Rapidly rising volumes on LME back its foray into gold

Date Oct 18 2017 13:53:47 Source:Reuters

  BARCELONA, Spain, Oct 17 (Reuters) - Open interest on the London Metal Exchange's (LME) precious metals contracts has topped 3 million ounces of gold, the exchange said, as it tries to muscle into a futures business dominated by rival CME Group. 

    The LME introduced its LMEprecious gold and silver contracts in July, betting that tighter regulation would push London's $5 trillion bullion market from over-the-counter (OTC) deals between banks and brokers to centrally cleared exchanges

    London's gold trade is dominated by OTC business. Futures trading is chiefly done on the CME's Comex market in New York.

    Gold trading volumes have risen from an average 436,000 ounces a day in July to 680,000 ounces a day in September and on Oct. 11 to a record 1.4 million ounces, Kate Eged, the LME's head of precious metals, told a conference in Barcelona. 

    By Oct. 11, open interest in gold had increased to more than 3 million ounces, she said. 

   "Things are looking well," said Marwan Shakarchi, chairman of gold traders and refiners MKS. "We are looking at the LME as a price provider and liquidity provider ... It has strong backers. Give it time."

   LMEprecious is supported by banks, including Morgan Stanley and Goldman Sachs, who have a 50-50 revenue sharing deal with the exchange and are committed to providing liquidity

   The exchange is also working to sign clearing members to trade. It expects three new clearers to join by the end of the year and six more in the first half of next year, which would take the total to 20 

   Australia's Macquarie Bank will be the first of these new clearers to join, within weeks, three sources said.

    Macquarie and did not respond immediately to a request for comment. The LME declined to comment. 

    Sources at several banks and brokerages said they were shifting some of their trades from London OTC to the LME and that volumes on LMEprecious were likely to grow.

    "It'll help us manage our forward curve and cut costs, and enable us to have access to an increased pool of liquidity without having to have bilateral relationships with other banks," a London-based broker said. 

    "The LME takes away credit risk and reduces costs," said a source at a European trading and refining company. "There's a reluctance to change, but eventually, the LME could overtake the CME."

    Miners and other companies dealing with physical gold, however, are likely to stick with OTC trading, said a London-based banker.

    "LMEprecious makes sense for the interbank guys because they are going to have huge cost savings, but the retail guys want flexibility and are happy with OTC as it is." 



    The LME's volumes still pale by contrast with Comex, which traded 35.9 million ounces of gold on average each day in September and had open interest in gold of 52.8 million ounces as of Oct. 13, according to CME. 

    "Comex and London OTC have a nice symbiotic relationship and the market goes where the liquidity is," said Youngjin Chang, head of metals at CME. 

    "Gold is truly a global trade. Out of all the markets out there, the most liquidity you can tap into in any time zone is Comex."

    Comex has seen volumes rise more than 60 percent since the start of 2015, but LME Chief executive Matt Chamberlain said this was a good sign for LMEprecious. 

    "It shows the size of the market opportunity," he said in a recent interview. "As we build, as we get more arbitrage business, I have to believe some of that volume would like to transact in London but doesn't at the moment have a venue for that, and we are now providing that.

    "We in general see other exchanges' volumes going up as a good thing, because it suggests that the pie is bigger."

    Comex and LMEprecious are likely to co-exist, said a brokerage source. 

   "With LMEprecious the benefit is the forward curve. Comex is front-month liquidity. I use one for one thing, one for the other."    Edited by SHMET

UPDATE 2-U.S. SEC charges Rio Tinto, former top executives with fraud

Date Oct 18 2017 13:52:46 Source:Reuters

NEW YORK, Oct 17 (Reuters) - The U.S. Securities and Exchange Commission on Tuesday charged  mining company Rio Tinto Plc  RIO.L   RIO.AX  and two of its former top executives with fraud, saying they inflated the value of coal assets in Mozambique acquired for $3.7 billion and sold a few years later for $50 million.

    The U.K.'s Financial Conduct Authority also said Tuesday it had reached a settlement with Rio Tinto under which the company would pay a fine of £27 million ($35.6 million) to settle claims that it breached accounting rules in connection with the Mozambique assets.

    In a lawsuit filed in U.S. federal court in Manhattan, the SEC said Rio Tinto, former Chief Executive Officer Thomas Albanese, and former Chief Financial Officer Guy Elliott failed to follow accounting standards and company policies to accurately value and record the assets. 

    The lawsuit centers on Rio Tinto's 2011 acquisition of Mozambique coal explorer Riversdale Mining for $3.7 billion. The SEC said that soon after the deal was completed, Rio Tinto learned that the acquisition would yield less coal, and of a lower quantity, than expected.

    The securities regulator said Rio Tinto concealed the problems with the deal, in part because Rio Tinto had already disclosed huge losses in connection with its 2007 acquisition of Alcan. Making public a second failure "would call into question Albanese's and Elliott's ability to pursue the core of Rio Tinto's business model," the SEC said in its complaint.

    By making misleading public statements, Rio Tinto and the executives were able to raise $5.5 billion from U.S. investors, the SEC said. They continued to solicit the investments even after executives of the Mozambique subsidiary told Albanese and Elliott that the unit was likely worth negative $680 million, according to the SEC.

    The SEC said the fraud continued until January 2013, when another executive discovered accounting irregularities. Albanese subsequently resigned, and the Mozambique subsidiary was sold for just $50 million, the SEC said.

    "There is no truth in any of these charges," Albanese said in a statement.

    Christina Mills, a spokeswoman for Elliott, said Elliott would vigorously contest the charges.

    Rio Tinto said it would defend itself vigorously against the SEC's allegations. The company said the U.K. FCA had "made no findings of fraud, or of any systemic or widespread failure by Rio Tinto."

    It also disclosed that the Australian Securities and Investments Commission was looking into its accounting of the Mozambique assets.


    (£1 = $1.3185)

Edited by SHMET

RPT-China's winter cuts heat up aluminium market

Date Oct 18 2017 13:51:17 Source:Reuters

BEIJING, Oct 17 (Reuters) - The Chinese government's campaign to reduce smog pollution and whittle down excess production is set to take around a tenth of its aluminium smelting capacity out of the market by the year-end, potentially adding fuel to a months-long price rally.

    That impact could have been even more severe - if the world's largest aluminium producer, privately-held China Hongqiao Group  1378.HK , had been forced to cut output by 30 percent this winter. But, in an apparent reprieve late last week, its cuts are likely to be far less than that.

    China last year accounted for over half the world's annual primary aluminium production of almost 59 million tonnes, according to the London-based International Aluminium Institute.

    It has annual aluminium smelting capacity of 45 million tonnes, according to consultancy CRU. New capacity has still come on line in China this year, even as illegal, unlicensed capacity has been shut down. 

    A Reuters survey of six consultancies and brokerages last week, before the Hongqiao news, showed that up to 1 million tonnes of the light metal, used in making cars and white goods, could be cut during the 4-month heating season in northern China, which begins in mid-November, in the country's first winter restrictions on aluminum.

    That works out at as much as 3 million tonnes on an annualised basis and is on top of the 3-4 million tonnes of annual capacity estimated to have closed permanently this year as part of a crackdown on facilities built without necessary permits. 

    The prospect of supply cuts in China has roiled markets, particularly in the eastern province of Shandong, home to several smelters including Hongqiao, which will shoulder 80 percent of the winter cuts, according to Wood Mackenzie analyst Ami Shivkar.

    Chinese aluminium prices  SAFcv1  hit 6-year highs above 17,000 yuan ($2,581.74) per tonne in August, and are on track for their best annual performance in eight years, as investors have bet that government policy will help trim a global glut that has dampened prices for years. 


    The Chinese government has told 28 northern cities, including Binzhou and six others in Shandong, to take stringent steps to curb smog this winter.

    Among these is a requirement for smelters to cut primary aluminium production by at least 30 percent.

   However, an order on Friday by the city of Binzhou, where Hongqiao is based, for smelters to reduce operations this winter appeared less stringent than had been expected.

   The city's plan includes in its calculation illegal pots that Hongqiao has already closed. The company shut 2.68 million tonnes of illegal annual capacity by end-July. 

   That means it will now only have to shut another 900,000 tonnes of annual operational capacity over the winter months, estimates CRU consultant Jackie Wang.

   Hongqiao "will need to close a lot less than previously thought," noted Victor You, an analyst at CLSA in Hong Kong, who had calculated a 30 percent Hongqiao reduction at nearly 2 million tonnes.

   Hongqiao did not respond to a request to clarify how much it was cutting this winter.

   Standard Chartered analyst Paul Horsnell said in a client note that the let-off "essentially creates an issue of moral hazard and threatens the integrity of cuts to both illegal capacity and the winter heating season."

   He warned of a central government backlash "to a policy guideline that effectively means Hongqiao benefits from its development of illegal capacity."

    ($1 = 6.5847 Chinese yuan renminbi)


Edited by SHMET

UPDATE 1-BHP Q1 iron ore output hurt by mine fire, guidance intact

Date Oct 18 2017 13:50:12 Source:Reuters

Oct 18 (Reuters) - Global miner BHP Billiton BHP.AX 

 BLT.L  reported a 4 percent drop in quarterly iron ore output following a fire at its Mount Whaleback mine in Australia in June, but said it still expects to hit its annual production target.

    Production was 64 million tonnes in the fiscal 2018 first quarter versus 67 million tonnes a year ago, the company said.

    The figures take into account iron ore produced for the company and its joint venture partners at its mines. BHP's share for the quarter was 55.6 million tonnes.

    UBS had forecast a figure of about 63.6 million tonnes.

    BHP on June 1 temporarily halted operations at its Whaleback mine, the largest of seven operated by the company in Australia, due to a fire.

    The miner maintained fiscal 2018 guidance of 275-280 million tonnes of iron ore. 

    Uncertainty over China's demand for imported ore as its steel industry undergoes structural change and speculative trading in contracts has led to a roller-coaster ride for prices this year, trading widely between $53 and $95 a tonne.   

    Iron ore currently sells for around $63 a tone .

    Petroleum production for the quarter slipped by 8 percent to 50 million barrels of oil equivalent in what was BHP's weakest quarterly petroleum output since 2011.

    BHP's board is under pressure from activist shareholders led by New York-based Elliott Management to divest U.S. shale holdings and narrow its focus to hard-rock mining.

    BHP said divestment of a small portion of the onshore Hawkville acreage was completed in the September 2017 quarter, with "work underway" to exit the remaining acreage.

    Elliott was not immediately available to comment.

    BHP's quarterly copper output rose 14 percent to 404,000 tonnes, with fiscal 2018 guidance maintained at 1.655-1.790 million tonnes.

Edited by SHMET

Philippines' Duterte lifts suspension on gold miner Lepanto

Date Oct 17 2017 16:41:48 Source:Reuters

  MANILA, Oct 16 (Reuters) - Philippine President Rodrigo Duterte has lifted an eight-month suspension order on gold miner Lepanto Consolidated Mining Co  LC.PS , among more than two dozen companies ordered halted by a sacked minister who led an environmental crackdown.

    Lepanto, which also mines copper and silver, was among 26 miners ordered closed or suspended by former Environment Secretary Regina Lopez in February. 

    Lepanto filed its appeal shortly after with Duterte's office, which held off carrying out the order and allowed the miner to continue its operations. Lifting of the suspension removes the threat of a halt in future.

    A government audit team last year found Lepanto's mine in northern Benguet province "has unregistered treatment, storage and disposal facility for the detoxification process for the mill tailings." 

    Citing a decision from Duterte's office on Oct. 12, Lepanto said it was given six months to implement mitigating measures and to pay a fine of 127,275 Philippine pesos ($2,482), the miner told the stock exchange on Monday. 

    "Lepanto is considering its options vis-a-vis the decision," it said.

    Apart from those that sought a reprieve from Duterte's office, miners that were ordered to halt operations filed appeals with the Department of Environment and Natural Resources.

Lopez was replaced by Roy Cimatu, a former soldier whose appointment was confirmed by lawmakers on Oct. 4. Cimatu has yet to decide on the appeals.

 "The drafts are finished but the Secretary is still considering them. He created a study group," Environment Undersecretary Maria Paz Luna told Reuters by phone.

    Mining is a contentious issue in largely underexplored Philippines, the world's top nickel ore supplier, following past examples of environmental mismanagement. In 1996, a tailings leak at Canadian-owned Marcopper Mining Corp's copper mine in Marinduque contaminated rivers.

    The sector contributes less than 1 percent to the economy, with only 3 percent of the 9 million hectares identified by the state as having high mineral reserves being mined, according to government data.


   ($1 = 51.2700 Philippine pesos)


Edited by SHMET