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February 28, 2013

#Gold Miners Come Clean on Costs After Lost 6 Years: Commodi

pledging to report costs more accurately as part of its efforts to win back investor confidence.

Gold Miners Come Clean on Costs After Lost 6 Years: Commodities
2013-02-27 03:31:52.849 GMT

By Liezel Hill
Feb. 27 (Bloomberg) -- The gold-mining industry, which has underperformed the precious metal for each of the past six years, is pledging to report costs more accurately as part of its efforts to win back investor confidence.
Barrick Gold Corp. and Goldcorp Inc., the two biggest producers by market value, have begun reporting "all-in sustaining costs" for the first time. The new measure averaged
$941 an ounce between the two companies in the fourth quarter.
That's 50 percent higher than the $626 average so-called cash cost they disclosed in the preceding three months.
The largest gold companies are seeking to lure investors back to the $300 billion industry after a string of money-losing multibillion-dollar takeovers and over-budget projects. Barrick and its competitors are vowing to focus on margins and to get a grip on soaring production costs, rather than boosting output.
Gold producers "have really done themselves a huge disservice by effectively walking around for the last 12 years promoting the gross margin as opposed to the net or the operating margin," said Joseph Wickwire, the Boston-based manager of Fidelity Investments' $2.9 billion Select Gold Portfolio fund. "The managements and the boards of the gold companies really have no one to blame but themselves for some of the negative sentiment and disappointment."
Earnings statements had previously carried so-called cash costs, based on a standard developed in the 1990s that excludes expenses such as exploration and waste-rock removal.

Margin Compression

The 55-member S&P/TSX Global Gold Sector Index trailed gold each year in 2007 through 2012. The index declined 6.9 percent during that period while gold futures more than doubled in New York. Gold traded at $1,612.20 an ounce at 12:27 p.m. in Tokyo.
Gold has advanced for 12 successive years, driven at least in part by demand from investors looking for a store of wealth amid concern about inflation. Despite benefiting from that rally, gold producers' margins have come under pressure from rising prices for labor, equipment and raw materials.
The average cash cost of 10 of the biggest gold miners was
$694 an ounce in the third quarter, 49 percent higher than in the same period two years earlier, according to data compiled by Bloomberg. The average gold price rose 35 percent in the same comparison.
"Everyone was trying to run through the funnel of building these new projects as big as you can, as fast as you can,"
Kinross Gold Corp. Chief Executive Officer J. Paul Rollinson said in an interview Feb. 13. "There was huge competition for people, competition for steel, competition for tires and spare parts."

Ballooning Budget

Barrick's gross margin, expressed as a proportion of sales, was 47 percent in 2012, while its operating margin was 39 percent, according to data compiled by Bloomberg.
"The costs of running this business are higher than it looks and that's how we need to manage this business going forward," Barrick CEO Jamie Sokalsky said at a Jan. 29 conference in Toronto.
Sokalsky has been expounding his strategy since taking charge in June, when Barrick fired his predecessor Aaron Regent, citing a disappointing share-price performance. The Toronto- based company saw the cost estimate for its Pascua-Lama mine balloon to as much as $8.5 billion in 2012, from as much as $3.6 billion in 2011.

Fired CEOs

Regent was among at least six CEOs of North American gold producers to either announce their departure or be fired in the past year. Kinross, which fired Rollinson's predecessor Tye Burt in August, has taken more than $5.5 billion of writedowns on Mauritanian assets the Canadian company acquired as part of its
C$8 billion ($7.8 billion) takeover of Red Back Mining Inc. in 2010.
As gold miners pursued additional ounces at the expense of profit margins, investors instead plowed billions of dollars into gold-backed exchange traded funds. The weight of gold behind those ETFs, which include the $64.9 billion SPDR Gold Trust, has quadrupled to 2,530 tons since the start of 2007, according to data compiled by Bloomberg.
The boom in ETFs may now be at an end, with physical holdings poised for the biggest monthly decline since 2008. The gold cycle has probably turned as the recovery in the U.S.
economy gathers momentum and investment holdings shrink, Goldman Sachs Group Inc. said in a Feb. 25 report. Still, it's not yet clear whether gold miners will benefit from the change in sentiment.

Predictability, Rigor

"I don't think the industry has done anything to persuade some of those investors that hold, for example, gold ETFs to buy gold shares instead," said Neil Gregson, who manages about $5 billion in natural resources equities at JPMorgan Asset Management in London. "Our allocation to gold equities is now down to 20 percent, which is the lowest we've been certainly since I've been here in the last 2 1/2 years."
To be sure, while the gold industry has traditionally emphasized cash-cost figures, the other components of all-in costs were available in financial reports, Gregson said. Gold companies have diverged since the 1990s in terms of which cost items they included, Goldcorp CEO Chuck Jeannes said in a Feb.
25 interview.
"What we are trying to do is bring back some predictability and rigor," he said.
There's still no universal agreement on the new all-in costs. Members of the World Gold Council, a London-based industry group, are working on issues such as how to treat byproduct revenue, interest expenses and profits on energy hedges, said Agnico-Eagle Mines Ltd. CEO Sean Boyd.

More Realism

Mining companies are hoping that it's governments and not just investors who pay attention to the new all-in costs, Gold Fields Ltd. CEO Nick Holland said in a Feb. 4 interview. Gold more than quadrupled in the last 10 years and reached a record
$1,923.70 an ounce in September 2011, encouraging some countries to seek a greater share of profits.
The Dominican Republic's congress said last month it will review and may change a contract with Barrick over the development of a $4 billion mine. Burkina Faso is among countries that have amended royalty and tax regimes.
"It could be positive for getting more realism into governments about how much tax they really should be levying on us," Holland said. "There's not the super profits that you'd have them believe you're making."

For Related News and Information:
Barrick news: ABX CN <Equity> CN <GO>
Top commodity news: CTOP <GO>
Bloomberg Industries precious metals analysis: BI PMETG <GO> Top metals stories: METT <GO>

--With assistance from Paul Burkhardt in Johannesburg. Editors:
Simon Casey, Todd White, Steven Frank

To contact the reporter on this story:
Liezel Hill in Toronto at +1-416-203-5727 or

To contact the editor responsible for this story:
Simon Casey at +1-212-617-3143 or

February 27, 2013

Silverfinger - How Nelson Bunker Hunt tried to corner the #Silver market



By HARRY HURT III September Issue 1980 Playboy

IN THE SUMMER of 1979, an invisible hand reached out from an island in the Atlantic and quietly began tightening its grip on the world's supply of silver. The fingers of that hand extended to London, New York, Dallas, Zurich and Jidda. But the only visible clue to its existence was a newly formed Bermuda shell corporation called International Metals Investment Company Ltd. That dull sounding little trading company was not just another offshore tax scam but the operating front for a secret partnership seemingly capable of controlling the world price and supply of silver.

Appropriately enough, two of the principals in that cosmic alliance were Saudi Arabian businessmen with connections to the Saudi royal family. But another principal, the real genius behind the deal, was an American oil billionaire, the head of a clan sometimes referred to as "the royal family of Texas." Though not quite as rich as the Saudi royalty, this man was one of the few private individuals in the world capable of playing in the same league. A lover of intrigue, in the past he had made international headlines with his mysterious wheeling and dealing. Before long, he would again blaze across the front pages. But for the time being, he remained in the shadows, operating behind the corporate veil of International Metals. His name: Nelson Bunker Hunt. 

February 25, 2013

Has the (Anti-) #Gold Rush Begun?

Options investors are betting they can profit from falling gold prices with bearish puts

Has the (Anti-) Gold Rush Begun?



Options investors are betting they can profit from falling gold prices with bearish puts.

Gold bugs beware.

Investors are assiduously positioning deep in the options market for gold to edge lower even after last week's decline of almost 4%.

Investors are buying bearish puts and selling upside calls as the SPDR Gold Trust pauses after last week's sell off.

With the SPDR Gold Trust (ticker: GLD) at $155, investors are amassing positions that would increase in value if the exchange-traded fund dipped as low as $151 during the next three weeks.

A four-point decline is admittedly not apocalyptic, but it reveals shifting sentiment on an asset that has sustained legions of people since the credit crisis weakened trust in the integrity of the world's financial markets and systems.

The typical trade in recent years has been to buy the gold ETF as well as coins, while using options to buy more gold should the price decline, or to speculate that gold's price will keep rising.

Now investors are playing defense, betting on gold's decline. Options that expire on March 1 and March 15 are attracting most of the action. Particularly active: Puts that increase in value if the fund drops below $151 or $152. So are $157 calls that appear to have been sold in anticipation the fund's price remains under pressure.

Trading volumes are not large enough to make a definitive statement, but they are significant enough to telegraph a message of caution. Some trades total 1,000 contracts, which equals 100,000 shares of the gold ETF.

A look at gold's one- and six-month chart shows prices in an unmistakable decline. The SPDR Gold Trust is down 5% in the past month, compared with a 2.5% total return gain for the Standard & Poor's 500 Index.

Investors who want to speculate on gold's demise, or hedge their own gold investments, can consider the March $151 puts that expire March 15. The puts recently traded at 86 cents. The expiration was chosen on the assumption that some investors may soon panic out of gold if the price continues to decline. If that happens, the value of the puts will increase in value. If the SPDR Gold Trust falls to $148, taking out the 52-week low of $148.53, the March $151 puts would be $3.

The put's return profile is attractive, but do not be blinded by the potential profit. The trade is based on crowd sentiment and a review of recent fund performance. Those are legitimate reasons to initiate a position, but such trades are animal spirits trades. You are banking the crowd panics and hits the eject button. This is a lot different than trading off fundamentals or events, so babysit the long puts and take profits when you can, lest the crowd suddenly zigs rather than zags.

Steven Sears is the author of The Indomitable Investor: Why a Few Succeed in the Stock Market When Everyone Else Fails.

February 22, 2013

Billionaires Buy #Prokhorov’s #Polyus Stake for $3.62 Billion - Bloomberg

Zelimkhan Mutsoev, a shareholder in potash producer OAO Uralkali, purchased 18.5 percent for $1.77 billion and Gavriil Yushvaev, the former owner of dairy and juice maker Wimm-Bill- Dann, acquired 19.3 percent for $1.85 billion, according to a statement today from Prokhorov’s holding company Onexim Group.
The buyers were proposed by billionaire Suleiman Kerimov’s Nafta Moskva investment firm, controlling 40 percent of Polyus, three people with knowledge of discussions said in January. They funded the deal with loans from state-run VTB Group, the people said, asking not to be identified as the matter was private.
The MasterMetals Blog

Shopping for stocks at #PDAC2013

Five investor tips to make the most of three and a half days at #PDAC2013


Shopping for stocks at PDAC

Five investor tips to make the most of three and a half days

By: Alisha Hiyate2013-02-21

With junior miners continuing to struggle with financing, many market watchers have concluded that it’s a buyer’s market — if only investors can distinguish the quality companies from the ones that won’t last another year or two.
(See: Turnaround coming in markets and M&A wave to hit juniors this year )
“This industry needs to shrink by two-thirds in the next couple of years and come out leaner, cleaner and meaner,” says Mickey Fulp of the Mercenary Geologist newsletter. “This is Darwinism right now — survival of the fittest, and the fittest will survive because the world needs metals.”
The upcoming Prospectors and Developers Association of Canada (PDAC) convention in Toronto, therefore, offers investors an excellent opportunity to sift through the rubble of the TSX Venture Exchange — which has fallen 32% over the past 52 weeks — and home in on the bargains.
Just how does one do that at PDAC, which takes place from March 3-6 at the Metro Toronto Convention Centre, and last year attracted a record 30,369 attendees?
Mining Markets asked several PDAC experts to find out how investors can make the most out of PDAC.

1: Don’t pay for what you don’t need

PDAC has always been about juniors raising money to fund their work programs, and retail investors are an important part of the investor audience the association wishes to attract on behalf of PDAC member companies.
Although registration fees at PDAC can be steep, the majority of sessions that are most valuable to investors are absolutely free.
Fully one quarter of PDAC attendees register for a free Investors Exchange Only pass. That grants access to most of the attractions from an investor point of view, including the Investors Exchange, which houses booths of companies of all sizes; corporate presentations; and advice and market insight in the form of newsletter writer presentations. Investors also have access to the Core Shack, Innovation Forum, Prospectors Tent and some components of other programs, including the Aboriginal Program and all of the CSR Event Series sessions.
The main things investor-class attendees don't have access to are the technical sessions, which are geared toward professionals, and the trade show, where suppliers' and country booths are located.
While that means missing the very valuable Commodities and Market Outlook session (part of the “technical session”) that happens on Sunday afternoon, you can always get the short version in The Northern Miner or other media coverage.
(One option for full free access to the show is to volunteer at PDAC, however volunteer positions, which are popular with geoscience students, have all been filled for this year  .)

2: Plan ahead

While PDAC is a great place to meet and quiz the management of the companies you're interested in, you have to find them in the investors exchange first. If you've never been before, the huge and crowded show floor of more than 580 company booths can be tough to navigate, says Peter Bojtos, a geologist and mining engineer who also organizes the convention’s newsletter writers forum (see “educational opportunities” below).
“It’s overwhelming when you get in that room,” says Bojtos, a geologist and mining engineer whose first PDAC was in 1976. “You really don’t know what to focus on, there’s just so much information — and that’s us who are insiders in the business, we have a tough time.”
Research the companies you’re interested in ahead of time, and highlight their booth numbers and locations on a printout of the floor plan (available here). Consider planning a systematic route up and down the aisles, Bojtos says, because you can lose your way and get sidetracked very easily in the crowd.
Last year, the PDAC introduced “mobi,” a new smart phone mobile convention guide or to help attendees navigate and plan their time at the show. PDAC’s chief operations officer, Lisa McDonald, says that downloaded to your smart phone ahead of time, mobi can be used to book meetings, build a schedule, and search for exhibitors. Free Wi-Fi Internet connection is available in the hallways outside of rooms on Levels 700 and 800, on Level 600, and on the mezzanine level.
Note that some investors exchange exhibitors may be at the show for only two days (“Session A:” Sunday and Monday, or “Session B:” Tuesday and Wednesday) instead of the full show. All core shack exhibitors are two days only.
Mercenary Geologist Mickey Fulp recommends also picking up your badge ahead of time if you want to avoid the long lineups at registration. Registration is open on Saturday, the day before the convention starts, from 7 a.m. to 6 p.m. on level 600.

3: Remember the basics

You may hear some juicy rumours or come across a hot stock tip at PDAC, but that's not a sound basis for investing in a junior mining company, says Bojtos, an industry veteran who has served as an independent director on the boards of many juniors.
“You really should understand the asset a little bit. Anything in the mining business is going to need to be a longer-term investment, so don’t buy on short-term, knee-jerk reactions.”
There are bargains to be had in the sector, but the trick is to distinguish between companies that are truly undervalued and those that have no value and will end up going bankrupt — especially in an environment where investors are likely to hear sales pitch after sales pitch.
“I think you've gotta take the pitch with a grain of salt and remember that these are all promoters and everyone has a story and probably only about 10% of those stories will work out,” Fulp says. “So look people in the eye, if you're a good judge of character you can kind of tell when you're being b.s.'d.”
Fulp advises investors to stick with companies that have enough money to last for the next year. “Financing is very difficult right now and I don’t think it’s going to get any better,” he says.
In that vein, beware of juniors involved in small, low-priced private-placement financings — less than $1 million at a price of a nickel or dime, Fulp says.
“Oftentimes, those are companies raising money to pay the rent and do their filing fees and pay some salaries, and they're on their way out.”
Fulp’s own approach starts with identifying commodities with price stability or the potential for rising prices, then looking for companies with the right share structure, people and projects.
Roughly 100 promising exploration and development companies are invited by the PDAC convention planning committee to make corporate presentations geared towards investors. The presentations run on Monday and Tuesday every 15 minutes from 10 a.m. to 5 p.m. Check the schedule here.

4: Make use of educational opportunities

PDAC isn’t just a chance to shop around for companies; it’s also a chance to shop around for advice.
For most investors, the newsletter writer presentations are the biggest draw at PDAC — a chance to get both big picture views of the market and the lowdown on specific stocks.
The newsletter writers that present at PDAC are invited to do so for a reason. Bojtos, the session’s organizer, weighs a number of factors when putting together his wish list of speakers. Popularity is a big factor in choosing speakers to invite (Rick Rule of Sprott Global Resource Investments draws the biggest crowd), but so are credibility and credentials and how topical the speaker is. Bojtos also tries to ensure a spread of commodities is covered, and that the speakers offer a mixture of approaches and areas of specialty (some are chartists whereas others talk about currency, for example) with representation from Canada, the U.S. and Europe.
“I try to make sure that there are a lot of newsletter writers who actually go on the properties — after all it is the PDAC. I want speakers who have actually seen the assets and know what they’re talking about,” he says, noting that Mickey Fulp and Brent Cook of Exploration Insights are two such speakers that are also very popular. “A lot of the listeners are technically competent people so I want technically competent speakers.”
This year, there are 19 newsletter writers speaking. Unlike other conferences, newsletter writers are not paid for their appearances at PDAC, which Bojtos notes is a volunteer organization.
Both Fulp and Bojtos note that the speakers welcome audience questions and are happy to talk after their presentations.
For investors who are looking for an in-depth introduction to valuation of juniors, the PDAC's Investment Fundamentals short course for investors is held every year on the Saturday before the show opens.
PDAC’s McDonald says the course is a great opportunity for investors to prepare for the investors exchange.
“It’ll really boost their ability to get the most out of their conversations with the companies that either they’re already investing with or to look at some new opportunities,” she says. There is a fee of up to $339 for non-PDAC members, and the course usually sells out. Check here  for availability.

5: Be social

With 25 years of experience in the mining business, PDAC executive director Ross Gallinger says that before he joined the association as staff last year, he missed out on PDAC in some years because of the proliferation of business meetings that happen during, before and after the conference.
Indeed, with upwards of 30,000 mining professionals, promoters, investment professionals and investors gathering in one spot, there’s no better place to network.
“We hear from people who attend that one of the biggest things that PDAC affords is that networking component and I think that’s not only to people who are in the industry, but also for investors to tap into as well,” Gallinger says.
Whether you know a lot of people in the business or not, using social media to connect can broaden your network.
“You’ll notice Twitter is very active in the days leading up to the convention and the convention itself,” McDonald says. “Probably one of the biggest advantages to Twitter is you can learn about a lot of the satellite events that are happening around the convention.”
Anything related to the convention will be posted the official hash tag of this year’s convention: #PDAC2013, which is already seeing lots of tweets.
McDonald says she expects to see more “tweetups” (meetings arranged through Twitter) connected to PDAC, with the first such examples happening last year for the first time.
Or if you’re more interested in the traditional party invites and hospitality suites that have long been associated with PDAC, “pace yourself,” says Fulp, who advises going early and leaving early. “The worst thing you can do is wake up with a hangover on Sunday or Monday morning.”
Another rule: always wear your name tag, says Fulp — even at the parties. You’ll increase your chances of a serendipitous meeting.
© 2013Mining Markets. All Rights Reserved.

Shopping for stocks at PDAC

The MasterMetals Blog

#Gecamines - #Congo's neglected state miner hankers for past glory

The old King of #Copper wants to make a comeback, but can it?

Congo's neglected state miner hankers for past glory | Reuters

By Clara Ferreira-Marques and Jonny Hogg
KAMBOVE, Democratic Republic of Congo | Fri Feb 22, 2013 5:10am EST
Feb 22 (Reuters) - At the heart of the Democratic Republic of Congo's southern mining belt, Kambove once churned out tonne upon tonne of copper for Gecamines, a sprawling conglomerate that used to make up 60 percent and more of the country's exports.
Now, inside the rust-streaked corrugated iron walls of the Kambove copper plant, the conveyor belts run erratically and the corroded walkways have holes so large that visitors can see through to the workers milling below.
Today, like much of state-owned Gecamines, the processing operations are working at a fraction of their capacity, slowly crumbling in the searing African heat.
Kambove, however, is part of an ambitious government plan to put state-owned Gecamines back on the map as a miner and producer and reverse decades of underinvestment, war and kleptocracy presided over by the late dictator Mobutu Sese Seko.
Under technocrat managers appointed in 2010 and a plan laid out last year, Gecamines would no longer just hold minority shares in mines across Congo's south, but aim to triple its own production by 2015, thanks to investment in new machinery and a push into exploration. The group last month took its first minority stake in an asset outside Congo - cobalt refinery assets in Finland - a move it says will help raise and improve its bruised international profile.
"Gecamines has a great story," Chief Executive Officer Ahmed Kalej Nkand, a former central bank official, told a room of mining investors in Cape Town. "It is the story of a mining giant that is awakening from its slumber."
The ambition, Gecamines executives say, is to be an African Codelco, which is Chile's state copper miner and the world's largest producer of the metal, producing just under 1.7 million tonnes last year. That ambition is, at best, a very long way off. In its 1980s heyday, Gecamines made nearly 500,000 tonnes, but it reported only 35,000 tonnes in 2012, and its target of 100,000 tonnes in 2015 looks tough enough.
Financing is a major hurdle, at a time when the International Monetary Fund has halted its Congolese loan programme over mining transparency concerns, prompting questions over Gecamines' more ambitious plans, including a 500 million euro ($670 million) power plant fuelled by coal from deposits at Luena, just north of the copper belt.
Kalej Nkand says the plant will help meet its own energy needs and those of a broader industry currently suffering constant power cuts due to a 200 megawatt shortfall. But he is vague on where the cash would come from; Gecamines, he said, could finance a feasibility study but would then bring in as-yet-unnamed international partners.
Mining analysts and executives, though, say debt-laden Gecamines will struggle to raise money in a tough environment where investors are only too aware of Congo's poor reputation.
Despite potentially lucrative concessions, mismanagement has left Gecamines with little to show for it but acres of rusting, archaic equipment.
To make matters worse, the average age of Gecamines' swollen workforce of 12,000 - three times what it says it needs - is 56.
In a 2006 U.S. embassy cable from Kinshasa published by Wikileaks and dating back to previous management under Canadian lawyer Paul Fortin, even U.S. diplomats suggested Gecamines should throw in the towel.
"Rather than trying to remake Gecamines, the region and the country may be better served if Fortin eliminates the company's mining operations and focuses only on its role as a holding company," the cable said. "Political and economic conditions do not suggest that Gecamines should do otherwise."
Fortin, who was managing director as part of a World Bank programme, resigned in 2009.
Gecamines holds minority stakes in virtually all key projects in the copperbelt region of Katanga, but its efforts to get a bigger piece of the pie and to review stagnant contracts has revived memories of the country's painful 2008-2010 "revisitation" of mining contracts that irked investors.
One industry source described as "messy" the scuffle last year over the Deziwa copper project, held in partnership with British Virgin Islands-registered Copperbelt Minerals but which Gecamines sought to control.
Gecamines finally settled with Copperbelt last month and bought them out after the state miner scrambled to block a potential sale to a Chinese company, sparking months of intense negotiations. Gecamines now plans a $1.5 billion, 200,000 tonne a year plant to process output from the two copper projects, from 2015.
Financing is again unclear, even for a plant projected at the low end of the current cost curve.
"The deposits are there, but whether (Gecamines) can raise $1.5 billion remains to be seen," said Bolade Olu-Adeyanju, metals analyst at Wood Mackenzie.
"Financing is the biggest impediment to Gecamines. Foreign investors are wary of the high political risk in Congo."
Industry sources had spoken of a potential sale of a stake in Deziwa to trader and veteran Congo investor Glencore , which owns the nearby Mutanda operation. But that now looks unlikely, given Gecamines' demand to keep a majority stake and its stated desire to use Deziwa as a test for its new partnership strategy.
"We can envisage several possibilities, but where we go into partnership, it is clear that we want to be majority owners," says Kalej Nkand, speaking behind copper doors in his corner office on the fifth floor of Gecamines' headquarters in the region's mining hub of Lubumbashi.
At its peak, Gecamines was almost a state within a state. It directly employed more than 30,000 people and ran schools, hospitals, flour mills and vast swathes of arable land, much of which it still maintains, further draining its stretched finances.
Its roots are in the mining company set up at the turn of the last century by statesman Cecil Rhodes and Belgian King Leopold II, which later became Union Miniere du Haut Katanga, and then Gecamines.
In the boom, Gecamines accounted for about 7 percent of global copper production and more than 60 percent of cobalt.
But tumbling copper prices in the 1980s took its toll, as did the compounded effect of the Mobutu government's system of patronage, which pillaged the company over decades.
The group hit a low point with the collapse of the central portion of the Kamoto underground mine in 1990 after years of underinvestment. At the time, Kamoto's cobalt was Gecamines' most profitable export.
Added to that, ethnic unrest in the 1990s drove out many of the workers from neighbouring Kasai that staffed Gecamines' mines and offices. Like the country crumbling around it, Gecamines hit a nadir from which it is still recovering.
And yet a short distance from the Kambove plant, there are undeniable signs of Gecamines' investment drive. South African contractors are overseeing the construction of a new processing plant that will boost the operational hub's capacity to digest towering stockpiles of rich ore from the nearby Kamfundwa mine.
At Congo's border with Zambia, to the south, some 100 excavators and other machines were clearing customs.
But Kambove - like other parts of an empire that was once at technology's cutting edge - is testament to the challenge ahead for Gecamines' bosses.
"The concentrator has a capacity of 4,000 tonnes (of ore) ... but we struggle to make 3,000 tonnes. We have a lot of power cuts and limits on production, so sometimes it is closer to 2,000 tonnes," says Louis Okuka, Kambove's veteran director, wearing a blue hardhat and a weary expression.
"Back in 1961, the plant was all automated."
Down the road towards the town of Likasi, the Shituru copper refinery is another rusting behemoth dating back to 1929, operating at roughly 10 or 20 percent of its nameplate capacity.
Its nerve centre - far removed from the flat-screen computers of modern automated operations rooms - boasts two chalk boards and technology reminiscent of a 1950s science fiction show. Workers in the nearby offices sit in front of plastic-covered computers amid mountains of lever-arch files.
"Since 1929, generations have passed through here - not just of men, but of equipment. Iron in this climate, when it has worked 40 or 50 years, has outlived its useful life," says Joel Tshinyama Pau, director of the Shituru operation, who says progressive investment can revive the plant.
Yet many still question whether Congo's politicians and business leaders are really prepared to develop the assets.
Albert Yuma, the head of the Gecamines board, is close to Congolese president Joseph Kabila and has faced questions over secret asset sales to another Kabila associate, Israeli businessman Dan Gertler.
Despite falling foul of the IMF for the company's failure to meet transparency requirements, Yuma has launched stinging attacks on Congo's poor business climate in his role as head of the country's business federation and has publicly championed the Gecamines re-launch.
A return to former glory will be a gruelling slog and won't be popular with everyone. Recent skirmishes with artisanal miners working illegally on Gecamines concessions have left new diggers with smashed windows and flat tyres.
But a rebirth would also be a boost to national pride and, particularly, the pride of the copper producing region of Katanga that it once sustained.
"We can't accept to see Gecamines disappear," said B.H. Ntambwe Ngoy, head of Gecamines' central operations.
"We have Gecamines in the blood."

INSIGHT-Congo's neglected state miner hankers for past glory | Reuters

February 18, 2013

#Greece: Disputed #Gold #Mining Project Attacked - Sitrep

Greece: Disputed Gold Mining Project Attacked - Sitrep

Greece: Disputed Gold Mining Project Attacked

February 17, 2013 | 1345 GMT

Roughly 40 masked individuals attacked a disputed gold mining project in the Skouries area of the Halkidiki peninsula on Feb. 17, police said, Reuters reported. The attackers caused extensive damage with firebombs and flammable liquid, and 27 people have been detained. Local citizens and activists have protested the construction of the gold mine because of concerns over its environmental impact.

February 15, 2013

#Gold Bears Braced for U.S. to #China Growth Recovery: #Commodities - Bloomberg

Gold survey results: Bullish: 11 Bearish: 20 Hold: 3

Gold Bears Braced for U.S. to China Growth Recovery: Commodities

Gold traders are the most bearish in more than a year on mounting speculation that improving economic growth from the U.S. to China will curb demand for this year's worst-performing precious metal.

Twenty analysts surveyed by Bloomberg this week expect prices to fall next week, while 11 were bullish and three were neutral, making the proportion of bears the highest since Dec. 30, 2011. Hedge funds cut bets on higher prices by 56 percent since October and are approaching their least bullish stance on gold since August, government data show. The metal fell to a six-week low today, and billionaire investors George Soros and Louis Moore Bacon reported yesterday that they had reduced stakes in exchange-traded products backed by gold.

First-time jobless claims in the U.S. decreased more than estimated last week, while a Chinese government-backed survey showed manufacturing expanded in January. Growth will accelerate in the world's two largest economies in coming quarters, according to more than 100 economists surveyed by Bloomberg. Investors cut record bullion holdings in exchange-traded products this year and added to funds backed by other precious metals that are used more in industry.

"The global economic recovery is on track," said Andrey Kryuchenkov, a commodity strategist in London at VTB Capital, a unit of Russia's second-largest lender. "The persistently decent macro data is denying gold its usual safe-haven properties. You can get better returns elsewhere."

Gold prices that rallied the past 12 years will probably peak in 2013, or already have, according to Goldman Sachs Group Inc. and Credit Suisse Group AG.

Gold Price

The metal fell 2.9 percent to $1,627.25 an ounce in London this year, and reached $1,625.88 today, the lowest since Jan. 4. Gold climbed 7.1 percent last year in the longest annual rally in at least nine decades. The Standard & Poor's GSCI gauge of 24 commodities is up 4.9 percent this year and the MSCI All-Country World Index of equities gained 4.8 percent. Treasuries lost 0.9 percent, a Bank of America Corp. index shows.

Gold's drop compares with a 0.4 percent loss for silver this year. Platinum and palladium rose at least 7.9 percent on concern mine supply will fall as demand increases. An ounce of platinum bought as much as 1.054 ounces of gold yesterday, the most in 17 months, data compiled by Bloomberg show. Industrial usage accounts for about 10 percent of bullion consumption, compared with more than half for the other three metals.

Reduced Holdings

Gold ETP assets reached a record 2,632.5 metric tons on Dec. 20 as policy makers from the Federal Reserve to the Bank of Japan pledged more action to stimulate growth. Holdings are down 0.9 percent this year, while silver products rose 3 percent, platinum 9.9 percent and palladium 13 percent, data compiled by Bloomberg show.

Soros Fund Management reduced its investment in the SPDR Gold Trust, the biggest fund backed by the metal, by 55 percent to 600,000 shares as of Dec. 31 from three months earlier, a U.S. Securities and Exchange Commission filing showed yesterday. Bacon's Moore Capital Management LP sold its entire stake in the SPDR fund and lowered holdings in the Sprott Physical Gold Trust. Paulson & Co., the largest investor in SPDR, kept its stake at 21.8 million shares, a filing showed.

2011 Peak

Bullion is unlikely to return to its September 2011 high of $1,921.15 because of accelerating U.S. growth and contained inflation, Credit Suisse said in a Feb. 1 report. Goldman forecast in a Jan. 18 report that gold will climb to $1,825 in three months and peak this year.

U.S. economic growth will accelerate every quarter this year to a median 2.7 percent in the final three months, according to 87 estimates compiled by Bloomberg. China's expansion will pick up to a median 8.3 percent in the third quarter from 8.1 percent in the first, according to 34 estimates compiled by Bloomberg.

Even as the recession in Europe deepened more than economists forecast last quarter and Japan's economy shrank, the International Monetary Fund predicts global growth will climb to 3.5 percent this year from 3.2 percent in 2012.

"There's a lack of imminent financial disasters at the moment," said John Meyer, an analyst at SP Angel Corporate Finance LLP, a broker and adviser in London. "Investors are going for a more risk-on approach and that tends to lead them away from gold."


Gold generally earns returns only through price gains and some investors buy it as a hedge against inflation and currency declines. While consumer-price gains are below the Fed's 2 percent target, inflation expectations measured by the break- even rate for five-year Treasury Inflation Protected Securities rose 12 percent this year and reached a four-month high Feb. 6.

Finance ministers from the Group of 20 gather this weekend in Moscow amid concern of a fresh "currency war" as countries weaken their exchange rates to make exports more competitive.

"The monetary backdrop is still extremely positive for gold, so we would be accumulating here," said Adrian Day, the president of Adrian Day Asset Management in Annapolis, Maryland.

Buying also may pick up as China's markets open after this week's New Year holiday. China accounted for about 25 percent of consumer gold demand last year and narrowed the gap between top buyer India to the smallest ever, the London-based World Gold Council said yesterday. The group said consumption from both countries may rise at least 11 percent in 2013.

Central Banks

Central banks from Brazil to Russia are buying more gold to diversify from currency holdings. They added 534.6 tons to reserves last year, 17 percent more than in 2011 and the most since 1964, the council said yesterday. Those purchases helped stem the first annual drop in total demand in three years, as investment slid 9.8 percent and jewelry demand fell 3.2 percent.

Money managers held a net-long position of 86,926 futures and options in the week to Feb. 5, U.S. Commodity Futures Trading Commission data show. That was 5.9 percent more than the previous week, when wagers on gains were the lowest since Aug. 14.

Gold's 9.1 percent slump since Oct. 4 took prices below the 200-day moving average, indicating to some who study technical charts that more declines may follow. Prices are down 2.2 percent in February, and a fifth straight monthly drop would be the worst run since 1997. Gold fell in March in six of the last nine years, according to data compiled by Bloomberg.

Copper, Sugar

In other commodities, 10 of 17 traders and analysts surveyed expect copper to rise next week, five were bearish and two were neutral. The metal for delivery in three months, the London Metal Exchange's benchmark contract, rose 3.9 percent to $8,239.75 a ton this year.

Eight of 16 people surveyed expect raw sugar to gain next week and seven predict a drop. The commodity slid 8.6 percent to 17.84 cents a pound on ICE Futures U.S. in New York this year.

Sixteen of 26 of those surveyed anticipate a rise in corn prices next week and seven said the grain will drop, while 17 said soybeans will advance and six expect lower prices. Sixteen of 26 traders predicted higher wheat and six were bearish. Corn lost 0.1 percent to $6.9775 a bushel this year in Chicago as soybeans rose 0.3 percent to $14.1325 a bushel. Wheat is down 4.1 percent at $7.4625 a bushel.

The S&P GSCI gauge of raw materials climbed to the highest since September two days ago and is little changed this week. Speculators increased bullish bets across 18 U.S. commodities for a fourth week in the period to Feb. 5, CFTC data show.

While improving growth may curb demand for gold as a protection of wealth, other commodities used in industry and food products may benefit. Usage will outpace supply this year in tin, platinum and palladium, while corn, wheat and cocoa will have shortages in the 2012-13 season, according to estimates from Barclays Plc and Rabobank International.

"The economic activity in China and U.S. are telling us that commodities are poised to rise," said Robert Keck, president of Princeton-based 6800 Capital LLC, which manages about $650 million. "While Europe maybe slow, overall the global economy is growing."

Gold survey results: Bullish: 11 Bearish: 20 Hold: 3  Copper survey results: Bullish: 10 Bearish: 5 Hold: 2  Corn survey results: Bullish: 16 Bearish: 7 Hold: 3  Soybean survey results: Bullish: 17 Bearish: 6 Hold: 4  Wheat survey results: Bullish: 16 Bearish: 6 Hold: 4  Raw sugar survey results: Bullish: 8 Bearish: 7 Hold: 1  White sugar survey results: Bullish: 9 Bearish: 7 Hold: 0  White sugar premium results: Widen: 5 Narrow: 6 Neutral: 5  

To contact the reporter on this story: Nicholas Larkin in London at

To contact the editor responsible for this story: Claudia Carpenter at

#Zimbabwe: A New Constitution May Pave the Way For Elections

The fate of the country's #mining industry, its chief export, partly depends on who gains power.

Zimbabwe requires any foreign company with assets in Zimbabwe valued over $500,000 to sell a 51 percent stake to local Zimbabweans 

Furthermore, the Zimbabwean ruling party has given platinum miners a two-year deadline to bring platinum processing and refinery plants to Zimbabwe -- under indigenous Zimbabwean ownership -- instead of processing the raw ore in neighboring South Africa.

Refining platinum is an energy-intensive process, and Zimbabwe sorely lacks adequate electricity infrastructure.

In late 2012, the Movement for Democratic Change unveiled a new economic plan that would reverse these policies. The Mugabe regime immediately rejected the plan.

The government does not want to antagonize what foreign investment there is in Zimbabwe. In any case, [resource nationalism] are significant tools to raise voter support.
Read the whole piece here:

Zimbabwe: A New Constitution May Pave the Way For Elections

The MasterMetals Blog

#Swiss banking and the lose-lose scenario of unallocated #gold -

Yet another example of the attack on your Gold

Swiss banking and the lose-lose scenario of unallocated gold


What the Swiss banks' move away from unallocated accounts says about gold, and about banking...

Author: Adrian Ash
Posted: Thursday , 07 Feb 2013

LONDON (BullionVault) - 

IMAGINE you could sell someone something, but keep ownership of it, and then use it yourself.

You could lend it out for interest, say, or raise loans of your own by pledging it as collateral. Or even sell it to raise cash when things get tight. And if your business fails entirely, the "owner" will just have to cue up with all of your other creditors, and be thankful with whatever small change is paid out by the courts.

This is pretty much what big banks get away with in gold – or they did. Now Swiss banking giants UBS and Credit Suisse are changing their gold-account fees for big, institutional clients. The aim is to discourage other institutions from keeping gold with them like this – so-called "unallocated gold". It looks a lot like putting cash on deposit. The bank gets to own it, and so it gets to go banking with the value as well. But now the business of selling gold but without selling anything no longer pays.

And if you can't make a return from that, what hope is there for big banking bonuses in 2013 or beyond?

You might wonder, as I did, if this news has something to do with the collapse of gold interest rates...

...but as you can see, there hasn't been much money to make in lending out gold – whether it belongs to you or not – for nearly a decade now. Yes, the collapse in cash interest rates played a part in that switch. (The returns above are what a gold lender makes after paying a borrower to take it away, receiving the gold's cash value in return, and then lending out that money instead. Just another oddity of the gold market.) But the slump in lease rates came as gold miners stopped borrowing gold, selling it for fear of further price falls, and instead began expecting higher prices for their future output. And lending was never really the point of unallocated gold accounts at the big banks anyway.

Instead, from what our friends in gold banking and Swiss bullion storage tell us, the big banks were keen to get big piles of shiny metal which they could then show to regulators. "Look, all this belongs to us, and not to clients," they could say, before going out and banking with it – investing, borrowing and lending with that weight of highly liquid, instantly priced bullion behind them. Or at least, banking with a hefty part of its value.

Most especially in Switzerland, the big banks gathered such
unallocated gold from their smaller competitors – those private Swiss banks caring for very wealthy customers, but lacking the secure, underground gold vaults which such well-heeled clients might expect. Perhaps the big banks could help? Sure they could. But only if a chunk of the client's gold wound up on the big bank's balance sheet too.

Whatever the proportion of allocated to unallocated gold, this meant confusion for any private-bank customer wanting to own his or her metal outright. Because the bullion was now split between the big bank's balancesheet and the private bank's own account in the vault. So the actual client was a long way from fully allocated. Come a banking crisis – not that such things ever happen of course, until they do – he or she would most likely find themselves exposed to not one but two Swiss institutions.

Now, if this unallocated gold trail hadn't existed, neither would
BullionVault today. Paul Tustain founded it in 2003 precisely because of the confusion – and risks – he encountered when trying to buy gold for himself a year earlier. The Financial Times, which broke the new move last week, explains the background:

"Under the more common 'unallocated' gold accounts, depositors' gold appears on banks' balance sheets. [But as regulations change, that is] forcing them to increase their capital reserves."

Just as with any loan the bank takes in – including household and business deposits – it has to match at least some of that debt with ready cash. Or rather, with reserves held at the central bank. This was always the way, but 2013 sees new regulations – aka Basel III – raise the requirements to try and avoid a repeat of 2007 and all that. Before now, offering unallocated gold at least put bullion onto the bank's balance sheet. But with these new regulatory hassles and thus costs (money unlent is dead money to banks, remember) unallocated gold has suddenly become lose-lose to the banks.

This marks a big shift in the banks' provision of gold, and there is more on this to come no doubt. Such as how the Swiss giants – who provide a lot of gold-vaulting to the smaller Swiss private banks – are actually raising their unallocated fees by 20%, as the press report. Unallocated gold shouldn't cost you an ongoing fee, because why would you pay to store something which isn't yours? On the other side, according to
Dow Jones' report, they are actively cutting their allocated storage fees too. Suggesting perhaps that either they'd like to get the private-banks' clients directly. Or they've got a lot more spare capacity in Swiss vaulting than earlier press reports would suggest.

Either way, private savers trying to hide out in gold aren't likely to see vaulting fees drop. Swiss private banks charge 1% and more per year to their clients, and a 1/100th of a per cent drop in their costs is unlikely to show up in their "retail" pricing. (
BullionVault is best-value worldwide, by the way, at 0.12% per year for specialist non-bank, fully allocated storage in your choice of Zurich, New York or London.)

So for now, this change simply marks another key stage for gold and for banking. One is making a long return as a core asset to be owned outright. The other is struggling to cream off the kind of fat margins which once paid so well.

Adrian Ash is head of research at BullionVault – the secure, low-cost gold and silver market for private investors online, where you can buy gold and silver vaulted in Zurich on just 0.5% dealing fees.

February 13, 2013

Twitter / MasterMetals: #Ghana's #gold in numbers ...

Twitter / MasterMetals: #Ghana's #gold in numbers ...

The MasterMetals Blog

Obstacles in the Path to a U.S. #Oil Boom

as new supplies are extracted, they are facing logistical and policy hurdles above ground
Obstacles in the Path to a U.S. Oil Boom
 Maria van der Hoeven
Executive director of the International Energy Agency

A boom in North American oil production is under way, thanks in part to technological advances that are unlocking millions of barrels of oil that were previously inaccessible. But as these new supplies are extracted, they are facing logistical and policy hurdles above ground. Resolving these challenges is of paramount importance if we are to benefit from this vast resource.
Advances in hydraulic fracturing and horizontal drilling are allowing the U.S. oil industry to recover millions of barrels of so-called light, tight oil from shale formations across the middle of the country. U.S. crude oil production has increased by 1.3 million barrels per day (mb/d) in the past two years, and the U.S. Energy Information Administration forecasts that the U.S. will produce a further 1.4 mb/d by the end of 2014.
But it is no secret that once the oil is extracted from wells in the country's midsection, it often faces a long and complicated journey to refineries, many of which are located on the coasts. Transportation bottlenecks are one of the main reasons U.S. crude trades at a discount to international benchmarks. It is now well-known that landlocked West Texas Intermediate (WTI) crude has been trading at a deep discount to other benchmarks such as Brent since production volumes started ramping up two years ago.

What is perhaps less well-known is that internal North American grades fetch even lower prices, trading at a deep discount to WTI itself. Ironically, American end-users do not benefit from this production windfall since U.S. retail product prices are still heavily influenced by international markets.
If this disconnect in prices were to continue, it could threaten the economic viability of these new supplies, potentially stopping the boom in its tracks.
Fortunately, new pipeline and rail capacity is set to open in 2013 that will allow more crude from the Plains states to move to refining hubs to the east and west and along the Gulf Coast. While these are welcome improvements, they will not bring the marketing problems to an end. That is because U.S. crude exports are subject to stiff restrictions, and America's refiners can only absorb so much of the new supplies.
The sale of U.S. crude overseas is governed by the Export Administration Act of 1979, which allows the president to prohibit or curtail the export of commodities -- namely crude -- deemed to be in "short supply." Exceptions do exist, but for the most part U.S. producers are hopelessly constrained in their capacity to export domestic crude to countries other than Canada and Mexico.
U.S. businesses have adapted by exporting refined products -- which are not restricted under U.S. law -- instead of crude. The U.S. refining industry has in effect become a conduit for crude oil exports, allowing rising U.S. crude production to be exported in product form. In just seven years, the U.S. has tripled the amount of products it exports, transforming itself from the world's top product importer to second-largest product exporter, surpassed only by Russia.
Effective as U.S. refiners may have been in mopping up the additional supply and sending it overseas, they have limited capacity to absorb additional barrels of high quality light, low sulphur oil. Much of their capacity is geared to processing cheap, low quality dense, high sulphur grades and maximizing their yield of high-value-added products such as gasoline and diesel.
They have limited appetite for the premium lighter grades from the Eagle Ford and Bakken shale formations. Moreover, U.S. refining capacity is set to grow by less than 300,000 b/d through 2017.
This will not be the first time in the history of the oil industry that changes in technology and market conditions expose a misalignment between resources and regulations. While much of the anxiety about energy resources in recent years has focused on "peak oil" or other aspects of resource scarcity, in fact some of the bigger challenges facing the energy industry lurk not below ground, but above.
Some may see this as a choice between keeping American oil within U.S. borders for reasons of economic security and allowing the U.S. to generate billions of dollars in new export revenues. But market realities suggest a far simpler decision ahead: either U.S. crude is shipped abroad, or it stays in the ground.
While new pipeline links, supplemented with increasingly efficient railroad links, will give producers short-term relief from depressed prices, new export outlets will ultimately be necessary to leverage the full potential and reap the benefits of the new American oil revolution.
Washington will need to address this misalignment, lest the great American oil boom goes bust.

Maria van der Hoeven is executive director of the International Energy Agency.

This article was originally published on 7 February, 2013, in the Financial Times. It is based on analysis that first appeared in the January 2013 issue of the IEA's Oil Market Report, a monthly publication that provides a snapshot of the international oil market and projections for oil supply and demand 12-18 months ahead. To subscribe to the report, please click here.

Maria van der Hoeven: Obstacles in the Path to a U.S. Oil Boom

February 6, 2013

#China at risk with #Venezuela #oil bet

China at risk with Venezuela oil bet

Asia Times Online
By Matt Ferchen

Referring to the evolving political crisis in Venezuela, a Shanghai Academy of Social Science scholar, Zhang Jiazhe, recently remarked, if Hugo Chavez dies, "the diplomatic effect on China won't be large because China-US competition is in Asia not Latin America. Economically, China-Venezuela relations are based on oil and weapons sales".

Back in 2006, Beijing University Professor Ha Daojiong, however, sounded a more skeptical note when he wrote, "The search for overseas oil supplies has led Beijing to pursue close diplomatic ties with Iran, Sudan, Uzbekistan and Venezuela - all countries that pursue questionable domestic policies and... foreign policies". [1]

These two different Chinese foreign policy perspectives highlight an ongoing debate - and not only inside of China - about how Chinese state-owned enterprise (SOE) pursuit of global energy supplies was or was not leading China into unwanted and unhealthy foreign entanglements.

The logic of Chinese SOE energy investments in all these "questionable" countries is straightforward: China needs more energy than it can produce domestically and its SOEs are "going out" to help supply domestic demand. In Sudan and Iran, however, Chinese national oil companies' (NOCs) investments exposed Beijing diplomatically to internationally controversial political regimes.

Chinese state-to-state energy ties to such "pariah states", including more recent examples in Libya and Burma (Myanmar), have mostly been based in the Middle East, Africa or closer to China in Central and Southeast Asia. [2]

The geographic focus, however, has now for the first time shifted to China's presence in the Western Hemisphere as Venezuelan president Hugo Chavez' health crisis evolves into a broader political crisis not only for Venezuela but for his regional allies and potentially for China.

Today, it is in Venezuela that another Chinese state firm, this time the China Development Bank (CDB), has led China into another potential foreign policy quagmire.

China's ties to Venezuela highlight a crucial, but often overlooked issue: the questionable logic that Chinese NOC "equity oil" acquisitions in controversial but energy-rich countries are justified by energy security needs. Indeed, Venezuela's evolving political crisis may further expose the flaws in China's state-capitalist approach to energy security.

This is because Chinese firms have used the justification of energy security to expand investments and financial ties to Venezuela, but a significant portion of the oil is not actually going to China.

If Chinese equity oil from Venezuela or other controversial countries is acquired by Chinese state firms in the name of energy security but then resold on global markets for profit, this begs the question of whether Chinese SOEs are unnecessarily exposing China to excessive political risk.

Where's the oil flowing?

The conventional wisdom about the China-Venezuela relationship, propagated most forcefully by Chinese officials keen to emphasize their country's non-political interests in Venezuela, is that it is based on oil. Simply put, China needs oil and Venezuela has it.

The CDB's point-man on Venezuela, Li Kegu, summed up the logic of relations when he said, "We [China] have lots of capital and lack resources, they have lots of resources and lack capital, so it's complementary" (Bloomberg, September 27, 2012).

China is the second-largest oil importer in the world (after the United States) and its oil demand growth is the fastest. Venezuela recently was declared to have the world's largest petroleum reserves, surpassing Saudi Arabia.

Lauding the rapid development of China-Venezuela oil ties, the Chinese press recently reported that Chinese imports of Venezuelan oil may reach 1 million barrels per day (b/d) by 2015 from a starting point of only 59,000 b/d as recently as 2005. By all outward indications, then, Venezuela-China oil ties should be a straightforward example of China's self-declared win-win, complementary trade and investment relations with Latin America.
Such an assessment, however, would be premature and misleading because while oil is certainly the key link in China-Venezuela ties and while the amount of oil that "China" receives from Venezuela has certainly expanded rapidly from a low starting point in the last decade plus, there are a number of puzzling results that emerge from a closer analysis of official Venezuelan and Chinese trade statistics. [3]

The most important of these is that official PDVSA (Venezuela's state oil company) export statistics are consistently higher than official Chinese import statistics. Table 1 below lays out these official statistics and the percentage that Venezuelan exports exceed Chinese imports in every year since 2006 (full 2012 statistics, however, have not yet been published).

Sources: Informe de Gestion Anual de Petroleos de Venezuela S.A. (PDVSA), 2006-2012; "Zhongguo shiyou he tianranqi jin chukou zhuangkuang fenxi [Analysis of Chinese Oil and Natural Gas Imports and Exports]," in Zhongguo shiyou jingji, March 2012. The standard accounting measure for oil is in thousands of barrels per day equivalent, but China measures imports in millions of metric tons. The industry standard of 20,000 b/d equivalent to 1 million metric tons was used for the conversion.

These figures indicate, in every year from 2006 through 2011 during the boom in Venezuela-China oil trade and investment ties, PDVSA has consistently claimed an average of around one-third more oil exports to China than China has claimed in imports.

As the figures also show, however, in some years (eg 2008 and 2009) China's official import figures were well under half and even closer to only one fourth of Venezuela's official export figures. Other recent studies also corroborate the higher percentage disparities, showing a gap of 55%-70% in both 2010 and 2011. [4]

What is the explanation for this consistent disparity and why does it matter? Although neither the Venezuelan nor the Chinese authorities have commented on these discrepancies in their official oil accounting statistics, a number of explanations come to the fore. Key among them are geography and chemistry.

On the former, Venezuela is far away from China as well as the majority of its international oil transport routes (most of which are in the Middle East and Africa). On the latter, Venezuela's heavy-grade oil is not well-suited for Chinese refining capacity.

Tied to these fundamental challenges is what is already known about Chinese national oil companies and their use of global equity oil acquisitions. A wide range of reports from international oil organizations like the International Energy Agency to policy think-tanks to academic publications have all indicated that frequently the majority of Chinese NOC's equity oil is actually resold on local or international markets. [5] For example, one 2007 study showed that in 2006 Chinese NOCs resold close to 70% of their overall global equity oil production. [6]

Combining the general pattern of Chinese NOCs reselling of their equity oil with the specific geographic and refining challenges China faces in Venezuela, a logical conclusion is that the accounting discrepancies in Table 1 can largely be explained by Chinese NOC's reselling of their Venezuelan oil. Further, it is likely that such resale is happening much closer to Venezuela (and the United States) than to China. [7]

Indeed, in a 2005 interview, the Chinese ambassador to Venezuela noted "the natural markets for Venezuelan oil are North and South America". Ultimately, then, a significant portion, sometimes the majority, of oil that "China" receives through the CDB-led loans-for-oil deals with Venezuela is most likely in fact resold by its NOCs, never physically arriving in China.

Such oil resales (at least of oil products) may be standard behavior for other international oil companies, but for China's state-owned firms it has political consequences.

The CDB and risk socialization
Why does it matter if Chinese NOCs are reselling a significant percentage of their Venezuelan (or other) equity oil on the international market? In Venezuela, the CDB-led multi-billion dollar financing and investment relationship with the Chavez government constitutes the CDB's largest financial presence anywhere outside of China itself and is nominally based on China's need for oil. [8]

If some significant percentage of the oil acquired through the CDB deals does not go to China and in the process the CDB, Chinese NOCs and other Chinese firms involved with the CDB deals earn a profit, then the CDB effectively has exposed China's diplomacy and image to the full extent of Venezuelan political and economic risk for its own corporate gain.

Of course, the CDB and other Chinese state and non-state firms involved in Venezuela still could face economic losses themselves

in the wake of Chavez's demise, but this is perhaps less serious than the potential political consequences.

For all practical purposes, this essentially amounts to CDB's socialization, or nationalization, of its own corporate risk. If the CDB were not a Chinese state-owned "policy bank" at the leading edge of its own financing and other Chinese SOE investment in Venezuela and were instead a private firm, it would not represent state-to-state ties in the way it currently does.

Because the CDB, however, is one of China's three state-owned policy banks, its actions - including purely economic ones like providing financing for Venezuelan oil deals and for other Chinese firms to invest in Venezuela - have political consequences for China itself.

Through the CDB, "China" has become the largest source of foreign financing for Chavez, who is by far the most controversial and polarizing leader in Latin America. The CDB's massive build-up of loans-for-oil deals have thus been seen by many of those who both love and hate Chavez, inside and outside of Venezuela, as symbolizing official Chinese backing for Chavez. [9]

For a Chinese government that has a policy of non-interference in other countries' domestic politics and is particularly concerned not to ruffle US feathers in its own "backyard", even the perception of such political support for Chavez is problematic.

Moreover, if much of the oil acquired through the CDB deals is simply being resold, China's new leadership may want to ask itself whether this constitutes a sound economic or political foreign policy strategy in Venezuela.

Managing the hangover
Neither Chavez nor PDVSA have necessarily been easy partners for China, and many former PDVSA officials and opposition figures have been critical of the loans-for-oil deals with China. China has had to work to parry Chavez' efforts to involve it more closely in his own ideological and anti-US agenda. Whether inside or outside of Venezuela, Chavez has been the kind of polarizing leader who you are either for or against.

So in the case of the CDB-led build-up of financing and investment in Chavez's Venezuela, China's actions have spoken louder than words. For better or for worse, Chavez has been Beijing's man and in return China has continued to supply Chavez with scarce foreign financing and investment. With Chavez ill in Cuba, possibly never to return, Venezuela has entered into a constitutional and political crisis that may drag China in as well.

For well over a year, concerns have been raised that if, in a post-Chavez scenario, the opposition were to come to power that it would seek to alter the loans-for-oil deals with China. Ultimately, no one knows the answer to those concerns.

The CDB may have secured long-term access to Venezuelan oil for China's NOCs, or alternately the CDB and other Chinese firms may face loss-making revisions to current agreements. [10] What is clear is that the CDB's decade-plus of bringing on state-to-state deals with the Chavez government has now exposed Beijing to a painful diplomatic hangover tied to Venezuela's slow-motion crisis.

Whether at home or abroad, Chinese leaders hate nothing more than instability, but instability is what they face in their relations with Venezuela. As in Sudan and Iran before, an unwanted crisis may yet serve to focus Chinese leaders' minds to help build a healthier and more stable Venezuela, but doing so will probably require a willingness to rethink the governance of China's SOEs abroad.

Since the vast majority of China's imported oil continues to be supplied by basic long-term trade contracts and not through its equity oil acquisitions, the crisis in Venezuela may prove the perfect opportunity to move away from a pattern of Chinese equity oil ties to controversial governments.

If a major portion of China's equity oil is not going to China anyway, the new Chinese leadership should ask itself whether the diplomatic and image costs to China are worth the risks.

1. Zha Daojiong, "China's Energy Security: Domestic and International Issues," Survival, Vol. 48, No. 1, Spring 2006, pp. 179 - 190.
2. For more on the geopolitical implications of China's energy ties to such "pariah" regimes, see Andrew B Kennedy, "China's New Energy-Security Debate," Survival, Vol 52, No 3, June-July 2010, pp. 137 - 158 and Wojtek M Wolfe and Brock F Tessman, "China's Global Equity Oil Investments: Economic and Geopolitical Influences," Journal of Strategic Studies, Vol. 35, No 2, April 2012, pp 175 - 196.
3. As a percentage of total global oil imports, Chinese customs figures show that Venezuela accounted for less than 0.5% as recently as 2004, up to 4.5% in 2011. See, Zhongguo shiyou jingji [China's Oil Economy], March 2012.
4. See, Kevin Tu, "Chinese Oil, An Evolving Strategy," China Dialogue, April 24, 2012, for 2010, and Michael Forsythe and Henry Sanderson, China's Superbank, Singapore: Bloomberg Press, 2013, for early portions of 2011.
5. See, for example, Julie Jiang and Jonathan Sinton, "Overseas Investments by Chinese National Oil Companies," International Energy Agency, February 2011; Mikkal Herberg, "China's Energy Rise and the Future of US-China Energy Relations", New American Foundation, June 21, 2011; and John Lee, "China's Geostrategic Search for Oil", The Washington Quarterly, Vol 35, No 3, Summer 2012, pp 75 - 92.
6. Erica S Downs, "The Fact and Fiction of Sino-African Energy Relations", China Security, Vol 3, No 3, Summer 2007, pp 42 - 68.
7. Jiang, and Sinton, p 18.
8. See, Forsythe and Sanderson, China's Superbank, pp 123 - 146.
9. Vladimir Rouvinski, "China Through the Eyes of Latin American Media: 2001-2011", Conference Paper presented at Javeriana University, "China and Latin America: Strategic Partners in a Multipolar World?" Bogota, Colombia, September 3-4, 2012.
10. The very limited Chinese academic analysis of "risk" related to Chinese investments in Venezuela focuses almost exclusively on financial or economic factors, not political risk. See, for example, Zhang Kang, "Weineiruila shiyou zoushi he wo guo de fengxian duice [Venezuelan Oil and China's Risk Policies]," Zhongguo Nengyuan Wang, December 13, 2011, available online.

Matt Ferchen is a resident scholar at the Carnegie-Tsinghua Center for Global Policy, where he runs the China and the Developing World program. He is also an associate professor in the Department of International Relations at Tsinghua University, where he teaches courses on international and Chinese political economy as well as on China-Latin America relations.

(This article first appeared in The Jamestown Foundation. Used with permission.)

(Copyright 2013 The Jamestown Foundation.)

Asia Times Online :: China at risk with Venezuela oil bet

The MasterMetals Blog

February 5, 2013

Bloomberg: #Gandur’s AOG Invests $400 Million in #Africa #Energy Assets

From Bloomberg, Feb 5, 2013, 9:55:57 AM

Addax & Oryx Group Ltd., the energy firm established in 1987 by billionaire Jean Claude Gandur, is investing $400 million in Africa after failing to sell oil- trading and downstream units last year.

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