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September 23, 2015

‘Time to warm up to #gold?’ @Mineweb

#UBS thinks gold looks good at these levels.

This from Mineweb:

‘Time to warm up to gold?’


UBS takes on this (obviously leading) question.

Kip Keen | 23 September 2015 09:24

HALIFAX – This, UBS analysts ask in a recent note, answering as you’d no doubt guess: “Yes.” In making their argument, they raise some interesting questions. In particular: Are the bears over-playing the yield card?

UBS sets the scene of gold’s decline, noting “The prospect of Fed normalising policy has been the main driver for gold’s correction over the past few years.” But UBS takes the position that the market has gone too far, punishing gold ahead of presumed (and now delayed) rate hikes. In this, UBS sees a new – and lower – world order of interest rates coming to bear less than might be expected, which could be seen as good for gold.

“But the possibility that the market may be overestimating the terminal rate suggests that current weak sentiment and price expectations may also be overdone,” UBS analysts write. To UBS this suggests an opening to buy.

“Positioning has declined considerably over the past couple of years and has now become very light. There may be an opportunity, especially for long-term oriented participants looking to diversify portfolios, to rebuild positions at more attractive levels.”

Meantime, UBS points out, as others, to what has so far been solid demand for gold, especially in Asia, it’s primary consumers. Summarizing what seems fairly clear from World Gold Council data from recent years, UBS notes that the easy cuts to demand have been made, driven by investment buyers (coins, bars).

“In contrast, demand which is more linked to cultural/religious traditions seems to have been more stable and we would expect this to continue,” UBS writes.

Indeed, India has long been a mainstay of the market, and in the past decade China, in particular its general consumer, but also the government, has emerged as buyers of more or less equal importance.

UBS turns to a chart of the seasonal buying in India and China (long noted by analysts and observers of the sector) showing that imports of gold typically peter out mid year, as they have this year, but then usually tend to pick as the end of year approaches.

Will this once again prove true with gold prices lower now than at the beginning of the year, spurring a bit of bargain hunting? Maybe not directly related, but it is intriguing that leading precious metal sellers like the Perth Mint have already noted a substantial pick up in coin and bar buying.

So UBS cozies up to gold, seeing a lot of the pain in both the price and equities behind. “Any further downside is likely to be contained, and we expect the market to ultimately find stability, which should provide the foundations for a moderate recovery over the coming years.”

Among miners it names AngloGold, Acacia and Randgold as buys. It also reckons AngloGold Ashanti, Fresnillo, and Hochschild debt is worth a look.

 Read the article online here: ‘Time to warm up to gold?’ - Mineweb

September 17, 2015

#SouthAfrica’s #Platinum & #Gold Mines Are in “Downward Spiral” – Andy Jackson

Some thoughts from Sprott on South Africa's Gold and Platinum mines and the labor problems they face going forward. 

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September 16, 2015

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South Africa's Platinum and Gold Mines Are in "Downward Spiral" – Andy Jackson

By Henry Bonner (
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South Africa is a tough place to do business as a miner. Labor uprisings and tense relations between unions and mining companies are threatening mines' long-term survival.

Mines may close or become mechanized in the years ahead, and production could drop substantially during this rough transition.

The "old way" of mining in South Africa will probably disappear, says Andy Jackson, an exploration geologist at Sprott Global Resource Investments Ltd.

He believes that many mines will shut down if they can't replace workers with machines.

Around 8% of South Africa's economy depends on mining.1 South Africa is the 6th largest gold-mining country in the world, producing around 165 tons in 2014.2 It is also the world's largest platinum producer, accounting for 78% of the world's platinum production in 2013.3

Andy, originally from Zimbabwe, foresees for South Africa "an irregular and bitter downward spiral of both the mining industry and the country's economy."

Andy explains why he sees this decline in gold and platinum mining, and who may benefit:

The precious metals mining industry in South Africa is going from bad to worse. Political changes, low metals prices, and mines that are getting deeper and tougher to mine are slowly killing the gold sector.

The South African labor unions, in particular the dominant National Union of Mineworkers (NUM), have always demanded outrageous wage increases (30-120%, in a 5-6% inflation environment) during annual negotiations. Employers, acting through the Chamber of Mines, would counter with an increase of around the inflation rate.

After a bunch of posturing from both sides, they would agree to increase wages to be even with inflation, plus a few percentage points.

But this annual pantomime has been totally disrupted by the arrival of the Association of Mineworkers and Construction Union (AMCU).

AMCU says that its established rival NUM has been getting too cozy with the government and with mining companies. This smaller union is saying that the average mineworker in South Africa has seen no significant improvement to his lot in life since the end of apartheid. Of course, they're largely correct on that front.

And the AMCU is preaching a much more radical approach, which has been rapidly luring workers away from the more established NUM. Julius Malema, the leader of radical populist party the Economic Freedom Fighters, has thrown his support behind AMCU.

Last year, we saw the conflict between AMCU and NUM come to a head in the platinum sector.

The Rustenburg platinum mines suffered a 5-month strike over wages.

AMCU had demanded even more outrageous increases than NUM in order to outdo its rival. It then refused to play the usual charade of reaching a compromise. The result was many months of minimal production, and violence between AMCU and NUM. NUM lost a bunch more members to AMCU.

Those who wanted to keep working bore the brunt of the violence and the mining companies eventually crumbled (probably hoping to use the situation to allow them to close some loss-making shafts).

Anglo American Platinum, which owned the mines, reported that it had lost a third of annual production because of the strike. It even announced plans to sell mines after the strike ended,4 a decision that it has now followed through with. Around a week ago, it sold several South African mines to Sibanye Gold for $330 million in cash and stock. 5

But the damage won't end there.

Now AMCU is turning its attention to the gold sector. NUM can't afford another face-losing confrontation, so it has upped its ante, demanding larger increases and negotiating more strenuously. Neither union has much regard for how low commodity prices reduce the overall profitability of these mines.

There was a great quote in an interview with a NUM official last month. He said something along the lines of: "We know the mining companies can't afford a big increase, but I am mandated by my members to get a big increase. So we must strike."

The main mining companies have increased their offers and NUM has accepted the improved terms.  The Solidarity Union (mainly made up of skilled and semi-skilled workers) has also accepted, but the Chamber of Mines says it has to be accepted by all the unions before it can be implemented. AMCU has rejected the offer and so is again controlling the game.

AMCU is also appealing a Labor Court decision last year that any strike at AngloGold Ashanti, Harmony, and Sibanye's gold operations would be considered 'unprotected.' They were bound by an earlier collective bargaining agreement that they were party to. That appeal is still in court.

Gold mining companies are warning that the wage increases, coupled with a low gold price, will result in layoffs. AMCU views possible layoffs as a threat targeted towards its members. It has recently vowed to oppose downsizing in both gold and platinum industries. They have threatened to take action if layoffs occur.

The South African government is trying to please both sides. Mines produce revenue but the votes come from labor.

So we're seeing a 4-way struggle between the mining companies, NUM, AMCU and the South African government.

It appears that in the long term there's no escaping the problems that ail these mines. Work conditions are increasingly harsh as the mines become deeper and hotter, but they are too unprofitable to pay workers high salaries.

Unless some new technological innovation occurs that allows mechanized mining in economically-stretched gold and narrow-reef platinum mines, they will go the way of 19th-century whalers.

And if mechanization and automation do save the mining industry, it will be a rocky changeover, with unions lashing out against escalating layoffs.

Over the next few years, expect more discontent and unrest as mines continue to pay low wages, shut down, or move towards automation.

Is there an upside?

New mines that are developed using automation, employing a low number of skilled and highly-paid workers from the outset, might avoid the turmoil that will affect older gold and platinum mines in South Africa. New mechanized platinum mines, which employ fewer people and offer better pay and superior working conditions, might stand to benefit.

The world is dependent on new platinum supply for industrial uses, and the price of platinum could rise as production at older mines decreases.






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September 5, 2015

Good News for #Egypt's #Energy Sector #MasterEnergy @Stratfor

Good News for Egypt's Energy Sector | Stratfor
Egypt Natural Gas Production by Region

Italian oil firm #Eni's Aug. 30 announcement that it has discovered the largest known natural gas deposit in the Mediterranean in Egyptian waters means Egypt could re-establish its energy independence with natural gas supplies, ending several challenging years for the country's energy sector.

Good News for Egypt's Energy Sector

For most of the past decade, international energy producers have been able to earn only $2.50 to $2.65 per mmbtu for the natural gas that they sold to EGAS, the Egyptian domestic natural gas company. This pales in comparison to most global natural gas prices, which at times have exceeded $15 per mmbtu. (Under the terms of the deals by which international oil companies operate in Egypt, Cairo can force them to sell at below-market rates.) Making matters worse, Cairo has struggled to pay international oil companies. By late 2013, Egypt owed energy firms an estimated $6 billion to $7 billion, prompting the firms to hold off on numerous exploration projects. Reduced investment resulted in lower Egyptian production as older fields and wells saw production declines. Between 2012 and 2014 alone, Egyptian production fell from 61 billion cubic meters to 49 bcm.

After his 2014 re-election, President Abdel Fattah al-Sisi carried out reforms in the energy sector, including reducing energy subsidies that had accounted for 25 percent of the government's budget. It allowed Cairo to begin repaying foreign oil companies, lowering its outstanding debt from more than $6 billion in late 2013 to $3.5 billion at the end of June 2015.

Read the rest of the article online on Stratfor here:

September 1, 2015

#Alaska Exemplifies the #ClimateChange Debate

Interesting top line analysis from Stratfor on the balance between energy development and conservation on the heels of Obama's visit to Alaska this week.

Alaska Exemplifies the Climate Change Debate

U.S. President Barack Obama headed to Alaska today for a three-day trip to speak at a conference on climate change organized by the United States. That climate change is the main agenda item at the conference highlights the tension that Alaska — and the rest of the world — faces between the production and consumption of energy and its environmental impact.

Obama's trip to Alaska tops off a month during which his administration introduced several environmental regulations. On Aug. 3, the president unveiled a new set of regulations to fast-track reductions in carbon emissions from power plants and to give U.S. states slightly more than a year to propose their plans. Later in the month, Obama announced new plans to increase renewable energy access and energy efficiency for U.S. households.

The U.S. moves to implement programs to combat climate change are part of preparations for the 2015 U.N. Climate Change Conference, to be held Nov. 30-Dec. 11 in Paris. There, the international community intends to sign binding pacts designed to fight climate change. Ahead of the summit, countries are finalizing their pledges. The United States has set a target to reduce greenhouse gas emissions by 26-28 percent below 2005 levels by 2025. China is aiming to cut emissions per unit of gross domestic product by 60-65 percent below 2005 levels by 2030.

The Paris climate summit may bring up the most comprehensive international agreement to combat climate change since the Kyoto Protocol. The extent and success of the pact, however, will face the same constraints. Developing countries like China, India and Argentina will require more energy as they continue to develop over the next couple of decades, and their emission levels will increase in tandem. For poor or developing countries, "dirty" energy like coal remains the cheapest source of energy; more expensive sources are detrimental to their development. The conflict between core interests and requirements to reduce energy consumption and/or use more expensive renewable energy is also an issue for businesses, especially in the developed world.

Alaska is perhaps the place where these conflicting interests are most apparent. The Obama administration allowed Shell to begin drilling in the Arctic Sea this summer, and some of Alaska's most prominent politicians have been steadfast supporters of the oil and natural gas industry. Sen. Lisa Murkowski has been a vocal proponent of approving the Keystone XL pipeline, crude oil exports and more favorable terms for oil companies looking to explore the Arctic. And of course, 2008 vice presidential candidate and former Alaskan Gov. Sarah Palin became known for the slogan, "Drill, Baby, Drill."

This should come as no surprise. The oil and natural gas industry is the source of more than 80 percent of Alaska's state taxes. The Alaskan economy is built on the production and sale of natural resources, among which energy resources are the most important and valuable.

However, climate change will continue to challenge Alaska as well. The Arctic region is an important part of the Earth's climate system. Melting polar ice caps and increasing freshwater runoff would affect ocean circulation and the freshwater intake of the Arctic Ocean. Snow, vegetation and ice also play a role in reflecting light and radiation from the sun.

However, each of those processes is long term. The Arctic polar ice cap's average extent may be melting over time, but its impact will be gradual — decades, perhaps generations long — which means the issue will not suddenly become more urgent for companies and voters. It is unlikely that an event will occur that can be clearly or immediately connected to climate change and that will cause politicians or companies to suddenly enact radical measures that go against their core interests. Drastic oil, natural gas and energy regulations have been passed, but typically only in response to a disaster like the 1989 Exxon Valdez oil spill in Alaska or the 2010 Deepwater Horizon oil spill in the Gulf of Mexico. Developing countries have even more constraints than their developed counterparts in introducing proactive measures.

The world's industrial development has one crucial input: energy. That is unlikely to change anytime soon. Moreover, during the last century, energy supplies have become one of the world's most important resources in geopolitics because of their indispensable role in industry. Most alternative energy sources remain more expensive — quite significantly, in some cases — than their traditional hydrocarbon-based sources, making the economic pain of switching enormous. This will not always be the case: Breakthroughs are occurring already in alternative energy sources and energy storage that could cause them to reach cost equivalence with other sources in the not too distant future. Once that happens, a comprehensive plan of action to fight climate change will become more appealing.

For now, though, the consequences of overhauling a country's energy demand are enormous and politically charged. Obama is using his Alaska visit to promote his climate change action plan, but Alaska is caught between immense benefits from energy production and some of the most serious consequences of energy use.

Read the article online at Stratfor here:

-- The MasterFeeds