Warburg Pincus Raises $4 Billion for First #Energy #Fund #MasterEnergy @NYTimes

More private equity players getting into the energy game.



Warburg Pincus Raises $4 Billion for First Energy Fund

The private equity firm Warburg Pincus has raised $4 billion for a new fund, its first dedicated to investments in the energy sector.

Warburg Pincus said on Monday that the final amount of capital raised for the fund was $1 billion higher than the initial goal, indicating robust demand among investors. The fund began soliciting capital in November 2013 and held an initial close in May.

The fund is intended to help Warburg Pincus take advantage of the North American energy boom, though it can also invest elsewhere. The private equity firm, which has invested in several energy companies over the years, decided to open a dedicated energy fund after its limited partner investors wanted more exposure to the sector, a person briefed on the strategy said.

The biggest private equity firms have plunged into this arena. This year, Kohlberg Kravis Roberts finished raising a $2 billion fund to invest in oil and gas assets. The Blackstone Group is raising an energy fund that is expected to exceed its $4 billion target when it finishes raising capital this year.

Warburg Pincus said its new fund would invest in energy companies focused on exploration and production, in addition to oil field services, mining and other sectors. Since it was founded in 1966, Warburg Pincus has invested and committed more than $9.5 billion in more than 50 companies related to energy, including the oil and natural gas company Antero Resources and the Canadian oil sands company MEG Energy.

The energy fund is a so-called companion to Warburg Pincus’s current $11.2 billion private equity fund, meaning it may invest alongside that fund.

“This successful fund-raise reflects our strong track record and experience in energy investing globally as well as significant investor demand for the energy sector,” Joseph P. Landy, a co-chief executive of the firm, said in a statement.

Read the article online here: 

http://mobile.nytimes.com/blogs/dealbook/2014/10/27/warburg-pincus-raises-4-billion-for-first-energy-fund/?emc=edit_dlbkpm_20141027&nl=business&nlid=10378144

Wparburg Pincus Raises $4 Billion for First Energy Fund - NYTimes.com



The MasterMetals Blog

@MasterMetals

#Copper - Hedge fund (#RedKite?) buying large copper position; strikes looming in Peru & Indonesia

FROM SCOTIABANK:

 

- Copper Shorters Beware!  A WSJ Article Saying One Hedge Fund That Owns over Half the LME Inventory & A Couple of Very Notable Upcoming Strikes:   Over the weekend we see headlines for a few looming mine strikes that could materially affect copper supply for the balance of this year (see below BHP/Glencore/Teck's Antamina, and FCX's Grasberg).  That coupled with an interesting WSJ Article revealing a hedge fund is making a sizeable bullish bet is adding some tailwinds to the copper price this morning.  The supply side risk (the strikes) comes at a time where global copper inventories are very low and trending lower.  The global copper market is 20Mt+/year by comparison.

 

 

 

- WSJ Article Raising Some Eyebrows Writing that a "Single Firm Holds More Than 50% of Copper in LME Warehouses".  We note that at ~160kt versus the total Global Inventories of ~800kt …LME inventories represent roughly 20% of the visible total (we include Shanghai Bonded Warehouse Inventories which as you can see above is just over 500kt of the total).  Here's the WSJ article this morning… "A single buyer has snapped up more than half the copper held in London Metal Exchange warehouses, giving it control over a crucial source of supply and raising concerns among traders about the potential for higher prices.  On several occasions in the last month, this buyer held as much as 90% of the world's copper stored in LME-licensed warehouses, equal to about 140,000 tons, or enough to make the copper parts of the Statue of Liberty more than 1,700 times. As of Wednesday, the buyer owned between 50% and 80% of copper held in warehouses, according to the most recent exchange data.  At today's prices, a 50% to 80% share of LME copper inventories would be worth anywhere from roughly $535 million to about $850 million.  Although the exchange doesn't identify the owners of metals, eight traders and brokers working for different firms active on the LME said they believe Red Kite Group, a London hedge-fund manager that focuses on metals trading, was the one buying. One of the brokers said that when he needs to buy copper for clients, contacts in the market refer him to Red Kite, indicating the fund is sitting on a large pile of metal.  Red Kite declined to comment.  Banks often hold large portions of the metal in LME-licensed warehouses on behalf of clients, but a hedge fund holding that much copper is less common, traders and brokers say. The London Metal Exchange, owned by Hong Kong Exchanges & Clearing Ltd. , doesn't limit how much metal a single trader may hold in its warehouses, and says that it has mechanisms in place to prevent market squeezes—a situation in which holders of a large share of the supplies use their position to jack up prices. For example, it requires a company with a dominant position to lend metal for short periods and it caps the amount of money that can be charged for that service.  "The LME constantly monitors its markets to ensure that trading is orderly," a spokeswoman for the LME said. The LME's "lending guidance" system "is the most effective way to manage pressure arising from dominant positions in our market."  Prices ticked higher last week in response to positive economic news from China, the world's biggest consumer of the metal. They remain below their levels at the start of the year because demand has been sluggish and production capacity is expected to increase. The official price of copper for delivery in three months on the LME was $6,696 on Friday.  The metal's owner could be wagering that global copper supplies will tighten, causing prices to shoot up, analysts say. The price of copper traded on the LME is used as a global benchmark, and metal users rely on the exchange's warehouses for emergency supplies. If one firm owns most of that spare supply, it can charge higher prices to buyers, analysts say.  "There's no reason for anyone to be holding 70% of the stocks of the commodity," said Jessica Fung, head of Commodities Metals at BMO Capital Markets.  Established in 2004, Red Kite is now run by two of its founding partners, Michael Farmer and David Lilley, both alumni of the German industrial conglomerate Metallgesellschaft AG, which collapsed in 1993. The fund is known for its bold and extremely profitable trades involving copper, as well as other metals. Red Kite Group manages $2.3 billion, according to its website.  A single firm has owned at least 50% of the copper in LME-licensed warehouses for much of the last four months. Accumulating such a dominant position became easier in June because the amount of metal under the exchange's watch had plummeted, as had prices. The warehouses have held less than 160,000 tons of copper since mid-June, compared with more than 360,000 tons at the start of the year. Some analysts say copper production is running behind demand, forcing some users to draw on stockpiles in LME-licensed warehouses.  Some traders say the concentration of so much copper under one firm's control is already driving up prices. It costs about $72 more per ton to buy copper for delivery today than for delivery in three months. Others say copper is more expensive because miners aren't meeting global demand.  The LME's regulatory function has come under intense criticism from aluminum buyers, who have complained of long waits and high costs to get supplies out of certain warehouses.  The exchange has responded by changing its rules."

 

- Exclusiva Latam:  A few things below that our Latam Mining Desk are watching from overnight…..

 

1.     Antamina Union prepares for strike on November 10.  Workers at Antamina mine prepare for an indefinite strike on November 10, as talks with company officials to renegotiate a labor contract that expired on July 24 have been unsuccessful. A strike at Antamina mine would be unprecedented. Union leaders demand better labor conditions and a special bonus to offset a decline in workers' earnings participation, which came as a result of lower production volumes driven by a decline in ore grades. Antamina said in a statement that it hasn't been formally notified about the strike. According to union Secretary Jorge Juárez, the decision will be officially presented to the company and the Peruvian Labor Ministry on Monday 27 or Tuesday 28 of October.  The union represents 1,630 from a total of 2,860 workers. Mr Juárez noted that copper grades at Antamina have declined to 0.8% from 1.6% last year. Antamina is controlled by BHP Billiton (33.75%) and Glencore Xstrata (33.75%). Teck holds a 22.5% stake on the mine while Mitsubishi Corp. has a 10% participation.  Copper production in Perú has been unable to continue increasing since last June, when it reached a LTM record of 1,424k tonnes, in part due to the production decline at Antamina and ramp-up delays at Toromocho, which has produced 26.7kt in 2014 through August. Antamina produced 30.4kt of copper in August, down from 47.5kt YOY but up from 28kt in July.  Antamina officers expect copper production to recover in the medium term. (Source: Reuters, El Comercio, Gestión)

 

2. Implications to the Copper Market:  We model Antamina to produce 80,500 tonnes of copper and 55,800 tonnes of zinc in Q4 (100% basis). So every strike day takes out 884 tonnes of copper and 613 tonnes of zinc from the market

Source: Ministerio de Energía y Minas, Perú

 

2.     Minera Escondida union no.1 awaits ruling from the Appeals Court in Antofagasta, as the company presented a recourse looking for legal protection following  the union's decision to promote two days of labor stoppages on September 22 and 24.  The union claimed that the stoppages were used as warnings to the company, considering that it has failed to comply with Chilean law and violated workers' rights. The Court of Appeals in Antofagasta has 5 to 15 days (from October 30 through November 14) to determine if the stoppages should be considered illegal –as the company seeks – or not. (Source: Minera Escondida News Blog, Minería Chilena).  Interesting to see that the two largest copper mines in Chile (Escondida) and Peru (Antamina), both owned partially and operated by BHP Billiton, have been facing labor problems lately.

 

3.     Chilean government initiatives to unblock mining investments to focus on mid-to-small sized projects. According to Diario Financiero, the list of mining projects that the Chilean government plans to prioritize by helping them solve pending licenses includes mainly medium and small mining projects. The government plan is to accelerate approval for projects which have been delayed due to slow and complex bureaucracy. In Chile it is estimated that a mining project requires over 210 permits, each of them taking on average more than 100 days to be granted. Diario Financiero notes that the list of mining investments to be prioritized by the government have a total amount of US$2.7B, an amount that could increase by including Codelco's structural projects. Yet, it seems to consider only a relatively small fraction of Cochilco's list of up to $105B in potential mining investments in the country. The list includes Capstone's Santo Domingo –which is still looking for permits for the Chañaral port – and BHP's  Cerro Colorado.  Some local industry experts consider that expediting  bureaucracy will do little to make new mining investments in Chile more attractive for mining companies, as they still have to consider the increase in taxes, high energy costs and increasing labor uncertainty due to the pending labor reform.  (Source: Minería Chilena, Diario Financiero). 

 

 

- Copper Supply-Related:  Freeport's Grasberg to Strike for a Month?  In addition to the potential for an Antamina Strike on November 10^th (see above)… a Reuters article this morning saying that workers at Freeport's Grasberg Mine are threatening to go on strike for a month starting on November 6^th because the company has failed to make changes to local management following a fatal accident.  Earlier this month, hundreds of angry protesters blocked access for two days to the open-pit area of the Grasberg complex, where production was temporarily suspended following the death of four workers on Sept. 27. 

 

Impact to FCX?  Orest Wowkodaw (Sr. Base Metals Analyst – Scotiabank) saying this morning that should this actually take place… a one-month strike in Q4 for FCX represents ~38kt of copper on a 100% basis, and represents about 8% of FCX's consolidated production.  The impact to our Q4/14 EBITDA estimate for FCX is $144 million, or ~6%, while the impact to our EPS estimate is $0.06, or ~8%.  Orest adds that he thinks the strike is a 50/50 scenario due to the contentious issue of worker safety and the recent poor track record of accidents at Grasberg. 

 

…Freeport, BHP Pushed to Give Water to Chile Residents in Drought…: Chile's government has introduced legislation that would redistribute water rights to consumers and awayfrom mines, without compensation, during water shortages. As Chile's copper industry has expanded, mining companies such as BHP Billiton and Freeport-McMoRan have had to compete with residential demand for scarce water resources. This is the fourth such water oversight legislation introduced in the past year by President Michelle Bachelet's government.

 

 

…and Copper Strikes May Go Viral After Proposed Change in Chile's Labor Law…: Chilean workers have been granted the right to join forces with counterparts at other subsidiaries to renegotiate labor conditions with their parent company. Because of the change in the law, labor disputes that in the past would have involved a single mine now have the potential to spread to all of a company's mines. This could affect Anglo American, Antofagasta and Freeport-McMoRan, as well as other operators of multiple copper mines in Chile. After doing some of his own digging, Scotiabank LatAm Materials Analyst Alfonso Salazar notes that the proposed labor reform is still under analysis and could be proposed to the Chilean Congress in late November; as such Alfonso notes that there could be some changes before it gets to the Congress for review and approval, and the timing is uncertain.

 

______________________________

MasterMetals

@MasterMetals

www.MasterMetalsBlog.blogspot.com

World Has Less Than 5 Days Worth Of #Copper Inventories @SRSroccoReport

The World Has Less Than 5 Days Worth Of Copper Inventories

According to the financial media, the global economy is supposedly rolling over causing a glut of inventories producing a deflation in the prices of many commodities.  If this is the case… someone should tell that to King of base metals… Copper.

Something doesn’t seem to be making sense in the copper market as the price continues to decline, so are the level of global copper inventories.  You would think the opposite would be the case, but we must remember in the new Financial Paradigm — Paper assets such as Derivatives, Stocks and Bonds are KING, while Gold-Silver and commodities are GARBAGE.  Which is why (according to their mentality), financial assets are what we should EAT, while gold-silver and commodities are what we flush down the toilet once we are done digesting and consuming them (put another way–CRAP).

If we look at the chart below, we can see a very interesting trend taking place in global copper inventories.  Not only are we are near record lows, we are down to less than five days worth of copper inventories:



(Data from the Chilean Copper Commission website Weekly Updates)

In August 2013, the world held 777,697 metric tons (mt) of total global copper inventories–a 13.5 day supply.  During that time, the price of copper was trading in the $3.30-$3.40 range.  If we move over toward the middle of the chart, by March 2014, the global copper stocks declined to 477,014 mt (8.3 day supply), while the price of copper traded in the $3.00 range.

So, after a near 40% decline in world copper inventories, the price of copper fell 10%.  Interestingly, this is the same the price of silver fell from $25 (Aug 2013) to $20 in March 2014.

Now, if we look at the current data, shown on the right side of the chart, total global copper inventories are now at 263,027 mt at an impressive 4.6 day supply (sarcasm).  And of course, the price of copper fell from a high of nearly $3.30 in June, to around 3 bucks today.

Let’s compare copper inventories at the end of September, going back to 2009.

Global Copper Inventories

SEP 2009 = 490,773 mt

SEP 2010 = 553,737 mt

SEP 2011 = 658,851 mt

SEP 2012 = 427,733 mt

SEP 2013 = 717,232 mt

SEP 2014 = 263,027 mt

Here we can see that end of September copper inventories in 2014 are the lowest in six years…. and at a 4.6 day supply.

Just maybe the copper traders know that inventories are going to header higher by the end of the year if the global economy continues to shrink.  However, a 4.6 day supply of copper doesn’t seem like the demand for the king base metal is really falling all that much… or am I missing something here.

Lastly, there is speculation that the Chinese may be buying and hoarding copper that isn’t recorded in the “Official Inventories.”  I say… so what.

If I were Asian or Chinese, I would rather spend $1.8 billion to purchase the rest of the 263,000 mt of global copper inventories than spend another lousy RED CENT on U.S. Treasuries that will become worthless at some point in the future.

NEW UPDATE 10/18/14:

After reading some of the comments below the article, I did additional research that might help answer some of the questions raised.  However, the more I looked into to the global copper market, the more bizarre it became.

While it’s true that China recently had a probe into its Copper Financial Deals (now gone bad), this became public in 2013 and was addressed early this year.  If it is true that China has all this extra copper in inventory… then why did Chinese Copper imports increase 18.7% year-over-year in the first seven months of 2014???  (source of data from this Reuters article).

Again, if we knew that the Copper Financing Deals were coming apart back in May of last year (Zerohedge: The Bronze Swan Arrives:  The End of China’s Copper Financing), wouldn’t this copper market imbalance be worked through by now?  I mean, its been nearly a year and a half.  By the way, thanks reader houstskool for posting that link in the comment section.

I went back and looked at the data from the Chilean Copper Commission and found some interesting trends.  From Jan-May 2014, global copper production increased 5.6% y-o-y, from 7.28 million metric tons in 2013, to 7.7 million metric tons in 2014.  So, we have an INCREASE IN COPPER PRODUCTION.

Now, from Jan-Apr 2014, the world consumed -2.3% less copper, from 5.4 million metric tons in 2013, to 5.3 million metric tons in 2014… a DECREASE IN COPPER CONSUMPTION.  This isn’t much of a decline, but you would think for the first four months of the year, we would have seen a build in global copper inventories… due to an increase in production and a decline in consumption.  However, if we look at the chart above, global copper inventories actually DECLINED IN A BIG WAY in April, 2014.

Global copper inventories fell from 477,014 mt in March, to 355,075 mt in April.  This was a drop of 25% from a 8.3 day supply, down to a 6.2 day supply.

So, here’s the question.  Why would global copper inventories be falling if global production is increasing, demand falling and China with a supposed GLUT of copper inventories to work through?  Does that make any sense whatsoever?

In one of the comments below, a reader put a link to a BNN interview with a copper analyst about the global copper market, which you can watch at the link HERE.  Basically, he goes on to say that they look at all the different Chinese warehouses and state there is a 250,000 mt global surplus of copper.  If that is the case… then WHY IN THE HELL aren’t global copper inventories RISING instead of FALLING over the past year???

You see, something just doesn’t make sense when we look at all the data.  Again, why did Chinese copper imports increase 18.7% Jan-Jul if they had all this surplus copper they could work through???

In conclusion… all I can say is SOMETHING FISHY THIS WAY BLOWS in the Global Copper Market.

MUST READ: The World Has Less Than 5 Days Worth Of Copper Inventories : SRSrocco Report