🕐22.03.13 - 10:54 Uhr

INVESTEC GLOBAL NATURAL RESOURCES DAILY - MINING - FRIDAY 22 FEBRUARY 2013 - 187
8 HK, WHC AU, EMED LN, SXX LN, BTU AU, BHR LN, AQA AU, SDL AU



[cid:image001.png@01CE26D2.A1222440] Friday, 22 March 2013 [cid:image006.jpg@01CE26D2.A15DCDB0]
Snapshot � Company news highlights: SouthGobi resumes operations at Ovoot Tolgoi, Whitehaven Coal cost cutting measures, EMED Mining update on permitting process, Sirius Minerals drilling result, Bathurst Resources expecting court decision in a few days, Beacon Hill gets major new investor, Aquila Resources management catch up, Sundance remains on voluntary suspension. � Commodity review highlights: Base Metals supported by positive economic data although warehouse inventories at high levels, Japanese iron ore imports up 7% in February, Codelco potentially facing two sets of strikes, China and iron ore outlook, PNG government to take back Ok Tedi mine. � Other Economic News: IMF confident in Chinese economic growth, Australian mines minister the latest casualty in the federal politics farce. � African Resources Update: South Africa set for electricity shortages.....again..., Niger workers strike, Beny Steinmetz boss barred from Guinea, South African interest rates likely to rise due to inflationary pressures
Company News � SouthGobi (1878 HK) resumes operations at Ovoot Tolgoi.

SouthGobi announced resumption of mining operations at its Ovoot Tolgoi mine and is guiding for 3.2mt of semi-soft coking coal production in 2013; subject to market conditions.

Source: Company Investec view: This announcement is undoubtedly positive as we previously forecast resumption of production only in MarQ14E.

We believe a return to production could be incrementally cashflow positive but SouthGobi will remain loss making in 2013E given fixed mine costs and corporate expenses.

There is a lack of detail on exactly how Ovoot Tolgoi will be cashflow positive at current coal prices and we await further detail from the company with their results on 25 March. � Whitehaven Coal (WHC AU) Cost cutting measures at Tarrawonga and Rocglen.

WHC has taken the decision to reduce the mining fleet by two 2500 excavators, with a flow on effect to required truck numbers (reduction of four at each site).

Approximately 30 WHC staff will be made redundant and 10 contractor roles.

Source: Company Investec view: This announcement flows from measures taken to reduce the strip ratio (SR) at both operations.

Tarrawonga is to expand to 3mtpa (and WHC had begun preparations for this) but with the lower SR Maules Creek in the portfolio the expansion does not make sense and WHC now expect to keep production at current levels, reducing the expected SR from 10:1 to 8:1, hence the reduction in mobile gear and operators.

At Rocglen (currently cash negative) WHC was also investigating measures to reduce the SR in the short term at the expense of 1-2yrs mine life, so todays announcement should not have come as a great surprise, but market reaction suggests it has.

With JFY benchmark NEWC thermal coal prices (April - March) currently US$115/t, thermal coal producers are about to experience a bit more pain, with the new settlement expected around US$95-98/t (we assume US$95/t) due to take effect in a matter of days.

On the upside, benchmark PCI pricing for the June quarter (reported yesterday) was well above our expectations. � EMED Mining (EMED LN) affirms its targeted timing to production for the end of 2015 following meetings between the board and representatives of the Andulucian Government to discuss the proposed conditions of approval and formalising the permission to start the project works, with all stake holders seeking to allow works to start in the second half of this year.

Formal approval of the environmental plans (AAU) is expected in Q2, formal approval of administrative standing only requires approval of the AAU by the department of environment and an opinion from the central governments review agency.

Thereafter further consents will be required in Q4 for triggering the full start up works leading to commissioning of mining and processing operations. Investec View: The announcement made yesterday provides more clarity over the various permitting requirements.

We look toward the process advancing and enabling the project to move into construction.

It is encouraging to note that the company has reaffirmed its target dates to get into production. � Sirius Minerals (SXX LN) yet another announcement from Sirius returns a drill intercept of 41.6m of 86% polyhaylite within a total length of 57.2m giving confidence in the continuity of the ore body.

Source: Company Investec View: Sirius Minerals is certainly one of the more prolific companies at publishing announcements. � Bathurst Resources (BTU AU) Expecting Environment Court decision in "a few days".

The Environment Court of New Zealand has issued a decision on a preliminary legal point (finding that cumulative assessment of effects was not required, but more importantly advised that the substantive decision is nearly compiled and should be delivered in a few days.

Source: Company � Beacon Hill (BHR LN) gets major new investor.

BHR has announced that Pelham Investments has acquired 236m BHR shares from Renaissance Financial Holdings and now owns 19.6%.

The transaction was completed at 3p/share and Renaissance is no longer a shareholder.

Source: company Investec view: Todays news is positive for BHR as the Renaissance stake was widely viewed in the market as a significant overhang for the group. � Aquila Resources (AQA AU) Management catch-up.

Aquila currently has ~A$620m in cash (A$1.50/share) a half share in Eagle Downs and a half share in the API JV in West Pilbara iron ore (along with other "non-core" development assets).

It appears Vale has folded its card on the obstructionist strategy taken previously in all coal JVs with AQA.

AQA expects Vale to retain its interest in Eagle Downs with Vale looking to sell minority stakes in Belvedere and a Galilee Basin project (not Eagle Downs as was reported last week).

Interestingly the presentation was very much geared to Eagle Downs, with just 2 slides on the (currently stalled) Pilbara iron ore project.

Strong interest in infrastructure from several parties, but the ability of the API JV to fund development is seen as the stumbling block, with AMCI looking to exit the project rather than supply additional funding.

Clearly, more complicated than usual with any potential acquirer likely to want to be a party to funding discussions prior to agreeing to the acquisition of AMCIs stake.

Source: Company Investec view: The change in Vales approach from obstructionist to resigned co-operation appears to stem from AQAs decision to sell its 50% interest in Isaac Plains to Sumitomo rather than Vale.

We suspect that local management have been told to exit Australian coal, but AQA think the Vale will keep its interest in Eagle Downs (a quality coking coal project).

"Proponency" of Anketell Point was described as "a non- issue" with funding the key reason why the port has been delayed.

We are hosting former Aquila Iron Ore GM, and the current CEO of Brockman (BRM AU), Russell Tipper in Sydney on Tuesday 26th March and expect more insight into the many moving parts in the current evolution of Pilbara infrastructure. � Sundance Resources (SDL AU) remains under voluntary suspension.

The company confirms that it has met with Hanlong representatives and that discussions are on-going.

Source: Company
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Commodities News � Base metals supported by positive economic data from the US and China.

US home sales increase as well as a stronger Chinese manufacturing index prompted stronger metal prices.

However, official stockpiles for various metals in Shanghai and on the LME have surged in recent months e.g.

LME copper stockpiles have risen from around 320kt at the start of January to 557kt currently.

Source: Bloomberg � Japanese iron ore imports in Jan-Feb up 7% YoY - suggests 140mtpa.

Record Jan-Feb import numbers (11.3mt and 10.6mt respectively) suggest an annualised rate of 140mt for 2013.

Source: TEX Report � Copper watch: Codelco potentially facing two sets of strikes.

The Chilean Copper Workers Federation (FTC) has preannounced its intentions to go on 24-hour strike within 30 days.

Meanwhile, port workers at Angamos (one of the ports in northern Chile that Codelco exports from) have gone on strike.

Codelcos production of copper and moly has not yet been impacted.

Source: TEX Report. � China looms large in iron ore outlook.

The Bureau of Resources and Energy Economics (BREE), an Australian government economic research unit, projects iron ore prices declining to US$90/t ($A87/t) in 2018.

Australian exports are projected to increase 8%pa to reach 831mt in 2018, as Chinas imports increase 5%pa to account for 65% of global imports by 2018.

Although projected to increase its reliance on imports, China also aims to have about 40% of its imports supplied by China-owned foreign projects by 2015.

Source: MiningNews Investec view: BREE pricing projections are in line with our own assumption of $85/t prices by 2018, although its Australian volume assumptions appear to be aggressive. � PNG government to take over the Ok Tedi copper gold mine that it part owns with BHP.

The project to extend mining to 2025 is not likely to get approval.

The government which owns around 36.6% of the operating mine will look to take control of the asset.

Source: Mining News Premium Investec View: Clearly operating in PNG is not getting any easier for miners looking to develop assets in the country.
Other economic news � IMF confident that China will maintain economic growth of 8% and sees no major short term risks as recent economic performance eases fears.

The IMF previously forecast 8.2% growth this year and 8.5% next.

Source: Bloomberg � Australian Mines Minister the latest casualty in the federal politics farce.

Resources and Energy Minister, Martin Ferguson, has become the seventh casualty of the toxic Australian federal government leadership battle.

Ferguson has resigned, following his decision to back Kevin Rudd as leader of the Labour party, who then said he would not challenge Gillard.

He had held the position since 2007.

He will now remain on the backbench.

Source: MiningNews Investec view: Not a positive for the resources industry, in our view, and unfortunately for the incoming Resources and Energy Minister, it may be a role he/she holds for only a short term, with federal elections due on September 14.
African Resources update � South Africa set for electricity shortages....again....

Bloomberg article suggest that SAs mining industry is heading for its worst electricity shortage in five years, threatening platinum and gold production and the rand.

Eskom estimated surplus capacity over peak demand for March 18 at 1.5%, which is as thin as the margin was when the power cuts struck five years ago.

An average of about 10,800MW, or 25% of Eskoms total capacity including imports from Mozambique, has been unavailable this year because of maintenance, both planned and unforeseen.

Eskom is spending $55bn to replace and expand capacity but the Medupi project, a 4,800MW, ZAR91bn ($9.8bn) plant that was due to start in Sep11, has been beset by delays.

Labour unrest at Eskom fuel suppliers has added to concerns that generation may be disrupted.

Strikes have halted output at six of 11 coal mines owned by Exxaro (EXX SJ), SAs second-largest coal producer, curbing supply to some of Eskoms power stations.

The company spent about ZAR1.8bn from mid-Dec11 to May12 buying back more than 1,000MW of power from industrial customers, especially in the ferrochrome industry.

Eskom has recently approached several companies about reducing demand for electricity, including Impala Platinum (IMS SJ), the worlds second-biggest producer of the metal.

Source: Bloomberg Investec view: Shortages are likely to force Eskom to buy back more power from ferroalloy producers and maybe even aluminium.

Although the last bout of power shortages in 2008 led to a strong rally in platinum prices, they did not impact equities due to its perceived short term nature.

This time, with Medupi delivery uncertain, equities may benefit too as we think price gain is likely to outweigh volume loss with overall positive impact on earnings. � Niger uranium strike.

Workers have extended their strike at a China National Nuclear Corp uranium mine (Sino-U) in northern Niger, with the initial 3-day strike now open-ended.

The 700tpa Somina mine began production in 2011 and is expected to ramp up to 2,500tpa in 2015.

Niger is the top supplier of uranium to France, producing 4,000tpa from mines operated Areva.

Source: MiningWeekly � Beny Steinmetz boss barred from Guinea.

The president of BSG Resources, the mining arm of Beny Steinmetzs business empire, has been barred from Guinea, where the company is battling a review of its right to mine half of the Simandou deposit.

Guinea is currently reviewing the validity of mining contracts and this action raises doubt over the BSGRs hopes of having its mining rights confirmed.

Source: MiningWeekly � South African interest rates look likely to rise next year as inflation approaches the upper limit of central bank targets and the currency continues to weaken.

Bank governor has raised inflation forecasts for this year to average 5.9% from a previous expectation of 5.8%, to be followed by 5.3% next year.

Inflation is expected to peak in Q3 at 6.3% before moderating to 5.2% in Q4 of 2014.

The country has suffered in recent months with the finance minister forecasting economic growth of 2.7% this year, less than the 7% the that the government estimates is necessary to reduce unemployment from 24.9% to 14% by 2020.

Source: Bloomberg
Investec Global Natural Resources Research Team: UK Australia Hong Kong South Africa Hunter Hillcoat Tel: +44 (0) 20 7597 5182
Tim Gerrard Tel: +61 (0) 2 9293 2168
Matthew Whittall Tel: +852 3187 5075
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Louise Collinge Tel: +44 (0) 20 7597 5779
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Investec Global Natural Resources Sales Team: UK Australia Hong Kong South Africa Jamie Campbell Tel: +44 (0) 20 7597 5038
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