As costs rise and pipe arrives, Ottawa insists Trans Mountain project is on track

CALGARY – Natural Resources Minister Amarjeet Sohi insists the Trans Mountain pipeline expansion project is “on track” despite reports of rising costs and delayed construction timelines.

“We have been able to save this construction season,” Sohi said this week after Houston-based Kinder Morgan Inc. disclosed new information in a U.S. Securities and Exchange Commission filing that showed the project could cost as much as $1.9 billion more than previously thought.

“We are very confident this project is on track,” he said.

Sohi, who recently took over the Natural Resources portfolio from newly appointed Minister of International Trade Diversification Jim Carr, said there has not been any deviation from the previously announced construction timeline and work is progressing.

Kinder Morgan has already started buying and stockpiling pipe for the project, and is now adding staff after the project languished in “suspended mode” for months.

Kinder Morgan on Tuesday released financial documents that showed the Trans Mountain expansion, which would boost oil shipments between Alberta and British Columbia by 590,000 barrels per day, would cost $8.4 billion if construction wraps up in December 2020, which is $1 billion more than previously released cost estimates.

However, project costs will rise to $9.3 billion if the project is delayed until the end of 2021.

Sohi said those cost figures and project timelines were, so far, only hypothetical and prepared as potential cases by Kinder Morgan’s bankers.

Ottawa in May agreed to buy the Trans Mountain pipeline and expansion project from Kinder Morgan for $4.5 billion and is preparing to take over once the deal closes.

“If you look at the filings of Kinder Morgan in July, the work is proceeding as planned and there has not been any deviation from that,” Sohi said, adding that workforce housing is being built, stockpile sites are being prepared and work continues at the marine terminal in Burnaby, B.C.

Given the company had previously announced the expansion project would take 27 months to build and be completed by December 2020, analysts believe the $8.4-billion figure is the project’s most likely final cost.

“December 2020 was in line with what they were saying so it makes all the logical sense in the world,” said Dan Tsubouchi, principal and chief market strategist at Calgary-based Stream Asset Financial Management LP.

Tsubouchi cautioned, however, that in order to meet that in-service date, “they’ve got to be going full tilt,” and added it is more likely that the project will be completed in early 2021.

Kinder Morgan Canada Ltd. president Ian Anderson said at a recent news conference that the company had been “working tremendously hard for the last two months to ready ourselves” to begin construction.

Preparatory work on the pipeline route is scheduled to start in Alberta on Aug. 25 and in eastern B.C. on Sept. 3. Anderson said the company is aiming to install pipe in the ground in Alberta in January or February 2019 and shortly after that in eastern B.C.

“We don’t have a completion date right now,” he said in late July.

Similarly, Sohi emphasized the company and government are still signing contracts for the project and would not change the projected timeline at this point.

“As we move forward, we will know more about the closing of the contracts and then we will know with more certainty the construction timelines and costs and we have committed to getting this project done,” he said.

If the project’s completion date is December 2020, Kinder Morgan’s financial disclosures show it will spend $1.46 billion on the expansion this year before a massive ramp-up in 2019, when growth capital expenditures are pegged at $3.1 billion.

There are still numerous regulatory and logistical challenges before either Kinder Morgan or the federal government can begin construction on the project.

Trans Mountain must meet 48 of the National Energy Board’s 157 conditions for approving the project before construction can begin. As of the beginning of August, the company had met 22 of those conditions, but filings for the other 26 conditions were still under review.

“The vast majority of the permits that are required to prepare for construction and to start construction have been issued,” Sohi said. “We are not worried about it at all.”

From an operational perspective, Trans Mountain has also had to staff up after a period that Kinder Morgan Canada president Ian Anderson described at a news conference as “suspended mode,” when the company scaled back work amid concerns about the B.C. government’s opposition to the pipeline.

“Progress has been made on signing employment and procurement contracts, preparation activities, receiving materials, seeking permits, meeting conditions, refining engineering designs and notifying neighbours and stakeholders about upcoming construction activities,” a Kinder Morgan Canada spokesperson said in an unsigned email.

The company also confirmed it had begun stockpiling pipe for the project and would not be affected by U.S. President Donald Trump’s steel tariffs.

“Trans Mountain has ordered a portion of the pipe needed for the expansion project and pipe shipments have been arriving at our stockpile sites over the past several months, in line with our construction timelines,” the company said.

Evraz North America PLC will supply the project with 275,000 tonnes of pipe, which will be fabricated at the company’s operation in Regina. The company began manufacturing the pipe last fall and that will continue through May 2019.

Kinder Morgan Canada confirmed the material for the pipeline has been primarily sourced from recycled metal operations in Alberta, Saskatchewan, Manitoba and Ontario, with remaining materials being sourced overseas.

“We do not have any plans to purchase pipe from the United States,” the company said, in response to a question about whether U.S. steel tariffs would affect costs.

Regardless of when the project is completed, there’s a palpable sense of optimism in the oil patch that new export pipelines will be in service in the coming years to alleviate the existing bottleneck.

“These are huge events,” Stream’s Tsubouchi said, pointing to the recent progress on new pipelines, including the Trans Mountain expansion, Enbridge Inc.’s Line 3 replacement and TransCanada Corp.’s Keystone XL. “We’re really opening up the oil patch to the next decade of growth.”

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Detour Gold warns of ‘fire sale’ in clash with Paulson, as analysts speculate on possible buyers (maybe Barrick)

Paulson & Co., the U.S. hedge fund that won worldwide recognition for its correct bets on the U.S. housing market prior to the global financial crisis, isn’t backing down in its fight against the management of Toronto-based Detour Gold Corp.

On Thursday, Paulson & Co. announced it plans to call a special shareholder meeting by no later than July 28, when it will ask the rest of the company’s shareholders to oust “a majority” of the company’s board of directors.

The announcement followed a contentious exchange between the two companies a day earlier, in which Detour denied receiving any purchase offers, prompting Paulson & Co. to release an email it said the company’s interim chief executive Michael Kenyon sent that appeared to show otherwise. Paulson & Co. said a lawyer representing Detour on Wednesday threatened litigation against the hedge fund.

“Detour’s management and directors appear intent on using the company’s resources to engage in meritless litigation strategies,” Paulson & Co. wrote in a press release to shareholders on Thursday.

As one of the largest institutional investors in the company — it owns more than five per cent — it is entitled under Ontario securities laws to requisition a special meeting of shareholders.

Starting last month, Paulson & Co. began suggesting it would seek to replace Detour’s board, accusing the company of underperforming its peers and ignoring buyout offers from other mining companies.

Detour’s flagship mine is located in northwestern Ontario, and is expected to produce more than 600,000 ounces of gold per year for another two decades — likely ranking it among the dozen or so largest gold mines in the world.

But its chief executive Paul Martin resigned in May after failing to obtain an expansion permit for the mine, and cutting production goals and raising costs.

On Wednesday afternoon, Paulson & Co stated it received an email last week from Detour’s interim chief executive Kenyon stating a mining company is interested in purchasing the company.

Detour shares rose as much as 13 per cent on Wednesday, but were trading down just under 1 per cent to $13.8 per share on Thursday on the Toronto Stock Exchange.

Several hours later, Detour issued a press release saying it has not received “any offers to purchase it shares,” and that it has asked the Ontario Securities Commission to investigate Paulson & Co.’s unlawful behavior.

Escalating the tit-for-tat, hours later, Paulson & Co. released the email, in which Kenyon purportedly wrote that a company had “expressed a renewed interest in Detour and possibly making an offer for the company,” and asked Paulson & Co redact the name of the company in the publicly released version of the email. That has only fuelled speculation on which companies could purchase Detour.

CIBC Capital Market analysts on Thursday published a note ‘Who Could Devour Detour?”, which speculated that neither Agnico Eagle Mines Ltd, Kirkland Lake Gold Ltd nor Newmont Mining Corp. would be interested in such an acquisition.

On the other hand, Barrick Gold Corp., Goldcorp Inc. and Newcrest Mining Ltd. are all well-positioned to acquire such a large asset, the CIBC analysts wrote.

“Newcrest has expressed a goal of owning five tier-one ore bodies by 2020 and Detour could fit the bill, but the lack of mining experience in North America is an impediment,” the CIBC analysts wrote.

On Thursday in another press release, Detour wrote, “As for Paulson’s threat of running a proxy battle, we have heard this for many months now. If they choose to proceed, shareholders will have a stark choice — a fire sale by a U.S. hedge fund versus an experienced team.”

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‘Everything is now fair game’: Canada unlikely to be spared from U.S. uranium protections

The United States Department of Commerce has launched an investigation to determine if uranium imports threaten national security, raising questions about whether Canadian producers will be exempted from any potential trade restrictions.

The investigation, which opens a new front in U.S. President Donald Trump’s “America First” trade campaign, “will canvass the entire uranium sector from the mining industry through enrichment, defense, and industrial consumption,” the commerce department said.

“Our production of uranium necessary for military and electric power has dropped from 49 per cent of our consumption to five per cent,” said commerce secretary Wilbur Ross. U.S. uranium production fell to 2.4 million pounds in 2017, down 61 per cent over the last decade, according to the U.S. Energy Information Administration.

U.S. uranium producers Energy Fuels Inc. and Ur-Energy Inc. filed a petition in January requesting an investigation under section 232 of the 1962 Trade Expansion Act – the same provision used to justify tariffs of 25 per cent on steel and 10 per cent on aluminum imports from countries including Canada, Mexico and Europe.

The U.S. firms have requested that 25 per cent of the U.S. uranium market — roughly 12 million pounds — be protected for American miners, saying they have struggled to compete with state-owned “subsidized” firms in countries including Russia and Kazakhstan.

Though its unclear how U.S. mines could ramp up sufficient production in the near term to accommodate that gap, analysts don’t anticipate any special exemption for Canadian suppliers. U.S. reactors burn roughly 50 million pounds of uranium each year, with Canada and Kazakhstan each supplying roughly 25 per cent of that amount.

“We had previously considered that Canadian material would be exempt from any Section 232 tariffs and that any action would be mainly targeted at Kazakh and Russian material,” RBC economist Andrew Wong wrote in a note to investors.

“However, given that Canadian steel and aluminum were not exempt from Section 232 and trade tensions between U.S./Canada have risen, we are not entirely confident that Canadian material would be exempt or considered as ‘domestic’ material.”

Though U.S. producers have complained about subsidized competition, their production costs tend to be high, making it harder to cope with prices that have plunged from more than US$70 a pound to less than $20 per pound after the 2011 Fukushima Daiichi nuclear disaster, said Colin Healey, a mining industry analyst with Haywood Securities Inc.

The disaster prompted Japan to shut down all of its 50 nuclear reactors, putting a sizeable dent in global demand. Though Japan has since brought just nine reactors back online, uranium suppliers nevertheless ramped up production in anticipation of a stronger revival – leading to an oversupply problem that further depressed prices, Healey said.

Prices have since bumped up to about $23 a pound following production cuts at leading producers KazAtomProm in Kazakhstan and Cameco Corp. in Canada. Canadian suppliers would likely take the same approach, cutting back on production, if tariffs or quotas are imposed, Healey said.

Canada must be exempted from a U.S. investigation, and excluded from any potential tariffs or quotas, said Ken Neumann, Canadian Director of United Steelworkers, which represents workers in the uranium mining and processing sectors in Western Canada and Ontario.

“Targeting Canada’s uranium industry would be absurd and would suggest a deliberate escalation by the Trump administration – for its own political purposes – of a trade war with America’s closest ally,” he said in a statement.

U.S. uranium producers gained on Wednesday, with Energy Fuels Inc. surging as much as 14 per cent and Uranium Energy Corp. climbing 9.1 per cent, while Canadian producer Cameco Corp. fell 1.5 per cent, underscoring the divergence in sentiment. Cameco is set to report its second-quarter earnings on July 26.

Congress would likely have an easier time supporting restrictions on uranium imports – given their use as nuclear power plant fuel — than it did backing measures on steel and aluminum, said Benjamin Tal, deputy chief economist at CIBC World Markets.

“When it was aluminum you could question whether it can be justified as a national security risk, but with uranium, I think it’s much easier,” said Tal. “The bigger significance of this to me is what it signifies: that everything is now fair game. If you are the CEO of any company in any industry you don’t know when they’ll find something, some twist to introduce 232 to your industry.”

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TMGcore is running high-efficiency crypto mines in Texas

Out on the plains of East Texas, not far from Dallas, a company called TMGcore is mining crypto. The company, funded to the tune of $70 million, will be mining multiple cryptocurrencies and is using some unique technology to ensure that it doesn’t eat up an entire city’s worth of energy.

“TMGcore will be one of the first companies to utilize 3M’s Novec fluorochemical coolant at the heart of an enterprise scale cryptocurrency mining apparatus,” said CEO JD Enright. “The company’s intelligent mining system uses a Two Phase Liquid Cooling Immersion technology to dramatically decrease cooling costs by up to 90% and lets the company conduct mining operations from anywhere, including the middle of hot and muggy Texas. TMGcore also employs dynamically intelligent mining software that automatically mines the most profitable coin based on realtime market value and difficulty of access for the most profitable deployment of resources in realtime. Our technology is first-to-market and delivers a transformative approach to crypto mining that stands to fundamentally disrupt the market.”

The goal is to create mining infrastructure in the US and to prevent overseas control of the various currencies.

“Giving America a seat at the table is our #1 goal here at TMgcore. Our cooling technology and efficient mining rigs open up more regions of this country to house this type of operation,” said Enright.

The mine is housed in Plano, Texas inside a 150,000 square foot facility and is capable of a “100 megawatt live power load.” Further, the company is running custom ASIC chips increase board density and reduce mining costs significantly. In short, it will be one of the highest tech mining facilities in the world.

From the release:

The company has developed a unique use case with a fluorochemical coolant that delivers smart, safe and sustainable cooling for industrial technology operations. TMGcore will be one of the first companies to utilize this compound at the heart of an enterprise scale cryptocurrency mining apparatus. The company’s intelligent mining technology uses a Two-Phase Liquid Cooling Immersion technology to dramatically decrease cooling costs by up to 90%. The system also dynamically adapts its mining efforts toward the most profitable token at any given time, factoring in real-time market price, the difficulty of access and hash rate. TMGcore has also developed custom-made ASIC mining boards that result in a 20% increase in token output.

“Leveraging the magic of this coolant and groundbreaking mining circuitry, we saw a massive opportunity to capitalize on the nascent and highly lucrative mining industry in a physical, tangible and industrial fashion,” said Enright. “TMGcore seeks to deconstruct the mining monopoly in other countries with an American-made, U.S. driven approach that not only pushes the blockchain ecosystem forward but also creates job opportunities for Texas’ fast-growing technology community. We understand the importance of the research and development that creates not only innovations but the efficiencies that support the blockchain industry on a global scale.”

“Texas, more so than many other states in this country, has an abundant supply of energy available on their grid with available real estate to house such a project,” said Enright. “Cryptocurrency mining has not really been able to take advantage of Texas’ energy supply to date because the state is too hot. By utilizing Novec in this Two Phase Liquid Cooling Immersion technology, we have unlocked Texas’ potential to mine for the first time.”

Trump trade war looms over picturesque Canadian aluminum town built by Americans

If ever a town embodied U.S.-Canadian symbiosis, it’s Arvida, Quebec.

Built by Americans, its giant smelter supplied most of the Allied forces’ aluminum in the Second World War and today makes metal used in Budweiser beer cans, Tesla and Ford cars and in AR15 rifles, part of the 2.5 million metric tons that Canada sends over the border each year.

But now this corner of French-speaking Canada is in America’s cross hairs after the Trump administration’s shock move to tax metal from its closest ally under the pretext of national security.

“When you want to kill your dog, you will say he has rabies,” Mayor Josee Neron said in an interview. “To see one person destroy all that in just a blink of an eye, I think it’s too bad.”

From above, the area looks like a model train set: impossibly picturesque with enough infrastructure to set a young engineer’s heart soaring. Locomotives wend through Sphagnum moss-like trees, and hydroelectric plants straddle navy-blue rivers. There are port facilities at the mouth of the fjord, towers garlanded by hundreds of miles of transmission lines, five smelters and a refinery, all owned by the area’s largest private employer and top aluminum shipper to the U.S., Rio Tinto Group. The Saguenay–Lac-Saint-Jean region is part of a cross-border ecosystem that supplies almost half of the aluminum used in the U.S., including the metal found in three out of four American cars.

Arvida is the epicentre. Built in 1926 by Alcoa President Arthur Vining Davis, the town is an acronym of the American industrialist’s name. One of the earliest examples of a company town, Arvida has been absorbed into the city of Saguenay, but its main street remains vibrant and the original architecture largely intact.

Vehicles sit parked on Davis Street in the town of Arvida in Saguenay, Quebec.

The Arvida smelter still produces some of the highest-quality aluminum in the world for the U.S. auto sector from its original red-brick building. But the adjacent, high-tech AP60 smelter is seen as the real future for production here, especially if Rio pulls the trigger on an expansion there and on a fifth smelter, Alma, in nearby Lac-Saint-Jean.

Rio has yet to give a timeline for those projects, in part because it believes the market is oversupplied. While Alf Barrios, Rio’s head of aluminum, believes U.S. manufacturers ultimately have no choice but to buy from Canada, he’s concerned that tariffs will hurt Rio customers. The key question is how much those customers can pass on higher prices. Even if a trade war mainly ends up hurting consumers, the consequences for economic growth could feed back up to Rio.

“At the moment, we haven’t stopped any investments in our business because of what’s going on,” Barrios said in an interview. “However, if this were to have a negative impact on the growth of the North American market, then one would have to consider that in the decision.”

The region is no stranger to ups and downs. In 1928, Alcoa spun off its Canadian subsidiary, only to watch it smack headlong into the Depression. Reborn during the Second World War, Alcan, as it became known, flourished. Arvida was the largest smelter in the world at that time, employing 12,000 people. In the decades that followed, the company’s fortunes ebbed and flowed with global markets, even as trade ties between Canada and the U.S. deepened.

Vehicles sit parked on Davis Street in the town of Arvida in Saguenay, Quebec.

In 2007, Alcoa triggered a nationalist uproar in Canada when it attempted to reacquire Alcan. Coming on the heels of two other massive takeovers, the hostile bid was seen as part of the hollowing out of Canada’s mineral sector. In the end, it was London-based Rio that took control, in a US$38 billion top-of-the-market deal. Today, about 2,500 people work at Arvida, many of them third- and fourth-generation. Rio is the area’s largest employer, with about 5,000 people in an operation that supports more than 100 regional businesses.

Employees and residents are fiercely patriotic about aluminum. “Yes, the owner is foreign, but it’s a Canadian asset,” said Jean-Francois Nadeau, general manager of the Complex Jonquiere, which houses Arvida and AP60.

The industry’s influence is everywhere. From 1926 to 1960, only Alcan employees were eligible to serve as city counselors in Arvida, said Bruno Fradette, an amateur historian and third-generation employee. In a tour of the town, he pointed out examples of its American heritage. Buildings and roads are named after American founders, and the main street is lined with posters celebrating its aluminum history.

A cyclist and a pedestrian pass historic photographs of an aluminum factory on Davis Street in the town of Arvida in Saguenay, Quebec.

When Rio took over, local sentiment swung from pride in ownership to pride over the asset’s environmental sustainability, Mayor Neron said. Aluminum has long provided high-quality jobs in Saguenay, but initiatives–including a recent push with Apple Inc. to make the metal without greenhouse gases–have the potential to further increase quality. Residents already refer to the region’s product as “green aluminum,” she said, because processing is powered by Quebec’s abundant hydroelectricity.

Hydropower is the reason U.S. industrialists first began making aluminum in this part of Quebec. But that geographical advantage was swiftly reinforced by the integration of Canadian and U.S. defense. The Bagotville military base — to which Air Force One delivered Trump for the recent G7 meeting — was built in 1942, partly to protect the Arvida complex. “Aluminum Gives Wings To Victory,” reads an advertisement from the period.

Equipment sits in the West-electrolysis centre at the Arvida aluminum smelter in Saguenay, Quebec. The picturesque corner of French-speaking Canada where the smelter is located epitomizes the potential fallout of a trade war after the Trump administration’s shock move to tax Canadian metal on the pretext of national security.

The emergence of the Cold War solidified the region’s importance once it became clear that Soviet nuclear bombers would need to fly over Canada to reach the U.S. Bagotville is still a key part of the North American Aerospace Defense Command defence. On Sept. 11, 2001, CF-18s from the base helped enforce the grounding of commercial flights.

In that context, it’s the national security argument, more than anything else, that rankles Canadians. Minister of Defense Harjit Sajjan joined Prime Minister Justin Trudeau and Foreign Affairs Minister Chrystia Freeland in calling the argument “insulting.”

Canada plans to introduce reciprocal tariffs on  July 1.

For the mayor, the mushrooming trade tensions are depressingly familiar. Saguenay’s other original economic base, pulp and paper, has been devastated by decades of U.S. protectionism around softwood lumber. Neron’s fear is that aluminum will follow.

–With assistance from Sandrine Rastello, Joe Deaux, Josh Wingrove, David Stringer and Thomas Biesheuvel.

Bloomberg.com

 

Backdoored images downloaded 5 million times finally removed from Docker Hub

A single person or group may have made as much as $90,000 over 10 months by spreading 17 malicious images that were downloaded more than 5 million times from Docker Hub, researchers said Wednesday. The repository finally removed the submissions in May, more than eight months after receiving the first complaint.

Docker images are packages that typically include a pre-configured application running on top of an operating system. By downloading them from Docker Hub, administrators can save huge amounts of set-up time. Last July and August one or more people used the Docker Hub account docker123321 to upload three publicly available images that contained surreptitious code for mining cryptocurrencies. In September, a GitHub user complained one of the images contained a backdoor.

Eight months of inaction

Neither the Docker Hub account nor the malicious images it submitted were taken down. Over the the coming months, the account went on to submit 14 more malicious images. The submissions were publicly called out two more times, once in January by security firm Sysdig and again in May by security company Fortinet. Eight days after last month’s report, Docker Hub finally removed the images. The following image, provided by security firm Kromtech, shows the chronology of the campaign.

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Apple just banned cryptocurrency mining on iOS devices

Apple recently announced new restrictions on the use of cryptocurrencies on iPhones and iPads, a change first noticed by Apple Insider on Monday.

“Apps may not mine for cryptocurrencies unless the processing is performed off device,” Apple’s app store guidelines for iOS now say. This requirement was absent from the same document just a few weeks ago.

Apple’s new policy is apparently motivated in part by concerns that cryptocurrency mining could drain the batteries of mobile devices. “Apps, including any third party advertisements displayed within them, may not run unrelated background processes, such as cryptocurrency mining,” the policy states.

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Scotiabank to scrap half its metals business, sources say

LONDON — Bank of Nova Scotia (Scotiabank) is limiting lending by its ScotiaMocatta metals unit as it embarks on a radical restructuring likely to halve the size of the business, sources familiar with the matter said.

Mocatta is the largest financier of the global precious metals supply chain, accounting for some 15-20 per cent of lending to clients ranging from refiners and jewellers to carmakers and petrochemicals producers, industry sources say.

Those sources place the value of its leases, credit lines and consignment lending of precious metal at US$8 billion.

While rivals are likely to take on most of Scotia’s business, its withdrawal will see the pool of cash available to the industry dwindle further after banks including Barclays, Deutsche Bank and Commerzbank scaled back or exited the market in recent years.

It could also leave smaller clients short of financing options and facing higher borrowing costs.

Ten industry sources told Reuters that ScotiaMocatta was curtailing lending to the physical metals supply chain and would refocus on major corporate clients which have broader relationships with Scotiabank.

“Scotia has already started calling clients and exiting,” said one source. “They are not going to deal with standalone ScotiaMocatta clients anymore,” one source said.

Clients were being given time to make alternative arrangements with the wind-down expected to take at least a year and a half, sources said.

“Some institutions they deal with will continue at least for the foreseeable future,” said a banking source, adding that other clients are being given dates by which to move their business.

In response to a request for comment, Scotia referred to a statement by its investment banking chief Dieter Jentsch in February in which he said the Mocatta business would change but gave few details.

“We are making organizational changes to simplify our operating model to better align our resources with our strategy and priorities,” Jentsch said at the time.

“In North America and Europe, the metals lending business will be integrated into our corporate lending platform while metals sales and trading will be integrated into our global commodities trading business. We remain committed to meeting the needs of our clients.”

SHRINKING FAST

Scotia’s pullback comes after a strategic review of Mocatta began in 2016 following a string of lawsuits related to the manipulation of gold and silver benchmarks and dissatisfaction with performance.

It also follows a failed attempt to sell the business.

Mocatta’s origins stretch back to the 17th century and sources estimate its annual revenue at US$150-$180 million, the bulk of which comes from precious metals.

It has large operations in India and China, the top consumers of physical gold, and is one of five banks that settle bullion in London’s US$5 trillion a year gold market, the world’s biggest.

Scotia has not yet decided on the future of Mocatta’s Asian arm or whether to continue clearing and vaulting precious metals, sources said.

But in Europe and the United States it is shrinking fast, sources said.

“In North America they’ll keep more of the business because they are a North American bank. Europe is non-core. (Globally) they’ll keep half,” said one.

Mocatta’s managing director in North America, Tim Dinneny, left the bank in mid-May, four sources said.

Around six more trading and sales staff in London and New York have been told they will be made redundant in October, said a source.

These cuts come after staff including Mocatta’s head of Europe and global head of base metals sales were let go in May and the business was incorporated into Scotia’s broader commodities business.

ScotiaMocatta had around 60-65 trading and sales staff before the restructuring began, sources said.

Scotia also still aims to sell parts of Mocatta, one source said.

“They were hoping a buyer would take everything, but that didn’t happen. Now they are going to carve up some pockets of the business and try to sell those,” the source said, adding that JPMorgan was organizing the sales.

JPMorgan declined to comment.

‘PRICES WILL GO UP’

The removal of such a large low-cost lender means borrowing costs will rise across the industry, sources said.

Corporate clients such as carmakers and large refiners will be least affected as banks including Canada’s Toronto-Dominion Bank, U.S. lender JPMorgan and China’s ICBC Standard are already offering to expand credit, sources said.

But banks generally are increasingly shying away from smaller industrial clients who were Scotia’s speciality, with loans often secured using physical metal or equipment as collateral.

Financing costs were likely to double, said the director of a small refinery in Europe.

Scotia’s exit could mark the end of an era when banks straddled the supply chain, said an executive at a major Swiss refiner.

“We will have again commission houses, brokers and refineries taking care of the physical markets and the banks restricting themselves to pure lenders.”

© Thomson Reuters 2018