🕐09.07.13 - 09:27 Uhr

INVESTEC GLOBAL NATURAL RESOURCES DAILY - MINING - TUESDAY 9 JULY - CEY LN, FXPO
LN, LMI LN, YAL AU, CKA AU, MJS CN, POL LN, FCX US, RIO LN, AA US



[cid:image001.png@01CE7C7A.829AF210] Tuesday, 09 July 2013 [cid:image006.jpg@01CE7C7A.831E04C0]
Snapshot ¢ Company news highlights: Centamin excellent production report, Ferrexpo production report reflects rising output, Lonmin sees NUM take rival union AMCU to court on 10th July, Yanzhou Coal proposes privatisation of Yancoal Australia, Cokal hires group to sell minority stake in asset, Majestic Gold updated PEA for Song Jiagou project, Polo Resources NAV update, Freeport resumes concentrate shipments from Grasberg, Rio sees concentrate shipments from Oyu Tolgoi commence and weaker output in the Pilbara, Alcoa quarterly results, ¢ Commodity review highlights: Gold prices surge in response to China inflation, Chinese gold imports still high, Gold ETP holdings fall below 2,000t, spot uranium prices flat with downside pressure. ¢ Other Economic News: Chinese inflation rebounds in June ¢ African Resources Update: Eskom bonds suffer project delays, Zimbabwean president seeks to withdraw from SADC ¢ FTSE futures + 35.5 this morning.

The market is expected to extend gains today as Eurozone finance ministers approve the release of staggered payments of emergency aid to Greece with €2.5bn coming from euro-zone countries.

Chinese inflation accelerated more than expected due to rising food prices (+2.7% versus 2.5% consensus and up from 2.1% in May).

Asian markets are strong (Nikkei +2.58%m Hang Seng +0.36%, ASX 200 +1.50%). Steel rebar futures in Shanghai rise 0.4% (3,624 Yuan) as the decline in steel inventories helps offset the impact of increased output from mills.

Commentary suggests that stockpiles have been declining for the last 3 months, which, we believe is a very positive indicator for the steel and iron ore markets.

ETP gold holdings have fallen to 1,993.76 tonnes, the lowest level since May 2010 with expectations from UBS that another 500 tonnes will come out over the next 12 months and Goldman Sachs estimating a 1moz reduction per month. ¢ Commodity markets - gold +1.69% (US$1,257.87/oz), silver +1.91% (US$19.4705/oz), copper +0.37% (US$3.111/lb), iron ore -0.57% (US$121.90/t), platinum +1.25% (US$1,378.90/oz), WTI +0.13% (US$103.27/bbl), and Brent -0.05% (US$107.38/bbl).

Due listed – BHP AU +2.13% (A$31.61), RIO AU +0.77% (A$52.04). ¢ Economic data due today: US - NFIB Small Business Optimism (forecast 94.9) UK – Industrial production MoM (forecast 0.2%), manufacturing production (forecast 0.4%), visible trade balance (forecast -£8,485m), total trade balance (forecast -£2,600m).
Company News ¢ Centamin (CEY LN) delivers excellent 2Q13 production report.

After a solid 1Q13 producing 87koz (at subsequently reported cash costs of $556/oz), CEY delivered 93,624oz in the 2Q, taking the 1H13A total to 181koz, or already at 57% of the FY13E target of 320koz (at targeted cash costs of $700/oz).

The 5mtpa plant operated at a run rate of 5.7mtpa.

CEY has retained its FY target, citing likely reduced production in the 4Q due to commissioning activities as part of the Stage 4 plant expansion to 10mtpa.

Underground production ran at 568ktpa, well above the maximum rate of 550ktpa that our analyst assumes.

Source: Company Investec view: Notwithstanding the political issues impacting Egypt, CEY just gets on with its knitting.

At the current performance rate, it now looks likely to exceed its production target. ¢ Ferrexpo (FXPO LN) Q2 production.

FXPO has produced a total of 2.6Mt of iron ore pellets from its FPM and FYM mines, compared to 2.37Mt in Q1 2013.

This represents a c.5% increase compared to last quarter and for H1 production, represents an 11.4% increase on H1 2012 output.

Source: Company Investec view: It looks to us like the ramp up at the new FYM mine is progressing well and, all in all, the group appears on track to meet its FY13 targets of up to 11Mt of iron ore production.

We see FXPO as a reliable producer. ¢ Lonmin (LMI LN) NUM to take AMCU to court on 10th July over issues relating to membership of both unions.

NUM has filed to interdict its loss of recognition and closure of its office that is due to take place on 16 July unless it can get its membership back up.

NUM wants 10,000 workers restored to its ranks saying that 12,097 stop orders were invalid following examination by accountants and hand writing experts.

Source: Mining MX Investec View: Clearly it looks set to take a while to resolve the recognition issues as AMCU and NUM fight it out.

We anticipate an interim agreement to allow the key parties to be involved with wage agreements.

Lonmin’s wage period starts in October unlike the majority of miners that start in July and so it still has time to reach a resolution, although one of AMCU’s demands is that the period is brought forward to July. ¢ Yanzhou Coal (1171 HK) proposes privatisation of Yancoal Australia (YAL AU).

Yanzhou has proposed privatisation of Yancoal Australia.

Yancoal Australia is currently 78% owned by Yanzhou.

The privatisation would be by scheme of arrangement with Yancoal Australia shareholders receiving 0.91 Yanzhou H shares (through a CDI) for every Yancoal Australia share.

Source: Company Investec view: The proposed share ratio for the acquisition is based on a Yancoal Australia share price of A$0.70 and a Yanzhou share price of HK$7.09; the 60 day VWAP.

The Yanzhou share price has however fallen significantly in the last 2 months.

Based on a ratio of 0.91 the current Yanzhou share price of HK$5.37 implies an offer of just A$0.69 per Yancoal Australia share, below the current share price of A$0.70.

The proposed acquisition seems somewhat opportunistic and unlikely to get done on the proposed ratio although the proposal will be reviewed by the Yancoal Australia Independent Board Committee.

The privatisation also will depend on Australian regulatory approvals, with Yancoal’s ASX listing in July 2012 s result of approval conditions applied to Yanzhou’s 2009 acquisition of Felix Coal ¢ Cokal (CKA AU) hires Moelis to sell a minority stake in BBM.

Cokal has reportedly hired Moelis to help sell a 10-20% interest in Cokal’s 60% owned BBM coking coal project in Central Kalimantan, Indonesia following a number of unsolicited approaches from Asian steel mills.

Source: WSJ Investec view: We believe Cokal will need to raise c.

AUD40m in equity and c.

AUD70m in debt to finance development of the BBM project.

Sale of an equity interest in BBM to a strategic partner is logical but will need to be completed by late 2013 if Cokal is to commence production in early 2014 as planned.

Press reports suggest a 20% interest in BBM could be worth AUD60m valuing BBM at AUD300m on a 100% basis.

This valuation appears fair although 10% below our JunH14 NPV of Cokal’s 60% of BBM of AUD199m; AUD330m on a 100% basis.

See our latest analyst research Cokal Ltd: A timely placement dated 08 July 2013. ¢ Majestic Gold (MJS CN) updated preliminary economic assessment for Song Jiagou gold project.

Consultants SRK have completed a preliminary economic assessment (PEA) for Majestic’s Song Jiagou gold project in Shandong Province, China.

The PEA valued the project, pre-tax, at between US$477m (based on a 7,400tpd processing rate) and US$1,056m (based on a 12,000tpd processing rate), and confirmed the indicated and inferred resource of 2.9moz.

The PEA used a USD1,355/oz gold price (the 5 year trailing average).

Source: Company Investec view: Majestic continues to target production from Song Jiagou at over 100kozpa, however in MarQ13 Song Jiagou produced just 4.77koz.

The company expects production to ramp-up with the introduction of grade control and cessation of the processing low grade later this year. ¢ Polo Resources (POL LN) NAV announcement.

As of 30 June, POL’s NAV/share was 36p, against a NAV of 35.9p at 31 May and against the current share price of 20p.

The increase primarily arose from the revaluation of the group’s holding in Ironstone, which undertook a share placement.

This partially offset the fall in NAV due to further weakness in GCM’s share price.

Source: Company Investec view: POL is clearly trading at a significant discount to its NAV so there should be scope for lift in that regard, although the fact that many of its investments are private may deter investors.

That said, we believe that some of POL’s investments have significant potential. ¢ Freeport (FCX US) resumes concentrate shipments from Grasberg.

Grasberg President Director Rozik Soetjipto indicated that concentrate shipments have resumed following declaration of force majeure on 12 June, although shipments remain below normal levels.

Source: Bloomberg ¢ Rio Tinto (RIO LN) concentrate shipments from Oyu Tolgoi have commenced.

The mine will produce 430ktpa Cu and 425kozpa Au over a 20 year mine life.

Source: Company ¢ Rio Tinto’s (RIO AU) Pilbara production weaker.

Unseasonal rain and a conveyor breakdown have resulted in weaker than anticipated iron ore production in the June Quarter.

Source: The Australian ¢ Alcoa Inc.

(AA US) 2Q’13 Result - sales off 1.9% yoy to US$5.85bn.

Net quarterly loss came to US$119m, up US$2m yoy.

– included After Tax Operating Income (ATOI) of US$64m for the Alumina Division which was up from US$58m in the 1Q’13 and US$23m in the pcp.

Adjusted EBITDA/t rose from US$44/t in the 1Q to US$47/t in the current quarter with slightly lower prices balanced by cost reductions.

The company sees global aluminium demand rising 7% this year led by 11% growth in China with demand exceeding supply by 315kt, a reversal of the past 8 years of surplus supply.

Source: Company. Investec View – Unfortunately the improved Alumina result didn’t flow through to Alumina Limited.

The Alcoa minorities’ line which is effectively AWC’s share of AWAC was a loss of US$29m for the Quarter.

This included US$10m of additional energy costs in Victoria as a result of buying in power whilst the Anglesea power station was undergoing maintenance and US$41m provision for the Alba legal dispute.
[cid:image007.png@01CE7C7A.831E04C0] Commodities News ¢ Gold prices up US$50/oz in two days, picking up in Asia this morning in response to Chinese inflation data exceeding expectations, and anticipated higher inflation in the US.

Net long positions in gold are reported to be up 9.9% to 34,301 futures and options as of 2 July.

Holdings of short contracts climbed 1.4% to 78,148.

Source: Bloomberg ¢ Chinas gold imports still at unprecedented highs.

With net gold imports through Hong Kong again exceeding 100t in May, China looks like heading to absorb over 50% of global gold output this year.

While Chinese gold imports through Hong Kong in May of 108.8t, did not quite come up to the record level seen in March at 136t, they were still the second highest total on record, and comfortably in advance of April’s 80t.

In April, it is thought that the level of net imports would have been far higher, following the high demand after the gold price collapse, but that traders were taken by surprise following the exceedingly high March import figures, which had used up their quotas.

Source: Mineweb ¢ Gold ETP holdings have fallen below 2,000t for the first time since May 2010 falling 24% this year to 1,993.76t.

Holdings originally hit a record of 2,632.52t in December.

In contrast gold holdings in Japanese ETPs have expanded with the biggest one up by 10% this year by volume exceeding 6t.

Source: Bloomberg ¢ Spot uranium prices flat at US$39.5/b with price erosion likely with little sign of rising demand near term.

Source: Bloomberg
Other economic news ¢ Chinese inflation rebounds in June.

Chinese inflation has rebounded to a 4 month high of 2.7% YoY in June, up from 2.1% in May.

Higher pork prices, the major component of the consumer price basket, were the biggest contributor to the increase.

Source: FT
African Resources update ¢ South African power company, Eskom sees its US$1.75bn of bonds suffering following delays to the start-up of its Medupi coal plant that would be the world’s fourth largest coal fired power station that is now due to start up in H2 2014, having originally been planned to start later this year.

Eskom is spending US$50bn revamping old plants and building new ones.

Medupi, along with the Kusile coal plant and the Ingula Hydro Plant are to add 10,896MW to the country’s grid, but have been stalled due to labour disruptions and equipment malfunctions.

South Africa has little spare power with peak demand within 0.1% of its 35,780MW capacity on 10 June.

Source: Bloomberg ¢ Zimbabwean president Mugabe is seeking to withdraw from the 15 nation Southern African Development Community (SADC) who brokered an end in 2009 to the political dispute that led to the power sharing agreement that is currently in place.

Prime Minister Tsvangirai is opposed to the withdrawal.

Elections are due to take place on July 31st that may see an end to the power sharing agreement.

The SADC was seeking to delay the elections.

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
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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