Oando Energy Resources executes second facility agreement with Oando Plc

Oando Energy Resources Inc. ("Oando Energy Resources" or the "Company") (TSX: OER), a company focused on oil and gas exploration and production in Nigeria, today announced that it has entered into a second facility agreement ("Second Facility Agreement") with Oando Plc, the 94.6% shareholder of the Company ("Oando"), pursuant to which Oando Energy Resources will borrow US$200 million, at an annual interest rate of 5%, repayable in cash by February 28, 2014. The intended use of proceeds of the loan will be payment of the purchase price for the proposed acquisition by Oando Energy Resources of the Nigerian upstream oil and gas business of ConocoPhillips.  Pursuant to the Second Facility Agreement and the facility agreement between the Company and Oando dated May 30, 2013, as amended, Oando Energy Resources owes an aggregate of US$601 million plus interest to Oando.

The Second Facility Agreement does not become effective until Oando Energy Resources confirms in writing to Oando that (i) approval from the Toronto Stock Exchange in respect of the Second Facility Agreement has been obtained and (ii) the independent directors of the Company unrelated to Oando have recommended the approval of the effectiveness of the Second Facility Agreement to the board of directors of the Company, who have approved the effectiveness of the Second Facility Agreement (with directors affiliated with Oando abstaining from the vote).

Forward Looking Statements:

This news release contains forward-looking statements and forward-looking information within the meaning of applicable securities laws.  The use of any of the words "expect", "anticipate", "continue", "estimate", "objective", "ongoing", "may", "will", "project", "should", "believe", "plans", "intends" and similar expressions are intended to identify forward-looking information or statements.  In particular, this news release contains forward-looking statements relating to intended acquisitions.

Although the Company believes that the expectations and assumptions on which such forward-looking statements and information are reasonable, undue reliance should not be placed on the forward-looking statements and information because the Company can give no assurance that such statements and information will prove to be correct. Since forward-looking statements and information address future events and conditions, by their very nature they involve inherent risks and uncertainties.

Actual results could differ materially from those currently anticipated due to a number of factors and risks. These include, but are not limited to: risks related to international operations, the actual results of current exploration and drilling activities, changes in project parameters as plans continue to be refined and the future price of crude oil. Accordingly, readers should not place undue reliance on the forward-looking statements. Readers are cautioned that the foregoing list of factors is not exhaustive.

Additional information on these and other factors that could affect the Company's financial results are included in reports on file with applicable securities regulatory authorities and may be accessed through the SEDAR website (www.sedar.com) for the Company. The forward-looking statements and information contained in this news release are made as of the date hereof and the Company undertakes no obligation to update publicly or revise any forward-looking statements or information, whether as a result of new information, future events or otherwise, unless so required by applicable securities laws.

Shane Nagle: Making Your Portfolio Pricing-Pressure Proof

The Mining Report: National Bank Financial (NBF) said in an Oct. 7 report that, when combined with its cautious near-term outlook for commodity prices, elevated multiples suggest the base metal sector is overvalued. Are there exceptions to that statement?

Shane Nagle: Since that time, we’ve seen a retracement in the multiples. The mining index in general remains near the upper end of historical ranges, as investor interest has gravitated toward large and midcap names with stable cash flow and strong balance sheets. Those companies are the exceptions, not only just within the base metal space, but within the mining space in general. Looking past those elevated cash flow and net asset value (NAV) multiples and focusing on companies with balance sheets sufficient to weather a prolonged downturn are the names that stand out as being most attractive.

TMR: Do you think the downturn will last several more years?

SN: Maybe downturn is the wrong phrase, but I think we’re still a few years away from another rally. If I can use copper as a specific example, there’s been a lot of investment on projects in the copper space throughout the past few years. About 15% or so of the current global demand is coming on-line within the next two years from the addition of several large projects (Oyu Tolgoi, Sentinel, Toromocho etc.), this is seemingly going to keep the concentrate market oversupplied throughout 2014-2015. There will probably be some general weakness in copper and base metal prices as a result of this.

The good news is the supply cycle tends to come in waves. Copper prices now are relatively low compared to what price levels are needed in order to make a lot of new projects economical. Projects are being canceled, delayed or suspended. Meanwhile, political factors such as permitting challenges are also pushing out production several years.

So maybe not a downturn, but certainly weaker fundamentals for a couple of years. On the other hand, things are looking pretty good long term, as a lot of the projects that would be slated to come on-line by 2017-2018 are not going to materialize in the current market environment.

TMR: Are we going to see similar sideways performance for nickel and zinc?

SN: Both nickel and zinc markets are oversupplied as well, but appear to be trending in opposite directions. There’s seemingly no end to the nickel supply, the wild card being the proposed export ban on nickel laterite ores from Indonesia.

People have made the case that there’s a great deal of zinc supply coming offline with the closure of the Brunswick and Perseverance mines. However, there are several additional projects, albeit smaller, coming on-line, as well as the extension of the Century and Skorpion mines in Australia and Namibia, respectively. Both markets may stay well supplied in the near term, but long-term fundamentals appear to be more supportive for zinc (which I think is the consensus view).

TMR: What’s your price deck for copper, nickel and zinc for 2014?

SN: For copper we’re using $3 per pound ($3/lb); zinc is $1/lb; and nickel is $7/lb. We’ll be taking a closer look at updating our estimates in the weeks to come.

TMR: Could base metal producers soon be ready once again to spend money on mergers and acquisitions (M&A)?

SN: I don’t think M&A is going to heat up within the base metal space. There’s been so much consolidation during the last decade that there’s not much out there to buy. The type of M&A that could still happen would be optimization of projects within larger mega-cap companies, like Glencore Xstrata PLC (GLEN:LSE; GLEN.HK:HONG KONG; GLN:JSE), where they carve out assets to the mid-tiers.

TMR: You don’t see companies like BHP Billiton Ltd. (BHP:NYSE; BHPLF:OTCPK) or Rio Tinto Plc (RIO:NYSE; RIO:ASX; RIO:LSE; RTPPF:OTCPK) taking advantage of the market for base metals projects that are undervalued?

SN: There are very few projects of that scale that would interest those companies. They also remain under considerable pressure from their shareholders to limit spending. Glencore’s most recent comments were about curbing spending for the next few years in order to weather a downturn. Companies are still focusing on strengthening their balance sheets, limiting and reducing capital costs and optimizing their portfolios by shedding non-core assets. I think that’s the type of acquisition we’ll continue to see, not an increase in traditional M&A.

TMR: What will be the top performers among the base metals equities during the next 12–18 months?

SN: There’s very few companies left in the Canadian mid-tier space, but we’re focused on the ones that have stronger balance sheets and executable projects. Capstone Mining Corp. (CS:TSX), Lundin Mining Corp. (LUN:TSX) and First Quantum Minerals Ltd. (FM:TSX; FQM:LSE) are able to grow within their existing portfolios, have enough funding to complete those projects and still have some level of internal growth.

TMR: Capstone just put out its Q3/13 financials. Did they meet your expectations?

SN: They did. Capstone’s story is mostly about what it can do with Pinto Valley in Arizona throughout 2014. If it does a good job with the transition of Pinto Valley and is operating at full scale, production should increase to in excess of 220 million pounds (220 Mlb) in 2014 from around 105 Mlb in 2013. There are always risks with operating a project of this scale, and we expect some elevated costs initially, but getting the asset from BHP with the keys already in the ignition helps reduce some of that risk.

Avrupa Options Slivovo Gold Project

Avrupa Minerals Ltd. (TSXV:AVU) has optioned out the Slivovo Project in Kosovo to Australian company Byrnecut International Limited. Byrnecut has the option to earn a 51% interest by spending €1,000,000 in exploration on the project by March 1, 2015, or 12 months from the exact closing date. €360,000 is a firm commitment and must be spent by September 1, 2014, or 6 months from the closing date.

As quoted in the press release:

Byrnecut can then earn a further 24% by spending an additional €1,000,000 for a total interest of 75% with total expenditures of €2,000,000, by March 1, 2016, or 24 months from the exact closing date. Byrnecut can further earn an additional 10% by completing a Preliminary Feasibility Study on the Slivovo Project for a total interest of 85% by March 1, 2017, or 36 months from the closing date. The next stage will be for the Company and Byrnecut to enter into a binding agreement in early 2014.

Avrupa Minerals CEO Paul Kuhn said:

The signing of this Terms Sheet with Byrnecut is the first option agreement for the Company in Kosovo and solidifies the potential interest in this area. We are excited to be working with Byrnecut in advancing Slivovo to the next stage, and we look forward to working with the Byrnecut team. The Slivovo Project covers at least two exciting, surface-mineralized targets, and we look forward to the spring break-up to start work and rapidly move the program forward.

Where Arctic camels once roamed, coal mining can wait

A coal exploration project proposing to tread the same ground as the ancient fossil forests on Nunavut’s Ellesmere Island has been temporarily put on the shelf.

Canada Coal has delayed its exploration program on Ellesmere Island for at least a year, and withdrawn its application to Nunavut regulators, saying it needs more time to address a host of concerns raised by people in nearby Grise Fiord and scientists across Canada and the U.S.

Canada Coal’s active exploration licenses cover more than 7000 square kilometres, mostly on Ellesmere’s Fosheim Peninsula. The company had proposed to set up a 20 to 30-person field camp next summer in order to map and drill for coal the region.

However, the project was controversial.

The Fosheim Peninsula is a renowned source of unique fossils, including alligators, turtles and primates that lived on the Arctic Island 50 million years ago, as well as beavers and horses that occupied the site just a few million years ago.

‘A paleobiological hotspot’

“Frankly, when you discover something new, something people have never seen before, or something that really fills in an important piece of a puzzle, it’s a thrill,” says Jim Basinger, a paleontologist at the University of Saskatchewan.

Basinger spent years digging up fossilized plants on Ellesmere and Axel Heiberg islands and is one of several scientists and scholars who’ve written to Nunavut regulators, stressing the region’s scientific importance.

“These fossils give us tremendous insight into polar climates, and polar climate change,” Basinger says.

In March, researchers at Ottawa’s Canadian Museum of Nature made international headlines when they found ancient, mummified camel bones in the Strathcona Fiord region — the most northerly region to ever yield camel bones. 

Mark Graham, the Museum’s Vice President of Research and Collections, calls the Fosheim Peninsula "a paleobiological hotspot”.

"It’s a hotspot just because of the diversity of things that can be found,” he says, “but also because of the kinds of information that it brings us that allows us to comment on previous climates, and make predictions about what might happen.”

Home to polar bears, Peary caribou

Canada Coal’s proposal has also sparked concern within Nunavut.  

The territory’s environment department says the area targeted for drilling is home to animals listed under the Species At Risk Act, including polar bears and the endangered Peary caribou.

The region is also home to several bird species listed under SARA: Peregrine falcons and Red Knot (both listed as species of “special concern”), and Ross’s Gull (listed as “threatened”).

Inuit in the nearby community of Grise Fiord have echoed the concerns about wildlife.  

“Some of [Canada Coal’s] work plans, we want to be able to look at them closely,” says Larry Audlaluk of Grise Fiord. “For example, their water delivery program in their camp will involve helicopter use. That creates noise. We want to make sure that if they’re going to go and do their thing, the disturbance levels will be minimized.”

Canada Coal plans more consultation

Eocene Age leaf litter, estimated to be 50 million years old, was found on Ellesmere Island's Fosheim Penisula. (N. Rybczynski)

​By delaying its project, Canada Coal is aiming to avoid the fate of Weststar Resources, a company that previously held the exploration licences on the Fosheim Peninsula.

In early 2010, Nunavut regulators rejected Weststar’s proposed exploration plans, citing similar concerns. Soon after, Weststar sold its licences to Canada Coal.

Canada Coal says it will now set up a “working group” with representatives from the company, Grise Fiord, and regulatory agencies.

This doesn’t mean the project will come to a halt.

“We’re not against them,” says Audlaluk. “We’re not against development.”

Rather, Audlaluk says people in Grise Fiord don’t want to be rushed.

Basinger also says his goal is not to kill the coal project. He thinks the key paleontological sites can be identified and preserved, while also allowing some development.

“In a region that large, the fossil resource is actually quite confined,” says Basinger. “You couldn’t justify, on the basis of paleontology, an exclusion of mining from the entire region. But I think I can justify preserving an area, a certain area.”

Deltares to Open New Water Campus in Baton Rouge (USA)

As announced recently, a world-class research facility called the Water Campus will be established in Baton Rouge, as an international hub for research in coastal restoration and sustainability.

The new campus will serve as a bridge between local and international experts to jointly address the challenges posed by climate adaptation and delta management.

“We are especially pleased with this announcement, as we have conferred with the partners, especially the Baton Rouge Area Foundation (BRAF), for some time over the establishment of a water-related research institute and an associated campus,” announced Deltares.

In June 2013, The Water Institute of the Gulf and Deltares USA, Inc. signed a memorandum of agreement to partner on research related to water management projects, coastal modeling applications and international projects. Other partners in the region are Louisiana State University (LSU), Tulane University, and the Coastal Protection and Restoration Authority (CPRA).

On the Water Campus, a River Modeling Center, which is a small scale physical model of the lower Mississippi River for the study of all facets of ground and water behavior, will also be constructed. Research will be conducted on the morphology of rivers, lakes, and coasts, as well as ground and subsurface strength with the effects of wave loads and currents. This modeling center, similar to the one at Deltares in The Netherlands, will bring researchers and scientists from around the world to study similar water-related issues from their regions.

Ecuador Gold announces exercise of warrants

NOT FOR DISTRIBUTION TO U.S. NEWSWIRE SERVICES OR FOR DISSEMINATION IN THE UNITED STATES. ANY FAILURE TO COMPLY WITH THIS RESTRICTION MAY CONSTITUTE A VIOLATION OF U.S. SECURITIES LAWS./

TORONTO, Dec. 18, 2013 /CNW/ - Ecuador Gold & Copper Corp. (TSX-V: EGX) (the "Company") announces the exercise by Aura International Services Ltd. ("Aura") of 8,333,333 previously issued warrants to purchase common shares (each a "Warrant") for total proceeds to the Company of US$625,000.  The Warrants were exercisable at a price of US$0.075 per common share, and were issued to Aura pursuant to an up to US$3.25 million private placement by the Company of which the final tranche closed on December 4, 2013 (the "Private Placement").

Following the exercise of the Warrants, and including securities acquired under the Private Placement and previously, Aura holds a total of 98,063,589 common shares of the Company and 46,841,252 Warrants, representing approximately 47.4% of the issued and outstanding common shares of the Company on a non-diluted basis, and 57.1% of the issued and outstanding common shares of the Company on an extended partially-diluted basis after giving effect to the exercise of all of the Warrants held by Aura following completion of the Private Placement. As previously reported in the Company's news release dated December 4, 2013, in exchange for the purchase by Aura of all of the units under the Private Placement, and the exercise of warrants, providing aggregate gross proceeds ofUS$6.2 million to the Company, Aura will be entitled to nominate up to three directors of the Company.

Aura is a "related party" to the Company under MI 61-101 as it is a "control person" of the Company by virtue of its shareholdings in excess of 20% of all issued and outstanding Shares of the Company. Accordingly, the exercise of the Warrants is a "related party transaction" under MI 61-101.

The Private Placement, including the issuance of the Warrants and the underlying common shares upon exercise thereof, was unanimously approved by the board of directors of the Company effective August 14, 2013. The Company also received minority shareholder approval for the Private Placement pursuant to Multilateral Instrument 61-101 Protection of Minority Security Holders in Special Transactions ("MI 61-101") at a special meeting of the shareholders of the Company held on October 11, 2013 (the "Shareholders' Meeting").

The subscription by Aura for the Units purchased by it was agreed to by the Company on November 6, 2013 pursuant to a subscription agreement containing the customary provisions for the subscription of units of a reporting issuer with such shares comprising the Units posted and listed for trading on the TSX Venture Exchange.

There has been no formal valuation of the Company or its assets to date, as there has not yet been any necessity to do so.  The Private Placement (and exercise of Warrants issued pursuant thereto) is a transaction that is exempt from the formal valuation requirements under Section 5.4 of MI 61-101 pursuant to Subsections 5.5(b) and 5.5(c) of MI 61-101 because:

	(a)	no securities of the Company are listed or quoted on the Toronto Stock Exchange, the New York Stock Exchange, the American Stock Exchange, the NASDAQ Stock Market, or a stock exchange outside of Canada and the United States other than the Alternative Investment Market of the London Stock Exchange or the PLUS markets operated by PLUS Markets Group plc.; and
	(b)	the issuance of the 8,333,333 common shares pursuant to the exercise of the Warrants by Aura for total proceeds of US$625,000 is a distribution of securities of the Company to Aura for cash consideration, and
		i.	neither the Company nor, to the Company's knowledge after reasonable inquiry, Aura has knowledge of any material information concerning the Company or its securities that has not been generally disclosed; and
		ii.	the Company's management information circular dated September 10, 2013 in respect of the Shareholders' Meeting fully describes the Private Placement (including the exercise of Warrants issued pursuant thereto) and includes a description of the effect of the Private Placement and Warrant exercise on the direct and indirect voting interest of Aura.

The proceeds of the Warrant exercise will be used for exploration and development expenses, and as additional working capital. The common shares issued to Aura pursuant to the Warrant exercise are subject to a four-month hold period from the date of issuance

No immediate plans to remove gold distortions - RBI

The Reserve Bank of India (RBI) has no immediate plans to remove the distortionary restrictions it has placed on the gold market.

Speaking at a press conference after the announcement of the bank's mid-quarter review, RBI Governor Raghuram Rajan said "Gold restrictions are a a necessary distortion at this point to restore balance to the CAD. Going forward, we would not like this distortion to persist, and we would like to remove it."

But, he said, "When we do (it) in conversation with the government, and what (and) how we unwind these restrictions is something we will have to deliberate over time.''

He went on to add that the RBI measures, the prime driver to narrow the current account deficit (CAD) to 1.8% in the second quarter, would be withdrawn once the deficit stabilises on its own, beyond the imposed gold restrictions.

The RBI chief added that once CAD is stabilised, ``once we see the that the threat of tapering is behind us, we will certainly consider unwinding some of these distortionary actions.

"I would be much happier if we had the kind of CAD we have without significant curbs on anything, including gold. We should aim to have a CAD without any distortions, removing the incentives for smuggling, that is what we will be working for,'' he told members of the press,

The CAD was brought down to 1.2% in the July to September quarter, from 4.9% in Q1. In the first half, CAD stood at $26.9 billion, amounting to 3.1% of GDP, down from $37.9 billion, amounting to 4.5% of GDP in the first half of 2012-13.

"At this point, I feel very comfortable with where we are on CAD,'' Rajan said. The government and the RBI expect to contain CAD at $56 billion this year. Gold imports had accounted for $56.8 billion of the $88 billion CAD in FY2013.

Haresh Soni, Chairman of the All India Gems and Jewellery Trade Federation, which represents over 300,000 jewellers in the country, said that there was a pressing need to relax the curbs as the industry had witnessed a massive spurt in gold smuggling. He added that the industry had lost over 30% business in the last six months.

On an earlier occasion, the Governor too had expressed concern over the spurt in gold smuggling which he elaborated was being paid for through the hawala (illegal) channel.

When India brought back restrictions against legal gold imports, there was a surge of capital and labour devoted to criminal organisations. The sharp decline of official gold imports, from $16.5 billion in the June quarter to $3.5 billion in the September quarter, led to a sharp surge in business for gold smugglers.

Over the past couple of months, hawala premiums, those that are paid to smugglers, have doubled to 2.8%, as unofficial gold imports this calendar year are likely to be at least 50% more than in 2012.

Retailers said around Diwali, premiums had jumped to as much as 3.5%.
The hawala (illegal) market, which trades in currencies and gold unofficially, is also referred to as currency smuggling. The market is used only for financing illegal deals in the country or outside it.

According to officials of investigating agencies, the current size of the hawala market in India is around $20 billion. Over invoicing of imports and under invoicing of exports are the most common practices to finance demand for hawala.

Traders said gold has been in big demand in the hawala market this year and the demand for the same is only rising. However, the illegal market is also becoming competitive. ``With new demand, new channels of supply are coming up and keeping hawala premiums under check is becoming impossible, and these are still at elevated levels,'' said a trader.

Australian coal investments at risk of becoming 'stranded assets' – Oxford study says

Australia's coal investments may have been in vain. New research suggests that Australian coal's second-biggest customer, China, could be headed for a coal-free diet.

According to a new report by Oxford University, commissioned by HSBC's Climate Change Centre of Excellence, China's demand for coal is changing. Driven by environmental concerns, political pressure, developments in cleaner technologies and gas markets, the Asian giant could reduce its consumption. This could drag down prices, putting Australia's coal reserves and infrastructure at risk of becoming 'stranded assets.'

As the world's biggest coal consumer, China certainly has the ability to shift coal prices.

“These developments are not factored into the positions that most coal owners and operators are currently taking" Ben Caldecott, co-author of the report said in a statement. "Policy makers need to wake up to these risks as well."

The study raises one main question: Should any more capital be allocated to new coal projects?

But Australia is in the midst of some major coal mine action. The country's Galilee Basin is bursting with coal-related projects such as Indian company Adani's proposed $10 billion Carmichael mine which would produce 60 million tonnes per year.

Many of these projects are only justified on the basis that China's coal consumption will rise, the report reads.

Study authors argue that in order to "minimise the risk of stranded assets, the companies involved should further interrogate the coal price assumptions underpinning the investment" of their projects. "Investors should seek clarity on the opportunity costs associated with deploying finite capital into them too."

The report also warns lawmakers against relying too heavily on coal production as a source of tax revenue.

"Less production will reduce royalty payments. The Queensland government in particular, notionally has much to lose from the mega-mines in the Galilee not going ahead."

But whether or not China will consume less coal is a matter of debate. Just last week the China National Coal Association (CNCA) announced its predictions that Chinese coal consumption will reach 4.8 billion metric tonnes by 2020, a 1.3 billion-tonne increase on 2012.

And although the government has recently made a push to shut down thousands of small coal mines, it's also introducing policies to support larger operations.

New Chair Appointed to Joint Review Panel for Marathon Platinum Group Metals and Copper Mine Project

Canada's Environment Minister Leona Aglukkaq and Ontario's Minister of the Environment Jim Bradley today announced the appointment of  Ms. Lesley Griffiths as the new Chair of the three-member Joint Review Panel established to review the proposed Marathon Platinum Group Metals and Copper Mine Project in Ontario.

Lesley Griffiths will join panel members David Pearson and Philip H. Byer who were appointed to the Panel on August 9, 2011. Biographical information on the Chair and two Members is available in the attached backgrounder.

The Joint Review Panel Agreement, including terms of reference, along with more information on this project, is available in the Canadian Environmental Assessment Registry at www.ceaa-acee.gc.ca , reference number 54755 and on the Ontario Ministry of the Environment website at www.ene.gov.on.ca/environment/ .

About the Project
Stillwater Canada Inc. proposes to develop and operate the Marathon Platinum Group Metals and Copper Mine Project north of Marathon, Ontario. This project would involve the construction and operation of an open-pit mine and mill for the purpose of extracting and processing ore containing copper and platinum group metals in addition to other activities.

Ms. Lesley Griffiths - Panel Chair

Lesley Griffiths was Co-principal of Griffiths Muecke from 1980 to 2011. The firm provided consulting services in the areas of consultation and consensus-building processes, environmental impact assessment, resource management, and community development. From 2011 to 2012 she was Executive Director of East Coast Environmental Law, a non-profit organization.  Ms. Griffiths has extensive experience relating to coastal and offshore planning, stakeholder involvement and facilitation, resource developments, waste management, watershed management, recreation and tourism planning, and community development.

Ms. Griffiths has chaired a number of joint federal-provincial environmental assessment panels, starting with the Voisey's Bay Mine and Mill Project in northern Labrador, followed by the Sydney Tar Ponds Remediation in Cape Breton. In 2011-12 she co-chaired the panel for the Lower Churchill Hydro-electric Generation Project. She also served as a joint panel member for the review of the Halifax Harbour wastewater treatment facility. Ms. Griffiths co-chaired the Nova Scotia Minister of Environment's Task Force on Clean Air, producing the Province's first air quality management strategy, and was the Process Lead for the Fundy Tidal Energy Strategic Environmental Assessment. She is currently facilitating the Roundtable for the Nova Scotia Aquaculture Regulatory Review.

Dr. David Pearson - Panel Member

Dr. David Pearson is a Professor of Earth Sciences and a member of the Co-operative Freshwater Ecology Unit at Laurentian University. He is Co-Director of the Laurentian University / Science North Graduate Diploma program in Science Communication, and Senior Science Advisor to Science North, Sudbury`s science centre, where he was the Project Director and then Founding Director from 1980 to 1986.

From 2001 to 2007 Dr. Pearson was Chair of the Ontario Office of the Canadian Climate Impacts and Adaptation Research Network and is now science advisor to the Ontario Centre for Climate Impacts and Adaptation Resources. From 2008 to 2010 he was co-chair of the Ontario Government's Expert Panel on Climate Change Adaptation and ch

REFILE-As rivals fade, Goldman stands firm on commodities

Dec 6 (Reuters) - Just over three decades ago, Goldman Sachs bought a niche coffee-and-gold trading firm called J. Aron & Company, becoming one of the first banks to enter the commodity markets.

A year from now, the Wall Street giant may be one of the last ones standing as the former J. Aron traders who now run Goldman mount a lonely defence of their right - and customers' need - to buy and sell copper, crude or corn. Few others are sticking around as a rocky, on-and-off romance between financial firms and raw material markets turns sour again.

Rising regulations, political pressure, falling profit margins and fierce competition from newcomers - including overseas banks - is forcing Goldman's rivals to retreat, or scale back, particularly in the costlier trade of physical commodities, a critical core for many banks.

On Thursday, Deutsche Bank, one of the five biggest players of the past decade, said it would quit commodities trading under regulatory pressure, cutting 200 jobs. That follows similar moves by smaller players like UBS and Credit Agricole in recent years.

Top rivals JP Morgan and Morgan Stanley are in the process of selling out from commodities trading while Barclays has cut its division by a fifth.

Several other big banks that have yet to signal their longer-term plans have generally remained silent on the matter of commodities - except Goldman, whose top executives have given unequivocal support to the roughly 250 J. Aron traders who helped deliver a blockbuster $5 billion in revenues in 2009. By last year that had dropped to less than $1 billion.

Chief Executive Lloyd Blankfein, who started his carrier at J. Aron in precious metal sales in the early 1980s, said in September it was a "core, strategic business".

Gary Cohn, who ran J. Aron in the late 1990s, said the bank's clients "really need us to be in that business". A spokesman said on Thursday those statements still stand.

The difference in tone has been apparent.

"Morgan Stanley and JP Morgan have put their businesses up for sale. Goldman Sachs is not doing anything (like this)," Alex Beard, the head of oil division at trading giant Glencore , told a conference earlier this year.

TOO MUCH DOWNSIDE

Banks have come under unprecedented pressure this year, including debate in the U.S. Congress over accusations their physical commodity desks have contributed to market froth.

"For many banks there is too much downside to be in commodities," chief executive of trading giant Gunvor, Torbjorn Tonrqvist, said earlier this year.

The shrinking ranks of top five players is opening opportunities for the likes of Glencore and Gunvor, as well as for more lightly regulated banks like South African Standard Bank, emerging market-focused Standard Chartered, Australia's Macquarie Group or Brazil's Grupo BTG Pactual SA.

To be sure, Goldman still faces some competition at home. Bank of America's Merrill Lynch and Citigroup have in the past two years unexpectedly beefed up their desks and employ around 200-250 people each. For both it is their second or even third attempt to build a top tier desk.

"It all comes down to what regulations will allow big U.S. banks to do... U.S. banks will diminish activity," Ian Taylor, the head of top global oil trader Vitol, said earlier this year, predicting that new entrants would include Asian institutions.

It is not certain that Goldman will be able to successfully defend the franchise once the Federal Reserve completes a wide-ranging review of banks' commodity trading activities. Alongside Morgan Stanley, Goldman has argued that a clause in a 1999 banking law should allow it to keep the business.

But it has recently signalled plans to sell its metal warehousing unit at the heart of a controversy over aluminium prices, and has put its uranium trading desk on the block. It has tried, in vain, to get permission to trade iron ore.

Most banks have almost fully closed proprietary trading desks, as the so-called Volcker rule prohibits banks from trading with their own money. They now focus mainly on financing commodities trading for clients as well as hedging.

A further retreat threatens to diminish liquidity in key markets, reduce choice for corporate hedgers and drive more trading toward less-regulated players, some analysts say.

"For those refineries that need to hedge their specific types of oil, there may be no financial services firms to do it with. For airlines that needs to hedge Jet-A1 at their hubs, Atlanta or Chicago or Denver, who's going to do that for them?" says Brad Hintz, a Wall Street analyst at Sanford Bernstein & Co and a former treasurer of Morgan Stanley.

"The only the one that may be left is Goldman."

IN THE VEINS

Goldman bought J. Aron, then a small trading house focused on coffee and gold, in 1981, the same year that commodity merchant Philipp Brothers (Phibro) bought Salomon Brothers banks. Morgan Stanley jumped into the market shortly thereafter, building up the business internally.

It marked the beginning of a three-decade affair between financial institutions and raw material markets, one that waxed and waned once in the 1990s and again in recent years.

"The revenue opportunity for banks has both shrunk and morphed over the past couple of years, so any remaining player of scale will need to be nimble in adapting to changing market opportunities and regulations," said Seb Walker, a partner at industry consultant Tricumen.

Although JP Morgan is selling its large physical commodity trading franchise, the remaining derivatives business will still benefit from its massive lending franchise, trade finance operations and principal investing activity.

Citi, too, is "something of a wild card", said Walker. "Although currently a smaller player, the bank is notable for investing in the area while others have been pulling out."

A source familiar with Citi operations said the bank was committed to continue narrowing the gap with top players in commodities trading with focus on serving clients.

Goldman has suffered alongside some of its peers as some of its most senior executives have departed in recent months.

But none of them have commodities in the veins in the same way that Goldman does. Many of the banks' partners grew up in the J. Aron business, and remain fiercely loyal to it, giving them a strong voice among shareholders, says Hintz.

"The management grew up in commodities, they're looking through the cycle," he said. "In the meantime this isn't going to be profitable, but (they know) this is cyclical."