Canada blocks $5.2 billion #Petronas bid for #Progress Energy | Reuters

Canada has blocked Malaysian state oil firm Petronas's C$5.17 billion (3.2 billion pounds) bid for gas producer Progress Energy Resources (PRQ.TO: Quote, Profile, Research), throwing the country's energy sector into turmoil.

Canada blocks $5.2 billion Petronas bid for Progress Energy

1:07pm BST

By Euan Rocha and Stuart Grudgings

TORONTO/KUALA LUMPUR (Reuters) - Canada has blocked Malaysian state oil firm Petronas's C$5.17 billion (3.2 billion pounds) bid for gas producer Progress Energy Resources (PRQ.TO: Quote, Profile, Research), throwing the country's energy sector into turmoil.

The surprise move could signal problems for Chinese oil group CNOOC's (0883.HK: Quote, Profile, Research) C$15.1 billion offer for oil producer Nexen (NXY.TO: Quote, Profile, Research) and, longer term, weigh on other Canadian firms hoping for foreign investment to tap their vast energy reserves.

Also, any rejection of the CNOOC bid would likely damage trade ties Canada has been trying to build with China, and would underline political sensitivity to Chinese corporate expansion in North America.

The government, which has said C$630 billion investment is needed over the next decade, has been trying to balance concerns over the deals with a need for foreign investment.

Canada's announcement late on Friday, minutes before a deadline, was a blow to Petronas PETR.UL whose domestic oil supplies are shrinking and which has been seeking to boost its resources beyond Malaysia and volatile areas such as Sudan.

The bid for Progress had not been expected to run into hurdles in a review process that asks whether a deal is of "net benefit" to Canada.

Petronas, which said on Saturday it was not ready to comment, has 30 days to make its offer more palatable. It was not clear what it could put on the table.

"I have sent a notice letter to Petronas indicating that I am not satisfied that the proposed investment is likely to be of net benefit to Canada," industry minister Christian Paradis said in a statement.

The Petronas deal attracted scrutiny after CNOOC made its bid for Nexen. Some members of Canada's governing Conservative Party are wary of the CNOOC offer, in part because of what they say are unfair Chinese business practices.

Earlier this month, Prime Minister Stephen Harper said China's "very different" political and economic systems were a concern. A CNOOC spokeswoman in Beijing would not comment.

WARNING

Last month, China's ambassador to Canada said the government should not allow domestic politics to affect its decision on whether to approve CNOOC's bid.

South of Canada's border, Chinese firms have had difficulty doing business. The United States House of Representatives' Intelligence Committee issued a report earlier this month saying companies should stop doing business with Chinese groups Huawei and ZTE (000063.SZ: Quote, Profile, Research) (0763.HK: Quote, Profile, Research) over security concerns.

On Thursday, the chief executive of U.S. aircraft maker Hawker Beechcraft, whose $1.79 billion sale to a Chinese firm fell through, said China-bashing by U.S. presidential candidates may have contributed to failure of the talks.

The United States has long been the largest market for Canadian energy exports. But with growing U.S. oil output from unconventional sources and the rejection this year of an initial application on the controversial Keystone XL pipeline project, Canada has been forced to try to build bridges with Asian markets that would welcome its energy supplies.

CNOOC, which has won approval from Nexen shareholders, has said it will retain all Nexen employees and make Calgary the headquarters for its Americas operations.

Petronas had also attempted to highlight the benefit its deal offered to Canada, saying it would combine its Canadian business with that of Progress and retain all staff.

"Maybe Canada is using this to attach more conditions to the Nexen deal," said Gordon Kwan, head of energy research at Mirae Asset Securities in Hong Kong. He thinks CNOOC will get the go-ahead.

Progress's share price had doubled since talk of the possible Petronas bid emerged in April, closing at C$21.65 on Friday. Nexen stock has also surged since CNOOC announced its bid in July, rising 48 percent to C$25.15.

Canada last blocked a foreign takeover in 2010, when it stunned markets by rejecting BHP Billiton's (BHP.AX: Quote, Profile, Research) (BLT.L: Quote, Profile, Research) $39 billion bid for Potash Corp (POT.TO:Quote, Profile, Research), the world's largest fertiliser maker.

BHP also had a 30-day period to come back with additional undertakings but withdrew its offer, sensing the bid was unlikely to be approved in the face of political opposition.

BIG DEALS?

Canada is grappling with concerns that approval of the deals could spark a flurry of takeovers of energy companies - the country is home to the world's third-largest proven oil reserves, most of them in the western province of Alberta.

Petronas, Malaysia's only Fortune 500 company, made a big push into Canada's shale gas sector last year when it bought a $1.1 billion stake in a field from Progress.

Petronas first bid for Progress in June to gain control of its 800,000 acres holdings in the Montney shale-gas region of northeastern British Columbia, reserves that could feed a planned liquefied natural gas facility on the Pacific coast.

It raised its initial offer of C$20.45 per share to C$22 in July after a rival bid from an unnamed suitor.

As its domestic supplies start to dwindle, Petronas has been expanding abroad, investing in Sudanese oil, South African petrol stations and European liquefied natural gas.

It had seen the Progress deal as a crucial step to increase its presence in a more stable country after clashes on the border between South Sudan and Sudan this year all but shut its pipelines there.

On Thursday, Canada's broadcast regulator blocked BCE's C$3 billion bid for Astral Media (ACMa.TO: Quote, Profile, Research), saying the deal would give too much power to BCE, Canada's biggest telecoms company and the owner of numerous TV and radio assets.

(Additional reporting by Charlie Zhu in Hong Kong; Editing by dan Lalor and Raju Gopalakrishnan)

© Thomson Reuters 2011. All rights reserved. 

Read the article online here:  Canada blocks $5.2 billion Petronas bid for Progress Energy | Reuters

`You can print money as much as you like but you can`t print #gold` - Mineweb.com

'You can print money as much as you like but you can't print gold'

A quote from a Swiss gold refiner/trader puts the case for gold as sound money very succinctly and coupled with the suggestion that it is a Giffen good, bodes well for further price rises.

Author: Lawrence Williams
Posted: Monday , 15 Oct 2012 LONDON (Mineweb) -
The title of this article is very much a truism which says much about the position gold has held as an international standard for many centuries and why, ultimately, it will hold its position as the monetary yardstick against which all global currencies in this fiat money world will ultimately be measured, and fail to pass muster.  Indeed if some far cleverer analysts and economists than I are to be listened to, these currencies will collapse into a morass of hyperinflation unless the money printing can somehow be brought under control.  With QE to infinity policies currently in place in most of the world's key financial blocs, the likelihood of such controls coming into place before at least one major currency does collapse is becoming more and more remote.  And if one does collapse the dominoes could rapidly start to fall plunging the world into financial Armageddon where the middle classes in particular will have their wealth totally destroyed.  One sincerely hopes that somehow this doomsday scenario can be avoided, but it's as well to be prepared just in case.
I am indebted to an article on Swiss dominance in global gold refining on website www.swissinfo.ch  for the quote used in the title - (from Frédéric Panizzutti, spokesman for MKS (Switzerland) SA, a Swiss company, which specialises in gold trading and which owns the Pamp gold refinery).  Interestingly, Switzerland is a nation which is not amongst the principal money printing areas of the world, although by recently tying its currency to the Euro it is increasingly losing control over its financial destiny, potentially eroding many years of Swiss financial propriety.  It has been finding that the strength of the Swiss Franc from these years has been a limiting factor on its exports, but many feel that its attempts to keep its currency parity stable (or debasing it as some would say) to aid its competitiveness in its biggest export market will prove impossible to maintain long term.
So, while it is possible to continue churning out additional paper money, seemingly ad infinitum, the global gold stock can only grow by a few small percentage points a year which, in  the days when currencies were tied to gold, gave them a huge degree of stability.  Nowadays, continual expansion of the money supply, with no backing, has ultimately to be inflationary - and the more the money supply is expanded, by whatever means, the more likely is it that this inflation will turn into hyperinflation.
What the commentators who call that gold is in a bubble and is hugely overpriced do not take into account is that gold may not really have risen much in value at all - but is primarily reflecting the debasement of all the major currencies - even the Swiss Franc now it has been tied to the Euro.  As noted above, gold is the ultimate monetary yardstick, which is why governments and central banks don't like it as it shows up their policies for what they really are.  For years, institutions like the U.S. Fed and most central bankers have publicly stated that gold is effectively an irrelevance - yet conversely they continue to hold huge amounts of it.  The odds are that they also massage the price to keep it from surging, in the same way that governments try to manipulate anything which can show them up in a bad light.
That Britain's Gordon Brown sold off 60% of the UK's gold reserves back in 1999-2002 when the gold price was at rock bottom was that this self-styled statesman and ‘saviour of the world' from a Scottish backwater  - or perhaps rather a misguided historian who obviously learned little from his historical studies - was, as a relatively raw Chancellor of the Exchequer (Finance Minister), totally misled by the world's central banking elite into ordering this sale at a price (forever to be known as the Brown Bottom) in what in retrospect was a disastrous decision from the U.K.'s economic point of view.  OK, it is easy to be wise after the event, but perhaps Brown was actually the patsy in a global scheme to downplay the role of gold, and led into doing this by central bankers who had no wish to put their own gold reserves on the auction block.
Now central bankers are again buying gold - particularly those from nations in areas which, for the most part, have historically regarded gold as the ultimate store of wealth.  Indeed with China notably circumspect about what it is actually prepared to announce regarding its gold holdings, central bank purchases could well be far higher than official figures would appear to show.
What this all means for the gold price at the moment is that it is pretty much underpinned with some big buying coming in on dips in price, while each recent upwards surge has seen consolidation at higher levels (involving a small drift backwards) followed by a further surge.  On this basis one would anticipate the $1800 level being attacked again on the next vaguely pro-gold piece of news to surface and the current fallback being fairly short-lived.
In his latest Thunder Road Report, Paul Mylchreest, who is always worth reading, poses the question Is gold a Giffen good? - the definition of such being "one which people paradoxically consume more of as the price rises, violating the law of demand. In normal situations, as the price of a good rises, the substitution effect causes consumers to purchase less of it and more of substitute goods. In the Giffen good situation, the income effect dominates, leading people to buy more of the good, even as its price rises" - Wikipedia.  The pattern of gold ETF holdings, and now Central Bank purchases, suggests that gold should nowadays be so classified and, if this is the case, as the price rises demand may well continue to increase, thus driving the price ever higher given the tiny increase in global supply each successive year.  We shall see.

About Lawrence (Lawrie) Williams

Lawrence (Lawrie) Williams has been involved with both the technical and the financial end of the mining sector for over 40 years, formerly CEO of top mining industry business publisher, Mining Journal Limited, he is Mineweb's General Manager and Editorial Director.
Email: lawrie@mineweb.com

`You can print money as much as you like but you can`t print gold` - WHATS NEW - Mineweb.com Mineweb

Vale`s major challenges go beyond iron ore - #IRON - Mineweb.com

Costs are soaring, new mines are running behind schedule and growth in China, Vale's largest market, is slowing.

Vale's major challenges go beyond iron ore

Author: Jeb Blount

Posted: Friday , 12 Oct 2012
RIO DE JANEIRO (Reuters)  - 


Roger Agnelli, who was forced out as chief executive of Brazil's Vale in May 2011, may have been lucky to leave the world's second-largest mining company when he did.
Since Murilo Ferreira replaced him as CEO, a series of setbacks have raised questions about Vale's ability to increase sales and profit and maintain its place as the world's top producer of iron ore, the main ingredient in steel.
Costs are soaring, new mines are behind schedule and growth in China, Vale's largest market, is slowing. The price of iron ore, responsible for nearly three-quarters of the Rio de Janeiro-based company's sales, recently sank to three-year lows.
Making matters worse, Brazilian laws and government interference threaten to hobble Vale, the country's biggest exporter. Vale shipped $42 billion of raw materials in 2011, 16 percent of exports from the world's sixth-largest economy.
"What the government is doing to Vale won't kill the proverbial golden goose, but it could make the goose sick," said Mauricio Canedo, an economist specializing in industrial policy and commodities at the Getulio Vargas Foundation (FGV), a Rio de Janeiro economic research institute. "Vale's future looks less promising now than it has for some time."
Government influence has been most obvious in efforts to get Vale to build steel mills and invest in fertilizer production. while a new mining code threatens to triple royalties.
Agnelli and Ferreira declined to comment. Vale is well-positioned to weather a downturn and will announce a revised investment plan in December, the company said in an email.
At about 36.20 reais a share, Vale's main stock trades at close to where it did when Ferreira took over, 36.80 reais. In a decade under Agnelli it rose nearly 12-fold.
Vale's predicament stems from its 1997 privatization for $3.3 billion, which still rankles with many Brazilians, including members of President Dilma Rousseff's Workers' Party-led government.
For them, Vale's success doesn't ease the sting, even with Brazil getting more than ever in royalties and taxes from the company. Vale's profit soared more than 17-fold to $22.9 billion in 2011 from $1.29 billion in 2001, bolstered by Chinese demand.
In Brazil, only oil giant Petrobras is bigger and more revered by nationalists. Petrobras has private investors, but the government has a majority of voting stock.
GOVERNMENT INTERFERENCE
Still, Rousseff expects Vale to support government industrial policy even if Brazil only has an indirect minority stake in a holding company that controls Vale with partners Brazil's Banco Bradesco and Japan's Mitsui.
When Agnelli laid off 1,300 workers in 2008, Rousseff's mentor and predecessor Luiz Inacio Lula da Silva demanded an explanation. Agnelli's refusal to build a fleet of ships in new, untested, high-cost Brazilian shipyards annoyed Lula further.
To create jobs and turn mine output into higher-value goods, the government pushed Vale to build steel mills in Brazil. It also pushed Vale to invest more in fertilizers.
Brazil, a major producer of coffee, beef, sugar, orange juice and soybeans, imports most of its fertilizer. Vale has the biggest railway and port system in a country where high transport costs choke growth.
"The government is increasingly interested in what Vale is doing," said Leonardo Alves, a mining company analyst with Banco Safra in Sao Paulo. "This is not good for the company."
Brazil's mining ministry declined to comment. Previ, through which the government exercises its indirect stake in Vale, did not respond to questions. Previ is the employee pension fund of state-led Banco do Brasil SA, Brazil's largest bank.
STEEL WEAKNESS
When it comes to interference, steel has caused the most problems. Vale has long invested in mills, but usually as a non-operational minority investor. In return, Vale got a long-term iron ore contract and avoided competing with its own clients.
Yet, in the 16 months since Ferreira took over, Vale has spent more than $658 million on four steel projects. That's 13 percent more than it spent for steel projects in Agnelli's last three years.
ThyssenKrupp's Cia. Siderurgica do Atlantico, a Rio de Janeiro mill, is in crisis. Financial, currency and environmental setbacks forced Vale to more than double its stake to 27 percent. Two years after start-up, ThyssenKrupp is selling out of the 7 billion euro ($8.8 billion) plant.
Acos Laminados do Para SA (ALPA), totally owned by Vale and one of the projects Agnelli resisted, has now been halted, Reuters reported on September 28.
The reason? The government, which lobbied hard for the plant, dropped plans to improve navigation on the Tocantins River. Without those improvements, ALPA can't ship coal in or steel out.
ALPA is planned for Marabá, a city far from a major ocean port in an Amazon region with no major customers for its steel.
But even if steel investments pay off, steel is less profitable than iron ore. World steel capacity outstrips demand by a third, according to Brazil's state development bank BNDES. CSN, the No. 3 Brazilian steelmaker and No. 2 iron ore exporter, is boosting mining as steel margins fall.
Other Vale efforts to diversify have also stalled. The $11 billion spent on nickel, used to make steel rust resistant, has failed to make Vale the world's No. 1 supplier of the metal.
Vale's Goro mine in New Caledonia, potentially the world's largest, barely produces. It is about four years behind schedule. Canadian mines have been hit by strikes, and Vale's Onça Puma mine in Brazil is also missing targets.
"That's $11 billion down a rat hole," said John Tumazos, mining analyst with U.S.-based Very Independent Research LLC.
REGULATORY RISK
But steel troubles could pale next to the challenge of new legislation. Proposed mining code changes could triple mining royalties to about 6 percent from 2 percent, Canedo said, citing mining ministry studies published this year. It could also force Vale to buy more equipment from higher-cost local providers.
Meanwhile, Brazilian states have passed royalty-like charges that could add $500 million a year to Vale's tax bill.
Vale declined to comment on the mining code. Mines minister Edison Lobão, a critic of Vale's 1997 sale, has said mineral exports without local processing could "de-industrialize" Brazil by boosting its currency and choking manufacturers.
Similar reforms to Brazil's oil laws have choked off the sale of new exploration areas for four years, and minimum national content rules are driving up costs and pushing back oil project completion targets for Petrobras, sometimes by years.
VOLATILE PRICES
Many of the problems facing Ferreira, whose reserved personality contrasts sharply with Agnelli's flashy, high-profile corporate style, are beyond his control.
China's move to cool its superheated economy has put the company's main business, iron ore, into crisis.
Essential to everything from cars and stoves to bridges and skyscrapers, iron ore accounts for about 90 percent of Vale profit. Vale produces more than a quarter of the world's high-grade iron ore exports, down from a third a decade ago.
Every $1 drop in the ore price cuts about $300 million a year from Vale revenue. With the spot price for iron ore .IO62-CNI=SI at $115.80 a tonne, Vale will earn about $8.6 billion a year less than it would have at the 3-year average of $144.60.
In September ore fell to a three year low of $86.90 a tonne. Few expect iron ore to regain a record high of $191.90.
"Those who invest in iron ore should do so in the full knowledge that supply will meet demand in due course," said Marius Kloppers, CEO of BHP Billiton Plc, on a conference call August 22. "Scarcity pricing that we have seen over the last 10 years is unlikely to be repeated."
RISING COSTS
As some see Vale's good times ending, costs are rising. The cost of goods sold, a category that includes salaries, equipment and distribution, jumped 15 percent in the 12 months ending June 30 compared with the 12 months ending March 31. Second-quarter profit was the worst in 2-1/2 years.
One of Vale's main cost-cutting efforts, a fleet of giant ore ships built to narrow Australian rivals' transport advantage to China, is banned from Chinese ports.
Not everyone is bearish on Vale. The company's iron ore chief, Jose Carlos Martins, and analysts such as Leonardo Correa with Barclays in Sao Paulo said in August that iron ore would return to about $120 a tonne soon. They were right, halving Ferreira-era stock losses in the last month.
Vale mines have ores with iron content close to the 62 percent needed by steelmakers. This probably keeps costs below $50 a tonne. Chinese and U.S. ores can have iron content of 8 to 13 percent and costs that are double -- or more -- those of Vale.
Even Vale, though, admits times are rough.
"Vale is facing a challenging moment in basic metals," the company said in an emailed response to questions.
Whether Brazil's "golden goose" will rise to that challenge is no longer Agnelli's problem. He's formed his own iron ore venture, AGN Participações, and seeks to compete with Vale.
(Additional reporting by Sabrina Lorenzi; Editing by Todd Benson and Phil Berlowitz)


Vale`s major challenges go beyond iron ore - IRON AND STEEL - Mineweb.com Mineweb