Metals / Commodities

• When Higher Metals Prices Aren't Good for Miners

  A couple of interesting data points on costs in the mining industry. Cost containment is once again becoming a major issue for miners. TD Newcrest analyst Greg Barnes told a Canadian Institute of Mining, Metallurgy and Petroleum conference in Vancouver this week that inflation of operating and capital costs has become "endemic" across the business. Barnes noted that the average capital intensity for new copper mines has doubled over the last ten years, from $4,000 to $5,000 per installed tonne of capacity to currently over $10,000 per tonne. Costs may range up to $15,000 per tonne in difficult environments. He…

• Australia’s Super Profits Tax on Resource Companies Leads to Immediate Fall-Out

  Australia sent the major miners into a tailspin overnight. The Rudd government announced Sunday night that it will impose a new "resource super profits" tax on mining, oil and gas, geothermal and other resource extraction in the nation. Under the scheme, resource companies will pay a 40% tax on profits. Implementation is scheduled for July 1, 2012. The fall-out was immediate. BHP announced it expects its effective tax rate to rise to 57%, from a current 43%. Citigroup said the new rules could cause the effective tax rate for northern Australia's large liquefied natural gas projects to rise by several…

• The Coming Boom in Rare Earth Metals

  Interest in Rare Earths is starting to heat up in a dramatic fashion, and it something you should keep on your radar. So named because they were hard to get in the 18th and 19th century, these once obscure elements have suddenly become the focus of several converging trends in the global economy, as they are the key ingredient of magnets. There are 17 in all, divided into light (cerium, Ce, lanthanum, La, and neodymium, Nd) and heavy (dysprosium, Dy, terbium, Tb, and europium, Eu). It turns out that you can't build a hybrid or electric car, a wind turbine,…

• What to Look For When Investing in an Exploration Company

  Calling all mineral explorers. Australia needs your help. The Australian Institute of Geosciences (AIG) this week released a report noting that the Aussie exploration sector is suffering. AIG blames the decline on a few things. Major producing companies moving out of greenfields exploration, to focus on near-mine exploration. And lack of a "flow-through" tax scheme that would allow investors in exploration companies to claim significant tax credits, making investment in exploration more attractive. The upshot being that companies with money are choosing not to explore. And companies that want to explore are having a hard time getting money. AIG sees…

• ETF-izing the Market: Are Producers Getting the Wrong Signal?

  Reports this morning that Russian aluminum giant Rusal is looking at launching an exchange-traded fund (ETF) back by physical aluminum. Rusal said the fund could initially be backed with up to 1 million tonnes of aluminum. This seems to be the way of the world. Investors are increasingly becoming the go-to buyer for a host of metals. The most recent success in "ETF-izing" a metal came in the platinum group elements. Earlier this year, the first platinum- and palladium-backed ETFs were launched in North America and Japan. Both have been a resounding hit with buyers. Net ETF holdings of platinum…

• Chinese Base Metal Stockpiles are Reaching Epic Levels - How will this Affect Prices

  A couple of interesting data points the last few weeks, on commodities oversupply. Last week CBI China reported that Chinese base metal stockpiles are reaching epic levels. CBI surveyed commercial warehouses in Shanghai plus three other provinces and found that metals inventories have continued to bulge. All told, 965,000 tonnes of aluminum and zinc are now held in storage across China. That's phenomenal inventory growth over the last few months. At the end of 2009, stockpiles stood at "just" 626,000 tonnes. We're up over 50% in a single quarter. And CBI expects inventories to keep rising, noting "We'll have 1…

• Rio Tinto Case Indicates Chinese Leadership are Confident that Growth Will Continue

  When four executives from Rio Tinto, the giant Anglo-Australian mining company, were arrested last July on charges of stealing commercial secrets, as well as taking and receiving bribes from Chinese officials, most Westerners interpreted the move as trumped-up retaliation for the debt-strapped company's rejection of a 19.5 billion US dollar cash injection from the state-run Chinalco last June, since Rio Tinto is one of China’s biggest suppliers, helping it import tens of billions of dollars worth of iron ore every year — a vital component for steel that is fueling its booming economy. Given the deep inter-relationship between company and…

• A Wave of Steel

  China is the key to the metals markets today. And there are some important signals about this market registering in the last few weeks. Last month, I wrote about diverging global shipping indexes. The Baltic Dry Index, which tracks global shipping rates, has been falling the last several weeks. While the China Containerized Freight Index, tracking solely Chinese shipping prices, has been on a tear. The CCFI is up 12% since the beginning of January. This could indicate an increase in goods being shipped out of China these days. And those goods might be metals. A few weeks ago, odd…

• Rogue Aluminium Shipments Suggest Chinese Metal Stockpiles are Being Re-Exported

  This might be the year's most important news. Which got almost no press globally. Something strange happened in Japan in December. Shipments of aluminum from Mozambique and Brazil showed up in the northwestern ports of Fushiki and Fukui. Shipping aluminum to Japan isn't weird. The nation is an important consumer. But shipping South American and African aluminum to northwest Japan is strange. These are minor ports. Usually such imports would be unloaded on the Pacific side, at Yokohama, Osaka or Nagoya. Where did this "rogue aluminum" come from? Traders think it might be from China. When Japanese customs officials receive…

• The Two Kinds of Junior Natural Resource Companies

  There are two kinds of junior natural resource companies. When you analyze, it's critical to realize which one you're dealing with. The first type are explorers. These are companies hoping to find something. Oil, gold, geothermal energy. They have not yet made a discovery, but they possess expertise that gives them a chance of doing so. The second type are developers. Companies that have found something. And are now working on figuring out how big, how challenging and how costly that something will be to get out of the ground. This is a basic distinction. But it provides some very…