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Australian miners are having a reality check.
The same AFR carries a story re GLEN - 'Australia's biggest thermal coal producer' -rowing back on its coal volumes pledge
https://www.afr.com/companies/mining/glencore-abandons-coal-production-cap-as-another-climate-pledge-falls-
GLEN's position is made complicated by its Teck acquisition - it wants to bulk up then spin off as a discrete business - at least it's acknowledged the issue and SAYS that it's keen to prioritize coal for steel over coal for power.
From the recent Climate Action Transition Plan https://www.glencore.com/publications
...In the event the demerger does not proceed, we will assess how best to integrate the EVR [ Ed.: Teck] assets into our climate transition strategy, recognising that THE TRANSITION AWAY FROM STEEL-MAKING COAL for steel production will be slower than thermal coal, given the important role steel is expected to continue to play in supporting the construction of transportation and renewable energy infrastructure, AND THE EXPECTED LIMITED AVAILABILITY IN THE MEDIUM TERM OF ALTERNATIVE STEEL PRODUCTION TECHNOLOGIES THAT DO NOT REQUIRE COAL."
What else can BHP (to a lesser extent GLEN) realistically do ? Should they follow fads or facts ?
AFAICS
BHP's Mike Henry tries to make excuses and buy time for Chinese steel mills to convert to green steel.
This, by the most extraordinary coincidence, would also suit BHP's multi-billion dollar mountain of dirty low grade Pilbara junk which otherwise would become stranded.
Nice try, Mike.
https://www.afr.com/companies/mining/bhp-s-mike-henry-argues-chinese-steelmakers-deserve-a-break-20240324-p5fetw
Whilst we wait for the kettle to boil, I had a look at GLEN's latest thinking on emissions, as reflected in its just-released 2024-2026 Climate Action Transition Plan, see
https://www.glencore.com/publications
It's already dropped Zanaga from its Resources reporting, per last A/R. On the assumption that any change in stake in ZIOC is likely to be downwards - if not out - that exclusion will presumably continue.
In this report, it specifically excludes 'third-party' emissions caused by anything it sells to others...and it's 'too early to say' anything about the implications of what it might be producing if/when the latest Teck Resources acquisition goes through.
So , all in all, pretty much of a 'nothing-burger' , you might conclude.
The only bits of interest that I saw were (1) its differentiation between thermal and steel coal; and (2) its (implied) view of rate of take-up of 'green ore'.
The relevant bits are :
(Speaking of Teck).."When assessing the merits of the transaction, we acknowledged the important distinction between thermal coal and steelmaking coal. We concluded that while not a metal, steelmaking coal is an important transition-enabling commodity as it is an essential input into much of the world’s steelmaking in its current form. Steel is necessary for constructing transportation and infrastructure such as ocean-going vessels, rail, bridges and buildings, as well as energy transition infrastructure including wind turbines. ....
.....In the event the demerger does not proceed, we will assess how best to integrate the EVR [ Ed.: Teck] assets into our climate transition strategy, recognising that THE TRANSITION AWAY FROM STEEL-MAKING COAL for steel production will be slower than thermal coal, given the important role steel is expected to continue to play in supporting the construction of transportation and renewable energy infrastructure, AND THE EXPECTED LIMITED AVAILABILITY IN THE MEDIUM TERM OF ALTERNATIVE STEEL PRODUCTION TECHNOLOGIES THAT DO NOT REQUIRE COAL."
GLEN's view appears to be sceptical about the short-term impact of hydrogen - whether green, blue , grey or black - forcing mills to 'up their game' in the interim by looking at the other way of reducing emissions materially, DRI with high quality ore.......
On the face of it , then, no adverse implications for a ZIOC/Zanaga deal, AFAICS, if anything some cautious optimism.
GLA
Maybe the misunderstanding will cleared up one fine morning and this opens up and comes out of auction a 1000% up. It could happen..we should be soo lucky..😌
Compelling coverage spelling out the future of iron ore, yet not many PI’s can see the value of Zanaga.
Crazily misunderstood and significantly undervalued.
That’s about to change in the coming days, weeks and months ahead.
Thanks, MM, yes everything points to Zanga going ahead, it cannot be any more clear.. 🥸
And yet here we are bumping along at 7p, crazy, mad, insane, delusional, nuts, delirious, ga-ga and totally phuucked up.
It's a flood now as analysts and commentators finally starting seeing the China - Australia - DRI strategic shift. All eyes on high grade, and that'll be Zanaga any moment now.....
CHINA, DECARBONISATION PRESENT AUSTRALIA'S IRON ORE MINERS WITH COSTLY CHOICES
By Clyde Russell
March 20, 2024
While Australia's iron ore miners may be able to offset the loss of some of China's demand by selling to newer steel producers in Southeast Asia, it's likely that the overall market for iron ore will soon decline.
It's also likely to change in composition, with higher grades of iron ore preferred as these can be more easily used as a feedstock along with scrap in electric arc furnaces.
Higher grades of iron ore can also more easily be upgraded into direct reduction iron (DRI), which in turn can be turned into steel without using coal as a fuel.
Making steel using DRI produced with green hydrogen and renewable energy is one of the ways the industry is thinking of reducing carbon emissions.
Even using natural gas to make DRI can reduce emissions by up to 75%.
https://www.reuters.com/markets/commodities/china-decarbonisation-present-australias-iron-ore-miners-with-costly-choices-2024-03-20/
Abu Dhabi emerges as lynchpin of a major multilateral restructuring of the Egyptian economy, with a USD 35bn investment in a tourism project in Egypt in Ras El-Hekma, located 350km from Cairo or a two-hour drive from Alexandria. The project is an ambitious 170 million square metres city comprising mostly tourist amenities, but also a free trade and investment zone including residential and commercial real estate. Essentially another Dubai, in North Africa.
Ex Ashmore :
.."A new balance of power
The Egyptian rebalance also illustrates the fast-shifting balance of power. The big regional players are setting up a new structure for a world where the United States (US) is no longer a bastion of security for the Middle East, in our view.
Egypt is the MENA country with the largest Arab population, which brings tremendous potential, but also risks. The war in Gaza and the Civil war in Sudan made Egypt an even more important geopolitical concern.
That’s why the UAE’s support is likely, in our view, to come with strings attached in the format of structural reform to support social stability.
The fact that Egypt is being basically bailed out by the UAE is relevant. The strength of the Abraham Accords and the fact that UAE and Saudi Arabia did not severe ties with Israel, in the face of the ongoing war in Gaza is relevant. The fact that Saudi Arabia has re-established diplomatic relations with Iran is relevant.
On top of it, China trading commodities in RMB and the partnership of Russia with OPEC set up a much more complex balance of power. The large regional players are proving their independence to pursue their own strategic interests..."
The media goes on to point out that Saudi Arabia is interested in investing in tourism projects in the Red Sea. The articles mentioned Ras Gamila, at the tip of the Sinai Peninsula, 4km away from Sharm El-Sheikh airport, and the 280km stretch from Hurghada to Marsa Alam. Coincidently, both areas are opposite to the mega Neom development in Saudi Arabia."
'Build it and they will come'
GLA
It's a race for green steel as car makers look to swerve carbon taxes:
MERCEDES-BENZ INKS GREEN STEEL SUPPLY DEAL WITH NUCOR
Mercedes-Benz has signed its second deal with a major US steel producer to supply greener steel in hopes of reaching decarbonization goals by the year 2039, the German automaker announced on Wednesday March 20
“Mercedes-Benz has always been driven by a belief in tomorrow,” chief executive officer Ola Källenius said in the Mercedes release. “This pioneering spirit is key so we can play our part in climate protection and to make our business even more sustainable in all respects. We continue to strive for net carbon-neutrality by 2039, and we believe that ESG principles enable long-term value creation.”
https://www.fastmarkets.com/insights/mercedes-benz-inks-green-steel-supply-deal-with-nucor/
Ockham's razor
I'm with Jiving, FWLIW :
Saudi has the money, which China currently lacks...and the desire to spend it in pursuit of its domestic/international goals, including industrialisation and diversification (up and 'downstream').
As it spends, it reduces its exposure to the USD, replacing Treasuries with 'hard' assets that are also an inflation hedge.
It's positioning itself to continue as the last man standing on traditional fossil fuels, whilst at the same time benefitting from the 'halo effect' and greater market acceptability of its newer 'green' products.
It's also moving towards a more non-aligned position, where it can hope to avoid being drawn into an 'us or them' position. Making investments for its own (bona fide) account is both 'good business' and avoids taking sides.
It's already hedged its bets on the US Presidential election, see https://www.bbc.com/news/world-us-canada-68296877
.."Donald Trump's son-in-law and former adviser Jared Kushner has defended his business dealings with Saudi Arabia and its Crown Prince Mohammed bin Salman.
After leaving the White House, Mr Kushner's private equity firm received a $2bn (£1.59bn) investment from Saudi Arabia's sovereign wealth fund.
Mr Kushner worked closely with Saudi Arabia on a number of issues during the Trump administration."
These include the Israeli / Arab rapprochement (publicly Bahrain and UAE, believed Saudi behind the scenes) that was torpedoed by Hamas/Iran last October.
It seems likely Saudi is in pole position (see what I just did?) to make the initial equity investment in ZIOC, but surely it makes sense for it to engage closely (perhaps even as minority co-investors) with the Chinese EPC and other contractors that we believe are already 'in the frame' for Project implementation ?
As to other potential Topco investors, the UAE may still want to be involved...and also has the right 'connections' with Kushner : the New York Times reports that Kushner's investment fund also received money from the UAE.....and Qatar.
https://www.middleeasteye.net/news/jared-kushners-firm-received-hundreds-millions-uae-qatar-says-report
Let's see what the next few weeks brings!
GLA and ATB
Right on cue, here are Reuters detailing the Chinese problem....'if you can get enough of the iron ore pellets that go into the top of them. There is only a limited supply right now,'
CHINA LAGS IN EFFORTS TO ACHIEVE 2025 GREEN STEEL GOALS, ANALYSTS SAY
By Amy Lv and David Stanway
March 19, 20242:29 AM GMT Updated 14 hours ago
Boosting scrap supply, or switching to hydrogen-based direct reduced iron (DRI) as an alternative feedstock, will be critical to the success of EAF in China.
DRI is a cleaner way of turning iron ore into iron, which can then be processed into pellets that can be used in EAF.
"DRI cuts about 70-80% of the emissions but it depends if you can get enough of the iron ore pellets that go into the top of them. There is only a limited supply right now," said Chris Bataille, an expert in decarbonising "hard to abate" sectors at Columbia University.
Bataille said it was possible for China to produce three quarters of its total steel via EAF by 2050, once they have built the necessary infrastructure and the feedstock supplies.
https://www.reuters.com/markets/commodities/china-lags-efforts-achieve-2025-green-steel-goals-analysts-say-2024-03-19/
I don't think 'China' are able to set the pace of iron ore developments. in part because of the timescale that their Central Gov has set and in part because of external pressures.
CHINA PLANS SHARP INCREASE IN OVERSEAS IRON ORE OUTPUT BY 2025
Reuters | March 1, 2022
China plans to raise its equity output of iron ore in overseas mines to 220 million tonnes by 2025 as well as increase domestic raw material supplies, state-backed China Metallurgical News said on Tuesday.
China aims to “fundamentally” solve the shortage issue in steelmaking ingredients in 10-15 years, Luo Tiejun, the vice-chairman of the China Iron and Steel Association, was quoted as saying, citing what he called a “cornerstone plan”.
The plan, which the steel body said in January it had submitted to the state planner, industry ministry, natural resources ministry and environmental regulator, was designed to secure steel resources in the medium- to long-term.
It proposes raising China’s share of overseas iron ore production from 120 million tonnes in 2020 to 220 million tonnes by 2025, according to Luo.
https://www.mining.com/web/china-plans-sharp-increase-in-overseas-iron-ore-output-by-2025-state-media/
These targets for 2025 were set in 2021/22. Since then 2 huge external drivers have emerged; the drive for green steel from Net Zero and associated carbon border taxes PLUS the increased tensions over Taiwan.
> So from both internally set targets and external pressures I can only see China looking to secure overseas strategic iron ore reserves ex-Australia just as soon as possible.
Hi Mitch984,
I see your PoV : it might suit China to 'do a Tesco' (acquire a site, not for development but simply to block others), but (a) if not developed the concession might be revoked and (b) if not developed, with the lead times involved (4-6 years), it's not much use as an alternative supply, save in the (much) longer term...
AIUI
At first sight it looks like 2x 100,000 shorts have been rolled over today.
The rationale being is that the BUYS came before their paired SELLS, and at a higher rate each time.
I see that Spreadex is only handling closing trades on ZIOC, DAK whether this is across the board? Or are other providers still open?
TIA
Re the Taiwannews recent article, for a bit of context, see wher Kinmen Island is on the map
https://www.newsweek.com/american-special-forces-train-taiwan-soldiers-penghu-kinmen-china-coast-
I'm no apologist for China, but you can see that an American presence there might be considered provocative/ an escalation : Kinmen is about 6 miles from the mainland or 1/15th the distance Cuba is from the US....a factor in the Cuban missile crisis of the '60's.
GLA
First article comment, others to follow later.
The Lowry Institute article is nearly 3 years ago, reflecting the mood/position then. How has it fared ?
One of its possible scenarios - establishment of a 'single desk' buyer to better coordinate sourcing of product (think: Covid PPE panic buying)- is already in place : BaoWu now has that role.
The changing consortia around Mbalam Nabeba appear to reflect a second approach where .."The ministry envisages a China Inc-style approach to build alternative suppliers, with steel makers, resources companies, banks and transport companies all encouraged to form consortia to explore projects abroad..."
There's been a change of emphasis (more on the strategic/Taiwan-related) since then, but .." China’s complaints – about high prices, market manipulation and Australian perfidy – have been the same for about 15 years. “The Chinese don’t trust markets, especially ones they don’t control themselves,” says one mining executive with extensive China experience."
One that has stood the test of time : “China and Australia are in a kind of multi-scrotum clutch on iron ore,” he said. “They are not going to hurt us. We are not going to hurt them.”
Meanwhile, I note 4 x 100K transactions today...
GLA and ATB
Despite mentions of SA, UAE, Brazil, Japan etc etc, I've always felt Zanaga will be a China dominated project.
I have zero problem with that. My only concern is that China will move very slowly with Zanaga due to their heavy involvement with Simandou.
All good stuff chaps. I think there will be lots of conjecture till we know for certain what the plan is.
What we do know is that a growing number of companies/ countries are looking to replace their lower grade supply to a higher grade product. This falls perfectly into the Zanaga project timelines.
It’s going to be an interesting few weeks and months ahead that’s for sure.
Great post, Jiving, fully agree.
All the hints from the company around New Year were that negotiations were taking place in Saudi Arabia. Remember from ZIOCs perspective we need a strategic investor to commit to provide either side of $800m to kickstart Phase 1. The appointment of the CEO & the power MOU suggest ZIOC is serious about developing the mine itself - so we need a strategic investor whose 'price' is the lowest dilution we can negotiate. We dont actually need multiple strategic investors or a consortium - that would have been the likely structure for a buyout, not a strategic investor buying in. The Chinese EPC proposal was full of China-centric language so a Chinese strategic partner can not be ruled out, but AT's tweet & other communications clearly pointed to the Saudis.
It's worth noting that a number of potentially interested parties are currently financially weak including - the Chinese Govt; Glencore & Vale. There is nothing to stop Glencore selling down their stake (+ matching offtake) to interested parties - but that fortunately will not dilute ZIOC shareholders or indeed raise funds for us. So long 'something' is happening I really dont care what nationality the strategic investor is, and I dont see it particularly impacts ZIOC shareholders as it is likely they will be a minority investor in either the company or the mine.
At the moment, "relations and partnerships" between the Saudis and the Chinese are really good at the moment. Personally, I cannot see or believe that either of them would wish to upset each other in any way. We do know that our high grade ore is desperately needed by both countries. Therefore I believe and hope that both will soon be announced as our strategic partners in one way or another and the best possible deal for ALL concerned has already been agreed. AIMHO and as usual....alwayshoping.
You can never discount a late twist to this tale, eg double negotiating scenario, could there be a late boom take all bid by China that kills marketing rights etc. What would it take...? £8-10bn?
Seems unlikely..