Monday, 04 February 2013
Snapshot � Company news highlights: Randgold resources solid results, Anglo Plats results show loss, Kirkland lake reaffirms guidance, Afferro Mining positive metallurgical results, Amara drilling update at Yaoure, Tigers Realm returns positive drill results, Cokal granted forestry permit, Aquila dispute resolved, Fortescue terminates iron valley option, Straits Resources to sell Hillgrove to Bracken Resources � Commodity review highlights: Copper at 4 month high, platinum up sharply, Chinese steel mills being squeezed, Australian coal output hit by floods. � Other Economic News: China manufacturing PMI declines in January, � African news highlights: Zambian companies to issue US$4.5bn in bonds.
Company News � Randgold Resources (RRS LN) record 2012 results in Q4 with profit for the year up 16% at US$511m and production up at 795koz gold.

The company had cash and gold at Y/E of US$403m despite US$563m capex.

25% dividend increase proposed to 50c/share.

These results follow on from a range of challenges associated with expanding its Loulo-Gounkoto complex in Mali, the fast track development of the companys Kibali project in the DRC, operational problems at the Tongon Mine in Cote DIvoire and general turmoil in Mali.

Loulo exceeded targets for the year with 503koz, Tongon fell from 250koz to 211koz production due to frequent outages in grid supply, Kibalis two ball mills have been installed ahead of schedule and open pit mining has produced first ore to stockpiles.

Cash costs for the year were up 7% to US$735/oz reflecting higher costs for the group and lower recovered grade at Tongon and Gounkoto. Investec View: A solid set of results from Randgold despite having faced many challenges. � Anglo American (AAL LN), Anglo Platinum has released its results returning a negative EBITDA of ZAR2,136m down 118% yoy with EPS of 562c/share, down 141%.

The company has suspended dividends and now has around ZAR10.5bn net debt.

Clearly the strikes impacted profit margins.

The outlook statement is positive with the platinum market expected to be in balance, palladium in deficit and rhodium in oversupply.

The company aims to produce 2.1-2.3moz platinum this year (2.2moz produced in 2012).

Capex forecast at ZAR6-7bn per year over the next 3 years. Investec View: The outcome of negotiations with unions is key; there will be cuts although these could be moderated.

The revised commercial strategy is to achieve ZAR700mpa PBT from the end of 2013 reaching ZAR1bn by 2015 and to contain unit cash costs to ZAR16,000-16,500/oz Pt (from ZAR15,660/oz in 2012) reflecting inflation pressure despite cuts at higher cost mines. � Kirkland Lake (KGI LN) affirms operating and production guidance, and that the service cage project has been completed and in service.

The company states that it is on track to achieve FY 2013 (Year ending 30 April) guidance of 90-110koz sold.

Final production results for the companys Q3 and 9 months are to be released on 11 Feb.

The service cage will initially be used to clear a heavy backlog in material waiting to go underground and will free up the main production hoist to reduce the heavy backlog of ore ready to be hoisted to surface which has to date been constraining production.

With the cage now in operation the company plans to take production from 1400tpd to 1600tpd in February to be achieved in its Q2 (Aug-Oct). Investec View: This is a positive development with the service cage operational that will enable the company to get back on track and build up its production base.

We are also re-assured that the company is demonstrating confidence in its production guidance. � Afferro Mining (AFF LN) positive metallurgical test work results from Nkout.

Work on the saprolite component of the resource 248mt at 35% Fe indicating that higher grade material can be beneficiated to a premium grade product of 59-64% Fe.

Testing is underway to simplify the proposed saprolite and DSO processing route through the removal of milling that could lead to a significant reduction in capex and opex.

Further results to be released at the end of the quarter.

Concerning the magnetite banded iron formation (BIF), Davis Tube testing of five samples confirmed previous results indicating that producing a high grade sinter fines product of 66-69% Fe with low impurities at a relatively course grind size of 106microns can be produced.

Pilot scale test work of various size fractions started in January with results due out later this quarter.

The metallurgical test work at Nkout continues to generate positive news flow, and should it be possible to produce a quality product from the DSO/saprolite material, the economics of the project could certainly be enhanced.

� Amara Mining (AMA LN) Drilling at the companys Yaoure project has returned positive results including some significant intercepts including 6.2m 3.4g/t, 9.0m at 5.1g/t and 13m at 5.6g/t.

The holes were all over 377m depth.

The company is aiming to generate a new inferred resource this quarter.

Metallurgical work indicates recoveries in excess of 90%, with work continuing to identify the optimum processing route.

Investec view: These are encouraging results, although we note that the depth of the highlighted holes would be unlikely to fit in an open pit operation.

However, the drill programme has returned intercepts at more shallow levels.

The company hopes that Yaoure could evolve into large scale, moderate grade open pit operation. � Tigers Realm Coal (TIG AU) reports excellent first drill results from Amaam North.

TIG has announced that its first two holes of a 1,500m program have intersected coal with cumulative thickness of c.

10m at Amaam North.

The drilling also confirms continuity of coal seams over a 500m strike length.

Test work from historic drilling has confirmed that the coal has good coking properties.

Source: Company Investec View: We view this announcement as extremely positive.

We expect TIG develops a 0.7mtpa direct-ship mine at Amaam North based on a 10mt resource and that the company will announce a maiden resource at Amaam North as early as 1Q13.

� Cokal (CKA AU) granted forestry permit (exploration stage) for its BBP project.

Cokals BBP coking coal project in Central Kalimantan has been awarded its Forest Utilization Approval (exploration stage) by the Indonesian government.

The permit will allow Cokal to develop access tracks for use by larger drill rigs facilitating finalisation of a JORC resource and EIS.

Source: Company Investec View: Submission of the EIS (AMDAL) will allow CKA to apply for the upgrading of its IUP at the BBP project to production status.

CKA has already lodged its application for a Forest Utilisation Approval permit (production stage) for its BBM tenements on 30 Jan 13.

The company continues to target first production from its BBM tenement by JunH14.

� Aquila (AQA AU) Iron ore dispute resolved, and state approval for Anketell Port.

Following Fridays announcement of the settlement of disputes with Vale in coal, AQA today announced that it has settled its budget dispute with iron ore JV partner AMCI.

Aquila has given notice to AMCI in which Aquila has agreed to maintain the Project on minimum expenditure for the remainder of the 2012/2013 financial year.

Aquila has advised it will continue to focus its efforts on how best to progress the Project.

Aquila has also received State Environmental approval for Anketell Port, meaning the API JV has now received approvals for port mine and rail elements of the West Pilbara iron ore project.

The port still requires the completion of the Commonwealth primary approval process.

Source: Company Investec View: Aquila continues with an uncharacteristic flurry of settlements.

It is not yet clear whether the environmental approval represents an effective granting of port proponency to AQA, but the recent spate of dispute resolution suggests the company may be taking a newly pragmatic approach to negotiations, which can only be positive. � Fortescue (FMG AU) announces early termination of Iron Valley option with Iron Ore Holdings (IOH AU).

FMG and IOH have agreed to cease activities and assessment into development of IOHs Iron Valley deposit (which is contiguous to Fortescues Nyidinghu deposit), and to an early termination of FMGs exclusive option on Iron Valley, as previously agreed under the Memorandum of Understanding signed on 10 February 2012.

IOH will pay Fortescue A$4 million in consideration for the early termination of the option period, which was due to expire on 31 March 2013.

Source: Company. Investec View: This is a clear sign that Nyidinghu development is unlikely in the short term as FMG targets its cash flow to build production to 155mmtpa from existing operations. � Straits Resources (SRQ AU) Bracken Resources exercises the option to purchase Hillgrove.

Bracken Resources today exercised its option to acquire the Hillgrove antimony/gold project from Straits Resources.

Bracken also paid a final non-refundable option fee of A$1m.

Bracken will pay Straits a further A$27m for the project and will assume responsibility for A$3.9m in environmental bonds.

Source: Company. Investec View: A timely sale.

Straits had A$25.5m of available cash at the end of the December quarter.

With additional cash of A$28m to come in from the Hillgrove sale (A$2m received in DecQ12) this represents additional cash of ~2.5cents per share, while the company is trading at 6.7cents, a material positive.

Prior to the recent news that gold equivalent production in January and February is expected to be ~10koz below internal expectations we saw this potential sale as a key positive, likely to re-rate the stock.

With ~A$15m revenue now missing in Jan-Feb and the impact beyond February still being assessed, the sale of Hillgrove likely gives SRQ more breathing room to achieve positive cashflow at Mt Muro.


Commodities News � Copper at a four month high, with other base metals rallying on signs that China and the US are picking up.

Source: Bloomberg. � Platinum prices jump in morning trading in response to speculation of growing demand, against the background of falling mine supply.

Source: Bloomberg � Mongolias president states that the nation should have more control of Rios Oyu Tolgoi project after the government claimed costs had increased.

The total cost of the development has risen to US$24.4bn according to a government statement, versus Rios earlier estimate of US$14.6bn.

The government is seeking greater representation concerning the assets development.

Source: Bloomberg � Chinese steel mills being squeezed by local governments.

Chinese steel producers are reportedly being taxed up to 2 years in advance by some cities as cash-strapped local governments in northern and north-eastern China become desperate for funds.

CISAs Zhang Changfu has also painted a gloomy picture for the steel industry this year stating that although "2013 demand will be better than 2012, challenges still cannot be underestimated and that demand growth for steel in downstream industries will be slow".

Source: Financial Times � Australian coal flooding impacts - Yancoal (YAL) declares force Majeure on Yarrabee shipments.

Mining operations re-commenced at Yarrabee on January 28th, after a four day suspension of operations.

Water within operational areas is likely to impact Production for several more weeks, but YAL has declared force majeure due to damage to the Blackwater rail line.

Source: Company Investec View: Yarrabee produced 3.2mt ROM in CY12, with saleable production of 2.5mt.

The Blackwater rail line connects coal mines in the southern Bowen Basin, from Gregory mine in the north to Blackwater in the south to the terminals at Gladstone port and hauled ~46mt in FY11.

With relatively minor impact on mines themselves, and a relatively weak demand outlook, pricing has remained reasonably unresponsive to recent flooding. Other economic News � China manufacturing PMI declines in January.

The official China manufacturing PMI was 50.4 in January, below the Bloomberg median estimate of 51.0 and Decembers 50.6.

Source: Bloomberg, China National Bureau of Statistics
African Resources Update � Zambian companies could be planning as much as US$4.5bn of international bonds, including the nations power utility, its railway operator and road builder, whilst municipalities are also considering issuing bonds, all of which could overstretch the countrys borrowing abilities, only 7 years after the World Bank cancelled US$6bn of loans.

Source: Bloomberg
Investec Global Natural Resources Research Team: UK Australia Hong Kong South Africa Hunter Hillcoat Tel: +44 (0) 20 7597 5182
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