More Gold Mining Stocks are paying dividends - if low...

More Gold Mining Stocks are paying dividends - even if they are still quite low...

From Frank Holmes of US Global Investors on Seeking Alpha:

Get Paid To Play Gold Using Miner Stocks

November 11, 2011 | includes: ABX, AEM, AUY, EGO, GG, KGC, NEM

With money markets and Treasuries yielding next to nothing these days, investors are finding income in new places. One area those investors should consider is gold mining. With gold rising in value, mining companies are reaping record profit margins, yet the stock prices are depressed due to lack of investor interest. A solution for both gold companies and investors may be dividends, specifically gold-linked dividends.

Several top-tier gold producers that are benefiting from higher gold prices have begun to share a portion of their profits with shareholders via a dividend payout. Thirteen of the world’s largest gold producers are expected to pay nearly $2 billion in dividends this year, according to MineFund, making it the largest payment in gold stock history. The Financial Post also reported that miners’ dividend payments are up 75 percent on a year-over-year basis, compared to a 26 percent increase in 2010.

read the rest of the article here: Get Paid To Play Gold Using Miner Stocks - Seeking Alpha

Zambia to double mine royalties - FT.com

Zambia to double mine royalties

Zambia's recently elected government is to double royalties on copper mines, it announced on Friday as it unveiled its 2012 budget, which aims to back its election pledge of distributing more equitably the southern African state's mineral wealth.

Alexander Chikwanda, finance minister, said he proposed to increase the mineral royalty rate to 6 per cent from 3 per cent for base metals, including copper, and from 5 per cent for precious metals.

He also proposed to separate income arising from hedging activities from core mining activities for income tax purposes. Through the two measures, he said he expected to raise 981bn kwacha ($197m).

A change in the mining sector's tax regime had been expected since Michael Sata, a veteran opposition politician, was elected as president in September on a ticket of reducing corruption and tackling the rampant poverty that blights Zambia, Africa's biggest copper producer.

Zambia's copper production is expected to be about 730,000 tons this year. Industry officials have estimated that production could double to 1.5m tons by 2016, but that would require an investment of about $5bn.

Several international companies have operations in the country including London-listed Glencore and Vedanta, Toronto-listed First Quantum, and Vale of Brazil.

In spite of the country's mineral wealth, which has driven a strong economic performance in recent years, Zambia suffers from widespread poverty, with about 60 per cent of the population living below the poverty line.

The budget envisages an increase in spending from about 21 per cent of gross domestic product this year to 26.5 per cent of GDP, with rises in spending on health and education. It also reduces corporate tax on agriculture from 15 per cent to 10 per cent, in a bid to increase investment.

"It's a pro-poor, pro-growth budget with spending on things that do have an impact at grass roots," said Razia Khan, an analyst at Standard Chartered. "It looks like a fairly significant increase in spending, but Zambia is in a position to afford it and it's not a large adjustment in mining royalties. It's not significantly different to what would have been anticipated by the mining sector."

Frederick Bantubonse, general manager at Zambia's Chamber of Mines, the industry body, said the increase in mining royalties would have a small impact on low-cost producers, but could affect older and deeper mines where the costs of production are higher.

"Each project is different from the other so there are lots of permutations," he said, adding that the effects would also depend on metal prices.

Mr Chikwanda said Zambia would also seek to issue a $500m eurobond to fund infrastructure projects.

"It is very clear the PF (Patriotic Front) government has a very ambitious plan to transform the Zambian economy," he said. "To do so we need to carefully balance the demands of our citizens for lower taxes against the demands for higher spending, especially on poverty-reducing programmes. This means that we must rebalance the burden of taxation."

http://www.ft.com/intl/cms/s/0/5a64a96c-0c8c-11e1-88c6-00144feabdc0.html#axzz1dM2RrFT1

Mexico oil: The Petrobras model (?)

Mexico oil: The Petrobras model

November 10th 2011

FROM THE ECONOMIST INTELLIGENCE UNIT

Will Pemex be partially privatised? It is possible, but not likely.

Last month, Enrique Peña Nieto, the telegenic frontrunner for the presidential candidacy of Mexico’s Institutional Revolutionary Party (PRI), proclaimed that he believed in the modernisation of Petroleos Mexicanos (Pemex) as a driver of economic growth in the country. On this point, Mexico should consider applying the so-called Petrobras model to Pemex, he argued. This is a roundabout way of saying that Pemex should be partially privatised, as Brazil’s Petroleo Brasileiro (Petrobras) was when it listed on the New York Stock Exchange in 2000.

This may sound uncontroversial to outsiders. Pemex wants to tap Mexico’s potentially abundant offshore hydrocarbon resources (see article), but is short of technology, expertise and cash. In October, it announced its biggest quarterly loss since 2008. Attracting overseas money and know-how, as a restructured Petrobras did, could help turn the Mexican group around. Yet in Mexico, the first country to nationalise its energy assets (in 1938), this is the stuff of controversy. An attempt in 2008 by the current president, Felipe Calderón, of the National Action Party (PAN), to partially privatise Pemex was watered down in the face of stiff resistance from the public and rival political parties—including the PRI.

Mr Peña Nieto’s remarks have therefore caused a stir. While industry experts applaud him, figures on the left denounce his proposal. The PRI itself is divided. Relatively conservative and nationalistic figures are said to be dismayed, although Mr Peña Nieto’s only rival for the party’s presidential candidacy, Manlio Fabio Beltrones, has since declared his support for a more open approach to managing the oil sector.

In Petrobras’s footsteps

Invoking Petrobras appears politically astute. If it follows in Petrobras’s footsteps, Pemex would welcome private and foreign capital but, crucially, the government would keep majority control. Petrobras’s successful overhaul is widely viewed as a blueprint for turning a national oil company into a commercial operation without selling off national assets.

Bringing in outside cash should bring benefits beyond merely injecting of new funds. Greater accountability to shareholders would improve Pemex’s corporate governance. A US listing would bring oversight by the Securities and Exchange Commission and the Mexican equivalent, the Comisión Nacional Bancaria y de Valores, tightening controls on the company’s finances.

Such an overhaul promises a change of mindset at Pemex. With privatisation, Brazil allowed Petrobras to run itself as a company rather than as a state enterprise. Suddenly, it was able to make important financial decisions on its own; to invest in not just exploration and production but also innovative research and design; to choose its business partners; and to plan strategically. These changes made it possible for Petrobras to become a world leader in deepwater technology. Furthermore, they spawned a thriving Brazilian oil industry. Services firms, consultants, engineers, and lawyers all blossomed, and in short order Brazil became an oil-exporting nation.

Battles ahead

A similar transformation would be harder to make in Mexico. Constitutional changes are probably necessary. Risk-sharing contracts would be needed, as would a looser Pemex monopoly over the oil and gas sectors. For this, the support of two-thirds of the Mexican Congress would be required. Yet a president attempting such reforms would incur the wrath of not just the left, but also Mexican nationalists and the powerful Pemex union—not to mention potentially large swathes of the Mexican public.

Presidential candidates will not be chosen until March 2012 and congressional and presidential election will take place simultaneously, on July 1st 2012. Although Mr Peña Nieto is the overwhelming favourite among the public, the PRI is unlikely to secure a working majority in Congress. Mr Peña Nieto would thus need to persuade members from other parties to support a restructuring of Pemex. This would be an extremely difficult task, since the PAN will have little incentive to co-operate with the PRI: there will be no election on the horizon, and the PRI has in any case consistently blocked PAN initiatives since 2000. Even if Mr Peña Nieto won support in Congress, a restructuring of Pemex could require a change to the constitution or at the very least a constitutional reinterpretation. Given the Mexican public’s traditional antipathy to foreign investment in the oil sector, making such a change is likely to prove unpopular, so would be devilishly hard to accomplish.

Oil production trends may drum up the necessary support for radical measures, though. Output dipped from 3.9m barrels/day (b/d) in 2004 to 2.9m b/d last year, according to Economist Intelligence Unit estimates (see chart). By 2013, some analysts think that output at the important but ageing Cantarell field will dwindle further, while Ku Maloob Zaap (KMZ), Mexico’s most prodigious field, will also begin to decline. We forecast that production will fall to 2.3m b/d by 2015 and 2.0m b/d by 2020. (Predictions that oil production will stay on a downward path are disputed by Pemex: its CEO, Juan Jose Suarez Coppel, claimed recently that Pemex will be able to boost output to over 3m b/d by 2015.)

At the same time, as home-grown demand for crude rises, Mexico could be in danger of becoming a net oil importer before long. Resulting pressure on both Pemex’s finances and the government's fiscal position—Pemex provides around 40% of federal revenues—could bring public and elite opinion behind fundamental reform of the sector. The argument for Pemex becoming more like Petrobras in order to stem the decline in production would carry more weight. Like Petrobras, Pemex could focus on deepwater exploration: the relatively unknown seabed within Mexican territories in the Gulf of Mexico is an exciting prospect. Big finds have been made on the US side close to Mexican waters.

By making an issue of Pemex so early in the campaign, Mr Peña Nieto is giving himself time to gauge the public’s reaction to his ideas—and, if necessary, to backtrack. Should he and the PRI decide to pursue it further, the issue will be one of the most hotly disputed of the election. If Mr Peña Nieto’s proposal clears all these hurdles, a decision to follow the Petrobras model would fundamentally change the face of Mexico’s oil industry. But, given the political impediments to reform, the rejuvenation of Mexico’s oil sector is a less likely scenario than that of our core forecast: continued decline.

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