Bank confirms R8bn in firepower for next renewables round, as it builds energy portfolio

Banking group Investec is gearing up to participate in a range of new private electricity projects in both South Africa and the rest of Africa having already expanded its exposure to six projects with a combined investment value of R20-billion.

The group has approved debt funding worth R6.5-billion for the projects, five of which are in South Africa, with the sixth being in Mozambique.

Project and infrastructure finance head Fazel Moosa reports that it is experiencing “unprecedented deal flow” and that it has received debt-exposure approval for a further R8-billion ahead of the third bid window under the South African government’s Renewable Energy Independent Power Producer Procurement Programme (REIPPPP).

Through the REIPPPP, the Department of Energy (DoE) aims to secure an initial 3 625 MW of large-scale renewables capacity, of which 2 460 MW has already been allocated across 47 projects, which secured allocations following the first two bid windows.

The third bid window will close on August 19 and the next set of preferred projects should be unveiled on October 29 and reach financial closure during 2014.

Moosa expects the third bidding round to be highly competitive and anticipates that the tariffs bid, especially for solar photovoltaic (PV) projects could continue to fall sharply. The average prices offered by the solar PV developers in the second round fell from 275c/kWh to 165c/kWh, while wind prices fell from 114c/kWh to 89c/kWh and concentrated solar power (CSP) prices fell slightly from 268c/kWh to 251c/kWh.

Investec is participating as a debt and, in some instances, as an equity partner in three second-round projects, including:

• The R2.3-billion, 74 MW Sishen solar PV project, being developed with Acciona, Aveng, the Dibeng Trust and Soul City, near Kathu, in the Northern Cape.
• The R2-billion, 94 MW West Coast One wind project, in the Western Cape, where it is an equity investor and is in partnership with GDF Suez, Kagiso Tiso and a community trust.
• And the R5-billion, 50 MW CSP parabolic-trough Bokpoort project, near Upington, in the Northern Cape, which is being developed by ACWA Power International.

All the projects reached financial closure in June.

The group is also an investor and the sole lender to a R155-million cogeneration project being built at Anglo Platinum’s Waterval smelter near Rustenburg, in the North West province. The project will incorporate technology developed by Ormat, of Israel, to convert thermal energy to electricity and should be completed by June 2014.

The other two projects have not yet progressed to financial close, but include the so-called ‘DoE peaker projects’ in South Africa and a 40 MW gas-fired project in Mozambique.

The peaker projects involve the development of two open-cycle gas-turbine power plants, one in KwaZulu-Natal and the other in the Eastern Cape, with a combined capacity of 1 005 MW and a combined investment value of R10-billion.

The projects are being developed by a consortium comprising GDF Suez, Legend Power Solutions, Mitsui & Company and The Peaker Trust, representing black economic-empowerment and community interests.

In Mozambique, the bank is partnering in the development of the R1-billion, 40 MW Kuvaninga independent power producer project situated near Chokwe, in the Gaza province of southern Mozambique.

Despite the slowdown in demand for electricity in South Africa, Moosa believes there is still material pent-up demand for new power capacity, owing to the country’s tight supply/demand balance. “Given that the renewables programme accounts for a small portion of the generation mix and that tariffs are becoming increasingly competitive . . . we are happy to keep on financing.”

However, he is concerned about the fact that Eskom received a lower-than-requested tariff hike for the coming five years, which could constrain its position as the anchor client for new capacity that could be developed both inside South Africa and within the region.

Nevertheless, the group will continuing to seek to build its renewables, baseload and cogeneration portfolio, but will also seek to develop models that are less reliant on power purchase agreements, or incentives from Eskom.

Joburg mayor promises delivery

Johannesburg Mayor Parks Tau has promised to sort out the service delivery problems affecting residents.

“Over R30-billion will be spent in the next three years on infrastructure development in Johannesburg,” he said on Tuesday at a Johannesburg service delivery summit in Braamfontein.

Tau said the municipality needed to meet its people’s infrastructure needs by ensuring a high level of delivery.

Johannesburg had a high level of delivery compared to other municipalities, but rapid growth was creating problems, he said.

“The population figures have grown by 2.1-million since 2001. That means we had a migration of 13%.”

Tau said new mechanisms were needed to ensure all residents of the city had access to water, sanitation, and electricity.

“Communities can be partners in the delivering of services. Knowledge of what to do does not always reside with leaders. We need to engage our communities and work with them closely,” he said.

Alcoa appoints new COO to manage aluminium smelters

US aluminium producer Alcoa has promoted global primary products (GPP) CFO Roy Harvey to COO with immediate effect and named GPP group controller Leigh Ann Fisher his successor.

In his new role, Harvey would focus on the day-to-day operations of Alcoa’s 22 aluminium smelters and nine alumina refineries worldwide, as well as bauxite assets in Australia, Brazil, Jamaica, Suriname, Guinea and, soon, Saudi Arabia.

“Roy has an impressive international track record, leading complex operations in Brazil, Spain and Central America. As an experienced CFO, Roy has acute financial expertise and operational insight.

“And his investor relations background gives him a strong appreciation for the expectations of shareholders, which he has demonstrated by bringing discipline and rigor to operational and financial processes,” Alcoa chairperson and CEO Klaus Kleinfeld said.

He added that Fisher’s “solid” foundation in finance, spanning upstream and downstream businesses at Alcoa, would add valuable perspective to the company’s senior leadership team.

“She has made important contributions to our success by driving systemic improvements in financial processes, such as forecast accuracy, financial modelling and reporting,” Kleinfeld commented.

Fisher would also become a member of the executive council.

Alcoa earlier this month reported a higher-than-expected second-quarter profit after excluding special items, boosted by productivity gains across all its operating units and strong results from its engineered products and solutions business.

Excluding the impact of the special items, which included items related to restructuring and a legacy legal matter, net income totalled $76-million, or $0.07 a share, beating analysts’ expectations of adjusted income of $0.06 a share.

US Fed to review Wall Street banks metals business

Over the last decade there have been many complaints, including lawsuits detailing allegations of market manipulation, about big US bank holding companies’ involvement in the commodities business.

Several US statutes, dating as far back as the National Bank Act of 1863 up to and including the Dodd-Frank Act of 2010, generally bar banks from conducting commercial, non-financial activities.

But since the US Federal Reserve determined in 2003 that certain commodity activities are “complementary” to financial activities and therefore permissible Wall Street bankers – Morgan Stanley, Goldman Sachs, and JPMorgan are the biggest players – have been moving aggressively into everything to do with physical commodities including mining, processing, transportation, warehousing and trading.

A study out in November last year from the University of North Carolina found that banks’ physical commodities operations raise “potentially serious public policy concerns” as it is “virtually impossible under the current system of public disclosure and regulatory reporting to understand the true nature and scope of these institutions’ commodity activities.”

Bloomberg reports Saturday the US central bank is now reconsidering its 2003 decision ahead of a Senate subcommittee hearing into the matter this week with LME metal warehousing, which both JPMorgan and Goldman Sachs have moved into in a big way, raising particular concern:

With so much metal already in storage, the warehouses can afford to offer incentives to owners of the metal to store even more, earning additional rent through volume. The LME requires a daily minimum amount of metal to leave the warehouses; it doesn’t specify how much can enter. As supply accumulates, traders can finance the metal, [Robert] Bernstein [attorney with Eaton & Van Winkle LLC in New York] said.

Financing typically involves the purchase of metal for nearby delivery and a promise to sell it at a later date to take advantage of a market in contango, where prices rise into the future, Bernstein said. The transactions are made easier by record-low borrowing costs after central banks cut interest rates to boost economic growth.

“Users who need the metal can’t get it, and the money they make is coming at the expense of the American consumer,” Bernstein said.

The supply of aluminum has been particularly distorted according to manufacturers with about $3 billion in additional costs to buyers as premiums have doubled since 2003 despite a glut of aluminum being produced .

Abandoned gold rush-era mines could soften China’s stranglehold on rare eart

Abandoned mines from the 19th-century gold rush could contain rare earth metals, elements vital for the production of smartphones, TVs, hybrid cars, and other electronics. The Associated Press reports that dumps of discarded material from gold rush mines could be rich with rare earths. The US Geological Survey (USGS) and Department of Energy are current searching the country in the hope of uncovering the vital metals in the hope of breaking China’s stranglehold on worldwide supply.

An 1870 sample collected from a failed copper mine was found to be high in Indium, an uncommon (but not “rare earth”) metal used in solar panels. It’s this discovery that led scientists to believe that abandoned mines could contain rare earths. Old mines “were almost never analyzed for anything other than what they were mining for,” Larry Meinert, director of the mineral resource program for the USGS tells the AP, “if they turn out to be valuable that is a win-win on several fronts — getting us off our dependence on China and having a resource we didn’t know about.” The resulting search has already thrown up some surprises: rare earths were found alongside minerals that were not known to occur together.

Despite the name, rare earths aren’t 

actually all that rare. The reason for the term is the elements are extremely difficult to mine. Not only do they occur in tiny quantities — you’ll never find a rich “vein” of a rare earth as you would, say, copper — but they’re also often fused together with other rare earths. As there’s no simple way of separating two rare earths chemically (they’re too closely linked in atomic structure), rare earth mining is extremely expensive. Presently, China controls the vast majority of rare earths, and has raised the per-kilogram price of some elements by as much as 1000 percent in recent years. It also cut off exports to Japan during a fishing dispute, and the worry of China having control over a high-demand resource reportedly sent the US government into “emergency mode,” ramping up efforts to discover new sources on home soil. Energy independence has been a long-term goal of the US, and authorities don’t want an oil-like situation where they’re dependent on other countries for vital resources.

So far, researchers say they’ve found “several dozen” new locations that are elevated in “one or more critical metals.” They want to use this data to predict further deposits, and hope to gain the assistance of native mining companies for their search.

Australia’s Rinehart clears hurdles on US$10b iron ore project: sources

Australian mining magnate Gina Rinehart’s US$10 billion (HK$77.6 billion) Roy Hill iron ore project has overcome key hurdles holding up debt negotiations, a move that could pave the way for the mine to start producing by September 2015, sources said on Thursday.

Getting Roy Hill into production is likely to further boost the fortunes of Rinehart, already Australia’s richest person with a net worth estimated by Forbes at US$17 billion.

However, it could also add to an expected glut of the steel-making ingredient as rivals Rio Tinto, BHP Billiton and Fortescue Metals crank up production just as demand in top consumer China is set to cool.

The 55-million tonnes-a-year project, which would make Roy Hill Australia’s fourth-largest iron ore producer, has been steadily pushed back amid delays in lining up US$7 billion in debt funding.

Export credit agencies (ECAs), including Export Import Bank of Korea (KEXIM), Japan Bank for International Cooperation (JBIC) and Nippon Export & Investment Insurance (NEXI) had been pressuring Roy Hill shareholders led by Rinehart’s Hancock Prospecting to fully guarantee that the project reaches completion, in return for up to US$5 billion of loans.

The export credit agencies also sought payment guarantees for ore purchase contracts by Chinese steel mills, said a banking source familiar with the talks.

The parties have now negotiated a compromise to break the deadlock that had threatened to delay the project further in Western Australia’s iron-rich Pilbara region.

“Although a guarantee from a party with strong credit would be one of the simplest ways to move the project forward in the eyes of the ECAs, it is not the only way to reduce risks,” said a second source with direct knowledge of the negotiations.

“Such ways have been sufficiently agreed upon, and negotiations are moving ahead speedily,” added the source, without elabourating on the agreement.

None of the sources were authorised to speak publicly about the project.

A Roy Hill spokesman said talks were advancing with export credit agencies and commercial lenders being tapped for the remainder of the loans required.

“We’re cautiously optimistic we’ll be able to get it wrapped up this year,” spokesman Darryl Hockey said.

Aiding progress on the equity side, the weakest partner in Roy Hill, South Korea’s STX Corp, has sold its 2.5 per cent stake to another partner in the project, Marubeni.

A spokeswoman at the Japanese trading company confirmed it had increased its stake to 15 per cent, but declined to comment on the amount paid.

Conglomerate STX first invested in the Roy Hill project in 2010 and last year paid $200 million to take up a 2.5 per cent stake, but sold out as it faced a cash crunch following a downturn in its shipping and shipbuilding business.

Rinehart’s Hancock owns 70 per cent of the project, with South Korean steel giant POSCO holding 12.5 per cent, Taiwan’s China Steel Corp 2.5 per cent and Marubeni the remainder.

“We have equity partners who continue to provide the necessary funds for us to advance the project,” Roy Hill spokesman Hockey said, declining to comment on STX’s exit.

Work on Roy Hill is well underway, with a small airport already open with a runway big enough for a Boeing 737 aircraft. Construction has also started on a village to house 1,200 workers and dredging for its two deepwater berths has been completed at Australia’s biggest iron ore port, Port Hedland.

First production due in 2015 may kick off just as the iron ore market suffers a glut that analysts expect will push prices, which approached US$190 a tonnes two years ago, to below US$100.

But thanks to the quality of Roy Hill’s ore and relatively low cost base, prices are not the overriding concern for lenders.

Nonetheless, export credit agencies wanted extra financial guarantees from the shareholders in the event of Chinese steel mills breaking purchase agreements, according to the first banking source.

As recently as last year, Chinese buyers of Australian iron ore reneged on deals as demand and prices crumbled, trade sources had previously told Reuters.

Another potential concern lenders could have is around the size and complexity of the project, said Ben Farnsworth, a partner at law firm Allens Linklaters, who has worked with export credit agencies but is not involved in Roy Hill.

Hancock is a 50:50 shareholder with Rio Tinto in another Pilbara iron ore mine, but neither it nor its partners have ever built or operated a mine or infrastructure of this scale.

Middle Island to acquire stake in Samira Hill mine

Perth-based junior Middle Island Resources has entered into a heads of agreement with a subsidiary of TSX-listed Semafo to obtain a shareholding in the Samira Hill gold mine, in Niger.

Under the agreement, Middle Island would pay a cash sum of $1.25-million and a fixed net smelter return royalty of 1.2% on any gold sold from the Samira Hill plant, in exchange for a full interest in African GeoMin Mining Development Corporation, which holds an 80% interest in the owner and operator of the Samira Hill gold mine.

The government of Niger holds the remaining interest in the project.

Middle Island MD Rick Yeates, on Thursday, said the acquisition of the Samira Hill project was a transformational opportunity for the company and represented the final element of a long-held strategy to consolidate the entire Sirba greenstone belt around the Samira Hill gold plant.

“Although representing an option on the gold price in the short term, this acquisition completes the remaining piece in Middle Island’s highly prospective Sirba project strategy, providing the opportunity to process all deposits identified by Middle Island and its partners within the project area itself, as well as the wider Sirba project, at a centrally located milling facility that is in sound working order.”

Yeates noted that the projected production from the project would be between 40 000 oz and 50 000 oz a year, over an initial three-year period.

“Based on existing reserves and resources, plus the likely addition of our own Tialkam South deposit, it is easy to envisage a possible mine life of at least eight years, with plenty of exploration upside throughout the enlarged Sirba project to provide further additions with time.”

The Tialkam South deposit, along with the K4/K5 prospect in neighbouring Burkina Faso, represented Middle Island’s two most advanced standalone gold resource targets.

The Samira Hill project included a two-million-tonne-a-year carbon-in-leach plant, power supply, a process water reservoir, tailings dam, an experienced workforce and an ore reserve of some 7.9-million tonnes, grading 1.25 g/t gold.

The acquisition was subject to a number of conditions, including the completion of a A$5-million equity raising, the granting of substitute exploration permits to Middle Island and shareholder and regulatory approvals, along with the standard due diligence.

METALS-Copper dips after Bernanke testimony, rise in mine output

Escondida annual copper output soars 28 pct to 1.1 mln tonnes

* U.S. Senate to hold hearing on banks owning commodities storage

* Zinc falls after large rise in inventories

By Maytaal Angel and Eric Onstad

LONDON, June 17 (Reuters) – Copper slipped from near a one-month high on Wednesday after the U.S. central bank chief repeated plans to start scaling back its stimulus programme and following news of an sharp increase in output at the world’s biggest copper mine.

Base metals markets had been nervous ahead of the testimony of Federal Reserve Chairman Ben Bernanke, who affirmed the bank would start later this year to prune its $85-billion-a-month bond-buying programme, which has been supporting financial markets.

But he also sounded a dovish tone, leaving open the option of changing that plan if the economic outlook shifted, which knocked the dollar and allowed copper to pare losses.

Three-month copper on the London Metal Exchange climbed as high as $7,046 a tonne, within reach of a near one month high hit July 11, before slipping to $6,970 a tonne by 1325 GMT, down 0.4 percent.

Copper changed hands at $6,938 a tonne, down 0.9 percent, in official midday trading before the prepared testimony from Bernanke was released, which caused the dollar to weaken.

A softer dollar makes metal priced in the greenback less costly for European and other non-U.S. investors.

Copper prices have failed to find momentum above $7,000 a tonne, though they rose to those heights earlier this month after comments favouring looser U.S. monetary policy for longer triggered a cross-commodity rally.

“(Overall) the investor community is short copper. With a more dovish tone from the Fed we could see a bit more of that short covering,” said Credit Suisse analyst Tom Kendall.

“But once you get through the summer period, we are still bearish on copper and expect to see additional supply coming through at a faster pace than demand can absorb.”

BHP Billiton, majority owner of Escondida in Chile, the world’s single-largest copper mine, said copper output at the mine rose 28 percent to 1.1 million tonnes in the 2013 fiscal year.

The news added to expectations that the copper market will record a surplus in 2013 for the first time in three years.

Adding support to prices, however, was news that China’s consumption of refined copper is likely to rise in the second half, buoyed by expected government backing for power sector investments to support economic growth.

China is the world’s largest copper consumer, accounting for about 40 percent of demand. Its economic growth slowed to 7.5 percent in the second quarter, from 7.7 percent in the first quarter, leaving a big dent in copper prices, which are down nearly 13 percent this year.

China’s commerce ministry said on Wednesday that it will soon release measures to support exports and imports, though it did not give details.

Elsewhere, the U.S. Senate committee will hold a hearing on whether banks should control physical commodities storage, a practice that detractors argue has resulted in long queues to get metals out of LME warehouses.

The queues have prompted rising spot premiums on physical markets, and have also spurred producers to crank up output in spite of falling demand, weighing on LME benchmark prices.

In other metals traded, zinc fell 1.2 percent in official trading to $1,865.50 a tonne, after daily LME stocks data showed a sharp 75,900 tonne increase in inventories to 1.077 million tonnes, near their highest level in over a month.

Lead lost 1.25 percent to $2,049 a tonne, but other metals bucked the weaker trend.

Aluminium added 0.1 percent to $1,817 a tonne in official rings, nickel climbed 0.9 percent to $13,890 and tin rose 0.2 percent to $19,500.

CEDA Issues Information Paper on Ecosystem Services

The latest in the series of information papers issued by the Central Dredging Association (CEDA) is entitled Ecosystem Services and Dredging and Marine Construction.

It has been produced by the CEDA Working Group on Ecosystem Services (WGES) under the remit of the Environment Commission (CEC).

Members of WEGS are scientists and practitioners with a broad range of expertise, representing knowledge institutes, government, manufacturers, ports and contractors.

The concept of ecosystem services (ES) enables a value to be assigned to natural resources that makes it possible to link the environment to human well-being.

This has important implications for the planning and management of dredging and marine construction projects. In short, the ES concept is a tool for decision-making about sustainable development.

The paper explains that there are four basic groups of ecosystem services: provisioning services (food, and water, for example), regulating services (such as flood control and air purification), supporting services (eg navigation) and cultural services (including recreation). Each service is delivered by a set of structures and processes called an ecosystem function. This may be changed in order to deliver a benefit to human well-being, for example by dredging a navigation channel, and, in doing so, creates a pressure.

The ES concept is intended to help project designers create a sustainable balance between pressures and services in ecosystems. The aim is not merely to minimise damage (pressure) but also to look for opportunities to improve the environment. As dredging and marine construction often takes place in and around sensitive, and sometimes degraded, environments, such as coastal waters, rivers, mudflats and sandbanks, the ES concept is of considerable value if used at the earliest stage of project planning.

The paper sets out how individual ecosystem services are affected by dredging. For example, for water quality, dredging may cause a short-term decrease in local water quality and, by altering the morphology of the system, lead to a loss of habitat and species. However, dredging of contaminated sediments decreases the contaminants in the system. Also, if reedbeds are created then water quality will be enhanced.

The paper recommends that a multi-disciplinary project team be set up to assess the ecosystem services, to assign values to those services and pressures, and to design the project. It includes two case studies showing how this has been achieved in practice in the Scheldt estuary and in estuaries in the east of England. Other interesting initiatives include the use of ‘eco-concrete’, which encourages colonisation of marine structures by small organisms, and seabed landscaping after aggregates dredging, which again promotes biodiversity.

This new CEDA information paper shows how, by applying the ecosystem services concept, the dredging and marine construction sector can deliver benefits both for society and for the natural environment.

The CEDA Information Paper Ecosystem Services and Dredging and Marine Construction can be downloaded from the CEDA website http://www.dredging.org. Select Publications & Resources and click Downloads or just type ‘ecosystem services in the search window.

Court Closes Suction Dredging Loophole in Siskiyou County

A California court has once again ruled that all forms of suction dredge mining are banned throughout California, rejecting a temporary restraining order on the ban in Siskiyou County.

In recent weeks miners had been exploiting a loophole in a ban on the destructive mining practice to continue mining on the Klamath, Salmon and other rivers in Siskiyou County. A ban on suction dredge mining was enacted by Gov. Schwarzenegger in 2009 and affirmed in 2012 by Gov. Brown.

“No matter what you call it, if it sucks like a dredge and spews like a dredge, it’s a suction dredge,” said Jonathan Evans, toxics and endangered species campaign director at the Center for Biological Diversity. “Suction dredge mining in any form pollutes our waterways with toxic mercury, destroys sensitive wildlife habitat, contaminates our fisheries, and harms important cultural resources.”

Suction dredge mining uses machines to vacuum up gravel and sand from streams and river bottoms in search of gold. California law prohibits “any vacuum or suction dredge equipment” from being used in the state’s waterways, but because narrow rules previously defined a suction dredge as a “hose, motor and sluice box,” miners had simply removed the sluice box to try to skirt that prohibition.

“The court’s ruling gives some certainty statewide instead of trying to carve out exceptions for one county,” said Glen Spain of Pacific Coast Federation of Fishermen’s Associations. “The ruling is clear — suction dredging in any form is prohibited.”

Unregulated suction dredge mining harms important cultural resources and state water supplies. It also destroys sensitive habitat for important and imperiled wildlife, including salmon and steelhead trout, California red-legged frogs and sensitive migratory songbirds. The Environmental Protection Agency and State Water Resources Control Board urged a complete ban on suction dredge mining because of its significant impacts on water quality and wildlife from mercury pollution. The California Native American Heritage Commission has condemned suction dredge mining’s impacts on priceless tribal and archeological resources.

Background

Suction dredging is an environmentally harmful mining practice banned in California since 2009. When miners began making equipment modifications to suction dredges in late 2012 to exploit what they perceived as a “loophole” in the ban, a coalition including environmental organizations, fishermen and the Karuk tribe submitted a formal petition to the California Department of Fish and Wildlife asking the agency to close that loophole. On June 28 California officials closed a loophole that had allowed suction dredge miners to continue using a suction dredge without a sluice box.

While the ban took effect statewide, a temporary restraining order issued by Siskiyou County Superior Court Judge Karen Dixon on July 3 prohibited California Fish and Wildlife wardens from enforcing the ban in Siskiyou County. A group of suction dredge miners calling themselves the New 49ers filed a lawsuit to obtain a temporary restraining order in Siskiyou County to exploit a legal technicality to continue mining in that county. Monday’s ruling by San Bernardino County Superior Court Judge Gilbert Ochoa suspended that temporary restraining order for Siskiyou County. Suction dredge mining is once again banned throughout all of California.

The coalition taking legal action to protect California waterways from suction dredge mining includes the Center for Biological Diversity, the Karuk tribe, Pacific Coast Federation of Fishermen’s Associations, Institute for Fisheries Resources, Friends of the River, California Sportfishing Protection Alliance, Foothills Anglers Association, North Fork American River Alliance, Upper American River Foundation, Central Sierra Environmental Resource Center, Environmental Law Foundation and Klamath Riverkeeper. The coalition is represented by Lynne Saxton of Saxton & Associates, a water-quality and toxics-enforcement law firm.