Iron Ore: It’s in season

Should you care to know, I was thrilled upon hearing that Vale wants to start iron ore contracts (2010/2011) negotiations this month. Thrilled because the last negotiations ended up being a succession of drama and political games. Who needs tv series when iron ore contract negotiations can do just as well?

There are a number of developments that have persisted or unfolded since the previous round of negotiations. Mr. Hu is still detained. Rio Tinto and BHP Billiton are struggling to make their Pilbara iron ore tie up bearable to regulatory authorities in Europe and elsewhere. In a bid to calm authorities on their monopolistic tendencies, they have decide not to market jointly 15 per cent of their Pilbara production. On its side of the Pilbara, Fortescue, which has started Q4 negotiations with China roughly a month ago (and with Japan and Korea this week), has unveiled the Solomon project which plans on for a new mine, new rail and new port to produce roughly 60 mtpa to 100 mtpa of iron ore. Western Australia ventures are also at risk of facing higher royalties.

At present time, I guess it makes sense for iron ore producers to secure prices at a time where recovery is gathering speed amid the persistent risks of a double-dip recession materializing. The tone of the negotiations may be different this time around. BHP Billiton highlighted this autumn that China realised that it had to play with the big boys. Whether this means that China will stop pleading in favour of a Chinese mechanism in iron ore contracts is unclear. The recent rise in spot prices is also a contributing factor to weakening the Chinese position in negotiations, it has been reported.

Large low grade gold deposit in low risk jurisdiction. Who wants a piece ?

I hope that the previous post at least made you curious to know what the future was holding for the host community of McWatters’ Sigma gold mine. If it is not the case, just pretend and read through. In 2004, the McWatters’ property in Abitibi Témiscamingue was purchased by Osisko who plans to begin to extract from the low-grade gold deposit in 2011. Osisko’s has been very successful so far with the early stages of the project’s development. Everything seems to go as planned, recent exploration carried at the periphery of the deposit has been rewarding and financing is pouring in. Has Osisko really hit a home run ? and has it been that easy ?

Osisko: simply too good?

With a name like that, it could as well be a popsicle flavour.But it’s not. In a nutshell the company is planning on exploiting a huge low-grade gold deposit (survey results vary between 8.60 g/t and 1,55 g/t) located in Malartic in Abitibi Témiscamingue. The company purchased the rights in 2004 following the bankruptcy of McWatters of which you have heard of the debacle in Thursday’s entry. This deposit has the potential of becoming Canada’s second largest gold mine covering 230 square kilometers of land. The open-pit mine is expected to produce 591 000 ounces of gold per year for a 10 year-period. At present resources are estimated at 6.28 million ounces in proven and probable reserves (also in the computation are 1,4 million ounces in indicated resources and 720 000 ounces in presumed resources). The resource is expanding as the company pursues its drilling program. In its feasibility study Osisko reported that it exploitation costs were of US $319 per ounce which is claimed to be low on the cost curve. Capital costs are estimated to be of US $146 per ounce.

Osisko is sufficiently well-financed to go ahead with the Canadian Malartic project as well as explore the feasibility of other plays. The company has been through a successful streak of financing moves in the past year and on September 24th, the company announced that the funding needs for the Canadian Malartic project had been met following an $150 million agreement with the financing arm of Canada Pension Plan, the CCPIB. This deal allowed the company to fulfill the terms of a previous financing with the Société Générale de financement du Québec with whom the company had a CA$75 million agreement that was condition to the company raising CA$225 from other sources. On September 1, 2009, the company announced that a right issue had allowed it to raise CA$149,5 million. In February this year, Osisko raised C$403-million in a bought-deal offering, making it one of the first junior miners to raise equity finance after markets froze up in the fourth quarter of 2008. Big miners are also acquiring stakes in Osisko. In mid-August Goldcorp took a 13 per cent equity stake in Osisko and further acquired shares on September 1st. Rumors that Agnico-Eagle could be interested in buying Osisko have also become widespread as on June 25, the trading volume in Osisko share became unusually high. Kinross is also rumoured to be interested in Osisko. It has been reported in the media that a bidding war for Osisko would not be a surprise.

It’s no free ride

Despite its latest successes, Osisko has had to face quite significant challenges so far.

When purchasing the property in 2004, Osisko inherited the legacy of McWatters in the form of six mine waste disposal sites totalling an area of 500 hectares. The cost of rehabilitating that area is estimated to CA$25 millions and will be shared equally between the Ministère de Ressources Naturelles et de la Faune and Osisko. The company is finding some benefit to this agreement as the company will be able to dispose conveniently of its processing waste as part of the rehabilitation effort. Processing waste of Osisko will generate an acid-free tailings and will not be leachable. To receive authorization for the development of the Canadian Malartic project, the Bureau d’audiences publiques sur l’environnement recommended that financial guarantees be required to ensure that the project can be undertaken in a manner consistent with the sustainable development objectives of the province. To that end, the company has made available 100 per cent of the funds necessary to rehabilitate the Canadian Malartic mine at the end of its useful life which is above the 70 per cent threshold usually required (but that sometimes does not get paid at all).

Other technical hurdles to the project included the relocation of 205 homes, a daycare center, and a church which happened to be on the land that the company is projecting to mine on. A school was also demolished in the process and on June 15th, the city organized a celebration for the event. This sounds a bit unusual but since Malartic as a population of 3500 inhabitants, the bulk of them probably went to the same school. Ok, you digress Pepito.

In sum, details like a legacy of environmental liability and housing getting in the way seem not to have been huge issues. However lately, a few news stories on Osisko broke in the news and as much as the company can come across the white knight bringing jobs and environmental relief to yet another remote region of Canada, vibrant resistance from key stakeholders has emerged. The Anishinabeg Nation (Algonquins in short) has expressed its intention to block the project as they have not been consulted. They consider the Osisko site to be on their ancestral lands and are contesting the project on the grounds that previous rulings have established a constitutional obligation for governments to consult and to accomodate First Nations.

The MP representing the riding in which Osisko operates has been blamed by a member of the opposition’s far-left party, Québec Solidaire, of being too close for comfort with the company. Additionally the Minister in charge of Aboriginal Affairs, Pierre Corbeil, is also quite close to mining interests as soon after his electoral defeat of 2007 he became a member of the board of directors of Canadian Royalties, a mineral exploration company active in Nunavik. While this may not be saying anything about Osisko’s work ethics, I can share from my very young career in the public service that it is not rare to see MPs getting involved to attract big investment projects.

Canadian Malartic is very likely to be the largest private-investment project in Québec this year and its position as the biggest gold inventory in a single, low-risk spot is making it a quite attractive play for investors. It is worth keeping an eye on developments.

Mineral Resources Management in Québec

I will have a post tomorrow on Osisko, a company active in Abitibi Témiscamingue. Until then, I thought that, this RDI Enquête report would be interesting as it sums up pretty well the society and environment interface in which mining companies operate in Québec.

For the English essential, here are a few facts that caught my attention:

• According to Québec’s Auditor General, there are over 300 acidified tailings ponds for which no work has been undertaken.
• At the start of a project 70 per cent of mine rehabilitation costs should be set aside and paid to the Ministère des Ressources Naturelles et de la Faune to guarantee that the rehabilitation can take place. In 7 out of 15 per cent of cases, payments were not made.
• In sum the regulatory environment is fairly lax and the fiscal treatment of mining companies is generous. In fact, companies will be able to benefit from enough tax credits and allowances to cover for the full payment of the royalties.

Clay Alumina: because we’re worth it

I am in the mood for new things and new plays. Because the beginning of a new week calls for something refreshing, let’s discuss Exploration Orbite’s plan to extract aluminous clay (I may be victim of a botched translation here) from its Grande Vallée property located near Murdochville in Gaspésie, QC. The project has the potential to deliver both high grade specialty and metallurgical alumina and to generate some economic activity in a decaying region of Québec.

Exploration work undertaken has shown that the red clay deposit (Exploration Orbite’s leases total 3 457, 25 hectares) contained a relatively high alumina content (between 23% and 26%) that the company plans on extracting to upgrade it into high purity alumina to cater to markets beyond aluminium production. Specialty alumina can be used in the production of artificial gems and in fibre optics among other things. To go from clay to high purity alumina, the company has purchased the results of a Laval University doctoral thesis that conducted laboratory trials that succeeded in extracting between 97 and 100% pure alumina. Further work was undertaken in Centre d´études des procédés chimiques du Québec (CÉPROCQ) two or three years ago and which led to the conclusion that the process is cost-effective and that is economically viable to extract clay alumina from the deposit.

Exploration Orbite is now at the stage of building a pilot plant and has sought government support that granted the company with loans from both the provincial and federal government as part of regional economic development programs. The plant will be located in Cap Chat, (in the former Alpha Quartz Systems plant) relatively nearby the deposit. The first time that I heard about this project, the plant was to be located in Sept-Îles adjacent to Aluminerie Alouette’s facilities, a partner to the project. However, it seems that governments were seeking to have a little more bang for their buck and made their support conditional to the processing taking place in the region. After all, Gaspésie has had a poor economic performance for decades.

The presence of Aluminerie Alouette is interesting. The smelter is owned by an international consortium and is a standalone smelter. This, however, is a bit a too succinct description that fails to acknowledge the specificity of the facilities. Aluminerie Alouette is the third biggest in the world and has established itself as an industry leader with regards to the energy efficiency of its operations. Not being part of an integrated aluminium production system, the smelter sources its alumina internationally. With China demand pushing prices of raw materials higher, sourcing alumina locally can be an interesting solution. The size of the resource has not been made public and it is thus unclear whether Exploration Orbite’s supply could meet the smelter’s needs.

KNOC buys Harvest Energy Trust

Well, it has been a while since I last reported on done deals. The last time that I actually wrote about a transaction, it was about the Forsys deal which took an unfortunate turn. Today’s deal is a little surreal as it relates to the acquisition of Harvest Energy Trust by South Korean state-run firm Korea National Oil Corp (KNOC). I say surreal as I can’t bring myself to accept that such a premium can be paid for subpar assets.

To be straightforward, KNOC is buying Harvest Energy Trust, a Calgary-based firm that, despite labelling itself the first Canadian energy trust to become an integrated oil and gas company has a fragmented set of assets in the upstream oilsands business and a badly aging petroleum refinery in Come-by-Chance in Newfoundland. KNOC is buying the firm for C $4, 1 billion ($1,8 billion plus the assumption of C. $2.3 billion of debt) representing a 37% premium over Harvest’s share price. KNOC will raise US $1.65 million on domestic and overseas markets. All things considered, the deal comes to about 18$ per barrel equivalent which got many analysts to consider the financials positive.

This deal may align ends and means for South Korea who’s moving towards greater self-sufficiency with regards to its energy supply. However I assume that the deal does not give KNOC much bang for its buck. Production figures for Harvest seem quite modest and the overall quality of the lease is questionable as leases are not contiguous. Additionally, modernization and expansion of the Come by Chance refinery, which had been postponed due to the credit crunch earlier this year, will cost the KNOC $2 billion. As such, there is not such a compelling case for the purchase of Harvest Energy Trust.

What then is driving KNOC’s interest in a firm that comes across as an underdog in view of its average assets and high debt-load? South Korea energy policy goals are motivating the need to take on ownership of more resources; now is a prime time to do so and South Korea has faced a lot of competition from China in its previous bids which all ended in near-misses for South Korea. In that sense, I speculate that Harvest Energy Trust could have been targeted by KNOC as the ugly chick that cannot say no due to its relative absence of other alternatives. It is reported that KNOC has had trouble finding a team for the exploitation of the BlackGold leases that it acquired from Newmont Mining in 2006; the acquisition of Harvest could be seen as a proxy for the development of BlackGold. Additionally, it is possible that Harvest could continue to operate as a trust under KNOC ownership which could possibly exempt the company from paying taxes. If this is not the case, Harvest current tax pools could still shelter the business from taxation for the coming 5 years.

Olympic Dam: Official Assessment out today

BHP Billiton declared force majeure following a mechanical failure on October 6th of Olympic Dam haulage system. The company released its damage assessment today along with its September quarter production report and Australia’s work safety’s officials’ probe. Causes of the incident are yet unknown as the investigation is not yet completed however damages have been assessed.

BHP Billiton confirmed today that it expects months of outage at Olympic Dam as the mine will continue to function at a 25 percent ore-haulage capacity until the first quarter of 2010. This announcement confirmed most analysts’ preliminary assessments as in most expected the mine to operate only at 20% capacity which would reduce the supply of copper by approximately 50 000 tonnes this year as the situation was expected to take up to six months to return to normal. BHP Billiton could have had to purchase copper and uranium to meet contractual obligations however declaring force majeure frees the company from any liability if cannot supply its customers.

Olympic Dam’s copper is sold in Europe, Australia and Asia under contracts negotiated annually based on monthly LME cash settlement prices. Its uranium is sold in Britain, France, Sweden, Finland, Belgium, Japan, South Korea, Canada, the United States and Spain.

On October 6th, the haulage system in the Clark Shaft brings the ore from underground to surface processing facilities. Due to the system derailing, BHP has restarted a smaller shaft capable of maintaining just 20% of the mine’s usual capacity since the incident took place.

Olympic Dam is the world’s largest uranium resource, the world’s fourth largest copper and gold play. The mine became an asset of BHP Billiton when the company acquired WMC Resources in 2005. Expansion plans at Olympic Dam were given the green light in late 2008 with the Stage 1 being in production by 2013. The expansion will lead to a five-fold increase in the ore volume extracted.

Click here for more.

Zeniths & Abysses

The mining and metals community, since the beginning of the year, has had love for copper and gold only. Other metals unless they bottomed tragically were left outside news coverage as average performances are a bore to report on. It now seems that copper and gold may have reached their zenith as other metals and minerals are ready to take off

Gold: its 15 minutes could soon be over…

With gold reaching a new record price almost everyday, how dare I tell you that the fun may be over? With speculation being the sole driver of price increases, the enthusiasm of some will eventually deflate. Investor switching out of gold exchanged traded funds is indicating that to some degree. Since Q1 inflows in gold ETFs followed by Reuters has been steadily decreasing. In Q3 inflows amounted to just over 697,000 ounces in Q3, against 995,000 ounces in the second quarter. The weak physical demand is worrisome and leads to question the sustainability of current gold prices although they are expected to remain around the US $1000 level for the next few months as USD remains low.

Copper: feeling the pinch?

Are prices running ahead of demand? 5-month record high LME inventories can give an indication of that.  Chinese stockpiling, improving macro data and new investor cash have helped copper prices more than double this year but Chinese demand for the metal has been declining for three consecutive months as stockpiling slows. Freeport-McMoRan Copper & Gold Inc said on Monday (Oct 12th) that the copper market’s prospects for next year are as yet uncertain and a strong Chinese economy will be key to demand.

Silver: in no way second.

Like I mentioned about a month ago silver is doing well and will continue to do so. This year silver has taken much of its price direction from gold (and copper to some extent), With half of the demand for silver coming from industrial uses, the expected economic recovery will further propel prices for the metal.  Silver prices have already increased 87% this year while gold prices have increased 48%.

Diamonds.

Rough diamonds prices have been picking up in the past weeks (Rio Tinto raised its prices by 15%) and companies have restarted mines and processing capacity which is good news after  prices falling 65% this year.

 It is unclear if demand is rising in developed countries as producers are unsure whether the increase in sales is due to restocking ahead of Christmas or to genuine demand growth. That is what we will find out after Christmas. In the meantime, strong growth in demand can be seen in China and India.

All things considered, it could be secondary to determine whether demand is really picking up as the supply of diamonds is at so tight a price bubble may be expected according to RBC Capital Markets’ report titled “Diamonds – Where Will All the Rough Come From?”. The bubble-potential stems from the top diamond producers reducing their output significantly this year whilst new mines will be operational in 2011, at best. Leading to 2011, we expect African and Russian mines, which are older, to start producing less.

Nickel: your ultimate underdog

Word on the street is that nickel prices may have turned the corner. Nickel now has a new floor price and will be a top performer in an upcoming commodity supercycle underpinned by growth in Chinese demand. This is what was reported from the Australian Nickel Conference. Those conclusions sound like echoes from a previous commodity boom, just as if a consultant recycled content from a 2007 presentation.

Still, it can be interesting to have a look at nickel in light of its longer-term prospects due to its uses in new alternative energy forms such as nuclear, solar and wind that could help broader nickel uses beyond stainless steel which accounts for two-third of nickel demand. Despite stainless steel output rising 24.5% from Q1 to Q2, nickel prices have remained significantly low as LME inventories remained high as the LME is the market of last resort for nickel and does not deliver ferronickel, the material of choice for stainless steel. With idled capacity resuming operations, the next big move for nickel is expected to be on the downside.

Conclusion
Shortages or tight supply is expected to be an issue for commodities as idled capacity could take time to restart. Prospects are uncertain for many commodities as Chinese imports are expected to lower for the second part of this year although this does not make consensus. Of note, Goldman Sachs is cutting its exposure to commodities as other banks like JPMorgan Chase have increased their exposure steadil throughout the year. More on that here.

Mongolia

Everywhere governments are trying to harness the wealth that their natural resources produce for the benefit of their citizens. Many countries have ventured in the iterative process that is finding the adequate combination of royalties, attractive corporate income tax rates, windfall taxes, tax credits and holidays to attract foreign direct investment while at the same time fulfilling their social commitments. Mongolia set in 2006 a windfall tax to benefit from the high prices of copper and gold to meet its development agenda. The 68% windfall tax severely deterred foreign investment to the extent that investment projects championed by foreign companies were simply abandoned.

With the price of most commodities bottoming earlier this year the country is finding itself on fiscally shaky grounds as it faces an expected deficit of US $80 million. With the mining industry accounting for 33 per cent of the country’s GDP in 2007, it is no wonder why only a few months after the presidential election the country has taken bold and swift steps to address the fiscal and legislative bottlenecks hindering investment in the mining industry. On August 25th, Mongolia officially became a hot property as the country repealed its damaging windfall tax and reviewed key legislative items.

Due to the immense untapped potential of Mongolia, analysts have been prompt to advertise the country as an imminent candidate for double-digit GDP growth and even alluded to the country taking Qatar’s position as the world’s fastest growing economy. While projects are unfolding at an incredible pace in comparison to previous years’ standstill, one wonders if mining projects have the potential to be drivers of economic development for Mongolia. Below is a review of projects currently being championed by the industry and government.

Flagship project: Oyu Tolgoi

Ivanhoe Mines LTD is probably the company that has the most to rejoice over as it has been working towards the exploitation of the Oyu Tolgoi copper and gold deposit since 2001. In the past weeks, Mongolia’s government has focused on fast-tracking this project.

Oyu Tolgoi is the world’s largest undeveloped deposit. It is estimated to contain 79 billion pounds of copper and 45 million ounces of gold. It is the new Escondida. The mining complex would support operations for 60 years however as resources keep being delineated Ivanhoe expressed confidence that the deposit would still be in operations in a hundred years (yep this came with the usual disclaimer about forward looking statements). The initial investment for this project is of US $4 billion. The mining complex is expected to be fully operational by 2013. As part of the agreement reached with between the Ivanhoe Mines LTD and the Mongolian government, the company has been granted with 30 years of stable tax rates and regulatory provisions which can be extended for a further 20 years. The government has taken a 34% interest through the state-owned company Erdenes MGL which will have three directors of the board.

Oyu Tolgoi could raise Mongolia’s GDP by more than a third. However this is unlikely to shore up the Government’s financial position in the short term and medium term. Due to the 10% investment tax credit granted by the government, the project is very likely to be a tax expenditure until the mine is fully operational in 2013. By then the company will start to have taxable income but in the meantime little revenue outside excise and sales tax will be available for social expenditures. While one can assume that economic spinoffs and spill over effect associated with this project will be considerable- work previously carried on the deposit has employed more than 4000 Mongolians and sourced goods and services from about 500 local businesses- one can also wonder if it has the potential to overheat the economy. More about the agreement can be found here.

This project is very promising. Rio Tinto who previously owned a 9.9% interest in Ivanhoe increased it stake in Ivanhoe to 19.7%. Under an established agreement between the two companies, Rio Tinto could increase its stake in Ivanhoe to up to 43.1% over the next two years. More on this here.

Second best: Tavan Tolgoi

With Oyu Tolgoi being close to a done deal the Government is reviewing the ownership agreement in relation to the development of Tavan Tolgoi, a coking coal deposit in the Gobi Desert whose development has been delayed for years. The deposit holds a coal reserve of 6.5 billion tonnes and its value is estimated at $2 billion. The Government has selected JPMorgan and Deutsche Bank to proceed to the sale of a 49 per cent stake in the mine. Mongolia is contemplating splitting Tavan Tolgoi coal deposit for to allow many companies rather a single bidder to take a stake in the mine. The need to satisfy multiple political allegiances is apparently the rationale behind this decision. This will have for effect of further complicating and slowing down the bidding process as two or three options are being studied to split the main deposit.

Potential bidders were expected to be China Shenhua Energy (a likely preferred bidder if one does not take in account Mongolia’s unease with the idea of being too dependant of China), Japan’s Itochu Corporation and Peabody. BHP Billiton, who previously held rights to the project in the 1990s, has withdrawn its offer. The successful sale of Tavan Tolgoi could hand Mongolia between $1 and $2 billion, plus ongoing revenues from its majority stake in the mine.

Dornod Uranium Project

Khan Resources, a Canadian company, has been seeking the renegotiation of its contract. Khan is in a joint venture with Russian State-owned Company JSC Priargunsky and the Mongolian government, for the exploration and development of the Dornod uranium project. With new laws taking effect, Khan is seeking to re-register mining and exploration license for the asset and also seek clarification of what level of ownership the government should have.

The Dornod project is expected to have a mine life of 15 years, and could produce an average of three-million pounds of the nuclear fuel, at $23.22/lb. The government of Mongolia could receive some $464-million in royalties and corporate income taxes, according to a feasibility study released in March.

Transformation vs Stagnation?

” Mongolia will generate the highest rate of growth of GDP of any country in the world over the next 10 years, surpassing that of Qatar, which had fulfilled that role over the past decade and a half,” said John Finigan, CEO of Mongolia’s Golomt Bank. “This is transformational.”

Will it really be transformational? All of aforementioned projects will lead to money pouring into Mongolia. To bring about change, it is estimated that several years of double digit billion USD investments will be needed. Mongolia’s potential at attracting such a heavy load of foreign investment could be impaired by the west perception of Mongolia as instable. The shadow of past and future relations with Russia and China, corruption within the country (Transparency International ranks Mongolia 102nd on its corruption perception index), the lack of funds to build the necessary infrastructure for resources to be exploited and the eviction of western investments in the recent past are all risks that need to be weighted. Last June, Centerra Gold’s licenses to the Boroo Mine have been revoked and operations halted after the government decided that it was not getting enough benefits from the development of the property. The licenses have since been reinstated.

Will the country be any better off once these projects get on stream? The general population is not likely to be feeling the benefits in the short term but could in the mid-term see some form of betterment, at least on paper. As for long term prospects it will all depend on the government playing its cards wisely to address the boom and bust commodity cycles. To that end, a budget stabilisation plan like those in place in Chile and Russia could be of use. However, with corruption widespread in Mongolia a vicious cycle of corruption, inequality and inefficiency could also be materializing. World Bank officials estimate Mongolia’s economy would grow 2-3 per cent this year, rising to 5-7 per cent or more next year.

Less coal more cool

Coal is controversial. Its place as part of countries’ energy mixes (from heavy to marginal reliance), mountaintop removal, and approvals of new coal fired plants haven given rise to much debate. I like to think that when it comes to coal less is more and for that specific reason signs of the demise of coal or at least the struggles of the industry are always pleasant to notice. Last week the sweet treat came courtesy of the US EPA who delayed 79 coal mining permits in four Appalachian states for mountaintop removal.

Mountaintop removal is the surface mining of coal using explosives to remove up to 300 vertical meters at a top of a mountain to expose the coal seams. This method is usually seen as a productive and economic way to mine coal as the output per worker per hour more than doubles in comparison to underground coal mining. It is also safer for workers but the benefits of surface coal mining end there. At the environmental level, the impacts of mountaintop removal are offsetting the economic benefits. Due to excess rock and soil being dumped into “valley fills”, water is contaminated in the process and substantial deforestation takes place. A study has shown that measures undertaken to mitigate the environmental impacts of mountaintop removal have little effect in reducing environmental damage. It is summarized here.

The mining permits delayed this week were delayed due to uncertain compliance with the US Clean Water Act. EPA stated in a letter that the applications have not yet adequately demonstrated that anticipated adverse environmental and water quality impacts have been fully avoided and minimized since more than 80% of the permits “exhibited the potential to cause or contribute to violations of applicable water quality standards”. The EPA required additional information regarding potential cumulative impacts as well as an assessment of the effectiveness of existing mitigation plans to compensate for anticipated loss of functions associated with the burial and mine through of headwater streams. If projects were approved as currently envisioned a total of 170 miles of streams would be buried under mine waste.

At the community level, the coal industry has been pretty swift in to taking the jobs and energy security rhetoric in reaction to the EPA’s announcements of delays. West Virginia Coal Association President Bill Raney said in a statement that “They don’t understand why Washington is willing to kill-off good paying jobs when our economy is still on the ropes and the unemployment rate is still unacceptably high”. This one sentence sums up well the reluctance of the industry to acknowledge the environmental challenges ahead of mankind. At least this time the industry made it without slamming climate change science. Perhaps the US coal industry could take note of the Dalai Lama’s comment when asked about the development of the oilsands:
In a choice between “destruction of environment or losing money, then we have to choose losing money.”

There are conflicting regulatory measures in the US regarding the disposal mine waste as, since 2001, tailings are considered to be fill material and can now be placed legally in a waterway and since December 2008 mining waste can be put directly into headwater waterways. The Clean Water Protection Act, being debated in Congress, would review the definition of fill material to exclude mining waste and would therefore forbid the disposal of tailings in waterways. Until this comes into force, one can only find comfort in the fact that some US utilities companies are shifting away from coal-fired power generation due to the US progressing towards a cap and trade. This is the case of the Arizona Public Service, the NV Energy, PNM Resources as well as California’s Pacific Gas and Electric (if I am not mistaken California aims to have a coal-free energy mix)

P.S. Browsing the web for this post, I found a lot of information on Coal Tattoo, a blog hosted on the Charleston Gazette’s website. It’s now on the blogroll.

China cracks down on over capacity. World rejoices.

China has announced this week that it would deal with over capacity with regards to steel, cement, aluminium, and wind power. At present China is only being mindful that the economic recovery is fragile and hopes to avoid the drastic factory closures and job losses that over capacity could lead to. China’s will to resolve this problem is not new and its pledge to attack the problem is only a reiteration of previous policy goals whose application have not always been consistent.

China’s industrial policy goal for the aluminium sector has for long aimed at consolidating around fewer greener and more efficient facilities while phasing out smaller inefficient smelters. Between 80 and 130 smelters, some of which with nameplate capacity of only 20 000 tonnes per year, are assumed to be in operation in China. The Cabinet repeated pledges announced in May to ban for three years new capacity and to remove small plants scaled at 800,000 tonnes per year or below, according to Reuters. Such a high threshold for nameplate capacity is surprising as no smelters with a capacity above 800 000 tonnes per year has been reported in China by Light Metal Age. A smelter above 800 000 of capacity can only be found in Russia and the Middle East. In sum, the meaning of the Cabinet statement is at best nebulous.

In the case of steel, China has decided to crack down on the 10 per cent output capacity that it deems illegitimate, It has also decided to no longer support new projects or expansion plans of current facilities. Not authorising new projects is not a guarantee that output will be reduced as some regions have illegitimacy approved construction as local authorities are not always following Beijing.

As the targeted industry sectors are energy intensive, the only affected party to China’s decision to reduce industrial output may be Australia who has been benefitting from China’s surge of coal imports. For the countries that have had to set up safeguards, impose corrective tariffs and file WTO cases, this comes as good news. Western steel mills restarting capacity are also benefitting from this move. So is Noranda who just restarted capacity at its Evansville smelter.