Archive for the ‘copper’ Category


Building Boom in China Stirs Fears of Debt OverloadJuly 6, 2011

WUHAN, China — In the seven years it will take New York City to build a two-mile leg of its long-awaited Second Avenue subway line, this city of nine million people in central China plans to complete an entirely new subway system, with nearly 140 miles of track.
And the Wuhan Metro is only one piece of a $120 billion municipal master plan that includes two new airport terminals, a new financial district, a cultural district and a riverfront promenade with an office tower half again as high as the Empire State Building.
The construction frenzy cloaks Wuhan, China’s ninth-largest city, in a continual dust cloud, despite fleets of water trucks constantly spraying the streets. No wonder the local Communist party secretary, recently promoted from mayor, is known as “Mr. Digging Around the City.”
The plans for Wuhan, a provincial capital about 425 miles west of Shanghai, might seem extravagant. But they are not unusual. Dozens of other Chinese cities are racing to complete infrastructure projects just as expensive and ambitious, or more so, as they play their roles in this nation’s celebrated economic miracle.
In the last few years, cities’ efforts have helped government infrastructure and real estate spending surpass foreign trade as the biggest contributor to China’s growth. Subways and skyscrapers, in other words, are replacing exports of furniture and iPhones as the symbols of this nation’s prowess.
But there are growing signs that China’s long-running economic boom could be undermined by these building binges, which are financed through heavy borrowing by local governments and clever accounting that masks the true size of the debt.
The danger, experts say, is that China’s municipal governments could already be sitting on huge mountains of hidden debt — a lurking liability that threatens to stunt the nation’s economic growth for years or even decades to come. Just last week China’s national auditor, who reports to the cabinet, warned of the perils of local government borrowing. And on Tuesday the Beijing office of Moody’s Investors Service issued a report saying the national auditor might have understated Chinese banks’ actual risks from loans to local governments.
Because Chinese growth has been one of the few steady engines in the global economy in recent years, any significant slowdown in this country would have international repercussions.
As municipal projects play out across China, spending on so-called fixed-asset investment — a crucial measure of building that is heavily weighted toward government and real estate projects — is now equal to nearly 70 percent of the nation’s gross domestic product. It is a ratio that no other large nation has approached in modern times.
Even Japan, at the peak of its building boom in the 1980s, reached only about 35 percent, and the figure has hovered around 20 percent for decades in the United States.
China’s high number helps explain its meteoric material rise. But it could also signal a dangerous dependence on government infrastructure spending.

“If China’s good at anything, it’s infrastructure,” said Pieter P. Bottelier, a China expert at the Johns Hopkins School of Advanced International Studies in Washington. “But right now it seems the investment rate is too high. How much of that is ill-advised and future nonperforming loans, no one knows.”
For the last decade, as economists have sought to explain China’s rise, a popular image has emerged of Beijing technocrats continually and cannily fine-tuning the nation’s communist-capitalist hybrid. But in fact, city governments often work at odds with Beijing’s aims. And some of Beijing’s own goals and policies can be contradictory.
As a result, China’s state capitalism is much messier, and the economy more vulnerable, than it might look to the outside world.
In the case of Wuhan, a close look at its finances reveals that the city has borrowed tens of billions of dollars from state-run banks. But the loans seldom go directly to the local government. Instead, the borrowing is done by special investment corporations set up by the city — business entities whose debt shows up nowhere on Wuhan’s official financial balance sheet.
Adding to the risk, the collateral for many loans is local land valued at lofty prices that could collapse if China’s real estate bubble burst. Wuhan’s land prices have tripled in the last decade.
The biggest of the separate investment companies set up by the municipal government here is an entity known as Wuhan Urban Construction Investment and Development, created to help finance billions of dollars’ worth of projects, including roadways, bridges and sewage treatment plants.
According to city records, Wuhan U.C.I.D. has 16,000 employees, 25 subsidiaries and $15 billion in assets — including the possibly inflated value of the land itself. But it owes nearly as much, about $14 billion.
“U.C.I.D. is heavily in debt,” a company spokesman, Sun Zhengrong, conceded in an interview. “This may lead to potential problems. So we are trying to make some adjustments.” He declined to elaborate, saying the state company’s finances were “our core secret.”
Dozens of other cities are following a similarly risky script: creating off balance-sheet corporations that are going deeply into debt for showpiece projects, new subway systems, high-speed rail lines and extravagant government office complexes. And they are doing it despite efforts by the central government in Beijing to rein in the excess.
To limit the cities’ debt, Beijing has long prohibited municipalities from issuing bonds to finance government projects — as American cities do as a matter of course. Lately, too, China’s central government has put tighter limits on state-owned banks’ lending to municipalities. But by using off-the-books investment companies, cities have largely eluded Beijing’s rules.
Zhang Dong, a municipal government adviser who also teaches finance at the Zhongnan University of Economics and Law in Wuhan, estimates that less than 5 percent of the city’s infrastructure spending comes from Wuhan’s general budget. “Most of it comes from off-the-books financing,” he said.
This system is not a secret from Beijing, which now says there are more than 10,000 of these local government financing entities in China. In fact, because Beijing now takes a large share of government tax revenue, local governments have had to find their own way to grow, and land development is primarily how they have done it.
But it is a risky game. A recent report by the investment bank UBS predicted that local government investment corporations could generate up to $460 billion in loan defaults over the next few years. As a percentage of China’s G.D.P., that would be far bigger than the $700 billion troubled-asset bailout program in the United States.
As frightening as that may sound, many analysts see no reason for panic — no imminent threat of an economy-collapsing banking crisis in China. That is largely because of Beijing’s $3 trillion war chest of foreign exchange reserves (much of it invested in United States Treasury bonds), and the fact that China’s state-run banks are also sitting on huge piles of household savings from the nation’s 1.3 billion citizens.
Because all that cash is protected by government restrictions on money flowing in and out of the country, a global run on China’s banks would be unlikely.
The real problem, analysts say, is that municipal government debt in China has begun casting a large shadow over the nation’s growth picture. If instead of investing in growth, China had to start spending money to gird the banks against municipal defaults, some experts see a possibility of China eventually lapsing into a long period of Japan-like stagnation.
A Recession Peril
Kenneth S. Rogoff, a Harvard economics professor and co-author of “This Time Is Different: Eight Centuries of Financial Folly,” has studied China’s boom. He predicts that within a decade China’s lofty property bubble and its mounting debts could cause a regional recession in Asia and stifle growth in the rest of the world.
“With China, you have the ultimate ‘this time is different’ syndrome,” Professor Rogoff said. “Economists say they have huge reserves, they have savings, they’re hard-working people. It’s naïve. You can’t beat the odds forever.”
By Beijing’s estimate, total local government debt amounted to $2.2 trillion last year — a staggering figure, equal to one-third of the nation’s gross domestic product. A wave of municipal defaults could become a huge liability for the central government, which is sitting on about $2 trillion in debt of its own.
And Beijing’s estimate of what the cities owe might be too low, in the view of Victor Shih, a professor of political economy at Northwestern University who has studied China’s municipal debt. He says that by now, after even more borrowing in early 2011 and some figures hidden from government audits, total municipal debt in China could be closer to $3 trillion.
“Most of the government entities that borrow can’t even make the interest payments on the loans,” Professor Shih said.
Around the clock, seven days a week, the construction crews burrow to build Wuhan’s $45 billion subway system. One segment snakes beneath the mighty Yangtze River.
“For most areas we dig down 18 to 26 meters,” said Lin Wenshu, one of the planning directors of the Wuhan Metro. “But for part of this line we’ve had to go down 50 meters because there’s high pressure and a lot of mud from the river,” he said. “But the citizens want a subway system, and so we’re going to build it as fast as possible.”
In all, city officials say there are more than 5,700 construction projects under way in Wuhan. In some neighborhoods, workers demolish old homes with little more than sledgehammers and their bare hands to make way for shopping malls, high-rise apartment complexes and new expressways.
Having seen Beijing, Shanghai and other coastal metropolises thrive on big infrastructure projects, cities thousands of miles inland, like Wuhan, are trying to do likewise. Wuhan wants to become a manufacturing and transportation hub for the heartland — China’s version of Chicago.
But it is a dream built on debt. This year, relying largely on bank loans, Wuhan plans to spend about $22 billion on infrastructure projects, an amount five times as large as the city’s tax revenue last year. And aspirations notwithstanding, Wuhan is still relatively poor. Residents here earn about $3,000 a year, only about two-thirds as much as those in Shanghai.
But Wuhan has made the most of the soaring value of its land. In the northwest part of the city, for example, bulldozers have cleared a huge tract more than twice the size of Central Park. A dozen years ago it was a military air base.
Giant billboards advertise a new purpose: future home of the Wangjiadun Central Business District, featuring office towers and luxury apartments for 200,000 people. That assumes, of course, that financing for the project — a web of loans and deals based largely on the underlying value of the land — holds up.
Planning began in 1999, when the city decided to relocate the air base. After the city ran short of cash for the project, in 2002, it turned to a deep-pocketed Beijing developer, the Oceanwide Corporation. Oceanwide agreed to chip in $275 million and pay some of the infrastructure costs in exchange for a prime piece of the land.
Since then, the city has sold large plots of the former air base to other developers, while earmarking yet other parcels for future sale to help pay for the new business district.
There is no question that China needs new infrastructure and transportation networks if it is to meet its goal of transforming most of its huge population into city dwellers. Less certain is whether the country can afford to keep building at this pace, and whether many of these projects will ever pay off in terms of the economic development they are meant to support.
Beijing helped ratchet up the municipal building boom in early 2009, when in response to the global recession, it pressed local governments to think big and announced a huge economic stimulus package. That unleashed a wave of government-backed bank lending.
“What we’re seeing was not very common before 2008,” said Fu Zhihua, a research fellow at the Research Institute for Fiscal Science. “Now, all cities are rushing headlong into this.”
And now, try as it might, Beijing seems unable to stop the stampede.
Part of the problem may be incentives in China’s Politburo-driven economic system. Simply put, municipal officials in China keep their jobs and earn promotions on the basis of short-term economic growth.
“The fact is, local governments in China compete to grow G.D.P. in order to get promoted as government officials,” said Zeng Kanghua, who teaches finance at the Central University of Finance and Economics in Beijing.
Ruan Chengfa, Wuhan’s 54-year-old local Communist party secretary, who was promoted earlier this year from mayor, has certainly benefited politically from his “Mr. Digging” reputation.
He declined to be interviewed for this article. But in a speech in February, he said, “If we want Wuhan to have leapfrog development and enhance people’s happiness, then we must build subways and bridges.”
Pressure From Beijing
Wuhan is starting to show symptoms of financial stress.
Despite selling about $25 billion worth of land over the last five years, according to Real Capital Analytics, a research firm based in New York, Wuhan is struggling to pay for its projects. City officials have announced a big increase in bridge tolls. Under pressure from Beijing to reduce Wuhan’s debt, they have promised to pay back $2.3 billion to state-backed creditors this year.
Whether the city would do this by borrowing more money or selling land or assets is unclear. But rolling over old debts with new borrowing is not uncommon among Chinese cities. In 2009, for instance, Wuhan’s big investment company, Wuhan U.C.I.D., borrowed $230 million from investors and then used nearly a third of the money to repay some of its bank loans.
Mainly, Wuhan’s leaders are counting on property prices to continue defying gravity, even if some analysts predict a coming crash.
In a report this year, the investment bank Credit Suisse identified Wuhan as one of China’s “top 10 cities to avoid,” saying its housing stock was so huge that it would take eight years to sell the residences already completed — never mind the hundreds of thousands now under construction.
But criticism has not deterred Mr. Ruan, the local party secretary, who has vowed to keep his foot on the shovel. “If we don’t speed up construction,” he said in the speech in February, “many of Wuhan’s problems won’t be solved.”

Xu Yan contributed research.

China’s Cities Digging Up Mountains of Debt – NYTimes.com

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It is hard to be anything but bullish on copper prices over the long term – GFMS

China stocked, and then de-stocked, copper last year and while there remain downside risks to the price of the metal in the near term, GFMS says, given the fundamentals the long term remains bullish

Author: Rhona O’Connell
Posted:  Thursday , 07 Apr 2011


LONDON – 
There is a possibility of the emergence of negative news for copper consumption in the near future (linked to European sovereign debt, yet more trouble in the Middle east, further tightening of Chinese monetary policy or a series of lower than expected economic indicators for key mature markets), which could produce a significant correction in the price (currently at $9,500/t).  This, though, would generate a floor for prices, which should remain comfortably above $8,000/t.  Copper prices should subsequently resume an upward path, reaching new all-time highs approaching $11,000/t.
This is one of the key conclusions from the recently-published GFMS “Copper Survey 2011”.  The research house is expecting copper production to accelerate this year in line with higher prices, but does not believe that it will be able to keep pace with demand, thus keeping the market in deficit at least through to the end of 2011.  The Survey records a residual market deficit of just over 300,000 tonnes in 2010 (just less than one week’s refined consumption).  This comprised a gross deficit of 206,000 tonnes, a fall in reported stocks of 60,000 tonnes and an increase in “unreported” stocks of 176,000 tonnes.
The increase in these unreported stocks was concentrated primarily in China and South Korea and follows a 750,000 tonne increase in unreported stocks in 2009.  GFMS notes that the majority of the stock increase in China took place in the first months of last year, when there were arbitrage opportunities between local and international prices.  GFMS information suggests that there was destocking later in the year, especially in the last quarter; some of this was the mobilisation of physical investor positions, while much of the balance came from fabricators using inventory.  Some mobilisation is likely to have come about as a result of tightening credit and the need to generate cash.  Physical premia thus fell in China towards the end of the year, although the tightness in the market elsewhere in the world meant that international copper prices continued to rise, while local Chinese prices moved to a discount to the LME.
Global consumption increased by 11% or just under 2M tonnes over 2009 to 19.4M tonnes.  Almost 600,000 tonnes of this growth came from the mature economies, while the BRIC nations contributed a gain of 1.1M tonnes, much of which, of course, was in China.  The year 2009 was one of depressed demand in the mature economies, however and demand in these nations in 2010 did not regain the levels of any of the years 2006-2008 falling short of 2008 demand by more than 700,000 tonnes.  The rapid growth in demand in the BRIC nations, and the fact that 2009 demand in the Asian Tigers was barely below that of 2008, meant that the global fall in demand in 2009 was relatively shallow; global demand in 2010 was 4.2M tonnes higher than in 2000, an annual average growth rate of 2.5%.
Total reported inventories of copper stood at end-2010 at 1.28M tonnes, a fall of 160,000 tonnes or 11% from 2009, but substantially higher than the average level over 2004-2008.  The bulk of these stocks, which equated to just less than 3-1/2 weeks’ global refined demand, were in the hands of producers and the Exchanges.
The Survey, which goes into immense detail of the copper industry all across the supply and demand chains, identifies electrical and electronic products as the largest consumer of copper, with 38% market share last year, ahead of a 31% share for building construction.  Transport, and Consumer & General Products took up 11% each, with the balance in Industrial Machinery & Equipment.  The Survey comments that the general improvement in demand was encouraging given the economic uncertainties that continued to cloud the market.  Among mature economies as a whole, the construction sector was the only area that failed to register a double-digit rebound last year; these improvements in the other sectors reflected continued government stimuli in some areas, the release of pent-up demand and strengthening export demand, although overall offtake in these sectors in the mature economies remained below historical peak levels.
The continued improvements in the BRIC nations meant that their market share increased to more than 45% of total last year, compared with only 16% in 1990.  GFMS expects this trend to continue in the years to come, reflecting the continued shift of copper-product manufacturing towards China and other developing economies.  China accounted for 37% of global copper demand in 2010, reflecting the nation’s rapid economic growth, much of which revolved around copper-intensive end-uses.  Copper consumption in the mature economies, by contrast, has been falling at an annual rate of more than 3% over the past decade, reflecting the fact that infrastructure and urbanisation processes are now largely complete in these economies, along with the shift in the manufacturing sector towards low-cost areas.  This has been exacerbated by miniaturisation and technological advances that have impeded copper consumption in the mature economies.  Copper’s intensity of use, for example (expressed as tonnes of copper consumption per million dollars of GDP), has grown from 0.41 in 1990 in China to 0.79 last year; while in Brazil it has also doubled from 0.12 to 0.23.  In the United States it more than halved from 0.27 to 0.13.
GFMS takes a generally positive short and medium-term view for the metal’s fundamentals, with the rebound in demand expected to continue for much of the year.  Primary producers are responding to higher prices; secondary production was up by 19% last year and continues to increase this year.  GFMS believes though that much of the improvement in the market’s fundamentals have been discounted by prior investor activity and this, along with a speculative overhang, does mean that there are near-term downside risks to the price.  For the longer term, however, “it is hard to be anything but bullish for copper prices”.

GFMS bullish on copper – MINEWEB

The MasterMetals Blog


DRC: Independent Audit Of First Quantum Mining Firm To Be Launched

The Democratic Republic of Congo plans to audit the operations of First Quantum Minerals Ltd. in the country to examine “suspected wide-scale misconduct,” Bloomberg reported Aug. 31, citing Mines Minister Martin Kabwelulu. A body engaged in financial auditing will carry out the investigation, which will look into allegations that First Quantum illegally exported copper ore without fully declaring it.

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Underground Dreams: Beer, Hugs and Weddings

By MATTHEW MOFFETT


SAN JOSÉ MINE, Chile—Claudio Yáñez wants beer and a hot dog. Esteban Rojas wants to finally have a real church wedding with his wife of 25 years. Raúl Bustos wants to hug his five-year-old daughter.



For Chileans, these men and their colleagues are known simply as “Los 33″—the 33 miners who have been trapped half a mile below ground since the Aug. 5 collapse of the San José mine. The men have captured the attention of the world by surviving longer underground than all but a handful of mine accident victims.

The Miracle of the San Jose Mine

Zuma Press


Ranging in age from 19 to 63, they include a former professional soccer player, a Bolivian immigrant in his first week at the mine, a salty former seaman who had premonitions about an accident and a man in his 50s who is still waiting to see the grandson born just before the cave-in occurred.

What Chileans are calling the “Miracle of the San José Mine” is the tale of how unthinkable adversity turned this motley collection of miners into a doggedly disciplined unit, how a recently elected billionaire president risked his reputation in spearheading their rescue and how family members never lost hope.

The story isn’t by any means over. It will take three to four months for a 30-ton drill to gouge a 2,200-foot tunnel down to the chamber where the men are holed up. The plan is to hoist the men out one-by-one, a journey that could take about 40 minutes for each miner.

Footage released showing trapped Chilean miners in good spirits, as they come to terms with their months long wait to be freed.
In the meantime, rescuers send food, water and letters to the miners in tubes that whoosh down the four-inch shaft that serves as the miners’ umbilical cord. Doctors are gradually ratcheting up the caloric intake of the men who each lost an average 20 pounds on rations, according to health workers. On Thursday the miners got their closest thing to a full meal in weeks: stewed apples and bread with quince jelly.

In a video released Thursday, the men—shirtless, scrawny, with scraggly beards, but big smiles—showed the world their temporary home. “This is the famous shelter,” said one of the men. They pointed to a makeshift “casino,” where they played dominoes, and demonstrated how they had divided tasks needed to keep the refuge running. One miner was keeping a journal on all that had happened. “Get us out of here soon,” said another, in the spectral lantern-light of the mine.

The men can walk a distance through some unblocked tunnels, but spend most of their time in a couple of shelters that are relatively well ventilated and protected from cave-ins.

Physiologically and psychologically, the miners have entered seldom-explored territory, says Jeff Dyche, a James Madison University psychologist, who studied submariners when he served in the U.S. Navy.

Without sunlight serving as a regulator, the human body clock runs about 24 and a half hours, Mr. Dyche says, which means the miners are “going to be completely disengaged from what time it is in the outside world.” To make sure the miners are alert on the day of the rescue, he says, doctors will have to try and re-sync the men’s body rhythms by putting them on the same sleeping and waking schedule as people above ground.

Rescue planners at the state copper company, Corporacion Nacional del Cobre, have been discussing whether it would be necessary to blindfold the miners during the extraction or or conduct the operation at night, so they aren’t overwhelmed by the light when they come out.

More immediately, government rescuers are grappling with the question of how much control to place on the miners’ communication with loved ones. Earlier this week, family members said government psychologists had asked to review the letters they send down to the miners to make sure they avoided potentially upsetting issues, such as the fact the men may not be getting out of the ground until Christmas. Luciano Reygada, whose father is in the mine, said a psychologist told him, “Don’t say that we hope you come out soon. Just say that we’ll be waiting for you when you come out.” Rescuers have since said they gently told the 33 of their estimated time of departure, and the miners seemed to take it in stride.


Sergio Donoso, the uncle of Raúl Bustos, feels responsible for his nephew’s predicament. Six months ago, after one of the biggest earthquakes in a century along with a roiling tsunami smashed the southern shipyard where Mr. Bustos worked, Mr. Donoso suggested he travel north, to the mines. “He was worried about future catastrophes, so I told him there were stable jobs in mining,” said Mr. Donoso, who has been keeping vigil above the mine.

Miners trapped underground for three weeks in Chile are offered unusual help from the space agency NASA as they prepare to endure further weeks below ground. Video Courtesy of Reuters.

Mr. Bustos’ mother, Rosa Ibañez, came to the mine right away from her home in far-off southern Chile. It was the first time she’d flown on a plane. In Mr. Bustos’ first letter to his family this week, he said that he’d come up with a nickname for the diamond-tipped drill that rescuers had used to locate the men’s underground shelter: He called it “María Paz,” in honor of his five-year-old daughter, who relatives say is a handful.

Gregory Belenky, director of the Sleep and Performance Research Center at Washington State University, says the Israeli military found during the 1973 Yom Kippur war that the wrong kind of communication with family could add to stress. But Mr. Belenky, who served 29 years in the U.S. Army working on combat stress and other issues, thinks he would level with the miners about the rescue strategy “so they can plan, adjust expectations and so everyone is on the same page.”



The plight of the 33 men has been an eye opener for many Chileans. One of Latin America’s most advanced economies, Chile has been a darling on Wall Street for its free-market ethos. Its capital, Santiago, is clean and modern, with a scaled-down version of the Chrysler Building. But despite the emergence of other industries, including finance and construction, mining remains the bedrock of the economy, accounting for the biggest share of exports and output. The accident and rescue have allowed Chileans to get acquainted with people who are responsible for much of the country’s prosperity, but remain largely hidden from view due to the very nature of their work.


When the miners broke out into a ragged chorus of the national anthem after the first telephone contact was made with them on Monday, it was as “as though we couldn’t believe that some countrymen are still that way, of that caliber and that timber,” wrote Daniel Mansuy, a professor of political philosophy, in the Santiago newspaper La Tercera. Family members holding vigil above the mine said it more simply on a message emblazoned in marker on a Chilean flag: “Chile without miners isn’t Chile.”


The miners had no way of knowing what was in store for them when they showed up for their shift that fateful Thursday, Aug. 5. Like many of the miners, Mr. Yañez, who had worked eight months in the mine after leaving a low-paying construction job, “was just desperate for a paycheck” says his half-brother Pablo Lagos.


Twenty-four-year-old Bolivian Carlos Mamani, who emigrated to Chile to find work, was only in his first week at the mine, his brother Cesar Mamani told Chilean television.
While Chile on the whole has a good mining safety record, smaller to mid-sized mines like San José often escaped scrutiny by the understaffed mine regulator, according to unions and workplace-safety experts. After the accident, Chile President Sebastián Piñera cleaned house at the regulatory agency and announced the government would take a tougher line in the future.

The 121-year-old mine, operated by Chile’s Compañia Minera San Esteban Primera, had been shut down for about a year by regulators in 2007 after an explosion killed a miner. Mario Gomez, a former sailor who at 63 is the oldest of the trapped San José miners, had a nephew who lost a leg in an accident at the mine several years before that. Mr. Gomez’s wife, Lilian Ramirez, said her husband told her he was afraid of going to work not long before the collapse.


The collapse occurred at around at around 2 p.m., sending up a massive dust cloud. “We felt like the mountain was coming down on top of us and without knowing what was happening,” Luis Urzua, one of the leaders of the trapped men, would later say in a phone hookup with Mr. Piñera. “Then came the dust cloud, like four or five hours in which we couldn’t see anything.” The men lost a chance to escape through a ventilation duct in the first days of the crisis because mine managers hadn’t installed an emergency ladder, as required by law, Chile’s mining minister, Laurence Golborne said.
Firemen weren’t alerted of the accident by the mine managers until about six hours after it had occurred. The delay in reporting the collapse is part of a wide-ranging investigation into the mine by regulators and Chile’s Congress. Minera San Esteban Primera’s owners have said they tried to run a safe operation. They didn’t respond to requests for comment for this story.
The day after the cave-in, civil defense officials had mustered a 40-man rescue crew to go in after the missing miners. But the mission nearly wrought another tragedy, as the rescuers confronted a cascade of falling rock and buckling walls. “Rocks, dust, darkness, heat,” said fire captain Rafael Gonzalez Perez. “It was impossible.”
The mine collapse presented a challenge for President Piñera, a billionaire airline and television mogul, who took office in March. Chile’s first conservative president in two decades, Mr. Piñera has promised to run Chile as efficiently as he had his businesses. In a gamble that might have backfired if the rescue had failed, he cut short a trip to Colombia to go to the mine and has made three follow-up trips since. “It was a big bet but also a very important one at the core of his political message” of competence, said political scientist Patricio Navia.
Unable to send in rescuers to fetch the miners, the government shifted to Plan B: Drilling down from the surface after the trapped men.
But after a couple of days, the effort was looking like a geological shot in the dark. Engineers were finding the maps of mine weren’t accurate. “The situation is very complex,” President Piñera said at the time. “The mine continues collapsing. It has a geologic fault. The mine is alive and that enormously obstructs rescue work.”

Families at the site started hunkering down for a long haul, putting up tents or crude lean-tos made of garbage bags stretched above poles. Dubbed Campamento Esperanza, Camp Hope, the place took on a somewhat surreal air. The government started trucking in water and food, as well as sending counselors, cooks and kindergarten teachers. Shrines with votive candles and statues of baby-faced Saint Lorenzo, the patron saint of miners who is often decked out in a hard hat, sprang up alongside television satellite trucks and portalets. Other iconic figures were called on for luck. Relatives of 34-year old Edison Pena put the miner’s picture on a placard along with Elvis Presley, assuring him that “you will be bigger than Elvis” after emerging from the mine.
Below ground the 33 miners were also getting organized. Mr. Urzúa, a soccer coach in his spare time, was one of the leaders. He oversaw the rationing of their food stores, so that miners could have a couple of mouthfuls of tuna, along with a canned peach and some milk every 48 hours. But after two weeks the miners had almost exhausted their provisions, Mr. Urzúa said.


Worry also spread through the camp full of families. Ana Funes, a social worker from a nearby town, organized art classes for children as a diversion. But some kids’ anxieties consumed them, says Ms. Funes. On a bulletin board, along with crayon drawings of Spiderman and a fairy princess, was a self-portrait of a pig-tailed girl with tears streaming down her cheeks. “I love you, cousin,” was the caption.

By the end of last week, a number of the families were losing faith in the government drilling strategy. They pressed Mr. Piñera’s rescue team to let 10 volunteers into the bowels of the mine to bring out their loved ones. Government officials said that was foolhardy.

“We have done and will continue doing what’s humanly possible,” President Piñera said. “But not everything is in the hands of our engineers and technicians. It’s also in the hands of God.”

A little after 6 a.m. last Sunday the probe broke through an underground chamber, a short distance from the miners’ main shelter. The 28-year-old drill operator, Eduardo Guerra, thought he felt some vibrations coming from below. Some engineers came over with stethoscopes and said they heard something, too. When Mr. Guerra pulled the probe out of the ground, a plastic bag had been attached to the drill tip with cable and rubber bands.

Inside the bag was a note painted in red: “We are well in the shelter the 33.”

Write to Matthew Moffett at matthew.moffett@wsj.comCopyright 2009 Dow Jones & Company, Inc. All Rights Reserved

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In Chile, Trapped Miners Dig in for the Long Haul – WSJ.com


Goldman Backs Oil, Copper, Gold, Maintains `Overweight’ Commodities Call

Commodities demand from emerging markets and limited growth in supplies will help to support prices toward the end of the year, according to Goldman Sachs Group Inc., which backed oil, gold, copper, zinc and platinum.
The bank reiterated an “overweight” recommendation on commodities, analysts led by Allison Nathan and Jeffrey Currie wrote in a report. Goldman pared its 12-month forecast for the S&P GSCI Enhanced Total Returns Index to a 19 percent gain from 21.6 after recent gains in agricultural commodities and metals.
Commodities last week had the worst weekly performance in six after the Federal Reserve said the recovery is weakening and European industrial output fell, stoking concern that there may be a double-dip recession. Reports also showed China’s retail sales and new lending grew in July at a slower pace than June.
“We are not overly optimistic about commodities prices in the second half,” Ni Xiaolei, a trader at Donghai Futures Co., said from Jiangsu today. “‘We saw a very sharp ascent in commodity prices last month, which will be hard to sustain as global macroeconomic data emerges weaker than expected.’’
Goldman’s commodity ‘‘overweight’’ call was maintained even as the bank has been paring forecasts for U.S. and Japanese economic growth for next year. Ed McKelvey, Goldman’s senior U.S. economist in New York, has also said that the chance the U.S. may tumble back into recession is as high as 30 percent.
Gold, Crude
Gold, which surged to a record $1,265.30 an ounce in June amid concern sovereign-debt levels in Europe may be excessive, traded at $1,29.60 at 2:11 p.m. in Singapore, 11 percent higher this year. Goldman forecast a rise to $1,260 in three months and to $1,300 in six. New York crude futures were at $75.86 a barrel, 4.4 percent lower over 2010. Goldman’s report put them at $92 a barrel in three months.
‘‘The current softness in economic data, combined with increasingly mixed signals from the underlying commodity markets, is likely to continue to generate choppy commodity-price action in the near term,” the Goldman analysts wrote in the Aug. 13 report. Still, “high and rising emerging-market demand levels against limited supply growth in key commodities are likely to increasingly tighten balances,” they wrote.
Japan’s economy expanded at an annualized 0.4 percent in the three months to June 30, the Cabinet Office said today. That’s the slowest pace in three quarters. U.S. industrial production figures are due for release tomorrow, the same day as data on investor confidence in Germany.
Chinese Demand
Commodity prices may advance into the end of the year on evidence of increased oil demand in China, a decline in crude stockpiles in Europe and the U.S., and further falls in metals inventories, the report said.
“We expect upside to be greatest for crude oil, copper, zinc, platinum and gold,” it said. “Improved data will likely be required to sustain rising prices.”
Goldman Sachs last week backed gold to resume a rally and climb to a record $1,300 an ounce within six months on renewed investor interest. The precious metal, which has risen for nine years to last year, may also climb in 2011, the report said.
A ban on wheat exports by Russia helped to drive futures to $8.68 a bushel earlier this month, the highest price in almost two years. The country is battling reduced grains production amid the worst drought in at least 50 years.
‘Sharp Gains’
“Commodity returns rose over the past month led by sharp gains in the agricultural complex owing to weather-related supply shocks in wheat,” according to the Goldman report.
Zinc, trading today at $2,080 a metric ton, has fallen 19 percent this year, making it the worst performer on the London Metal Exchange. Goldman’s analysts forecast that the metal may climb to $2,121 a ton in six months, according to the report.
Copper rose 1.3 percent to $7,246.50 a metric ton, paring this year’s loss to 1.7 percent, while platinum gained 0.8 percent to $1,535.75 an ounce, 5 percent stronger this year. Goldman forecast copper at $7,925 a ton in six months.
Japan will grow 1.4 percent in 2011, compared with an earlier forecast of 1.7 percent, Goldman’s Tokyo-based senior economist Chiwoong Lee said in a report dated Aug. 7. The week before that Goldman lowered its projection for U.S. growth for the same year to 1.9 percent from 2.5 percent.
To contact the reporter on this story: Glenys Sim in Singapore at Gsim4@bloomberg.net

Goldman Backs Oil, Copper, Gold, Maintains `Overweight’ Commodities Call – Bloomberg

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Sub-Saharan Africa economy: Strategic rise
FROM THE ECONOMIST INTELLIGENCE UNIT
July 13th 2010

Rising global competition for commodities is giving a new strategic importance to resource-rich Sub-Saharan Africa. China and other emerging industrialised countries are vying with the subcontinent’s former colonial powers to acquire long-term stakes in mines, oilfields and other commodity assets. With unprecedented volumes of investment on offer, the stakes are high not only for resource companies seeking to expand in Africa but also for the region itself. The challenge for African governments will be to manage their commodities better to avoid a repeat of the boom-and-bust years of the 1970s-90s.

Natural resources are hardly a new story for Sub-Saharan Africa. For decades the region has depended on exports of commoditiesóoil, hard minerals and cash cropsóto fund economic growth, though often with disappointing results. The collapse in commodity prices in the late 1970s and the mismanagement of revenue inflows resulted in weak growth and rising poverty, cementing the belief that Africa’s dependence on commodities retarded its economic development. However, soaring emerging-market demand for commodities in recent years, coupled with the increasing scarcity of hydrocarbons and hard minerals, has changed the picture. Sub-Saharan Africa has become a prime target for adventurous foreign investorsówith Chinese companies playing a particularly prominent roleówith the result that the subcontinent once again has the opportunity to benefit from its natural wealth.

Sub-Saharan Africa is one of the most commodity-rich regions of the planet. The subcontinent contains the majority of known reserves of many key minerals, including 90% of the world’s platinum-group metals, 90% of the world’s chromium, two-thirds of the world’s manganese, and 60% of its diamonds. It contains 60% of the world’s phosphates, 50% of the world’s vanadium, and 40-50% of the world’s gold. Sub-Saharan Africa also boasts one-third of the planet’s uranium reserves, one-third of its bauxite, and 10% of all oil reserves (the bulk of which are concentrated in the Gulf of Guinea in West Africa).

Most of these resources are underexploited. Uneven development has resulted in a handful of countries dominating commodity exports. The most important by far, both in terms of the diversity of its commodity base and the volume of its exports, is South Africa. The subcontinent’s other commodity giant is the Democratic Republic of Congo, which sits on over half of the world’s cobalt reserves and 25% of its diamonds, as well as having large quantities of rare metals such as coltan (used in mobile phones). Nigeria and Angola dominate oil production. However, other countries are starting to develop their commodity resources, and several are set to become major producers in the near future. They include Guinea and Angola (iron ore), Ghana (hydrocarbons), and Guinea-Bissau (bauxite and phosphates).

Sub-Saharan Africa also boasts a large agricultural sector. Much of this focused on the production of cash crops for export to the West during the colonial period and in the first years after independence. Since the late 1970s Africa has lost global importance as an exporter of many cash crops. The main exceptions have been coffee, cocoa and tea, for which CÙte d’Ivoire, Ghana, Uganda and Kenya remain key global producers, and more specialised crops like cashew nuts (Guinea-Bissau) and vanilla (Madagascar). However, increased competition from Asian and Latin American producers, coupled with a decline in Africa’s terms of trade, has eroded profitability. Africa also continues to export large quantities of timber, particularly to China, but poor forestry management is threatening the sector’s sustainability.

A scramble for access

Major emerging markets are playing a key role in the development of the region’s commodities sector. Since the early 2000s China has invested heavily in African commodities, reflecting the two-pronged strategy of China’s state-owned oil and mining companies: first, acquiring access to reserves through long-term contracts; and second, purchasing stakes in local ventures whenever possible. According to the Chinese government, by end-2008 total Chinese investment in Sub-Saharan Africa amounted to US$26bn, including stakes in oil and gas concessions in Sudan and the Gulf of Guinea, copper mines in Zambia, iron concessions in Gabon, and ferrochrome and platinum mines in South Africa.

China is not the only player around. Chinese interest is increasingly being matched by investment from Indian or Indian-linked firms, notably the steel manufacturing giants Tata Steel and ArcelorMittal, which are acquiring stakes in large coal concessions in Mozambique. Brazil is also stepping up its investment. Given the expertise of Brazilian companies in construction, engineering and the oil sector, it is likely that these firms will provide stiff competition for contracts in the next phase of Africa’s infrastructure expansion.

Competition looks set to be particularly intense in the Gulf of Guinea, which continues to grow in strategic importance thanks to the steady increase in its proven oil reserves (a result of better deep-water drilling technology). The region is already the focus of military co-operation programmes between African governments and the US, EU and China. Tensions between these powers could increase as each seeks to establish a foothold in the region. Such a situation could prove advantageous to countries in the Gulf of Guinea if they are able to play off competing powers against each other. However, past experience indicates that such competition and strategic alliances can be used to prop up unsavoury regimes. This also poses potential difficulties for foreign investors. China is learning the hard way that its resource grabs can expose it to reputational risks over human-rights and environmental abuses.

Reaping the benefits?

There are plenty of other challenges. The region exports a lot of its commodities in unprocessed form, thus missing the chance to add value to them. For example, Guinea-Bissau exports its entire cashew crop (over 90% of the country’s exports) to India for processing. The creation of low-tech processing operations could capture more of the value of the crop, as well as creating significant numbers of jobs. However, efforts to develop processing industries in Africa have proved disappointing owing to the constraints of the business environment, poor management and competition from processors in India and China.

Broader challenges include managing capital inflows better and maximising the economic benefits of foreign investments. Progress is occurring, with improved local-content provisions in mining contracts, the imposition of tighter environmental standards and greater transparency over commodity revenues. However, greater efforts are needed. African governments must ensure that infrastructure development does not just support the exploitation and export of minerals but also facilitates trade and the movement of people and goods. Local workforces must be trained in new skills and not just used for manual labour. A large proportion of oil and mineral revenues need to be held outside the countries in question in order to prevent currency appreciation that could render other industries uncompetitive.

If African governments can realise these aims, there is a good chance that the subcontinent’s natural-resource endowment could provide major benefits to the population. Otherwise, the next wave of commodity development will merely entrench poor governance and corruption and further stifle economic development.

The Economist Intelligence Unit

Source: Global Forecasting Service

© 2010 The Economist Intelligence Unit Limited. An Economist Group business. All rights reserved.

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