FT : How the revolution in electric vehicles is changing mining

How the revolution in electric vehicles is changing mining
The world’s largest carmakers are among those driving hardest for sustainable minerals

For decades, communities around the world have too often been betrayed by promises that mining would yield financial prosperity and return to them the landscape as good as it was found. Many have ended up with environmental destruction with very little benefit to show for it.

But the car industry and its massive demand for minerals and metals for building and powering electric vehicles could change this paradigm.

Amid the push for new, more climate-friendly sources of energy, the market has seen an equally unprecedented rise in demand for lithium, cobalt, nickel and other minerals. These materials, linked to wind turbines, solar panels, EVs and batteries, derive from the mining sector, which has long been associated with irresponsible practices.

Consumers who buy EVs view themselves as active participants in a commitment to heal the planet. With their climate-conscious consumers in mind, car companies are analysing the environmental and social impact of every material in their supply chains.

Although some governments are increasingly requiring companies to undertake due diligence, regulatory levers often move slowly. It is the call from the market, supported by demands from civil society, that is sparking change at the mine site, where change is most needed.

We now know that the mining sector, encouraged by the right incentives, has the potential to embrace a radical transformation. Among those driving hardest for such a change are the world’s largest carmakers — BMW, Mercedes-Benz, Ford, General Motors, Volkswagen and Tesla have signed on to the Initiative for Responsible Mining Assurance (IRMA), joining United Steelworkers, Anglo American, Microsoft, Tiffany, and others.

To better understand the risks in their sourcing of raw materials, the car companies are asking miners feeding their supply chains to undertake IRMA assessments.

Eleven mines are at present under independent review; another 73 mines, owned by 50 different companies, are using IRMA’s self-assessment tool to prepare for independent third-party evaluation. Governed equally by all stakeholders, including community representatives, civil society and labour unions, IRMA offers a global standard for mining that has been hammered out in a collaboration with the private sector.

Transparency around the environmental and social impact linked to the minerals used in products such as phones, computers, cars, jewellery and batteries allows brand owners and consumers to demand improvements in practices that harm people and the planet.

This, in turn, should increase the market value for minerals that are mined responsibly, as well as for minerals sourced from recycling and reuse, and more durable products.

Our goal is a world where the mining industry respects the human rights and aspirations of affected communities; provides safe, healthy, and respectful workplaces; minimises harm to the environment; and leaves positive legacies.

Carmakers are using their massive buying power to speed progress towards this goal, in part by assuring the mining industry that the market will value their effort.

Yet market forces alone cannot transform the entire mining sector. Voluntary initiatives will never replace the critical role of law and government in setting rules that all companies must follow.

Given that most mining companies will comply with national laws wherever they operate, we need governments to pass legislation and enforce those rules.

But governments tend to move slowly, and some miners are known to lobby to stop regulatory changes. There is a growing demand for more responsible mining and governments should require companies to use IRMA’s Standard for Responsible Mining as a means to ensure sustainable mineral production.

Proper performance of supply chains that support climate solutions should be judged by whether they bring less harm, not more, to an already climate-stressed world.

Our experience with the mining sector suggests it is possible to prevent backsliding on climate commitments. As long as the proper levers are in place, safe and sustainable supply chains can be balanced with security of supply even through pandemics and conflicts.

FT : ‘People are hungry’: food crisis starts to bite across Africa

‘People are hungry’: food crisis starts to bite across Africa
Signs of inflation-linked unrest are emerging, NGOs warn

Ezra Ngala, an informal construction worker, is struggling to make ends meet in a slum in Kenya’s capital, Nairobi. “I am trying to survive,” he says while explaining that he cannot feed his wife and four-year-old son.

“For the past few months there has been a surge of people like myself going hungry. The government says that the war in Ukraine is the cause of all this.”

Steep rises in international food and fuel prices since the Russian invasion of Ukraine have left millions more Africans facing hunger and food insecurity this year, the UN, local politicians and charities have warned. The price rises have compounded economic problems caused by the coronavirus pandemic, sparking concerns of unrest in the hardest-hit countries. Swaths of Africa face an “unprecedented food emergency” this year, in part because of the war in Ukraine, the World Food Programme has said.

“The conflict in Ukraine [sparked a] global price hike of fuel, fertilisers and also edible oil and sugar and wheat particularly. This is bringing significant shocks to the system,” Ahmed Shide, Ethiopia’s finance minister told the Financial Times.

In an area stretching from northern Kenya to Somalia and large parts of Ethiopia, up to 20mn people could go hungry in 2022, the UN’s Food & Agriculture Organization has said, due to the worst drought in four decades, exacerbated by the fallout from the war in Ukraine. More than 40mn people in the Sahel and west Africa this year face acute food insecurity, according to the FAO, up from 10.8mn people three years ago.

Before the war, Russia and Ukraine accounted for a double-digit share of wheat imports in more than 20 sub-Saharan African countries, including Madagascar, Cameroon, Uganda and Nigeria, according to the FAO. Eritrea relies on those two countries for all of its wheat imports.


Even those countries not reliant on imports from Russia and Ukraine have been hit by rising prices.

Responding to the trend, the World Bank on Wednesday said it had approved a $2.3bn programme to help countries in eastern and southern Africa tackle food insecurity.

The IMF forecasts that consumer prices in sub-Saharan Africa will top 12.2 per cent this year — the highest in almost two decades. In Ethiopia, food prices rose 42.9 per cent in April on the same month a year earlier.

There are concerns that higher food prices could fuel unrest in poorer countries, where food counts for a higher part of daily spending than in developed countries.

During the 2007-08 food crisis, which was caused by a spike in energy prices and droughts in crop-producing regions, about 40 countries faced social unrest. More than a third of those countries were on the African continent.

Even before the Russian invasion in late February, the pandemic had already hit economic growth on the continent. “Africa was already struggling with food insecurity,” said Wandile Sihlobo, chief economist at the Agricultural Business Chamber of South Africa. “These African countries had diminished ability to cushion their population from food price fluctuations.”


There have already been some signs of unrest. Landlocked Chad declared a food “emergency” earlier this month. In Uganda, six activists were arrested for protesting against higher food prices at the end of May, according to Amnesty International. The rising cost of food has since May spurred street protests in Nairobi under the hashtags #LowerFoodPrices and #Njaa-Revolution — meaning “hunger” revolution in Swahili.

“People are hungry, the reality is that people cannot afford to keep up with these rising prices. You wake up every day, and prices are rising,” said Lewis Maghanga, a local campaigner on the cost of living.

Jackline Mueni, who bakes cakes for weddings and birthdays in Nairobi, is feeling the pinch. “Things are just getting bad,” she said, adding that in the three years she had been in business this was by far the worst time. “In the last three months, food prices have really rocketed.”


In May, the price of edible oils jumped more than 45 per cent from a year ago in Kenya, while flour increased 28 per cent, according to the World Bank. “This is the worst time ever. I was very comfortably making money, recovering expenses and making a profit. I was selling an average of five cakes a day. Now, one or two, if I am lucky,” said Mueni.

Even Nigeria, an oil producer and a member of Opec, has been hit by international food and fuel prices. Africa’s most populous country exports crude oil but relies on fuel imports. It is also a large food importer, especially of grains. The price of bread in Lagos has risen from 300 naira ($0.72) before the pandemic to 700 naira this year, according to Chibundu Emeka Onyenacho, analyst at emerging markets bank Renaissance Capital.

“If you’ve suddenly moved to 700 [naira for a loaf of sliced bread], that’s putting pressure on anyone that is being paid the [monthly] minimum wage of 30,000 naira,” said Onyenacho.

He added that the price of wheat flour meant that in rural areas, people blended it with flour made from cassava, a cheap root vegetable, because they were “willing to compromise” on quality to cut the cost of products eaten daily, such as bread.

Back in Kenya, rising fuel prices mean construction worker Ngala spends roughly half his salary on fuel prices. As a result, some dishes have become unaffordable.

“We cannot afford basic things like cooking oil and maize flour,” he said, the latter to make local staple ugali, a cooked maize-flour dough. “There are people who can’t afford even one meal a day.”

FT : Germany fears ‘maintenance’ shutdown of Russia gas pipeline

Germany fears ‘maintenance’ shutdown of Russia gas pipeline
Planned work on Nord Stream 1 further threatens efforts to build stores ahead of winter

Germany’s government fears Russia could take advantage of annual maintenance on its main export pipeline to shut off gas supplies to the country completely, increasing the risk of a winter energy crisis in Europe’s largest economy.

Earlier this month Russia cut the flow of gas through Nord Stream 1 by 60 per cent. The pipeline, one of the main conduits for Russian gas into Europe, will be shut down for around two weeks from mid-July for annual summer work on it.

Officials say they worry that Gazprom, Russia’s state-owned gas giant, might stop gas deliveries completely while NS1 is closed for repairs, undermining Germany’s efforts to fill gas storage ahead of the winter heating season.

“The supply situation is tight enough without NS1 being shut down,” said one.

Carsten Rolle of the BDI, Germany’s business confederation, said that during previous periods of scheduled maintenance on NS1 Gazprom had made up the shortfall by sending Germany more gas through Ukraine, or via the Yamal-Europe pipeline through Poland.

“But there is a concern that they will not do that this year,” he said. “Already they have cut flows through NS1 by 60 per cent and not made up for it with increased flows through other pipelines.”

“The conclusion you’re left with is that this is a hostile act,” said Timm Kehler, head of trade body Zukunft Gas.

Markus Krebber, chief executive of German energy company RWE, said it was “very clear” that the decision to reduce gas flows was “political”, “because it’s not only the [gas] coming via Nord Stream 1 that [is] below contracted volumes, but also via other pipelines.”

Rolle said Gazprom could also use the planned maintenance on NS1 “as a pretext to stop gas supplies for much longer, citing various technical reasons”.

“What is the guarantee that at the end of the maintenance period that you actually do get any gas coming back on?” said James Waddell, an analyst at Energy Aspects.

The fears about NS1 come amid a growing realisation in Berlin and other European capitals that Russia is weaponising its energy exports in retaliation for EU sanctions over the war in Ukraine.

Robert Habeck, Germany’s economy minister, said on Sunday that Germany would reopen mothballed coal-fired power stations, as the government scrambles to shore up the nation’s energy supply.

Habeck said he could not rule out a further squeeze on gas deliveries. “Given the current situation, we must assume that Putin is ready to reduce the gas flow further,” he said on Wednesday.

So far, the reduction in flows has had little tangible impact on Germany’s supplies because gas consumption during the summer is only a quarter or a fifth of the volume on cold winter days. But it is having a serious effect on efforts to fill gas storage facilities ahead of the winter heating season.

Gas storage is currently 58 per cent full and the government wants that to rise to 90 per cent by November 1. But owing to the problems with NS1, gas importers are being forced to buy the missing volumes on the spot market at much higher prices.

They will come under even greater pressure if the flow of gas through NS1 and other pipelines is completely shut off for long periods over the summer.

“If we don’t succeed in filling gas storage by the autumn, we’re going to quickly start experiencing gas shortages,” said Jörg Rothermel, head of energy at Germany’s Chemical Industry Association. “And the Bundesnetzagentur [federal energy regulator] will have to start issuing orders for companies to reduce their gas consumption or even switch off some production facilities.”

“Russia seems to want to show Europe that it won’t succeed in filling its gas storage,” said Kehler. “My feeling is that it is trying to torpedo Europe’s goal of getting gas storage levels to 90 per cent by November 1, and so weaken Europe politically.”

A spokesperson for the German economy ministry said the government was in “close contact with gas traders who are preparing for this date”, referring to the start of maintenance work on NS1 on July 11.

She said Germany was also “liaising closely with our European partners because we know that gas supplies to France, Italy and Austria have also been reduced”.

>>> US Close Dow -0.15% S&P -0.13% Nasdaq -0.15% Russell -0.22%

Closing Stock Market Summary

The bulls and bears did battle again today. The final standing of the major indices suggests things ended in a draw. There was little change in the major indices, yet that was actually a victory for the bulls.

It was a victory on several counts:

  • It was a victory because the market maintained the bulk of yesterday's gains.
  • It was a victory because the Dow, Nasdaq, and S&P 500 battled back from opening declines of 1.2%, 1.3%, and 1.2%, respectively.
  • It was a victory because Fed Chair Powell acknowledged in his Semiannual Monetary Policy testimony to the Senate Banking Committee that it is going to be challenging to achieve a soft landing.
  • It was a victory because there were clear growth concerns below the index level.

In brief, the stock market had ample reasons to sell aggressively into yesterday's strength but it didn't. That resilience fostered a sense that the existing growth concerns have been adequately priced into the market for now. One can only hope. Entering today, the Dow, Nasdaq, S&P 500, S&P 400, and Russell 2000 were down 12.0%, 22.1%, 16.9%, 16.5%, and 18.2%, respectively, for the quarter.

The scope of those losses has contributed to the thinking that rebalancing activity at quarter end could lead to a needed markup in stock prices. That view helped hold today's line so to speak, as did the quick recovery effort following the opening slide.

That's not to say that today was an entirely convincing move for a market that has been predisposed to selling into strength all year. Rather, it's just to say that today invited a test of sentiment and that the bulls didn't indisputably fail that test.

A fairly steady performance from the mega-cap stocks helped hold the index line, which was also supported by relative strength in the real estate (+1.6%), health care (+1.4%), and utilities (+1.0%) sectors. That helped offset relative weakness in the information technology (-0.4%) sector and the more cyclically-oriented energy (-4.2%), materials (-1.3%), and industrials (-0.5%) sectors.

Energy was a major drag throughout the day, giving in to global growth concerns that knocked WTI crude oil futures down 3.2% to $106.07/bbl. There was no pull from the demand-supportive news that President Biden has called on Congress to suspend the national tax on gas and diesel for three months.

Similarly, copper futures fell 2.1% to $3.95/lb on the growth concerns, which also manifested themselves in the Treasury market. The 2-yr note yield dropped 17 basis points to 3.05% and the 10-yr note yield dropped 15 basis points to 3.16%.

Today's lone economic report was the MBA's weekly Mortgage Applications Index. It jumped 4.2% on an 8% increase in purchase applications that featured strong demand for adjustable rate mortgages.

Looking ahead, market participants will receive the Q1 Current Account Balance (8:30 a.m. ET), weekly initial claims (8:30 a.m. ET), and preliminary June IHS Markit Manufacturing and Services PMIs (9:45 a.m. ET) on Thursday. Additionally, Fed Chair Powell will appear before the House Financial Services Committee at 10:00 a.m. ET for day two of his semiannual monetary policy testimony.

  • Dow Jones Industrial Average: -16.2% YTD
  • S&P 500: -21.1% YTD
  • S&P 400: -21.3% YTD
  • Russell 2000: -24.8% YTD
  • Nasdaq Composite: -29.4% YTD

>>> US After Hours Summary: Quiet after hours; SCS +4.3%, WOR +4%, KBH +3.1% hig

After Hours Summary: Quiet after hours; SCS +4.3%, WOR +4%, KBH +3.1% higher on earnings

After Hours Gainers:

Companies trading higher in after hours in reaction to earnings/guidance: SCS +4.3%, WOR +4%, KBH +3.1%

Companies trading higher in after hours in reaction to news: AURA +7.3% (reports topline data from study of AU-011), CENX +2.6% (to temporarily idle its smelter in KY due to soaring energy costs), ACI +1.1% (five largest shareholders agree to extend lock-up to Sep 10), LDOS +0.3% (DES $11.5 bln contract win upheld by GAO)

After Hours Losers:

Companies trading lower in after hours in reaction to earnings/guidance: FUL -0.8%

Companies trading lower in after hours in reaction to news: XENE -2.1% (provides update on additional positive data from XEN1101 program; also stock offering), RDUS -2% (submits NDA to FDA for elacestrant for breast cancer), ATKR -1.5% (acquires United Poly Systems), AMD -0.2% (names Mathew Hein as chief strategy officer), COIN -0.2% (phasing out "Coinbase Pro"), ENPH -0.1% (COO to retire)

FT : Amundi: Europe’s heavyweight champ can make right connectionsc

Amundi: Europe’s heavyweight champ can make right connections
European fund management remains fragmented and is ripe for consolidation

Europe’s fund management industry was once likened to an exhausted athlete. Performing strongly in a bull market is like accelerating when running downhill. Tougher market conditions could herald a shake-out — and provide an opportunity for France’s Amundi. Europe’s largest asset manager on Wednesday said it could have as much as €2bn of excess capital by 2025 to spend on M&A.

Dealmaking in the asset management industry is fraught with risk, as Amundi’s newish boss Valérie Baudson knows. Culture clashes can result in the departure of clever asset pickers, triggering outflows from clients.

Fund managers are procyclical stocks. Amundi shares are now trading at 8 times forward earnings, 5 percentage points below its long-term average.

Investors have grounds for confidence, even so. Amundi is good at executing deals, forging tie-ups with retail banking distribution networks. An example is its €430mn acquisition of the asset management arm of Spain’s Banco Sabadell in 2020. Thanks to a 10-year distribution deal, this is expected to generate a 14 per cent return on investment.

Amundi is targeting a cost-to-income ratio of below 53 per cent, one of the lowest in the European industry. A big factor is its ownership of its own portfolio management platform. It does not rely on rival systems, such as BlackRock’s Aladdin or State Street’s Charles River. Amundi technology is now a profit generator in its own right, with 42 external clients in Europe and Asia.

Plans to ramp up the technology business is one factor behind the organic growth target of 5 per cent a year, in line with post-2018 performance, assuming constant market conditions. That would generate €240mn of net income by 2025. Acquisitions could generate nearly as much again, if Amundi deployed all its forecast €2bn of excess capital on deals meeting its 10 per cent ROI target.

That outlay might bulk assets under management by €100bn, potentially far more for passive mandates. But Amundi would still be dwarfed globally by the likes of BlackRock. The latter’s $10tn of assets is nearly five times Amundi’s $2.2tn.

But Europe is a very different market to the US. Here, banks dominate retail fund distribution and Amundi has scale, connections and competitive advantage.

European fund management remains fragmented and is ripe for consolidation. Baudson has a big opportunity to generate strong returns from Amundi’s impressive scale.

FT : Frasers/Mike Ashley: options deal may leave Hugo Boss feeling put out

Frasers/Mike Ashley: options deal may leave Hugo Boss feeling put out
The sportswear tycoon enjoys side investments in retailing

City mythology recounts that sportswear tycoon Mike Ashley once played the bluffing game Liar’s Poker with a banker over a £200,000 legal bill. Frasers Group, the retail group he controls, might then be at pains to define a €900mn exposure to Hugo Boss as a “strategic investment”.

But for most businesses, a strategic stake consists of a long position in cash equities with no explicit sell-by date. Frasers’ exposure involves a thumping great derivatives position. It is reasonable to suppose this may have a time limit.

Frasers has upped its holding in the plodding German fashion group to 4.9 per cent of the shares. It has nearly doubled its nominal stake, to 26 per cent, by selling put options. This means another investor — probably a big investment bank — has bought the right to sell Frasers bundles of Hugo Boss shares at fixed prices in the future.

This would be worthwhile if the market price of Hugo Boss, currently €49 per share, drops below a typical fixed price of about €40, Lex calculates. That is the figure which pops up when you deduct the cash stake from €900mn and divide the balance by the 18.3mn shares covered by put options.

Ashley enjoys side investments in retailing. Sometimes they come to naught, as with his put option plays on Tesco in late 2014.

Hugo Boss has a rather closer relationship with Frasers. The UK retailer is one of the fashion brand’s top 10 wholesale accounts worldwide. Britain is a top three market for Hugo Boss. Its shift from formal wear to more casual lines suits Frasers, which aims to covers the spectrum from high fashion to affordable lines.

The vote of confidence should be welcome for Hugo Boss, albeit from a retailer lacking the luxury credentials it craves. Yet the solidity of the tie-in is questionable. The defining details of the 31 per cent exposure are not clear. Hugo Boss itself might wish for greater public disclosure.