Prime Meridians – The Top 5 Resource Stories Of 2016

This week in Pierce Points:

Libya restarted a mega oil field. A deal with rebels is bringing the Sharara field back online for the first time since 2014. 

Oil majors zeroed in on Iran and Brazil. One is unveiling new project tenders while the other just signed a $2.2 billion deal.  

Escondida’s mine workers asked for more. Unions at the world’s top copper mine want a raise — despite lower prices.

China’s coal miners struggled. Two major producers took debt-for-equity swaps, while another defaulted on its bonds.

The Top 5 Resource Stories Of 2016

The most common question I get asked is, “Why do you write Pierce Points?”

It’s a fair query. After all, this letter has no immediate business slant — I don’t use it to push products, deliver revenue-generating advertising, or promote a “premium” paid subscription.

What you see is what you get: daily commentary on what I believe are the most critical undercurrents in natural resources. All completely free and without strings.

It takes a fair bit of time to research, write and distribute (although that old saying “find something you love to do and you’ll never work a day” comes to mind here). Not to mention the travel and other on-the-ground expenses that go into getting the real story around the world — which this past year included stints in Myanmar, Thailand, Japan, Panama, the U.S., and Zambia.

But I’d be lying if I said this was an act of charity. The fact is, I do get a major return out of running and maintaining Pierce Points.


As I’ve noted many times in the past, the real benefit of this letter is the network of professionals in geology, engineering, logistics, investment, banking and resource law that’s built up around Pierce Points since it began in 2009. Today, the letter goes out to readers at Rio Tinto, BP, GE, Platts, Johnson Matthey, BNP Paribas, Worley Parsons, Sprott, Harvard and the United Nations — thanks to all of you for your time in reading and corresponding.

Having a means to stay in touch with a group of peers like that is worth all the time and effort a million times over. Thanks to everyone who helped this year in building resource investments that work — I couldn’t do it without you.

One of the best things about this community is, everyone is very engaged. My email management provider informs me the average open rate for our industry is 16.1% — while Pierce Points enjoys a 26.5% average engagement. Well above the norm, and a testament to this great audience.

Of course, some stories get a higher response rate than others. And that in itself is a valuable metric. When a cultured group of insiders responds strongly to an unfolding trend, it’s worth taking note.

In that spirit, below are the top five Pierce Points dispatches of the past year — ordered by reader response.

Interestingly, and unlike past years, the top stories of 2016 cluster around just two commodities: oil and gold (plus silver). Both of which saw major price swings during the past 12 months.

Here are the developments in those critical markets that you found most noteworthy…

5)  This Unexpected Player Now Controls The Global Silver Price (March 9, 2016)

China is always a big story in any natural resources sub-sector. And the nation zoomed to the forefront of the silver industry this past March — when the group behind the benchmark London silver price announced that Chinese buyers would now officially be involved in setting global rates.

CME Group, which manages the influential London silver fix, announced that China Construction Bank would be added to the silver price-setting process. Marking the first Chinese player to join the fixing, which up until now has been conducted by HSBC, JPMorgan Chase, The Bank of Nova Scotia, Toronto Dominion Bank, and UBS.

This was yet another sign of the ever-growing influence of China on precious metals markets. An intriguing data point as we move into 2017 amid speculation that China may be planning a coup in the precious metals space after quietly accumulating bullion for years.

4)  Is This Rumoured Buy Showing A Major Gold M&A Rush Coming? (April 11, 2016)

Sticking with the China gold theme, the Wall Street Journal broke the story that Chinese miners were looking to aggressively expand their international project portfolios. With relative newcomer Zhaojin Mining reportedly being close to a major acquisition in South America.

That would have been a big deal, given that Chinese involvement in the South American gold sector has been very limited up until now. Although a number of significant acquisitions have been made by Chinese copper miners in Peru and Ecuador.

The rumored Zhaojin deal never materialized however. Perhaps underlining the difficulties Chinese firms have faced in navigating South American politics — although we still don’t know where and what exactly Zhaojin was looking at.

The rising gold price around this time might also have made sellers re-think their position, perhaps putting off thrifty acquirers. In fact, there were very few China-backed buys in the gold space this past year — unlike the previous two years, which saw a spate of deals. That said, Chinese property firm Shandong Tyan Home did close out 2016 with a $1 billion purchase of the famed Kalgoorlie gold mine in Western Australia.

3)  These New Numbers Show A Major Threat To Gold Is Disappearing (January 25, 2016)

India has long been at the center of the global gold market — being the reigning number-one consuming nation for the yellow metal. But early in 2016 it looked like demand here might be crimped by the government’s new “gold monetization scheme”. Which encouraged citizens to deposit gold in interest-bearing accounts that could be drawn on by the government to supply jewellers and other users.

There were however, a lot of conceptual problems with the monetization plan. And in late January it became clear India’s citizens were steering clear — when Economic Affairs Secretary Shaktikanta Das announced that only 900 kilograms of gold had been deposited.

That amounts to less than 0.1% of India’s annual gold consumption, showing that monetization was unlikely to be a force in dampening demand. Although the Indian government did go on to introduce a raft of other measures to discourage gold buying — including a proposed sales tax on gold jewellery (scrapped after a six-week strike by gold sellers) and later rumors of all-out restrictions on private holdings of bullion.

2)  The World Just Lost One Of Its Biggest Oil Plays To Low Prices (January 18, 2016)

The petro-world was reeling at the beginning of 2016, with West Texas Intermediate selling for under $30 per barrel in mid-January — the first time this benchmark crude hit that level since 2003.

That prompted the government of oil-rich Brazil to take drastic action. With since-impeached president Dilma Rousseff announcing a freeze on new auctions of offshore oil and gas blocks in the high-impact presalt play.

At the time Rousseff implied that the government would be giving away its oil if it allowed foreign E&Ps to produce at low prices. And the oil price collapse had hit state-owned developer Petrobras hard, crimping that company’s ability to take on new presalt projects.

That latter development actually prompted some good news for international E&Ps — when Brazil’s congress voted in October to scrap requirements for Petrobras to have a 30% operator stake in every presalt project. Opening up these prolific fields to 100% ownership by foreign companies.

That move, plus the recent oil price rebound, appears to have given Brazil’s government new confidence in the presalt — with Mines and Energy Minister Fernando Bezerra Coelho saying late in the year that a new presalt auction should be held by June 2017.

Given the reformed ownership rules (and recent reports that Brazil will simplify its oil and gas tax regime), such a licensing round could end up being one of the best petro-opportunities of the coming year.

1)  Here’s An Unexpected Violent Setback For Iran’s Emerging Oil Supply (February 1, 2016)

Speaking of oil and gas opportunities, I wrote a lot this past year about new petroleum contracts being offered to foreign developers in Iran (including the second item in this past week’s wrap-up, above). With the lifting of foreign sanctions here opening up one of the most interesting new terrains the petro-world has seen in decades.

But last February, it looked like the plan to tender Iranian oil and gas fields to international E&Ps might go off the rails. When an angry mob surrounded Iran’s oil ministry in Tehran — demanding that citizens get a bigger share of oil fields being offered to foreign developers.

The protest reportedly resulted in a “severe confrontation” with local authorities. And the crowd was eventually dispersed — although the ensuing months saw some tense debate amongst Iranian lawmakers in revising the terms of petroleum contracts being offered for international tender.

The exact details of the final contract model are still largely unknown to the public. And the eventual release of such information could become one of the biggest stories of 2017 — with the first tenders planned to be completed by the end of the first quarter.

Watch for details of Iran’s first deals — as well as Brazil presalt auction 2.0, more Chinese gold mine acquisitions, and further twists and turns in India’s precious metals markets — as we move into the new year. Happy Auld Lang Syne to all, can’t wait to talk more in 2017.

Here’s to a lucky Year of the Rooster,

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Dave Forest

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