Codelco Copper Mines to Reopen Shortly, Chilean Minister Says

Codelco’s El Teniente and Andina copper mines in central Chile will reopen “shortly” after inspectors failed to find major damage from the earthquake that hit the country, Mining Minister Santiago Gonzalez said.

Empresa Nacional de Petroleo’s halted Aconcagua oil refinery may be fixed from earthquake damage within six days, while the state oil company’s Bio Bio unit will take longer to resume operations, Gonzales said. He didn’t say how long it would take to restart the mines.

Chile’s magnitude-8.8 earthquake early this morning, which killed at least 214 people, led four copper mines that produce about 16 percent of the country’s output and two oil refineries to halt operations because of power cuts. The temblor also severed the country’s main highway, destroyed bridges and apartment buildings and knocked out electricity.

Codelco, the world’s biggest copper producer, said yesterday the El Teniente and Andina mines halted operations because of the power outage. Anglo American Plc said its Los Bronces and El Soldado mines in Chile stopped operating for the same reason.

Copper accounted for about half of Chile’s $53 billion of exports last year. The country’s production of the metal used in pipes and wiring climbed 0.7 percent to 5.4 million metric tons in 2009. The metal’s price has more than doubled in the past 12 months as the world economic recovery boosts demand.

State-owned Codelco produces about 600,000 tons of the metal a year from El Teniente, the world’s biggest underground copper mine, and from Andina, according to its Web site. Anglo’s Los Bronces and El Soldado mines produce about 280,000 tons annually.

Northern Mines

Codelco’s mines in northern Chile, including Chuquicamata, are operating normally, said a spokesman, who requested not to be identified because of company policy. There are no reports of injuries to workers or damage to installations, he said. He didn’t say when the halted mines will resume operations.

Anglo spokesman James Wyatt-Tilby also didn’t say in an e- mailed statement when Los Bronces and El Soldado will return to normal operations.

ENAP, as Chile’s state oil company is known, plans to import diesel fuel to ensure domestic supply after shutting the two refineries, according to an e-mailed statement.

Copper mines in northern Chile operated by BHP Billiton Ltd. weren’t affected by the earthquake, company spokesman Mauro Valdes said.

Rio Tinto Group, a shareholder in the world’s largest copper mine, Escondida, located in northern Chile and owned by BHP, also had no reports of damage, London-based spokeswoman Christina Mills said by telephone.

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Chile Rocked by Magnitude 8.8 Earthquake; Dozens Reported Dead

Chile was rocked by a magnitude 8.8 earthquake centered 200 miles (317 kilometers) southwest of Santiago near the main winemaking region. Dozens of people were killed and tsunami warnings were issued across the Pacific.

The quake struck at 3:34 a.m. offshore from the province of Maule at a depth of 22 miles (35 kilometers), according to the U.S. Geological Survey Web site. At least 64 people have been killed, Chilean Interior Minister Edmundo Perez told reporters.

“Amid such a major earthquake we can’t rule out that the death toll will rise,” President Michelle Bachelet said at a televised press conference. “We will provide information as soon as we have it.”

Power and phone connections were disrupted and Santiago residents waited in the street amid fears of aftershocks, pictures on CNN+ showed. The quake’s focus was 70 miles north of Concepcion, Chile’s second city, close to the vineyards of the Curico valley. While the world’s largest underground copper mine, El Teniente, is 180 miles from the epicenter, most of the country’s copper deposits are at least 500 miles to the north.

“I’m trying to get in touch with Santiago,” said Gonzalo Cuadra, a London-based executive at Codelco, the world’s biggest copper producer and the owner of El Teniente. “I think in the north there haven’t been problems. We have to see what happened with the mines near Santiago.”

Rio Tinto Group, a shareholder in the world’s largest copper mine, Escondida, located in northern Chile and owned by BHP Billiton Ltd., has had no reports of damage, London- based spokeswoman said Christina Mills said by telephone.

State of Emergency

A state of emergency was declared in Maule and the province of BioBio to the south, where Concepcion is located. A third region, Araucania, south of BioBio and the center of the country’s forestry industry, may also be added, Bachelet said.

In the aftermath of the 90-second quake, the USGS reported 11 aftershocks, of which five measured 6.0 or above.

Heavy waves struck the Chilean coast and the Tsunami Warning Center for Chile and Peru issued alerts that were later extended up the coast as far as Costa Rica and also to Australia and New Zealand, Japan, the Philippines, Russia and island groups including Hawaii, where the Pacific Tsunami Warning Centre said urgent action should be taken to protect lives.

“This is a major, damaging earthquake,” Randy Baldwin of the USGS told the BBC in an interview. “For any population in the area it would be reasonable to expect some damage.”

Chile was struck by the most powerful earthquake on record in 1960, when a magnitude 9.5 temblor killed about 1,655 people, according to the USGS Web site. A further 211 people died when associated tsunamis struck Hawaii, Japan and the Philippines.

Earlier today, a magnitude 7 earthquake hit near Okinawa, Japan, at about 5:31 a.m. local time, the USGS said.

Last month, Haiti was struck by a magnitude 7 quake. The death toll may reach 300,000, President Rene Preval said Feb. 21. More than 1 million people were left homeless.

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Chile Industrial Output Unexpectedly Fell in January

Chilean industrial production unexpectedly declined for a second month in January, signaling that the pace of the economy’s recovery from recession may be slower than previously forecast.

Output fell 1.1 percent in January from the same month a year earlier, the National Statistics Institute said today, while industrial sales dropped 0.5 percent. Economists expected increases of 3 percent and 1.1 percent, according to the median forecasts of analysts surveyed by Bloomberg.

“It was a surprise,” said Cesar Perez, an economist at Celfin Capital SA in Santiago. “The trend is upward but the recovery will be uneven. I don’t think a one-month slowdown in output will be a reason for people to lower their forecasts.”

In the last two months, South America’s fifth-largest economy has show signs of recovery after posting 12 straight months of economic contraction. The reduction in output was a result of mining strikes and a virus in salmon farms, the institute said.

Copper output dropped 1.9 percent last month from a year earlier as labor strikes slowed production of copper cathodes by 8.4 percent from a year earlier, the institute said. Food production dropped 11 percent as the infectious anemia virus continued to ravage Chile’s salmon-farming industry.

Expected Pace

Salmon output in Chile, the world’s No. 2 source, may decline 38 percent in 2010, the national industry association said last month. The volume of fish harvested in Chile plunged 65 percent in the fourth quarter, Oslo-based Marine Harvest, the world’s largest salmon farmer, said Feb. 10.

“If you look at it excluding the salmon it’s less bad, though it’s still not good,” said Alberto Ramos, an economist at Goldman Sachs Group Inc. in New York. “January’s activity might be a little weaker than December, which would still reflect an economy recovering at around the pace the central bank expects.”

The central bank forecasts growth as fast as 5.5 percent in 2010 as it keeps borrowing costs at a record low. Policy makers have left the overnight rate at 0.5 percent since July and pledged to keep it there until at least the second quarter.

Billionaire President-elect Sebastian Pinera, who assumes office March 11, has promised to drive annual growth of 6 percent and create as many as 200,000 new jobs every year as he pushes to make Chile a developed country by 2018.

In a separate report, the institute said the Chilean unemployment rate rose to 8.7 percent from 8.6 percent. The number of people with jobs rose by 45,000 from a year earlier to 6.7 million.

Felipe Larrain, who will become finance minister on March 11, welcomed the increase. “For the first time in 10 months we saw job creation,” he said. “That is a sign of recovery.”

The increase in joblessness was “worrying,” he said.

The peso rose 1 percent to 524.55 per dollar at 2:27 p.m. New York time from 530.05 yesterday.

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Falklands Oil Drillers May Be Takeover Targets, Deloitte Says

U.K. oil and gas companies drilling near the Falklands Islands may become takeover targets this year, Deloitte & Touche LLP said.

Desire Petroleum Plc, Borders & Southern Petroleum Plc and Rockhopper Exploration Plc moved up in market value rankings for U.K.-listed independent production companies because they hold exploration acreage near the Falklands, Deloitte said in a report published today in London.

“M&A is less difficult this year than last year,” said Ian Sperling-Tyler, co-head of oil and gas corporate finance at Deloitte, in a telephone interview. “The companies in the Falklands aren’t big enough to monetize those assets on their own. At some point, they’ll farm out or be acquired by a bigger company.”

Desire started the first exploratory drilling in Falkland Island waters since 1998 this week. Argentina, which claims sovereignty over the islands that U.K. Prime Minister Margaret Thatcher went to war to defend in 1982, summoned U.K. embassy officials on Feb. 2 to protest the imminent start of drilling by Falkland Oil & Gas Ltd.

Desire moved up 10 places last in the rankings of U.K. upstream companies to 14th place, and Borders & Southern broke into the top 25, Deloitte said.

Tullow Oil Plc, the U.K. explorer developing reserves in Uganda, and Cairn Energy Plc, which focuses on India, ranked first and second and accounted for 60 percent of the market capitalization of the top 25 companies, the report showed.

“There is a fairly strong pipeline of oil and gas companies looking to raise funds,” Sperling-Tyler said. “I would expect a lot of capital market activity in 2010.”

Desire’s Liz prospect has estimated resources of between 45 million and 783 million barrels, according to a report by Senergy Ltd. commissioned by the explorer. Falkland Oil’s Toroa prospect has estimated resources of between 380 million and 2.9 billion barrels, the company said in November.

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Ternium Says Venezuela Missed Payments as Grace Period Ends

Ternium SA, Latin America’s second- biggest steelmaker, said it still hasn’t received an overdue payment from Venezuela for a nationalized steel mill, a day after a grace period ended.

Corp. Venezolana de Guayana, Venezuela’s state-run industrial holding company, hasn’t made the payment of $298.9 million plus interest that was due Feb. 8 for Siderurgica del Orinco, Ternium said today in a statement. Ternium collected $953.6 million for the mill known as Sidor in 2009, the Luxembourg-based company said.

President Hugo Chavez agreed to pay $1.97 billion for nationalizing the country’s biggest steel mill. Chavez’s takeovers of oil joint ventures, iron and steel works, cement factories and oilfield service companies have left a series of companies complaining about payments that are too small, delayed or absent.

Ternium said Feb. 9 that CVG, as the Venezuelan company is known, had missed the payment and that there was a 15-day grace period. Ternium didn’t say how it would respond if the payment wasn’t received.

CVG President Rodolfo Sanz, who is also Venezuela’s mining minister, didn’t immediately return a call and a text message seeking comment.

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Latin American ‘Friends’ to Ease Uribe, Chavez Spat

Latin American leaders will work to diffuse tensions between Colombia and Venezuela after their ideologically opposed leaders, Alvaro Uribe and Hugo Chavez, got into a shouting match at a regional summit in Mexico.

Chavez told Uribe to “go to hell” during a closed-door lunch yesterday after the Colombian leader called him “a coward” and told him to “be a man” at a summit of Latin American and Caribbean countries in Cancun, Agence France-Presse said, citing a Colombian diplomat it didn’t identify. Chavez said today that he regrets the “painful” argument.

Mexico President Felipe Calderon announced at the summit that a commission headed by Dominican Republic President Leonel Fernandez will work to facilitate better ties between the neighboring Andean nations.

“Latin American and Caribbean countries need a mechanism to solve differences,” Calderon told reporters. The group will include representatives from Argentina, Brazil and Mexico.

Chavez accused Uribe of planning to assassinate him after Uribe said Venezuela imposed a trade embargo on Colombia last year, AFP reported.

Military Accord

Chavez said in July he would end imports from Colombia as Uribe moved forward with an accord giving the U.S. greater access to military bases to help fight drug trafficking and Marxist guerrillas. Chavez said the agreement sets the stage for the U.S. to invade Venezuela.

Colombian exports to Venezuela, traditionally its second- biggest trading partner, dropped 34 percent last year, according to Colombia’s statistics agency.

“The countries agreed to talk about their differences through fruitful dialogue, and they committed to building the conditions that make this possible with the support of a group of countries that are friends of Venezuela and Colombia,” Calderon said.

The two South American neighbors have agreed not to make any more “offensive” statements as they work to solve their disputes, Colombian Foreign Minister Jaime Bermudez said.

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Brazil Coffee Crop in ’Great Shape,’ May Hit Record, Illy Says

Brazil, the world’s biggest coffee producer and exporter, may harvest a record crop of about 55 million bags this year after above-average rain and heat left beans in “great shape,” Illycaffe Spa’s Nelson Carvalhaes said.

The quality of the coffee allays concerns that excess showers last year could have caused trees to flower early, hindering the development of beans, said Carvalhaes, purchasing director at the Brazilian unit of Italy’s second-largest coffee maker. He assessed the beans in a three-day tour of crops in Minas Gerais state, Brazil’s largest producer of arabica coffee.

“Beans are in a great shape, much better than I would have expected,” Carvalhaes said in an interview at his office in the southeastern coffee port city of Santos on Feb. 18.

The El Nino weather pattern caused above-average rainfall in Brazil’s major coffee-producing areas from August through December, raising concern beans wouldn’t develop properly.

Conab, as Brazil´s crop forecasting agency in known, estimated output between 45.9 million and 48.7 million bags. A bag of coffee weighs 60 kilograms, or 132 pounds.

Illycaffe uses over 50 percent of arabica from Brazil in its coffee blend. (Bloomberg)

Corn, Soybeans Gain as Rain May Damage Brazil, Argentina Crops

Corn and soybeans rose in Chicago on concern rains in Brazil and Argentina may damage crops and on a weaker dollar that made U.S. supplies more attractive to investors and importers.

Corn for May delivery climbed for a second day, gaining 1.1 percent to $3.7575 a bushel on the Chicago Board of Trade at 12:25 p.m. Paris time. Soybeans for delivery in the same month advanced 1.1 percent to $9.6475 a bushel.

Eighteen of 34 traders and analysts from Tokyo to Chicago surveyed Feb. 19 said soybeans and corn will gain this week as rains may harm crops or delay harvests in Latin America. There’s a “high risk for heavy rain” in parts of Brazil and Argentina in the six days from Feb. 19, forecaster Telvent DTN Inc. said.

“A little bit of excess rain in parts of South America is aiding that particular complex,” Luke Mathews, an agricultural commodity strategist at Commonwealth Bank of Australia, said from Sydney. A weaker dollar “assisted the crude oil market, and similarly, we’ve seen the grain markets move higher.”

The U.S. Dollar Index, which tracks the greenback against six currencies, fell as much as 0.4 percent on speculation that the Federal Reserve will keep its benchmark interest rate on hold to sustain a recovery in the world’s largest economy.

“Commodity prices are moving higher as the dollar is moving lower” in a “knee-jerk” relationship, economist Dennis Gartman said in his daily newsletter.

Wheat Climbs

Wheat for May delivery rose 0.7 percent to $5.0775 a bushel, the second gain in a row. May-delivery milling wheat traded on NYSE Liffe in Paris added 0.4 percent to 125.75 euros ($171.10) a metric ton.

“Uncommonly deep” snow in North America is raising concern about floods once melting starts, according to Gartman. “It is not spring rains that bring floods, it is the snow melt, and the snow has been deep and constant,” he said.

Speculative short positions, or bets Chicago wheat prices will fall, outnumbered long positions by 51,195 contracts in the week ended Feb. 16, according to the U.S. Commodity Futures Trading Commission data.

“We remain wary that speculative investors have built significant net-short positions, and therefore we are susceptible to short-covering,” Commonwealth’s Mathews said. Short-covering refers to purchases by investors who had bet on declining prices and are closing positions.

Rice for May delivery gained 1.4 percent to $14.16 per 100 pounds in Chicago.

Harvests of the grain lost to dry weather in the Philippines, the biggest importer, may be more than the 800,000 tons estimated earlier, raising concern a shortfall may deepen, Agriculture Undersecretary Joel Rudinas said.

“Prices have pulled up there,” Ben Barber, a futures adviser at Bell Commodities Ltd., said by phone from Sydney. Rudinas’s comment “is obviously lending a little bit of support” to the market, he said.

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Ecuador Faces Spending Cuts Amid Deficit, Fitch Says

Ecuador may cut government spending as it struggles to cover a $4.2 billion budget shortfall after a debt default shut it out of credit markets, Fitch Ratings said.

President Rafael Correa could slash planned investments aimed at boosting oil production after halting payments in December 2008 on $510 million of bonds and in March on $2.7 billion of notes, Fitch analyst Theresa Paiz said yesterday in a telephone interview from New York.

“There could be a sharper adjustment in the budget and cuts to capital expenditure,” Paiz said. “External borrowing is pretty much off the table.”

Correa defaulted on Ecuador’s 2012 and 2030 global bonds, saying the securities were “illegitimate” and “illegal.” Ecuador, which depends on oil exports for about a quarter of its revenue, may post economic growth of 1.5 percent this year after gross domestic product shrank 2.3 percent in 2009, according to Fitch.

Ecuador may be able to narrow its budget shortfall if oil prices continue to rise and the country receives financing from multilateral lenders, Paiz said. Crude oil prices have almost doubled to $79.30 a barrel from a year ago as a global economic recovery boosts energy consumption.

Corporacion Andina de Fomento, a Caracas-based a multilateral lending institution, approved a $200 million loan for Ecuador last week, and the Andean nation may receive $350 million from the Inter-American Development Bank, Finance Minister Maria Elsa Viteri said Feb. 12 in a statement on the president’s Web site.

Correa has also tapped Ecuador’s state-run Social Security Institute to fund projects ranging from oil exploration in the Amazon to hospital building, according to statements on the president’s Web site.

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Repsol, Hunt to Invest $1.5 Billion in Peru in 2010

Repsol YPF SA and Hunt Oil Co. are among oil producers expected to invest a combined $1.5 billion in Peru’s oil and natural-gas industry this year as the Andean country aims to double output, a government official said.

Hunt Oil’s $4 billion, 600 million cubic foot-a-day Peru liquefied natural gas export plant is slated to start operating in July, said Daniel Saba, president of state oil-contracting agency Perupetro.

Companies including Spain’s Repsol, Calgary- based Talisman Energy Inc. and Ecopetrol SA’s Peruvian unit will drill at least 10 exploration wells this year, he said.

“Peru’s oil and gas industry has never been so active and with so many different companies,” Saba said yesterday in an interview in Lima. “Oil prices and recent finds are attracting investors.”

Peru aims to more than double oil and gas output to 400,000 barrels a day by 2015 from current levels of 150,000 barrels a day, Saba said. Energy investment planned for the next seven years totals $10 billion, including Paris-based Perenco SA’s 75,000 barrel-a-day crude project in the northern jungle.

Perenco plans to start drilling this year at the $2 billion project after oil prices jumped 75 percent in 2009, Saba said. Repsol also plans to develop northern oil fields which will require the extension of an 854-kilometer (531-mile) pipeline.

Crude oil for March delivery rose $1.07, or 1.4 percent, to $78.40 a barrel at 11:30 a.m. on the New York Mercantile Exchange. The contract touched $78.71 a barrel, the highest since Jan. 20.

Camisea Investment

A Pluspetrol SA-led group aims to invest $2 billion in the Camisea gas fields by 2012 to supply petrochemical plants planned by CF Industries Holdings Inc., Sigdo Koppers SA and Braskem SA, Saba said.

The government plans to take bids in May for the exploration rights to 20 oil blocks in Peru’s Amazon jungle to attract companies such as Royal Dutch Shell Plc and Exxon Mobil Corp., Saba said. Winning bids will be awarded in October.

Transportadora de Gas del Peru, the Andean country’s largest pipeline operator, is investing $800 million to double its natural-gas shipping capacity to 900 million cubic feet a day, while Peru plans additional gas conduits to the southern highlands and north coast to supply mines, power plants and fishmeal plants.

“With an estimated 50 trillion cubic feet of gas reserves in the southern jungle, there’s enough to supply these projects,” Saba said.

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Dana evaluating several producing silver mine acquisitions in Peru

Dana Resources, a US-based precious metals development company with advanced stage gold and base metal properties in Peru, announced progress on evaluating several potential silver acquisitions.
Dana Resources is evaluating several opportunities in the silver sector in Peru.

The company is looking for assets in production where it could make an investment in existing production situations to increase capacity to take advantage of current metal prices. The company is looking at three specific acquisitions.

Prospect one is a small scale Silver-Lead-Zinc mine. Dana believes with a minimum investment it could increase production from 50 tons per day to over 250 tons per day within 12 months' time.

Head grades are 25 oz/ton Ag, 7% Pb, 7% Zn and 2 grams/ton Au. Using the following numbers Dana could achieve the following cash flows.

Commodity Amount / ton Price Total
Silver 25 ounces $18 $450
Lead 140 lbs $0.50 $70
Zinc 140 lbs $0.80 $112
Gold 2 grams / ton $35 $70
Grand Total $702

Assuming an 80% recovery rate and a processing cost of $250 per ton, the company would be looking at an initial profit just under $6 million per annum on the initial 50 tons/day. Due diligence is ongoing.

Prospect number two is located in the Huancavelica Region. There is over 50 years of silver production in the area. The Huachocolpa Mine has produced approximately 25 million ounces of silver and the Julicani Mine produced approximately 80 million ounces. Major companies in the area include TSX listed companies Pan American Silver and Buenventura. Due diligence is ongoing.

Prospect three is an exploration project with several drill intercepts indicating a low-grade bulk tonnage deposit. Initial calculations by our geologist have indicated up to 30 million ounces of silver, although not in production yet, it could be brought into production in a short period of time with minimal capital expenditures.

The company continues with due diligence and hopes to conclude a transaction in the next several weeks.

Mr. Len DeMelt states, "Dana has implemented a plan to acquire producing precious metal assets in order to generate cashflows to leverage the current buoyant commodity prices. Our strategy is to acquire mines which initially require relatively small investments to increase production levels." (Andina)

Mining M&A May Double This Year, Ernst & Young Says

The value of mining mergers and acquisitions may more than double this year, snapping a two-year decline, as China and India seek to secure supplies of raw materials, Ernst & Young LLP said.

The value may rebound to 2006’s levels when $175 billion of deals were done, after halving to $60 billion last year, Ernst & Young’s Global Mining & Metals Leader Mike Elliot said in an interview. Deals peaked at $210 billion in 2007, according to a report by the consulting firm.

Mining companies such as Anglo American Plc and Vale SA sold a record amount of dollar bonds last year to bolster war chests for acquisitions, expansions and buybacks. China, the world’s largest metal consumer, may add to last year’s record $32 billion spending on resource acquisitions.

“Many mining and metals companies are looking for acquisitions to fast track supply pipelines, driven by confidence in ongoing underlying demand in China and India,” Elliot said. “We are seeing a lot larger lists of potential buyers than there are assets available.”

BHP Billiton Ltd., the world’s largest mining company, fell 0.3 percent to A$40.55 at the 4:10 p.m. Sydney time close on the Australian stock exchange and Rio Tinto Group, the third-largest, was little changed at A$70.58.

China led acquisitions last year, accounting for 24 percent of all deals, compared with 18 percent a year earlier, Ernst & Young said in the report released today. There may be the same amount of interest from China this year, Elliot said.

“The Chinese have learned very quickly how to successfully do these deals,” he said.

Companies making acquisitions may use proceeds from bond sales as an alternative to bank financing, he said.

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Shipping Adds 31% as Boats Await Coal From Newcastle

The fastest expansion in world trade in three years is clogging up ports from Australia to Brazil, driving a 31 percent jump in charter rates by December.

The rate for leasing capesizes, boats three times the size of the Statue of Liberty, will average $39,000 a day in the fourth quarter, from $29,784 now, according to the median in a Bloomberg survey of 11 analysts. Higher costs for the ships, the biggest part of the commodity fleet, will bolster returns for Mitsui O.S.K. Lines Ltd., Nippon Yusen K.K. and China Cosco Holdings Co., analyst forecasts compiled by Bloomberg show.

While the 14 percent decline in world trade last year caused prices to plunge as much as 76 percent from their peak in June, increasing demand for coal now means 55 ships are waiting to load at Newcastle in Australia, up from 17 a year ago. Lengthening lines at the iron-ore ports of Tubarao in Brazil and Qingdao in China also reflect a recovering global economy and accelerating demand for raw materials.

“Once congestion is really taking a grip, you can have 12 percent of the fleet stuck in ports,” said Philippe van den Abeele, London-based managing director of Castalia Fund Management (U.K.) Ltd., which trades freight derivatives. Charter rates “will improve irrespective of the number of ships out there,” he said.

More Ships

Shipping costs that quadrupled last year on signs the global economy was recovering have retreated 20 percent in 2010 on concern that a record fleet expansion will overwhelm any rebound in demand. Laid end-to-end, the new ships would stretch about 60 miles, according to data compiled by Bloomberg and Clarkson Research Services Ltd.

Forward freight agreements traded by brokers and used to bet on or hedge against future dry bulk rates anticipate a fourth-quarter average of $29,825, according to data from Imarex ASA in Oslo. That’s 0.1 percent more than current costs and 24 percent below the median in the Bloomberg survey.

Golden Ocean Group Ltd., the commodities shipping line led by Norwegian billionaire John Fredriksen, said profit fell 33 percent last year to $238.9 million. Cie. Maritime Belge SA, owner of shipping line Bocimar International NV, said earnings slumped 44 percent to 118.9 million euros ($162.1 million).

Profit Forecast

Now, the Washington-based World Bank predicts a 4.3 percent gain in trade volumes this year and 6.2 percent in 2011. Ships carry about 90 percent of world trade, the Round Table of International Shipping Associations estimates.

Mitsui O.S.K., based in Tokyo, more than doubled its full- year profit estimate on Jan. 29 and Nippon Yusen posted third- quarter earnings on the same day, its first in a year. China Cosco President Zhang Liang forecast on Jan. 19 that the Baltic Dry Index will rise 54 percent this year. The gauge, a measure of commodity shipping costs, today fell 5 points, or 0.2 percent, to 2,566 points. That’s a fifth straight drop and the lowest since Oct. 7.

The 12-member Bloomberg Dry Ships Index, led by Seoul-based STX Pan Ocean Co. and Pacific Basin Shipping Ltd. of Hong Kong, hasn’t reflected those gains. The gauge is little changed from where it was at the end of May and trades at an average multiple to earnings of 8.3 times, compared with 18.4 times for the Standard & Poor’s 500 Index. It fell 0.5 percent to 1,827 points as of 1:25 p.m. in London today.

Investors are growing concerned that central banks will withdraw stimulus measures before the economic recovery takes hold. The Federal Reserve may raise the discount rate “before long,” Chairman Ben S. Bernanke said Feb. 10.

China ‘Bubble’

The 93-member Bloomberg World Mining Index fell as much as 1.7 percent on Feb. 12 as the People’s Bank of China ordered banks to set aside more deposits as reserves for the second time in a month to cool the fastest-growing economy. China’s “bubble” may burst by 2011, Zug, Switzerland-based Tiberius Asset Management AG, which manages about $1.8 billion in assets including commodities, said in a report last week.

China’s iron-ore imports fell 25 percent in January, from the previous month, according to customs data on Feb. 10.

Shipping “is highly dependent on a continued growth in Chinese iron-ore imports to absorb the dry-bulk fleet,” said Martin Sommerseth Jaer, an analyst with Arctic Securities ASA in Oslo with a “sell” rating on commodity shipping lines.

Van den Abeele of Castalia Fund Management also expects rates to keep dropping, to as low as $15,000 a day, in coming months as Chinese growth slows and the fleet expands. Rates will then rebound as owners mothball ships and congestion worsens, he said.

Shipyard Delays

Estimates by analysts for daily leasing costs in the survey ranged from $22,000 to $50,000. A Bloomberg survey of shipping analysts and fund managers in August indicated capesize rates would drop about 50 percent to $18,000 before the end of 2009. Rates fell as much as 42 percent to $22,109 in the next three weeks and then rebounded.

The capesize fleet will expand by 20 percent this year, outstripping the 8 percent gain in demand, this month’s survey showed. Delays at shipyards may narrow the gap. The construction of one in six merchant ships was postponed in the three months to November, according to a December estimate from Bimco, a Bagsvaerd, Denmark-based shipping association. The average delay for dry bulk carriers was eight months.

Shipyards may seek to spread out deliveries because “if they only deliver in terms of the existing order book, which will be a heavy output over the next two years, they will be underutilized in the years following,” said Henriette van Niekerk, a London-based divisional director at Clarkson Plc, the world’s biggest shipbroker.

Iron Ore

Even with rates where they are now, ship owners are still making more than operating costs. Daily overheads on a capesize are about $7,555, Drewry Shipping Consultants Ltd. estimates.

China’s economy, the world’s biggest consumer of coal and iron ore, will expand 9.5 percent this year, according to the median estimate of 41 economists surveyed by Bloomberg.

Global seaborne trade in iron ore, the biggest cargo for dry bulk carriers, will expand 11 percent to exceed 1 billion metric tons this year, according to Clarkson. Exports of coal, the second-biggest dry bulk commodity, will gain 4 percent to 668 million tons this year, Barclays Capital estimates.

There are 142 capesizes tied up at ports in Brazil, China and east and west Australia, compared with a record 154 in June 2009, according to shipbroker Simpson, Spence & Young Ltd.

“There’s always the possibility that something will go wrong with one of the ports,” said Simon Francis, managing director of Global Ports, which tracks the shipping lines. Some coal and iron ore loading ports “haven’t got themselves in order quite yet,” he said.

Bloomberg - Alaric Nightingale and Alistair Holloway
To contact the reporters on this story: Alaric Nightingale in London at anightingal1@bloomberg.net; Alistair Holloway in London at aholloway1@bloomberg.net

Argentina Beef Eaters Cut Consumption as Prices Rise

Argentines, the world’s biggest beef eaters, will cut consumption of red meat by 25 percent this year as falling supplies cause prices to surge, said Miguel Schiareti, vice president of the Meat Industry Chamber.

“Producers are trying to recover the stock they lost in the past three years,” Schiareti said in a telephone interview in Buenos Aires. “Rising prices prove how government policies have failed.”

The South American country’s cattle herd has shrunk 16 percent since 2007 as export restrictions and domestic price limits led ranchers to send breeding stock to slaughter, Schiareti said. Declining supplies and price increases of as much as 80 percent since Jan. 1 will result in per capita consumption dropping to an average of less than 60 kilos (132 pounds) this year from about 75 kilos in 2009, Schiareti said.

The rise in the cost of beef may spur faster inflation in a country where bouts of surging prices in the 1970s, 1980s and early 1990s contributed to runs on the currency, breakdowns of the financial system and recession.

Consumer prices rose 2.2 percent in January from December and 16.3 percent from a year earlier, in part because of increases in beef and dairy goods, said Javier Paz, an economist at Buenos Aires-Base research company Ecolatina. Beef has a 5.8 percent weighting in the index.

Official Inflation

The National Statistics Institute said today that in January prices rose 1 percent from December and 8.2 percent from January 2009. Meat prices led the increase, rising 4.7 percent in the month, according to agency’s report.

Economists and politicians including Vice President Julio Cobos have questioned the accuracy of the agency’s reports, saying it has underreported price increases since former President Nestor Kirchner changed some personnel at the institute in 2007.

While Argentina reported a 7.7 percent inflation in 2009, Paz said prices rose 15.3 percent in that period.

For this year “inflation expectations are very high, at 25 percent,” Paz said in a telephone interview.

Economy Minister Amado Boudou played down the risk of a surge in inflation in an interview published by Buenos Aires daily Pagina/12 on Feb. 8. Boudou described recent price increases as “realignments,” the newspaper reported.

The government has slowed the issuance of beef export permits since December in a bid to stem price increases, newspaper La Nacion said today.

Ranchers Blamed

President Cristina Fernandez de Kirchner blamed the increase in beef prices on cattle ranchers who she said were taking advantage of recent rains, which improved pastures, to keep their animals from markets. This was causing prices to rise while their livestock gained weight.

“That way they earn more money,” Fernandez said in a Feb. 9 speech in Buenos Aires.

Argentina, which was the world’s largest beef exporter in the 1970s, slipped to fifth in 2009, according to the Buenos Aires-based Rural Society.

Last month, Fernandez said Argentines should eat more pork “because it has better fat than red meat” and “also improves sex.” She made the comments in a Jan. 27 speech to pig breeders at which she announced subsidies for the pork industry.

Such changes in diet won’t help household budgets, said Sandra Gonzalez, president of a consumer watchdog group known as Adecua.

“Besides the cultural custom, it’s difficult to replace meat, because pork isn’t cheaper, and chicken and fish prices have risen too,” Gonzalez said in a telephone interview from her office in Buenos Aires.

For Camilo Bogarin, a 25 year-old painter in Buenos Aires, the traditional weekend cookout, which includes several cuts of beef and sausages, won’t be the same.

“The Sunday barbecue is becoming more modest,” said Bogarin. “Prices rise but my salary isn’t rising at the same rate.”

Bloomberg - Eliana Raszewski
To contact the reporter on this story: Eliana Raszewski in Buenos Aires at eraszewski@bloomberg.net

Peru's flood-hit tourism – Ruined - Making do without Machu Picchu

When the Pacific Ocean becomes unusually warm, as it does periodically in the weather phenomenon called El Niño, that spells trouble for Latin America, and beyond. Last time this happened, in 1997-98, extreme weather killed 23,000 people worldwide and the damage cost the region about $33 billion. The impact of this year’s El Niño has so far been less severe, but bad enough.

Since December flooding has claimed 201 lives in Brazil, 43 in Mexico and 15 in Bolivia, whereas drought has contributed to electricity shortages in Venezuela and Ecuador. But it is Peru that often bears the brunt of El Niño (the last one cost it $3.5 billion).

In late January torrential rain in the Cusco area brought chaos and tragedy. The Urubamba river, which runs through the Sacred Valley of the Incas and down past the ruins of Machu Picchu, swelled to an unprecedented volume of 1,100 cubic metres (39,000 cubic feet) a second. Flooding killed at least 26 people and destroyed the homes and livelihoods of some 20,000.

The river undermined eight stretches, totalling 28km (18 miles), of the railway line that is the only way to get to Machu Picchu (except for the Inca Trail footpath). The government had to borrow helicopters from as far away as Brazil for a weeklong airlift of 3,900 tourists stranded in Aguas Calientes, the small riverside town at the foot of the ruins.

Officials reckon the damage to infrastructure and farming totalled $240m. They estimate the losses to the tourist industry will be at least $1m a day. The Cusco regional government says at least 15,000 people in the tourism business will be out of work for a few months.

Although the rains did not affect Machu Picchu, it is now cut off. Some 68,000 people a month normally visit the ruins. The only thing that has prevented the site from being further overrun is that there is no road to it from Cusco.

The government issued a decree for the rapid rebuilding of the railway, which is operated by PeruRail, an affiliate of Orient-Express Hotels, a Bermuda-based company.

Enrique Cornejo, the transport minister, has promised that the link will be restored by the end of this month. That strikes many Peruvians as wildly optimistic. Peru’s tourist industry fears the prospect of being deprived of its main attraction for several months. Machu Picchu is “on vacation,” declared Martín Pérez, the tourism minister.

This ought to be an opportunity. To relieve the pressure on Machu Picchu, and to encourage repeat visits, officials and operators have long tried to encourage visitors to explore other parts of Peru. They are now hurriedly promoting the Nazca lines (giant, pre-Inca geoglyphs, or drawings, in the desert south of Lima) and the Colca canyon, where condors fly over an abyss twice as deep as the Grand Canyon (though less sheer). They also want to encourage tourists to continue to visit Cusco. Northern Peru holds many recent archaeological discoveries. Lima, once bypassed by tourists, has begun to attract gastronomes, because of the excellence of Peruvian cuisine.

The problem is that none of these places quite has the allure of Machu Picchu (voted one of the seven wonders of the world in a privately organised poll in 2007).

Governments have talked about developing new tourist destinations for decades. But away from Cusco and Lima, hotels and other facilities are often limited. Tour companies reported many cancellations this month.

Peru is braced for further rain. Lake Titicaca is close to overflowing. At least meteorologists say that the Pacific has begun to cool. And Machu Picchu should be open again for business by May, the start of the high season in the Peruvian Andes. (The Economist)

“Venecuba”, a single nation

APIN A small fishing village on the Caribbean coast of Venezuela stands a plinth. Unveiled by government officials in 2006, it pays homage to the Cuban guerrillas sent by Fidel Castro in the 1960s to help subvert Venezuela’s then recently restored democracy. Almost entirely bereft of popular support, the guerrilla campaign flopped. But four decades later, and after a decade of rule by Hugo Chávez, Cuba’s communist regime seems finally to have achieved its goal of invading oil-rich Venezuela—this time without firing a shot.

Earlier this month Ramiro Valdés, a veteran revolutionary who ranks number three in Cuba’s ruling hierarchy and was twice its interior minister, arrived in Caracas, apparently for a long stay. Officially, Mr Valdés has come to head a commission set up by Mr Chávez to resolve Venezuela’s acute electricity shortage. But he lacks expertise in this field, and Cuba is famous for 12-hour blackouts. Some members of Venezuela’s opposition reckon that Mr Valdés, whose responsibilities at home include policing Cubans’ access to the internet, has come to help Mr Chávez step up repression ahead of a legislative election in September. Others believe he was sent to assess the gravity of the situation facing the Castro brothers’ most important ally (Cuba depends on Mr Chávez for subsidised oil). He has been seen in meetings with Venezuelan military commanders.

Although by far the most senior, Mr Valdés is only one among many Cubans who have been deployed by Mr Chávez under bilateral agreements that took shape in 2003. As well as thousands of doctors staffing a community-health programme, they include people who are helping to run Venezuela’s ports, telecommunications, police training, the issuing of identity documents and the business registry.

In 2005 Venezuela’s government gave Cuba a contract to modernise its identity-card system. Since then, Cuban officials have been spotted in agencies such as immigration and passport control. A group of Cubans who recently fled Venezuela told a newspaper in Miami that they had bribed a Cuban official working in passport control at Caracas airport.

In some ministries, such as health and agriculture, Cuban advisers appear to wield more power than Venezuelan officials. The health ministry is often unable to provide statistics—on primary health-care or epidemiology for instance—because the information is sent back to Havana instead. Mr Chávez seemed to acknowledge this last year when, by his own account, he learned that thousands of primary health-care posts had been shut down only when Mr Castro told him so.

Coffee-growers complain that in meetings with the government it is Bárbara Castillo, a former Cuban trade minister, who calls the shots. Ms Castillo, who was formally seconded to Venezuela four years ago, refuses requests for interviews.

Trade unions, particularly in the oil and construction industries, have complained of ill-treatment by the Cubans. No unions are allowed on Cuban-run building sites. In September last year Froilán Barrios of the Confederation of Venezuelan Workers, which opposes the government, said that “oil and petrochemicals are completely penetrated by Cuban G2,” the Castros’ fearsomely efficient intelligence service. Oil workers planning a strike said they had been threatened by Cuban officials.

The new national police force and the army have both adopted policies inspired by Cuba. The chief adviser to the national police-training academy is a Cuban, and Venezuela’s defence doctrine is based on Cuba’s “war of all the people”. Foreign officials who watch Venezuela closely say that Cuban agents occupy key posts in Venezuela’s military intelligence agency, but these claims are impossible to verify.

Mr Chávez portrays Cuban help as socialist solidarity in the struggle against “the empire”, as he calls the United States. When he was visiting Cuba in 2005 Fidel Castro said publicly to him that their two countries were “a single nation”. “With one flag,” added Mr Chávez, to which Mr Castro replied, “We are Venecubans.” These views are not shared by Venezuelans. In a recent poll 85% of respondents said they did not want their country to become like Cuba. Perhaps Mr Valdés will include that in his assessment. (The Economist)

Chevron, Repsol Win $30 Billion Venezuela Oil Auction

Chevron Corp. and Repsol YPF SA will lead development of two $15 billion projects to pump and refine Venezuelan crude after winning the country’s first oil auction since President Hugo Chavez took office 11 years ago.

Chevron, Mitsubishi Corp., Inpex Corp. and Suelopetrol CA will take a combined 40 percent stake in the Carabobo 3 area, Oil Minister Rafael Ramirez said late yesterday in Caracas. State-run Petroleos de Venezuela SA, or PDVSA, will hold 60 percent. Output is scheduled to start in 2013 and rise to 400,000 barrels a day in 2016, Ramirez said.

The Carabobo projects, along with similar ventures with Eni SpA, PetroVietnam and a group of Russian companies in the neighboring Junin field, are central to Venezuelan plans to boost oil output. The foreign companies get the opportunity to stake a claim to one of the world’s biggest oil deposits.

“Foreign oil investment is absolutely necessary to develop our reserves,” Chavez told company executives in a ceremony at the presidential palace. “We can’t do it alone.” He said the U.S. Geologic Survey found the Orinoco Belt has more than 500 billion barrels of recoverable crude.

Repsol, Oil & Natural Gas Corp., Petroliam Nasional Bhd., Indian Oil Corp. and Oil India Ltd. will develop the second project called Carabobo 1 with PDVSA to pump 480,000 barrels a day, Ramirez said. An area called Carabobo 2 wasn’t assigned.

The awarding ended a selection process that began in 2008 and faced repeated delays. Of the 52 companies that Venezuela invited to bid, 19 paid for field data. The two winning teams were the only publicly announced bidders.

Currency Gains

Venezuela’s currency strengthened in unregulated trading on speculation an inflow of dollars from signing bonuses will reach the market, said Russell Dallen, head trader of Caracas capital markets at BBO Financial Services. The bolivar gained 3.9 percent to 6.45 to the dollar, Dallen said, citing BBO pricing.

The Repsol venture must pay $200 million of a $1.05 billion signing fee within 10 days of the incorporation, Baldo Sanso, the oil ministry consultant who coordinated the bid process, said in an interview. The Chevron-led group will pay $100 million of its $500 million signing fee at that time, he said.

Each group will loan PDVSA at least $1 billion to get the projects started, Sanso said.

Madrid-based Repsol, ONGC of New Delhi and Petronas of Kuala Lumpur will each hold 11 percent of the joint venture while Indian Oil and Oil India will split a 7 percent stake, Nemesio Fernandez-Cuesta, Repsol’s executive vice president for exploration and production, told reporters.

Chevron’s Stake

Chevron, of San Ramon, California, will be the biggest non- state shareholder in the new projects with 34 percent of Carabobo 3, said Ali Moshiri, president of Chevron’s Africa and Latin America exploration and production unit. The Japanese partners will share an estimated 5 percent stake and Caracas- based Suelopetrol will start with 1 percent, he said.

PDVSA has certified that the Chevron-led area has 12.9 billion barrels of reserves and the entire Carabobo area has 25.6 billion. That won’t immediately boost the companies’ proved oil reserves under securities rules, Moshiri told reporters.

“It would be very premature to talk about reserves,” Moshiri said. “It would be a couple years before we can come to you guys and say this is the exact number. Until then we aren’t going to give any number out.”

Chevron had 7.35 billion barrels of reserves of oil, condensate and natural-gas liquids at the end of 2008, the company said in a Feb. 20 U.S. securities filing.

Target Date

The Carbobo ventures have a target formation date of March 24, according to Wes Lohec, Chevron’s managing director for Latin America.

Ramirez said the Carabobo and Junin projects will boost Venezuela’s oil output to 6 million barrels a day by 2016 from about 3 million barrels a day at present.

The ventures will each spend $6 billion to $8 billion on specialized refineries to convert the area’s tar-like crude into lighter oil for export, Eulogio del Pino, PDVSA vice president of exploration and production, said yesterday in an interview.

The ventures will pay for later phases by selling oil starting in 2013, bidding coordinator Sanso said. They will pump heavy oil and mix it with lighter grades to make it acceptable for export, funding later development.

“We’re talking about 300 million barrels per project in early production,” he said. “At $70 that is $21 billion. You will invest about $400, $500 million initially and you will begin early production.”

Deutsche Bank AG is advising ONGC Videsh Ltd., the overseas unit of India’s biggest oil explorer, along with Indian Oil and Oil India, said Cathy Knezevic, a Hong Kong-based spokeswoman at the German bank.

Bloomberg - Steven Bodzin, Daniel Cancel and Jose Orozco
To contact the reporters on this story: Steven Bodzin in Caracas at sbodzin@bloomberg.net; Daniel Cancel in Caracas at dcancel@bloomberg.net; Jose Orozco in Caracas at jorozco8@bloomberg.net.

Brazil May Invest $10.8 Billion to Revive Telebras

Brazil may invest up to 20 billion reais ($10.8 billion) to revive Telecomunicacoes Brasileiras SA, allowing the state-owned phone company to sell broadband service for half the price charged by local carriers, an official said.

The government is considering a plan to have Telebras, as the company is known, manage the nation’s fiber optics infrastructure, said Cezar Alvarez, national coordinator of digital policy for President Luiz Inacio Lula da Silva. The company would provide broadband services directly to consumers, increasing competition and availability, Alvarez said.

“Broadband service is becoming a bottleneck in Brazil,” Alvarez said in an interview yesterday in Brasilia. “It’s slow, expensive, concentrated and unequal.”

Telebras may offer broadband services from 15 reais to 35 reais monthly, less than the average 70 reais charged by existing carriers, Alvarez said. Its entry into the broadband Internet market may cause “disorganization” in the industry, Vivo Participacoes SA Chief Executive Officer Roberto Lima said at a conference in Sao Paulo today.

“It´s risky to create a company that will compete in consumer services and could get tax benefits,” Lima said.

‘Monopoly’

Telecommunications costs in Latin America’s largest economy are “high because of a monopoly,” Alvarez said, adding that some cities are served by a single carrier.

Brasilia-based Telebras, whose main assets were sold to investors including Telefonica SA in 1998, has more than tripled in Sao Paulo trading this year. The company’s shares added 7.1 percent to 2.58 reais at 12:03 p.m. New York time today.

Telebras will extend this year’s rally if the government invests in the company, said Gyorgy Pavetits, a fund manager at Foco Asset Management in Rio de Janeiro. Pavetits, who since the start of the year has been selling most of the Telebras stock he owns, said he would purchase more shares should the plan be carried out.

Valder Nogueira, an analyst at Itau Corretora, said investors will need a clear explanation of Telebras’s role within the new broadband framework, and its relationship to other companies, in order for the stock’s rally to continue.

“It’s the icing on the cake of Brazil’s privatization of telecommunications, a very interesting idea and everyone is trying to join the party,” Nogueira said. “The great question that remains is the role of each player in the market, that can drive shares up or down.”

‘Small, Specialized’

President Lula will review the Telebras plan today and may announce measures next month, Alvarez said. The government aims to use Telebras to meet a goal of increasing broadband access to 30 percent of the country’s poorest population from just 0.6 percent now, he said.

“We need a small and specialized company to manage the system,” Alvarez said. “Studies show we could take advantage of Telebras.”

Tax cuts for companies that offer broadband services would be a more efficient way to cut prices without hurting competition, Link Investimentos analysts including Andres Kikuchi wrote in a Jan. 27 report.

Vivo Participacoes lost 1.2 percent to 53.20 reais today and has dropped 2 percent this year. The Bovespa stock index increased 0.1 percent to 64,752.91 today and has dropped 5.6 percent in 2010.

Bloomberg - Carla Simoes and Iuri Dantas
To contact the reporters on this story: Carla Simoes in Brasilia at csimoes1@bloomberg.net; Iuri Dantas in Brasilia at idantas@bloomberg.net

Mining giant BHP Billiton, Perupetro to meet on oil sector issues this week

PeruPetro's chairman Daniel Saba said that representatives of Australian-British mining giant BHP Billiton group will visit Peru because they are interested in the hydrocarbon potential of the country and in the tender for 20 oil and natural gas blocks for exploration/production licenses to be issued in late April.

"They are coming to obtain in-situ information on the hydrocarbon sector, legal issues and other aspects before making a decision," he said.

This world-renowned company has shown keen interest to enter the country's hydrocarbon sector, along with other large companies such as US ExxonMobil and France’s Total.

With production in six countries and nearly 1,500 employees worldwide, BHP Billiton Petroleum is a key player in the oil and gas industry.

According to Perupetro's chairman, Korean and Russian investors have invited that entity to make a presentation on the hydrocarbon potential of Peru, as they are interested in participating in the upcoming tender. (Andina)

Petrobras Steps Up Drilling at Site of 1939 Discovery

Petroleo Brasileiro SA, Brazil’s state-controlled oil producer, is accelerating exploration at the onshore Reconcavo basin, where Brazil found its first oil in 1939, the country’s oil regulator said.

Agencia Nacional do Petroleo, or ANP, authorized Petrobras to start exploratory drilling ahead of schedule at block REC-T- 168 in northern Brazil during a Feb. 2 board meeting, ANP said in a document on its Web site. Petrobras has found oil or natural gas at 11 exploration wells it has drilled in the basin since 2001, according to ANP data.

“Petrobras was born in Reconcavo,” Wagner Freire, an independent oil consultant and former Petrobras exploration and production manager, said in a Feb. 4 telephone interview. “They know the basin very well.”

Petrobras plans to boost output in Reconcavo to more than 50,000 barrels a day in the next five years, up from 46,800 barrels a day now, a spokeswoman, who can’t be named under company policy, said in a Feb. 5 e-mail to Bloomberg News.

The company made the “routine request” to accelerate exploration because a drilling rig was available, she said today. Rio de Janeiro-based Petrobras is investing $174.4 billion in the five years through 2013 to increase output.

Commercial Block

Petrobras declared block REC-T-265 commercial in June, after finding oil at a well in March, according to the ANP.

Petrobras needs to find and develop new Reconcavo fields to offset declining output at “mature” areas of the basin where the company has been producing for about seven decades, Freire said.

“There are fields that were producing in 1939 and are still producing,” he said. “The operational cost is very high.”

Decades of exploitation has decreased underground pressure and caused water reservoirs to mix with the oil, lowering productivity and increasing costs at older fields, he said.

Reconcavo accounted for 22 percent of Petrobras’s onshore production of 216,000 barrels a day last year. Petrobras aims to more than double total oil production from onshore and offshore fields to 5.7 million barrels a day by 2020.

Petrobras rose 22 centavos, or 0.7 percent, to 31.74 reais in Sao Paulo trading. The stock has climbed 16 percent in the past year, compared with a 50 percent gain for Brazil’s benchmark Bovespa index.

Bloomberg - Peter Millard
To contact the reporter on this story Peter Millard in Rio de Janeiro at at Pmillard1@bloomberg.net

Chile’s Economy Expands at Fastest Pace in 15 Months

Chile’s economy expanded at the fastest pace in 15 months in December, led up by a rebound in the services industry, retail sales and electricity, gas and water utilities.

Economic activity expanded 3.9 percent in December from a year earlier, the central bank said today, the fastest since September 2008. Economists expected growth of 2.9 percent, according to the median estimate of 16 forecasts compiled by Bloomberg. Activity in December grew 0.6 percent from November.

South America’s fifth-largest economy is emerging from the deepest contraction in a decade as demand from China helps the price of copper, its biggest export, rebound. Activity declined 1.7 percent last year, the bank said.

“The country’s doing well,” said Cesar Perez, an economist at Celfin Capital SA in Santiago. “You’re seeing consecutive month-on-month positive changes, which are indicative of a sustained recovery.”

Chile’s economy grew about 2.1 percent in the fourth quarter of last year from a year earlier, according to the average of the three monthly figures. The economy shrank in each of 2009’s first three quarters from a year earlier.

The central bank, which cut the overnight rate seven straight times last year to a record low of 0.50 percent in July, is unlikely to raise it anytime soon, Perez said.

Policy makers expect economic growth of as fast as 5.5 percent this year, while the median forecast of 25 economists in a January survey was for growth of 4 percent.

“With these numbers, we’re converging on the central bank outlook, which is better than the market has been pricing in,” Perez said.

The peso strengthened 0.4 percent to 541.85 per dollar at 10:31 a.m. New York time from 544.13 yesterday.

Bloomberg - Sebastian Boyd
To contact the reporter responsible on this story: Sebastian Boyd in Santiago at sboyd9@bloomberg.net

Serra waits, a bit too patiently, for the presidency

With almost 30m voters and a population greater than Canada’s and on a par with Argentina’s, the giant industrial state of São Paulo is accustomed to playing a big part in choosing Brazil’s presidents. The retiring incumbent, Luiz Inácio Lula da Silva, and his predecessor, Fernando Henrique Cardoso, both had their political roots in the state. The front-runner so far in this year’s race, José Serra, has been the state’s governor for the past three years. He has suffered much criticism of late, as heavy rains have caused flash floods, landslides and collapsing roads, resulting in around 70 deaths. Despite the accusations of failing to improve the state’s flood defences, Mr Serra’s team still think his record as governor is solid enough to carry him to the presidency in October’s election.

Brazil’s rising economic and diplomatic muscle means that the job of running it is becoming an ever bigger one. With an impressive record as an academic, minister and state governor, Mr Serra is surely a strong candidate to fill the post. But he is a curious character. A friend says he announced that he would become president of Brazil when he was just 17. Colleagues describe a nocturnal control freak with a stubborn streak. Paulo Renato Souza, a former cabinet colleague of Mr Serra and now his state education secretary, remembers him telephoning in the middle of the night, demanding information.

A difficult man he may be, but the governor inspires loyalty from those who work with him. “He’s a leader and he knows it,” says Luiz Carlos Mendonça de Barros, another former minister, who saw Mr Serra cut his teeth as a student leader.

In the Cardoso government Mr Serra built a reputation as a good manager, determined to get his own way. He left the planning ministry after disagreeing with free-market colleagues in the finance ministry and Central Bank. Then, as health minister he took on two big foreign drugmakers, threatening to break the patents on their HIV drugs and getting them to cut their prices. Mr Serra organised a lobbying effort at the World Trade Organisation, where America eventually dropped a case against Brazil for patent infringement.

After losing to Lula in the presidential election in 2002, Mr Serra became mayor of São Paulo city in 2005, stepping down the next year to run for governor. In this job he seems to have been following a predetermined plan to raise cash in the first two years of his mandate so as to spend it on public works in the second two, says Alexandre Marinis of Mosaico, a political consultancy. Much of it has gone on improvements to the state capital’s metro and its main arterial roads. His presidential campaign will contrast all this digging and asphalting with the projects announced by the federal government three years ago, many of which have yet to get going. Mr Serra seems to have learned from past São Paulo governors and mayors that having a big, visible legacy to pose in front of does wonders in swaying voters.

Less visibly but just as important, this has been achieved without busting the state’s finances. Signs of improvements to public services can be found elsewhere too. Mr Serra has introduced testing for teachers to make sure the best are retained and are paid more, and a system of bonuses for schools that show improved results. Both reforms were pushed through despite the opposition of teachers’ unions. Better policing has contributed to a fall in the state’s murder rate (though it did tick slightly upwards last year).

The same as Dilma, but different
For all the good stories that Mr Serra has to tell about his governorship, the strong poll lead he has held for over a year has recently faded (one poll this week put it as low as seven points), as President Lula, still hugely popular after seven years in office, has campaigned energetically for his chosen candidate, Dilma Rousseff. Mr Serra is a “developmentalist”, as Brazilians call social democrats who retain their faith in active government, so he is ideologically not far from Ms Rousseff, though he seems more likely to push through fundamental reforms needed to improve public services and speed up the economy.

Ms Rousseff, though an able administrator, is even less charismatic than her rival. So Mr Serra’s ratings ought to perk up again once he starts campaigning. But Brazil’s riotous multiparty system, in which candidates must delicately stitch together broad coalitions, is harsh on those whose bandwagons lose momentum. Mr Serra needs to get out on the stump and start singing his own praises now, if he wants to avoid being remembered as the best president Brazil never had. (The Economist)

Cuetos to Raise $1 Billion as Pinera Readies Lan Sale

Costa Verde Aeronautica SA, the holding company owned by Chile’s Cueto family, plans to raise $1 billion in a move analysts say will finance the purchase of Lan Airlines SA shares from President-elect Sebastian Pinera.

Costa Verde may sell 500 million new shares at $2 each, the company said in a statement distributed at a shareholders meeting today in Santiago. It didn’t disclose how it plans to use the money.

Pinera, who agreed to sell the shares before taking office on March 11, controls Lan in an agreement with the Cuetos, who have an option to purchase his shares. Axxion SA, the company through which Pinera owns a 19 percent Lan stake, received approval from shareholders today to sell the shares.

Costa Verde’s capital increase “must be for buying part of the Lan shareholding,” Adolfo Moreno, an analyst who tracks Lan Airlines at brokerage IM Trust, said by telephone. “The rest could be sold to another company or investor or some could be offered on the market.”

Costa Verde officials didn’t immediately respond to a telephone message seeking comment.

Axxion’s 19 percent stake in Lan is worth about $1 billion at market prices. Pinera owns 26 percent of Latin America’s biggest airline by market value.

“Axxion’s board was authorized to proceed with setting a price for the Lan shares and initiating the sale mechanism stipulated in the shareholder pact with the Cueto family,” Fernando Barros, the company’s chairman and Pinera’s legal adviser, wrote in a statement distributed by e-mail.

Share Rise

Axxion shares jumped as much as 16 percent to 26 pesos as the Santiago exchange lifted a trading halt on the stock following today’s meeting. The company will buy back the shares at 21.45 pesos from holders who voted against the sale, it wrote in a regulatory filing today.

Axxion has been halted at least four times as shares surged 140 percent before tumbling as much as 48 percent since the billionaire investor won a Jan. 15 presidential vote, sparking a regulator’s probe and reigniting criticism of his refusal to sell his investment before the vote.

“There was speculation on the price that minority holders who voted against the Lan sale would be offered,” Gabriela Clivio, head of research at Itau Chile Corredor de Bolsa, said by telephone. She values the shares at 13 pesos to 15 pesos.

Lan fell 0.5 percent to 8,740 pesos today, erasing a gain earlier this week.

Bloomberg - Eduardo Thomson and James Attwood
To contact the reporters on this story: Eduardo Thomson in Santiago at ethomson1@bloomberg.netJames Attwood in Santiago at jattwood3@bloomberg.net

Central Bank robbery

Critics of Argentina’s government have two main explanations for the behaviour of Cristina Fernández de Kirchner’s administration: cunning conspiracy or bumbling incompetence. Two bits of evidence suggest the truth lies somewhere in between.

First, Martín Redrado, the governor of the Central Bank, was pushed out on January 29th, after a battle with the president over the bank’s dollar reserves. Ms Fernández ostensibly wanted to use the cash to reassure foreign investors about Argentina’s creditworthiness. If so, her government has achieved the opposite with its bullying of Mr Redrado, who was making a stand for central-bank independence—something investors tend to like. That his replacement will be Mercedes Marcó del Pont, an economist said to be close to the presidency, is also a discouraging sign.

Second, it emerged that in 2008, when the global financial crisis was at its height, Ms Fernández’s husband and predecessor as president, Néstor Kirchner, sold $2m worth of pesos and bought dollars. There was nothing illegal about this, and Mr Kirchner did declare the transaction. But the trade hardly expressed confidence in the government’s economic management.

Ms Fernández justified her raid on the reserves by saying that the Central Bank had more than it needed, because they exceeded the size of the monetary base. Economists disagree about what is an appropriate target for the reserves, but Mr Redrado’s view is that a highly dollarised emerging economy like Argentina’s needs an abundance of Treasury bonds (the form in which most reserves are held) as insurance. Even if Ms Fernández might find support from some economists for her argument, her plan to swap the dollar reserves for a non-transferable government bond would not.

Argentina’s economy is on course to rebound this year and grow at 3-5%. But the government is spending money so fast that this growth will not finance current spending on its own, says Daniel Marx, a former finance minister. Ordinarily, a government faced with a shortfall would turn to domestic and international bond markets. But this has been difficult since Argentina defaulted in 2002.

Yet if the government was just in search of cash, the timing is odd. It could have funded itself from domestic sources, such as the pension funds that it took over in 2008, Banco Nación (a public bank) and the Central Bank itself, without having to look further afield, says Daniel Volberg of Morgan Stanley, an investment bank. The evidence therefore points to a miscalculation by a president who rejects checks on her power and has given up listening to anyone outside her coterie of advisers. (The Economist – USA)

Peru Aims to Speed Up Machu Picchu Rail Repairs as GDP Suffers

Peru’s government will help repair the privately owned rail line that takes tourists to the Machu Picchu ruins in a bid to limit economic losses for the country that could reach $800 million.

The government is providing manpower to help rehabilitate the flood-damaged tracks, which may not be operating normally for seven to eight weeks, Deputy Transport Minister Hjalmar Marangunich said. Ferrocarril Transandino SA, a unit of Orient Express Hotels Ltd., manages the rail line to Machu Picchu.

The decrease in tourism could cost Peru’s economy as much as $800 million, equivalent to 0.63 percent of gross domestic product, according to Jose Marsano, a researcher at the Lima- based Tourism Observatory of Peru. The government is looking at ways to use more helicopters to ferry tourists to the site until the rail line reopens, Marangunich said in an interview.

“Machu Picchu is central to the regional economy so we have made the railway repairs a priority,” Marangunich said from Lima.

The Inca hiking trail about 7,700 feet above sea level, closed after torrential rains trigged landslides last month, will be reopened when the weather improves, he said. The trail serves as the second major access point to the ruins.

About 4,000 tourists were evacuated by helicopter from Machu Picchu last week after the longest period of heavy rain in 20 years in Peru’s southern Andes triggered landslides. An Argentine tourist and her Peruvian guide were killed Jan. 26 after a landslide on the Inca trail.

About 858,000 tourists a year visit the 15-century Inca ruins, according to the Tourism Observatory.

Bloomberg - John Quigley
To contact the reporters on this story: John Quigley in Lima at jquigley8@bloomberg.net

Asian roots run deep in Peruvian soil

Anyone with Asian features quickly stands out as a foreigner in most of Latin America. But not in Peru, where a large percentage of the population is of Asian descent.

The first Chinese and Japanese who left their countries for Peru trusted that their hard work would give them the chance to return home. Many decades later, their children and grandchildren are well integrated into Peruvian society.

Liliana Com believes that she has the power to change her life dramatically from one day to the next, should she choose - just like the snake of her Chinese zodiac. She could move to China at any time.

Com devoted 15 years of her life to running a restaurant, the renowned Wa Lok in Lima, where the cuisine combines the Chinese heritage of her parents with the traditions of her native Peru in a harmonious blend called "chifa."

Her parents chose not to keep statues of Buddha in their home, but they regularly visited the temple in Lima's Chinatown to stay in touch with their Eastern roots. Com grew up being "the Chinese girl" at her school, as her identity evolved between the ancient traditions of China and Peru.

She eventually decided to embrace both cultures as her own.

"As a child I had identity problems. Because of my way of talking, because I am very sociable, my mum used to tell me that I didn't look Chinese," Com told the German Press Agency dpa in an article published by the Earth Times.

Fifty years after Com's mother arrived in Peru, she and her two daughters travelled to Sun Pun Chung in China's Guangzhou province. Little had changed in what remained a quiet, rural area.

"When I went to China I felt very Peruvian, because everyone there realized that I wasn't fully Chinese," said Com, who speaks fluent Cantonese.

The Chinese were the first Asians to arrive in Peru, replacing the slaves of African origin in coastal plantations. Japanese followed after 1899.

Many immigrants died amid the tough working conditions and endemic diseases that they encountered. The survivors drew strength from their tightly knit groups and eventually left their employers to start their own businesses and carve out their own niche in Peru.

With an estimated 600,000 descendents of Chinese and Japanese migrants, Peru has the second-largest population of Asian descent in Latin America behind only neighbouring giant Brazil. And Far Eastern cultures have had much greater influence on Peru, with a population of 29 million, less than one-sixth that of Brazil.

Chinese and Japanese integration with Peruvian culture is most apparent in cuisine. In Lima, Peruvian-Chinese food is so popular that every neighbourhood has its "chifa" restaurants.

The "Nikkei" immigrants, as the Japanese are known, and "Tusan," or Chinese immigrants, are greatly influential in Peru's political and economic life. The most prominent example is former Peruvian president Alberto Fujimori (1990-2000), who eventually faxed in his resignation from Japan.

After his exit from power, Fujimori took refuge in the land of his ancestors. Peru sought his extradition to answer charges of corruption and human-rights abuses, but Japanese law forbids the extradition of Japanese citizens.

He was later arrested in Chile and extradited in 2007 to Peru.

Dante Valenzuela said he was called "El Chino," the Chinese boy, since he was little. Yet, the fact that his grandfather migrated from China did not mean that the family followed Chinese traditions.

Valenzuela was a tourism entrepreneur until a left-wing insurgency in the 1980s badly hurt Peru's tourism industry. An engineer by training, he decided to look for a job in Japan to support his wife and three children.

Despite his own Chinese descent, Japanese friends helped Valenzuela gain the right to work in Japan, where he eventually spent six years working and exploring his Asian roots.

"For the first two years I saved money, the next two when my family came over I spent it, and the last two I had to stay in Japan alone again to be able to save," he told the German Press Agency dpa. "That was how I finished building my house in Lima, and I could return to tourism."

Like his Chinese forefathers who migrated to Peru, Valenzuela found factory work in the car and meat industries.

"They looked at me in a strange way, because while I do have Asian traits they are not so apparent. So, when did they confirm that I was Japanese? When they saw me work," Valenzuela recalled, though his roots are actually Chinese.

While Valenzuela and Com have always regarded Peru as their home, many in the younger generations of "Nikkei" and "Tusan" Peruvians see their futures in their ancestral homelands in the increasingly prosperous Far East. (Andina)

Cencosud Falls After Saying Wong to Auction Shares

Cencosud SA, Chile’s biggest retailer by sales, fell the most in three weeks after saying Peru’s Wong group will sell its stake in the company in an auction.

Cencosud, controlled by chairman Horst Paulmann, closed down 1.2 percent to 1,846 pesos. It dropped as much as 2.1 percent, the steepest decline since Jan. 8.

Wong will sell the 49.75 million shares it acquired as part of Cencosud’s purchase of Wong’s supermarket chain in 2007, Santiago-based Cencosud said in a regulatory filing yesterday. The shares to be sold are worth about $175 million at current prices, Banchile Inversiones wrote in a note today.

“This could be an attractive opportunity for another group or institutional investor to buy the stock,” said Matias Brodsky, an analyst at CorpResearch in Santiago.

Bloomberg - James Attwood and Eduardo Thomson
To contact the reporters on this story: James Attwood in Santiago at Jattwood3@bloomberg.net; Eduardo Thomson Correa in Santiago at ethomson1@bloomberg.net

Brazil Industrial Output Had Record Gain in December

Brazil’s industrial output rose the most ever in December from a year earlier as manufacturers recover from their worst slump ever.

Industrial production jumped 18.9 percent in December, after contracting 14.7 percent a year earlier, the national statistics agency said today in a report distributed in Rio de Janeiro. Production fell 0.3 percent from November.

President Luiz Inacio Lula da Silva said today the government won’t renew tax cuts implemented last year to boost the economy because the government now sees “clear signs of recovery.” Finance Minister Guido Mantega forecast the economy will expand between 5 percent and 5.5 percent this year.

“The economy can now stand on its own feet,” Mantega said today in Sao Paulo. “Brazil is beginning a new cycle of expansion that will last many years.”

Policy makers will start raising interest rates as early as April to keep inflation in check as domestic demand in Latin America’s biggest economy fuels growth, a central bank survey published yesterday shows. The bank’s benchmark rate will be lifted to 11.25 percent by year end from a record 8.75 percent, according to the median forecast in the survey.

The yield on interest rate futures contracts due in January 2011, the most traded in Sao Paulo stock exchange, dropped 1 basis point to 10.3 percent at 7:46 a.m. New York time.

‘Room to Expand’

Economists expected industrial production to rise 18.5 percent from a year earlier and fall 0.2 percent from November, according to the median of 23 forecasts in a Bloomberg survey.

“Manufacturers still have further room to expand production given that production hasn’t reached pre-crisis levels,” Cassiana Fernandez, an economist at Maua Sekular Investimentos said. “Investments have been driving industrial production in the past two months, which is also good for increasing the supply capacity ahead.”

Fernandez expects policy makers to increase the so-called Selic rate to 9.25 percent in April.

Bloomberg - Adriana Brasileiro
To contact the reporter on this story: Adriana Brasileiro in Rio de Janeiro at abrasileiro@bloomberg.net; Andre Soliani in Brasilia at asoliani@bloomberg.net

AndeanGold signs MoU to acquire 60% JV interest in Urumalqui Au-Ag project

AndeanGold Ltd. announced Monday that it has signed a Memorandum of Understanding (MoU) with Gitennes Exploration Inc. to acquire a 60% Joint Venture (JV) interest in Gitennes' Urumalqui Au-Ag Project.

The project is located in the department of La Libertad, Peru, approximately 70 km east of the city of Trujillo.

The Project consists of four (4) contiguous concessions totaling 2,700 hectares, and is located at elevations ranging from 3,400 - 3,700 metres.

Mineralization at the Urumalqui Project is hosted in volcanics and is comprised of several gold-silver quartz veins.

Vein mineralogy and textures and associated alteration are characteristic of low- sulphidation, vein-style, epithermal, mineralization.

Gitennes acquired an interest in the Project in 2002 by way of a joint venture with Meridian Gold Inc. The joint venture was terminated in mid-2005, upon which Gitennes assumed 100% ownership of the Project.

Work on the property since January 1, 2003 includes grid-controlled soil sampling, two episodes of IP and magnetic geophysics surveying, three phases of core drilling (approximately 7,336 metres in 47 holes) and preliminary metallurgical testing. Please click here to read complete press release. (Andina)