MANILA CLEARS MINING PROJECT, SORT OF: Issue 23 Feb 24, 2013

By Rene Pastor

The good news is that the Philippine government finally gave an environmental clearance to Xstrata’s $5.9 billion mining project on southern Mindanao island. The bad news is that the approval is so riddled with political considerations the project will be fortunate to start operations in 2019.

The Tampakan mine project is being run by Sagittarius Mining, a unit owned by Xstrata, one of the world’s biggest and diversified mining outfits. The 9,605-hectare project is expected to produce an average haul of 375,000 metric tons of copper and 360,000 ounces of gold per year.

The company has already delayed the start of operations to 2019 because of the political cost of doing business in the Philippines and a government under Benigno Aquino III which has been notably feckless toward its position on mining.

Environment Secretary Ramon Paje was thinking along political lines when he said the clearance could be cancelled if the mining company failed to meet “certain conditions.”
The government said Sagittarius Mining, which is running the Tampakan project, “could only proceed with the implementation of the project after submitting all other necessary government permits and clearances to the EMB (Environmental Management Bureau), particularly those involving indigenous peoples, the agriculture and agrarian reform departments, and local government units.”

This raises a simple question. Why can’t all these permits be handled by a single office in the Philippine government if mining is that important to its economy?
The whole thing is bureaucratic and wasteful.
Sagittarius should be developing Tampakan mine. It should not be wasting its time chasing paper ghosts through the maze of Philippine bureaucracy.

Another useless requirement is to order the mining company “to set up a Multipartite Monitoring Team (MMT) and submit an Environmental Protection and Enhancement Program (EPEP) that would integrate a final mine rehabilitation and decommissioning plan for when the project is terminated or completed.”

Again, another redundant rule because such a panel is required under the Philippine mining law. The government said the mine should “conform to the provisions involving toxic and solid wastes of several laws on clean air and water and mining” and other provisions on waste disposal and providing communities with good water supplies.

This is redundant because the law on mining should contain the same provisions, and it goes without saying that this is already present in Philippine law. The only reasons for these provisions is really political by providing the government cover from anti-mining activists. When you throw in the fact that mid-term congressional elections are scheduled for May, then you can understand why all the hot air is being blown up by Manila for voters there.

MANILA UPS MINING CAP RATES, OTHER FEES
By Rene Pastor

The Philippine Department of Natural Resources has adopted a series of changes that sharply increased the cost of getting into the business of mining in the country.
It was also done unfairly.

Mines and Geosciences Acting Director Leo Jasareno signed an order Feb. 21 that jacked up rates for authorized and paid-up capital. The paid-up capital was increased to 6.25 million pesos ($156,250) from 2.5 million pesos ($62,500). The paid-up capital though would go up to 500 million pesos ($12.5 million) if the mining venture is approved “by the President of the Republic of the Philippines and prior to its registration with the Mines and Geosciences Bureau,” the order stated.

Fees for an exploration permit, mineral agreement or the FTAA (financial or technical assistance agreement) were also raised and would affect those thinking of investing in mining. (40 pesos = $1)

The primary reason given by the government is to weed out speculators or fly-by-night operators. President Benigno Aquino has also made it crystal clear that miners should pay more to extract minerals in the country. Maybe they should have just come out and said we want more money. ‘We believe the right to extract non-renewable resources should be set at a higher level than before.’ If they say it that way, it makes sense.

Basically, this changes the rules in the middle of the game. It is another disincentive to put money in the mining industry in the Philippines. This fuels investor criticism that rules in the Philippines are prone to change at the mercy of indecisive officials. This new set of fees applies to companies with applications already filed and pending. The normal thing to do is to grandfather these companies. As it is, these firms would feel like they were suckered in with the old rules and then the Manila government pulls a bait-and-switch.

If a car dealership does that, there will be hell to pay. In the case of this government, it is business as usual.

GRAIN VALUES SEEN SLIPPING LOWER
By Jack Scoville, The Price Futures Group

Rice futures broke support and turned trends down on Friday. Soybeans put in a reversal day on Friday and also turned trends down for at least the short term. It was not a good day for bullish traders at all.

Prices might drift lower this week due in part to the price action on Friday and due in part to the changing fundamentals.

The market where fundamentals are now changing the most is probably soybeans. The harvest down in South America is really moving along now and the soybeans should start to hit the ports in the very near future. That is why futures did not hold on Friday even though China was a big buyer again here in the U.S. Traders fear that these sales might get cancelled soon if soybean shipments start to flow.

It will take quite some time to get the backlog of ships cleared up, but that little detail might not matter much to traders or prices if traders can see that a good pace in exports is developing.

Wheat and corn moved lower because of the big storm that moved through the Hard Red Winter Wheat belt of the Great Plains last week. The precipitation did not solve the drought problem there, but the precipitation was badly needed.

More looks to be coming this week as another major winter storm moves from west to east. Another foot of snow is possible in some areas. This storm might not cure all of the drought problems, either, but it would be a major improvement from the incredible drought the region has experienced until now.

Crops in the region will start to come out of dormancy soon or are coming out of dormancy now, so the precipitation is just in time and hopefully will allow for some improved crop and production potential for the Great Plains.

That will not be known for another few weeks when the crop itself can be seen and how good it is can be determined. But most of the crop is made in the spring, so we are hoping for the best.

But why rice prices are under pressure here is a bit of a mystery. Asian prices have not been exactly heading to the moon, but they have not been going lower. In fact, Indian prices have shown some strength, and Vietnamese prices have been no worse than stable in recent weeks. Pakistan is hoping for higher prices, and Thailand stays very high priced.

Here in the west, most of the Latin American business has been covered by U.S. rice as offers from Brazil or Uruguay or Argentina have not really been seen or have not been real competitive.

Speculators keep selling the market, but domestic values inside the U.S. are fairly strong in cash markets and demand has been pretty good.

It seems that rice should be trending slightly higher here and in Asia. Stable or increased planted acreage here in the U.S. is not assured even if corn and soybeans prices work lower this week as they still provide better profits with less work.

So it seems that any price weakness in the futures is going against the grain of the cash rice market not only here but anywhere around the world.

WEEKLY GRAIN MARKET NEWS FROM THE USDA-PACIFIC NORTHWEST

There were 15 grain vessels in Columbia River ports on Thursday, February 21, with six docked compared to 16 last Thursday with five docked.

New confirmed export sales of grain for Pacific Northwest loadout during the week were limited to Japan. Japan purchased 18,840 metric tons (MT) of minimum 11.7 percent protein hard red winter wheat for March 21-April 20 shipment and 22,565 MT of minimum 14.0 percent protein dark northern spring wheat for arrival by May 31.

Outstanding U.S. white wheat export sales as of February 14, 2013 for the marketing year beginning June 1, 2012 and ending May 31, 2013, totaled 940.6 thousand MT compared to 972.3 thousand MT on February 7, 2012, and 1708.0 thousand MT one year ago.

Outstanding white wheat export sales for the 2012-2013 marketing year were to the following countries in 1000 MT: Japan 281.5, Philippines 160.0, South Korea 157.6, Thailand 50.0, Taiwan 23.1, Nigeria 19.2, Burma 3.0, Malaysia 2.5, Canada 1.5, Mexico 0.9, Hong Kong 0.8, China 0.5, Vietnam 0.5 and total unknown 239.5. Accumulated white wheat export shipments as of February 14, 2013, in 1000 MT for the 2012-2013 marketing year, totaled 3312.7 compared to 3663.4 one year ago.

PALM OIL OUTLOOK: TRADE EYES IMPROVED DEMAND FROM CHINA, SOUTH ASIA
By Jack Scoville, The Price Futures Group

Palm oil markets came back to life after the holidays and traded sideways for the week.

Palm oil futures will be one market to watch this week. Production is in a seasonal decline, and traders are hoping for demand to improve with spring holidays coming to southern Asia and as China is accepting shipments of palm oil under new quality standards.

However, bulls got some bad news when private sources reported weak exports for the month so far. And competition from South American soybean oil could increase soon. Argentina is the number one exporter of soybean oil in the world and will look to sell as long as it has big supplies.

The crop production looks strong in South America this year despite all the weather problems, so soybean oil could see some price pressure in the next few weeks.
Palm oil is not high priced, but there is a lot of it around. We look for prices for palm oil to hold, but weaker soybean oil price potential does not help the bull case right now.

INDIA EYES ANOTHER RECORD WHEAT HARVEST

India appears to be heading for a near record wheat harvest in 2013 due to strong plantings and favorable conditions in its prime wheat areas, a report by the U.S. agriculture attaché said.

India has posted five consecutive record wheat harvests, the attaché report added. The reports are compiled by agriculture experts at the U.S. embassy in the host country. They are not official U.S. Agriculture Department data but are considered authoritative by the commodity trading community.

The report forecast marketing year “2012/13 wheat production at 92 million tons from 29.8 million hectares compared to last year’s 94.9 million tons from 29.9 million hectares.”

The Indian government said its preliminary 2013 production forecast is at 92.3 million tons.

“Although 91 percent of India’s wheat crop is irrigated, winter temperatures and precipitation critically influence the yield prospects,” the report said. “Widespread scattered rains and low temperatures in January/early February in major growing areas have provided optimal growing conditions to the standing crop during emergence and early tillering.”

There have been no reports of damage from pests or disease. The weather through the harvest in April will be vital as an early rise in temperatures in March during grain filling or rains and hailstorms could impact yield and quality.

India largely produces a soft/medium hard, medium protein, white bread wheat which is somewhat similar to U.S. hard white wheat.

MALAYSIA PALM OIL COUNCIL’S TRADE STATISTICS FOR JANUARY 2013

exports

production

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