🕐16.04.13 - 09:54 Uhr

INVESTEC GLOBAL NATURAL RESOURCES DAILY UPDATED - MINING - TUESDAY 16 APRIL 2013
- GLEN LN, RIO LN, TRAFIGURA, ENRC LN, EMED LN, POLY LN, HGM LN, WAFM LN



[cid:image001.png@01CE3A79.9B470620] Tuesday, 16 April 2013 [cid:image006.jpg@01CE3A79.9B9A7D50]
Snapshot � Company news highlights: Glencore rumoured to agree concessions with China this week, Rio Tinto quarterly production, Trafigura US$1.6bn share buyback from senior execs, ENRC suspects Mozambique manager in whistle blower allegations, EMED progresses tailings assessment, Polymetal starts up Mayskoye concentrator, Highland Gold advances Belaya Gora, drill results from West African Minerals � Commodity review highlights: Gold price drop over done? Talks between platinum producers and unions in progress, Chinese steel production � African Resources Update: South African May wage negotiations could be toughest ever, Eskom and BHP in power imbalance, World Bank forecasts 5%pa growth in Sub-Saharan Africa, South Africa to lend Zimbabwe US$100m for elections, DRC motion for no confidence reversed, Eskom buying coal from mines without water permits. � FTSE futures off 24 points (7am) - despite the futures position, the 265 points the DOW lost last night, there is a sign of hope in the commodities space this morning - precious metal prices are bouncing relatively well with gold up 2.03% to US$1,375.50/oz, silver up 2.76% to US$23.39/oz and platinum up 1.18% to US$1,445.90/oz.

Copper is up marginally to US$3.27/lb.

In Australia BHP and RIO closed down 0.50% and 0.20% respectively.

With poor news world-wide and plenty of economic data due today we could have a heavily volatile session ahead of us, however the slight rebound we are seeing in some of the more heavily impacted commodities could see a few of yesterdays oversold name stage small recoveries. The devastating news out of Boston pushed the DOW off 2.3% following an unexpected fall in US homebuilder confidence, manufacturing in the New York region expanded less than projected and Chinas factory output moderated.

Asian Markets saw a healthy rebound, the Hang Seng was off 300 points at one stage but is now trading up 40 points and the ASX recovered from being down 53 points to close down only 17.

In Europe Draghi made comments that monetary policy cant address the root causes of the sovereign debt crisis and its up to government to enact structural reforms. � Economic data due today:- US - CPI (MoM flat, 1.6% YoY), Housing Start (forecast 930k), building permits (forecast 942k), industrial production (forecast March 0.2%), capacity utilisation (forecast 78.4%).

EU - Eurozone CPI (forecast 1.2% MoM.

UK - CPI March (forecast 0.3%), RPI (forecast 0.4%), PPI output, core (forecast 0.2% March).
Company News � Glencore (GLEN LN) to agree concessions with China this week.

There are reports that Glencore will agree to concessions with Chinas MOFCOM this week clearing the way for its acquisition of Xstrata.

Speculation is that Glencore will agree to divest greenfield copper projects, possibly Las Bambas in Peru, and possibly guarantee China part of the merged groups copper production.

Glencore has set a 2 May 2013 date for completion of the Xstrata acquisition.

Source: Reuters � Rio Tinto (RIO AU) production quarterly.

RIO reported iron ore production of 48mt (RIO share) with strong performance from the Pilbara.

Copper production for the MarQ13 came in at ~150kt, with lower grade affecting production at Kennecott, whilst production at Escondida was in line with the DecQ12 at 85.6kt.

Australian thermal coal production was down 32% on the DecQ12, while hard coking was down 16% and semi-soft up 8%.

Source: Company Investec view: Iron ore was up 9% on expectations as a result of strong Pilbara performance (inc Yandi).

Copper came in 10% under our estimate, with the decline in production from the fourth quarter mainly grade-related.

Thermal coal was down 5% on our forecast.

Hard coking production was down 10% on the pcp, mainly due to wet weather and lower overburden removal than expected in 2012 at Hail Creek, and a planned shutdown (for upgrade) a kestrel.

Semi Soft coking coal production was fairly strong, bringing net coking coal in at 8% lower than our estimate. � Trafigura US$1.6bn share buy-back in 3 years.

Trafigura, the private commodity trader, has bought back shares worth US$1.6bn from its senior executives during the last 3 years, including US$787m last year.

The group made a profit of US$992m last year and US$1.1bn the previous year.

This was revealed last week in a prospectus for a US$500m bond issue.

Source: FT � ENRC (ENRC LN) suspects Mozambique manager in whistle-blower allegation - ENRC has suspended one of its Mozambique managers due to allegations of impropriety, pending the outcome of an internal enquiry.

This suspension follows the departure of an ENRC corporate investigator last month and of the groups Chief Commercial Officer.

Source: FT � EMED (EMED LN) government completes public comment period with regards to recognising the resource potential in the historic tailings.

The company is keen to commence a feasibility study for the recovery of gold and silver from a section of the tailings deposit in JV with Andulucian investment Group Rumbo 5.

Cero.

Source: Company Investec View: EMEDs focus remains on the main pit development (Cerro Colorado Open Pit), however, the scope to enhance value from the asset base through the recycling of tailings has potential value worth investigating. � Polymetal (POLY LN) start-up of Mayskoye flotation concentrator at its high grade refractory gold mine and has produced first concentrate.

The concentrator has a nameplate capacity of 850ktpa of ore but ramp up to full production is expected to take six months with designed throughput and recoveries expected to be achieved in October 2013.

Source: Company � Highland Gold (HGM LN) announces conclusion of conveyance, screening and milling construction works at its new standalone processing facility at Belaya Gora.

Commissioning of these major components has started, initially with wet testing, to be followed by first ore feed.

First bullion is anticipated in May.

Belaya Gora is the companys second major stand-alone process facility construction after Novoshirokinskoye Polymetallic Mine.

Source: Company � More drill results from West African Minerals (WAFM LN).

Latest drill results have extended the known mineralisation at the South Djadom project to over 6km of strike length.

WAFM has now committed to a preliminary grid program of 300 holes in infill the mineralised area, which is located to the east of Sundances (SDL AU) Cameroon project.

A second RC drill rig and two diamond drill rigs have been mobilised.

WAFM reports that 11 of the 27 holes in the recent phase of drilling intersected mineralisation (BIF, enriched BIF or a hematite-rich oxide cap) with 6 containing significant mineralisation (defined as >30% Fe over >5m thickness). Investec view: While SDL is in limbo at the moment, after the Hanlong bid fell through, we remain confident that it will eventually find a strategic partner.

WAFMs project should therefore be well placed if infrastructure is put in place to access SDLs project.

WAFM is next week running an analyst site visit to its projects.
[cid:image007.png@01CE3A79.9B9A7D50] Commodities News � Gold price declines overdone? - The gold price suffered the biggest daily decline (over US$100/oz) in 30 years yesterday, and has lost 29% since September 2011.

Various factors are to blame, not least rumours of an end to QE in the US, the Cypriot governments plans to sell its gold and disappointing Chinese economic data.

Many market commentators believe that the recent fall was overdone given that the global economy is still in difficultly and that it is unlikely the QE will end in the near term.

However, the gold price was also weak in Asian markets overnight, falling another 1% to US$1,339/oz, as were gold stocks in Australia.

However, prices appear to be recovering from the mornings lows.

Source: FT, Bloomberg Investec view: While the recent moves in the gold price are unsettling, we remain positive on the fundamentals for gold given that we do not believe that the worlds global economic problems have been solved and our belief that Cypriot gold sales will only be a small factor.

While the threat of sales from other distressed nations is not to be ignored, Central Bank Gold Agreements limit this to 400tpa or around 12moz, admittedly still not insignificant.

Typically, jewellery demand is encouraged by weak prices, rather than driving prices, so we would expect demand from the Chinese and Indian jewellery markets to take advantage of the current pricing environment, giving support to the metal. � Talks between platinum producers and unions in progress: -- Association of Mineworkers and Construction Union (AMCU) to ask members whether they will consider participating in centralised wage talks.

AMCU has previously said it wont participate in centralized bargaining for platinum industry.

AMCU has been recognised as representing 40% of unionized workers at Anglo American Platinum, worlds biggest platinum producer, co.

and as much as 51% of unionised miners at Lonmin, co.

Source: Bloomberg Investec View: The results of the discussions could have serious ramifications for platinum producers and possibly platinum prices.

Should they participate in centralised wage talks then the risk of supply disruptions from protests would hopefully be reduced, although doubtless, miners will continue to feel considerable pressure for above inflation wage increases. � Chinese March crude steel production of 66.3mt, up 4.2% from Feb13 and up 6.6% YoY.

Cumulative production (Jan-Mar) March stands at 191.9mt, up 9.1% YoY, and running at a rate of 766mtpa.

Its production of pig iron in March was 61.6mt, up 8.0% from Feb13, which had exceeded 60mtpm for the first time.

Source: TEX Report Investec view: While comparison of production statistics around this time of the year are always muddled by the Chinese New Year, overall production growth still seems to be strong, with the annualised rate running well ahead of the 709mt produced in 2012 (according to the World Steel Association).
African Resources update � South African wage talks are expected to be the toughest ever.

Wage negotiations are to start in May with strikes expected given inflation and worker militancy.

Following the high settlements secured last year in the platinum sector, workers in other industries are expected to push for similar increases.

Wages account for around 50% of company costs in South Africa with many companies unable to afford a higher cost base, particularly if the recent weaker trend in commodity prices is not reversed.

Source: Reuters Investec View: The threat of disruptions in the South African mining industry is serious and could have a positive effect on some commodity prices, in particular platinum, however, miners are unlikely to benefit as they would be the ones suffering production disruptions. � Eskom, BHP in power cost imbalance.

A recent study has highlighted that state power supplier, Eskom, pays BHP Billiton (BHP LN) more just for the coal used to generate electricity for BHPs aluminium smelters than receives from BHP Billiton.

The burden of the aluminium smelters has therefore fallen on Eskom (the South African smelters and the Mozal smelter in Maputo together use about 9% of the total electricity generated by Eskom).

BHP produces between 32-34mtpa of power station coal per year in South Africa and sells 18-20mtpa to Eskom, about 18% of Eskoms requirements.

Several of Eskoms operations are to some extent hedged against market price rises with its cost-plus contracts.

However, BHPs three large coal mines are not bound by such contracts.

Source: MiningMX Investec view: While seemingly unfair, BHP is only operating within the terms of its contracts.

It would ultimately be up to the government to decide in the benefit of a secondary industry such as the smelters, versus the cost of creating the power to enable the smelters to subsist.

BHP may in the meantime, divest of them, as the smelters are on our list of possible asset sales.

We value Hillside, Bayside and Mozal at $1.7bn, although they have less than zero value at current spot aluminium prices. � World Bank sees 5%pa growth on average in Sub Saharan Africa for the next 3 years, although poverty is not declining at the same pace.

The poverty headcount between 1996-2011 fell from 65% to 49% in resources poor countries, versus 47% to 40% over the same period in resources rich countries.

The bank has indicated that transparency in contracts with miners should be improved to note be overly favourable to miners.

Source: Engineering News � South Africa has approved a US$100m loan to Zimbabwe to plug a gap in its finances ahead of elections due in the second half of the year.

Zimbabwe has struggled to secure funds as Western Donors have imposed sanctions on Mugabe and his inner circle over human rights abuses.

Last year Harare approached Angola for a US$150m loan.

The Zimbabwean treasury apparently has no capacity to fund the elections, particularly as a mid-season drought has impacted maize production that is expected to lead to a requirement to make purchases from overseas.

Source: Engineering News � DRC government will not be facing no confidence vote as 41 law makers withdrew support for the motion.

The motion was initially proposed on 11 April with over 125 signatures.

Source: Bloomberg � Eskom is reported to have been buying coal from 19 South African coal mines that do not have water licenses for at least 2 years.

Eskom has blamed the department of water affairs saying that the licenses should be issued, whilst the department has indicated that it has been struggling with an administrative backlog.

Source: Engineering News
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
Albert Minassian Tel: +27 (0) 21 416 1454
Marc Elliott Tel: +44 (0) 20 7597 5189
Colin McLelland Tel: +61 (0) 2 9293 2140
Leavitt Pope Tel: +852 3187 5074
Louise Collinge Tel: +44 (0) 20 7597 5779
Simon Haggarty Tel: +61 (0) 2 9293 2462
Investec Global Natural Resources Sales Team: UK Australia Hong Kong South Africa Jamie Campbell Tel: +44 (0) 20 7597 5038
Rod Clarkson Tel: +61 (0) 2 9293 2278
Will Robbins Tel: +852 3187 5098
Hayden Smith Tel: +27 (0) 21 416 1401
USA Thomas Lawrence Tel: +1 212 2595604
Matt Martin Tel: +61 (0) 2 9293 2168
Alistair Roberts Tel: +852 3187 5097
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