Replies to post #2378 on The Rising Influence of Rising Affluence

[DewDiligence]

Citi lowered EPS forecasts on APA, CNQ, NXY, and TLM due to higher hydrocarbon tax imposed by UK, which increased from 20% to 32%.

Apropos to #msg-61247388.

[DewDiligence]

(VALE)—Guinea Gets Creative With Resource Nationalism

[That’s my own title, of course, but I think it’s an accurate one.]

http://www.reuters.com/article/2011/04/20/guinea-vale-idUSN2021819720110420

›Wed Apr 20, 2011 6:50pm EDT

RIO DE JANEIRO/CONAKRY, April 20 (Reuters) - Brazilian mining giant Vale (VALE) said on Wednesday that Guinea has halted a railroad upgrade project there, days after the country's president said the contract was canceled.

Vale, which holds an interest in the giant Simandou iron ore deposit in Guinea's south, had offered to pay $1 billion to rebuild a 640 kilometer (398 mile) railway line connecting the interior city of Kankan to the coastal capital Conakry.

The project's cancellation could sour relations between Guinea and Vale, the world's largest iron ore producer, which is betting heavily on the African nation for iron output growth.

"The government of Guinea is asking for a revision of technical specifications to continue the revitalization of the railroad, and decided to paralyze activities until the new parameters have been defined," Vale said in a statement. [Not the best translation from Portuguese to English, LOL, but the message comes through.]

Guinea President Alpha Conde, who was elected in November, said over the weekend the agreement with Vale had been accepted out of respect for former Brazilian President Luiz Inacio Lula da Silva but would now be open to competitive bidding. [In other words, Conde is using the presidential election in Brazil as an excuse to shake down VALE for a bigger payoff.]

A mines ministry official confirmed the cancellation of the agreement but declined to provide further detail on what it signifies for Vale's operations in the country.

"We can't say anything about the cancellation of the Kankan-to-Conakry railway project because the president has already said it all," ministry official Guillaume Curtis said.

"But what I can tell you is that we are going to review all of these joint ventures that were signed at the expense of the Guinean state," he said.

Vale signed a $2.5 billion joint venture agreement with BSGR, a company run by Israeli billionaire diamond trader Beny Steinmetz, giving it a 51 percent stake in two blocks of the Simandou deposit -- the rights to which are still contested by Australian miner Rio Tinto.

Rio officials are in talks over the contested blocks.

Guinea's government is also in the process of finalising a new mining code, which Conde has said aims to give the state an interest of at least 33 percent in all of the country's mining projects -- up from an average 15 percent now.‹

[DewDiligence]

Guinea shakes down Rio Tinto for $700M:

http://www.reuters.com/article/2011/04/22/riotinto-guinea-simandou-idUSN2212655920110422

Amusing in light of the comments by Rio’s CEO in #msg-61247388.

[DewDiligence]

Stating the obvious about Venezuela:

http://www.bloomberg.com/news/2011-04-25/chavez-s-rising-oil-windfall-tax-will-have-chilling-effect-nomura-says.html

Venezuelan President Hugo Chavez’s oil-tax increase last week may curtail private investment as South America’s largest OPEC producer looks to reverse falling output, according to Nomura Securities International Inc.

May curtail?

[DewDiligence]

The federal government of Brazil strong-armed VALE into investing $1.5B in the Belo Monte Amazon dam, which VALE’s outgoing CEO had opposed as unprofitable. VALE’s own language reveals that the company doesn’t think much of the investment potential:

http://online.wsj.com/article/SB10001424052748704463804576291393990261786.html

Vale said in its statement Thursday that it expects its Belo Monte investment to be profitable by the measure of the return on the investment being higher than Vale's cost of capital.

This is probably the weakest endorsement I’ve ever heard for a $1.5B investment by any company.

[DewDiligence]

Yet another case of resource nationalism:

http://www.reuters.com/article/2011/06/16/kazakhstan-karachaganak-idUSMSC00022920110616

The consortium that owns the Karachaganak gas field in Kazakhstan has agreed to cede a 10 percent stake to the state, ending months of wrangling over its ownership… The Kazakh government will buy half of the stake at market price and secure the other 5 percent free of charge…

Italy's ENI and Britain's BG Group are the biggest shareholders in the international consortium that runs the project, with a 32.5 percent stake each. U.S. major Chevron has 20 percent and Russia's LUKOIL 15 percent.

The word cede is a euphemism for expropriation.

[DewDiligence]

Indonesia may ban all export of raw materials:

http://www.reuters.com/article/2011/09/07/indonesia-mining-tax-idUSL3E7K72BI20110907

[DewDiligence]

Guinea Seeks Increase to Mining Tariffs

http://www.reuters.com/article/2011/11/09/guinea-mining-code-idUSL6E7M95XX20111109

›Nov 9, 2011 2:21pm EST
By Saliou Samb

CONAKRY, Nov 9 (Reuters) - Guinea's government plans to change a number of tax clauses in the West African state's newly adopted mining code after discussions with companies and investors, the mines minister said on Wednesday.

The minister did not specify what changes would be made but said they were aimed at making the country more attractive and competitive in current turbulent market conditions.

The interim parliament in Guinea, the world's top bauxite exporter which has large-scale iron ore deposits, adopted a new mining code in September.

But more changes were necessary as market conditions have worsened, according to a source in the mines ministry, who asked not to be named. The source cited falling aluminium prices as an example.

Guinea is seeking political stability and investment after years of often authoritarian rule. President Alpha Conde won a presidential election late last year but he faced an assassination attempt in July.

"We are not going to cancel taxes but we are going to improve them to meet the market conditions and be competitive," Mohamed Lamine Fofana told Reuters, without giving any further details.

"As things are turbulent at the moment, we are looking to see how we can best balance things so the rates are not going to be a break on the development of our country ... We want to promote the processing of minerals," he added.

According to the newly adopted mining code, companies that process minerals in-country pay 6 percent on all imports while those that export without process must pay 8 percent.

The new code would give the Guinean state a free 15 percent of mining projects along with the option to purchase an additional 20 percent, bringing total potential share in projects to 35 percent.

Guinea has said it will also launch a nationwide review of mining contracts to root out "unconscionable provisions" granted by previous rulers [LMAO], and has toned down Chinese involvement in the resource sector.

As the world's top exporter of the aluminum ore bauxite and holder some of the best unexploited reserves of iron ore Guinea has drawn billions of dollars in planned investment from miner Rio Tinto and Vale.‹

[DewDiligence]

Chávez orders PG and Coke to cut prices again:

http://www.bloomberg.com/news/2012-02-09/chavez-announces-first-price-cap-on-procter-gamble-product.html

It’s well past the time for these consumer-products companies to pack up and leave, IMO.

Perhaps there’s enough potential upside in Orinoco heavy-oil for such companies as CVX to tough it out hoping for an eventual regime change. But the upside for companies making deodorants and soft drinks would not seem to be worth it.

[DewDiligence]

VALE and other Brazilian miners oppose new state (as opposed to federal) taxes on natural resources:

http://online.wsj.com/article/SB10001424052702303404704577307672524375822.html

Brazil's major mining associations, representing 90% of the largest mining companies in the country, will take legal action to try to block new taxes on production imposed by Para, Minas Gerais and Amapa states [the three most important mining states in Brazil].

…Mining companies view the new taxes, which are to take effect April 1, as unconstitutional

…Brazil's federal government is preparing to double its own royalty taxes on output of key minerals including iron ore and gold, which will affect large mining companies such as Vale SA, Anglo American PLC, Anglo Gold Ashanti and BHP Billiton PLC.

… Tito Martins, chief financial officer of Vale, which has a strong presence in Minas Gerais and Para [the location of the massive Carajas mine]…noted that previous attempts to introduce such charges had been proven unconstitutional.

[DewDiligence]

Spain Threatens Retaliation for Argentina’s YPF Seizure

http://www.reuters.com/article/2012/04/18/us-spain-argentina-ypf-eu-idUSBRE83G0QU20120418

›Apr 17, 2012 9:19pm EDT
By Tracy Rucinski and Julien Toyer

MADRID (Reuters) - An incensed Spain threatened swift economic retaliation against Argentina on Tuesday after it unveiled plans to seize YPF, the South American nation's biggest oil company which is controlled by Spanish energy group Repsol.

Madrid called in Argentina's ambassador over the nationalization order on Monday by Argentina's combative president, Cristina Fernandez, a move that sent Repsol shares tumbling but delighted many ordinary Argentines.

"I must express my profound unease. It's a negative decision for everyone," Spanish Prime Minister Mariano Rajoy said.

Speaking at a World Economic Forum meeting in Mexico, he said the Spanish-controlled company was being expropriated "without any justification."

Spanish Industry Minister Jose Manuel Soria promised "consequences" in the coming days. "They will be in the diplomatic field, the industrial field, and on energy," he said.

Spain is due to consider its next steps at a cabinet meeting on Friday. But it appeared to have limited leverage over Argentina, which has proven impervious to pressure in the past.

Repsol said YPF was worth $18 billion as a whole, and that it would seek compensation on that basis. As of Tuesday's market close, YPF's market capitalization was $10.4 billion, according to Reuters data.

Argentina's Deputy Economy Minister Axel Kicillof said Buenos Aires would not agree to Repsol's valuation [duh—when does a nationalization ever result in fair value being paid?]. "We're not going to pay what they say," he told the Senate committee kicking off a debate over the expropriation bill.

"We need YPF's objectives to match Argentina's objectives ... The state is the solution," Kicillof said.

He said that securing control of YPF was central to Fernandez fulfilling her reelection campaign promise of "deepening the model" for her state-centric policies.

A surging fuel import bill has pushed production to the top of Fernandez's agenda at a time of worsening state finances in Latin America's No. 3 economy.

Repsol, whose shares fell 7.5 percent in Madrid on Tuesday, said the takeover was unjustified and vowed to defend its interests.

"This battle is not over," company Chairman Antonio Brufau said. "The expropriation is nothing more than a way of covering over the social and economic crisis facing Argentina right now."

Late on Tuesday, Moody's Investors Service said it was downgrading YPF and keeping the company's ratings on review [LOL].

European Commission President Jose Manuel Barroso urged Argentina to uphold international agreements on business protection with Spain. "I am seriously disappointed about yesterday's announcement," he said in Brussels.

British Foreign Secretary William Hague added to the chorus of condemnation, saying: "This goes against all the commitments Argentina has made in the G20 to promote transparency and reduce protectionism."

Argentina and Britain have been locked in a diplomatic battle over oil exploration in the Falkland Islands for months.

RESOURCE NATIONALISM

Spanish media slammed the expropriation, believed to be biggest nationalization in the natural resources field since the seizure of Russia's Yukos oil company a decade ago.

La Razon newspaper carried a photograph of Fernandez on its front page in a pool of oil with the headline: "Kirchner's Dirty War", a reference to her full name.

El Periodico spoke of "The New Evita", noting Fernandez announced the nationalization in a room dominated by a large sculptured image of Eva Peron, the first lady of Argentina from 1946-1952 who is revered by many Argentines as a champion of the poor.

Repsol's Brufau said he suspected nationalization of YPF was imminent when he tried to contact Fernandez last Friday and was told that the president "was angry" and did not want to speak.

YPF has been under pressure from Fernandez's center-left government to boost oil production, and its share price has plunged in recent months on speculation about a state takeover.

Spanish investment in Argentina may now be at risk after the move on YPF. In the "reconquista", or reconquest, of the 1990s, newly privatized Spanish businesses bought Latin American banks, telephone companies and utilities. "Reconquista" refers to the Spanish conquest of the region 500 years earlier.

Foreign investors are key to helping develop one of the world's largest reserves of shale oil and gas recently discovered in the Vaca Muerta area of Argentina [#msg-71883654].

Investors have pushed up the cost of protecting themselves against the risk of Argentina defaulting on its debt. Since February, Argentine credit default swaps have cost more than those of Venezuela, whose credit is also considered risky.

Argentine bond spreads widened to almost three times the average of the JPMorgan Emerging Markets Bond Index Plus (EMBI+), showing a decline in confidence.

ACE UP ITS SLEEVE?

Some analysts questioned whether Argentina might have an ace up its sleeve in the form of a new partner such as China Petrochemical Corp (Sinopec Group).

A Chinese website said Sinopec was in talks with Repsol to buy YPF for more than $15 billion, although other sources said the nationalization move would probably get in the way of such a deal. Sinopec dismissed the report as a rumor.

Fernandez said on Monday the government would ask Congress, which she controls, to approve a bill to expropriate a controlling 51 percent stake in YPF by seizing shares held exclusively by Repsol, saying energy was a "vital resource".

Fernandez, who still wears the black of mourning 18 months after the death of her husband and predecessor as president Nestor Kirchner, stunned investors in 2008 when she nationalized private pension funds. She has also renationalized the country's flagship airline, Aerolineas Argentinas.

Such measures are popular with ordinary Argentines, many of whom blame free-market policies such as the privatizations of the 1990s for the economic crisis and debt default of 2001/02.‹

[DewDiligence]

VALE is “reevaluating” its potash project in Argentina in light of the recent YPF expropriation; the project previously run-ins with the local government, but now it’s hard to see why VALE would want to go forward under any circumstances:

http://www.reuters.com/article/2012/04/26/vale-idUSL2E8FQ4JU20120426

[CEO Murillo] Ferreira said Vale is also "reevaluating its Rio Colorado project in Argentina over inflation fears and political risks."

The concession for the $4.6 billion Rio Colorado potash project was suspended in the middle of 2011 when the provincial government of Mendoza accused Vale of failing to comply with local labor laws.

[DewDiligence]

More resource nationalism (by Brazil)? You be the judge:

http://in.reuters.com/article/2012/06/27/mining-brazil-regulation-idINL2E8HRF6T20120627

[DewDiligence]

Resource nationalism—Nigeria boosts government take of oil projects from 61% to 73% (with certain adjustments):

http://www.businessweek.com/news/2012-09-27/nigeria-to-increase-share-of-offshore-oil-profits-minister-says

[DewDiligence]

Resource Nationalism: ‘TGDT’ Investors’ Gotcha

Please see #msg-61247388 and the (ample) Reply chain stemming from that post.

The message you’re reading right now is intended to be a companion sticky to counter the somewhat bullish bias of #msg-51490876.

[DewDiligence]

FCX becomes latest victim of resource nationalism:

https://www.wsj.com/articles/reversal-in-indonesia-slams-freeport-an-investor-favorite-last-year-1524826800