GOVERNMENT has responded to mining companies’ perennial

GOVERNMENT has responded to mining companies’ perennial pleas for a reduction of mining fees after Finance and Economic Development Minister Patrick Chinamasa indicated selected fees and charges would be reviewed. Presenting the 2014 National Budget on Thursday last week Minister Chinamasa said he would review selected fees and charges in liaison with the Ministry of Mines and Mining Development to encourage investment in the sector.

He said although Government reviewed downwards mining fees and charges, some of the fees, however, remain relatively high compared to those obtaining in the region; hence continue to act as an impediment to investment. “In order to encourage investment in prospecting and exploration activities and also enhance the viability of the mining sector, I propose to further review selected mining fees and charges in consultation with the Ministry of Mines and Mining Development,” Minister Chinamasa said.

The finance minister said mining houses pay other fees and charges Government agencies such as the Environmental Management Agency, Radiation Protection Authority of Zimbabwe and Rural District Councils, which increased the cost burden of mining activities.

Shaft Sinkers wins more Leeuwkop platinum project work

Shaft Sinkers Holdings has been awarded additional work by Afplats (owned by Implats) on its existing Leeuwkop project. The scope of the work includes the continuation of sinking activities on the main shaft at Leeuwkop to a depth of 984 m from the current level of approximately 700 m. The contract, commencing immediately, is scheduled to be completed in June 2014 and has a total value of £2.2 million. The contract is on a rates basis.

This follows a previous contract extension at Leeuwkop in August 2013 under which the group introduced revised working practices that have resulted in cost savings for the client whilst also gaining significant time on the project schedule.

Alon Davidov, Chief Executive, explained:  “The recent introduction of an innovative new shift system by the Shaft Sinkers team at Leeuwkop has saved Afplats time and money. This is a clear example of the strong technical skills and commitment to operational excellence of the group’s employees. We look forward to continuing to work with Afplats on the successful delivery of this project.”

The development of the Leeuwkop project represents the first phase in the turning to account of the Afplats acquisition. The project involves the development of a 1,350 m twin-shaft system to access the orebody. Mining operations will initially begin at around 1,100 m below surface and extend to a depth of about 1,500 m. Other major infrastructural developments to be undertaken include the construction of a concentrator facility with a capacity of 250,000 t/month and a tailings dam. Both of these will be constructed to allow for possible increases in capacity should future expansions to the mining operation become viable.

While the mine design and production profile is still to be finalised, the most likely mining method will be mechanised bord-and-pillar mining. Ore will be accessed via a four-barrel on-reef decline system which will enable a rapid and cost-effective ramp up to production from development.

The UG2 orebody is well-developed, relatively wide and, in comparison to other areas, relatively undisturbed by major faulting.

A key advantage for Implats is the project’s location on the well-developed western limb of the Bushveld Complex, with its proximity to the extensive management, services, technical and processing infrastructure at Impala Rustenburg, just some 55 km away. Also, the sourcing of scarce mining skills is expected to be less challenging than on the eastern limb of the Bushveld Complex as this is a long-standing mining region with an available, skilled human capital base.

The mine will exploit the UG2 Reef in the Leeuwkop area. Annual capacity at full production will be 3 Mt (250,000 t/month), yielding 140,000 to 160,000 oz of platinum from ore averaging 3.75g/t (3PGE + Au). Capital expenditure is estimated to be R3.0 billion over the first five years. The life of the project is 22 years.

Shane Nagle: Making Your Portfolio Pricing-Pressure Proof

The Mining Report: National Bank Financial (NBF) said in an Oct. 7 report that, when combined with its cautious near-term outlook for commodity prices, elevated multiples suggest the base metal sector is overvalued. Are there exceptions to that statement?

Shane Nagle: Since that time, we’ve seen a retracement in the multiples. The mining index in general remains near the upper end of historical ranges, as investor interest has gravitated toward large and midcap names with stable cash flow and strong balance sheets. Those companies are the exceptions, not only just within the base metal space, but within the mining space in general. Looking past those elevated cash flow and net asset value (NAV) multiples and focusing on companies with balance sheets sufficient to weather a prolonged downturn are the names that stand out as being most attractive.

TMR: Do you think the downturn will last several more years?

SN: Maybe downturn is the wrong phrase, but I think we’re still a few years away from another rally. If I can use copper as a specific example, there’s been a lot of investment on projects in the copper space throughout the past few years. About 15% or so of the current global demand is coming on-line within the next two years from the addition of several large projects (Oyu Tolgoi, Sentinel, Toromocho etc.), this is seemingly going to keep the concentrate market oversupplied throughout 2014-2015. There will probably be some general weakness in copper and base metal prices as a result of this.

The good news is the supply cycle tends to come in waves. Copper prices now are relatively low compared to what price levels are needed in order to make a lot of new projects economical. Projects are being canceled, delayed or suspended. Meanwhile, political factors such as permitting challenges are also pushing out production several years.

So maybe not a downturn, but certainly weaker fundamentals for a couple of years. On the other hand, things are looking pretty good long term, as a lot of the projects that would be slated to come on-line by 2017-2018 are not going to materialize in the current market environment.

TMR: Are we going to see similar sideways performance for nickel and zinc?

SN: Both nickel and zinc markets are oversupplied as well, but appear to be trending in opposite directions. There’s seemingly no end to the nickel supply, the wild card being the proposed export ban on nickel laterite ores from Indonesia.

People have made the case that there’s a great deal of zinc supply coming offline with the closure of the Brunswick and Perseverance mines. However, there are several additional projects, albeit smaller, coming on-line, as well as the extension of the Century and Skorpion mines in Australia and Namibia, respectively. Both markets may stay well supplied in the near term, but long-term fundamentals appear to be more supportive for zinc (which I think is the consensus view).

TMR: What’s your price deck for copper, nickel and zinc for 2014?

SN: For copper we’re using $3 per pound ($3/lb); zinc is $1/lb; and nickel is $7/lb. We’ll be taking a closer look at updating our estimates in the weeks to come.

TMR: Could base metal producers soon be ready once again to spend money on mergers and acquisitions (M&A)?

SN: I don’t think M&A is going to heat up within the base metal space. There’s been so much consolidation during the last decade that there’s not much out there to buy. The type of M&A that could still happen would be optimization of projects within larger mega-cap companies, like Glencore Xstrata PLC (GLEN:LSE; GLEN.HK:HONG KONG; GLN:JSE), where they carve out assets to the mid-tiers.

TMR: You don’t see companies like BHP Billiton Ltd. (BHP:NYSE; BHPLF:OTCPK) or Rio Tinto Plc (RIO:NYSE; RIO:ASX; RIO:LSE; RTPPF:OTCPK) taking advantage of the market for base metals projects that are undervalued?

SN: There are very few projects of that scale that would interest those companies. They also remain under considerable pressure from their shareholders to limit spending. Glencore’s most recent comments were about curbing spending for the next few years in order to weather a downturn. Companies are still focusing on strengthening their balance sheets, limiting and reducing capital costs and optimizing their portfolios by shedding non-core assets. I think that’s the type of acquisition we’ll continue to see, not an increase in traditional M&A.

TMR: What will be the top performers among the base metals equities during the next 12–18 months?

SN: There’s very few companies left in the Canadian mid-tier space, but we’re focused on the ones that have stronger balance sheets and executable projects. Capstone Mining Corp. (CS:TSX), Lundin Mining Corp. (LUN:TSX) and First Quantum Minerals Ltd. (FM:TSX; FQM:LSE) are able to grow within their existing portfolios, have enough funding to complete those projects and still have some level of internal growth.

TMR: Capstone just put out its Q3/13 financials. Did they meet your expectations?

SN: They did. Capstone’s story is mostly about what it can do with Pinto Valley in Arizona throughout 2014. If it does a good job with the transition of Pinto Valley and is operating at full scale, production should increase to in excess of 220 million pounds (220 Mlb) in 2014 from around 105 Mlb in 2013. There are always risks with operating a project of this scale, and we expect some elevated costs initially, but getting the asset from BHP with the keys already in the ignition helps reduce some of that risk.

TMR: First Quantum put out results, too.

“I don’t think M&A is going to heat up within the base metal space. There’s been so much consolidation during the last decade that there’s not much out there to buy.”

SN: First Quantum is also working on some transitional projects, namely Sentinel, a copper smelter and expanding the Kansanshi mine in Zambia. All those projects are all ongoing in tandem and are set to transition the production profile of the company. At the forefront of everyone’s mind is what First Quantum can do with Cobre Panama, which it acquired as part of the Inmet Mining Corp. (IMN:TSX) acquisition earlier this year. There should be an update on the expected capital costs and timeline of that project early next year. We’re confident in First Quantum’s ability to deliver the project successfully, the only question is to what extent recent cost cutting initiatives created problems with local contractors and what impact that might have on timing/development costs going forward.

TMR: Lundin Mining was pursuing takeover offers a few years ago. Now it’s looking at expanding its footprint. What turned that company around?

SN: There’s been a change in strategy as Lundin focuses on increasing profitability at its existing assets. The current CEO, Paul Conibear, was promoted from his previous corporate development role and has helped in this transition. Of course, the main cornerstone is its 24% equity interest in Tenke Fungurume in the Congo, which is operated by Freeport-McMoRan Copper & Gold Inc. (FCX:NYSE). At current prices, it is generating $40–50 million ($40–50M) per quarter net to Lundin. The free cash flow it provides to Lundin is very helpful in funding the development of its wholly-owned operations, including development of the recently acquired Eagle mine.

TMR: Gold fell $213 an ounce ($213/oz) in the Q2 and another $91/oz in the Q3. What’s your forecast for 2014?

SN: Our bank uses a $1,300/oz forecast for 2014.

TMR: What’s your outlook for silver?

SN: Our silver forecast is $21/oz, and again, we’ll be taking a closer look at our metal price forecasts in the new year.

TMR: A Q3/13 report by NBF reported that “despite widespread cuts to exploration and more recently corporate general and administrative expense (G&A) even select high-quality names could yet again show an alarming rate of cash depletion, particularly those mid to late cycle on development projects.” Is there a work-around solution for investors?

SN: I think the exceptions are those companies that aren’t committing capital to a large-scale project or have all financing in place. That’s why we continue to point to the royalty names as a defensive pick in the gold space. They may not necessarily be the cheapest, but you’re not going to have a surprising cash strain on a quarterly basis.

“Large-cap base metal and royalty companies will offer exposure to a rebound in prices, but also limit losses should current market conditions persist.”

TMR: Royalty plays are also trending lower. Why would an investor choose a royalty company over dividend-paying equities outside the mining space?

SN: Comparing them to outside the mining space is interesting, other sectors are paying better yields currently, but the mining royalty companies exhibit relatively strong growth and have the potential for some significant dividend increases in the future. I would say if you have to be invested in the mining space, you want to hold royalty companies because of the stability of their liquidity positions. If you ran spot prices and looked at which companies would have the best financial position at the end of next year, without question, it would be Royal Gold Inc. (RGLD:NASDAQ; RGL:TSX), Franco-Nevada Corp. (FNV:TSX; FNV:NYSE) and Silver Wheaton Corp. (SLW:TSX; SLW:NYSE). Current market conditions also make an ideal hunting ground for these large-scale royalty companies to put some of that cash to work and generate growth. Some fairly significant dividend increases should materialize as they harvest cash flow from acquisitions.

TMR: Royal Gold President and CEO Tony Jensen recently told an audience at the Goldman Sachs Global Metal and Mining/Steel Conference in New York that Royal Gold has more than $1 billion ($1B) in liquidity and that it is “well positioned” to take advantage of a “very attractive” market environment. What streaming or royalty targets could make sense for a company of that size with that much money to spend?

SN: There are several junior/mid-tier companies in need of additional capital, but I think the most interesting opportunities are carving out large-scale royalties or streams from the majors. The Vale S.A. (VALE:NYSE) transaction by Silver Wheaton changed the royalty landscape, carving out gold production from the Salobo mine in Brazil and operations in Sudbury, Ontario, in a $1.9B deal.

It’s another way for those large diversified companies to carve out non-core assets or commodities and realize some value for them.

TMR: If I’m an investor in Royal Gold and I hear a speech like that, I say, “Well, why don’t you take some of that liquidity and increase your dividend to attract more investors?”

SN: I believe Royal Gold has increased its dividend every year for the last 14 years. The share price has exhibited such good growth that the yield doesn’t look as attractive. With operating cash-flow growing at a compound annual growth rate of 6% in the coming years, the share price should continue to benefit, as should future dividend growth.

TMR: In addition to that deal with Vale, Silver Wheaton reached a stream deal with Sandspring Resources Ltd. (SSP:TSX.V). Do those types of deals move the needle for a company like Silver Wheaton, Royal Gold or Franco-Nevada?

SN: This is a way for these companies to gain exploration exposure and strike deals for projects that could potentially be the next cycle’s significant projects. Getting in on the ground level and striking a deal when gold prices are depressed doesn’t require a great deal of upfront capital.

In terms of moving the needle with the current valuation: No, it doesn’t. But fast forward 10 years down the line—each of these royalty companies will have a handful of option agreements that could materialize into something big—they’ve got attractive terms on a future stream, increased exposure to future exploration success and long-term growth.

TMR: What’s next for Franco?

SN: The major catalyst for Franco is getting information on Cobre Panama from First Quantum. Franco had previously struck a $1B streaming transaction at that asset with Inmet Mining. The company will be looking for more visibility on production and possible scalability, as well as the timing of payments to First Quantum. With respect to counter-party risks, Franco is in pretty good hands with a company like First Quantum running its project.

Another royalty example is Sandstorm Gold Ltd. (SSL:TSX; SAND:NYSE.MKT). It has $100M in cash and $100M of available credit. Sandstorm’s performance is being impacted currently by elevated counter-party risks, as there are concerns with the profitability of a few of its streaming agreements. About 70% of its future production is in relatively safe hands at current commodity prices; however, there could be downside risk to its production estimates.

TMR: The company announced that it had record gold sales in Q3. Is this going to be a regular occurrence?

SN: That trend should continue as its primary counter-party, Luna Gold Corp. (LGC:TSX; LGC:BVL), ramps up its phase one expansion at its Aurizona Project in Brazil next year.

It also has a stream on SilverCrest Mines Inc.’s (SVL:TSX.V; SVLC:NYSE.MKT) Santa Elena mine in Mexico, which is going into underground development next year. The record production headlines will persist late into next year, but then taper off if metal prices don’t offer its counter-parties some support.

TMR: Do you have some parting thoughts?

SN: A lot of the people I talk to on a daily basis are saying it’s got to turn around and are picking more leveraged ideas, which a select few will certainly pay off. A more conservative approach would be looking for names that may not necessarily be the cheapest right now, but may present the best opportunity for future growth through M&A, or those companies that have the strongest balance sheets going forward. These names tend to be the large-cap base metal and royalty companies, which will offer exposure to a rebound in prices, but also limit losses should current market conditions persist.

TMR: Excellent. Thanks.

SN: Sure. My pleasure.

Shane Nagle is a metals and mining analyst at National Bank Financial, covering base metals, royalties and junior gold companies. Prior to 2008, Nagle worked as a process engineer within the hydrometallurgy group at Hatch and has an engineering chemistry degree from Queen’s University. In 2013, he received the StarMine award for top stock picker in Canada (Metals & Mining).

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DISCLOSURE: 
1) Brian Sylvester conducted this interview for The Mining Report and provides services to The Mining Report as an independent contractor. He or his family own shares of the following companies mentioned in this interview: None.
2) The following companies mentioned in the interview are sponsors of The Mining Report: SilverCrest Mines Inc., Royal Gold Inc., Franco-Nevada Corp. and Colossus Minerals Inc. Streetwise Reports does not accept stock in exchange for its services or as sponsorship payment.
3) Shane Nagle: I or my family may own shares of the companies mentioned in this interview: None. I personally am or my family is paid by the following companies mentioned in this interview: None. I was not paid by Streetwise Reports for participating in this interview. Comments and opinions expressed are my own comments and opinions. I had the opportunity to review the interview for accuracy as of the date of the interview and am responsible for the content of the interview.
4) Interviews are edited for clarity. Streetwise Reports does not make editorial comments or change experts’ statements without their consent.
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6) From time to time, Streetwise Reports LLC and its directors, officers, employees or members of their families, as well as persons interviewed for articles and interviews on the site, may have a long or short position in securities mentioned and may make purchases and/or sales of those securities in the open market or otherwise.

Oando Energy Resources executes second facility agreement with Oando Plc

 Oando Energy Resources Inc. (“Oando Energy Resources” or the “Company“) (TSX: OER), a company focused on oil and gas exploration and production in Nigeria, today announced that it has entered into a second facility agreement (“Second Facility Agreement“) with Oando Plc, the 94.6% shareholder of the Company (“Oando“), pursuant to which Oando Energy Resources will borrow US$200 million, at an annual interest rate of 5%, repayable in cash by February 28, 2014. The intended use of proceeds of the loan will be payment of the purchase price for the proposed acquisition by Oando Energy Resources of the Nigerian upstream oil and gas business of ConocoPhillips.  Pursuant to the Second Facility Agreement and the facility agreement between the Company and Oando dated May 30, 2013, as amended, Oando Energy Resources owes an aggregate of US$601 million plus interest to Oando.

The Second Facility Agreement does not become effective until Oando Energy Resources confirms in writing to Oando that (i) approval from the Toronto Stock Exchange in respect of the Second Facility Agreement has been obtained and (ii) the independent directors of the Company unrelated to Oando have recommended the approval of the effectiveness of the Second Facility Agreement to the board of directors of the Company, who have approved the effectiveness of the Second Facility Agreement (with directors affiliated with Oando abstaining from the vote).

Forward Looking Statements:

This news release contains forward-looking statements and forward-looking information within the meaning of applicable securities laws.  The use of any of the words “expect”, “anticipate”, “continue”, “estimate”, “objective”, “ongoing”, “may”, “will”, “project”, “should”, “believe”, “plans”, “intends” and similar expressions are intended to identify forward-looking information or statements.  In particular, this news release contains forward-looking statements relating to intended acquisitions.

Although the Company believes that the expectations and assumptions on which such forward-looking statements and information are reasonable, undue reliance should not be placed on the forward-looking statements and information because the Company can give no assurance that such statements and information will prove to be correct. Since forward-looking statements and information address future events and conditions, by their very nature they involve inherent risks and uncertainties.

Actual results could differ materially from those currently anticipated due to a number of factors and risks. These include, but are not limited to: risks related to international operations, the actual results of current exploration and drilling activities, changes in project parameters as plans continue to be refined and the future price of crude oil. Accordingly, readers should not place undue reliance on the forward-looking statements. Readers are cautioned that the foregoing list of factors is not exhaustive.

Additional information on these and other factors that could affect the Company’s financial results are included in reports on file with applicable securities regulatory authorities and may be accessed through the SEDAR website (www.sedar.com) for the Company. The forward-looking statements and information contained in this news release are made as of the date hereof and the Company undertakes no obligation to update publicly or revise any forward-looking statements or information, whether as a result of new information, future events or otherwise, unless so required by applicable securities laws.

USA: Orion Marine Nabs Port of Lake Charles Contract

Orion Marine Group Inc, a leading heavy civil marine contractor serving the infrastructure sector, today announced a contract award of approximately $18 million.

Orion Marine Group will demolish and reconstruct a cargo dock for the Port of Lake Charles in Louisiana. Demolition of the existing cargo shed and dock structure will begin in the second quarter of 2014 with the overall project lasting approximately 18 months.

Orion Marine Group, Inc. provides a broad range of marine construction and specialty services on, over and under the water along the Gulf Coast, the Atlantic Seaboard, West Coast, Alaska, Canada, and the Caribbean Basin and acts as a single source turn-key solution for its customers’ marine contracting needs.

Its heavy civil marine construction services include marine transportation facility construction, dredging, repair and maintenance, bridge building, and marine pipeline construction, as well as specialty services. Its specialty services include salvage, demolition, diving, surveying, towing and underwater inspection, excavation and repair.

USA: Corps Awards Tangier Island Dredging Contract

The U.S. Army Corps of Engineers, Norfolk District, awarded a $991,500 contract to a Cleveland, Miss.- based company to dredge the Tangier Island, Va. federal navigation channel on Dec. 16.

The contractor, 4H Construction Corporation, will perform maintenance dredging in the channel, removing approximately 55,500 cubic yards of material, which will allow waterman, supply vessels and ferries safe access to and from the island.

“It’s our lifeline, it’s very important to us,” said James Eskridge, Tangier town mayor, “It’s how the supplies come into the island and how the guys get out working on the water and making their living.”

With the contract awarded the Norfolk District and representatives with 4h Construction will meet to hammer out the final plans prior to the first dredge arriving at the island.

“We are looking at starting onsite operations later this winter,” saidJason Flowers, Norfolk District project manager. “It is a vital waterway to the people in this community and we are committed to ensuring that this project is successful throughout the construction process,” he continued.

The channel is the main connection from the island to the mainland and is maintained to a depth of 8 feet mean lower low water day in the east channel and 7 feet mean lower low water in the turning basin and west channel.

The River and Harbor Act of 2 March 1919 authorized the Tangier Channels Federal navigation project. The act was later by several acts, and one of which authorized a channel from the basin through Tangier Creek westward to the Chesapeake Bay.

The funding for this maintenance dredging event at Tangier Island is provided by the Disaster Relief Appropriations Act, 2013.

Shoal Point to lose drilling licence near Newfoundland’s Gros Morne park

ST. JOHN’S, N.L. — An oil exploration company that set off intense debate with plans to frack near Gros Morne National Park in western Newfoundland says it will lose its licence next month to drill wells near the UNESCO world heritage site.

CEO Mark Jarvis of Shoal Point Energy Ltd. said his company’s bid to extend one of three exploration licences it holds in the province was rejected Dec. 5 by the Canada-Newfoundland and Labrador Offshore Petroleum Board.

The company said the decision means his company will lose the licence as of Jan. 15 as well as a $1-million deposit made last January for a one-year extension on drilling exploration wells.

“We are disappointed by this decision,” Jarvis said in a statement Thursday.

Shoal Point Energy and Black Spruce Exploration, a subsidiary of Foothills Capital Corp., had proposed to hunt for oil in shale rock layers in enclaves surrounded by the park using hydraulic fracturing, also known as fracking.

The process involves pumping water, nitrogen, sand and chemical additives at high pressure to fracture shale rock formations and allow gas or oil to flow through well bores to the surface.

The prospect of drilling in the Green Point shale near the picturesque park raised alarms about groundwater pollution and other risks.

Last month, the provincial government shut the door on applications for hydraulic fracturing for oil and gas while it reviews regulations and consults residents.

In a statement issued Friday the offshore board said it considered and rejected three separate proposals from the company for a one-year extension to its exploration licence.

The board said in making its decision it considered that the licence was issued based on conventional exploration work and that eight years had passed with minimal exploration undertaken.

It said the company’s proposal did not identify a plan to proceed with the drilling obligation on the licence and instead identified “a physical and legal impossibility to undertake a drilling program” in the only format now under consideration.

The board also said the company did not incorporate a forfeiture of its drilling deposit for not meeting the obligations of the licence to date.

Shoal Point Energy said it was willing to give up more than half of the approximately 202 hectares covered by the licence if the board approved the extension, including the portion neighbouring Gros Morne.

The company said it was also prepared to make an additional drilling deposit of $250,000, but the board denied both requests.

Jarvis said the Vancouver-based company felt its application respected the importance of the park.

“Our proposal balanced a desire to protect this unique and beautiful park with a desire to safely and responsibly develop a much-needed economic opportunity on the west coast of Newfoundland,” he said.

In total, the company’s three licences cover approximately 291 hectares in western Newfoundland.

“We still have a very large prospective resource to explore and develop in our remaining exploration licences,” said Jarvis. “We believe that the majority of people in this area want economic opportunity, as long as they are satisfied that operations are safe and respect the environment.”

Are the Great Lakes the new transport lane for Alberta crude oil?

The small town of Superior, Wisconsin may emerge as an unlikely American maritime hub for Canadian crude if plans to transport Alberta oil sands oil across the Great Lakes come to pass.

There are many hurdles to cross. The first is a proposal to repair a shipping dock on Lake Superior that would set the stage for the construction of an oil terminal feeding refineries in and around the Great Lakes.

Superior-based Elkhorn Industries has applied for a permit to reconstruct 700 feet of dockwall with the Wisconsin Natural Resources Department, and the move has pricked the ears of those who believe it is the first step towards mass transportation of Canadian crude across the lakes that separate Ontario and several U.S. states.

John Gozdzialski, regional director at the Wisconsin Department of Natural Resources, told the Financial Post the department is “inclined” to approve the Elkhorn project with certain conditions on December 26.

The dock is viewed as key to a plan by Calumet Specialty Products Partners L.P. to build an oil terminal close to its existing oil refinery in Superior. Earlier in the year, the Indianapolis-based company announced a $20-million project that would transport northern crude oil to a loading dock off the coast of Lake Superior.

“We are currently working in co-operation with State of Wisconsin’s Department of Natural Resources to ensure that this project would, upon completion, comply with all regulatory and environmental guidelines,” said Noel Ryan, director of investor and media relations, in a written response.

The company is evaluating a number of potential options to transport “cost-advantaged” (in other words “discounted”) crude oil from Alberta and the Bakken to refining centres in the mid-continent and eastern United States.

“Given a lack of sufficient pipeline and rail capacity to transport crude oil from northern production fields to key refining centers, this project has received significant indications of interest from our customers,” Mr. Ryan said in the email, although the company has not secured buyers yet.

Calumet’s 45,000-bpd refining facility in Superior — the state’s sole refinery — already sources Western Canadian sour and Bakken crudes, but the loading terminal project is distinct from the refinery.

While the company has not made a financial commitment yet, conservation groups fear the Calumet project could see as much as 35,000 barrels per day of crude oil shipped across the Great Lakes as early as 2015, according to some estimates.

The dock wall approval would set things in motion that would see oil sands on the Great Lakes as early as 2015.

“That’s really the first step towards a project by Calumet Superior refinery to build a complex for the transportation of tars sands crude and crude oil by vessels on the Great Lakes,” said Lyman C. Welch, water quality program director at Alliance for the Great Lakes,  a conservation group which recently wrote a report on the subject.

Nearly two dozen U.S. refineries located in Great Lakes states can expect 
to receive large volumes of additional Canadian oil sands crude “in the future as companies jockey to take advantage of a current demand for this significantly cheaper source of crude oil,” Mr. Welch noted in the report.

While the Great Lakes is a conduit for petroleum products, crude petroleum make up less than 1% of that figure, according to data from the U.S. Army Corps of Engineers.

But an oil terminal would allow Canadian crude to travel from Wisconsin across Lake Superior to Lake Michigan, and on to refineries in Whiting, Ind., Lemont, Ill., and possibly Detroit, Mich. near Lake Erie. Other potential destinations could include Sarnia, Ontario on Lake Huron, or even East Coast refineries, the conservation groups says.

Despite opposition from some sides, city officials are unequivocally backing the project.

“There are no grounds to deny the [Elkhorn] project,” Jason Serck, the city’s planning director, told the Financial Post, even if the reconstruction leads to the development of an oil terminal.

“That’s one of the projects that are being considered and we are totally behind that. We have the only refinery in the state of Wisconsin, where about 15% of Canadian oil comes through, via the Enbridge pipeline. We are kind of a hub of crude activity.”

But concerns of an oil spill damaging the Great Lakes are valid and Mr. Serck agrees with some of the recommendations set out by the Alliance for Great Lakes in its report.

Some of the Alliance’s recommendations include the U.S. Coast Guard preparing a “worst-case discharge scenario”, and updating regulatory policies, apart from joint oversight by Canadian and U.S. Governments as part of the Water Quality Agreement.

Much of the crude surge is expected to be driven by Enbridge’s plan to expand its Alberta Clipper (Line 67) and Southern Access (Line 61) pipelines as part of its “Eastern Access Expansion” initiative.

“The Eastern Access initiative includes several Enbridge and Enbridge Energy Partners crude oil pipeline projects including the 67 and 61 expansions to provide increased access to refineries in the upper midwest United States and eastern Canada,” said Graham White, Enbridge’s spokesman in an email, although the company is not involved in any plans or discussions for Great Lakes or East Coast transport.

Alberta Clipper, which takes heavy crudes from Hardisty in Alberta and ends at Lake Superior close to the Calumet Superior Refinery will be expanded to carry 570,000 bpd from its current capacity of 450,000 bpd.

As it crosses an international border, the expansion requires a permit from the U.S. State Department and Enbridge is hoping a decision would come “early in the new year to preserve in-service dates of 2014 and 2015,” according to Mr. White.

In addition, Enbridge is also expanding its Southern Access pipeline which carries a mix of crudes from Superior to Flanagan, Illinois. The first phase includes raising capacity to 560,000 bpd from 400,000 bpd at a cost of US$200 million by the third quarter of 2014. The second phase would push capacity to 1.2 million bpd at an estimated capital cost of approximately US$1.3-billion by 2016.

The projects add to Enbridge’s Line 9 reversal and expansion and TransCanada Corp.’s Energy East pipelines, as the Canadian oil  sector aims to push its product out further via multiple channels.

Calumet’s Great Lakes plan may face strong opposition, although some officials say the local population is behind the project.

“As the economics continue to drive the demand for processing, these proposals could appear elsewhere on the Great Lakes in the future and that’s why it is critical that the region gets the information needed to make an informed decision,” Mr. Welch said. “It is an issue that the region needs to confront and make a choice, whether the Great Lakes should become a thoroughfare for tar sands crude oil.”

construction equipment manufacturer

Top U.S. headquartered mining and construction equipment manufacturer, Caterpillar,  has recently announced its strategy for meeting the needs of customers in lesser regulated countries selling and purchasing used Tier 4 Interim products for operation in these countries, where prevailing fuel quality and fuel sulphur content may vary widely. Based on extensive testing, analysis and field validation, Caterpillar has determined that Cat^® Tier 4 Interim engine systems between 130kW and 895 kW (7-32L engines) will not require any modification to operate in lesser regulated countries. For Cat Tier 4 Interim engines less than 130kW, Caterpillar will offer authorized modification processes that remove aftertreatment from machine and commercial engine configurations to enable operation in lesser regulated countries. Modification processes, which include decertification, will be made available to customers exclusively through their local Cat dealer beginning in 2014. Caterpillar anticipates both the modified <130kW engine systems and unmodified 130-895 kW engine systems will meet used equipment customer expectations for operation in the vast majority of potential export destinations where regulations may be less strict than in the U.S.. “Tier 4 used equipment migration is a complex issue,” said Ramin Younessi, vice president, Industrial Power Systems Division. “Because Caterpillar serves customers in all markets, we develop products to meet the needs of customers in all types of regulatory environments. For example, all non-road equipment operated in the U.S., Canada, Europe and Japan must operate on ultra-low sulphur diesel fuel. When equipment developed for certain markets, like our Tier 4 equipment, moves to different markets, it adds challenges for Caterpillar, our dealers and our customers. Challenges arise due to diverse emissions regulations, the need for dealer readiness training and the need to help customers understand how to operate and maintain these next generation products. Most importantly, customers contemplating the purchase or modification of used Cat Tier 4 products need to understand and comply with their local regulatory requirements.” Since Caterpillar began introducing Tier 4 products in February 2011, the field population has grown rapidly to over 82,000 products operating in North America, Europe, Japan and Australia. These products have amassed almost 42 million operating hours, with excellent reliability and fuel efficiency results—creating interest among used equipment purchasers. According to Younessi, a key consideration for Caterpillar in developing its strategy for Tier 4 migration was to help ensure customers maintain the resale value of their used equipment. This gives them better options to sell in new markets where regulations may differ from those in the USA. Younessi added, “With the migration strategy, we’re looking forward, ahead of the Tier 4 Interim products that are already finding their way overseas to lesser regulated countries. Tier 4 Final products won’t be far behind the Interim products, which is why the strategy we’ve developed focuses on a solution for today’s customers—and for future customers.” Beginning with Cat dealers in locations Caterpillar has identified as higher probability recipients of used Tier 4 equipment, the company is preparing dealers to support the migration of used equipment countries with differing regulations. These dealers will have access to service training, parts stock, service tooling and product information, including detailed information on specific product availability.

Cape Alumina shifts focus to Bauxite Hills

Bauxite developer Cape Alumina told shareholders on Friday that its entire focus would now shift to the development of the Bauxite Hills mine and port project, in Queensland, after the state government effectively canned the company’s Pisolite Hills project.

In November, the state government announced plans to declare the Steve Irwin Wildlife Reserve and the Wenlock river on Cape York peninsula the region’s first-ever strategic environmental area, effectively killing the Pisolite Hills project.

The state’s decision also caused Cape Alumina to abandon a proposed merger with fellow-listed MetroCoal, which had been looking at developing Pisolite Hills.

Following a meeting with the state government this week, the Cape Alumina board has decided to shift its focus to the Bauxite Hills mine.

“The Queensland government committed to work with Cape Alumina during the finalisation of the Cape York regional plan to ensure that the true economic and environmental values associated with Cape Alumina’s Cape York bauxite tenements are fully understood,” said Cape Alumina MD Graeme Sherlock.

He noted, however, that while the overall meeting had been positive, the government and the company had “agreed to disagree” on several matters.

“If the government is serious about creating environmentally sustainable economic development on Cape York, then it will work cooperatively with us to advance the development of Bauxite Hills,” Sherlock said.

He again expressed his disappointment in the lack of fair warning given around the declaration of special status to the Steve Irwin Wildlife Reserve, saying that the company had not been warned in advance.

“All we have ever expected is a fair go, for due process to be allowed and, more importantly, for decisions to be based upon scientific rigour, not politics.

“We reserve the right to challenge the Queensland government’s decision, which will not be enacted until legislation is passed next year.”

Sherlock said that, in the meantime, the company would focus on Bauxite Hills.

“The company is confident that, with its remaining bauxite tenements, excluding the resources within the Steve Irwin Wildlife Reserve, it will be able to develop successful bauxite mines on Cape York in a sustainable and environmentally responsible manner, which will benefit its shareholders, the local communities and all of Queensland.”

A prefeasibility study has previously found that the Bauxite Hills mine could deliver five-million tonnes a year, over a life-of-mine of ten years. The study proposed that the Bauxite Hills mine would start production at 2.5-million tonnes a year of dry beneficiated bauxite, building to an output of five-million tonnes a year over a two-year period.

Capital costs for the project have been estimated at between A$234-million and A$250-million, depending on the time and development option chosen for the Bauxite Hills project, with operating costs estimated at between A$24/t and A$27/t.