[cid:image001.png@01CE2609.C1CC0EA0] Thursday, 21 March 2013 [cid:image006.jpg@01CE2609.C2079100]
Snapshot � Company news highlights: London Mining results, Equatorial outlines development plan, Continental update on ramp up, Zijin Mining JV with Sprott on US$500m fund, Adaro results, Prairie Downs initiation of research � Commodity review highlights: Gold prices rise and Indian consumption also set to increase, Gold majors being broken up, Vale lifts force majeure on Mozambique coal shipments, coking coal Q2 benchmark settled at US$172/t, rebar futures rise in China, Feb steel production in China up. � Other Economic News: Chinese preliminary PMI reflects expansion, Australian political update � African Resources Update: South African consumer inflation up in Feb, Zambian Kwacha to strengthen, Jupiter Mines signs contract with Transnet. � FTSE futures off 18 points (7am) - Market sentiment more negative this morning as Cyprus continues to dominate the headlines.

The government is working to draft a new plan to stave off the collapse of the national banking system which may involve a new version of the deposit tax.

Finance Minister Michael Sarris remains in Russia seeking solutions from the Russian front.

In the US the FOMC minutes maintained the bond-buying and didnt adjust interest rates (as expected).

Big news out of China with the HSBC preliminary PMI number for March coming in at 51.7 versus 50.4 in Feb and the forecast of 50.8.

Base metals have reacted accordingly with copper up 0.46% to US$3.4625/lb, nickel up 1.7% to US$16,771/t, zinc up 0.39% to US1,911.50/t.

In Japan, 10 year bond yields fell to the lowest level in almost a decade on speculation new central bank governor Kuroda will move to stimulus quickly at this evenings monetary policy news conference.

With the Japanese trade deficit increasing thanks to a 2.9% drop in exports compared to the 1.7% estimate and imports rising 11.9% Kuroda certainly has his work cut out for him. � Economic news:- UK - retail sales (forecast MoM 0.6% YoY 1.2%); US weekly jobless claims (forecast 340k vs 332k prior) Philadelphia Fed Index (forecast -3.0 vs -12.5 prior), flash PMI (forecast 54.8); EU - composite PMI flash estimate (survey 48.2 prior 47.9).
Company News � London Mining (LOND LN) FY12A results, writes down Columbia.

Operating costs US$77/t (consensus $76/t) on the 1.5mt of production in FY12A.

Revenue $121m (consensus $126m), EBITDA loss of $14.2m (consensus loss of US$8).

Reported net loss of US$107.8m includes $66m provision against the Columbian coke assets; loss from continuing operations was $28.3m (consensus loss of US$47m). Investec view: Overall a small miss.

Results are interesting, but not meaningful, given that FY12A was a ramp up year (as is FY13E).

FY13E production guidance of 3.3-3.6mt is in line with our expectations of 3.6mt, while the capex estimate for the current 5mtpa expansion program has increased $320m from $340m (we assume $355m).

We note that engineering studies have commenced for an expansion beyond 5mtpa (such an expansion is already in our assumptions).

The write-down of Columbia was a surprise, but our analyst did not in any case attribute any value to Columbia, following a write-down on the assets earlier in the FY12. � Equatorial (EQX AU) outlines development plan.

EQX has outlined a development strategy for its Mayoko-Moussondi project in the Republic of Congo, as part of an ongoing scoping study, due mid-2013.

The strategy entails three stages of development: Stage 1at 0.3mtpa (one train set, existing rail and port facilities), Stage 2 at 2mtpa over a 3yr period (further train sets and expanded rail and port), and Stage 3 at 5-10mtpa (new transport infrastructure).

Source: Company Investec view: EQX appears to be adopting a thoroughly pragmatic approach, with the staged development certain to minimise the initial capital outlay and reduce risk.

We are also encouraged that EQX is in dialogue with other companies in the ROC, with a view to cooperative development of longer-term infrastructure. � Continental Coal (COOL LN) updates on progress with production ramping up at Penumbra Coal Mine toward steady state production for June 2013.

Monthly output in February exceeded expectations at 27,311t ROM production, with March expected to produce 35-40kt with both continuous miners in full operation.

ROM production by Q3 is expected to reach 75-80ktpm.

Penumbra is expected produce 750ktpa of coal at around US$57/t over a 10 year mine life.

Ferreira coal mine output has also been building up exceeding expectations producing 46,171t in February, although YTD performance is below budget.

Vlakvarkfontein coal mine has also seen monthly production rise substantially to 143,872t. � Zijin Mining (2899 HK) to JV with Sprott to form an USD500m investment fund.

Chinese gold miner Zijin, Sprott and Americas Now Resources Investment Management have entered into a JV to establish an offshore investment fund with a target size of USD500m.

The fund will be managed by Zijin and Sprott and will invest in equity/debt instruments in gold/precious metals, copper and other minerals.

Zijin will make an initial US$100m capital contribution.

Source: Company � Adaro (ADRO IJ) CY12 results.

Indonesian coal producer Adaro reported CY12 net income of US$383m (down 30% YoY), EBITDA of US$1,088m (down 26% YoY) and revenue of US$3,722 (down 6.6% YoY).

Sales were 48.6mt (down 4.3% YoY) at an average sales price of c.

US$71/t (down 3% YoY) and cash costs excluding royalties of US$39/t (up 9% YoY).

Source: Company Investec view: Net income was below 19% below Bloomberg consensus, in part due to Adaros conservative decision to expense USD55m of stripping costs that were above the planned strip ratio.

EBITDA was within Adaros guidance of USD1.0bn-1.3bn.

Adaro is aggressively managing costs, lowering its planned strip ratio to 5.75bcm/t in 2013 from 6.4bcm/t in 2012, and interestingly did not provide guidance for 2013 with the result, as it has done historically perhaps indicating management uncertainty regarding 2013 production volume and price. � Prairie Downs (PDZ AU) Research initiation.

Our analysts have initiated coverage Prairie Downs, owner of the 1.6bt Lublin thermal coal project in Poland, with a Buy recommendation and a target price of A$1.23/share.

The Lublin project is early stage, but the resource potential is genuine, as demonstrated by the neighbouring mine which is delivering robust profits in what is a tough year for thermal coal producers.

There is no doubt this project will be built, in our view.

Its a genuine, high quality development opportunity.

Our NPV based target equates to an undemanding EV/oz multiple of A$0.09/t, below the ASX listed developer average of A$0.15/t.

Given the resource scale, quality and ready access to infrastructure we would expect PDZ to continue to be re-rated beyond our target price as development milestones are achieved, and optionality beyond our conservative modelling assumptions is explored.

Source: Investec
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Commodities News � Gold prices creeping up in morning trading as investor speculation of further stimulus packages.

Indian consumption could climb for the first time in three years due to rising incomes and inflation, rising to 865-960t this year versus 864.2t last year according to the World Gold Council.

India has tripled taxes on gold in an effort to moderate demand since gold buying accounted for 80% of the countrys current account deficit.

Source: Bloomberg � Having spent over US$100bn over the past 20 years buying new mines and projects around the world, gold majors are reversing the trend with assets being spun out and companies potentially being broken up as they have underperformed the metal.

Paulson has been calling for the breakup of Anglo Gold Ashanti.

Source: Bloomberg � China may buy 25% of diamonds in a decade.

De Beers CEO, Philip Mellier, believes China could supplant the US as the dominant market for diamonds in 10-15yrs, growing to 20-25% of the market, with India the same, and the US falling to 30% of the market.

"China has historically been a region driven by gold and jade, but it is also a society of symbols.

They have bought the idea of love [represented by a diamond] and its also a status symbol.

The Chinese dont like the idea of storing something at home; they like to be able to show it," said Mellier.

Source: MiningMX � Vale (6210 HK) lifts force majeure on Mozambique coal shipments.

Vale has lifted the force majeure declared on Mozambique coal sales on 15 February 2013.

Heavy rainfall in Tete had adversely affected c.

500kt of coking coal shipments along the Linha do Sena railway.

Source: Company Investec view: An incremental negative for coking coal prices. � Coking coal and PCI settlements (April -Jun) BHP and Nippon Steel settle April - June Benchmark at US$172/t, PCI surprisingly strong at US$141/t.

BHPs settled the June Quarter at US$172/t (for premium Peak Downs brand and US$169/t for Goonyella) a rise of 4-6% over March quarter pricing (US$165/t for Peak Downs).

PCI enjoyed much stronger gains of 13-14%, with Peabody agreeing US$141/t for Coppabella PCI and US$130/t for mid-vol PCI (up from March quarter levels of US$124/t and US$115/t respectively.

The increase in PCI is seen as addressing the "low ball" March quarter pricing agreed by Walter Energy and POSCO late in 2012, when Australian producers were expecting closer to US$125/t.

Source: Inside coal Investec view: The hard coking coal price is in line with expectations of US$170-175/t (we had US$172/t) but the PCI price is much stronger than we assumed (US$122/t) and represents 82% of the hard coking coal price, a level not seen since the June half 2011. � Rebar futures climb - Steel reinforcement bar futures strengthened in Shanghai, pointing to an increase in the pace of manufacturing expansion in China, and lifting equities and commodities.

Rebar for delivery in October gained 1.1% on the day, and have gained 4.2% since 14 March.

Source: Bloomberg � February steel production up 1.2% in February 2012 vs pcp, with capacity utilisation up ~4% from Jan13 levels, to 80.5% Chinas crude steel production was up ~10% to 61.8mt, whilst Japan was down 3.4% to 8.3mt, with South Korea also down (-8.5% to 5mt).

An ugly picture in Europe where steel production in Germany, Italy, France and Spain, to name a few.

Source: World Steel.org
Other economic news � Chinese manufacturing expanding at a faster than expected pace, with the preliminary PMI index for March at 51.7 versus 50.4 in February which was impacted by the Lunar New Year holidays.

The stronger figures may ease fears that the economy is losing speed.

Source: Bloomberg � Australian political wrangling.

Trading on the ASX coincided today with Prime Minister Julia Gillards call for a ballot for leadership of the Labour party, which she managed to hold on to.

The caucus was sparked by former Labour leader, Simon Crean, declaring Gillard could not win the election in six months with her partys current (poor) opinion poll position.

Source: MiningNews
African Resources update � South African headline consumer inflation at 5.9% yoy in February, up from 5.4% in January.

Source: Engineering News � Zambias kwacha to strengthen? - Zambias currency may strengthen more than 7% following new laws that exporters must deposit foreign currency in local banks.

As yet there are no specifications as to the time that exporters need to keep cash in the Zambian banks.

The currency is weak at the moment, meaning international debt is becoming harder to repay and there are in-country inflationary fears.

Source: Bloomberg � Jupiter Mines (JMS) Transnet contract signed for Tshipi Borwa mine.

The Tshipi Borwa manganese mine (JMS 49.9%) has signed a Transnet Rail and Port contract, making two trains per week available (700ktpa rate), together with 50kt of storage capacity at Port Elizabeth, and with one additional train per week to be provided at Transnets discretion (potentially 1mtpa).

A total of 88,000 tonnes (100% basis) have been sold since December 2012, at benchmark prices.

A revised project schedule sees construction completion delayed from the current quarter to the end of CY13.

Source: IRESS Investec view: Appears a bit rich to announce construction is nine months away from completion when you are only a week away from targeted completion, but discussions with the company suggest the delay relates to delayed receipt of crushing equipment, with a temporary crusher currently operating.

We currently estimate FY13 sales of 484kt (100% basis) which now looks a stretch and JMS will need additional rail capacity to reach our 1.3mt (100% basis) estimate for FY14.
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