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Palladium price hits 6 month high as Russia invades Ukraine

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The palladium price jumped on Thursday as Russian forces invaded Ukraine after President Vladimir Putin authorized what he called a special military operation.

Spot palladium added 2.7% to $2,549.01 an ounce, having earlier reached its highest since August 2021.

Russia produced 2.6 million troy ounces of palladium last year, or 40% of global mine production, and 641,000 ounces of platinum, or about 10% of total mine production.

While it was “still too early” to tell if supply issues would materialize, “if we see a set of sanctions that reduce financing and free flow of the material to the rest of the world, we could see a significant tightening of conditions for palladium probably in the not too distant future,” said Bart Melek, head of commodity strategies at TD Securities.

Platinum group metals could see a “pretty significant rally” with palladium likely to reach record highs seen last year over $3,000 an ounce, Melek added.

It’s a sharp reversal in fortune for palladium, which was the worst-performing major commodity in 2021. The impact of the semiconductor shortage on car production soured the demand outlook, causing prices to plummet in the second half of the year. Only iron ore, hit by China’s property market crisis, and silver have come close in terms of losses.

Palladium the worst performing major commodity in 2021

Shares in mining companies with operations in Russia were among the first to feel the impact of Moscow’s wide-ranging attack on Ukraine on Thursday, while oil topped $105 a barrel and investors rushed to buy gold and other safe havens.

Mining

Aluminum price jumps to record as Russian attack boosts supply risks

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Aluminum rallied to a record in London and nickel surged to the highest in more than a decade, pacing gains in industrial-metals markets as the deepening Ukraine crisis added to supply risks in an industry already facing critical shortages.

U.S. President Joe Biden warned that Russia faces “severe sanctions” after his counterpart Vladimir Putin ordered a military attack on Ukraine. The crisis is heightening concerns over the possibility of supply disruptions in commodities from grains to metals and oil.
The gains will heap fresh inflationary pressure on buyers who use aluminum in everything from cables to drinks cans, and the threat of disruption will be particularly troubling for manufacturers in Europe who buy large volumes of specialist products using it that come from Russia. There’s also mounting concern about supply from western producers, who face even more extreme spikes in gas and power prices.

“It’s a double whammy, and it’s a real worry,” said Robin Bhar, an independent consultant who’s been involved in metals markets for more than three decades. “It may be that the increase in energy prices is so penal that it outweighs the rise in the metal price.”

Aluminum jumped as much as 5.7% to $3,480 a ton on the London Metal Exchange, surpassing a previous record set in 2008. Cash aluminum contracts traded at the biggest premium to futures since 2007, signaling a scramble for the dwindling supplies of spot metal on the bourse. Nickel surged to the highest since 2011, while copper slipped as the military action sparked a selloff in risk assets across financial markets.

Even with aluminum prices at a record-high, surging energy prices means some smelters remain unprofitable. German power prices and the region’s benchmark gas contract both spiked above 50%, far exceeding the gains seen in most industrial metals.

U.S. sanctions on major producer United Co. Rusal International PJSC in 2018 sent prices soaring about 30% and sparked a frenzied hunt for alternative metal. The penalties were lifted after billionaire Oleg Deripaska agreed to reduce his ownership and relinquish control.

There’s no guarantee that the situation in Ukraine, or any planned sanctions by the U.S. or Europe, will affect aluminum or any other metal. Russia is also an important producer of nickel, palladium and copper.

V-shaped

Aluminum has seen a dramatic turnaround over the past two years, after being hit particularly hard early in the pandemic as lockdowns sparked a collapse in usage in the automotive and aerospace sectors.

The metal has since more than doubled as surging energy prices sparked widespread smelter shutdowns in China and Europe, just as demand in areas including construction and packaging started roaring back.

Raw materials from nickel to crude oil have surged in recent months as consumption has risen sharply with the world emerging from the pandemic, while supply has lagged.

With aluminum inventories now reaching critically low levels, the metal’s soaring price is adding to cost pressures on manufacturers, and analysts see further gains. Goldman Sachs Group Inc. predicted prices will reach $4,000 within 12 months amid “unprecedented” supply tightness.

Aluminum traded at $3,423 a ton as of 4:10 p.m. local time on the LME. Nickel rallied as much as 5.4% to $25,705 a ton, the highest since May 2011, while zinc, lead and tin also gained. Copper swung between gains and losses.

 

 

Mining 

Will Hwange Become Zim’s Next Ghost Town? As World Moves Away From Fossil Fuels

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One of the major outcomes from the climate summit (COP26) in Glasgow, Scotland last year was the bold call by world leaders to phase out coal as a source of energy – a more radical stance from the past positions of advocating for a reduction in its usage.

The other notable commitment was ending public financing and subsidies for fossil fuels to cut on emissions.

But for Ncobeni Lupondo (72) a resident of Mpumalanga township in the coal-rich town of Hwange, northern Zimbabwe this has brought mixed feelings.

“Coal has been a blessing and a curse to us,” she told 263Chat. Lupondo has lived here all her life and witnessed the ups and downs of this resource town.

During her youthful days, she was once contracted by the local coal company-Hwange Colliery Company Limited (HCCL/ Hwange Colliery) for a few months.

“This town was built because of coal deposits located across this entire district and has gone through some exciting times when coal used to be an essential commodity but things are changing, the town is slowly dying and the company no longer employs many people anymore, A lot of former and current workers are still owed large sums of money,” she adds.

Hwange Colliery literally owns the town of Hwange having embarked on its first coal mining expedition in the area in 1902 following the discovery of coal in 1895. Everything else thereafter was then influenced by growth of the company.

The company doubles as a local authority offering water and reticulation services, health service, housing and waste collection to the town on top of its core mining activities.

In 2015, HCCL announced plans to sell Hwange town for US$ 300 million and its 5 000 housing units to squeeze its way out of a financial crisis exacerbated by legacy debts of up to US$ 160 million.

To compound matters, production levels have drastically fallen due to obsolete equipment.

Last year, only 305 679 tonnes of coal was delivered to Hwange Power Station down from annual production of 6 million tonnes at its peak in 1994.

Staff levels have tumbled to just 2 000 and the company’s under-utilized housing units are failing to attract private home seekers as the town is no longer economically vibrant.

The yester-year population boom buoyed by economic growth in the town is now a thing of the past.

According to the Zimbabwe National Statistics Agency (ZIMSTAT) Matabeleland North province district population projects report released in 2020, Hwange district will have one of the slowest population growths in the province compared to other districts.

From 31 637 males in the district in 2012, Hwange male population will grow by just 10 000 people or 31 percent in the next 20 years just as females will grow from 32 856 in 2012 to 43 192 by 2032- another 31 percent increase.

In contrast, Binga district male population of 65 710 in 2012 will grow by 79 percent to 117 789 by 2032 and its female population will grow 77 percent from 77 412 in 2012 to 136 746 by 2032.

At the Colliery’s low density suburb, originally built to house mine artisans during its boom years, the neighborhood is today largely deserted, creating scenes of a ghost town in the making.

“These are houses once occupied by respectable artisans at the mine. All that is left are empty structures and it scares us a lot. Maybe one day this neighborhood will be completely deserted,” she says.

Indeed one cannot be crucified for flirting with the idea of Hwange becoming a ghost town one day.

Behind the Colliery number 1 township lies debris from the old mine shaft that has seized to operate.

Adjacent to it, is an old railway line leading to nowhere and next to it are tens of old rail wagon wheels scattered all over the place that used to carry coal to the processing plant.

The old plant itself is a sight of death. Lifeless, almost completely covered by thick bushes at the base and visible at the top are rusting metals trusses being consumed by the teeth of time.
These are sights very much akin to what one will be greeted with when they go to places like the once vibrant Zisco Steel and its Redcliff town, Gath’s Mine in Mashava, Mhangura and Alaska- all turned ghost towns after mining activities waned.

Depressed coal prices, poor corporate management and aging equipment dragged down HCCL operations over decades and now a huge cloud of uncertainty looms large over the future of coal mining in the town.

Of course Zimbabwe is not yet ready to transition to cleaner energy for all its needs, at least in the next decade or so but nevertheless, global efforts to phase out coal are firming and the worsening climate extremes are a big cause for concern.

In 2018, the company went under judicial management to enable implementation of its turnaround strategy.

In its Half-Year 2021 financial statement, HCCL posted a net loss of ZWL 538.76 million in historical terms. The net loss is a result of ZWL 258.05 million exchange losses on foreign legacy debts and deferred tax of ZWL 441.15 million.

As part of its turnaround strategy, HCCL sees neighboring South Africa which is also Africa’s most industrialized economy as a lucrative market to export its coal.

However, hopes have been dashed by the dangling of a US$ 8.5 billion handout to South Africa from the United States, Britain, France, Germany and the European Union to finance a quicker transition from coal to renewable smart energy that will provide a model for other countries.

South Africa has already committed to commence the transition and it is now highly unlikely that it will look to Hwange for coal.

Experts say it’s a question of when will Zimbabwe’s own transition begin and what should be done to preserve such a big town like Hwange from being another ghost mining town.

“There are possibilities to do hydro power along Zambezi which is near Hwange. Here we are talking about a just transition that should not negatively affect the workers and the economy of Hwange. That should be a managed transition over years,” said Byron Zamasiya, Natural Resources Economist at the Zimbabwe Environmental Law Association (ZELA).

According to Zimbabwe’s Low Emission Strategy (LEDS) 2020-2050 it intends to cut greenhouse gas emissions by 40 percent which identifies with mitigation actions to help keep global warming under 1.5 degrees Celsius.

However, in reality its doing quite the opposite following the construction of two additional units 7 and 8 expected to be completed mid-year 2022 that will add 600MW onto the national grid to address power shortages in the country.

It remains to be seen if the country will meet its greenhouse gas reduction targets when there is a conflict between what it states as policy and the position it takes.

Recently, the Zimbabwe Electricity Supply Authority (ZESA) chair, Sydney Gata told local editors that Zimbabwe had put a proposal to buy coal power plants from European countries that have since abandoned coal production and set them up locally to generate more electricity.

However, due to global pressure to end financing of coal projects the Chinese partners lost appetite in bank-rolling it pretty much in line with President Xi Jinping announcement at the UN General Assembly last year that China “will not build new coal-fired power projects abroad.”

To attest to this promise,gold mining frim, RioZim recently revealed that its 2 800 MW Sengwa Coal Power Project had hit a brick wall after the Industrial and Commercial Bank of China (ICBC) backtracked on its commitment to finance the US$ 3 billion coal-fired power plant citing environmental problems.

Then there is also the question of what will happen to the massive coal resource.

“There is an option of investing in clean coal technology but for a country like Zimbabwe this is not sustainable as it will increase unit cost per kilowatt-hour which Zimbabwe cannot afford,” said Zamasiya.

On the ground, there are no signs of winding up on coal production within Hwange districts.

The government has however issued several Chinese companies with permits to embark on projects in the last few years, amid commitments by Chinese government to cut funding.

“These Chinese companies are not resuscitating our town; there is no development or sustainability being brought here. Once they are done mining we will be left with massive open pits,” said Mongi Sibindi a local resident.

Levels of pollution are high, he says, such that the effects of heavy dust landing on vegetation have even affected yields at a local irrigation scheme.

“At Lukosi irrigation Scheme we have been witnessing poor yields due to this pollution from the miners. The dust also affects Lukosi primary school and Lukosi hospital.”

Last year, the Hwange community petitioned another Chinese coal miner, Zimbabwe Zhongxin Coking Company (ZZCC), over the effects of pollution caused by shunting trucks carrying coke from the plant to the markets.

“Mining models that are being done nowadays are instead extractive and exploitative as they have a complete disregard about the welfare and the future of locals especially here in Hwange,” said Hwange Central Constituency legislator, Daniel Molokele.

 

263Chat

BREAKING: Minimum wages raised to ZWL$44640

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The Associated Mine Workers Union of Zimbabwe (AMWUZ) has completed salary negotiations for the first quarter today.

Highlights

  • 1) The minimum has been raised from $30500.00 to $44640.00.
  • 2) This is a 46.36% increase.
  • 3)The agreed calculation of 55% USD and 45% Rtgs remains in force.

More to follow…

Caledonia in gold price hedge

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Caledonia Mining Corporation Plc has entered into a zero-cost contract to hedge approximately 25% of 2022 target gold production at Blanket via a cap and collar hedging contract for 20,000 ounces of gold over a period of 5 months from March to July 2022.

The hedging contract has a cap of $1,940 and a collar of $1,825, meaning that, for the 4,000 ounces of gold per month for the period, Caledonia will receive an effective gold price per ounce of not less than $1,825 or greater than $1,940 and will receive an effective spot gold price between these two levels.

Commenting on the announcement, Caledonia’s Chief Executive Officer Steve Curtis said:

“Hedging gold production is not an easy decision for a gold miner as investors usually wish to maximise exposure to gold price upside. However, given the fact that our capital expenditure phasing is heavily weighted towards the first half of 2022 as we ramp up gold production, the board considered it prudent to take advantage of the current strong gold price to protect the balance sheet during this phase of higher capital investment with a five-month hedging arrangement over a portion of our production.”

Zim earns US$30m from Arcadia deal

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ZIMBABWE is set to reap about US$30 million as capital gains tax from the sale of Arcadia lithium project by Prospect Resources to a Chinese resources outfit, Zhejiang Huayou Cobalt Co (Huayou).

On December 23, 2021, Prospect announced it had executed a binding agreement with Huayou for the sale of its 87% interest in the Arcadia lithium project for approximately US$378 million.

“The transaction is also expected to complete in late first quarter or early second quarter of 2022, the company still expending on corporate expenses, likely exploration, and new projects development up until then.”

“In summary, we estimate PSC (Prospect) will have approximately A$500m after deducting expenses and tax, and including cash prior to transaction announcement (ca A$23m) and from in-the-money options we expect to be mostly exercised (A$11m).”

Subject to and following completion of the sale, Prospect said it intended to retain a cash balance of up to US$50m (A$70m), with the balance intended to be distributed to shareholders.

Key conditions precedent includes Prospect shareholder approval, Chinese regulatory approvals for Huayou, Zimbabwe government approval, and termination of existing offtake.

Given the extensive due diligence undertaken, the competitive tension, and number of parties that submitted proposals during the partnering process, Prospect expected low risk of the transaction not completing.

“We understand that the Zimbabwean government is supportive of the transaction, especially with Huayou’s demonstrable mining experience in Africa and sizeable balance sheet. The other shareholders of Arcadia, who own 13%, have also agreed to sell their interest to Huayou,” it said.

This means Huayou would pay up to US$422 million to assume full control of the operation.

The broking firm said Huayou had paid a deposit of US$20m to Prospect, which is non-refundable in certain circumstances if the transaction does not complete, including Chinese regulatory approvals not obtained.

A standard no-shop, no-talk US$20m break-fee is payable by Prospect should the sale not be concluded in certain circumstances.

 

 

NewsDay

Miners’ royalties headache

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Zimbabwe’s mining industry wants to wholly pay royalties, taxes and other levies in local currency to improve the viability of the sector amid revelations they are struggling to find takers for the local currency.

Currently, the miners are paying half of their royalties in Zimbabwe dollars, a situation which has sparked a major headache for the sector.

“It is our hope that the exporters will be given the option to pay royalties and taxes100% in local currency to enable companies to have sufficient foreign currency to meet operational and expansion needs,” the Chamber of Mines of Zimbabwe CEO, Isaac Kwesu said.

The miners are also allowed to retain 60% of their export earnings and surrender 40% to the Reserve Bank of Zimbabwe at official exchange rate, a situation the miners said was piling viability pressures on the sector expected to spur the economy. Miners say they are losing about 20% of their export revenue through exchange losses.

Miners said the amount of foreign currency they retain is no longer enough to fund working capital and want an upward review of the retention threshold.

Government is hoping that the mining sector will help revive the economy.

President Emmerson Mnangagwa’s administration has set an ambitious target  to grow revenue from the sector  to US$12bn by the end of next year.

Kwesu said the Chamber will continue to push for the decrease of the surrender requirements to ramp up production and capitalise on firming commodity prices.

The mining companies are now allowed to participate on the forex auction system to cater for the shortfall needed to fund operations.

But since that permission has been granted miners are yet to access the forex from the auction system to cater for their requirements.

At the CZI outlook symposium for 2022 held last week, the  Chamber said miners are facing a plethora of challenges that include forex shortages and a volatile environment.

“Inadequate foreign exchange allocations (to fund operational requirements and expansion projects), loss of value on the surrender portion of export proceeds due to exchange rate disparities, capital shortages, erratic and inadequate power supply, high-cost structure and infrastructure bottlenecks are some of the major challenges that the sector continues  to face,” the Chamber said.

Miners’ engagements with the monetary authorities on the matter are ongoing but the Chamber said the RBZ governor John Mangudya still sticks with his Monetary Policy Statement stance.

But the need to fund the forex auction system has pushed the monetary authorities to increase the export surrender requirement to 40% from 30% and the move has left miners short of requirements.

RBZ said maintaining the exchange auction system remains paramount in anchoring inflation and ensuring price and financial system stability.

The apex bank said it will continue refining the foreign exchange auction system taking into account fundamentals as well as closely monitoring the utilisation of funds.

The RBZ’s bid to stabilise the auction system has negatively affected the mining sector as the capital for production will be used to sustain the market.

Zimbabwe is in a serious fix over how best the authorities can deal with forex backlog, stabilise the exchange rate and address the forex challenges.

In the past weeks, the industry players have been involved in a tussle with the RBZ over the haemorrhage of local currency.

“These are the issues we have been talking about over the past five years and they remain unresolved,” Kwesu said.

The capital intensive sector requires over US$3bn to increase production but the monetary authorities are reducing the funding by increasing the surrender requirements thereby affecting the miner’s production cycle due to lack of capital.

The sector generated a record US$5.2bn in export earnings (83% of aggregate exports), compared to US$3.2bn in 2020, on the back of firming commodity prices.

Many commodity prices rose sharply reaching all-time high levels between 2020 and 2021.

In the outlook for 2022, anticipated global economic recovery is expected to be accompanied by favourable commodity prices.

 

 

Business Times

Chinese Miner Ditches Controversial Quarry Project

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Freestones Mine Private (Ltd), a Chinese mining company, has informed authorities at Civic Centre through a Notice of Cancellation, that it will not advance investment plans at Dangamvura mountain for quarrying activities.

In an unprecedented move, Freestones Mine wrote to council informing of its withdrawal from the five year lease agreement to mine for quarry – in a project which faced public condemnation, at a 6.5 hectare piece of land.

Acting Town Clerk, Blessing Chafesuka reported to the Business Investment and Economic Development Committee and head of departments that Freestone would not proceed with the lease pegged at a paltry fee of US7500 per annum.

The report state that the miner through Mushoriwa Pasi Corporate Attorneys had activated a withdrawal option in clause 10(a) of the controversial agreement, which had attracted the ire of environmental and residents groups.

“Freestones entered into a lease agreement with council on 30th of April 2021 after being awarded the tender to carry out quarry stone mining activities at stand number 13415 of Mutare Township, Mutare.

“Freestone mines took note of the resistance from different people and stakeholders who are totally against the project.

“Freestone Mines Pvt (Ltd) was awarded tender to carry out quarry mining operations for a period of five year. This followed an advert flighted o the 28th of August 2020 Daily News on Sunday, (and) on the 30th of August 2020,” reads part of the report.

Chafesuka informed the investment committee that in receipt of this notice for cancellation the municipality notified to all head of departments, council recommended the same.

Civic society organizations including the Centre for Natural Resource Governance (CNRG), United Mutare Residents and Ratepayers Trust (UMRRT) and other interest group had petitioned council and the Minister of Provincial Affairs Nokuthula Matsikenyeri to stop the deal.

Mhakwe Heritage Foundation Trust director David Mutambirwa said this reversal was justice for advocates of environment protection social justice and rights groups pressing for restoration of indegenous value to local heritage.

He said protection of indigenous heritage, species and natural capital is under threat from weak environmental regulations which they are advocating for improvement through ongoing consultations on the review of Environment Management Act.

“We recently submitted to the ministry of Environment our concerns regarding protection and preservation of biodiversity as well as the issue of urban mining activities given the recent quarry project agreed by council.

“Our submissions impress on the need to seek robust solutions that protect environmental rights, preserve our heritage as well as conserving biodiversity,” he said.

 

 

263Chat

Falling boulder kills miner

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The Zimbabwe Republic Police (ZRP) has reported a fatal mine accident that occurred at West Nicholson ‘B’ Mine.

The ZRP said on Monday, the victim aged 39 was crashed on the head by a boulder while chiselling the walls of an underground tunnel at West Nicholson ‘B’ Mine.

Reports of mine accidents in Zimbabwe has been on a decline due to the adoption of new mining technologies.

The accident came after another accident was reported at Blanket mine. Blanket has not recorded a fatal accident since 2017.

 

Nickel price hits decade high as Ukraine tensions fuel supply concerns

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Nickel rose to $25,000 a ton for the first time since 2011, extending a rally driven by dwindling global inventories and concerns that Ukraine tensions could disrupt supplies from key producer Russia.

The metal, used in stainless steel and rechargeable batteries, advanced as much as 3.2% to $25,135 a ton. It’s the top performer on the London Metal Exchange this year, climbing amid a wave of forecasts that supply will fall short of rapidly growing demand from the electric-vehicle industry.
Commodities investors were assessing the potential damage from sanctions to Russia after President Vladimir Putin recognized two separatist republics in eastern Ukraine and ordered troops sent to them. The European Union and the U.K. set out initial packages of sanctions targeting Moscow in response to Putin’s decision to recognize the breakaway regions.

Nickel is “one of the main commodities linked to Russia given their importance to supply,” said Ryan McKay, commodity strategist at TD Securities.  “So the latest events keep supply risk for the metal particularly high, especially as inventories are already at very low levels.

Nickel inventories on the LME have fallen to the lowest since 2019 with a steep backwardation — when cash prices are much higher than futures — pointing to very tight fundamentals. Stockpiles continued to fall on Tuesday.

Bloomberg