CANADA

No quick end for sale of Teck’s coal unit as mining giant weighs more bids than expected

Eric Reguly - The Globe and Mail | September 5, 2023 | 

Teck’s Greenhills steelmaking coal operation in Elk Valley, British Columbia. (Image courtesy of Teck Resources.)

Canada’s Teck Resources (TSX: TECK-B) is surprised by the global interest in its coal business, suggesting that bidders such as Switzerland’s Glencore will face a highly competitive bidding process whose outcome will not be known quickly.


In an interview in London, Teck CEO Jonathan Price said the range of possible bidders for the coal division, known as Elk Valley Resources (EVR), includes mining companies, steelmakers and resources funds. EVR is the world’s second-biggest exporter of seaborne metallurgical coal, which is used to make steel.

“We are positively surprised by the number of credible proposals we have received,” he said. “We have several that are serious.”

He suggested that the complexity of evaluating the various proposals meant that no deal was imminent, though Teck wants to announce the winning bid by the end of the year. “If it takes a couple of additional months to get the right deal done, this is what we’ll do,” he said. “This is a very high priority for us, and I would prefer not to see this carry over into 2024.”

Teck, whose headquarters are in Vancouver, announced in February a plan to spin off EVR to shareholders, creating a standalone coal operation. But it cancelled the deal in April after determining that shareholders would vote to reject it. Many of them considered the spinoff excessively complicated, in part because the new EVR would have paid most of its cash flow and royalties for a decade to Teck, which, minus the coal assets, would focus on energy-transition metals such as copper.

At the time, Teck said “some shareholders would prefer a more direct approach to separation. … Our plan going forward is to pursue a simple and more direct separation.”

Since then, Teck has been trying to sell EVR through a direct sale of the entire business or through a hybrid deal that would see the sale of a significant minority interest followed by the spinoff of the rest to shareholders. Either way, there would be no ongoing connection between Teck and EVR, unlike the original proposal.

The only known firm offer for all of EVR is from Glencore, which had unveiled a bid in early April to buy Teck in its entirety for $23-billion in an all-share deal. Teck rejected the offer, which had been pitched at a 20-per-cent premium, and later turned down a revised offer that contained a cash option.

But Glencore did not fully retreat – it came back and offered $8.2-billion in cash for EVR.

Other potential bidders that have made their interest in EVR publicly known include a group of investors led by Pierre Lassonde, the gold-mining veteran who co-founded Franco-Nevada Mining Corp.; Nippon Steel, the Japanese steel maker that in February offered $1.1-billion to buy a 10-per-cent stake in EVR; and India’s JSW Steel, whose chairman, Sajjan Jindal, told Bloomberg a week ago that the company intends to bid for 20 per cent to 40 per cent of EVR.

Mr. Price, who is 47 and replaced Don Lindsay as Teck’s CEO a year ago, said there were other potential bidders. But he would not identify them, presumably because they have signed nondisclosure agreements, nor would he reveal their numbers beyond “a few.”

Analysts have said a direct sale of all of EVR to a single company such as Glencore would be the simplest, quickest option. “A sale of 100 per cent of EVR for cash would be the cleanest and most positive outcome, in our view, leaving Teck as a pure metals company with a very strong balance sheet,” Deutsche Bank Research said in a note published Monday. “Under this scenario, Teck Metals [the standalone metals company] would move into a net cash position, although some of the proceeds could be returned to shareholders or sued to buy back stock.”

But Mr. Price said that either option – an outright sale or a partial sale and spinoff – were both viable and fairly easy possibilities. “I don’t think selling a minority and spinning off the rest is complicated at all,” he said. “We need to make sure we get full value for EVR, and many of our investors would like to have continued exposure to EVR given the quality of its assets and the long-term outlook for steelmaking coal prices.”

Some analysts think a partial sale is emerging as Mr. Price’s preferred option, though the CEO declined to say which way he was leaning. “In our view, a partial sale of the business to a consortium of buyers is a more probable scenario,” Bank of Nova Scotia analyst Orest Wowkodaw said in an Aug. 29 note. “This structure would also likely eliminate the requirement for a shareholder vote.”

Mr. Price said interest in EVR was high partly because it produces “high-quality” steelmaking coal, meaning it has the right combination of chemical and physical properties that makes steelmaking more efficient.

Glencore would not comment Tuesday on its pursuit of EVR. The last public comments on its purchase proposal came in early August, when CEO Gary Nagle said his company would combine the Glencore and Teck coal assets, then demerge the business within 24 months of closing the deal. He said Glencore has already set aside $2-billion in cash to help fund the purchase of EVR.

“Glencore is fully committed to ensuring that a transaction with Teck would benefit Canada and is open to working with Teck to identify a comprehensive suite of commitments for the benefit of all relevant stakeholders,” Mr. Nagle said.

Glencore would expect Teck to insist on a “standstill” agreement, meaning Glencore would be prevented from bidding for Teck’s metals business for a number of years in exchange for the right to buy EVR.

South African miners join race to buy Khoemacau copper mine

Reuters | September 5, 2023 | 

Khoemacau’s copper-silver project in Botswana. Credit: Fluor

At least three South African miners are in the running to buy Botswana’s Khoemacau copper mine that is home to one of Africa’s largest copper deposits, several sources told Reuters, as growing demand for the metal ensures strong competition for the sought-after asset.


Johannesburg-listed Impala Platinum, Exxaro Resources and Sibanye Stillwater are weighing bids for the copper and silver mine in Botswana, said the sources with knowledge of the matter, who declined to be named due to the sensitivity of the information.

A number of unnamed Chinese investors, are also on the list of companies interested in Khoemacau Copper Mining operations, one of the sources said.

Impala declined to comment. Exxaro did not immediately respond to emailed questions. Sibanye confirmed its interest.

“We are looking all the time for opportunities and Khoemacau came up on our radar and we have entered into an non-disclosure agreement to try and understand the opportunity better,” Sibanye spokesperson James Wellsted told Reuters. “But Khoemacau is a bit more competitive and we are not going to enter into a bidding war that ends up not creating value.”

An increase in copper demand for applications from solar panels to electric cars in coming years has prompted miners to scramble for more supplies of the metal.

Copper prices have fallen due to fears of a global slowdown, but longer-term prospects for the metal and a competitive bidding process will make it hard for any of the bidders to strike a bargain, two of the sources said.

Khoemacau’s owners – Cupric Canyon LP, a US private equity firm with funds managed by Global Natural Resources Investments (GNRI) and Resource Capital Fund VII LP – said in May they had begun to engage with potential buyers.

The process is expected to take several months and be finalised close to the end of 2023, a Khoemacau spokesperson said.

Diversified miner South32 and Australian rival Sandfire Resources dropped out of the race after the first bidding round due to the mine’s high valuation, the two sources said.

Khoemacau may be valued at between $1.5 billion and $2 billion, three banking sources added.

South32’s CEO Graham Kerr appeared to balk at the cost during the company’s earnings results in August, saying:”That’s probably a very competitive process and one that will be a little bit too rich for our blood.”

South32 declined to comment further.

Analysts at Citigroup said in a note that while the assets could be valued at $1.8 billion, the investment would be worthwhile for South32 at $1.2 billion.

A spokesperson for Sandfire declined to comment on the process.

Khoemacau is located in the Kalahari Copper Belt, a vast swathe of land that stretches from north-east Botswana to parts of western Namibia.

It produces about 60,000 tons of copper and about 2 million ounces of silver per year. Future output could be ramped up to about 130,000 tons of copper and 5 million ounces of silver per year with additional investments.

Khoemacau’s owners are open to either a partnership or an outright sale, one of the sources said.

(By Felix Njini and Clara Denina; Editing by Deepa Babington)

Chinese firms vie for $2 billion Botswana copper mine

Bloomberg News | September 5, 2023 | 

Credit: Khoemacau Copper Mining

Three Chinese groups are among suitors still in the race to acquire a Botswana copper mine that could fetch about $2 billion, according to people familiar with the matter.


Zijin Mining Group Co., MMG Ltd. and Aluminium Corp. of China, known as Chinalco, have progressed to the second round of bidding for the Khoemacau project, the people said.

MMG has been in talks to team up with Citic Metal Co., an arm of Chinese state-owned conglomerate Citic Group, the people said, asking not to be identified as the matter is private. Impala Platinum Holdings Ltd., known as Implats, and fellow South African miner Exxaro Resources Ltd. have also been shortlisted, the people said.

Khoemacau’s major shareholder, London-based private equity firm GNRI, could pick a winner as soon as the next few weeks, the people said. Deliberations are ongoing, and there’s no certainty they will lead to a transaction.

The world’s biggest miners, including BHP Group and Rio Tinto Group, are seeking to expand in copper, as consumption of the metal in electric vehicles and renewable energy is projected to soar.

Khoemacau, which has been ramping up annual output to 60,000 tons after starting operations in mid-2021, would add to the significant copper portfolios already held by Zijin and MMG. Production from the mine — in the Kalahari copper belt that stretches from northwest Botswana to western Namibia — can be expanded to around 130,000 tons a year, according to the company’s website.

Representatives for Citic Metal, Implats and Khoemacau declined to comment. Spokespeople for Chinalco, Exxaro, GNRI and MMG didn’t immediately respond to requests for comment, while a representative for Zijin said they didn’t have knowledge of the matter.

GNRI was formed from a 2015 management buyout of Barclays Plc’s natural resources private equity business.

(By Dinesh Nair, Vinicy Chan and William Clowes, with assistance from Jack Farchy, Paul Burkhardt, Thomas Biesheuvel, Winnie Zhu and Martin Ritchie)

AUSTRALIA

Sexual harassment persists at BHP after millions spent on women’s safety

Bloomberg News | September 5, 2023

(Stock Image)

BHP Group Ltd. chief executive Mike Henry said the world’s biggest miner still has “some ways to go” to create a safe environment for all female employees after the company recently saw a 20% increase in reported sexual harassment.


The company, which this year completed a A$300 million ($191 million) project to make its mining villages in Western Australia safer by adding extra CCTV cameras, security lighting, doors and fences, has disclosed cases of sexual harassment reported and established in the 12 months to June rose to 124 from 103 the year before. About a quarter of the 475 reports of harassment were substantiated, the company reported.

“There’s unacceptable behavior that continues to happen inside the company,” Henry said in a telephone interview. “It does require culture and capability shift and that’s something we’ve been investing a lot of time and effort in but as the reporting shows, we still have some ways to go.”

Of the 167 cases substantiated in the year to June, including cases reported in the prior period, 165 people responsible for the conduct were either fired or removed from site if they were a contractor, or resigned. “And we won’t be satisfied until this behavior has disappeared from from BHP, just like on other safety-related incidents,” Henry said.

The mining industry’s treatment of women has come under increased scrutiny since a government inquiry in West Australia state discovered “horrific” incidents at remote projects. At Rio Tinto Group, more than a quarter of female workers experienced sexual harassment, the company said last year.

Henry said the public disclosure around instances of sexual harassment itself signals a cultural change at the miner, where the percentage of female employees has doubled to 35.2% since 2016, when it set a gender parity target. Since then, the miner has “become a higher performing company, safer, more productive, both in absolute terms but also in relative terms to the competition and executing better on strategy,” Henry said.

Women accounted for 22.9% of the total workforce last year at London-based Rio Tinto Group, the No. 2 miner, according to its annual report published in February. Female representation in Rio Tinto’s senior leadership roles rose to 28.3%.

Women now make up half of BHP’s executive leadership team. It aims for the overall workforce to be 40:40 by 2025 — a corporate target that means the company wants 40% women, 40% men and 20% any gender.

BHP is among 55% of Australia’s top 100 companies that have set a target of 40:40 or above, according to data released Wednesday from leadership advocacy group Chief Executive Women. CEW is urging more companies to follow its lead because women remain underrepresented in leadership teams across Australia’s biggest businesses, while gender parity at the top is still at least half a century away at the current rate.

The CEW data show 91% of ASX300 CEOs are male, and seven in 10 executive roles are held by men. Of those companies, 26 have female CEOs, up from 18 in 2022. Only 23% of ASX300 companies have gender balanced executive leadership teams, even after a big improvement from 2022, when it was 6%.

“We know that diverse teams make better decisions in all respects,” CEW President Susan Lloyd-Hurwitz said in an interview. “They perform better for shareholders, they perform better for the planet, they perform better for their customers and their people.”

(By Amy Bainbridge and Nabila Ahmed, with assistance from David Stringer)

Fewer students want to be geologists or engineers, partly due to mining’s negative image

Bloomberg News | 

Credit: University of Nevada, Reno

Digging up the metals that go into power grids and electric cars is crucial to the energy transition. While the mining industry has plenty of reserves to tap, it faces a worrying shortage of young workers needed to get materials out of the ground.


In regions like Canada and the US, enrollment or graduation from university courses related to mining engineering slipped in recent years. The dilemma adds to the challenges miners face as they scramble to boost output of everything from copper and nickel to cobalt and lithium, just as many nations view supplies as a matter of national security and users rush to secure metal.

Fewer students want to be geologists or engineers, partly due to mining’s negative image regarding pollution, human rights and gender equality. That’s leaving the industry with an aging workforce and forcing it to recruit from outside the traditional university talent pool, such as through apprenticeship programs and internal training.

“There’s been a bit of a lost decade in people going through university in mining courses — that’s proving to really come to crunch point now,” said Alison Allen, deputy managing director at UK-based mining consultancy Wardell Armstrong. “There are too few graduates filling needs.”

The waning interest is clear in some of the world’s key mining jurisdictions. At the Colorado School of Mines, total enrollment in mining, geophysical and geological engineering undergraduate degree courses last year was down about 35% from almost a decade ago. In Canada, mining and mineral engineering graduates dropped by a third between 2016 and 2020, according to Statistics Canada data.

It’s a similar story at the UK’s prestigious Camborne School of Mines, traditionally an important feeder school for the global industry. The number earning degrees from its undergraduate mining engineering course fell in recent years, with new intakes halted in 2020. The school this year announced new programs for mining employees.

UK mining faces a big challenge to meet its needs, according to Rhys Morgan, an engineering and education director at the Royal Academy of Engineering. Some 80% of the 1,250 mining engineers registered with the UK’s Engineering Council are over 50, and 40% are at least 60, he said.

There are already major labor shortages in American mining, leading to significant cost increases, Walter Copan, a vice president at the Colorado School of Mines, said in June.
Attracting talent

Efforts to tackle graduate shortages include new routes into work and in-house training. For example, Wardell Armstrong says the industry has opened apprenticeship positions to help fill some technician and junior roles.

Coping with fewer workers isn’t new. More efficient output means heavyweights BHP Group and Rio Tinto Group are producing much more iron ore than a decade ago — with a lot fewer workers. AI and automation may further reduce the sector’s reliance on skilled labor, and Rio’s tech graduate roles rose 15% this year.

There’s also a need for more non-engineering jobs, particularly with sustainability and social issues increasingly in the spotlight. Anglo American Plc says its focus is shifting to include graduates with degrees in social and environmental sciences and data analytics.

Plus, companies can get greater access to better interest rates and finance if they can prove their ESG standing, Wardell Armstrong’s Allen said.
Job prospects

The drop in mining graduates means that those who do choose to go into the industry have a chance of a lucrative career.

“I was bluntly told that if I have a master’s at CSM, I could walk into a job,” said Michael Dinata, who’s finishing a master’s course at the Camborne School of Mines after studying politics. Yet he’s found some people are surprised at his choice, given the stigma surrounding mining.

“I found that ironic, because the entire infrastructure of technology is built on metal,” he said.

Enticing more students could be crucial to avoiding a potential shortage of new geologists and engineers in the coming years and decades. Legislation was introduced in the US this year that would provide grants to help mining schools tackle declining enrollment.

“There is a very challenging market competing for engineering skills,” the Royal Academy of Engineering’s Morgan said. “A fresh supply of new talent is critical to mine the materials that will enable the successful transition to electrification to meet net-zero ambitions.”

(By Tiffany Tsoi and Mark Burton)

September 1, 2023 

CHILE

Codelco to hand over 24,000 hectares for glacier park

Reuters | September 4, 2023 

Stock image.

Chilean state-owned mining firm Codelco will give up some 24,000 hectares of land it holds concessions to near the Andes mountain range for a new national glacier park, the chair of the board announced on Monday.


The move is “a strategic initiative to face the challenges of climate change,” Codelco chair Maximo Pacheco said at an event.

The Chilean government announced the park in mid-August, aiming to protect more than 300 of the ice formations which bring water to a large part of the Santiago region.

The glacier park sits along the upper part of the Olivares and Colorado river basins, to the east of the capital.

The South American country’s deputy environment minister Maximiliano Proano said the mining company’s move will help develop the second phase of the project.

However, the local unit of German construction material firm Knauf is looking to develop a new plaster project in the area, which faces opposition from social and environmental groups.

(By Fabian Andres Cambero and Valentine Hilaire; Editing by Josie Kao)

GEMOLOGY

Diamond prices are in free fall in one key corner of the market

Bloomberg News | September 3, 2023 | 

Engagement ring. (Image by Leah Kelley, Pexels.)

One of the world’s most popular types of rough diamonds has plunged into a pricing free fall, as an increasing number of Americans choose engagement rings made from lab-grown stones instead.


Diamond demand across the board has weakened after the pandemic, as consumers splash out again on travel and experiences, while economic headwinds eat into luxury spending. However, the kinds of stones that go into the cheaper one- or two-carat solitaire bridal rings popular in the US have experienced far sharper price drops than the rest of the market.

The reason, according to industry insiders, is soaring demand for lab-grown stones. The synthetic diamond industry has paid special attention to this category, where consumers are especially price sensitive, and the efforts are now paying off in the world’s biggest diamond buyer.

The shift doesn’t mean engagement rings are about to go on deep discount — the impact is limited to the rough-diamond market, an opaque world of miners, merchants and tradespeople that is several steps removed from the price tags in a jewelry store.

However, the scale and speed of the pricing collapse of one of the diamond industry’s most important products has left the market reeling. Now, the question is whether the plunging demand for natural diamonds in this category represents a permanent change, and — crucially — if the inroads made by lab-grown gems will eventually spread to the more expensive diamonds that are typically dominated by Asian buying.

Industry leader De Beers insists the current weakness is a natural downswing in demand, after stuck-at-home shoppers sent prices soaring during the pandemic, with cheaper engagement rings having been particularly vulnerable. The company concedes that there has been some penetration into the category from synthetic stones, but doesn’t see it as a structural shift.

“There has been a little bit of cannibalization. That has happened, I don’t think we should deny that,” said Paul Rowley, who heads De Beers’ diamond trading business. “We see the real issue as a macroeconomic issue.”

Lab grown diamonds — physically identical stones that can be made in matter of weeks in a microwave chamber — have long been seen as an existential threat to the natural mining industry, with proponents saying they can offer a cheaper alternative without many of the environmental or social downsides sometimes attached to mined diamonds.

For much of the last decade the risk remained unrealized, with synthetics eating away at cheaper gift-giving segments but making limited headway otherwise. That is now changing, with lab-grown products starting to take a much bigger bite of the crucial US bridal market.

De Beers has responded to weakening demand by aggressively cutting prices for the category known as “select makeables” — rough diamonds between 2 and 4 carats that can be cut into stones about half that size when polished, yielding centerpiece diamonds for bridal rings that are high quality, but not flawless.

De Beers has cut prices in the category by more than 40% in the past year, including one cut of more than 15% in July, according to people familiar with the matter.

The one-time monopoly still wields considerable power in the rough diamond market, selling its gems through 10 sales each year in which the buyers — known as sightholders — generally have to accept the price and the quantities offered.

De Beers typically reserves aggressive cuts as a last resort, and the scale of the recent price falls for a benchmark product is unprecedented outside of a speculative bubble crash, traders said.

In June 2022, De Beers was charging about $1,400 a carat for the select makeable diamonds. By July this year, that had dropped to about $850 a carat. And there may be more room to fall: the diamonds are still 10% more expensive than in the “secondary” market, where traders and manufacturers sell among themselves.

De Beers declined to comment on its diamond pricing.

One of the clearest signs of the traction being made by lab-grown diamonds is their share of diamond exports from India, where about 90% of global supply is cut and polished. Lab grown accounted for about 9% of diamond exports from the country in June, compared with about 1% five years ago. Given the steep discount that they sell for, that means about 25% to 35% of volume is now lab grown, according to Liberum Capital Markets.

The impact on De Beers was clear in the first half. The Anglo American Plc’s unit’s first half profits plunged more than 60% to just $347 million, with its average selling price falling from $213 per carat to $163 per carat. Its August sale was the smallest of the year so far.

De Beers has responded by giving its buyers additional flexibility. It’s allowed them to defer contracted purchases for the rest of the year of up to 50% of the diamonds bigger than 1 carat, according to people familiar with the situation.

While lab grown diamonds are currently hurting demand for natural stones, the upstart industry is also suffering. The price of synthetic diamonds has plunged even more steeply than that of natural stones, and are selling at a bigger discount than ever before.

About five years ago, lab grown gems sold at about a 20% discount to natural diamonds, but that has now blown out to around 80% as the retailers push them at increasingly lower prices and the cost of making them falls. The price of polished stones in the wholesale market has fallen by more than half this year alone.

De Beers started selling its own lab-grown diamonds in 2018 at a steep discount to the going price, in an attempt to differentiate between the two categories. The company expects lab-grown prices to continue to tumble, in what it sees as a tsunami of more supply coming on to the market, Rowley said. That should create an even bigger delta in prices between natural diamonds and lab grown, helping differentiate the two products, he said.

“With the increase in supply we’ll see prices fall through the price point and reach a level where, long term, it does not compete with bridal because it comes too cheap,” said Rowley. “Ultimately they are different products and the finite and rarity of natural diamonds is a different proposition.”

(By Thomas Biesheuvel)

Alrosa starts construction of giant new diamond mine

Reuters | September 4, 2023 |

Mir mine in Yakutia. (Image courtesy of ALROSA)

Russia’s Alrosa, the world’s biggest diamond producing company, has started construction of a giant new mine to replace one closed by flooding that killed eight people in 2017, regional authorities said.


The website of the Yakutia region in Russia’s far east, where the mine is located, quoted Alrosa general director Pavel Marinychev as saying the project would require estimated investment of 121.5 billion roubles ($1.26 billion), with production to start in 2032.

The Mir mine accounted for about 9% of Alrosa’s annual diamond output before the shutdown. The new project at the site will be called Mir-Gluboky (Mir-Deep) and will yield roughly the same output as the old one, Marinychev said.

The total volume of diamond reserves is 173.5 million carats, he added. Output would reach 2 million tons of ore and 3 million carats of diamonds annually for more than 30 years.

Alrosa was last year placed under sanctions by the United States, which cut it off from its banking system and banned direct sales to the US market after Russia invaded Ukraine.

Last month the company reported a rise of 0.2% in revenue for the first half of the year but said net profit fell 35% year-on-year to 55.6 billion roubles.

($1 = 96.7920 roubles)

(By Mark Trevelyan; Editing by Ed Osmond)

BHP says Brazilian court approves Samarco debt reorganization plan

Over  damage caused by a 2015 dam collapse that killed 19 people in Brazil’s worst-ever environmental disaster

Reuters | September 4, 2023 

The Germano complex. Image from Samarco.

Australian mining giant BHP said on Monday a Brazilian court had approved the reorganization plan for its Samarco joint venture, clearing the path for the cash-strapped Brazilian miner to move ahead with a $3.7 billion debt restructuring.


The debt reorganization is intended to help Samarco, an iron ore miner that is 50% owned by BHP and 50% by Vale, meet funding obligations related to rectifying and providing compensation for the damage caused by a 2015 dam collapse that killed 19 people in Brazil’s worst-ever environmental disaster

Shares in BHP rose as much as 3.1% to A$46.090 by 0049 GMT, while the Australian mining sub-index climbed nearly 2%.

On Sept. 1, the Second Business Court of Belo Horizonte, State of Minas Gerais, formalised Samarco’s restructuring plan as part of the ongoing proceedings, BHP said.

Samarco had struggled to reach an agreement for years with its creditors, who rejected its initial recovery plan in April 2022.

The reorganisation plan for Samarco allows for the Brazilian miner’s existing financial debt of $4.8 billion to be exchanged for up to $3.7 billion of long-term unsecured debt, BHP said, projecting the conclusion of the reorganisation to occur in the first half of fiscal 2024.

Samarco’s contribution to fund the reparation will be capped from 2024 to 2030 at $1 billion, while BHP Brasil and Vale will be required to provide funding during this period to the extent that the funding amount required exceeds the $1 billion cap.

“Samarco is not fully resolved, the court approval only ratifies a certain amount of debt, we are looking to see whether or not that number has increased, the bigger issue is still pending, and going through the courts can take a while,” Glyn Lawcock, an analyst with Barrenjoey said.

Separately, around 720,000 Brazilians are suing BHP, the world’s biggest miner by market value, over the 2015 collapse of the Fundao dam owned by Samarco.

(By Roushni Nair; Editing by Paul Simao, Rosalba O’Brien, Jamie Freed and Sherry Jacob-Phillips)

CRIMINAL CAPITALI$M

Copper crime ring is latest scandal to rock the metals world

Bloomberg News | September 3, 2023 | 

Aurubis metal recycling – copper. (Image by Aurubis).

The history of commodity markets is littered with fraud and risk, and the opaque trade in scrap metal is no exception. But even veterans with decades of experience say they’ve never seen anything like the scam now rocking one of the world’s top copper recyclers.


Aurubis AG revealed this week it has uncovered a large-scale fraud involving shipments of scrap metal that it uses to feed its copper smelters, with potential losses running into hundreds of millions of euros. The announcement sent the Hamburg-based company’s shares plunging, and delivered a fresh blow to confidence in the global metals industry after a string of high-profile scandals, including the nickel scam that recently ensnared trader Trafigura Group.

As Europe’s largest copper producer, Aurubis will play a crucial role in delivering the metals needed for the push into renewable energy and electric vehicles. But just as the Trafigura case raised eyebrows in the trading world by revealing how one of the largest players missed many red flags, Aurubis’s revelations will pose tough questions for the company and chief executive Roland Harings about its internal controls and processes.

The company has been hit by two different and possibly connected crimes, one a few months ago involving the theft of precious metals residues, and then the shock revelation this week that it has been paying for scrap material that didn’t contain the metal it was supposed to. A spokesperson for Aurubis said it is investigating a sophisticated criminal operation involving both external suppliers and complicit employees at its main smelter in Hamburg.

“My memory of this industry goes back quite a long way, and I can’t recall any similar incidents on this kind of scale,” said Michael Lion, who’s been involved in the recycling industry for more than 50 years and is one of its most well-known figures. “The very substantial sums of money involved suggest that this was an extremely well-organized operation that could well have involved a web of conspiring suppliers.”

Aurubis has been in operation for more than a century, and traditionally it has fed its smelters by sourcing a combination of copper ore and various forms of metal scrap including electrical wiring and water pipes. However, in recent years it’s invested heavily in new production processes to extract copper and other metals from increasingly complex forms of scrap, including old circuit boards and — most recently — lithium-ion batteries.

Those investments have helped make Aurubis a rare success story in the European metals industry, and the company posted a record profit last year even as the energy crisis hammered producers of other power-intensive metals including aluminum, zinc and steel. Aurubis had previously forecast operating earnings before taxes of €450 million to €550 million for the 2022-23 financial year, which it now no longer expects to achieve.

Copper is one of the world’s most important industrial commodities, and its extensive use in construction and manufacturing has made it a bellwether for global economic activity. More recently, the focus has shifted to the massive amounts of copper that will be needed to wire the shift to green energy, with some forecasters warning of the risk of shortages and price spikes. Futures prices have fallen from the record levels reached last year but remain elevated by historical standards.

The sudden announcement and scale of the scam has sent tremors through the tight-knit network of traders and scrap processors that supply Aurubis. Speaking privately, representatives at two suppliers to Aurubis and a major scrap buyer said they hadn’t heard any rumors about issues with fraud at the company or in the broader market, even after the smaller-scale theft of semi-processed precious metals in June left the industry on high alert.

There are still a lot of questions outstanding about how Aurubis found itself with a shortfall in metal that it says could mean damages in the “low, three-digit-million-euro range.”

According to a company spokesperson, certain of its recycling suppliers appear to have “manipulated details” about the raw materials they delivered, and have been working with employees in the sampling department. The company eventually discovered that metal was missing once the material was processed in Aurubis’s plant, said Angela Seidler, vice president for investor relations and corporate communications.

Suppliers typically provide an estimation of what the materials contain, she said. Aurubis also conducts a visual inspection of the shipments it receives and its labs analyze the metal content, before paying the firms on that basis.

The visual inspections, while they sound crude, can actually prove very effective in identifying sub-par batches of scrap before they enter the smelting system and regularly involve four or five employees, according to people familiar with the industry’s practices who asked not to be identified because they aren’t authorized to speak publicly. Incoming cargoes are routinely tested chemically as well, but the technical challenges in sampling varied batches of scrap mean visual inspections can be more reliable.

However, that only holds true for the more traditional forms of scrap. Visual inspections are much more difficult when it comes to the more complex material that Aurubis has recently been expanding into — for example, ground-up granules derived from waste electronics that can contain a mix of copper and other valuable metals like gold and palladium.

For those materials, smelters rely more heavily on sampling and chemical inspections, and — while the process itself is very precise — it creates a risk that complicit employees could overstate the value of the material, the people said, emphasizing that they were speaking in general terms.

The high value of the precious metals also mean that large losses could theoretically rack up more quickly, and on smaller quantities of material.

Aurubis’s Seidler confirmed that the fraud was focused on particular types of scrap, but declined to comment further. The company expects to digest the impact of the losses during the current financial year and doesn’t expect an impact on its expansion plans or strategy, she said.

The company has notified the police and will now examine whether it can make a claim under a fidelity insurance policy. It has also been assisting the police and the public prosecutor’s office with the theft that occurred earlier this year, said Seidler.

“It appears to be separate from the incident in June, but it is too early to say whether or not the cases are interlinked,” she said. “In that incident, they stole high-value precious-metal bearing intermediates that are generated during the refining process, and it takes a certain knowledge and access to processing equipment to treat these materials. The people involved in that are currently in custody awaiting trial.”

(By Mark Burton and Jack Farchy, with assistance from Archie Hunter)

NEXT TIME BARGAIN IN GOOD FAITH
Strike at Mexico gold mine costs Newmont $3.7 million a day

Bloomberg News | September 1, 2023 | 

Peñasquito is the world’s fifth largest silver mine and Mexico’s second biggest. (Image courtesy of Newmont’s suppliers in Mexico.)

The operator of Mexico’s largest gold mine says it is losing millions of dollars a day on a strike that has dragged on for months.


Newmont Corp., the world’s largest bullion producer, pegged the financial impact of the dispute at its Penasquito mine at approximately $1 million a day in maintenance costs and $2.7 million a day in lost revenue in a statement posted to the mine’s Facebook page Monday.

As a result, the mine will not turn a profit this year, the Denver-based company said.

The Penasquito mine shuttered in early June when about 2,000 unionized workers stopped work over a profit-sharing agreement and alleged contract breaches. The company has since declared force majeure on products. Top executives, including chief executive officer Tom Palmer, visited Mexico in August to meet with government officials to lobby for a resolution.

Penasquito, in Zacatecas in the center-north region of Mexico, is a major supplier of gold, silver, zinc and lead. The strike marks the third labor dispute since Newmont bought Penasquito from Goldcorp Inc. in 2019. It brought in $2.8 billion in sales in 2022.

(By Jacob Lorinc)