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October 30, 2013

It's official, #OGX Files for #Bankruptcy: total debt $5.1 bn @NYTimes

the company’s total debt is 11.2 billion reais, or $5.1 billion, making this filing the largest corporate default in the history of Latin America.

It's official, OGX Files for Bankruptcy

NY Times
Eike Batista with President Dilma Rousseff of Brazil last year.Ricardo Moraes/Reuters Eike Batista with President Dilma Rousseff of Brazil last year.

Updated, 3:37 p.m. | SÃO PAULO, Brazil — The flagship company of the Brazilian entrepreneur Eike Batista, the petroleum company OGX, filed for bankruptcy on Wednesday via a court-supervised restructuring.
The filing was a stunning fall for Mr. Batista, who was once a symbol of Brazil’s rapid rise as a global economic power. The move became nearly certain after OGX missed a $45 million bond payment on Oct. 1. As of that date, OGX had 30 days to negotiate with creditors.
According to papers filed with the Court of Justice of Rio de Janeiro, the company’s total debt is 11.2 billion reais, or $5.1 billion, making this filing the largest corporate default in the history of Latin America.
The company owes $3.6 billion to bondholders, most of whom are foreign, with the rest of the debt to suppliers and banks.
Pimco, the world’s largest bond investor, and BlackRock, the world’s largest asset manager, both invested in OGX and stand to lose from any bankruptcy filing.
Even after a filing, the process could be long and tortuous. Of the approximately 4,000 companies that have entered court-supervised restructuring since the procedure was established in Brazil in 2005, only about 1 percent have successfully left the bankruptcy court’s supervision, according to a study by the newspaper O Estado de São Paulo.
Only 23 percent even managed the first step, which is to have a creditors’ assembly approve the restructuring plan. Many cases are fought over in Brazil’s notoriously slow justice system, where appeals can drag on for years.
Márcio Costa, a partner in the Rio de Janeiro law firm Sérgio Bermudes, which handled the bankruptcy filing, said on Wednesday that “OGX has high debts, but restructured, the assets are sufficient for the company to be viable.” He added that he was “optimistic” that negotiations with creditors would be successful.
OGX has pursued many active discussions to try to stave off bankruptcy. Rumors have swirled about possible new investors in the company, especially after the firm dismissed its chief executive officer and chief legal counsel on Oct. 15.
OGX confirmed on Oct. 17 that it was talking to the Brazilian investment firm Vinci Partners and other firms about restructuring options, but no deal has yet been reached.
Its sister company OSX, whose primary business is building ships and marine architecture for OGX’s petroleum exploration operations, said this week in a note that it did not expect to seek a bankruptcy court’s protection “at this moment.” OSX’s debts were listed in its balance sheet at $2.4 billion at the end of the second quarter, and it, too, has little cash flow. But unlike its sister company, OSX has easily marketable assets including oil rigs, and most of its short-term debts are with government-controlled banks that have already agreed to reschedule some payments.
Brazilian bankruptcy courts almost always approve a company’s initial request for protection, said Thomas Felsberg, a bankruptcy lawyer in São Paulo, as long as the documents are in order and such approval does not contain any judgment about a company’s chances of emerging from bankruptcy.
If the request is approved, the company has a 180-day stay period in which it is protected from creditors’ demands.
Documents released on Tuesday on OGX’s website indicate that the company will run out of cash in December and needs $250 million to continue operations through April 2014.
These funds could come from selling its natural gas subsidiary OGX Maranhão, and from a possible investment by the Malaysian petroleum company Petronas in one of OGX’s offshore petroleum blocks, the company’s documents said.
The bankruptcy filing concluded with the statement that OGX had reached an agreement to sell its share in OGX Maranhão, though no details were given.
Mr. Batista won international fame for his plans to build an empire of energy, mining, and logistics companies. For several years, OGX announced one petroleum find after another, and the share prices of all six of his publicly traded companies soared on the São Paulo stock exchange. But none of the companies managed to become profitable in time to service their billions in debt.
Mr. Batista’s personal worth, which at one point last year exceeded $30 billion, is now estimated at well under $1 billion. Minority shareholders in OGX are suing both the company and Mr. Batista for what may have been misleading statements about OGX’s supposed petroleum finds and for possible instances of insider trading.
Brazil’s securities regulator, known as the CVM, announced in September that it was investigating Mr. Batista and other senior managers of OGX for possible violations of disclosure rules.
Marcus Sequeira, Latin America petroleum analyst for Deutsche Bank, said that it was clear several years ago that OGX was not going to be as successful as hoped.
The company issued in April 2011 a report in which it claimed more than 10 billion barrels in reserves. But to reach that number the company added together different kinds of reserves, most merely possible rather than confirmed or even probable.
Although this discrepancy was in the 2011 report for anyone to see, few paid attention to it, Mr. Sequeira said. “It is the same in every bubble,” he said. “At some point everyone only wants to hear the good news.”
Looking forward, Mr. Sequeira said he was “not optimistic” about OGX’s fate, because “the resource base is clearly not as big as the company was saying.”
But because there is some oil in OGX’s fields, Mr. Sequeira said it might be possible, if a new investor is found, for production to resume and bondholders to eventually get a portion of their money back, though shareholders would probably be wiped out.

Brazilian Energy Company OGX Files for Bankruptcy - NYTimes.com

October 29, 2013

To offset price declines #Mining groups are playing a mutually destructive game of output tonnage chicken

Whilst volume gains help to offset price declines, applied industry-wide they have the perverse effect of feeding lower prices. ... The current environment however is especially conducive to a supply glut caused by a mutually destructive game of output tonnage chicken.

From Mineweb.com

Diversifieds boxed in by past mistakes and Glasenberg's language

MINING FINANCE / INVESTMENT

The world's major diversified mining companies have been ratcheting up production and cutting exploration in a bid to combat falling costs, but it could come back to haunt them.
Author: Alex Williams
Posted: Tuesday , 29 Oct 2013 
LONDON (Mineweb) -
“Mining companies were producing copper for 80 cents a pound and selling it for 60 cents a pound,” one speaker at an Australian small-cap conference quipped last week, “but they all tried to make it up in volume.”
Record volumes, particularly in iron ore, have been the mainstay of this month's reporting season. BHP's output from Western Australia jumped 23 per cent year-on-year to 48.8m tonnes, with Rio Tinto also hitting new production highs on delivery of its so-called 290 rail-port expansion in the Pilbara.
Bumper volumes were not confined to Australian iron ore. BHP reported record output in petroleum and from its coal divisions in Colombia and New South Wales, whilst Rio broke records in bauxite and thermal coal. Aided by its Oyu Tolgoi goliath in Mongolia, its share in mined copper meanwhile leapt from 132,00 to 162,000 tonnes, whilst Anglo American cranked up copper volumes by 32 per cent, driven by its Los Bronces mine in Chile.
Most bullishly, majors are “making hay while the sun still shines.” In its last full year, Anglo American made net profit margins of 18 per cent in copper. Prices have since come off by 38 cents per lb, leaving Anglo with all-in copper margins of around 10 per cent, even before any cost improvement. As margins go, they're up there with sportswear and fizzy drinks, if not wholesale lingerie.
More sceptically, miners are cranking up output to defend earnings in the face of lower prices. Higher grades played their part in Anglo's output splurge at Los Bronces and likewise at Escondida, part-owned by Rio and BHP. In a soft price environment, the front-loading of ready tonnes and high grade ore inflates production, offsetting revenue declines whilst lowering unit costs. The result is less volatile earnings, but the tactic defers high cost production rather than lowering it, with the risk that it is rendered uneconomic.

Market Capacity

A secondary consequence of record output levels is an upset market balance. Chinese steel production and inventory restocking have buoyed iron ore prices in recent months to $135 per tonne, but the figure comes under renewed strain the quicker majors turn up volume.
By the end of the first half of 2014, Rio expects its Pilbara operations to be running at 290m tonnes per annum, a 7 per cent increase on current levels. The group's board has approved a further $5.9bn expansion to its throughput capacity in the region to 360m tonnes per annum. Even more threateningly, Brazil's Vale plans to produce 480m tonnes by 2018, versus 306m presently. Mid-tier producers are also in on the game, with Atlas and BC Iron both ratcheting up exports as quickly as their infrastructure allows them.
Whilst volume gains help to offset price declines, applied industry-wide they have the perverse effect of feeding lower prices. In their defence, since miners are price-takers, mining is only ever a volume game. The current environment however is especially conducive to a supply glut caused by a mutually destructive game of output tonnage chicken.

Glencore's Decoy

Record production figures are the direct consequence of a renewed focus by majors on the rhetoric of returns. Shareholder discontent at capital cost blow-outs and disastrous acquisitions, including Anglo's $8.8bn Minas-Rio project in Brazil and Rio Tinto's $38bn purchase of Alcan, has seen a raft of new chief executives instated, eager to distance themselves from the industry's reputation, tarnished in the eyes of investors.
Anglo's new chief executive Mark Cutifani is due to report a full business review in December, whilst BHP boss Andrew Mackenzie has promised a “laser-like focus” on costs. The cost-tough brownfield-obsessed mindset however has been led by Glencore's Ivan Glasenberg, who has routinely lambasted the industry for ploughing more capital into expansion than into shareholder returns. Glencore has dropped half the 88 projects it acquired with Xstrata, whilst closing two offices a week since the deal closed in May.
“We are not focused on replacing depleting assets,” Glasenberg has said. “If it does not make economic sense and does not give us a return on equity, we will not do it. If our company gets smaller so be it.” The attitude has been lauded by the market, with Bernstein analyst Paul Gait crediting Glasenberg with “genuine industry leadership.”
Ironically, Glencore is the only major to have sizeably increased its mining footprint in recent years. Besides its Xstrata deal, the largest transaction in the history of the mining industry, Glencore jointly paid $1bn for Rio Tinto's majority share in the Clermont coal mine in Queensland last week through a joint-venture with Japan's Sumitomo. It has meanwhile written $7.7bn off the value of its mining assets this year.
That the company is pursuing the opposite path to its rhetoric is incidental: by broadcasting the toughest line, Glasenberg has set the tone, with peers dashing off in pursuit. “Returns” or “return on” was used 12 times in Rio's most recent financial results, versus only once in the same report 3 years ago. Over the same period, Anglo American likewise bumped-up its use of the phrase from 2 to 6 times, whilst BHP held steady at 7. (Vale clearly uses a different PR company, having trended in the other direction.)
The dogma favours brownfield investment over green as previously burned fingers are reluctant to contemplate new acquisitions and exploration viewed as a straight-up expense. Rio Tinto is cutting $750m from its exploration budget this year, with 97 per cent of the savings achieved already, three months ahead of its year-end. BHP has been less granular in detailing cut-backs, but with the exception of copper in the Andes, is believed to have abolished spending on virgin exploration entirely.

LIMITED STRATEGIC ALTERNATIVES

Unable to buy, explore or develop new projects, majors have been boxed into two strategic alternatives. One is to divest, though they must not be seen to do so at fire-sale prices. “This is not market day at the bazaar,” Rio's Sam Walsh has said. The result has been a constipated market, with private equity and mid-tier miners expecting distressed valuations, but majors wanting a dial-moving price.
As a case in point, Walsh has so far been unable to budge Rio's diamond business or its share in ASX-listed Coal & Allied. In the face of an asking price above $3.5bn, China's Minmetals is also reported to have dropped out of the bidding for its iron ore assets in Canada.
The last remaining option open to majors is to expand their existing operations, escalating near-term tonnage and cash flow. Higher incremental returns can be earned from sites where money has already been sunk, the thinking goes, than on new vanity projects, where returns are further out and therefore less certain.
Importantly, investing in existing assets is also less conspicuous for chief executives and therefore less risky than forging ahead into new ones. Rio's cap-ex pipeline in the Pilbara is a $20.6bn, with a further $1.4bn slated for its share of costs at Escondida, an obligation matched by BHP.
Investment once budgeted for exploration, acquisitions or development is instead being funnelled into near-term tonnage. Rather than staggering capital over a mine's full life-cycle, it is being ploughed into that with the quickest and most gaugeable return.
Advising miners to hold tonnes in the ground is as futile as telling consumers to stop driving up prices with buying. Majors must recognise however that at some point, their focus has to shift from their own capacity to that of the market's. It is a realisation unlikely to be acted upon until prices force their hand.


Diversifieds boxed in by past mistakes and Glasenberg`s language - MINING FINANCE / INVESTMENT - Mineweb.com Mineweb

October 24, 2013

@Sprott thinks there's something haywire in the #gold supply/demand stats published by #WGC #GFMS

“the massive imbalance between supply and demand is not reflected in prices because available statistics are misleading.. mostly with regard to demand from Asia.”

Sprott open letter challenges WGC/GFMS gold demand figures

Eric Sprott, challenges the most generally accepted data on gold supply/demand and feels that analyst reliance on this severely impacts their predictions and thus the gold price itself.
Author: Lawrence Williams
Posted: Wednesday , 23 Oct 2013
LONDON (Mineweb) - 
Strong precious metals advocate, Eric Sprott, thinks there is something haywire in the gold supply/demand statistics published regularly by the World Gold Council and relying on data compiled for it by Thomson Reuters GFMS.  In Sprott’s view, and this is accompanied by his own research figures, the GFMS data is flawed – yet it tends to be the industry standard taken as the definitive position by gold follower around the globe.
In this context, Sprott has written an ‘Open Letter’ to the World Gold Council, putting forward his company’s own take on the real position in the gold supply/demand equation and draws the conclusion that global gold demand exceeds available new supply by a substantial margin.  To read the ‘Open Letter’ in full click here.
Indeed Sprott’s analysis of the position echoes, and expands on, some of the conclusions drawn by Mineweb in some recent articles – not least in terms of the gold flows to Asian and Middle Eastern nations in general, and to China and India in particular.  We wrote – in terms of Chinese and Indian demand virtually cornering the gold market as follows: Meanwhile, there are the gold believers on the sidelines who may also have virtually unlimited pockets – the Chinese in particular – who must be feeling  every day is Christmas as they rake in physical gold at depressed prices, convinced that at some day in the future, by when they will have completely cornered the physical new gold market, the yellow metal’s price will soar, while Western paper gold will become worthless with no physical metal to back it.  As far as gold, and almost any other trade goes, the East looks to the long term, the West tends to look to tomorrow!

“And as for the East cornering the market in physical gold, they are getting awfully close to doing this already.  Growing Chinese gold consumption is likely to account for close on 60% of new global gold production this year – and that is on the basis of already pretty well known figures – net Chinese gold imports through Hong Kong plus the country’s own domestic production, are together likely to reach well over 1,500 tonnes in calendar 2013.  If, as many surmise, China imports gold also through other ports of entry, which it does not disclose, then this percentage could be higher still.”

See: Bullion banks “selling gold they don’t possess”. Squeeze alert!

Sprott takes this position rather further and suggests that if we look at ‘available’ new mined gold supply, the position becomes rather clearer – and even more favourable for the gold investor in that the world’s largest gold producer, China, and the World No. 4, Russia, do not export any of their new mined gold so the amount available to the world rather than being GFMS’s global annual gold production estimate of around 2,800 tonnes, which he does seem to be happy to accept, comes back to 2,140 tonnes (which may even be a slight over-estimate based on 2012 annual and year to date production figures) of the yellow metal actually available to meet all other global demand (including any Chinese and Russian imports).
This, to Sprott, compares with global demand which he puts at totalling 5,184 tonnes this year – leaving a gap of a massive 3,044 tonnes – only a part of which can be met through scrap sales and sales out of the gold ETFs.  Indeed he bases this figure on the assumption that gold ETF sales continue at the same rate as they have throughout the year to date, when evidence suggests that these may at last be slowing down, or even may be on the brink of turning around.
Sprott’s estimates of 2013 supply and demand, including available figures to date, with the sources used are set out below:
Source: Sprott Asset Management
As we said above, these figures may over-estimate  available supply given that Russia’s 2012 gold output is seen as around 200 tonnes – but there could also be some aspects of double counting in the treatment of Chinese and Hong Kong net imports.  But then, on the patterns established in the past four or five months, Chinese imports through Hong Kong may come out as being a couple of hundred tonnes higher than the 1,074 tonnes being used in the above table.  Sprott is being pretty conservative in his estimates.  We also suggested in our previous articles that it seems unlikely that Hong Kong is the only import route for gold coming into China so net Chinese imports could well be greater than just the net exports from Hong Kong might suggest!  There are thus still a number of unknowns which just have to be covered by assumptions.
Sprott says that in his opinion  “the massive imbalance between supply and demand is not reflected in prices because available statistics are misleading.” And that “demand statistics reported by the World Gold Council (WGC) consistently misrepresent reality, mostly with regard to demand from Asia.”
To an extent the difference in Sprott’s and GFMS analyses is not so much in the specific supply statistics, however you view these, but in a basic treatment of the overall supply/demand balance.  GFMS tends to base its figures on the premise that supply and demand are actually in balance at whatever the prevailing metal price is and fills any difference in its supply and demand statistics with a balancing amount it classifies as Investment Demand so that both sides of the equation are equal.  Sprott is propounding that this is definitely not the case with demand exceeding supply substantially, but that the gold price is defying market logic that an imbalance at this kind of level would automatically lead to significantly higher prices largely because he sees the GFMS statistics as misleading the market as to the true position.  It’s a bit of a which came first, the chicken or the egg scenario.  Is true gold demand dependent on price or generally accepted supply/demand statistics, or vice versa.  Economic theory would suggest that gold will find its own level in terms of price, supply and demand, and if Sprott is right then the gold price will rise sharply once the market understands this.  But in today’s financial environment when everything seems to be manipulatable by big money, with or without government collusion, perhaps gold, as a hybrid between money and commodity, is very much a unique animal.  There are just too many vested interests for it to simply follow the usual economic rules.



Sprott open letter challenges WGC/GFMS gold demand figures - GOLD ANALYSIS - Mineweb.com Mineweb

October 21, 2013

New #Mining blog The Economic Geologist @Economic_Geo on the technical aspects of the mining industry.

The first posts will help you brush up on some basic mining concepts to better understand the mining industry. 

New #Mining blog discussing some of the more technical aspects of the mining industry. 

About | The Economic Geologist

@Economic_Geo 

About | The Economic Geologist

The MasterMetals Blog

30%-50% of #junior #miners not expected to survive - #BCSC report

The sector will be a pale shade of what it once was when the Junior resource market eventually recovers in 2-5 years according to respondents of a recent B.C. Securities Commission survey.

30%-50% of junior miners not expected to survive - BCSC report

JUNIOR MINING

“Retail and institutional markets have virtually disappeared for the financing of junior mining companies,” a senior mining executive recently told a B.C. Securities Commission survey.
Author: Dorothy Kosich
Posted: Monday , 21 Oct 2013 
RENO (MINEWEB) - 
A report recently released by the British Columbia Securities Commission found some senior mining executives feel the market is at its lowest and should slowly start to recover in one to two years.
However, other executives felt the market has yet to hit its lowest point and don’t expect conditions to significantly improve for another three to five years.
Of the in-depth interviews conducted with 15 mining executives, the participants agreed that there “will be an eventual exodus of mining companies and exploration endeavors,” said the report, BC Junior Mining at the Crossroads: Executive Management’s Perspective, which was authored by KPMG and commissioned by the B.C. Securities Commission.
“Between 30% and 50% of junior are not expected to survive,” said one participant in the interviews. “30% is fine, and perhaps required, but 50% is not.”
Large mining companies are expected to continue to shed uneconomic assets such as exploration programs, mine development programs and high cost operating mines, said the report. “While investors may continue to see mining companies ‘in the red’, all participants agreed this is healthy and part of the natural cycle of the mining industry.”
“As a result, exploration activities (and expenditures) are likely to continue to remain lower compared to deposit appraisal and mine operations,” said KMPG. “During this time, some participants expect significant changes to board members and management teams for large and small mining companies.”
“With the change, it is expected that new boards and management teams will require a period to: build investor confidence; make the changes necessary to help companies start with a clean slate.”
LONG-TERM OUTLOOK
Many of those interviewed for the report saw the potential exodus of less-economic mining companies as positive “because investor confidence may increase when stronger and better-established juniors remain in the market to compete for already limited available capital,” said KMPG. In the long term, the remaining companies are expected to regain momentum and rebuild investor confidence.”
“When the larger mining companies start to rebuild their pool of capital, the focus will eventually turn to supporting and investing in juniors to expand existing operations,” the report advised.
However, some of those interviewed expressed concern that the longer the delay in the recovery of the B.C. mining sector, “the more damage will be done to Vancouver’s reputation as a mining centre of excellence.” This will occur as some of the supporting infrastructure disappears (independent brokers, lawyers, accountants, geologists, etc.).”
Meanwhile, as junior mining company transactions have become less popular for investment, independent brokers have closed shop, been bought by other financial institutions or focused on more profitable sectors, according to the report. “There is concern amongst the juniors that this loss of intermediaries could be a longer term problem for the industry when it returns to more ‘normal’ markets.”
Those interviewed indicated that while partnerships, joint ventures and options agreements between major and junior mining companies were somewhat successful, these have largely tapered off due to poor stock prices, and the need of many of the senior mining companies to restructure corporate balance sheets before investing in new projects or properties.
In their interviews, the participants identified several contributing factors to the current state of financing in the mining industry. They include metals prices; slow economic growth, global financial issues; the need for senior mining companies to rid themselves of ‘toxic assets’ and problematic projects; and resistance to high risk investments from both institutional and retail investors. Of lesser importance were regulatory costs and policy barriers, according to the report.
Nevertheless, juniors generally agreed that the cost associated with fulfilling regulatory requirements, such as legal, audit and permitting frees were relatively more burdensome than in the past, given current market conditions. Most participants understood that while such regulatory requirements are in place to ensure reporting consistency for mining companies, junior companies could be assisted through the down-cycle if more flexible reporting requirements than those required of senior and more advanced-stage developments in the mining industry were implemented,” said KPMG.
“The interviewees agreed that there were opportunities for securities regulators to improve and streamline their oversight going forward: to make sure that there is consistent review and complaint for all companies; and, to look for flexibility to reflect the disparity in the size and nature of companies in the mining sector,” said the B.C. Securities Commission.


30%-50% of junior miners not expected to survive - BCSC report - JUNIOR MINING - Mineweb.com Mineweb

October 15, 2013

Mysterious #Gold Seller Is Back With Periodic High Volume Slams, Fails To Break Market @ZeroHedge #HFT

Unlike on the two prior occasions when the "mysterious" (coughBIScough) gold seller sold so much gold he briefly broke the gold market not once but twice, this morning's concerted gold selling episodes, which briefly took gold to a three month low, were unable to obliterate the entire bid stack (at least for now)
Mysterious Gold Seller Is Back With Periodic High Volume Slams, Fails To Break Market
Submitted by Tyler Durden on 10/15/2013 10:50 -0400
Unlike on the two prior occasions when the "mysterious" (coughBIScough) gold seller sold so much gold he briefly broke the gold market not once but twice, this morning's concerted gold selling episodes, which briefly took gold to a three month low, were unable to obliterate the entire bid stack (at least for now) and crush enough liquidity to force the CME to announce another "stop logic" 10-20 second trading halt.
However, there were some other peculiarities surrounding today's now recurring morning gold battering (which as we noted in a market where the CME no longer supervises any and all manipulation, were and are certain to continue). Specifically, what is curious is that starting at 3:48 am Eastern Time, Nanex found "six instances (there may be more) of 1 second periods in Gold futures with a high number of trades (700 or more)." As those who have been covering our coverage of HFT manipulation will note, these are precisely the kinds of momentum ignition, and not rational price discovery, events that seek to manipulate prevailing prices lower (or higher). The good news is that as everyone knows, aside from equity, electricity, FX, libor, aluminum, and credit derivative markets (in just the case of JPM) gold is never manipulated: Blythe Masters promised. So there's that.

October 9, 2013

#China is taking over the world one #Gold bar at a time

Tracing The Great Chinese Gold Rush
Explore more infographics like this one on the web's largest information design community - Visually.





Tracing The Great Chinese Gold Rush | Visual.ly