Mongolia will hold a reality television style text message referendum on the future of Rio Tinto’s troubled Oyu Tolgoi copper mine project, the Financial Times reports.
The FT says Mongolian prime minister Saikhanbileg Chimed will ask voters whether their country should develop more of its mineral resources or resort to austerity to support the faltering economy.
Mongolian voters will have four days, beginning Saturday, to text their vote on the future of Rio Tinto’s plans for the $6 billion project.
Shaft at the Rio Tinto Oyu Tolgoi copper and gold mine in the southern Gobi, Mongolia (Brücke-Osteuropa via Wikipedia)
Economists say the copper mine project, which is stalled because Rio Tinto has been unable to reach an agreement with Mongolia over project financing and revenue sharing could generate about a third of the country’s gross domestic product. The lack of an agreement, in concert with current instabilty on financial markets has sent Mongolia’s currency plunging.
Like Kitimat’s plebiscite on the Northern Gateway, the vote will be non-binding. The FT says the vote “could help Mr Saikhanbileg broker a consensus in favour of allowing OT to proceed, cutting through the arguments of critics who say Mongolia is not getting its fair share of the mine’s earnings.”
The FT reports: “The prime minister, who explained the referendum this week on television, was trying to appeal to the general public ‘over the heads of squabbling factions in parliament and break the logjam.'”
Chevron, the lead corporation in the Kitimat LNG project announced on January 23 that the Moricetown Indian Band had agreed to join the First Nations Limited Partnership, in effect, approving the Pacific Trail Pipeline that would take natural gas to the project in Kitimat.
Here is the news release from all parties involved.
Vancouver, British Columbia, January 23, 2015 – The First Nations Limited Partnership (FNLP) today announced that Moricetown Indian Band (Moricetown) has joined the FNLP. The FNLP is a commercial partnership that, with the addition of Moricetown, now includes all of the 16 First Nations whose traditional territory is located along the proposed 480 kilometre Pacific Trail Pipeline (PTP) route from Summit Lake to Kitimat, B.C.
“The decision of the Moricetown First Nation Band Council to join the First Nations Limited Partnership is one that we warmly welcome,” said the Honourable Bob Rae, Chairman of FNLP.
“It means all 16 First Nations along the proposed Pacific Trail Pipeline route are partners in a unique approach that combines environmental stewardship, extensive job, procurement, and other economic benefits, and direct financial transfers on a regular basis to each First Nations community.”
The FNLP is without precedent in the Canadian energy industry and the Pacific Trail Pipeline is the only proposed natural gas pipeline for a liquefied natural gas (LNG) facility in B.C. with such a benefits agreement. The proposed PTP and Kitimat LNG Facility projects are owned by Chevron and Apache through a 50/50 joint venture and are operated by Chevron.
“This agreement is unparalleled in balancing strong economic growth measures with preserving our cultural heritage and the environment. There is, quite simply, no other deal that comes close to what we’ve been able to achieve in this partnership,” said Chief Dan George of Ts’il Kaz Koh (Burns Lake).
The commercial partnership ensures that FNLP Nations receive immediate and long-term benefits from the PTP project. These include up to $550 million in direct financial benefits over the life of the PTP project, including a recent enhanced benefit of $10 million a year operating life of the PTP project from the Province of British Columbia. The FNLP Nations also receive substantial economic development, skills training, employment and contracting benefits from PTP under the terms of the agreement.
“Chevron Canada wishes to commend all parties for creating a partnership between industry and First Nations based on mutual respect, trust and economic self-determination. We welcome Moricetown as the 16th member of the FNLP, and look forward to building the Pacific Trail Pipeline with First Nations in a manner that places the highest priority on protecting people and the environment,” said Jeff Lehrmann, President, Chevron Canada Limited.
Measures that reflect environmental protection, vitality of traditional cultural values, protection of aboriginal rights and title, economic self-determination and a sustainable future for First Nations are also part of the FNLP agreement. Members of the FNLP have already received significant benefits to date from the agreement, including $17 million in financial payments.
“We have already seen over 1,600 First Nations members receive skills training through the PTP Aboriginal Skills to Employment Partnership, better known as PTP ASEP. Over 900 of these trainees have found jobs,” said Chief Karen Ogen of the Wet’suwet’en First Nation.
First Nations employment currently accounts for 54 per cent of all early works construction workforce hours to date on the Pacific Trail Pipeline. To date, FNLP members have also been awarded over $245 million in PTP construction contracts, and over 65 per cent of construction contract expenditures have been made to member First Nation businesses.
The agreement also facilitates joint ventures between FNLP and companies engaged in the PTP Project. As such, the FNLP Nations not only have a clear financial interest in the pipeline construction but, just as importantly, also have a strong voice in ensuring the preservation of environmental and cultural integrity.
“The FNLP is an innovative model for how industry and First Nations can cooperate effectively with respect to major economic development projects,” said the Honourable Bob Rae.
About First Nations (PTP) Group Limited Partnership (FNLP)
The First Nations (PTP) Group Limited Partnership (FNLP) is a limited partnership of 16 First Nations whose traditional territories are located along the transportation corridor between Summit Lake and Kitimat, British Columbia.
FNLP was formed to secure significant, reliable and long-term economic benefits for its limited partners from the proposed PTP Project.
FNLP member Nations are:
* Haisla Nation
* Kitselas First Nation
* Lax Kw’alaams Band
* Lheidleh T’eneh First Nation
* McLeod Lake Indian Band
* Metlakatla First Nation
* Moricetown Indian Band
* Nadleh Whut’en First Nation
* Nak’azdli Band
* Nee Tahi Buhn Indian Band
* Saik’uz First Nation
* Skin Tyee First Nation
* Stellat’en First Nation
* Ts’il Kaz Koh First Nation (Burns Lake Indian Band)
* West Moberly First Nations
* Wet’suwet’en First Nation
About PTP and the Pacific Trail Pipelines Limited Partnership
The proposed 480-kilometre Pacific Trail Pipeline Project is jointly owned by Chevron Canada Limited (Chevron) and Apache Canada Ltd. (Apache) through the Pacific Trail Pipelines Limited Partnership (PTPLP). The PTP is intended to deliver natural gas from Summit Lake
B.C. to the proposed Kitimat LNG facility on B.C.’s north coast. The Pacific Trail Pipelines Limited Partnership (PTPLP) acquired the project in February 2011 from Pacific Northern Gas.
The fact that the Moricetown Band had held out for so long was seen as one of several factors that was holding up a Final Investment Decision by Chevron and its soon to be new partner, Australia’s Woodside Pretroleum, which is currently finalizing a deal to buy Apache’s stake in the project. Chevron vice chairman, George Kirkland was asked about it during an investor conference call in August, 2014 At the time, Kirkland hinted at the potential problems with the Pacific Trails Pipeline, where there is still a dispute with members of the Wet’suwet’en First Nation. “We’re going to focus on the pipeline and the end of the pipeline corridor. That’s important and we’re putting some money into that to finalize the pipeline routing, get all our clearances and then we’ve got work going on.”
The Unist’ot’en Camp group which opposes energy development in the traditional territory of that House has not yet commented on the announcement. However, earlier Friday at a protest in Winnipeg, Freda Huson, Spokesperson for the Unist’ot’en People and Hereditary Chief Toghestiy of the Likhts´amisyu Clan, issued this statement.
¨The Hereditary Chiefs of the Wet´suwet´en People will stop all attempts from Pipeline Companies, Colonial Governments, and their sell-out employees from bringing Tar Sands Bitumen or Fracked Gas onto our lands. We have ancestral integrity which guides us and will help us ensure that we make the right decisions to protect our lands for all of our unborn generations. We will hold ALL those accountable for attempting to enable destructive agendas to take hold on our sacred lands. We will use our traditional governing systems, the colonial courts, grassroots Indigenous Peoples, and our media savy to make everyone associated with Pipelines, Tar Sands, and Fracking activity from affecting our unceded lands. We are armed with our indomitable spirit and 2 Supreme Court of Canada decisions and will use them against any more aggressors on our unceded lands. Consider this a warning for attempting to trespass on our homelands. We have defended our lands for countless generations and we will stand up like our ancestors have to ensure that we never are viewed as weak in the eyes of our ancestors or children.
The Australian Business Review is reporting that Woodside Petroleum, a cash rich Australian energy company, has its eye on Apache’s 50 per cent stake in the Kitimat LNG project. As part of any deal, Woodside would probably also have to buy Apache’s stake in the Australian Wheatstone LNG project, which is also up for sale.
The months-long process by Apache to find a new home for its West Australian domestic gas business and its stake in the under-construction Wheatstone LNG project — as well as its stake in the Kitimat LNG project in Canada — has drawn plenty of interest from parties in that neck of the woods.
The cashed-up, project-hungry Woodside Petroleum has been interested from the outset in the Kitimat stake, but is also said to be prepared to make an offer on Wheatstone if Apache is determined to sell the assets together
Earlier, another Australian newspaper, The Age reported that Woodside’s petroleum and LNG operations had “revenue of $US5.3 billion for the first nine months of 2014. Compared with the corresponding period in 2013, revenue was 28.7 per cent higher for the 2014 period.”Part of the money came from selling natural gas assets in the United States.
According to The Age:
Woodside’s LNG production rose to a record 5.1 million tonnes for the first nine months of Woodside’s fiscal 2014. The record production represents a rise of 17.6 per cent on the same period for 2013. Behind the result was the operational performance of the Pluto LNG facility (Woodside’s interest is 90 per cent). Pluto lifted LNG production by 24.3 per cent on the corresponding period in 2013, to 3.1 million tonnes. Pluto also produced 2.2 million barrels of condensate for the first nine months of 2014. Oil production rose by a mammoth 33.3 per cent on the same period in 2013, to 8.8 million barrels.
On November 6, according to the Sydney Morning Herald, Woodside’s CEO Peter Coleman warned that the Asian customers for LNG who are holding out for cheaper prices could face a “supply crunch” and “By holding out for a cheaper price, customers are potentially exacerbating project FID [final investment decision] delays and may unwittingly help bring on a supply crunch.”
He called on suppliers and customers to work together to ensure supply projects went ahead.
The Woodside website describes the company as “Australia’s largest independent dedicated oil and gas company and one of the world’s leading producers of liquefied natural gas.”
It goes on to say
As we aspire to become a global leader in upstream oil and gas, we are guided by the Woodside Compass. The Compass links Woodside’s core values – respect, integrity, working sustainably, working together, discipline and excellence – with our vision, mission and strategic direction.
Woodside has an extensive portfolio of facilities which we operate on behalf of some of the world’s major oil and gas companies.
We have been operating the landmark Australian project, the North West Shelf, since 1984 and it remains one of the world’s premier liquefied natural gas (LNG) facilities.
With the successful start-up of the Pluto LNG Plant in 2012, Woodside now operates six of the seven LNG processing trains in Australia.
The Shell-led LNG Canada project unveiled its commitments to Kitimat at a ceremony at the community information centre at the old Methanex site on October 7, 2014.
LNG Canada has forged the commitments in a sheet of aluminum that is bolted to the wall of the community information centre. Kitimat Mayor Joanne Monaghan unveiled the aluminum sheet, assisted by Kitimat Fire Chief Trent Bossence. Afterward, Susannah Pierce, Director, External Affairs, LNG Canada, signed the sheet, followed by Mayor Mongahan, Chief Bossence, other LNG Canada officials and members of the community.
Guests at the unveiling of LNG Canada’s commitment to the Kitimat community watch a video prior to the unveiling ceremony. (Robin Rowland/Northwest Coast Energy News)
LNG Canada’s Community Commitments
LNG Canada is proud to outline its commitments to the community, created through a collaborative effort with local residents. In April, June and September 2014, LNG Canada met with the Kitimat community to develop and refine the commitments our company will meet to ensure we are a valued member of the community throughout the lifetime of our project. We are grateful to the many individuals who took part and shared their wisdom and experience.
Our Commitments to the Community
1) LNG Canada respects the importance residents place on companies being trusted members of their community. We aspire to gain this trust by proactively engaging with the community in an honest, open and timely manner; by listening and being responsive and accessible; and by operating in a safe, ethical and trustworthy way.
2) LNG Canada understands that the ongoing well being of the community and the environment are of paramount importance. LNG Canada will consider the health and safety of local residents, employees, and contractors in every decision it makes.
3) LNG Canada recognizes that the environment and natural surroundings are vital to the community. We will be dedicated to working independently and with the community to identify and carry out ways to reduce and mitigate the impact of our facility footprint on the natural surroundings – in the Kitimat Valley, the Kitimat watershed and the Kitimat airshed.
4) LNG Canada is aware of the importance to the community of maintaining and improving access to outdoor recreational opportunities. We will work with the local community to facilitate the creation of new projects that protect or enhance the natural environment and that provide access to the outdoors and the water.
5) LNG Canada recognizes it will be one company among other industrial companies operating in the community. We will work with other local industry leaders to manage and mitigate cumulative social and environmental impacts, and create opportunities to enhance local benefits associated with industrial growth.
6) LNG Canada acknowledges that the commitments we make are for the long term. We will work with the community to develop an environmental, social and health monitoring and mitigation program that meets regulatory requirements and we will share information on the program with the public for the life of our project.
7) LNG Canada understands the need for the community to benefit from our project and values the contributions all members of the community make to the region. We will work with the community to ensure that social and economic benefits from our project are realized and shared locally.
8) LNG Canada acknowledges the importance the community places on our company being an excellent corporate citizen and neighbour that contributes to the community. In addition to providing training, jobs and economic benefits, we will make social investments important to the community to positively impact community needs and priorities.
Kitimat mayor Joanne Monaghan, Susannah Pierce, Director, External Affairs, LNG Canada and Fire Chief Trent Bossence after the ceremony unveiling the community commitment. (Robin Rowland/Northwest Coast Energy News)
The world’s business media are paying rapt attention to Glencore’s now stalled attempt to take over Rio Tinto.
Late Tuesday, the company issued a news release which says
Glencore announces that in July 2014 it made an informal enquiry by telephone call to Rio Tinto, seeking to gauge whether there might be any interest at Rio Tinto in investigating some form of merger between the two companies. Rio Tinto responded that it was not interested in pursuing these discussions.
Glencore confirms that it is no longer actively considering any possible merger transaction with, or offer for the shares of, Rio Tinto.
As a consequence of this announcement, the Panel Executive has determined that Glencore is for a period of 6 months from the date of this announcement subject to Rule 2.8 of the City Code on Takeovers and Mergers in relation to Rio Tinto. Glencore however reserves its rights to make an offer in the future with the consent of the Takeover Panel, either with the recommendation of the Board of Rio Tinto, in the event of a third party offer for Rio Tinto, or in the event of a material change in circumstances.
The board of Rio Tinto notes the recent press speculation regarding a possible combination of Rio Tinto and Glencore.
The Rio Tinto board confirms that no discussions are taking place with Glencore.
In July 2014, Glencore contacted Rio Tinto regarding a potential merger of Rio Tinto and Glencore.
The Rio Tinto board, after consultation with its financial and legal advisers, concluded unanimously that a combination was not in the best interests of Rio Tinto’s shareholders.
The board’s rejection was communicated to Glencore in early August and there has been no further contact between the companies on this matter.
According to Bloomberg, Glencore’s secretive CEO Ivan Glasenberg made a verbal stock offer to Rio Chairman Jan Du Plessis in July. The Rio Tinto board rejected the offer in August, which means under that UK law, Glencore must wait six months before making another bid.
Glasenberg’s informal July bid carried no significant premium, said the person, who asked not to be identified as the information is private.
Bloomberg’s television arm reports that the Glasenberg’s offer was in stock, an attempt, apparently, to get Rio Tinto “on the cheap.” Earlier Forbes reported that there were rumours of an offer from Glencore to Rio Tinto of a “share-swap merger”
Bloomberg goes on to report that.
After being rebuffed by the board, Glencore has reached out to Rio’s biggest investor, Aluminum Corp. of China, to gauge its interest in a potential deal in the next year, according to people familiar with the matter.
After the initial report on the takeover Monday, business writers used epic analogies.
Meanwhile, behind its premium paywall Lex, the Financial Times is comparing the Glencore bid for Rio Tinto to the Game of Thrones.
The analysts are saying there are two main factors, Rio Tinto’s balance sheet has been weakened by a downturn in the iron ore market while at the same time Glencore aims to overtake Rio Tinto rival BHP Billiton. If it acquires RT, then Glencore will become the world’s largest mining and resource company.
The business media all say Glencore is already the world’s biggest trader in commodities.
China is a major force behind this corporate Game of Thrones. China wants more access to world resources for its increasingly hungry industry and population,while at the same time it has apparently all the iron ore it needs and iron ore is Rio Tinto’s biggest asset. The key player is a giant Chinese aluminum company now under investigation as part of the country’s corruption crack down.
Glencore is already huge, listed as Number 10 on the Fortune Global 500 list . Rio Tinto is far down at number 201. (Walmart is number one. Companies involved with Kitimat are Shell in second place, Sinopec in third and the China National Petroleum Corporation in fourth. Chevron is in 12th spot.)
Glencore is a major player in the aluminum business with assets around the world, some in partnership with the Russian giant aluminum group Rusal . According to Wikipedia, Glencore owns 8.8 per cent of a joint venture with Rusal, and the Sual Group (Siberian-Urals Aluminium Company) . That joint venture, Wikipedia says, has created the “World’s largest aluminium and alumina producer with 110,000 employees in 17 countries.”
Glencore along with Rusal has an undisclosed interest in Rusal’s Windalco alumina operation in Jamaica. Glencore also has an undisclosed interest in the Alumina Partners of Jamaica. It owns 44 per cent of Century Aluminum in Monterey California. Glencore has also undisclosed interests in idle aluminum smelters in Washington State and Montana. It has an undisclosed interest in Kubikenborg Aluminium AB in Sweden, Aughinish Alumina in Ireland and Eurallumina in Sardinia.
In the northwest, Glencore, through its agricultural subsidiary Vittera, is a partner, along with Cargill Ltd. and Richardson International in the Prince Rupert Grain Terminal. In Vancouver, Glencore owns Vittera’s Cascadia grain terminal in Vancouver.
located on the south shore of Burrard Inlet. Vittera Inc. owns and operates Canada’s largest grain handling network. The terminal handles wheat, durum, feed barley, malting barley, canola seed and specialty products, with storage capacity of 282,830 tonnes of product, handling loading from its 244 metre berth with a depth of 14.6 metres. –
Glencore is also developing a metallurgical coal mine near Chetwynd.
A Glencore stock photo of slag tapping at the Sudbury Smelter. (Glencore)
Glencore, through the earlier 2013 take over the mining company Xstrata owns the famous Kidd copper and zinc mine near Timmins, Ontario. The operation has 1300 employees. (Xstrata earlier took over the well-known Canadian mining company Falconbridge). It also operates the Horne copper Smelter in Rouyn-Noranda, Québec, which employees 700 and the CCR copper Refinery in Montreal, Québec which employees 650.
In Sudbury, Glencore is reviving the Errington-Vermillion Project, two deposits were that were previously mined in the 1920s and 1950s. It says the project has potential for approximately nine million tonnes, polymetallic- zinc, lead,copper, silver, gold or a rate of 2,900 tonnes per day.
The other factor for Kitimat with Glencore is that, unlike Rio Tinto, which is mostly a mining and smelting company, Glencore has interests in natural gas, oil and shipping and it is reported that the company wants to expand its hydrocarbon business from extraction to shipping.
According to Forbes, many Rio Tinto shareholders are not happy about the costs of the takeover of Alcan
The chairman of Rio Tinto, Jan du Plessis said the board was happy with the leadership of managing director, Sam Walsh, and finance director, Chris Lynch.
Interestingly, that might not be a view shared by all Rio Tinto shareholders who are still smarting from the $40 billion written off after the ill-timed acquisition of the Alcan aluminium business, followed by a $3 billion write-off after an equally poorly executed coal asset deal in Africa.
(It should be noted that Walsh was not the CEO at the time of both acquisitions, but was brought in to put Rio Tinto back on track after those huge losses)
The Rio Tinto news release says it’s business as usual:
Rio Tinto remains focused on the successful execution of its strategy, which the board of Rio Tinto is confident will continue to deliver significant and sustainable value for shareholders….
The board believes that the continued successful execution of Rio Tinto’s strategy will allow Rio Tinto to increase free cash flow significantly in the near term and materially increase returns to shareholders. Rio Tinto’s shareholders stand to benefit from the very considerable value that this will generate.
RBC Capital Markets analyst Timothy Huff said: “A potential merger with Rio would enable Glencore to get hold of the lowest-cost iron ore business in Australia. This is likely just a shot across the bow from Glencore and we expect Glencore to play the long game with any highly desired acquisition target. While asset divestments may have to play a larger part in a Glencore/Rio tie-up, we think the broader strategy for an enlarged group makes sense.”
The Globe and Mail Report on Business says
It is an open secret that Mr. Glasenberg, a multibillionaire South African, has every intention of using mergers and takeovers to greatly extend Glencore’s reach along the commodities value chain. Glencore’s strategy is to control the mines, the warehouses, the ports, the ships and the trading networks that produce and distribute commodities.
The question is whether Rio’s management and shareholders would endorse a deal that could come with no takeover premium. Some analysts think not.
One problem with Glencore’s approach to Chinalco is that the company is part of the wider probe by the Chinese government of corruption. As Reuters reported
Aluminum Corp of China general manager Sun Zhaoxue is suspected of “serious violations” of the law, a euphemism for corruption, according to a notice published by China’s Central Commission for Discipline Inspection.
Sun is also the vice chairman of Chinalco’s listed subsidiary, Aluminum Corp Of China Ltd. He is the former president of China National Gold Group Corp, the country’s biggest gold producer.
Some business analysts say even if Rio Tinto shareholders are not happy with current management they may not want their holdings affected by a possibly corrupt Chinese company.
On the other hand, as the Telegraph points out, it is really the Chinese government that will make the decision, not the company itself.
China’s government holds the key to a deal despite Rio Tinto’s public rejection of Glencore’s interest. State-owned Aluminum Corporation of China is the largest shareholder with around 10 per cent and Glencore reportedly started talking to the Chinese in the summer to sound out their interest in an exit. Although China is the world’s largest consumer of iron ore and owning such a significant stake in one of the world’s biggest mining groups is strategic now could be a good time to exit. The world is flooded with iron ore and securing supplies for steel mills is no longer an issue for the Chinese government. Now is a good time to cash in.
The man behind the so-far failed deal, who is likely “patiently stalking” Rio Tinto is the highly secretive and private Ivan Glasenberg.
Pounce, leak and wait.
It is a classic strategy in the shadowy world of mergers and acquisitions and Ivan Glasenberg, the chief executive of Glencore, is a master of this dark art.
Although a potential $160 billion mega takeover of the world’s largest shipper of seaborne iron ore, Rio Tinto, was flatly rejected in August, don’t bet on Glasenberg walking away for good
Glasenberg was born in South Africa in 1957, and apparently now holds four passports, South Africa, Australia, Israel and as of 2011, Switzerland.
When Glencore went public on the London Exchange in 2011, which the Guardian called “the biggest stock exchange float in British history,” the British media received a letter from a London law firm warning the normally aggressive media not to probe into the private lives of the company executives.
Glencore executives, the letter said, “are extremely private individuals”, who expected scrutiny of their business activities, but not their personal lives. A warning followed about the “security risk” that could be posed by any reports about their homes or private lives.
It appears that for the British media the royal family and missing school girls are fair game but not Glencore’s executives.
Should Glencore ever takeover Rio Tinto, the Wall Street Journal says Glasenberg told the paper Glasenberg: We Don’t Do Work-Life Balance may be a indication of the future, especially for management.
Although he was referring mainly to the company’s main business, commodity trading, the interview is enlightening.
Asked in an interview with The Wall Street Journal if the company has a work-life balance, the 57-year-old billionaire, a former coal trader, says: “No. We work. You don’t come here to take life easy. And we all got rich from it, so, you know, there’s a benefit from it.”
This competitiveness, he says, is smart business. “If I’m not pulling my weight and setting an example” and “traveling 80% of the time”, his charges would complain to the board and try to get him fired….
Mr. Glasenberg says the phenomenon is still at play. “I see it happening. Some guy suddenly decides: ‘I want to take it easier, I want to spend more time with the family’… an attack will come.”
Mr. Glasenberg, who had been CEO of Glencore since 2002, says he is insistent on instilling this culture at Xstrata, a mining company. Glencore had amassed a portfolio of mines over the past decade. “I thought if we could put our hard-working culture as traders into the asset management it will be a great combination and we did do that,” he says.
One area where Glasenberg does get soft however is on worker mobility, noting that blue collar miners can work their way up to earning the eight-figure salaries enjoyed by his squadron of commodities traders. Just try him.
“You want to be a trader, come be a trader,” he told Wall Street Journal. “You want to travel six days a week, you want to travel the world, the door’s open. I earn more than you. Come be a trader. Please, the door’s open.”
If the Glencore news release is correct, that means in six months, on April 7, 2015, the next move in the future of Rio Tinto will come, unless, as the Glencore news release states “if there is a material change in circumstances”
One thing is clear, Kitimat can now add Rio Tinto and Rio Tinto Alcan to the mix of uncertainty along with Shell, Chevron, Enbridge, Apache and the rest of the corporate movers. In other words, we are all extras in the corporate Game of Thrones.
The Haisla Nation’s plan for entering the LNG business is based on the idea that “it is anticipated that the Haisla Projects will be developed using a business model based on controlling two components of the value chain: land and pipeline capacity” according to its application to the National Energy Board for a natural gas export licence.
Cedar LNG Development Ltd., owned by the Haisla Nation, filed three requests for export licences with the NEB on August 28, under the names Cedar 1 LNG, Cedar 2 LNG and Cedar 3 LNG. Another name used in the application is the “Haisla Projects.”
The 25-year export licence request is standard in the LNG business; it allows export of natural gas in excess of projected North American requirements. Thus like the NEB hearings for the Kitimat LNG and LNG Canada projects it is not what is called a “facility” licence which is what Enbridge Northern Gateway requested.
The project anticipates six “jetties” that would load LNG into either barges or ships at three points along Douglas Channel, one where the present and financially troubled BC LNG/Douglas Channel Partners project would be.
A second would be beside the BC LNG project, which may refer to the Triton project proposed by Pacific Northern Gas parent company Altagas.
Both are on land now owned by the Haisla Nation in “fee simple” land ownership under Canadian law.
Map from the Haisla application to the NEB showing that the Haisla Projects Region will allow for a total of six LNG jetty sites. One of these, on DL99, is currently ear-marked to be used for a project involving a consortium (BCLNG) One will be situated on the DL309 Haisla fee simple land and the other four jetties are to be situated on the Haisla leased lands that surround the Chevron-led LNG development at Bish Cove. The map also shows that the Haisla own land at Minette Bay.
The other four would be on land surrounding the current Chevron-led Kitimat LNG project along Douglas Channel and in the mountains overlooking Bish Cove which the Haisla have leased.
Haisla Nation Chief Counsellor Ellis Ross at Bish Cove, June 19, 2013. (Robin Rowland/Northwest Coast Energy News)
The move last week and the revelation of the Haisla’s plans for the land are a cumulation of Haisla Nation Chief Counsellor Ellis Ross’s idea of restoring more of the First Nation’s traditional territory by buying or leasing the land using standard Canadian land law and at the same time getting around some of the more restrictive provisions of the Indian Act that apply to reserve land.
Just how the Haisla will go into the pipeline business is not as clear as the First Nation’s acquisition of the land. The application says:
The pipeline capacity required to transport sourced LNG to the Haisla Projects will include a mix of new and existing pipeline and infrastructure. The Haisla are in the advanced stages of negotiating and drafting definitive agreements with the major gas producers and pipeline transmission companies located in the vicinity with respect to securing pipeline capacity. It is expected that the Haisla Projects will rely on the Haisla’s business partners or customers to source gas from their own reserves and the market.
With the Haisla basing their business strategy on land and pipelines, the First Nation’s strategy is looking for flexibility in what is a volatile and uncertain market for LNG.
The application says the Haisla “are currently in advanced stage discussions and negotiations with a number of investors, gas producers, LNG purchasers, pipeline transmission companies, technology providers and shippers. As such, the particular business models have yet to be finalized. However, it is anticipated that between the various Haisla Projects, multiple export arrangements may be utilized.”
As part of the idea of flexibility, the actual LNG infrastructure will be constructed and operated with potential partners. That is why there are three separate applications so that each “application will represent a separate project with independent commercial dealings with investors, gas producers, LNG purchasers, pipeline transmission companies, technology providers and shippers.”
The Haisla say that they are “working with a number of entities to develop business structures and partnerships to provide transaction flexibility, adequate financing, modern technology, local knowledge, and marketing expertise specific to Asian targets. The separate projects will accommodate expected production and demand and will also allow for a number of midlevel organizations to be involved with the various projects as well as traditional major gas producers and LNG purchasers.”
The Haisla are working with the Norwegian Golar LNG which had been involved in the stalled BC LNG project, using a Golar LNG’s vessels and technology, using a new design that is now being built in Singapore by Keppel Shipyard.
Golar LNG uses PRICO LNG process technology developed by Black & Veatch, (Wikipedia entry) “which is reliable, flexible and offers simplified operation and reduced equipment count.”
The filing says the project will “be developed using either barge-based or converted Moss-style FLNG vessels. The terminals will consist of vessel-based liquefaction and processing facilities, vessel-based storage tanks, and facilities to support ship berthing and cargo loading”
The jetties to be used for the Haisla Projects may be either individual FLNG vessels or “double stacked”, meaning that the FLNG vessels are moored side-by-side at a single jetty. The Haisla have conducted various jetty design work and site /evaluation studies with Moffat and Nichol.
The Haisla Projects anticipate that the construction will be in 2017 to 2020, “subject to receiving all necessary permits and approvals” and is expected to continue for a term of up to twenty five years. There is one warning, “The timelines of the Haisla Projects will also depend on the contracts and relationships between the Applicant and its partners.”
The filing goes on to say:
Haisla Nation Council and its Economic Development Committee are committed to furthering economic development for the Haisla. The Haisla’s business philosophy is to advance commercially successful initiatives and to promote environmentally responsible and sustainable development, while minimizing impacts on land and water resources, partnering with First Nations and non-First Nations persons, working with joint venture business partners, and promoting and facilitating long-term development opportunities.
The Haisla Applications will allow the Haisla to be directly involved as participants in Canada’s LNG industry, rather than having only royalty or indirect interests. The Kitimat LNG and LNG Canada projects, and the associated Pacific Trails Pipeline and Coastal Gas Link Pipeline, have increased economic opportunities in the region and the Haisla are very supportive of these projects locating within the traditional territory of the Haisla. The support of the Haisla for these two projects reflects a critical evolution of the Haisla’s economic and social objectives.
Map from the Haisla Nation application to the NEB showing the proposed LNG developments in relation to Douglas Channel.Map from the Enbridge filing with the Joint Review Panel showing the same area with the proposed Northern Gateway bitumen terminal.
The cost of the Kitimat Modernization Project has jumped to $4.8 billion US, Sam Walsh CEO of Rio Tinto, the parent company of Rio Tinto Alcan said Thursday as the company released its results for the first six months of 2014.
In its report. Rio Tinto said.
In February 2014, the Group announced that a review of major capital projects had identified a project overrun in relation to the Kitimat Modernisation Project. The overrun evaluation is now complete and has identified the requirement for additional capital of $1.5 billion to complete the project. This was approved by the Board in August 2014, taking the total approved capital cost of the project to $4.8 billion. First production from the Kitimat Modernisation Project is expected during the first half of 2015.
The weakening Canadian dollar appears to have improved the overall bottom line for the RT aluminum division, with underlying earnings of $373 million 74 per cent higher than in the first half of 2013:
The main drivers were growing momentum from the cost reduction initiatives, a weaker Australian and Canadian dollar and a further rise in market and product premiums, with 61 per cent of the Group’s primary metal sales sold as value added product generating a superior price. This was achieved despite a nine per cent decline in LME prices over the period which lowered earnings by $265 million.
LNG deal
The report also contains details of the deal between Rio Tinto Alcan and LNG Canada for the old Eurocan dock, indicating that LNG Canada will not likely commit to a deal until the Final Investment Decision is made:
On 12 February 2014, Rio Tinto entered into an option agreement with LNG Canada, a joint venture comprising Shell Canada Energy, Phoenix Energy Holdings Limited (an affiliate of Petro-China Investment (Hong Kong) Limited), Kogas Canada LNG Ltd. (an affiliate of Korea Gas Corporation) and Diamond LNG Canada Ltd. (an affiliate of Mitsubishi Corporation) to acquire or lease a wharf and associated land at its port facility at Kitimat, British Columbia, Canada. LNG Canada is proposing to construct and operate a natural gas liquefaction plant and marine terminal export facility at Kitimat. The agreement provides LNG Canada with a staged series options payable against project milestones. The financial arrangements are commercially confidential.
According to The Australian other aluminum operations aren’t doing so well, and the newspaper says that RT is starving under performing units in favour of the “good bits.”
The qualifier is that there is still much work to do on the aluminium front, Rio having splurged $US38bn on the acquiring Alcan in 2007.
Aluminium’s contribution to underlying earnings increased from the $US214m in the previous corresponding period to $US373m. But returns remain miserable, and that is from the good bits.
The underlying loss was $US182m, an increase from the $US158m loss previously. At least the bad bits of aluminium are being starved of capital expenditure, with Walsh putting them on the private equity-type approach to running a business.
But is has to be wondered how much longer the pain will be endured. And there is increasing chatter that closures are on the cards, with the long-term future of Rio’s Australian smelters the real concern.
Making money
Overall Rio Tinto is making money with earnings up 21 per cent, according to the report:
Sam Walsh said “Our outstanding half year performance reflects the quality of our world-class assets, our programme of operational excellence and our ability to drive performance during a period of weaker prices. These results show that our current strategic and management focus is making a meaningful contribution to cash flow generation.
“During the first half we have increased underlying earnings by 21 per cent to $5.1 billion and enhanced operating cash flow by eight per cent. We delivered what we said we would, exceeding our $3 billion operating cash cost reduction target six months ahead of schedule while producing record volumes and driving productivity improvements across all our businesses.
“We have decreased net debt by $6.0 billion compared with this time last year, through our stronger operating cash flows, sharply reduced capital spend and proceeds from divestments. We are confident Rio Tinto’s low cost, diversified portfolio will continue to generate strong and sustainable cash flows over the coming years. This solid foundation for growth will result in materially increased cash returns to shareholders, underscoring our commitment to deliver greater value.”
Net income increased 156 per cent to $4.4-billion while revenues were $24.3-billion. Rio Tinto said it reduced operating costs by $3.2-billion, exceeding its $3-billion target six months ahead of schedule.
New boss?
Despite the good news, the financial press is already speculating that Sam Walsh who is 64, may not last long as boss of Rio Tinto. His contract expires at the end of 2015. The Financial Times is quoting analysts as saying despite Walsh’s desire to stay on, the company is already looking for a successor.
According to the FT these include
Andrew Harding, head of iron ore, holds the job that was previously Mr Walsh’s, running Rio’s most important division, and for that reason is probably a front runner. Aged 47, he is a 21-year Rio veteran and previously ran its copper business. Chris Lynch, finance director since 2013, is the only executive on Rio’s board other than Mr Walsh and is another industry veteran, but at 60 is only a few years younger than Mr Walsh.
Alan Davies, head of diamonds and minerals, and Harry Kenyon-Slaney, head of energy, also have important operational experience across commodities and lengthy Rio careers but like Mr Harding are relatively new to their current roles. The heads of the other mining businesses are also relatively new to Rio. Jean-Sébastien Jacques, head of copper, joined Rio in 2011 from Tata Steel while Alfredo Barrios came to the group from BP only in June and is running aluminium.
Chevron is sticking with the Kitimat LNG project but won’t make a Final Investment Decision until it has signed sales and purchase agreements for between 60 and 70 per cent of the natural gas, Chevron’s vice-chairman and executive vice-president of upstream operations, George Kirkland told investment analysts in a conference call Friday.
“We need to get partnership resolved and Apache has to move through the issues s and we need to get a new partner in. That needs to happen. That’s quite obvious,” Kirkland added.
Other factors, Kirkland told the call, are final test results from the Liard and Horn River natural gas play in northeast British Columbia and finalization of the “pipeline corridor.”
Kitimat-Liard-Horn package
Although the residents of Kitimat are focused on the LNG terminal at Bish Cove, remarks both by Kirkland today and by Apache CEO Steve Farris Thursday, it appears that energy industry views Kitimat LNG as part of a “package” (a term used by both) that includes the Liard and Horn River gas fields and the connecting Pacific Trails Pipeline.
Kirkland also said Chevron has no interest in any further investment beyond the 50 per cent it already holds. “We have 50 per cent of the interest in Kitimat-Liard-Horn River assets. That’s right in the middle of the sweet spot where we like to be where we’re committing people to run the projects and operations. We don’t want more than 50 per cent but we do have available some small amount of working interest that we would provide to a LNG buyer.
“There’s always been a plan for us and Apache to have some working interest that could be sold down to buyers, so they would be part of the development and they would be in the value chain. That has not changed.”
Kitimat LNG’s rival project LNG Canada, run by Shell, has buyer partners in KoGas, Mitsubishi and PetroChina.
Kitimat LNG under construction at Bish Cove, September 2013. (Robin Rowland/Northwest Coast Energy News)
Final Investment Decision
One analyst asked Kirkland if the Final Investment Decision would come at the end of 2014, as previously announced, or in 2015. Instead, Kirkland said, “We will reach FID shortly after having 60 to 70 per cent gas committed to an SPA- a sales and purchase agreement. That is the critical decision maker and for both timing and the investment decision, irrespective of what happens with Apache. We’re driven, once again, by having a sales contract or sales contracts that gives us 60 to 70 per cent of the gas committed at an economic price.”
On the Kitimat terminal, Kirkland said, “We’ve got work going on, FEED [Front End Engineering and Design] work on the plant itself.
“We have to understand cost and schedule on that plant… We’re not spending huge money but it is a lot of money in terms of hundreds of millions of dollars. Now that is critical for us to have all that so we can deal knowledgeably with buyers. We have to understand cost. We have to understand resource, so we can deal with the particulars of pricing.
“We are not going to do a project unless it’s economic. We’ve always told you we’re not going to build that project unless we have 60 per cent of the gas sold. If you understand the project it makes sense.”
“I am not concerned if Apache leaves,” Kirkland said. “I think we could easily step in and be the operator of the upstream. I am confident there. Apache has been very good to work with in the early stages of the assessment of Liard.
“I think we’re in good shape but we need clarity, we need to get closure on the partnership and as I mentioned we have to do the work where we deal with buyers and understand costs and understand economics. We are very value driven, we are not going to go FID until we understand the economics of that sale.”
Confident on assets
Kirkland said that the company is confident about the assets in the Liard and Horn River regions but is waiting for final results from some test wells in the Liard.
“We can check off our confidence level on the Horn River. Resources are already high. We’ve already done that appraisal. So the focus on the resource sector is on the Liard, with some appraisal there and getting some production work. The wells where we need to get some production data will be complete by the end of the year. So that’s a really important step forward.”
Kirkland also hinted at the potential problems with the Pacific Trails Pipeline, where there is still a dispute with the Wet’suwet’en First Nation. “We’re going to focus on the pipeline and the end of the pipeline corridor. That’s important and we’re putting some money into that to finalize the pipeline routing, get all our clearances and then we’ve got work going on.”
Slide from the Chevron second quarter results presentation showing other LNG projects (Chevron)
Overall Kirkland was enthusiastic about other liquified natural gas projects in Australia and elsewhere in the world. Chevron Corporation reported earnings of $5.7 billion for the second quarter 2014, compared with $5.4 billion in the 2013 second quarter. Sales and other operating revenues in the second quarter 2014 were $56 billion, compared to $55 billion in the year-ago period.
Company CEO John Watson said a news release, “In Australia, our Gorgon and Wheatstone LNG projects continue to reach important interim milestones. Gorgon remains on track for expected start-up in mid-2015. We are also advancing the development of our liquids-rich, unconventional properties in the United States, Canada and Argentina.”
Apache will “completely exit” the Kitimat LNG project, company CEO Steven Farris told investors Thursday as the company reported its second quarter results.
The pull out from Kitimat is part of a plan by Apache to spin off assets that are not part of its “base business” so it can concentrate on its “North American onshore assets.”
“We have said for some time that Canada is part of our North American onshore portfolio,” Farris told analysts in a conference call.
“Certainly we have two businesses up there. [in Canada] We have a business which is a base business with respect to the Duverney Shale and Monteny shale and some of the other things we working on there. We also have the Kitimat-Horn River- Liard. Kitimat -Horn River -Liard is part of our LNG project which we reindicated today that we intend to exit.”
A long view of the Kitimat LNG project at Bish Cove, Sept. 14, 2013. (Robin Rowland/Northwest Coast Energy News)
The Horn River and Liard natural gas fields would have served the LNG project. The divesture could either be as a complete package or sold separately perhaps through the capital markets. The Duverney Shale and Monteny shale plays are considered North American assets, while the Horn RIver Liard plays are considered international because the product from there would be sold in Asia via an LNG terminal.
Chevron, the 50 per cent partner with Apache in Kitimat LNG, said it would have no comment on the Apache move until its own investor conference call Friday morning.
Apache also intends to divest its stake in the Australian Wheatstone LNG project, where Chevron is also a partner.
It was about 18 months ago, Farris said, that Apache changed its focus to “enhancing its North American onshore resource base… We’ve also made it clear that there are no sacred cows as our efforts continue.”
Change in company strategy
Apache CEO Steven Farris. (Apache)
Farris and other executives repeatedly emphasized on the call that the Kitimat and Wheatstone sales were part of an overall change in company strategy.
“I have to honestly say that the complete exit by Apache will not have an impact on Kitimat going forward one way or another,” Farris said.
“Whether we’re in it or not, they will contact with world class reserves and frankly Chevron and Apache are way a head of anybody else in that arena. We’ve always been in a position that we felt we could not be in these LNG projects. I think it’s important that we state that.”
Some other financial analysts on the call seemed a little skeptical about the move, with a couple of questions focused on whether Apache was giving up long term investments.
“In terms of business and priority of capital and time frame of LNG specifically Kitimat it make sense for someone to own it who has a different timeline,” Farris said.
As for the timing of the sale, both Farris and Chief Financial Officer, Alfonso Leon, would not give specifics. “We haven’t decided on a specific timeline, we are working on a number of different opportunities,” Leon said. “Each of them has a different timeline associated with it. So we will make decisions as we reach decision points. Specificaly on the separation work flow…it is not something that will be executed on an imminent basis. Work has been underway but there is still significant work ahead of us.”
The executives would not say how much Apache has spent on Kitimat LNG so far, but it has been estimated at $2 billion just this year.Upgrading the old forest service road to a modern highway capable of supporting heavy truck traffic was estimated to cost $25 million Kitimat LNG officials said late last year.
Fair price
As for the selling price, Farris said that company will hold out for the best deal, saying that Apache has got a “fair price” for international assets that is has already sold, adding that when it comes to Kitimat and Wheatstone. “We won’t sell at prices that don’t make sense,” whether that comes from a package deal with the northeast BC shale assets or through the capital markets.
Overall, Apache Corporation is making money, announcing second-quarter 2014 earnings of $505 million Net cash provided by operating activities totaled approximately $2.3 billion in second-quarter 2014, compared with $2.8 billion in the prior year, with cash from operations before changes in operating assets and liabilities totaling $2.2 billion, compared with $2.6 billion in second-quarter 2013.
In the quarterly report news release, Farris said, “Record-setting performance by our Permian Region continues to drive strong results for the company… Apache’s onshore North American liquids production increased 18 percent on a pro forma basis in the second-quarter 2014 compared with the same period a year ago”
Although some enviromental groups and First Nations are claiming victory in the Apache divestiture, it is clear that those activities had negiligble impact on the decision, which was driven in part by the demands of a New York hedge fund and by the growing uncertainty in the LNG market as Asian countries seek natural gas at much lower North American prices. As the old Godfather movies often said, “It’s not personal, it’s business.”
Apache’s exit, however, does increase the uncertainty in both the short term and long term development of LNG export terminals in northwestern BC, and clearly shows that Premier Christy Clark made a mistake in promising that the provincial economy will boom thanks to LNG.
Both Premier Clark and LNG Minister Rich Coleman were unavailable to the media Thursday. Coleman’s office did send an e-mail tothe media saying, “With 16 LNG proposals involving over 30 partners, we recognize partnerships will change over time, as companies make decisions that make commercial sense for their business. It’s the nature of the business and the energy sector.”
Shell reports
Little noticed in the media attention over Apache, was the fact Royal Dutch Shell also issued its quarterly report early Thursday. Unlike Apache, Shell is still investing in LNG projects around the world, and getting returns from existing LNG projects, while divesting under performing natural gas assets both upstream and downstream. There is no mention of LNG Canada and Kitimat in the report. In a statement issued with the quarterly report Royal Dutch Shell Chief Executive Officer Ben van Beurden commented in part:
I am determined to get a tighter grip on business performance management in the company, and improve thebalance between growth and returns. Our financial performance for the second quarter of 2014 was more robust than year-ago levels but I want tosee stronger, more competitive results right across the company, particularly in Oil Products and NorthAmerica resources plays….
Sharper accountability in the company means that we are targeting our growth investment more effectively,focusing on areas of the business where performance improvement is most needed, and driving asset sales innon-strategic positions….
We see attractive growth opportunities there such as natural gas integration and liquids-rich shales. We are taking firm actions to improve Shell’s capital efficiency by selling selected assets and making tougher project decisions. We have completed some $8 billion of asset sales so far in 2014. This represents good progress towards our targets to focus the portfolio, and to maintain the financial framework in robust health.
A New York hedge fund, also known as an aggressive activist investor, which just bought a huge stake in Apache, is urging the company to get out of the Kitimat LNG project.
Numerous media reports say that Jana Partners recently bought a one billion dollar stake in the Houston and Calgary based oil and natural gas producer.
Bloomberg reports that Jana is a $10 billion hedge-fund firm run by Barry Rosenstein “known for pushing corporate managements to make changes”
According to both Bloomberg and theWall Street Journal, Jana wants Apache to get out of LNG projects in both Canada and Australia and concentrate on the United States. Bloomberg says
Jana said it has “engaged in discussions with management” and urged Apache to sell its international businesses to focus on U.S. shale opportunities, exit its investment in liquefied natural gas, and be more forthcoming about how much oil and gas lie beneath its holdings in West Texas’s Permian basin, among other demands.
The Wall Street Journal says Jana believes that Apache should free up cash flow:
by exiting two major projects in Canada and Australia that aim to export natural gas, which will take years and billions of dollars to fully develop. If the company doesn’t take further steps to increase its value,
“Investors are unimpressed by [Apache]’s global diversification and have voted with their feet,” Jana wrote in a letter to investors on Monday that was reviewed by The Wall Street Journal.
Investors apparently consider the Kitimat project a drain on Apache’s capital, so far costing $2 billion in 2014. The hedge fund said the company had poor performance compared with rivals, several of which are pure-play companies that drill exclusively in U.S. shale formations such as the Permian Basin. Jana also wants Apache to consider selling itself.
According to the Wall Street Journal, Apache raised $10 billion from selling assets around the world. In both February and May Apache said it is looking for a buyer for some of its stake in Kitimat LNG.
In Australia,Bloomberg says Apache is in early discussions with potential buyers for its stake in the $27-billion Wheatstone LNG project in Western Australia, which like Kitimat LNG it operates in partnership with Chevron. First LNG deliveries from Wheatstone are expected in 2016.
Bloomberg quotes a Jana newsletter as saying that selling Wheatstone and its stake in Kitimat would free $3 billion to $4 billion cash to fund share buybacks and reduce future spending risks.
A Calgary-based spokesman for Apache told the Financial Post said joint marketing efforts for LNG by the company and Chevron on the project are progressing, but did not offer detail. It is well known that Kitimat LNG has had a problem finding customers for the project, due to the increasing volatility of the LNG marketplace.
The Shell-led LNG Canada project has customers in the partners, KoGas, Mitsubishi and PetroChina but is also under pressure due to growing costs.
Apache management has been active over the past 12+ months managing the portfolio. Since the February 2014 analyst meeting where the baseline expectation was that the LNG business would be retained (selling down the 50% interest in Kitimat has been a consistent goal), there has been a change in Apache’s messaging on the topic. Recent investor presentations and press articles have suggested all or part of Wheatstone could be monetized (we remove LNG capex from our EV/DACF target multiple valuation as a result). From this perspective, Jana’s proposal is likely to reach more sympathetic ears at Apache (today relative to 6 months ago), in our view. The good news for current shareholders is that the substance of the activist proposal has likely already been substantially evaluated by management and a process to this end could already be underway, if not nearing completion.
According to the Hedge Fund Letters, Jana is a very aggressive investment company
Jana Partners’ core investment strategy is primarily based upon a value-oriented (interestingly towards both value and growth stocks) and event-driven investment methodology with the ever-present tagline being “ignore the crowd”. Mr. Rosenstein…is often an activist investor, using Jana Partner’s capital (sometimes combined with others’, most famously with Carl Icahn) infusion into a company to promote change against management directives that he perceives as detrimental to shareholders.
Mongolia will hold a reality television style text message referendum on the future of Rio Tinto’s troubled Oyu Tolgoi copper mine project, the Financial Times reports.
