Australia's Fortescue iron ore shipments, price fall in Q3

Iron ore producer Fortescue Metals on Tuesday reported a 2 percent fall in third-quarter iron ore shipments on reduced demand in China, while the discount for its lower quality ore also widened.

The world no. 4 iron ore miner said it received 62 percent of the average benchmark Platts 62 CFR index for its ore during the quarter, down from 68 percent in the first half of fiscal 2018.

However, Fortescue said an expected seasonal lift in demand should support steel markets for the rest of the current quarter, and it held its full-year price realisation guidance steady at about 65 percent.

"Profit margins for China's steel mills have declined from the peaks reached in the December 2017 quarter and there are now signs that steel mills are refocussing on costs, resulting in increased demand for Fortescue's high value-in-use lower iron content ores," the company said.

The company also increased its expected full-year production cost target.

The price for Fortescue's ore had fallen as China has switched to higher grade, less polluting iron ore in a bid to reduce winter smog, boosting demand for premium ore, much of which comes from Brazil.

Fortescue cut its iron ore price forecast for the full year in March, citing subdued construction activity in China, some ongoing steel production restrictions and global trade worries.

Its first-half 2018 profit fell 44 percent due to weak prices for its lower quality iron ore. Fortescue said it shipped 38.7 million tonnes in the March quarter compared with 39.6 million tonnes a year ago.

The company maintained its fiscal 2018 shipment guidance at 170 million tonnes.

Fortescue said its cash production costs rose one percent in the third quarter from a year earlier to average $13.14 per wet metric tonne. The miner raised its full-year cost target to $12 to $12.50 per wet metric tonne, from $11 to $12 per wet metric tonne.

Reporting by Susan Mathew in Bengaluru; editing by Richard Pullin.

Barrick Gold earnings just beat market; turns focus to growth

April 23 (Reuters) – Barrick Gold Corp reported a slightly better than expected increase in first-quarter adjusted profit on Monday and said it was done selling assets to cut debt and would instead use funds from any future sales to boost growth or pay dividends.

The world's biggest gold producer by production said its focus would increasingly be on growth from its own projects and operations in Nevada and the Dominican Republic.

Toronto-based Barrick also said it has suspended work on a prefeasibility study on its massive Pascua-Lama gold and silver project on the border of Chile and Argentina as the venture does not meet its investment criteria.

Barrick kept unchanged its 2018 production and cost forecasts. It said it expects gold production in the second quarter to be roughly in line with the first quarter at around 1 million ounces, mainly due to the impact of a scheduled maintenance shutdown at its Nevada roaster.

The miner said adjusted net earnings for the quarter ended March 31 rose to $170 million, or 15 cents a share, from $162 million or 14 cents a share in the same three-month period a year ago on the back of higher gold prices and lower depreciation.

That was slightly ahead of the 13 cents per share that analysts on average had expected, according to Thomson Reuters I/B/E/S.

(Reporting by Nicole Mordant in Vancouver; Editing by G Crosse and Matthew Lewis)

Commodities: the top asset class of 2018 so far

Story by Jeff Desjardins

Is the commodity supercycle coming back from the dead?

For now, such a claim could perhaps be considered both bold and premature – but there does seem to be some compelling evidence that is mounting to back it up.

The asset quilt

According to the most recent “Asset Quilt of Total Returns” put together by Bank of America Merrill Lynch, commodities are the top returning asset class of 2018 so far. The chart, which shows the total returns of asset classes over the years, has commodities at an annualized return of 22.7% year-to-date.

Right behind it is gold, which sits at 11.6% on an annualized basis:

Interestingly, commodities haven’t been on top of BAML’s chart since the years 2000 and 2002, which were at the beginning of the last commodity supercycle.

A deeper dive

Here is how commodities have fared from 2000 to 2018, based on annual returns. If the commodity sector keeps the pace for the rest of 2018, this will be the best year for the asset class since 2003.

For various reasons, commodities have bounced back in the last three years.

The return of oil prices have helped to resurrect the sector. Ironically, the anticipated metal demand from renewable energy – which will be used to wean society off of fossil fuel consumption – is also a massive driver behind commodities right now.

Not only are base metals like copper, aluminum, and nickel essential for the “electrification of everything”, but lesser-known materials like lithium, cobalt, rare earths, vanadium, uranium, and graphite all play essential roles as well. They do everything from enabling lithium-ion batteries and vanadium flow batteries, to making possible the permanent magnets that generate electricity from wind turbines.

"The environment for investing in commodities is the best since 2004-2008."

Goldman Sachs, February 2018

Not surprisingly, here are how metal and energy commodities have performed since January 1, 2016:

Some minor metals, like vanadium, have increased by over 400% in price in the last two years. That begs the question: how much room could there possibly be for price appreciation left?

Supercycle potential

As Frank Holmes of U.S. Global Investors described in a recent post, the last boom was so prolific that investing in an index tracking commodities (such as the S&P GSCI) in 2000 would have resulted in the equivalent of 10% annual returns for ten years.

He also shared this chart, which shows the ratio in value between commodities and the S&P 500:

In other words, commodities seem to be more undervalued than any time in the past 20 years, at least relative to equity indices such as the S&P 500.

Even if the above ratio comes back up to the median of 3.5, it’s clear that there could still be vast amounts of opportunity available in the sector for investors.

Should we expect a crisis in the Russian coal industry?

Written by Stanislav Grachev, Russian Coal Group, Director General

At the end of 2017, Russia took sixth place in the world in terms of coal production, surpassed only by China, the United States, India, Australia and Indonesia. Last year the country produced 409 million tons of coal, which is 6% higher than in 2016. The Ministry of Energy of Russia predicts that by 2030 coal production will increase to 480 million tons.

Coal production in Russia, million tons

The current resource potential of Russia exceeds 1.1 trillion tons of coal. There are 22 coal basins and 129 separate deposits in the country. Coal is mined in 25 regions of the Russian Federation by 150,000 miners.

The coal industry is the only industry in the fuel and energy complex of the Russian Federation fully represented by private capital.

Focus on exports

The Russian coal industry is currently increasing production volumes primarily through the increase of exports. Over the past 5 years, Russian coal exports have increased by 25%.

In 2017, deliveries to the domestic market grew only by 2%, while exports increased by 15% compared to 2016 and reached 186.3 million tons, which is 52% of total Russian coal shipments (356.1 million tons). 91% of export shipments were made up of steam coal.

Russian coal is exported to almost 80 countries. The main importers of solid fuel from Russia in 2017 were Japan, China, South Korea, Turkey, the United Kingdom, the Netherlands, Germany, Ukraine, Poland and Latvia. It is projected that in 2035 coal exports from Russia to the countries of the Asia-Pacific region will increase by another 50 million tons.

The growth in exports of Russian coal is due to the flexible price policy of Russian companies in the international market. It enables coal to be produced in Russia at a relatively low cost.

The assets of Russian Coal Group (one of the top five leading producers of steam coal in Russia, annually producing over 14 million tons of this fuel) include 6 coal mines in the Siberian and Far Eastern regions: Amur region, Krasnoyarsk territory and the Republic of Khakassia. Many years ago, we revised the company's asset portfolio, leaving only open-cast assets, since they are safer and more cost-effective. The company's products are consumed in 60 regions across the Russian Federation. In the domestic market, 70% coal is supplied to energy companies and 30% to utility companies.

The main export assets of Russian Coal Group are the Sayano-Partizansky open-cast mine in Krasnoyarsk territory and the Stepnoy open-cast mine in the Republic of Khakassia. These open-cast mines produce high-calorific coal, which is in demand abroad. Currently 85% of coal from the Sayano-Partizansky mine is exported through the ports of Murmansk and Ust-Luga. In 2018, we plan to increase production at the Sayano-Partizansky mine to 1 million tons of coal per year, and in the future to reach an annual production capacity of 3 million tons. In the Stepnoy mine, more than 4 million tons of coal are produced a year, which are exported to the countries of the Asia-Pacific region and East Europe. More than 80% of the coal from Stepnoy is processed at a coal preparation plant, which increases the calorific content and qualitative characteristics of solid fuel.

Geographical and other difficulties

Despite the annual increase in solid fuel exports, Russia has a significant problem that complicates its expansion in the global coal market – the remoteness of its coal mining centres from the ports through which about 70% of all coal is exported. This entails significant logistics costs which have an impact on the final price of coal products. The creation of new coal production centres on the eastern borders of the country will help address this problem and further develop the export potential of Russian coal industry. New coal production centres in the east of the Russian Federation located close to areas where solid fuel is consumed will address the problem of the large transport leg, reduce logistics costs, and as a result further improve the price advantage for Russian coal products in the global market. According to the projections of the Ministry of Energy of the Russian Federation, by 2030 coal production in the east of Russia will grow by almost 80 million tons.

A longstanding problem for the Russian coal industry has been infrastructural limitations, and namely the insufficient development of railways and seaports. Due to the limited capacity of ports and railway transport, the volume of Russian coal exports is also limited and significantly less than the actual production capacity of coal mining companies.

Other problems faced by the Russian coal industry include the high dependence on imports when purchasing mining equipment and spare parts (in some companies this reaches 80%), the shortage of highly qualified personnel in all parts of the production chain, the significant investment capacity of projects, the longstanding high level of capital expenditures, the need for large infrastructure costs (for the construction of railways, port infrastructure, shift camps, etc.), as well as long payback period of investments. For example, small open-cast coal mines with a production capacity of 0.5 to 1.5 million tons of coal per year require 1.5 to 2 years to reach full capacity. Only then can we talk about a return on investment. Investments in large projects (over USD 1 billion) have a longer payback period – 10 years and longer.

The main trends are the growth of coal processing and labour productivity

One of the most prominent trends in recent years in the Russian coal industry is the growth in coal processing volumes. In 2017, the volume of processed Russian coal increased by 3% to 196.5 million tons. Of these, 191.2 million tons of coal were processed at coal preparation plants. There are currently 65 coal preparation plants in Russia, which are responsible for increasing the calorific content, and therefore the quality of coal products, to make them even more competitive in the global market.

The creation of new products based on traditional raw materials will create new global opportunities capable of revolutionizing the entire industry. This is feasible with the development of deep coal processing technologies. But in Russia everything is limited by the lack of investment in such large-scale projects.

Another positive trend is the growth of labour productivity in the Russian coal industry which has occurred during the free market years. Since the beginning of 2000, the labour productivity of Russian miners has increased threefold. Such growth is due to a combination of the remaining leading miner traditions of the Soviet era (such as production competitions, the mentoring system, professional skill competitions) and Western practices in the market economy – a flexible bonus system clear to all employees and bonuses tied to individual production results. However, a number of obsolete standards that have existed since USSR times remain a deterrent to further growth in labour productivity.

A beneficial crisis?

In the current unstable economic situation and the policy of sanctions, Russian coal companies are some of the few for which new opportunities and competitive advantages are opening up.

Firstly, demand for coal in the domestic market remains stable, and the main foreign consumers of Russian coal – the countries of the Asia-Pacific region – do not support the policy of sanctions enacted by the United States and Europe.

Secondly, due to the drop in the rouble/dollar rate, the cost price of coal products is lower and price competitiveness is increased.

In the new environment, Russian coal companies need to transform operational models and change their strategic priorities. Changes in organizational culture, business processes, technologies, and corporate culture will help Russian coal companies create new competitive advantages.

The most important thing for Russian coal companies is to not overlook the new opportunities that are opening up before them, to adapt to the new market realities, and to quickly implement all the necessary changes to their organizational structure and business processes.

The Russian coal industry remains resistant to external crisis phenomena, which means that it remains a strong player and reliable partner in the global coal market. The main objective of Russian coal companies is to manage internal crises: managerial, bureaucratic and technological crises. In this case, they will not only gain immediate benefits from the successful confluence of external factors and favourable market conditions, but will also secure stable and long-term competitive advantages as a leader of the global coal market.

Indonesia's Adaro targets 35 pct growth in coking coal output

JAKARTA, April 23 (Reuters) – Indonesian coal miner Adaro Energy is targeting coking coal output of 1 million tonnes this year, up from 740,000 tonnes in 2017, a company director said on Monday.

That excludes any increase in Adaro's coking coal output that may come from its planned purchase of the Kestrel mine in Australia from Rio Tinto .

Adaro unit Adaro MetCoal Companies (AMC) has 54 million tonnes of metallurgical coal reserves at one of its seven mine concessions in East and Central Kalimantan provinces, AMC Director Priyadi told reporters at a company event.

Altogether, the AMC concessions may hold as much as 1.35 billion tonnes of coking coal resources "with very low ash and sulphur content", according to a statement from Adaro.

Priyadi said AMC is now exploring its other concessions.

"In 2017, AMC focused on increasing semi-hard coking coal sales both in international and domestic markets," Adaro said in the statement.

Thermal coal is used in power plants. Coking or metallurgical coal is sold to steel mills.

Adaro CEO Garibaldi "Boy" Thohir said at the event the company is diversifying away from its thermal coal business, referring to the company's plans to acquire Kestrel.

The Kestrel purchase and increasing output from AMC would support Indonesia's future demand for iron, Thohir said.

"We will study from the mine in Australia," he said.

Besides increasing its coking coal output, the Kestrel acquisition would also provide Adaro with expertise in underground mining that it could potentially apply in Indonesia, where underground mining is still uncommon.

The deal still needs regulatory approval, Thohir noted.

Rio said in March it had agreed to sell its stake in Kestrel, an underground coking coal mine in Queensland state, to EMR Capital and Adaro for $2.25 billion.

The deal was expected to be completed in the second half of 2018, it said.

In 2016, Kestrel produced nearly 5 million tonnes of coking and thermal coal, according to Rio's website, with remaining reserves totalling 132 million tonnes.

The Kestrel deal would represent Adaro's second coking coal mine purchase from an Australian miner.

Adaro acquired a 75 percent stake in the AMC mine concessions, then known as the IndoMet Coal project, from partner BHP Billiton for $120 million in October 2016, amid a slump in metallurgical coal prices.

Adaro had already held the other 25 percent in the project.

Among the concessions is the Maruwai mine, where BHP had aimed to produce 6 million tonnes a year of thermal and coking coal by 2020, an expansion estimated to cost up to $1 billion.

At that time, Maruwai's undeveloped thermal and coking coal resources were estimated at 774 million tonnes.

(Reporting by Bernadette Christina Munthe; Writing by Fergus Jensen; Editing by Joseph Radford and Tom Hogue)

Chalco Q1 profits fall 19.4 pct on lower aluminium prices

BEIJING, April 23 (Reuters) – Aluminum Corp of China Ltd , known as Chalco, said on Monday that first-quarter net profits fell by 19.4 percent from a year ago due to lower aluminium prices but one-off gains helped it avoid a much worse result.

The company, China's biggest state-run aluminium producer, said in a filing to the Shanghai Stock Exchange that net profit during the January to March was 308.6 million yuan ($48.94 million), versus an adjusted net profit of 382.9 million yuan a year earlier. Revenues, meanwhile, fell by 10.5 percent to 36.7 billion yuan.

The numbers point to thinning margins for aluminium smelters in China, the world's biggest producer of the metal, in a quarter when prices fell.

Helen Lau, an analyst at Argonaut Securities in Hong Kong, said the Chalco numbers were in line with her expectations, of 1.3 billion yuan on an annual basis, but noted that without one-off gains totalling 282.25 million yuan, the company would only have made around 26 million yuan in profit.

These one-offs included a 166.4 million fair-value gain on subsidiaries and affiliates. Chalco in January issued shares to buy back stakes in four subsidiaries for about 12.7 billion yuan, only a month after selling them to a group of outside investors.

In the fourth quarter of 2018, Chalco profits were 38.9 million yuan, lowest since the first quarter of 2016, as an aluminium price rally ran out of steam.

The price decline continued in the first three months of 2018, with Shanghai aluminium futures falling 10.6 percent, the worst quarter since the middle of 2010, as Chinese inventories rose.

Since the end of the first quarter, aluminium prices have risen by 8.1 percent in Shanghai – and by around 25 percent in London – amid supply concerns after U.S. sanctions on Russian producer United Company Rusal.

Chalco produced approximately 3.61 million tonnes of aluminium last year, according to a filing to the U.S. Securities and Exchange Commission last week. That compares to 3.71 million tonnes for Rusal.

Chalco's shares closed down 2.3 percent at 5.01 yuan in Shanghai and slipped 4.2 percent to HK$4.81 ($0.6132) in Hong Kong on Monday.

($1 = 6.3058 Chinese yuan renminbi)

($1 = 7.8437 Hong Kong dollars)

(Reporting by Tom Daly; Editing by Christian Schmollinger)

New Zealand coal is used for much more than just electricity generation

Straterra, New Zealand’s minerals sector industry organization, has welcomed Energy Minister Megan Woods comment on TVNZ’s Q and A on Sunday that the government has no plans to end coal mining in New Zealand, particularly in light of government’s recent decision to ban all offshore exploration for oil and gas which sent shock waves through the business community.

“As well as providing jobs and contributing to economic development in regional New Zealand, coal plays an important part in New Zealand’s export reliant economy,” Straterra CEO Chris Baker said today.

“We note that the government has committed to phasing coal out of electricity generation by 2030, as have the electricity generators themselves. However, there is much more to coal in New Zealand than the role it plays in generating electricity in the Huntly power station.

“New Zealand exports coking coal from the West Coast. This business provides jobs, much needed export revenue and does not contribute to New Zealand’s carbon emissions account.

“Coking coal is an essential input in the manufacture of steel.  While an increasing amount of steel is being recycled, there is currently no technology to make steel, at scale, without using coal. New Zealand coking coal has certain special qualities and is in high demand internationally. If we don’t supply our coking coal, customers will purchase elsewhere, often from producers with lower environmental standards. That means the steel will still be manufactured, there would be no net gain for the global environment but West Coast jobs would be lost. No winners there!

“The same basic argument applies to the Government’s recent decision to ban offshore oil and gas exploration.

“Coal also plays an important role in producing heat for industrial processes.  Much of New Zealand’s export economy (including agriculture and steel) has grown on the back of New Zealand’s comparative advantage in energy.  Without cost effective energy, production costs for many of our exports would be higher and New Zealand less competitive in the international markets in which we compete.

“In terms of electricity production, coal and gas continue to play an important role as a back up to intermittent renewable sources.

“Ironically, coal could become a more important option as future gas supplies are impacted by the ban on offshore oil and gas exploration,” Mr Baker concluded.

More information: Chris Baker, CEO, Straterra, 027 2406 754, [email protected], www.straterra.co.nz

Poland's KGHM says Q1 copper sales fall 12 pct yr-on-yr

WARSAW, April 23 (Reuters) – Polish copper producer KGHM Polska Miedz said on Monday its first-quarter copper sales fell 12 percent year on year to 133,400 tonnes.

KGHM also said in a statement that silver sales fell in the same quarter by 16 percent to 212.6 tonnes.

(Reporting by Marcin Goclowski and Anna Koper; editing by David Evans)

US extends deadline for Rusal sanctions, aluminum prices dive

WASHINGTON/MOSCOW, April 23 (Reuters) – The United States on Monday gave American customers of Russia's biggest aluminum producer more time to comply with sanctions, and said it would consider lifting them if United Company Rusal Plc's major shareholder, Russian tycoon Oleg Deripaska, ceded control of the company.

Aluminum prices on the London Metal Exchange tumbled 8.7 percent on the U.S. Treasury Department announcement, which gives Rusal longer to sell off large quantities of aluminum it had been stockpiling in the wake of sanctions.

Last week, aluminum prices rallied to their highest in years after Washington, in response to what it called "malign activities" by Russia, imposed the sanctions that will in effect choke off access for Deripaska's businesses to the international financial system.

Treasury gave Americans until Oct. 23 instead of June 5 to wind down business with Rusal. It said it would not impose secondary sanctions on non-U.S. entities engaged with Rusal or its subsidiaries.

Shares in Rusal, one of the world's largest aluminum companies, jumped 17.7 percent on the Moscow Exchange. Earlier, Rusal had ended Hong Kong trading down 8.4 percent. Shares of its U.S. rival Alcoa Corp slid 13.5 percent on the New York stock exchange.

"Rusal has felt the impact of U.S. sanctions because of its entanglement with Oleg Deripaska, but the U.S. government is not targeting the hardworking people who depend on Rusal and its subsidiaries," U.S. Treasury Secretary Steven Mnuchin said.

Workers at one of Russia's biggest aluminium smelters say their Siberian town is doomed unless Moscow mitigates U.S. sanctions against Rusal, a predicament mirrored across the company's sprawling operations.

Deripaska owns a 48 percent stake in Rusal "and controls the company via his shareholder agreement with other owners," said Oleg Petropavlovsky, a senior analyst at BCS Global Markets. "It is not clear whether potential cancellation of this shareholder agreement would be enough" to satisfy U.S. officials, he said.

Rusal declined to comment on the Treasury Department announcement. The Kremlin and Deripaska did not immediately respond to requests for comment.

No longer 'radioactive'

European leaders have worked to persuade U.S. President Donald Trump to ease sanctions on Russia, with the president of France poised to visit the White House this week.

Mnuchin said "impact on our partners and allies" factored into the reprieve. French sources said initial feedback had been "constructive."

Rusal now has more time to sell off its supply. Even if sanctions are not ultimately lifted, buyers also have more time to seek other suppliers.

Last week, aluminum rallied to its highest since mid-2011 on fears the global market could face shortages as a result of the U.S. sanctions. It remains up more than 16 percent this month.

Wood Mackenzie analysts said Treasury's announcement provides "much-needed breathing space" for the aluminum market, adding "We expect near-term correction and volatility" in prices.

Edward Meir, an analyst at INTL FCStone, said there is potential for Rusal to survive and that "the 5 mln (million) tons of Rusal production that a week ago was arguably radioactive, will no longer be so."

(Reporting by Susan Heavey in Washington, Polina Devitt in Moscow, Pratima Desai in London; Writing by David Gregorio; Editing by Marguerita Choy)

Glencore's prize cobalt miner is bogged down deeper in Congo

(Bloomberg) — Katanga Mining Ltd. will soon be the world’s top cobalt miner, churning out thousands of tons of metal and billions of dollars in revenue for Glencore Plc. It’s also turning into a major thorn in the commodity giant’s side.

Katanga is controlled by Glencore but trades in Toronto, making it one of few options for equity investors seeking exposure to the coveted battery ingredient. Its shares surged more than 1,200 percent in 2017 as the company moved to restart production in the Democratic Republic of Congo and boost cobalt output — just as ballooning projections for electric-vehicle sales turned the metal into one of the world’s hottest commodities.

Yet instead of enjoying the boom, Katanga is mired in difficulties ranging from the prospect of higher taxes to a mounting legal battle with its Congolese partner, Gecamines. The state-owned miner has started court proceedings to dissolve the local operating unit, Kamoto Copper Co. in which it holds a 25 percent stake, after Katanga failed to reduce billions of dollars of inter-company debt that has limited Gecamines’ share of profits.

Katanga tumbled as much as 30 percent in Toronto Monday morning, the biggest intraday decline since July, after the company disclosed the Gecamines move on Sunday.

Katanga also faces continued scrutiny over its relationship with sanctioned Israeli billionaire Dan Gertler and an ongoing probe by Canadian regulatory authorities, both of which remain unresolved, Katanga said in its annual report this month.

“Katanga should be one of the best assets in the world," said Ben Davis, an analyst at Liberum Capital Ltd. in London. "Instead, it has been a perennial disappointment for Glencore and the situation looks like it is set to continue.”

Glencore and Katanga declined to comment. Gecamines didn’t immediately respond Monday.

Katanga boasts one of Congo’s biggest reserves of copper and cobalt but it has underperformed for decades. In 2015, Glencore suspended operations to address the problems and upgrade the facilities. Production restarted in December and the mine is scheduled to hit 300,000 metric tons of copper next year, when it will account for about a fifth of Glencore’s global production.

That, plus a projected 34,000 tons a year of cobalt, make Katanga central to Glencore’s strategy. The legal and regulatory challenges are putting that strategy at risk and leave Glencore’s assets in a vulnerable position, said Elisabeth Caesens, a director at Brussels-based Resource Matters, who has followed Katanga since 2008.

"The various legacy issues could jeopardize Katanga’s rosy future," Caesens said. "In a country that has witnessed asset seizures in the recent past, even the most radical scenarios can never be ruled out completely."

To be sure, Simon Tuma-Waku, a former chairman of Katanga’s Congolese operating unit and vice-president of Congo’s chamber of mines, said the issues facing Katanga need to be resolved but are unlikely to slow the mine’s ramp up. Katanga is finally poised to be a "major player" in Congo’s copper sector, he said.

Here’s a breakdown of Katanga’s challenges:

Debt structure

The court action by Gecamines means Katanga needs to urgently reduce a multi-billion-dollar capital shortfall at the Kamoto subsidiary.

Glencore and Katanga have made their investments in Congo as shareholder loans or prepayments for metal. While the structure is common among international investors in the country, missed output targets and a 10 percent interest rate mean that Kamoto’s total debt reached $9.2 billion through December, corporate filings show. That’s more than four times Katanga’s market value and has led to a $4.2 billion shortfall in working capital, which Katanga needed to resolve before January, according to local law.

A first hearing is scheduled for May 8 and Katanga could get another six months to resolve the issue, the company said. Its options include forgiving a portion of the debt, which could impact Katanga’s future cash flow from the project, it said.

Gertler sanctions

Katanga is also yet to say whether it will cease all future payments to Gertler, four months after the billionaire was sanctioned by the U.S. over alleged corruption, and despite calls from anti-corruption groups to end the relationship.

Glencore bought Gertler’s Katanga stake last year but is still obliged to pay him production royalties, which he acquired from Gecamines. Katanga is using previous advance payments to Gertler and Gecamines to offset the royalty fees, which means it doesn’t owe the billionaire anything for now, according to the annual report.

The question of future payments is a delicate one, said Caesens. Gertler maintains close personal relationships with Congo’s political elite.

"If the payments stop, Gertler misses out on about $8 million a month," she said. "He’s unlikely to let that go without a fight."

Accounting probe

Despite restating its financial results in November, reshuffling the board and reducing the role of Glencore’s billionaire copper boss, Katanga has yet to resolve regulatory difficulties in Canada, where the Ontario Securities Commission has been investigating the company over its accounting practices since the first half of 2017.

Katanga is continuing to cooperate with the probe, which may result in the prosecution of the company or its personnel, it said in the annual report.

(Written by Tom Wilson)

Glencore says legal proceedings opened against Congo unit

(Bloomberg) — A Glencore Plc subsidiary said the Democratic Republic of Congo’s state-owned mining company began legal proceedings to dissolve a unit forecast to become the world’s largest cobalt mine, because of a capital shortfall.

Toronto-listed Katanga Mining Co. said it has several options to remedy the deficit at Kamoto Copper Co., which operates a copper and cobalt mine in southeastern Congo, according to a statement issued on Sunday. Possible courses of action include the conversion into equity of a portion of existing debt owed by KCC to Katanga or forgiving some debt, it said.

“Any such outcome would impact the distribution of future cash flows earned by KCC,” Katanga said. KCC is a joint venture between Katanga, which owns 75 percent of the company, and Gecamines, Congo’s state miner. Glencore, based in Baar, Switzerland, owns more than 86 percent of Katanga.

High levels of debt at mining companies are becoming an increasingly heated issue in Congo, the world’s largest source of cobalt and Africa’s biggest copper producer. Gecamines has said it plans to renegotiate partnerships with international companies to give it a greater stake in mining revenue and profit.

Cobalt processing

KCC resumed production in December after a two-year hiatus during which it invested in new processing facilities. Glencore said the company will produce as much as 300,000 metric tons of copper and 34,000 tons of cobalt in 2019, which would make it Congo’s biggest copper mine and the world’s largest producer of cobalt. The price of cobalt, a key ingredient in rechargeable batteries needed to power electric vehicles, has more than quadrupled in the past two years.

Katanga last year flagged a $3.9 billion capital deficiency and gross debt of $8.9 billion. The company warned last month that the unit could face legal action because of the shortfall. A court hearing is scheduled in a Congolese court for May 8 and “may grant KCC a maximum period of six months to regularize the situation,” Katanga said Sunday.

KCC “has made numerous attempts to engage in constructive negotiations with Gecamines, regarding the recapitalization plan,” but the state-owned mining company has “unilaterally commenced the proceeding,” according to the statement. Gecamines President Albert Yuma and Director-General Jacques Kamenga didn’t immediately answer calls and emails from Bloomberg seeking further details about the case. A Gecamines spokesman declined to comment.

If Katanga takes the necessary steps to “regularize” KCC’s capital deficiency and the action is confirmed by KCC’s statutory auditor before a court judgment is made, the court cannot issue a dissolution order, according to the statement. KCC “is generating positive operating cash flow” and “remains liquid,” Katanga said.

(Written by David Stringer and William Clowes)

Sandvik at the World Tunnel Congress 2018: optimize your drilling

Tampere, Finland: 23 April 2018 – The World Tunnel Congress 2018 is taking place in Dubai, United Arabic Emirates from April 22nd to the 26th.

The world’s leading tunneling event brings together experts from all around the world. As a proud bronze sponsor of the event Sandvik Mining and Rock Technology is participating. At the Sandvik stand there will be the possibility to see an iSURETM software demo and to find out more about Sandvik’s array of tunneling solutions.

iSURETM software (Intelligent Sandvik Underground Rock Excavation software) is a computer program for Tunneling Construction and Mining drill and blast process control. It produces all the data you need for an optimized drilling and blasting cycle.

The full-featured iSURETM software utilizes your drill rig’s data collection to improve the work cycle and the drill and blast excavation process. It also has an optional toolset for geological analysis (iSURETM GEO), a tunnel profile 3D scanning system (iSURETM 3D SCAN) and an interface to a third party blasting vibration feedback system. iSURETM software capitalizes the improved accuracy of iSeries rigs for drill and blast usage.

Together the iSURETM software and DT922i tunneling jumbo, the newest addition to Sandvik’s extensive tunneling offering, create a combination which change the future of tunneling. The fully automated DT922i tunneling jumbo brings customers true tunneling quality, reliability and exceptional versatility. With a new articulated carrier, it features a next generation cabin supplying 25 % increased visibility, and noise level of less than 69 dB at all times.

Meet us at the World Tunnel Congress from April 23rd to 26th, Dubai, United Arabic Emirates at the Dubai World Trade Centre, stand #115!

LME to temporarily move nickel closing prices out of ring

The London Metal Exchange (LME) is planning to move end-of-day pricing of the benchmark three-month nickel contract from open outcry to its electronic trading platform for a trial period, LME chief Matt Chamberlain said on Monday.

The temporary move is designed to test the practicality of electronic pricing after some LME members asked the exchange to consider closing the ring, one of the world's last open-outcry trading venues, Chamberlain said.

It is likely to happen early next year and last for three months, after which pricing will return to the ring.

Fund investors have complained that trading bursts in the ring just before the close have distorted closing prices, while traders of physical metal support it.

"If we are going to have this debate, it has to be informed by proper quantitative and qualitative evidence," Chamberlain said. "The only way we can take this discussion to a more scientific basis is to do the trial."

Chamberlain said nickel had been chosen because it was a liquid contract but not as important to the market as aluminium and copper, which have the highest volumes.

Trading of other nickel contracts and the official ring where settlement prices are set will remain unchanged.

Chamberlain also said the exchange, established in 1877, would remain in London after Britain leaves the European Union next year, adding that most of the LME's members were based in Britain, the United States or Australia and would largely be unaffected by Brexit.

"We are confident that a sufficiently large proportion of our membership have access to our market that we are happy saying at this stage that we will be staying in London," he said, adding that less than 20 percent of the exchange's business came from the European continent.

Chamberlain said the LME is applying for individual trading licences in European countries and wants to work with EU regulators.

The exchange and its European members and customers are working on arrangements to make sure they have access to the market after Brexit, such as establishing corporate entities in Britain, and are lobbying authorities to make sure trading remains possible, he said. (Reporting by Peter Hobson Editing by David Evans and David Goodman)

LOESCHE is involved in the extension of the largest cement works in Nigeria with two vertical roller mills

Obajana, 09 April 2018 – LOESCHE is contributing to the new cement production line of the Dangote Cement plant in Obajana in Kogi State, Northern Nigeria with the delivery of two vertical roller mills (VRM). With a total capacity of more than 12 million tonnes/year, this plant, owned by the leading cement producer in West Africa, is currently not only the largest cement plant in Nigeria but also the largest cement plant  in all of Sub-Saharan Africa and also one of the largest worldwide.

In the Schwarze Pumpe Power Plant in Germany, the LM 35.3 D has been in operating successfully for many years.

LOESCHE's order for the new production line 5 in Obajana comprises a high performance 6-roller mill for cement raw meal with a capacity of 580 t/h – the largest roller mill for raw material in the LOESCHE range. The order also includes a large 3-roller mill with a modular design featuring a drive power range of 1,000 kW for grinding hard coal and lignite with a throughput of up to 70 t/h.

In addition to the two complete VRMs, the LOESCHE scope of delivery also comprises the respective classifiers for the type LDC for cement raw material and the type LSKS ZD coal mill, which is characterised by individually adjustable grain size separation. The two mill gear units are equipped with state monitoring and remote access for remote monitoring. Moreover, LOESCHE is contributing to the design and planning of the entire plant as well as the engineering for the electrical measurement, control and regulation technology and complete automation. The delivery date is scheduled for the third quarter of 2018.

The raw material mill is equipped with the highly resistant metalmatrix-compound (MMX) technology which guarantees a very long service life.

The contract partner for this project is again the Chinese company Sinoma International Engineering Co., Ltd. which has already installed a total of seven clinker and cement raw meal VRMs for the Obajana plant in close cooperation with LOESCHE in previous years. There, and with its two other production facilities, Dangote Cement achieves a total capacity of 19 million tonnes/year today. With the extension of its production capacities, Dangote is contributing towards Nigeria's aim of extending cement production capacities in order to meet the current growth in demand and to reduce the country's dependency on cost-intensive imports. Not least for this reason, Dangote Cement has invested a total of at least 4 billion US dollars here in previous years.

Mining firms from China to Canada watch as Greenland holds election

With melting ice expanding access to the Arctic, investors from China to Canada are watching Greenland's election for signs of the political will to get a flagging mining programme on the island back on track.

Greenland is hoping rising commodity prices can help attract foreign investment and get its fragile economy up to speed to realise a long-term goal of independence from Denmark.

Hype about a possible mining boom in Greenland after it achieved self-rule from Denmark in 2009 faded in a morass of red tape and a commodity price slump around five years ago. It left the economy reliant on fishing and grants from Denmark.

But with the country's sole producing mine starting up last year – a ruby pink sapphire mine operated by Norway's LNS Group – and Canada's Hudson Resource's anorthosite project due to begin operations this year, locals are again hoping more investments will follow.

Improved access to and from the Arctic island as the ice melts, and a more favourable investment climate, would go some way to alleviate the barriers to business of perpetual winter darkness and temperatures reaching as low as minus 50 Celsius.

With that in mind, a central theme for the new government elected on Tuesday will be to decide whether it wants to shift focus away from Denmark and strengthen economic and diplomatic ties with other countries, including China.

Chinese interest in Greenland comes after Beijing laid out its ambitions to form a "Polar Silk Road" by developing shipping lanes opened up by global warming and encouraging enterprises to build infrastructure in the Arctic.

The main contenders to lead the next government are Prime Minister Kim Kielsen of the social-democratic Siumut party and Sara Olsvig of the left-wing Inuit Ataqatigiit party (IA).

The most recent poll shows that the two parties are likely to continue working together in a coalition.

"A new government led by Kielsen and Siumut but without IA will create more openness towards attracting investments, including from China," said Rasmus Leander Nielsen, assistant professor at the University of Greenland in Nuuk.

"IA is more sceptical. They want mining activity, but have more emphasis on the environment," Nielsen said.

Demokraterne, Greenland's third biggest party, and the new Nunatta Qitornai party are also pro-mining.

CHINESE INVESTMENT

Greenland, whose capital Nuuk is closer to New York than the Danish capital Copenhagen, is more than three times larger than the U.S. state of Texas. But with a population of just 56,000, it is the most sparsely populated nation on earth.

It has shortlisted a Chinese consortium to expand three airports, causing concern in Denmark which has given its ally the United States wide military access – just one of many sources of friction as independence rhetoric sharpens.

China's Shenghe Resources is also already partnering with Greenland Minerals and Energy to develop a rare earth and uranium project. Ironbark Zinc has asked state-owned China Nonferrous Metal Mining Group to help it finance and develop a zinc and lead project.

But development in the mining sector has so far been slowed by a lack of infrastructure and by heavy red tape, observers say. Assistant professor Nielsen said he would consider the uranium project dead if IA formed a government without Siumut.

The previous licence holder to the new ruby mine went bankrupt in 2016, as investors turned its back on the project that for years failed to secure the necessary approvals.

"I think the politicians are keen to get things moving. But it often drowns in bureaucracy," said Bolette Maqe Nielsen, chairman of Australia's Tanbreez Mining, which for more than six years has been negotiating with Greenland for a rare earth mining project.

The island lacks simple infrastructure, but is betting that the expansion of the three airports by 2022 will help kick-start a wave of economic activity.

"The commodity business cycle is pointing upwards. But Greenland must be alert and ready to act when prices go up, otherwise they might miss the chance once again," said Brian Buus Pedersen, head of the Greenland Business Association.

For now, mostly smaller and mid-sized mining companies such as North American Nickel and Bluejay Mining are actively pursuing projects there, while larger Western industry players stay on the sidelines.

Prime Minister Kielsen and his cabinet travelled to Beijing last year, where he openly courted Chinese investors and officials. The government is also considering opening a representation office in Beijing, following one in Washington in 2014 and the opening of another in Iceland this year.

"To get really large scale projects to happen, it looks like they need Chinese investments," said Ulrik Pram Gad, an associate professor at Aalborg University and a former official in Greenland's government.

Reporting by Jacob Gronholt-Pedersen Additional reporting by Simon Jessop Editing by Alison Williams.

Bolivia to invest in billion-dollar lithium deal with ACI Systems

Bolivia will manufacture and market lithium batteries along with German company ACI Systems GmbH, which will invest $1.3 billion in the project, the country's manager of the lithium deposits told the Bolivian state radio on Saturday.

Along with Argentina and Chile, Bolivia is part of South America's so-called "lithium triangle," one of the largest global reservoirs of the key mineral for the production of car batteries.

"The German company ACI Systems has been selected as the strategic partner," Juan Carlos Montenegro, head of state-owned company Bolivian Lithium Deposits, or YLB by its Spanish initials, told Patria Nueva radio.

He said the joint venture deal will be inked as soon as possible so that operations can begin in about 18 months.

Bolivia has almost a quarter of the world's lithium resources.

Reporting by Daniel Ramos Editing by Chris Reese.

EU needs 'full' exemption from U.S. tariffs -France's Le Maire

The European Union needs to be exempted from steel and aluminum tariffs announced by the United States in order to work with Washington on trade with China, France's Finance Minister Bruno Le Maire said on Friday.

"We are close allies between the EU and the United States. We cannot live with full confidence with the risk of being hit by those measures and by those new tariffs. We cannot live with a kind of sword of Damocles hanging over our heads," Le Maire told a press conference during the International Monetary Fund and World Bank spring meetings.

"If we want to move forward … if we want to address the issue of trade, an issue of the new relationship with China, because we both want to engage China in a new multilateral order, we must first of all get rid of that threat," he said.

U.S. President Donald Trump announced a 25 percent tariff on steel imports and 10 percent tariff on aluminum imports last month to counter what he has described as unfair international competition.

Le Maire said the EU's exemption from the tariffs should be "full and permanent."

The EU is seeking compensation from the United States for the tariffs through the World Trade Organization. Brussels has called for consultations with Washington as soon as possible and is drawing up a list of duties to be slapped on U.S. products.

Reporting by Makini Brice; Editing by Paul Simao.

Commodities are flashing a once-in-a-generation buy signal

Since the commodities supercycle unwound nearly 10 years ago, many investors have been waiting for the right conditions to trigger mean reversion and lift prices. I believe those conditions are either firmly in place right now or, at the very least, in their early stages. Among them are factors I’ve discussed at length elsewhere—a weaker U.S. dollar, a steadily flattening yield curve, heightened market volatility, overvalued stocks, expectations of higher inflation, trade war jitters, geopolitical risks and more.

In addition, nearly 60 percent of money managers surveyed by Bank of America Merrill Lynch believe 2018 could be the peak year for stocks. A recent J.P. Morgan survey found that three quarters of ultra-high net worth individuals forecast a U.S. recession in the next two years.

All of this makes the investment case for commodities, gold and energy more compelling than at any other time in recent memory.

Exhibit A is the chart below, which I’ve shared before but recently updated with new data. Relative to equities, commodities are as cheap right now as they’ve been in decades. This is literally a once-in-a-generation opportunity that investors with a long-term view should seriously consider. For perspective, had you invested in a fund tracking the S&P GSCI or an equivalent commodities index in 2000, you would have seen a compound annual growth rate (CAGR) of around 10 percent for the next 10 years, according to Bloomberg data.

We all know that past performance is no guarantee of future results, but it’s doubtful you’re going to get a clearer or resounding signal that now could be an ideal time to add to your commodities exposure. If you feel as if you’ve been stuck at a traffic light these past few years, just waiting to put your foot on the accelerator, you can breathe a sigh of relief because the light may have just turned green.

Goldman: Time to Overweight Commodities

I'm not alone in my bullishness. In a note this week, analysts at Goldman Sachs write that “the strategic case for owning commodities has rarely been stronger.” The bank recommends an overweight position, estimating that commodities will yield at least 10 percent over the next 12 months, with most of the gains being made by crude oil and aluminum.

Whereas crude traders are responding primarily to concerns that output could be disrupted by intensifying conflict in the Middle East, specifically oil producer Syria, aluminum prices have skyrocketed following the imposition of fresh U.S. sanctions against a number of Russian firms. Among them is United Company RUSAL, the world’s second-largest aluminum company, responsible for producing as much as 6 percent of global supply.

WTI Testing $70 Resistance

Since its low of $26 per barrel in February 2016, the price of West Texas Intermediate (WTI) crude has surged nearly fivefold and is currently at its highest level in more than three years. On Wednesday, oil jumped nearly 3 percent on reports that U.S. inventories had fallen more than expected, suggesting the global glut continues to recede. Yesterday, WTI tested resistance at $70, a level we haven’t seen since November 2014.


But prices retreated again today after President Donald Trump blasted OPEC on Twitter, proving once again how quants comb through social media at lightning speed and use sentiment analysis to inform their trades. “With record amounts of Oil all over the place, including the fully loaded ships at sea, Oil prices are artificially Very High! No good and will not be accepted!” the president said.

As I shared with you earlier this month, OPEC and Russia are planning to work more closely together to limit output for a number of years, possibly as many as 10 or 20. Such an agreement would help support oil prices—Saudi Arabia in particular seeks higher prices to take Saudi Aramco, the world’s largest energy company, public—but it’s likely American shale producers would ramp up production to fill the void. The U.S. is now the number two oil producer in the world, having overtaken Saudi Arabia late last year.

Will We See $3,000 Aluminum?

Aluminum is likewise enjoying a strong rally, jumping sharply more than 23 percent since the White House announced sanctions against select Russian firms and oligarchs in response to the Eastern European country’s alleged interference during the 2016 presidential election. In nine of the past 11 trading days through yesterday, the metal posted positive gains, surging nearly 6 percent on Wednesday alone.

Aluminum soared to $2,715 per metric ton in intraday trading yesterday, the highest we’ve seen since April 2011. The rally may have further to run, writes Goldman Sachs, which forecasts a price range of between $2,800 and $3,000 this year.

Australian-British multinational Rio Tinto and Melbourne-based BHP, two of the world’s top aluminum producers, were both upgraded to “BUY” this week by CLSA, partly in response to rising aluminum prices but also because they maintain strong balance sheets and are expected to generate favorable free cash flow (FCF) this year.

China’s One Belt, One Road Still Needs Biblical Amounts of Materials

Also bolstering the commodities investment story is China’s massive ongoing “Belt and Road” megaproject, also known as the Silk Road Economic Belt. In a note this week, CLSA reminds us that the infrastructure initiative is still in its infancy, expected to be completed by 2049. It will cut through as many as 68 countries across Asia and Europe, affecting an estimated 62 percent of the world’s population. China has already spent approximately $180 billion to complete various projects, but many billions more will go toward building roads, ports, dams, high-speed rail, airports and more—all to “enhance regional connectivity,” as President Xi Jinping put it, and strengthen China’s economic clout.

To give you some scale as to how monumental and historic this undertaking truly is, the graphic below, courtesy of BHP, compares the development to the U.S. Marshall Plan, then one of the most expensive projects in human history. The Belt and Road initiative could eventually cost 12 times as much or more, with total spending estimates ranging between $4 trillion and $8 trillion.

Estimates of how much energy and natural resources will be needed during the development phase vary wildly, but I think it’s fair to assume that demand will continue to be supported for some time.

Gold Investors

Gold ended the week down slightly, the first time in three weeks it’s done so. It looks as if gold investors took some profits late in the week after the yellow metal came close to breaching $1,360 on Wednesday.

I still believe gold could hit $1,500 an ounce this year on rising consumer and producer prices, which I think are understated. This is more than apparent when you compare the official U.S. consumer price index (CPI) and alternative measures such as the New York Fed’s Underlying Inflation Gauge (UIG). And as Dr. Ed Yardeni points out in a recent blog post, the word “inflation” appeared as many as 106 times during the latest Federal Open Market Committee (FOMC) meeting, a sign that Fed members could be getting more and more concerned about mounting inflationary pressures.

Recent reports also suggest gold production is slowing, which could help support prices long-term. Exploration budgets have been declining pretty steadily since 2012, after the price of gold peaked, and fewer and fewer large-deposit mines are being discovered.

This week the China Gold Association announced that the country, the largest producer of gold, produced 98 million metric tons in the March quarter, down some 3 percent from the same period last year. This comes after total Chinese output in 2017 fell 6 percent year-over-year to 426 million tons. Granted, miners have been pressured by Beijing to curtail production as part of the government’s enforcement of tougher environmental protection policies, but the decline in output is part of a downward trend we’re seeing across the board, especially among major producers.

Take a look at the declining quarterly output of Barrick Gold, the world’s largest gold miner. According to its preliminary results for the first quarter, Barrick produced a total of 1.05 million ounces from its 10 projects. That’s only a 2 percent decrease from the same quarter last year, but a far cry from where it was seven years ago.

Since the news hit April 11, Barrick is up about 3 percent, even after a Friday selloff.

While some investors might view the lower output as disappointing, others no doubt see it as a reminder that gold is a finite resource, one of the many reasons why it’s remained so highly valued for centuries. As I’ve written before, the low-hanging fruit has likely already been picked, making the task of mining the yellow metal more difficult as well as expensive. Supply isn’t growing nearly as fast as it once did.

And yet demand continues to climb. Not only do the peoples of India, China, Turkey and other countries have a strong cultural affinity to gold—an obsession that will only intensify as incomes rise—but the metal still plays a vital role as a portfolio diversifier in times of economic and political uncertainty.

Franco-Nevada IPO at 10

On a final note, Franco-Nevada, one of our favorite players in the gold space, recently celebrated its 10- year anniversary as a publically-traded company. As if to commemorate the occasion, the company reported record sales and profit in 2017, not to mention a record $167.9 million in dividends paid—all while staying debt-free.

“I am pleased that Franco-Nevada’s 10th full year since its IPO was its best year ever,” commented CEO David Harquail.

I’d like to congratulate my good friends Seymour Schulich and Pierre Lassonde, who conceived of the gold royalty model and cofounded the company back in 1983. (As I’ve explained before, Franco-Nevada was the first IPO I worked on as a young analyst in Toronto.) Seymour and Pierre are true rock stars in the world of gold mining, and what they’ve managed to achieve is nothing short of legendary.

Gold nearing bull breakout

Gold remains largely forgotten, off the radars of most investors.  But that’s likely to change soon as this leading alternative investment is nearing a major bull breakout.  Once gold climbs to decisive new bull-market highs, sentiment will turn and investors’ interest will surge.  Their resulting buying will rapidly drive gold higher, attracting in more capital inflows.  Gold is only a couple modest up days away from that key breakout.

Universally in all markets, traders’ psychology is completely dependent on price action and levels.  When prices are high and rising, speculators and investors alike eagerly buy in.  They love chasing winners, so buying begets buying.  This creates powerful self-reinforcing virtuous circles, with rising prices helping to entice in ever-more traders.  In recent years this dynamic catapulted the market-darling FANG stocks higher.

With capital inflows following performance, investments that aren’t high and rallying naturally see waning popularity.  That’s the story of gold over the past couple years or so.  Gold’s last new bull-market high came way back in early July 2016, when it hit $1365.  That was 21.3 months ago, which may as well be an eternity in terms of sentiment.  In most traders’ minds, gold has effectively been dead and buried ever since.

While contrarian investors always follow gold, most mainstream investors don’t.  They only get interested when gold is powering up to major new highs.  This psychology holds true everywhere in the markets, it’s certainly not unique to gold.  A handful of mega-cap tech stocks have soared since Trump’s election win in November 2016, but other mega-cap tech stocks have lagged far behind.  Traders always pursue performance.

This first chart looks at gold’s technical price action over the past couple years or so.  A mighty new bull market erupted out of deep despair, blasting higher with steep gains.  But the gold-investment-driving force behind it soon reversed, so this young bull stalled out.  Gold hasn’t been able to best those initial bull highs ever since.  So with no new highs to spark excitement, gold has slipped off investors’ radars.

Gold prices are heavily influenced by gold-futures speculators.  The extreme leverage inherent in futures trading enables these traders to punch way above their weight in bullying the gold price around.  There is nothing these guys fear more than Fed rate hikes, even though history proves that’s absolutely irrational.  So heading into the Fed’s first hike of this cycle in December 2015, gold slumped to ugly 6.1-year secular lows.

But such extreme bearishness made no sense, as gold has thrived in past Fed-rate-hike cycles.  So once that initial rate hike came and gold didn’t plunge, speculators rushed to buy back in to gold futures after that $1051 low.  They were soon joined by investors with their huge pools of capital.  They were spooked by the first stock-market corrections in 3.6 years, which boost gold demand to diversify stock-heavy portfolios.

Thus gold soared 29.9% higher in just 6.7 months in essentially the first half of 2016, easily crossing that classic +20% new-bull-market threshold.  Gold’s $1365 bull peak in early July 2016 was closely tied to stock-market fortunes, coming the very day before the flagship US S&P 500 stock index achieved its first new record close in 13.7 months.  With stock markets off to the races again, gold investment demand waned.

Gold had been very overbought after such a blistering rally, and speculators had record long positions in gold futures which is a contrarian indicator.  But gold still consolidated high in the summer of 2016 until it was hit by two anomalous events.  First gold-futures stops were run as gold fell below $1300, driving a sharp drop to its 200-day moving average.  Gold recovered quickly from that until Trump’s surprise win.

Very few traders expected Trump to stage a colossal underdog upset and win the presidential election in early November 2016.  It was an extreme contrarian position, seen as madness.  Interestingly as I wrote the very weekend before that voting, a powerful stock-market indicator predicted Trump would indeed win!  That soon came to pass, shocking speculators and investors into greatly reevaluating their outlooks.

With Republicans soon to control the presidency and both chambers of Congress, traders’ euphoria flared to eye-searing brilliance.  They were captivated by hopes for big tax cuts soon, and rushed to buy stocks with reckless abandon.  As the stock markets surged first on Trumphoria and later taxphoria, gold fell deeply out of favor.  Investors abandoned it since they felt no need to prudently diversify their soaring portfolios.

Thus a normal healthy gold correction after a strong upleg cascaded into a 17.3% plunge over 5.3 months ending in December 2016.  Such sharp losses naturally devastated gold psychology among traders.  The bull market was still alive and well technically, as gold didn’t cross that -20% new-bear trigger.  But gold was still left for dead as the levitating stock markets sucked in most capital.  Traders had largely moved on.

But gold still looked really bullish in mid-December 2016, as I explained within days of that correction low.  Investors were radically underinvested in gold after fleeing in the election’s wake.  And the truly incredible psychology unleashed by the Republican sweep wasn’t sustainable or repeatable.  It’s pretty rare where nearly everyone gets presidential and congressional elections so wrong!  So gold was overdue for some buying.

Ever since that post-election anomaly it has indeed powered higher on balance in the solid uptrend you can see in this chart above.  Gold has been relentlessly carving a series of higher lows and higher highs, which made for a 20.4% upleg over the next 13.3 months.  That’s actually big enough to qualify as a new bull market, but again gold never entered a bear.  Such strong price action should’ve improved sentiment.

But it really didn’t.  The extreme taxphoria last year made 2017 one of the most-extraordinary years on record for the US stock markets.  The S&P 500 ceaselessly levitated to a massive 19.4% gain in the first year of the Trump Administration, accompanied by record-low volatility.  With big US stocks powering higher so dramatically and painlessly, who needed gold?  It tends to rally when stock markets are selling off.

While contrarians were rightfully impressed with gold’s strong bull-market uptrend since those anomalous post-election lows, mainstream investors didn’t know or care.  Everything was rainbows and unicorns for them, despite dangerous bubble valuations in the stock markets.  While gold’s 13.2% rally in 2017 would command attention normally, the 35% to 57% gains in the FANG stocks overshadowed it and stole the limelight.

There’s no doubt over a year of gold seeing higher lows and higher highs is very-bullish price action.  All students of the markets would recognize this viewing gold charts.  But climbing support and resistance lines are lost on the financial media and mainstream investors.  Investments only start garnering talk and mindshare when major new highs are hit.  Popular psychology is totally dependent on that one technical aspect.

Futures speculators view the horizontal $1350 line as key technical resistance.  Gold has tried and failed to break out above it from several to nearly a dozen times since the summer of 2016 depending on how you slice such attempts.  These guys need to see a decisive $1350 breakout to really motivate them to buy again.  I define decisive as 1%+ beyond an old technical extreme, or about $1364 in gold’s case today.

That’s just a stone’s throw away, very close.  Last week gold closed near $1352, and this week it was still up at $1349.  All gold needs to see is a couple modest up days of 0.6% to push it back over $1365 for the first time in 21.3 months!  That would work wonders for sentiment, rapidly turning it to bullish which would fuel much gold-futures buying.  And the speculators currently have lots of room to buy gold futures.

As of the latest Commitments of Traders report before this essay was published, total spec gold-futures longs are only running 25% up into their past year’s trading range.  That means 3/4ths of these traders’ likely capital firepower remains available to buy back in.  Believe me, if they think gold is going to break out above $1350 resistance they will flood in with a vengeance.  These elite traders follow charts by necessity.

Every gold-futures contract controls 100 troy ounces of gold, worth $134,900 this week.  Yet these only require traders to keep $3,100 of cash per contract in their accounts.  That works out to absurdly-extreme 43.5x maximum leverage!  The legal limit in the stock markets has been 2x for decades.  Traders running at that crazy limit would lose 100% of their capital risked if gold merely moves 2.3% against their futures bets.

At 20x leverage that risk is still suffocating, with a 5% adverse move necessary to wipe out capital risked.  So when gold looks to be breaking out above $1350, these traders will rush to buy to cover shorts and add new longs.  They are well aware gold has formed a giant ascending-triangle chart pattern over the past couple years or so.  That’s defined as rising lower support compressing a price into horizontal upper resistance.

When ascending triangles resolve, it’s usually with a sharp-to-explosive upside breakout.  Once that long-vexing overhead resistance fails, traders rush back in catapulting the price higher.  When gold breaks out of such a massive ascending triangle, technically-oriented traders are going to get the heck out of the way if they are short and rush to ride the breakout on the long side.  Futures speculators live and breathe technicals.

Their coming buying will fuel a far-more-important breakout.  To the financial media and investors, new bull highs are the only thing that will draw their interest.  Before July 2016’s $1365 bull-to-date peak, the last time gold closed over $1365 was way back in March 2014.  So a $1365+ close right now would be a major new 4.1-year high.  You better believe that will catch investors’ attention, getting gold back on radars!

A 1% decisive breakout above $1365 requires $1379 on close.  That sounds lofty since it’s been so long since gold challenged $1400, but it is merely 2.2% above this week’s levels!  When investors start getting excited about gold again, it takes months or even years to reestablish meaningful portfolio positions.  The vastly-larger pools of capital they control overpower and dwarf whatever the futures speculators are doing.

As I explored a couple months ago, investors are radically underinvested in gold today.  They will have to shift capital into gold for a long time to come to reverse this major anomaly.  New gold bull-market highs all alone will prove a powerful motivator for them.  But that will likely be amplified greatly by the ongoing stock-market correction.  Stock selloffs ignite big investment demand for counter-moving gold to diversify portfolios.

If either speculators buy gold futures or investors buy gold and its major ETFs led by GLD SPDR Gold Shares in any significant quantities, gold will absolutely see these major breakouts.  And there’s actually a good probability of that coming to pass in the next month or so.  Gold tends to enjoy a major seasonal rally from late March to late May.  That ought to be plenty big to drive gold decisively over $1350 and $1365.

This should really excite contrarian speculators and investors.  While the gains in gold will be nice, they will be trounced by the accompanying surge in the gold miners’ stocks.  This sector’s leading benchmark is the GDX VanEck Vectors Gold Miners ETF.  Its technical price action over this same gold-bull span is shown in this second chart.  While gold is nearing new bull highs, the gold stocks are lagging far behind.

With little interest in gold since Trump’s election victory, the gold miners’ stocks have been abandoned and left for dead.  They’ve been drifting sideways in a vexing consolidation between $21 to $25 in GDX terms since late 2016.  That’s despite their very-strong fundamentals.  In their latest-reported quarter of Q4’17, these leading gold miners reported collective all-in sustaining costs averaging just $858 per ounce!

That’s far below prevailing gold prices, showing this industry is earning fat operating profits.  In Q4’17 gold averaged about $1276 per ounce.  In the latest Q1’18 which the gold miners will soon report on, that surged 4.1% quarter-on-quarter to a $1329 average.  That implies profits of $471 per ounce, which is up 12.7% QoQ from Q4’17’s results!  The gold miners are thriving which stock prices haven’t recognized yet.

In Q1’18 GDX’s average price of $22.57 was actually 0.8% lower than Q4’17’s $22.76!  This highlights how deeply out of favor the gold miners are.  But that psychology will reverse dramatically on that coming major gold breakout.  Once gold starts hitting new highs again, traders will flock back to gold stocks since their mining profits leverage and amplify gold’s gains.  That will drive a parallel big breakout in major gold stocks.

This week GDX was languishing near $23, dead-center in its 15.6-month-old consolidation between $21 support and $25 resistance.  It would have to surge to $25.25 for a decisive breakout that would attract in a deluge of new capital.  That’s 9.9% higher from this week’s levels, which actually isn’t much at all for this small volatile sector.  Once gold stocks start rallying, they tend to move fast making for huge gains.

Since gold’s bull market began in mid-December 2015, GDX has actually seen 55 trading days with 3%+ gains!  That’s nearly 1 out of every 10 trading days over that entire 2.3-year span.  The gold stocks are truly less than a week of decent rallying away from a decisive breakout of their own.  And once they start moving, traders will rush to buy back in to ride their explosive upside.  When gold is in favor, this sector soars.

In roughly the same span of this gold bull’s first upleg in the first half of 2016, GDX skyrocketed 151.2% higher in 6.4 months on the parallel 29.9% gold upleg.  That made for awesome wealth-multiplying 5.1x upside leverage to gold!  While gold stocks are abandoned and forgotten when gold isn’t on traders’ radars, once they get interested again the gold stocks stage massive catch-up rallies.  The next one is nearing.

The major gold miners’ early-2016 upleg wasn’t extreme at all considering the fundamentally-absurd prices gold stocks were trading at back then.  GDX actually slumped to an all-time low, while the major gold stocks as measured by their HUI index were at a 13.5-year low.  They were trading at levels last seen in July 2002 when gold was near $305.  So they needed to soar to mean revert out of that crazy anomaly.

Another massive mean reversion higher is certainly needed today.  Gold first hit this week’s $1350 levels in mid-October 2010.  Since this metal was carving new all-time highs, investors were eager to buy in for the ride.  Back then GDX was trading over $57, or 150% higher than today’s levels with these same prevailing gold prices!  GDX’s bull-to-date peak in early August 2016 was $31.32, or just 36% higher from here.

So there’s a high chance the gold-stock upleg driven by the coming gold breakout will easily catapult the gold stocks to new bull highs too.  During the last secular bull in gold stocks between November 2000 to September 2011, the HUI skyrocketed 1664% higher.  There were 11 major uplegs during that span that averaged 81% gains over 7.9 months each!  So seeing gold stocks rally 40% or 50% from here is nothing.

The gold stocks are truly a coiled spring today, ready to explode higher soon and trounce everything else.  They are deeply out of favor, incredibly undervalued, and one of the only sectors that can rally sharply when general stock markets sell off.  If you want to multiply your wealth this year by fighting the crowd to buy low then sell high, this small and forgotten contrarian sector is the place to be.  Nothing else rivals it.

While investors and speculators alike can certainly play gold stocks’ coming powerful upleg with the major ETFs like GDX, the best gains by far will be won in individual gold stocks with superior fundamentals.  Their upside will far exceed the ETFs, which are burdened by over-diversification and underperforming gold stocks.  A carefully-handpicked portfolio of elite gold and silver miners will generate much-greater wealth creation.

At Zeal we’ve literally spent tens of thousands of hours researching individual gold stocks and markets, so we can better decide what to trade and when.  As of the end of Q4, this has resulted in 983 stock trades recommended in real-time to our newsletter subscribers since 2001.  Fighting the crowd to buy low and sell high is very profitable, as all these trades averaged stellar annualized realized gains of +20.2%!

The key to this success is staying informed and being contrarian.  That means buying low before others figure it out, before undervalued gold stocks soar much higher.  An easy way to keep abreast is through our acclaimed weekly and monthly newsletters.  They draw on my vast experience, knowledge, wisdom, and ongoing research to explain what’s going on in the markets, why, and how to trade them with specific stocks.  For only $12 per issue, you can learn to think, trade, and thrive like contrarians.  Subscribe today, and get deployed in the great gold and silver stocks in our full trading books!

The bottom line is gold is nearing a major bull breakout above $1365.  That will turn psychology bullish and bring traders back in droves.  Gold is rallying ever closer to new bull-market highs as evidenced by its massive multi-year ascending-triangle chart pattern now nearing a bullish climax.  Today gold is only a couple percent below that decisive breakout, which will finally blast it back onto the radars of investors.

That’s likely coming soon, with gold in the midst of its major spring seasonal rally.  Speculators have lots of room to add gold-futures longs, while investors remain radically underinvested.  And once gold comes back into favor, the abandoned gold miners’ stocks are going to soar.  Their prices are far below where they ought to be based on their fundamentals and prevailing gold levels.  Their upside from here is enormous.

Adam Hamilton, CPA

April 20, 2018

Copyright 2000 – 2018 Zeal LLC (www.ZealLLC.com)

Banchile auctions 1.5 mln shares in Chile's SQM, raises $76 mln

SANTIAGO, April 20 (Reuters) – Brokerage firm Banchile on Friday auctioned 1.5 million series-A shares in Chile lithium miner SQM at a sale price of 30,000 pesos ($50.36) per share, raising a total of $76 million.

SQM, which operates primarily in Chile's Salar de Atacama, is one of the world's largest and most cost-efficient producers of lithium.

($1 = 595.70 Chilean pesos)

(Reporting by Felipe Iturrieta; Editing by Chizu Nomiyama)

Ship firm Oldendorff halting Guyana operation due to Rusal crisis

LONDON, April 20 (Reuters) – German shipping group Oldendorff Carriers is stopping its business in Guyana, the company said on Friday, after the United States blacklisted Russian aluminium producer Rusal, which has a plant in the South American country.

The United States on April 6 imposed sanctions against Russian entities and individuals to punish Moscow for its alleged meddling in the 2016 U.S. election and what the U.S. Treasury Department dubbed other "malign activity".

Since then, the world's two biggest container lines -Denmark's Maersk and Switzerland's MSC – have suspended trade with sanctions-hit Russian entities.

Oldendorff, which has a large fleet of dry bulk cargo ships, said in a statement sent to Reuters on Friday it would "fully comply with U.S. sanctions and therefore will be winding up its business in Guyana in a timely manner", declining to provide any further details.

Rusal's 90 percent owned Bauxite Company of Guyana produced 1.05 million tonnes of bauxite – the raw material used to make aluminium – last year.

Oldendorff's website said the group in 2005 signed a long-term contract with an unnamed large industrial client for a bauxite trans-shipment operation on the Berbice River in Guyana.

That operation used purpose-built barges and tug boats to transport bauxite downstream to ocean-going ships.

Oldendorff said on its website it usually handled the onward transportation of the bauxite to Ukraine, Ireland and the United States.

Rusal, the world's second biggest aluminium producer behind China Hongqiao Group Ltd, is heavily dependent on its international network of mines and refineries.

U.S. sanctions imposed on Rusal have started to cripple the company's extensive string of international operations from Sweden to Guinea to Australia.

(Reporting by Jonathan Saul; Editing by Mark Potter)

South Africa's Eskom gets workaround to tackle coal shortages

(Bloomberg) — South Africa’s Eskom Holdings SOC Ltd. has permission to circumvent some purchasing rules in order to boost critically low coal stocks at several of its power stations and avoid a return to rolling power cuts.

The state-owned utility is seeking coal for seven of its plants that are facing shortages after supply disruptions from Gupta family-controlled mines that are under business rescue and not meeting contract obligations. Eskom supplies most of South Africa’s power and forced blackouts would threaten the economic growth being championed by President Cyril Ramaphosa.

The National Treasury will allow Eskom to buy coal for the seven plants without competitive tenders, Khulu Phasiwe, a spokesman for the utility, said by phone. While the contracts are expected to command a premium price, “at this stage the most urgent thing is that they get coal,” he said.

Eskom, which is expected to report a loss for the financial year through March 2018, had its board replaced earlier this year amid allegations of corruption and mismanagement at the company, and faces ongoing obstacles including declining power sales.

While the immediate shortage is related to the mines owned by Tegeta Exploration and Resources Ltd., which is linked to the politically connected Gupta family, Eskom’s coal-supply problem is more deeply rooted, said Anton Eberhard, a professor at the University of Cape Town’s Graduate School of Business.

The utility has undermined its own coal supply by ending a policy of so-called cost-plus structures, where mining companies manage and operate mines supplying Eskom at a fee and the utility provides capital, Eberhard said in an emailed response to questions. Former Chief Executive Officer Brian Molefe criticized the model in 2015, saying that Eskom wants to buy “the bread, not the entire bakery.’’

Exxaro Resources Ltd. CEO Mxolisi Mgojo told lawmakers in February that former Public Enterprises Minister Lynne Brown refused the company’s request for a 1.8 billion rand ($150 million) capital investment that would have allowed its Matla mine to maintain coal production at the level required by its supply agreement with Eskom.

“The reason partly why we are in this situation is because we didn’t invest in these cost-plus mines,” Phasiwe said. The cash-strapped utility can’t do anything about that now, he said.

“From our side, even if Eskom was willing to pay we would have difficulty raising funds.”

(Written by Paul Burkhardt)

Mining firms from China to Canada watch as Greenland holds election

COPENHAGEN, April 20 (Reuters) – With melting ice expanding access to the Arctic, investors from China to Canada are watching Greenland's election next week for signs of the political will to get a flagging mining programme on the island back on track.

Greenland is hoping rising commodity prices can help attract foreign investment and get its fragile economy up to speed to realise a long-term goal of independence from Denmark.

Hype about a possible mining boom in Greenland after it achieved self-rule from Denmark in 2009 faded in a morass of red tape and a commodity price slump around five years ago. It left the economy reliant on fishing and grants from Denmark.

But with the country's sole producing mine starting up last year – a ruby pink sapphire mine operated by Norway's LNS Group – and Canada's Hudson Resource's anorthosite project due to begin operations this year, locals are again hoping more investments will follow.

Improved access to and from the Arctic island as the ice melts, and a more favourable investment climate, would go some way to alleviate the barriers to business of perpetual winter darkness and temperatures reaching as low as minus 50 Celsius.

With that in mind, a central theme for the new government elected on Tuesday will be to decide whether it wants to shift focus away from Denmark and strengthen economic and diplomatic ties with other countries, including China.

Chinese interest in Greenland comes after Beijing laid out its ambitions to form a "Polar Silk Road" by developing shipping lanes opened up by global warming and encouraging enterprises to build infrastructure in the Arctic.

The main contenders to lead the next government are Prime Minister Kim Kielsen of the social-democratic Siumut party and Sara Olsvig of the left-wing Inuit Ataqatigiit party (IA).

The most recent poll shows that the two parties are likely to continue working together in a coalition.

"A new government led by Kielsen and Siumut but without IA will create more openness towards attracting investments, including from China," said Rasmus Leander Nielsen, assistant professor at the University of Greenland in Nuuk.

"IA is more sceptical. They want mining activity, but have more emphasis on the environment," Nielsen said.

Demokraterne, Greenland's third biggest party, and the new Nunatta Qitornai party are also pro-mining.

Chinese investment

Greenland, whose capital Nuuk is closer to New York than the Danish capital Copenhagen, is more than three times larger than the U.S. state of Texas. But with a population of just 56,000, it is the most sparsely populated nation on earth.

It has shortlisted a Chinese consortium to expand three airports, causing concern in Denmark which has given its ally the United States wide military access – just one of many sources of friction as independence rhetoric sharpens.

China's Shenghe Resources is also already partnering with Greenland Minerals and Energy to develop a rare earth and uranium project. Ironbark Zinc has asked state-owned China Nonferrous Metal Mining Group to help it finance and develop a zinc and lead project.

But development in the mining sector has so far been slowed by a lack of infrastructure and by heavy red tape, observers say. Assistant professor Nielsen said he would consider the uranium project dead if IA formed a government without Siumut.

The previous licence holder to the new ruby mine went bankrupt in 2016, as investors turned its back on the project that for years failed to secure the necessary approvals.

"I think the politicians are keen to get things moving. But it often drowns in bureaucracy," said Bolette Maqe Nielsen, chairman of Australia's Tanbreez Mining, which for more than six years has been negotiating with Greenland for a rare earth mining project.

The island lacks simple infrastructure, but is betting that the expansion of the three airports by 2022 will help kick-start a wave of economic activity.

"The commodity business cycle is pointing upwards. But Greenland must be alert and ready to act when prices go up, otherwise they might miss the chance once again," said Brian Buus Pedersen, head of the Greenland Business Association.

For now, mostly smaller and mid-sized mining companies such as North American Nickel and Bluejay Mining are actively pursuing projects there, while larger Western industry players stay on the sidelines.

Prime Minister Kielsen and his cabinet travelled to Beijing last year, where he openly courted Chinese investors and officials. The government is also considering opening a representation office in Beijing, following one in Washington in 2014 and the opening of another in Iceland this year.

"To get really large scale projects to happen, it looks like they need Chinese investments," said Ulrik Pram Gad, an associate professor at Aalborg University and a former official in Greenland's government.

(Reporting by Jacob Gronholt-Pedersen; Additional reporting by Simon Jessop; Editing by Alison Williams)

Aluminum stash visible from space turned to gold for trader

(Bloomberg) — Two years ago, a commodity trading house started stockpiling thousands of tons of aluminum near a bend in the Mississippi River outside New Orleans.

Now Castleton Commodities International LLC, the trader backed by hedge fund luminaries including Paul Tudor Jones, is sitting on a veritable gold mine as a scramble for aluminum unfolds in the wake of U.S. sanctions against United Co. Rusal and Donald Trump’s aluminum tariffs.

Castleton has started selling down its aluminum stash, which at its peak held about 500,000 metric tons of the metal, according to people familiar with the matter. That would be worth about $1.5 billion at today’s prices.

Sales for around half of that volume have already been agreed, and the trading house is making regular shipments out of the facility in Braithwaite, Louisiana, one of the people said, asking not to be named discussing private matters. Among the buyers: Glencore Plc, the top buyer of Rusal’s aluminum, which has been forced to scramble to cover its obligations to supply customers after the sanctions on the Russian company.

Glencore and Castleton declined to comment.

The stash of aluminum is so sizable satellites can see it: images from Google Earth show an area near the Mississippi River where metal is stacked in neat piles in the open air. That’s unusual, traders mostly store metal in warehouses, but it means Castleton’s storage costs are much lower than if they were holding the metal in some of the exchange-registered depots located nearby.

Castleton began to accumulate the metal in 2016 when aluminum supplies were plentiful and prices were near multi-year lows. It was a bet that U.S. aluminum buyers were overly complacent about supplies amid domestic smelter closures, and that the market would eventually tighten, driving up premiums — the price of a parcel of physical metal above the benchmark futures contract.

Traders who finance metal inventory typically hedge their exposure to the futures price, but stand to make money if the premium rises. And the premium has risen dramatically: in 2016 and 2017, when Castleton was accumulating aluminum, the U.S. premium was trading well below 10 cents per pound ($220 a ton). Since the start of this year, it has more than doubled.

To be sure, the trade also had costs: Castleton needed to pay to finance the stockpile as well as the expense of hedging on the London Metal Exchange. And some of the metal in Castleton’s stock was produced by Rusal, people familiar with the matter said, potentially making it harder to sell to U.S. companies nervous about the sanctions.

Castleton, led by former hedge fund manager William Reed, is largely focused on energy trading, but has been growing its metals division since hiring former JPMorgan Chase & Co. executive Peter Sellars to lead it in 2015.

The backers of Castleton include hedge fund veterans Tudor Jones, Highbridge Capital Management founder Glenn Dubin and Timothy Barakett, founder of hedge fund Atticus Capital LP.

Other Castleton investors include families who made their fortunes in commodities such as the Oppenheimers, who founded Anglo American Plc a century ago; the Belfers, who built a fortune in oil; and the Fribourgs, who sold the grain trading arm of their Continental Grain Co. business to Cargill Inc. in 1999.

Josh Steiner, head of industry verticals at Bloomberg LP, the parent of Bloomberg News, is a non-executive director of Castleton.

(Written by Jack Farchy, Andy Hoffman and Mark Burton)

Illegal gold miners invade Grace Mugabe's farm amid legal dispute

MAZOWE, Zimbabwe, April 20 (Reuters) – A farm owned by Robert Mugabe's wife Grace is at the centre of a legal dispute after hundreds of illegal gold miners invaded parts of the property and started mining gold.

A Reuters photographer saw hundreds of illegal miners digging for gold at the Smithfield citrus farm using picks and shovels, the tools of choice for most illegal miners in Zimbabwe.

Once guarded by armed police, the farm is now dotted with illegal diggers whose quest for gold has left open shafts and tunnels and uprooted some fruit trees at Smithfield, 40 km (25 miles) north of the capital Harare.

Mugabe was forced to resign in November following a de facto military coup, but during his 37-year rule he and Grace and their allies forcibly grabbed several farms from white farmers under the government's controversial land reform programme.

In a sign of how the once powerful 94-year-old Mugabe and his wife have fallen, the illegal miners at Smithfield last month told Grace that she no longer had any power to evict them, the privately owned NewsDay newspaper reported.

"We are not going anywhere. We are artisanal miners and we will be contributing to the survival of the economy since we will be selling our gold to (state-owned) Fidelity (Refinery and Printers)," one of the diggers told Reuters at the farm two weeks ago.

"This is open pit mining and we are not damaging the environment at all," he said, declining to be named.

Fidelity Printers and Refiners is the sole buyer of all gold produced in Zimbabwe, irrespective of its origin.

"We would not want to get involved in the disputes, that area is covered by the Ministry of Mines which issues mining licences," Fidelity head of gold operations Mehluleli Dube said.

"Ours is to buy gold and we have agents in that area who buy gold on our behalf. Our approach is to have agents in some areas because we cant be everywhere were gold is produced."

The Ministry of Mines has said it cannot interfere with an issue that is before the court.

Neither Grace Mugabe nor her lawyer could be reached for comment.

She filed a theft report last month with the police against the illegal miners but this has not stopped the miners.

Two gold miners who say they own gold claims at the farm, have filed court applications against Grace Mugabe to stop her from interfering with mining operations at the farm.

In December, the High Court granted the two miners the right to mine at the farm and barred Grace Mugabe from interfering. She appealed the ruling and the matter will be heard in court.

On Tuesday the two men went back to court alleging that Grace Mugabe's employees were interfering with their operations. A date has not been set for a hearing.

(By Philemon BulawayoWriting by MacDonald Dzirutwe; Editing by James Macharia and Alison Williams)