[cid:image001.png@01CE4FB0.A9579210] Monday, 13 May 2013 [cid:image003.jpg@01CE4FB1.1C2DEAA0]
Snapshot � Company news highlights: Lonmin interim financials, Amplats update on production cuts, Glencore Xstrata Q1 production report, Petropavlovsk strategy update, improved quarterly result from AngloGold Ashanti, Mwana positive metallurgical results for Zani-Kodo, Afferro Mining update, Chaarat Gold to undertake BFS, Whitehaven Coal settles Aston Resources dispute. � Commodity review highlights: Gold prices off in morning trading, Copper holding up in response to higher demand from China, Coal mining in Sichuan province to be suspended. � Other economic news: Chinas new loans increase to RMB793bn. � African resources update: Goldfields CEO says mining doomed if costs continue to increase. � FTSE futures flat (7am) markets are looking flat to marginally negative this morning at commodity prices retreat off the back of a strong USD.

Asian markets are fairly mixed, the Nikkei is surging +1.20% as the G7 ministers meeting supports Japans efforts to boost economic recovery, weakening the currency in the process, the Hang Seng is off 1.07%, and the ASX 200 is flat.

On a more positive note the G7 policy makers have also expressed a willingness to scale back austerity, are open to increased monetary aid and an unfreezing of bank lending. Commodity markets this morning are mixed - gold -0.85$ (US$1,436.23/oz), silver -0.73% (US$23.706/oz), platinum +0.50% (US$1,493.20/oz), copper +0.70% (US$3.3376/lb), nickel +0.49% (US$15,291.50/t), zinc -0.69% (US1,828/t).

Iron ore closed down at US$129.10/t, Chinese rebar prices fell 0.5% to 3,622 Yuan due to rising output from Chinese steel mills. Economic data due today:- US - retail sales (forecast -0.3%), business inventories (forecast 0.3%).

EU - announcements from the G7 finance ministers meeting.
Company News � Lonmin (LMI LN) interim financials and production report highlights recovery plan ahead of schedule with platinum sales at 326koz up 2.4% yoy at a cash cost of ZAR8,648/oz (US$950/oz) up 5.8% yoy taking underlying EBIT to US$93m, up from US$14m a year ago.

Company retains strong balance sheet with net cash of US$194m.

Production has benefitted from improved concentrator and smelter recoveries as well as head grades.

However, toward the end of the interim production suffered greater incidences of section 54 stoppages.

The company has lifted its guidance metal in concentrate production from 680koz to 700koz whilst maintaining sales guidance of 660koz due to near term smelter capacity constraints.

Capital plan guidance remains at US$175m for the year.

Reserve maintained at 18 months.

The recent outage of the No2 smelter is estimated to take 50 days to repair, in the meantime the scope of the work on the No1 smelter has been reduced and should be re-commissioned mid June.

LMI continues to face tough market conditions in the PGM space but estimates a 200koz Pt deficit this year.

Source: Company Investec view: A strong interim for LMI despite the difficult environment.

The risk is getting the smelting capacity back on line, however, with both the No.1 and No.2 smelters planned to be operating together by around July, plus the pyromet furnaces currently running the company should be able to catch up, hence the decision to retain sales guidance.

Another strong positive was the US$70m free-cashflow in the period, against a background of having cleared its debt, yet retaining its facilities ensures that the company is far from being under financial pressure for the time being. � Anglo American Platinum (AMS SJ) update on production cuts released on Friday, comprise 200-250koz this year vs.

400koz previously.

Medium term another 100koz are to be cut.

Labour reduction of 6k instead of 14k.

Whilst the set back in the extent of the cuts is not unexpected, the company may meet with a more moderate response from unions and state when it comes to wage negotiations.

Key change to prior plans - leave Khuseleka 1 shaft open for a further 3-5 years accounting for 4.5k of 8k jobs spared.

Contractor replacement will absorb some of excess labour although the company still needs 2-3 months of consultation.

2013 unit cost guidance unchanged at ZAR15,500 - 16,500/oz.

A development that should limit cost escalation is the transition to more expensive UG2 supplies has largely been concluded for now.

Source: Company Investec view: Overall we think the market will respond positively once it has absorbed negative sentiment of state intervention - the latter we think has had enough time to be "in the price".

However, with 2-3 months of consultation and wage negotiations that are only expected to be settled Sept/Oct we dont expect much market moving changes in the next couple of months.

We still think Amplats has earned the right to less militant treatment by unions and state and it is likely that this now ensure one storm has passed, and this could be good for the stock. � Glencore Xstrata (GLEN LN) Q1 production report.

While the merger completed on 2 May, GLEN has reported combined Q1 production figures for the two businesses.

On this basis, copper production from its own mines is up 18% YoY, given the strong ramp up following the commissioning of Antapaccay and Mount Margaret.

Zinc production was up 11%, benefitting from the commissioning of Lady Loretta.

Prodecos coal output was up 19% following its expansion.

Koniambo generated first commercial grade ferronickel during April 2013.

Marketing performance was in line with the groups expectations.

Source: Company � Petropavlovsk (POG LN) strategy update.

POG has announced that it has conclused its strategic review and plans to delay the implementation of its POX operations.

The group will also reduce central costs by US$10-15m/year.

Group gold production of 760-780,000oz has been reiterated, as has gold production in 2014.

This is due to ore identified in recent exploration successes which can offset the now delayed refractory production.

There should be a reduction in net debt by the end of this year.

Source: Company Investec view: We think todays announcement reads well and is the right thing to do.

This should give comfort to the market which has understandably become increasingly focussed on the groups significant debt position.

This is especially important given recent gold price volatility which could adversely affect the group in terms of its debt covenants. � Improved quarterly result from AngloGold Ashanti (ANG SJ).

ANG delivered 899koz at total cash costs of $894/oz, a goof improvement on the 859koz at $967/oz in the preceding quarter, albeit a long way from the 981koz at $7654/oz delivered in the 1Q12.

ANG is guiding further improved 2Q production of 900-950koz but at higher total cash cost of $900-$950/oz, taking into account public holidays and higher winter power tariffs in South Africa.

1Q13 EPS of 29UScps compared to 5cps in the 4Q12 and 116cps in the 1Q12.

Free cash flow was negative at $237m, reflecting the current high capital spend (Tropicana, Kibali), but the balance sheet retains $3.4bn of liquidity headroom.

A 50cps 1Q13 dividend has been retained.

Source: Company Investec view.

ANG appears to be heading soon into a period of consolidation, with a new CEO, Srinivasan Venkatakrishnan (Venkat), at the helm and the two major capital projects, Tropicana and Kibali, about to be delivered this year (on time and budget).

Venkat has highlighted a focus on prudent capital allocation and tighter cost control for sustainable free cash flow. � Mwana (MWA) positive metallurgical results for Zani-Kodo.

As part of the ongoing feasibility study on the DRC project, MWA has determined that the ore is non-refractory with +90% recoveries demonstrated across all recovery methods tested.

This enables MWA to pursue a number of low-cost processing alternatives.

Source: Company � Afferro Mining (AFF LN) update on discussions.

AFF has announced that it has received relevant documentation as to the source of funds from IMIC and discussions between the two groups are now taking place.

Source: Company � Chaarat Gold (CGH LN) to undertake BFS.

CGH has decided to undertake a BFS on its Chaarat gold project in the Kyrgyz Republic as it believes that this is the best way to add value for the group and its shareholders and should strengthen the companys position in considering strategic alliances.

The group is funded to undertake this work.

Source: Company Investec view: While this deposit is, on the face of it, a large and high grade asset, a large proportion is refractory and the pre-feasibility concluded capex of almost US$500m would be required to build the mine.

Given that the country has a poor track record in terms of asset security, unless a different approach is taken requiring much lower capex, the group may struggle to attract interest. � Whitehaven Coal (WHC AU) settles Aston Resources equity participation dispute.

WHC today announced it has resolved the dispute with Hamish Collins (former CEO of Aston), relating to claimed entitlement to equity participation under his employment with Aston.

Details of the settlement are confidential, however WHC has stated that all claims have been withdrawn in return for an "immaterial amount of money".

Source: Company
[cid:image004.png@01CE4FB1.1C2DEAA0] Commodities News � Gold prices off in morning trading as investment holdings slipped and US$ firmed.

Around US$20.8bn is estimated to have been removed from bullion funds.

Short positions have risen with 67,374 short contracts on 7 May, up 6.4% on the previous week.

In contrast, the falling price has prompted strong demand from Asia, with advance bookings for Akshaya Tritiya festival purchases in India expected to rise 20% this year.

Indian April gold imports stood at 117t.

Source: Bloomberg � Copper holding up in response to higher demand expected from China, with China Nonferrous Metals Industry Association indicating that consumption could rise faster this year than in 2012, forecasting 7% growth to 8.3mt, with production likely to rise 8% to 6.3mt.

Other Chinese forecasting Agency, Antaike forecast in October copper consumption rising 5.5% this year to 8.1mt, with output to rise 8.9% to 6.1mt.

Source: Bloomberg � Coal mining in Sichuan province to be suspended.

According to the Sichuan Provincial Work Safety Bureau there was a gas explosion at Taozigou coal mine on Saturday that has resulted in 28 fatalities.

Chinas State Administration of Work Safety has ordered all mines in Sichuan province to suspend operations pending safety checks.

Source: Xinhua Investec view: Clearly there are still significant safety issues that Chinas government needs to address in the coal sector.

Sichuan province is expected to produce c.

100mt of coal in 2013, not a lot in the context of Chinas 3.5bn annual production.

Hidili (1393 HK) is one listed name with coal mines in Sichuan province that could be adversely affected by production halts.

In 2012 Hidili produced 1.1mt of raw coal from its Sichuan mines out of a total 3.5mt.
Other economic news � Chinas new loans increase to RMB792.9bn in April.

Chinas local currency new loans increased to RMB792.9bn in April, up 16.1% YoY.

Source: Bloomberg
African Resources update � Goldfields (GFI SJ) CEO says SA mining doomed if "crazy" wage increases continue, without increases in productivity.

Productivity has declined over the past decade in the face of double digit annual wages increases and the SA mining industry needed to devise a strategy that gave the employees more pay while simultaneously boosting company productivity and providing more taxes for the fiscus.

Source: MiningWeekly Investec view: Holland is only recreating what has been said for years.

Its not so much the wage increases that are the issue but the lack of commensurate increases in productivity.

As Holland said, the gold industry could also face more Amplats style restructuring.
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