a lot to do with the emergence of China as the pre-eminent steel maker in the world. As the Asian giant’s hunger for steel grew, so did its need for iron ore. Steel production more than quadrupled to 626.65 mt in 2010 from 151.63 mt in 2001, and iron ore imports rose from 92 mt to 628 mt, show data from the World Steel Association and Metalytics.

Cashing in on the opportunity, miners in places like Bellary began exporting to China. Export mining contracts gained pre-eminence and local steel makers like JSW were caught off-guard.

Prices rose so sharply that negotiations for long-term contracts for the supply of iron ore, which were done annually the past four decades, are being done every quarter since 2010.

Integrated steel makers like Steel Authority of India Ltd and Tata Steel​ Ltd, by virtue of having been around much longer, are better placed as they secured their own mines when the country was still expanding at the Hindu rate of growth—a term coined by economist Raj Krishna referring to the Hindu philosophy of fatalism and contentedness as India’s socialist economy grew at 3.5% annually in the pre-liberalization years from the 1950s to the 1980s.

Having its own iron ore sources in Jharkhand and Orissa hasn’t stopped Tata Steel from looking for raw materials in Australia, Mozambique, Ivory Coast and Oman to feed its European furnaces. Essar Steel Ltd and Jindal Steel​ and Power Ltd (JSPL), peers of the the same vintage, too began their quest to control inputs.

In fact, Sajjan Jindal needn’t look far for a successful strategy on backward integration. JSPL, headed by younger sibling Naveen Jindal, is clear that its growth can only be based on the security of its resource pool. JSPL has 200 mt of secure iron ore reserves in Tensa, Jiraldaburu and Bailadila on the country’s east. Naveen Jindal has also acquired an iron ore mine in faraway Bolivia with reserves of 20 billion tonnes. Many of these were done when mining concessions were available cheaply locally.

The older Jindal admitted to Forbes magazine in an October 2009 cover story on Naveen Jindal that his own focus on building new capacity than on securing mining concessions proved to be a mistake. “I missed out,” he had said. “Now, we’re buying more resources.”

JSW got into the game only in 2008, when it acquired a 70% interest in Chile’s Santa Fe Mining, which started iron ore mining at Bella Vista in April 2011. It expects an output of 1 mt this fiscal, which will be sold in the global market. Plans are on to increase output to 3 mt in three years.

Some analysts say a lack of backward integration doesn’t necessarily mean steel makers got their models wrong.

“Structurally, the industry has become more volatile and that’s where producers realize that if I backward integrate, then my price is also protected,” said Hiran Bhadra, partner, management consulting, at KPMG. “There are companies like Tata Steel, who for legacy reasons have got iron ore mines, are suddenly waking up today to find that it’s providing a price advantage particularly against very high volatility. But that’s not necessarily the model everyone needs to follow.”

Missed chances

Sajjan Jindal missed an opportunity to secure an iron ore source when Japan’s Mitsui and Co. put Indian miner Sesa Goa​ Ltd on the block in 2007, losing the bid to Vedanta Resources Plc.

With captive mines in Goa and Karnataka, Sesa Goa could have fit JSW’s strategy. Sesa Goa too is named in the Lokayukta’s report.

In 2010, JSW acquired coking coal blocks in West Virginia, US with estimated reserves of 161 mt, of which one is operational. In 2006, it acquired a coal block in Mozambique with estimated reserves of 200 mt. But after initial exploration and drilling, it was discovered that the block had thermal and not coking coal. Subsequent plans to transfer the resource to sister company JSW Energy Ltd are in cold storage, according to media reports.

In another deal gone wrong for the group, eight months after JSW Energy signed a agreement with Toronto-listed resources company CIC Energy Corp., the $439 million acquisition was called off in June after twice extending the deadline. JSW Energy also called off a plan to expand power production capacity at a plant in Ratnagiri to 3,200MW from 1,200MW earlier this year due to its dependence on imported coal.

“A deal being called off shouldn’t necessarily be seen in negative light as there are a number of challenges in resource deals, the biggest being local legislation, which could be a constraint,” said Kameswara Rao, partner at consultancy PricewaterhouseCoopers.

These issues are perhaps symptomatic of the group’s troubles with backward integration, though it has focused on adding capacity and improving efficiencies, making it one of the lowest-cost steel producers globally.

In December, JSW Steel acquired a 41.29% stake in debt-ridden Ispat Industries Ltd for Rs. 2,157 crore, making it among India’s largest producers of the metal by capacity.

Future needs

JSW Steel aims to produce 34 mtpa of the metal by 2020, up from its present capacity of 14.3 mtpa, which will require about 55 mt of iron ore a year.

“They need to stop expansion just for the sake of adding capacity unless they’re able to secure raw material. Otherwise they should go for port-based plants so it gives them an option for bringing in raw materials from outside India,” said Arora.

Not all of the proposed expansion will be at JSW’s Vijayanagar plant. The company has signed pacts with the governments of Jharkhand and West Bengal to set up 10 mtpa plants. In West Bengal, the company has assurance of coal supply from the government; in Jharkhand, it has a prospecting licence for an iron ore deposit in Ankua, apart from a joint venture for a coal block.

Group chief financial officer and joint managing director Seshagiri Rao told Mint in an interview in June that JSW Steel had formed a seven-member team to acquire iron ore and coal mines as it aims to gain iron ore security in five years.

But with global mining giants controlling most of the available assets overseas and delays associated with procuring local mines, JSW Steel may be in for a tough hunt. (By Livemint)

974 power firms line up for coal supply in India


The coal ministry has received applications for long term coal linkage from central and state utilities, independent power producers and captive power producers for 974 power projects with a generation capacity of over 596,000 MW as on July 31.

Of the 974 applications, 107 are from central and state utilities for capacity addition of 122,405 MW, 434 applications from CPPs for 37,345.79 MW and 433 from IPPs for a record 425,836.5 MW capacity addition. The installed capacity of these power projects vary from 10 MW to 5,280 MW.

A coal ministry official said that "Some of the applications had already been considered in the past by the standing linkage committee (long term) but deferred the decision due to various reasons. These applications will be taken up in due course to provide long-term coal linkage for the upcoming power projects."

The official said the standing linkage committee (long term) would take up the proposals wherein the applicant had changed the category from CPP to IPP or enhanced or reduced the generation capacity or modified configuration.

According to the official, adequate reserves coal reserves upto 1,200 metres deep have been estimated at 277 billion tonnes as on April 1st 2010 and lignite reserves have been estimated at 39.07 billion tonnes as on March 31st 2009. Of the 277 billion tonne, 110 billion tonnes of coal reserves have already been identified, 130.65 billion tonnes are indicated and 35.6 billion tonnes inferred.

The power ministry official said it had been pursuing with the coal ministry for an early clearances for both short and long term coal linkages.

(sourced BS)

Iron ore price negotiations - Miners see steady prices in Q4


Reuters calculations showed that global miners are likely to keep iron ore contract prices steady in the fourth quarter, with spot prices stabilizing on firm Chinese demand and tight supplies,.

Based on Platts index prices IODBZ00-PLT for June to August, which top iron ore miners such as Vale and Rio Tinto use in fixing fourth quarter contract prices, the 62% grade averaged USD 175.63 a tonne, cost and freight, down marginally from USD 176.96 in March to May, the basis for third quarter pricing.

Contract prices jumped 20% to a record USD 179.24 in the second quarter, based on Platts index prices for December to February, as booming demand from top consumer China helped spot prices surge to a record of nearly USD 200 a tonne in mid February.

Platts based spot prices averaged USD 179 in August, up from USD 175.26 in July, amid weakness in other commodity markets fuelled by worries over a struggling US economy and a crippling debt crisis in Europe.

Mr Stella Wu iron ore manager at the Steel Index said that "Despite a depressed global economy, iron ore prices showed extreme resilience throughout August.”

Mr Wu said that "The monsoon hitting the east coast of India, as well as ongoing problems in Karnataka and shortages of domestic Chinese iron ore concentrate, have all contributed to extremely tight supply at a time when mills are looking to make bookings.”

India, the world's No. 3 iron ore exporter, sells the bulk of its cargoes via the spot market and fewer shipments from there meant more business for the top two suppliers, Australia and Brazil, even though miners from both countries sell most of their output via long term contracts, traders said.

While many expect prices to continue rising as purchases from China pick up going into the peak season, a trader in Sydney said he had yet to see any uptick in demand, suggesting price gains will be limited during the final third of this quarter.

(Sourced from Reuters)

China COSCO not in formal talks with Vale over mega bulk ship sale-official

Tue Sep 6, 2011

SINGAPORE, Sept 6 (Reuters) - China's COSCO Group, the country's top shipping conglomerate, was not holding talks with Vale over the sale of the Brazilian miner's mega dry bulk carriers, a COSCO official told Reuters on Tuesday.

"I never heard about this. I don't think the COSCO head office has had any official talks with Vale in the form of meetings or teleconference as far as I know," said the COSCO official, who wished not to be named because he is not authorized to speak to the media on the subject.

A Vale official told Reuters on Monday the mining giant was in talks with Chinese and other shipowners to sell or lease its planned fleet of giant bulk carriers.

COSCO Chairman Wei Jiafu told Reuters last November that it was not interested when initially approached by Vale to be a partner in the project.

Indonesian Coal Benchmark price- Analysis

Monday, 05 September 11

Analyst : Sunil K Kumbhat - As a part of the Government’s efforts to stop transfer pricing abuses which have resulted in the loss of production royalties in recent years Govt of Indonesia issued Regulation No.17 of 2010 entitled "Procedures to Determine the Benchmark Price for Mineral and Coal Sales" .

Apart from setting out the procedures to determine the benchmark price for the sale of coal and minerals, Regulation imposes other obligations on mineral and coal producers (that is, the holders of Production Operation IUPs and IUPKs) when making sales.This move has been seen as important as the benchmark Coal price is expected to provide optimum price and help goverment in calculating potential State Revenue. The new regulations will allow the Indonesian government to get the right amount of royalty , and the taxable revenues from the sector will also move up to the correct levels. It will also stop the practice of transfer pricing. The government has put in a strong framework.

The following are some key points highlights the provisions of regulation and the likely impact it will have on mine owners, including on their sales activities, royalty calculations and administrative obligations:

Obligation to follow benchmark price
Regulation provides that mineral and coal producers are obliged to sell minerals and coal based on a regulated benchmark price, whether for domestic or export sales.

The benchmark pricing obligation applies to all minerals and coal sales to third parties, including to any affiliate of the mineral and coal producer (which includes any party that has direct ownership in the holder of a Production Operation IUP or a Production Operation IUPK as well as any party that may indirectly influence the decision-making of such holders).

Determination of benchmark price
Regulation provides that the benchmark price for minerals and coal will be determined by the Director General of Minerals and Coal (DGMC) . The benchmark price for non-metallic minerals and rocks will be determined by either the Governor or the Regent/Mayor, as appropriate.

Different methods will be used to determine the benchmark price for different commodities. For metallic minerals, the DGMC will determine the benchmark price for each metallic mineral monthly using a formula that refers to international market prices. For coal, the DGMC will determine separate benchmark prices for metallurgical coal, thermal coal and low rank coal monthly.No formal definition of low rank coal exists , however in the past ;MEMR has referred to low rank coal as any coal with gross calorific value( ADB Basis) of less than 5100 kca/kg. The benchmark price for metallurgical and thermal coal will use a formula that refers to the average coal prices based on local and international market indices.As a system government will determine Coal Price Reference (Harga Batubara Acuan or HPA) by averaging the calorie value of coal in four coal price indexes, namely :

1.Newcastle Coal Index,
2.Global Coal Index,
3.Platts and
4.Indonesia Coal Index (ICI).

The first two indexes represented international price, while the last two indexes represent local coal prices. Each coal category has a weight of 25 percent. The coal category will divided based on coal quality, which is set at 6,322 kcal/kg (arb), moisture content at 8 percent (arb), sulfur content of 0.8 percent (arb), and ash content at 15 percent (arb).

After determining the Coal Price Reference (HBA), the benchmark coal price (HPB) is then determined. There will be 8 benchmark prices category, representing the quality of the coal, starting from 4,200 up to 7,000 kcal/kg.

For that price of coal other than 8 classes of HPB, prices are determined by interpolation approaches or determining HPB based on a certain formula.

Sales of minerals and coal
The benchmark price is set on the basis of the price paid for Coal at the point of Sale by way of FOB Vessel. Sales of metals, ore, concentrate or other intermediary products can be made :

1.Free on Board (FOB) mother vessel or
2.FOB barge basis.
3.Sales can also be made to end users domestically or in the form of Cost Insurance Freight (CIF) or
4.Cost and Freight (C&F).

In calculating the sales price for FOB mother vessel sales for royalty payment purposes, holders of Production Operation IUPs for metallic minerals must refer to the benchmark price. For sales that are not made FOB mother vessel basis (including FOB barge sales), the benchmark price may be adjusted by adding or subtracting an amount based on certain recognised costs approved by the DGMC.

While the principle of deducting certain costs from the benchmark price for the purpose of royalty calculations would appear to be reasonable, Regulation leaves open the possibility that there may be costs that could adjust the benchmark price by being added to, rather than being subtracted from, the benchmark price. The circumstances under which costs would be added to the benchmark price are not yet regulated.

Adjustments can include costs incurred for barging, survey, trans-shipment, treatment as well as refinery and/or metal payable and/or insurance costs. For coal, sales are contemplated in the form of FOB mother vessel, FOB barge, within an island to an end user or on a CIF or CF basis. In calculating the sales price, holders of Production Operation IUPs for coal to be sold FOB mother vessel must refer to the benchmark price. Again, for non-FOB mother vessel sales (including FOB barge sales), certain costs may be added or subtracted as approved by the DGMC.

Under the new sales price regime for coal, the production royalty for FOB mother vessel sales will effectively also be imposed on barge transportation and trans-shipment costs (as well as survey and insurance costs), which are not able to be subtracted from the selling price.

Accordingly, all royalties for FOB mother vessel sales are now assessed on the full delivered cost FOB mother vessel without adjustment for costs. Regulation provides that further details on the procedures to determine the amount of “adjustment costs” will be set out by the DGMC in a separate DGMC regulation.

Benchmark Price for calculation of royalties
For royalty calculations, regulation provides that for minerals and coal sales made FOB mother vessel basis, the Government will take the higher of the contractually-agreed price or the benchmark price. On the other hand, for non-FOB mother vessel sales such as mineral or coal sales by way of FOB barge, the production royalties will be calculated using:

• (a) the contracted sales price, if the contracted sales price is higher than the benchmark price, after adding or subtracting the adjustment amount (adjusted benchmark price); or
• (b) the adjusted benchmark price, if the sales price is the same as or lower than the adjusted benchmark price.

Post sales Reporting
Coal producers are required to submit post-sales reports on the sales of their mineral and coal commodities every month, together with supporting information including invoices and bills of lading,quality reports and barging Costs as well as export declarations and surveyor reports for exported commodities. This new reporting obligations will add significant administrative burdens to mining companies.

Sale of coal for certain purposes
Coal of certain types (including fine coal, reject coal and coal with certain impurities) for domestic use may be sold below the coal benchmark price, upon approval of the Govt (DGMC) which will issue separate regulations regarding what types of coal will fall within this exception.

Similarly, coal to be used for certain purposes in the domestic market may be sold below the coal benchmark price, upon approval of the Govt.

The Govt will issue further regulations on the purposes that will be exempted. Regulation indicates that coal used for individual needs or for the development of underdeveloped or poorly developed regions will be exempted from the benchmark pricing requirements.

Impact on existing coal and/or mineral sales contracts

All existing supply contracts ( Both Spot and term Contracts) with Indonesian mining firms will have to be brought in line with this new benchmark regulations by 22nd September 2011. Spot sale contracts must be adjusted by no later than six months after the effective date of Regulation No. 17 (that is, by 22 March 2011).

Term sales contracts must be adjusted by no later than 12 months after the effective date of Regulation No. 17 (that is, by 22 September 2011).

Regulation provides that the Government can impose a range of administrative penalties on mineral and coal producers who fail to comply with the provisions of Regulation.

Penalties range from written warnings, temporary suspension of sales, and ultimately, cancellation of the licences’. Due to the severity of such sanctions, mining companies will need to pay particular notice to the requirement of this new regulation.

Indian Impact
For India, the situation will be aggravated by stagnation in domestic production even as demand has increased. With up to 100,000 MW of capacity addition likely in the 12 th plan period starting next year, more coal-based projects may need to scout overseas for fuel.

Three to five years back, domestic coal production was able to keep pace with the demand from power producers. However in 2010, domestic production has remained at a flat level, while there has been a sudden increase in demand from Indian power companies.

With a substantial part of its imported coal requirement already coming from Indonesia, India’s appetite is expected to grow further. India's coal imports from Indonesia are rising every year. In 2010, it overtook Japan to become the second largest importer of Indonesian coal after China. It is expected that India may become the biggest importer of Indonesian coal in 2012.

The regulation is likely to increase the price of coal mainly for all Indian Power Projects using imported coal from Indonesia. The impact on the tariff of such projects may vary, depending upon the quality of imported coal and fuel mix. All existing supply agreements with Indonesian mining firms will have to be brought in line with this new benchmark by 22nd September 2011. The implementation of this new regulation will adversely impact all existing and future Coal based power plants importing Coal from Indonesia.The new regulations will allow the Indonesian government to get the right amount of royalty , and the taxable revenues from the sector will also move up to the correct levels. It will also stop the practice of transfer pricing. The government has put in a strong framework.

Given the long-term demand fundamentals, current high coal price scenario may continue to squeeze margins (of Indian power producers). This may well be the end of the road for cheap Indonesian coal.

Whilst the intention behind the minimum pricing regulation is to stop transfer pricing abuses which according to Govt, have plagued the Indonesian mining industry( particularly the Coal mining Industry) over recent years, the question is whether this intention has been implemented in a way which is inconsistent with genuine , arms -length commercial practices which exist in the market. (updated on 5 Sept 2011)
Analyst By : Sunil K Kumbhat

The views and opinions / conclusion expressed on this analysis is purely the writers’ own

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