BBC News - Goldman Sachs will lose billions short term on Trump tax reform

Goldman Sachs is warning President Trump's tax legislation changes will knock billions from its earnings.

In a filing to US regulators, the investment giant says its fourth quarter results, due in January, will be $5bn (£3.7bn) lower than expected.

It says two thirds of this is down to revisions to US corporate income tax.

Its warning follows similar ones from Shell and Barclays. Both these companies said the reforms would eventually increase earnings.

The Tax Cuts and Jobs Act, brought in by President Trump on December 22, will see corporate tax rates falling from 35% to 21%.

Alongside new restrictions on shifting profits abroad, the cut is likely to lead to a major repatriation of US business profits that are at present being sheltered offshore.

For example, the changes, the most significant in 30 years, would allow Apple to bring back the $250bn it holds abroad without a significant hit to its tax bill.

Individual taxes will also be cut, but more modestly

Reuters News - North Korea says new U.N. sanctions an act of war

by Ben Blanchard, Hyonhee Shin

BEIJING/SEOUL (Reuters) - The latest U.N. sanctions against North Korea are an act of war and tantamount to a complete economic blockade against it, North Korea’s foreign ministry said on Sunday, threatening to punish those who supported the measure.

The U.N. Security Council unanimously imposed new sanctions on North Korea on Friday for its recent intercontinental ballistic missile test, seeking to limit its access to refined petroleum products and crude oil and its earnings from workers abroad.

The U.N. resolution seeks to ban nearly 90 percent of refined petroleum exports to North Korea by capping them at 500,000 barrels a year and, in a last-minute change, demands the repatriation of North Koreans working abroad within 24 months, instead of 12 months as first proposed.

The U.S.-drafted resolution also caps crude oil supplies to North Korea at 4 million barrels a year and commits the Council to further reductions if it were to conduct another nuclear test or launch another ICBM.

In a statement carried by the official KCNA news agency, North Korea’s foreign ministry said the United States was terrified by its nuclear force and was getting “more and more frenzied in the moves to impose the harshest-ever sanctions and pressure on our country”.

The new resolution was tantamount to a complete economic blockade of North Korea, the ministry said.

“We define this ‘sanctions resolution’ rigged up by the U.S. and its followers as a grave infringement upon the sovereignty of our Republic, as an act of war violating peace and stability in the Korean peninsula and the region and categorically reject the ‘resolution’,” it said.

“There is no more fatal blunder than the miscalculation that the U.S. and its followers could check by already worn-out ‘sanctions’ the victorious advance of our people who have brilliantly accomplished the great historic cause of completing the state nuclear force”, the ministry said.

North Korean leader Kim Jong Un on Nov. 29 declared the nuclear force complete after the test of North Korea’s largest-ever ICBM test, which the country said puts all of the United States within range.

Kim told a meeting of members of the ruling Workers’ Party on Friday that the country “successfully realized the historic cause of completing the state nuclear force” despite “short supply in everything and manifold difficulties and ordeals owing to the despicable anti-DPRK moves of the enemies”.

North Korea’s official name is the Democratic People’s Republic of Korea (DPRK).

South Korea’s foreign ministry told Reuters it is aware of the North Korean statement on the new sanctions, again highlighting its position that they are a “grave warning by the international community that the region has no option but to immediately cease reckless provocations, and take the path of dialogue for denuclearization and peace”.

‘BALANCE OF FORCE’

The North Korean foreign ministry said its nuclear weapons were a self-defensive deterrence not in contradiction of international law.

“We will further consolidate our self-defensive nuclear deterrence aimed at fundamentally eradicating the U.S. nuclear threats, blackmail and hostile moves by establishing the practical balance of force with the U.S,” it said.

“The U.S. should not forget even a second the entity of the DPRK which rapidly emerged as a strategic state capable of posing a substantial nuclear threat to the U.S. mainland,” it added.

North Korea said those who voted for the sanctions would face its wrath.

“Those countries that raised their hands in favor of this ‘sanctions resolution’ shall be held completely responsible for all the consequences to be caused by the ‘resolution’ and we will make sure for ever and ever that they pay heavy price for what they have done.”

The North’s old allies China and Russia both supported the latest U.N. sanctions.

Tension has been rising over North Korea’s nuclear and missile programs, which it pursues in defiance of years of U.N. Security Council resolutions, with bellicose rhetoric coming from both Pyongyang and the White House.

In November, North Korea demanded a halt to what it called “brutal sanctions”, saying a round imposed after its sixth and most powerful nuclear test on Sept. 3 constituted genocide.

U.S. diplomats have made clear they are seeking a diplomatic solution but proposed the new, tougher sanctions resolution to ratchet up pressure on North Korea’s leader.

BBC News - EU says Brexit transition to end by 31 December 2020

A "transition period" after the UK leaves the EU should not continue beyond 31 December 2020, Brussels says.

This would put a 21-month limit on the temporary arrangement - the UK says it should last for about two years.

And some business groups have called for a much longer transition period once the UK leaves in March 2019.

The terms of the transition period, which the UK calls an implementation phase, have yet to be negotiated between the two sides.

The EU says the UK will have to continue to follow its rules and cannot adopt an "a la carte" approach.

It has just published its guidelines for the next phase of Brexit negotiations.

These talks will initially focus on agreeing the precise terms of the transition phase, before moving on to the UK and EU's long-term future relationship.

What is a transition phase?

It will be a temporary period after the UK leaves the EU and before the final arrangements kick in. Both sides have talked about having such an arrangement, although they use different names for it.

The UK says the "implementation phase" will avoid a "cliff edge" for businesses on Brexit day.

The European Commission's guidelines state that the UK should continue to follow EU law and stay in the European customs union and single market during the transition phase. Rulings of the European Court of Justice will continue to apply, it says.

"The transition period needs to be clearly defined and precisely limited in time," the EU says.

"The commission recommends that it should not last beyond 31 December 2020."

This date marks the end of the EU's seven-year budget cycle.

Giving evidence to a committee of MPs, Prime Minister Theresa May said a 31 December 2020 cut-off offered a "neatness" for the EU, but suggested the length of the transition phase would be a matter for the negotiations.

Long-term, the UK has already said it plans to leave the customs union and single market and end the supremacy of EU court rulings as part of Brexit.

Some Brexit-supporting Tory MPs have warned the UK could become a "colony" of the EU during the transition period if it continues to closely follow the same rules.

Done and dusted by 2019?

Looking beyond the transition phase, the UK is hoping to strike a "comprehensive" and "bespoke" trade deal with the European Union to replace its membership of the single market and customs union.

Talks on this have not started and the European Union says it will not have been fully agreed by the time the UK leaves in March 2019.

But Mrs May disagrees - asked earlier whether she still believes the entire agreement can be negotiated by Brexit day, she said: "That is what we are working to and that is what I believe we can do."

The prime minister said the UK would "start off at a different point" from other countries because of its current trade relationship with the EU.

Gibraltar row

The overseas territory of Gibraltar - whose sovereignty is disputed by Spain - has been raised as a potential sticking point in Brexit negotiations.

The EU has said that Spain must agree to any arrangement between the UK and the EU applying to Gibraltar, a stance reiterated in the latest negotiating guidelines.

Asked whether he expected Spain to agree to the transitional arrangement covering Gibraltar, Mr Barnier said decisions on the issue would be "made for the 27, unanimously, by consensus".

Later in Prime Minister's Questions, Theresa May was asked to promise not to enter into any agreement that excluded Gibraltar.

She said the UK would not exclude Gibraltar from either the temporary implementation period or the long-term future agreement with the EU.

• Brexit and Gibraltar: An at-a-glance guide
• Brexit: All you need to know
• MPs to vote on setting date for Brexit
• Be more patriotic about cheese, says Gove

Bloomberg News - From Bitcoin to Trump: Mining Giants Identify 2018's Challenges

By 

Danielle Bochove

In 2017, miners finally got some tailwinds from their commodities as unsavory supply pressures -- from lower ore grades to worker strikes -- bolstered prices.

What’s ahead for 2018?  We asked six top executives from companies including Newmont Mining Corp., Barrick Gold Corp. and Teck Resources Ltd. for their outlooks.

With depleting reserves top of mind, they expect more focus on exploration and inter-company collaboration to develop assets. There’s consensus that large-scale mergers and acquisitions are a thing of the past and the rising interest in bitcoin poses no threat to gold. But opinion is split on whether miners will be able to grow, or even maintain production, without letting the hard-won cost discipline of past years fly out the window.

Gary Goldberg, Newmont Mining

“Most of the companies out there are pretty healthy. So to make M&A happen, either there’s got to be some other form of value that people see, or they’re going to pay some pretty hefty premiums.”

Gary Goldberg

Photographer: Matthew Staver/Bloomberg

MARKET:

• Gold should stay in the $1,200 to $1,300 an ounce range, with large breakouts unlikely
• Long-term prices should be supported by strong demand from China, India, interest in gold ETFs and tightening supply
  • “We still see gold supply over the next five or six years dropping off from the 103 million ounce range into the mid-90 million ounce range.”

SECTOR:

• Industry must address depleting reserves while maintaining cost discipline
• Blockchain is “pretty cool technology,” but Goldberg has no interest in cryptocurrencies
• Sees no signs bitcoin is hurting gold demand

COMPANY:

• Will hike dividend at least 50 percent, details in February
• Watching U.S. tax revamp for final corporate rate and clarity on how the alternative minimum tax, and especially depletion allowance, will shake out
• Focus on advancing internal projects/exploration while keeping costs down
  • “We’re still out there competing for talent, competing for access to finances, and competing for access to resources”
• No need to pay down any debt early or buy and sell assets
• Still interested in buying Barrick’s stake in Kalgoorlie at the right value

On moving ahead of Barrick by market cap -- and closing production gap:

• “It’s one of the many metrics that we keep track of along the way in terms of our performance.”

Kelvin Dushnisky, Barrick Gold

“Looking into 2018 and beyond, the focus is going to be returning more capital to shareholders when we can. We’ll do that through dividends or possibly share buybacks.”

Kelvin Dushnisky

Photographer: Matthew Staver/Bloomberg

MARKETS:

• Sees gold in $1,200-1,300 range in 2018, with higher prices beyond
• Demand from gold ETF investors, China and India, plus potential U.S. equity pull-back good for gold
• Falling global reserve grades also support gold price
• Biggest risk would be “an unexpected strengthening in the U.S. currency”
• Copper market will be balanced in 2018 with demand exceeding supply further out

SECTOR:

• Industry to stay focused on costs
• Large-scale M&A unlikely as “mega-deals” of past failed to deliver value
  • “Shareholders are justifiably skeptical of large-scale M&A in the sector, so I don’t think you’ll see a return to that kind of activity any time soon”
• Some consolidation possible through medium-sized “bolt-on acquisitions”
• Hard to see cryptocurrencies replacing physical gold, which has finite supply
• Bitcoin correction would offer “helpful reminder” of role of gold as store of value

COMPANY:

• Plans to balance need to reinvest, cut debt, with shareholder returns
• Increased focus on reserves through mine exploration and project-pipeline investment
• Will maintain focus on Nevada digitization
• Sees three “levers” to cut total debt to $5 billion by end of 2018
  • “It will be a combination of cash flow from the operations, cash on the balance sheet, and potentially divestments or other partnerships”
• Still open to selling non-core assets including copper assets or remaining 50 percent stake in Porgera or Kalgoorlie
  • That said, stresses “non-core” copper assets are making meaningful contribution to cash flow
  • Not looking to add copper but doesn’t rule it out in future
• Sale of Acacia Mining Plc stake also possible once dispute settled
• Watching U.S. tax reform closely, believes initial concerns about AMT will be resolved
  • “ If that’s the case, I think we’ll be in a very good position in terms of U.S. tax”

On widening gap with Newmont:

• Expects share price to improve after company provides more clarity at investor day in February around project pipeline, mine exploration and contribution of copper assets to cash flow, all of which may be undervalued by market

Don Lindsay, Teck Resources

“When the positive steelmaking-coal demand picture is combined with a supply side which is prone to significant disruptions, we see prices staying well above analyst consensus forecasts.”

Don Lindsay

Photographer: Daniel Acker/Bloomberg

MARKETS:

• Steelmaking coal, zinc and copper prices all expected to be strong
• Sees zinc inventories, already at low levels, continuing to fall
  • Production not seen filling structural supply gap 
• Steelmaking coal supported by healthy steel industry and improving global output
  • Sees strong demand from India, Europe, Vietnam, Brazil, less dependence on China
• Copper supply will peak in 2019 and then move into structural deficit
• Clean energy creating significant new copper demand, especially in China and India
  • “Current targets by China and India for solar and wind power installation could add over 10 million tons of new cumulative demand by 2030”

SECTOR:

• Mining industry likely to focus on growth 
• For senior companies, “we think that M&A will be extremely limited”
  • Even distressed selling of past years was done at “very full valuations” and there are limited attractive opportunities
• Some consolidation of mid-sized to small companies may be possible
• Biggest challenge is maintaining discipline over costs, productivity and capital allocation

COMPANY: 

• Teck will focus on optimizing operations, advancing priority projects and balancing capital expenditures with shareholder returns
  • Notes supplemental dividend and share buyback in fourth quarter of 2017
  • Internal pipeline and strong markets “will make 2018 an exciting year for Teck”

David Garofalo, Goldcorp Inc.

“Given that the general equity markets seem to be achieving new highs every two weeks, and that nominal rates are going up, I think gold has held in like a champion.”

David Garofalo

Photographer: Norm Betts/Bloomberg

MARKET:

• Expects strong year for gold on inflationary pressures
• Real interest rates likely to fall even with Fed hikes; if Trump policies slow Fed tightening cycle gold could benefit more
• China’s gold demand will continue to exceed India’s, supply will stay tight
  • “I don’t know that there’s any shocks to the system that would really drive the gold price downwards in any significant way”
• Physical aspect of gold will insulate it from bitcoin competition

SECTOR:

• 4Q 2016 was the “tipping point” for mine supply, reserves likely to fall for at least five more years
  • “The next challenge for us as an industry is to start to grow reserves again”
  • Sees more collaboration on projects to replenish pipelines
• Cost efficiencies getting harder to find
• History has shown “large scale M&A tends to be quite value destructive”
• Miners must provide “leverage” to gold price to compete with gold ETFs which challenge producers while creating market liquidity

COMPANY:

• No significant capital expenditures for new initiatives planned until 2022
  • “In the meantime we’re just going to harvest as much cash flow out of the existing operations, and make them as efficient as possible, and drive down our debt levels to effectively zero”
• Company is preparing for next capital investment cycle beyond 2021
  • After that the company can start to “look at increasing the dividend over time”
• Not interested in buying or selling assets
  • “The portfolio re-positioning is done. We’re very very comfortable with what we’ve bought”

Sean Boyd, Agnico Eagle Mines Ltd.

“Maybe it’s taken some demand away at the margins, but I actually think you can build a much stronger case for gold in an environment where bitcoin is drawing this kind of investor interest.”

Sean Boyd

Photographer: Joshua Prezant/Bloomberg

MARKET:

• Sees strong demand for physical gold from China/India but little new supply
• Gold could surpass $1,300 an ounce if real interest rates stay low and/or Fed tightening slows
• Large generalist investors poised to buy top producers if gold price rises
  • “They’re only talking to the highest quality gold mining businesses out there and it’s our sense that it’s for positioning”
• Trump increases desire of China and Russia to diversify away from the U.S. dollar, helping gold
• Collapse of cryptocurrencies would benefit gold
  • “We’re going to get to a world where it’s going to become increasingly more important to know where your investments are, and that you can feel them and touch them and understand them”

SECTOR:

• Biggest industry challenge is depleting reserves
  • $1,400 to $1,500 an ounce needed to fuel significant exploration and development
• ETF threat to miners lessened as most no longer trade at high multiples to NAV
• Miners likely to focus on optimizing operations and developing pipelines
• Industry needs consolidation but at current gold price “everybody can muddle along”
  • Gold at $1,050 an ounce or lower required to “tidy” the industry

COMPANY:

• Rocky Nafta negotiations could benefit Agnico by weakening Canadian dollar
  • “We would look at that as an opportunity to lock in some weakness in the Canadian dollar”
• Further dividend increases unlikely until 2019 as spending focuses on Nunavut projects
• Expects to reward shareholders onward from 2019
  • From 2019, cash generated from mines expected to rise by 25 percent while capex falls to roughly $700 million from $1 billion in 2017 and 2018
  • “That leaves us room to reduce debt and also increase the dividend as we move on out, once the Nunavut platform is up and running”
• Focus on executing expansions and exploring existing land holdings
  • “We’re not needing to buy something to fix a problem”

Clive Newall, First Quantum Minerals Ltd.

“Demand itself is very strong but supply isn’t. And so it looks like we’re in for a significant period of higher prices while there is a substantial deficit.”

Clive Newall

Photographer: Morten Andersen/Bloomberg

MARKET:

• Copper likely to trade between $3 and $4 a pound long-term given shortfall between supply and demand
• Electric-vehicle industry is a major driver for copper growth
• Duration of bull market “depends on the speed with which the industry can respond”

SECTOR:

• Focus of industry likely to remain on costs after lessons learned in downturn
• Rising delivery costs for capital equipment may pressure some producers and presage brewing inflation
• Sees few policy threats to industry
  • “Copper is a very international commodity and none of the major powers are over-endowed with it, so there’s unlikely to be any protectionism going forward”
• Expects some miners will rebalance their asset portfolios
  • “Thermal coal is less appealing” compared with copper

COMPANY:

• 2018 is a “huge year” with ramp up of Cobre Panama
• If copper prices stay strong, he expects to come under pressure from shareholders to keep building
  • “We certainly intend to be fairly conservative”
• Need to reduce net debt, provide “a more appropriate competitive dividend” and still continue to grow
• Will look for more internal and external opportunities to boost production
• Says takeover interest in First Quantum possible given tightness of copper market
  • “Some companies would like a lot more copper production, so it’s inevitable that there is interest being shown, and particularly interest in Cobre Panama”
  • “We want to remain independent and continue to grow the company”