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How Kinder Morgan won a billion-dollar bailout on Canada pipeline

OTTAWA/HOUSTON (Reuters) – U.S. energy firm Kinder Morgan’s C$4.5 billion sale of an oil pipeline to Canada’s government marked an extraordinary escape from months of fraught negotiations among warring camps of Canadian officials.

A workman walks past steel pipe to be used in the oil pipeline construction of Kinder Morgan Canada’s Trans Mountain Expansion Project at a stockpile site in Kamloops, British Columbia, Canada May 29, 2018. REUTERS/Dennis Owen

But even before the bailout, the company had little to lose – despite the C$1.1 billion it has spent so far on a plan to add a second pipeline from Alberta’s oil sands to British Columbia’s coast, according to a Reuters review of the project’s bank financing and oil-shipping contracts with producers reserving space on the proposed line.

The documents show Kinder Morgan cut creative deals with lenders and oil producers to shield itself from massive write-downs like the ones taken recently by rivals TransCanada Corp and Enbridge Inc in canceling controversial pipeline projects.

The arrangements, which have not been previously reported, gave Kinder Morgan unique leverage in threatening last month to walk away from the project by May 31 unless Prime Minister Justin Trudeau’s government guaranteed a path to construction over the objections of British Columbia officials, environmentalists and some aboriginal bands.

The company’s cautious financial planning and hard-ball politicking combined to create a no-lose bet on what might have been one of the oil industry’s riskiest plays, given the volatility of Canadian pipeline politics.

The firm’s ultimatum made rescuing its Trans Mountain pipeline expansion a national emergency for Trudeau, thrusting the prime minister into a constitutional crisis over the limits of federal power and a political crisis in refereeing a feud between Alberta and British Columbia.

Trudeau argued the project must go forward to alleviate a crude transportation bottleneck that costs Canadian oil producers C$15 billion annually in forgone export revenue. The expansion would nearly triple the flow of crude through Trans Mountain pipelines, to 890,000 barrels per day.

Now, in a deal announced Tuesday, Canada will pay Kinder Morgan the C$1.1 billion it has spent and another C$3.4 billion for the existing pipeline and to compensate the firm for giving up the expansion’s potential profits.

“Kinder Morgan wins,” said Brian Kessens, managing director at Leawood, Kansas-based investment firm Tortoise, which holds shares in Kinder Morgan Inc. “That’s a very fair price.”

The rising costs of the pipeline expansion, he said, had cut its profit potential to “just a little north of their cost of capital.”

The firm’s Chief Executive Steve Kean celebrated its exit from the troubled project.

“This is a great day, not only for our company but for Canada,” he said.

Canadian Finance Minister Bill Morneau said the government took the drastic step to resolve an “exceptional” problem, calling the deal “the best way to protect thousands of good, well-paying jobs while delivering a solid return on investment for Canadians.”

Steel pipe to be used in the oil pipeline construction of Kinder Morgan Canada’s Trans Mountain Expansion Project at a stockpile site in Kamloops, British Columbia, Canada May 29, 2018. REUTERS/Dennis Owen

Kinder Morgan’s leverage in the deal stemmed in part from careful risk management in earlier negotiations with the 13 oil producers who reserved capacity in the proposed line. The shippers agreed to cover about 80 percent of Kinder Morgan’s capital costs – even if the second pipeline never gets built, the contracts show.

The shippers promised to pay those costs over time through tolls on shipments through the existing pipeline, and the contracts included an “early termination” clause to ensure the producers paid even if regulatory problems blocked the project.

The firm also negotiated with 26 lenders led by Royal Bank of Canada and TD Bank for a clause exempting the firm from paying a 2 percent penalty on funds drawn from up to C$5 billion in construction loans if it halted the project because of political problems, the documents show.

Another roughly C$220 million in financing, CEO Kean told analysts last month, came from assessments on oil producers shipping through Kinder Morgan’s Westridge export terminal in Burnaby, British Columbia, which is targeted for expansion to accommodate the second pipeline.

Twelve of the 13 oil producers – including BP Canada, Teck Energy Sales, Andeavor and Canadian Natural Resources – did not respond to Reuters inquiries or declined to comment on their contracts with Kinder Morgan. Canadian oil producer Cenovus Energy did not comment directly on the contracts but issued a statement saying Canada’s oil industry would continue to suffer from low prices and exports without new pipelines.


Kinder Morgan’s threat to abandon the project forced Trudeau to back up his assertion that the federal government had the authority to approve the pipeline over a provincial effort to regulate it out of existence, said Bob Prasad, senior director at Allnorth, a Vancouver-based energy engineering and consulting firm that has worked on the project.

The ultimatum was a “genius move on Kinder Morgan’s part to move this project along – and put a date to it,” Prasad said.

In response, federal and Alberta officials scrambled to rescue the project, promising to indemnify Kinder Morgan against further cost overruns from political roadblocks in British Columbia. Alberta officials went so far as to threaten cutting off oil supplies to British Columbia in retaliation.

At the same time, inside Kinder Morgan, one of the primary architects of its political and financial strategy, 43-year-old Dax Sanders, got a battlefield promotion last month – just as the pipeline’s construction prospects never looked more bleak. Sanders, finance chief of Kinder Morgan Canada Ltd, now also serves as head of overall strategy for the Houston-based parent company, North America’s second-largest energy infrastructure firm.

Sanders was unavailable for an interview Tuesday, a company spokesman said.

Steel pipe to be used in the oil pipeline construction of Kinder Morgan Canada’s Trans Mountain Expansion Project sit on rail cars at a stockpile site in Kamloops, British Columbia, Canada May 29, 2018. REUTERS/Dennis Owen

Robyn Allen – a vocal pipeline opponent and retired chief executive of an auto insurance firm – has long predicted the expansion would end in a government bailout. She opposed it specifically for that reason, unlike most other opponents who have cited fear of oil spills.

The Trudeau administration, she said, is paying C$4.5 billion “for a pipeline that is more than 65 years old” and assuming expansion costs she estimated could run as much as C$12 billion – far more than the firm’s latest estimate of C$7.4 billion.

By using assets of the existing Trans Mountain pipeline to finance its expansion, Kinder Morgan made the two inseparable in the bailout, Allen said.

“Now Kinder Morgan’s U.S. shareholders will be made whole,” she said. “They have offloaded all of these costs onto Prime Minister Justin Trudeau.”

Finance Minister Morneau declined to comment in a morning news conference on the costs to complete the project.

Finance Ministry spokesman Dan Lauzon, asked later on Tuesday about Allen’s C$12 billion estimate, said the government’s pipeline purchase was “commercially viable and has the potential to add value” for new investors.


Buying the pipeline hardly solves Trudeau’s political problems. It merely buys him time, at the cost of a massive investment of taxpayer money into the nation’s dicey oil transportation industry.

The government hopes to quickly resell the project to energy firms, a task made much harder by its tortured political history.

Though Trudeau asserts federal authority to approve the project, British Columbia officials could effectively bog it down for years in environmental studies, lawsuits and regulations that undercut its profit potential.

Trudeau could theoretically nullify any provincial law that effectively kills a federally approved project under a constitutional provision that hasn’t been used since the 1940s. But that’s unlikely given that his Liberal party relies far more on electoral support from British Columbia than from conservative Alberta.

The prime minister is already paying the political price.

“Those of us who knocked on doors for him will not forget that he took billions of dollars from Canadian families to buy out an oil pipeline,” said Tzeporah Berman, deputy director of, an environmental advocacy organization with offices in Vancouver.

The flack is flying from opponents on the right, too, including from Conservative Leader Andrew Scheer, head of the largest opposition party.

Trudeau’s pipeline deal, Scheer said, does nothing to solidify federal authority or settle constitutional questions.

“All he has done is force Canadian taxpayers to pay for his failure,” Scheer said. “He is trying to buy his way out of a problem.”

Reporting by David Ljunggren in Ottawa and Liz Hampton and Gary McWilliams in Houston; Additional reporting by Julie Gordon in Vancouver; Editing by Denny Thomas and Brian Thevenot

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Fox sets Disney deal vote for July 10

(Reuters) – Twenty-First Century Fox Inc (FOXA.O) will hold a special meeting on July 10th for its stockholders to vote on a proposed merger with Walt Disney Co (DIS.N), the company said on Wednesday.

FILE PHOTO: Tennis – US Open – Mens Final – New York, U.S. – September 10, 2017 – Rupert Murdoch, Chairman of Fox News Channel stands before Rafael Nadal of Spain plays against Kevin Anderson of South Africa. REUTERS/Mike Segar

The Fox board also recommended backing the deal but said that it was aware of Comcast Corp’s (CMCSA.O) moves to make an offer for certain assets of the company.

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Comcast said last week it was preparing a higher, all-cash offer for most of the media assets of Fox, but sources say it will only proceed if a federal judge next month allows ATT Inc’s (T.N) planned $85-billion acquisition of Time Warner Inc (TWX.N).

The announcement of the special meeting date comes after the largest U.S. cable operator Comcast put pressure on Fox and its shareholders to not rush into approving the Disney deal by going public with its plans of a “superior” offer.

Disney in December offered stock then worth $52.4 billion to buy Fox’s film, television and international businesses to beef up its offering against streaming rivals Netflix Inc (NFLX.O) and Inc (AMZN.O).

A regulatory filing in April showed Comcast offered to buy most of Fox’s assets in an all-stock deal valued at $34.41 per share, or $64 billion last November, just before Disney’s offer was agreed upon.

Reporting by Sonam Rai in Bengaluru; editing by Patrick Graham and Shounak Dasgupta

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Beating the crowds on the West Tethyan Belt

This is not a new mining jurisdiction. The former Yugoslav republic has long been mined and explored, including by majors such as Freeport McMoRan and Rio Tinto, and the former government, leaving a wealth of information and expertise there for new arrivals.

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Teething issues subsiding in West Tethyan

This is not a new mining jurisdiction. The former Yugoslav republic has long been mined and explored, including by majors such as Freeport McMoRan and Rio Tinto, and the former government, leaving a wealth of information and expertise there for new arrivals.

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China vows to protect its interests from ‘reckless’ U.S. trade threats

BEIJING (Reuters) – China lashed out on Wednesday at renewed threats from the White House on trade, warning that it was ready to fight back if Washington was looking for a trade war, days ahead of a planned visit by U.S. Commerce Secretary Wilbur Ross.

In an unexpected change in tone, the United States said on Tuesday that it still held the threat of imposing tariffs on $50 billion of imports from China unless it addressed the issue of theft of American intellectual property.

Washington also said it will press ahead with restrictions on investment by Chinese companies in the United States as well as export controls for goods exported to China.

Its tougher stance comes as President Donald Trump prepares for a June 12 summit with North Korean leader Kim Jong Un, whose key diplomatic backer is China, and as Washington steps up efforts to counter what it sees as Beijing’s efforts to limit freedom of navigation in the South China Sea.

The trade escalation came after the two sides had agreed during talks in Washington this month to find steps to narrow China’s $375 billion trade surplus. Ross is expected to try to get China to agree to firm numbers to buy more U.S. goods during a June 2-4 visit to the Chinese capital.

“We urge the United States to keep its promise, and meet China halfway in the spirit of the joint statement,” Chinese Foreign Ministry spokeswoman Hua Chunying told a daily news briefing, adding that China would take “resolute and forceful” measures to protect its interests if Washington insists upon acting in an “arbitrary and reckless manner”.

“When it comes to international relations, every time a country does an about face and contradicts itself, it’s another blow to, and a squandering of, its reputation,” Hua said.

China has said it will respond in kind to threats by Trump to impose tariffs on up to $150 billion of Chinese goods.

It was not clear if the developments would have any impact on the planned visit to China by Ross. China’s Foreign Ministry referred questions to the Commerce Ministry, which did not reply to a fax seeking comment.


Several U.S. officials arrived in Beijing on Wednesday for talks.

They included Under Secretary of Agriculture Ted McKinney, the U.S. Trade Representative’s chief agricultural negotiator, Gregg Doud and Commerce Department Deputy Assistant Secretary Alan Turley, according to a U.S. embassy spokeswoman.

“Over the next few days, the U.S. delegation of more than 50 people will discuss with China’s team on implementing a consensus,” China’s Commerce Ministry said in a statement.

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Earlier, China’s state council, or cabinet, said it will cut import tariffs on a range of consumer items including apparel, cosmetics and home appliances from July 1, and would finalize a so-called negative list for foreign investment by the same date, following through on earlier pledges.

Trade war fears had receded after the Trump administration said it had reached a deal to put ZTE Corp back in business after banning China’s second-biggest telecoms equipment maker from buying U.S. technology parts for seven years.

The easing in tension had fueled optimism that agreement was imminent for Chinese antitrust clearance for San Diego-based Qualcomm Inc’s $44 billion purchase of Netherlands-based NXP Semiconductors NV, which has been hanging in the balance amid the trade dispute.

A team of Qualcomm lawyers that is expecting to meet with Chinese regulators ahead of Ross’s arrival remained in San Diego as of late Tuesday, a source familiar with the matter said.

“On hold now,” another person familiar with Qualcomm’s talks with the Chinese government said on Wednesday, declining to be identified as the negotiations are confidential.

“Trump is crazy. Crazy tactics might work, though,” the person added.


William Zarit, chairman of the American Chamber of Commerce in China, said the U.S. threat of tariffs appeared to have been “somewhat effective”.

“I don’t think it is only a tactic, personally,” he told reporters on Wednesday, adding that the group does not view tariffs as the best way to address the trade frictions.

“The thinking became that if the U.S. doesn’t have any leverage and there is no pressure on our Chinese friends, then we will not have serious negotiations.”

The Global Times, an influential tabloid run by the ruling Communist Party’s official People’s Daily, said the United States was suffering from a “delusion” and warned that the “trade renege could leave Washington dancing with itself”.

FILE PHOTO: Containers are seen at the Yangshan Deep Water Port in Shanghai, China April 24, 2018. REUTERS/Aly Song/File Photo

Also on Tuesday, a White House official said the U.S. government plans to shorten the length of visas issued to some Chinese citizens as part of a strategy to prevent intellectual property theft by U.S. rivals.

Citing a document issued by the Trump administration in December, the official said the U.S. government would consider restrictions on visas for science and technology students from some countries.

Additional reporting by Brenda Goh in SHANGHAI and Matthew Miller, Ben Blanchard, Dominique Patton and Yawen Chen in BEIJING; Writing by Ryan Woo and Tony Munroe; Editing by Kim Coghill and John Stonestreet

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Seattle tech company introduces MinePortal

Orica backed a US$12 million fund-raising by DataCloud earlier this year that was also supported by Washington DC-based Aperture Financial Group. DataCloud director Adam Mooney is vice president for technology, analytics and automation at Orica Mining Services.

DataCloud CEO Thor Kallestad said inexpensive industrial Internet of Things technologies, such as equipment sensors, and cloud computing services, made real-time data management and analysis possible. “By harnessing major technological breakthroughs such as advanced IoT sensors, artificial intelligence and cloud computing to automate workflows, DataCloud’s industry-leading MinePortal platform is ushering in an exciting new era of productivity and margin growth for mine operators worldwide,” he said.

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With the new MinePortal platform mine operators could process “massive volumes of drilling and geosciences data to create actionable insights that produce dramatic improvements in orebody delineation, and [rock] fragmentation”.

Analysing the data in real-time meant mine operators could make better, faster drilling and blasting decisions that “materially improve productivity, and ultimately strengthen profitability”.

“This is a game-changer for mine operators,” Kallestad said.

“The real-time geosciences technology in MinePortal is fundamentally transforming how mining companies can master the subsurface and generate significantly better operational results. These enhanced operational and business results include improved drill and blast outcomes, increased mill throughput, and reduced processing costs per ton.”


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Polyus ups profit in March quarter

Adjusted net profit for the quarter was 10% higher than a year ago at US$223 million, while revenue edged up 1% to $743 million.

Its adjusted EBITDA was also 1% higher on the year at $387 million, with the adjusted EBITDA margin steady at 63%.

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Group total cash costs for the three-month period were 1% higher at $383 per ounce, while all-in sustaining costs jumped 17% on the year to $684/oz due to lower gold sales volumes.

Polyus noted that it produced the first volumes of antimony concentrate from its newly-launched high-grade antimony-rich ore processing at Mill-1 during the March quarter, although no shipments to foreign offtakers were made before May, and the total cash costs did not reflect any by-product credit.

Net cash inflow from operations dropped 7.4% on the year to $261 million, while capital expenditure rose 39% to $182 million due to higher spending at Natalka, Verninskoye and Kuranakh.

It ended the March quarter with $1.1 billion, compared to $1.5 billion a year ago and $1.2 billion at the end of December due to an early repayment of certain credit facilities.

Net debt on March 31 was $3.1 billion, relatively steady from the end of the March 2017 and December 2017 quarters.

As previously reported, total gold output for the quarter from all operations rose 13% year-on-year to 506,500 ounces.

Polyus CEO Pavel Grachev said the company remained on track with all its initiatives. Natalka continued to ramp up ahead of expectations, with its operations at 80% of the design processing capacity.

“We are progressing with the drilling campaign and engineering works at Sukhoi Log, and are also working on efficiency improvements across our existing operating assets,” he said.

He kept the company’s full-year gold production guidance at 2.375—2.425 million ounces.


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Change of CEO at Kore Potash

Sampson was most recently CEO of ASX-listed Tiger Resources and prior to this held senior positions at Newcrest Mining, including general manager of its West African operations.

During his 25 years’ of experience in the resources industry, he was also CEO of Discovery Metals over the 2008-2013 period, and a general manager at Goldfields.

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Bennett will remain available to Kore to support its financing developments.


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