Wednesday, 30 January 2013
Snapshot � Company news highlights: Antofagasta quarterly update, Afferro Mining exploration results, Gemfields reflects solid production, Kenmare mixed trading update, Cokal advances permitting to mine, Chalco to report dramatic loss, Evolution quarterly update, Straits Resources demerger confirmed � Commodity review highlights: Queensland floods impacting coal, Chinese coking coal imports up, Vale planning biggest ever iron ore mine, Sesa Goa to invest in Liberia iron ore, palladium prices rising sharply, � Other Economic News: US$50bn of write downs from mining and steel companies, Chinese rural incomes rise. � FSTSE Futures off 5.5 points- Dow closed up 72 points, despite US consumer confidence in January falling to the lowest level since 2011, as energy names were lifted on the back of oil prices that rose to 4month highs.

Technology names were weaker on the back of lower than expected forecasts, but of the 174 S&P 500 companies that have reported 4Q12 earnings to date, over 68% have topped estimates, so markets remain bullish.

Asia is following the US lead with support from the strong output data from South Korea and buying ahead of the FOMC policy decision helping Aussie shares continue their longest winning streak since 2003.

Elsewhere in Asia, Taiwan will double the limit on securities investments from mainland China institutions to US$1bn and China may relax AUM requirements for Taiwan brokers seeking QFII participation.

Commodity prices this morning - gold $US1,668/oz, copper $3.71/lb, nickel US$17,811/t, WTI US$97.66/bbl, Newcastle coal futures $95.40/t, platinum US$1,689/oz.
Company News � Antofagasta (ANTO LN) quarterly production report showed 707kt copper production up 10.8% yoy with rising production at Esperanza supporting the growth.

Gold output reached 300koz versus 197koz a year ago.

Molybdenum production was also up at 12,200t versus 9,900t.

Group cash costs were in line at 103c/lb net of by-product credits.

Q4 cash costs were at 113.5c/lb rising due to higher onsite and shipping costs at Esperanza.

The company forecasts around 700kt Cu, 260koz Au and 8kt Mo for the year ahead at around 140c/lb net of credits, or 185c/lb before by-products.

Source: Company Investec View: A solid performance from Antofagasta, although the cost guidance for the year ahead clearly indicates rising cost pressure. � Afferro Mining (AFF LN) exploration results from Akonolinga located 85km from principal Nkout project has identified four drill targets from 50 magnetic anomalies.

Surface sampling has identified high grades of up to 58.5% Fe.

Pitting and trenching identified mineralisation intersections with grades up to 55.9% Fe.

Source: Company � Gemfields (GEM LN) production update from Kagem emerald mine saw strong output of 14.5m carats in H2 2012 versus 8.8m the previous year.

Notably Q4 was particularly strong at 6.6m carats produced with the grade at 288 carats/tonne.

Production costs stood at US$0.66/carat in Q4 and improvement from US$0.87/carat the previous year.

Ore production costs were also down marginally yoy at US$189/t versus US$193/t.

Work continues to open up new areas for future growth with 2.2mt of rock moved in preparation.

The company also continues its underground trial mining project with 37.3m of advance achieved in the quarter and completion of the first stope.

At the end of the year Gemfields had US$27.9m cash and US$7.9m debt. Investec View: This appears to be a solid performance by Gemfields with work continuing to support a growing business. � Kenmare Resources (KMR LN) trading update shows 2012 production of 772kt of heavy mineral concentrate, with product volumes at 574.5kt ilmenite and 46.9kt of zircon.

680.8kt of finished products were shipped in 2012, down from 730.4kt in 2011.

Revenues were up 40% yoy to US$234.5m as H1 was particularly strong in terms of pricing for titanium feedstocks which then fell later in the year.

Industry de-stocking however continues.

The company has also faced some production problems in the period.

As the expansion completes but takes longer than expected, KMR has concluded an agreement with its banks to extend the period during which cashflows from Moma can be used to fund expansion costs from 15 December 2012 to 30 June 2013, along with the flexibility to raise up to US$40m of extra debt.

Net debt at the year-end stood at US$279m. Investec View: A mixed result from KMR, with production problems and delays leading to extra finance flexibility, and weaker product prices in the second half of the year. � Cokal (CKA AU) lodges forest utilisation application.

CKA has applied to upgrade its Forest Utilisation Approval permit (exploration stage) to a Forest Rent Use Permit (production stage) at its 60% owned BBM coking coal project in Central Kalimantan, Indonesia.

Source: Company Investec View: Receipt of forestry approvals will allow construction at BBM to commence.

The company expects to start project construction in DecQ13 with first production in JunH14.

BBM currently has a 77mt (100% basis) resource and a 200-350mt (100%) exploration target.

Production of up to 6.5mtpa ROM (5.6mtpa product, 100%) is proposed although the first stage will be a 2mtpa (100%) direct shipping operation � Chalco (2600 HK) to report dramatic loss for 2012.

On 30 Oct 12 Chalco issued a profit warning announcing that it expected to report a loss in 2012, the company now expects a dramatic loss in 2012.

Reasons for the expected loss include: lower aluminium prices, declining domestic bauxite grades and lower alumina production (down 1.7mt) due to bauxite export restrictions in Indonesia.

Source: Company � G-Resources (1051 HK) DecQ12 production.

G-Resources reported DecQ12 production at its Martabe mine in Indonesia of 34.6koz gold and 2012 total production of 47.8koz gold, above guidance of 43koz gold.

The company expects continuous full production from JunQ13 and is guiding for 2013 production of 250koz gold and 2.2moz silver at a cash cost of US$450/oz.

Source: Company � Evolution (EVN AU) quarterly production.

Evolution delivered a strong quarterly result, with production of 101.6koz being 1% ahead of our estimates and with group cash costs of US$764/oz being 5% lower than our estimate (driven by Pajingo costs 23% below our estimate, driven by higher grade).

Guidance has been maintained at 370-410koz at C1 cash costs of US$730-790/oz.

Source: Company Investec View: A strong quarter, we remain happy with our full year estimate of 407koz at US$788/oz.

Capital expenditure continues to exceed expectations, not due to capital blowouts, but scheduling changes and acceleration of stripping programs.

As a result we are confident this volatility in capital estimates will moderate.

� Straits Resources (SRQ AU) Mt Muro demerger confirmed, guidance lower.

SRQ today confirmed the board had approved the demerger of Mt Muro via an in-specie distribution to shareholders, to create separate ASX listed gold and copper vehicles.

New MD Andre Labuschagne will remain with the gold vehicle.

Separately, SRQ reduced guidance at Tritton by 1,000t (now 23,500t-24,500t Cu) and revealed grade reconciliation issues at Mt Muro.

While work is still being done, gold equivalent production in January and February is expected to be 9.6koz Au-eq lower than internal targets, suggesting FY13 production could be well below the low end of guidance (95-100koz Au-eq, 20 Dec2012).

Source: Company Investec View: With Nic Earner (GM Operations) having left the company SRQ has now removed the entire board and all executives forming part of the previous management regime.

The decision to undertake an in-specie distribution of Mt Muro (rather than a fire sale) is a step in the right direction in our view.

However, with gold production materially lower than expected in October 2012, it appears cash will again be getting tight at Mt Muro and suggests that sale of Hillgrove is no longer a "nice to have" cash injection.

SRQ will release its quarterly tomorrow.


Commodities News � Coal - Queensland floods.

While Xstrata production has not been "materially affected" by the impact of the recent ex tropical cyclone in Australia in recent days, the company has declared Force Majeure on several coal shipments from Gladstone as rail links on the Blackwater line have been closed due to flooding.

Source: Bloomberg � Chinese coking coal imports.

Chinese coking coal imports grew by ~20% in 2012 to 53.6mt.

Mongolian market share declined from 45% in 2011 to 36% in 2012, with a decline in absolute imports from 20mt to 19.1mt.

Australian imports grew by 35% to 13.9mt, with market share increasing from 23% to 26% in 2012.

Canadian coking coal was the biggest beneficiary, with imports more than doubling to 7.2mt, and market share also doubling to 13%. � Vale planning huge iron ore growth with S11D project in Para State, Brazil to be the largest ever in the iron ore industry.

Capital costs are estimated at US$20bn comprising US$80bn for the mine and US$11.4bn for infrastructure producing 90mtpa of 66.48% Fe iron ore starting up in 2016.

The mine will take Vales Carajas complex to 230mtpa of production.

Source: MiningNewsPremium � Sesa Goa, Indias largest iron ore exporter plans to invest US$2.4bn in Liberia to develop assets overseas and bring in 30mt of capacity at three properties in the country.

Sesa is a unit of Vedanta Resources.

Source: Bloomberg. � Palladium prices rising sharply as investors speculate on falling output from Russia, and demand picks up from the automotive markets around the world as government stimulus measures kick in.

Russian stocks provided 250koz of supply in 2012, down sharply from 775koz the year before.

Source: Bloomberg & Johnson Matthey Investec View: Palladium is largely consumed in gasoline auto catalysts, consequently rising demand in the US and China will contribute significantly to consumption, Europe has a big diesel car market reducing its impact on palladium demand.

An end to Russian stock supplies has long been speculated and could now at last be evolving.

PGM miners clearly will benefit considerably as a consequence.


Other economic News � The worlds biggest mining and steel companies have reported US$50bn in write downs from project valuations, following a decade long US$1.1 trillion M&A period.

Transactions havent been as successful as planned and rising costs have compounded the impact.

Source: Bloomberg � Chinese incomes rose faster in the countryside than cities for a third straight year in 2012 as migrant workers boosted their pay and the government strengthened the social safety net.

Rural incomes rose 10.7/capita last year versus 9.6% for urban dwellers.

Source: Bloomberg
Investec Global Natural Resources Research Team: UK Australia South Africa Hunter Hillcoat Tim Gerrard Albert Minassian Tel: +44 (0) 20 7597 5182 Tel: +61 (0) 2 9293 2168 Tel: +27 (0) 21 416 1454
Marc Elliott Colin McLelland Tel: +61 (0) 2 9293 2140
Tel: +44 (0) 20 7597 5189

Simon Haggarty Tel: +61 (0) 2 9293 2462
Investec Global Natural Resources Sales Team: UK Australia South Africa Jamie Campbell Rod Clarkson Hayden Smith Tel: +44 (0) 20 7597 5038 Tel: +61 (0) 2 9293 2278 Tel: +27 (0) 21 416 1401
Matt Martin USA
Tel: +61 (0) 2 9293 2168 Thomas Lawrence
Tel: + 1 212 2595604

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