🕐12.07.13 - 10:27 Uhr

INVESTEC GLOBAL NATURAL RESOURCES DAILY - MINING - FRIDAY 12 JULY - AGO AU, ECI
AU, FMS AU, BUMI LN, BORN IG, RIO LN, APF LN, LMI LN, GFI SJ, 893 HK, 1258 HK



[cid:image001.png@01CE7ED5.A2CF9510] Friday, 12 July 2013 [cid:image006.jpg@01CE7ED5.C51E3C70]
Snapshot � Company news highlights: Investec iron ore research notes out on Atlas, BC Iron and Flinders, Bumi saga continues, Rio Tintos Kestrel extensions begin production with Anglo Pacific to benefit accordingly, Lonmin still caught up in union tussle, Goldfields production warning, China Vanadium announces discovery of niobium and tantalum, China Nonferrous Mining profit warning, � Commodity review highlights: Baosteel and Wuhan keep August steel prices flat, Indian jewellers support gold bar/coin ban, US gold output down 5% Q0Q, India indicates foreign access to restart Kolar gold mines � Other Economic News: Chinese minister points to growth of 6.5%, Brazil eases banking restrictions. � African Resources Update: SA gold production falls further, DRC delays copper concentrate export ban, Chinas Sinosteel in talks over Nigerian steel mill � FTSE futures -0.5 points this morning - markets looking fairly benign this morning with a mixed lead coming out of Asia (Nikkei +0.23%, Hang Seng -0.68%, ASX 200 +0.17%).

Chinese growth concerns return with Finance Minister Lou Jiwei signalling the economy will expand at 7% this year, less than the official government forecast of 7.5% and with rates as low as 6.5% "tolerable" for the future. Commodity markets - gold -0.22% (US$1,283.07/oz), silver -0.89% (US$19.9858/oz), copper -0.60% (US$3.1590/lb), iron ore +1.05% (US$125.20/t), platinum +0.28% (US$1,411.70/oz), WTI -0.14% (US$104.78/bbl), and Brent -0.05% (US$107.67/bbl).

Due listed - BHP AU +1.43% (A$33.31), RIO AU +0.77% (A$54.74). Economic data due today: US - Producer Price Index (forecast 0.5%), University of Michigan confidence (forecast 84.7).

Europe - Spanish CPI (forecast 0.1%), Euro zone industrial production (forecast -0.3%), Italian CPI June Final (forecast 1.4%).
Company News � Research note out on Atlas Iron (AGO AU): While the upshot of rail options remains unknown, the options are real and, in our view, the market has too aggressively discounted the stock for this uncertainty.

AGO has held its nerve and remained focused on delivering its plan of 12mtpa by mid-2014.

Cash flow is robust and debt is low, providing a powerful base from which to expand to 15mtpa with a revised plan to use existing public roads.

Source: Investec � Research note out on BC Iron (BCI AU), incorporating the JunQ13 production report and corporate update.

BCI delivered a positive JunQ13 for the Nullagine Joint Venture (NJV), with 1.6mt shipped in the period, a 12% increase on the JunQ12.

In line with the strong quarterly production result, a record 5.0wmt was shipped during FY13, and with the NJV now operating steadily at its 6.0mtpa nameplate capacity, Company guidance of 5.8-6.2mt for FY14 appears reasonable.

We expect the full BCI quarterly to be released on 22nd July.

Source: Investec � Research note out on Flinders Mines (FMS AU): Strategic asset...dwindling cash....worth the risk.

Pilbara infrastructure is evolving rapidly, with Aurizon targeting rail and Chinese interests looking to support the NWI port.

FMS still lacks infrastructure access, but is now only "partly stranded", in our view, as infrastructure developments continue on several fronts.

While FMS remains a minnow financially, its asset is increasingly strategic as reflected by the potential Aggregation Agreement with Brockman.

Source: Investec � Bumi Plc (BUMI LN) saga twists again with Borneo Lumbung (BORN IJ) reaching agreement to acquire Bakrie Group shares.

Samin Tans Borneo Lumbung (BORN IJ) has reached an agreement to acquire the Bakrie Groups shares in Bumi Plc subject to receiving a waiver from the takeovers code that avoids triggering a general offer and completion of the Bakrie Groups buyback of Bumi Plcs Bumi Resources (BUMI IJ) shares.

This would increase Borneo Lumbungs ownership of Bumi Plc to 47.6% and differs from the original plan for Bumi Plc to buy back and cancel the Bakrie Groups Bumi Plc shares.

Source: Bloomberg Investec view: Bumis shares have been suspended for some months now meaning that, while all these discussions have been ongoing and plans have been made, the market has not been able to make its decision on value.

While the announcement by PT Borneo appears to contradict part of the separation agreement with PT Bumi and Bum plc, it does at least provide us with a see-through valuation for Bumi plc shares of around 340p. � Rio Tintos (RIO LN) Kestrel mine extensions begin production.

Coal production has started at the Kestrel extension, RIOs US$2bn project in central Queensland.

The Company has indicated that over the coming year, there will be a gradual transition from Kestrel North to the new Kestrel South, with the new operation expected to reach full capacity (5.7mtpa) by the end of CY14.

Source: Company � Anglo Pacific (APF LN) to benefit from Rio starting production from its Kestrel Mine expansion that is expected to reach full capacity of 5.7mtpa from the end of 2014.

APF has its key royalty over part of the Kestrel Mine and has been affected by the reduced throughput from Kestrel whilst the US$2bn expansion has been developed.

APF has around 10+ years of royalty life since the royalty agreement does not cover the full extent of the mine which is expected to run for the next 20 years.

Source: Rio Tinto & Investec Investec View: Whilst the recent weaker performance from Kestrel has impacted near term cash flows for APF, a benefit is that there has been less coking coal sold at these more depressed price levels, which longer term we would hope will improve and generate more cash for APF down the road. � Lonmin (LMI LN) continues to be caught up in the tussle for members between the NUM and the AMCU.

The NUM had called for a hearing that took place yesterday to stop the de-recognising process as the 16 July date approaches when a court ruling may de-recognise the union at the Marikana operations.

Feedback from the court hearing indicates that forms were not signed, others not correctly filled in and some had the same identify number.

Source: Mining Weekly � Goldfields (GFI SJ) highlights 5% drop in Ghana Q2 output due to strike action at its Ghana mines.

Output is expected to come to 451koz with around 25koz being lost due to the strike action.

Cash costs would come to around US$860/oz and notional cash expenditure of US$1,250/oz.

Full year guidance stands at 1.83-1.9moz at cash cost of US$860/oz and US$1,360/oz including sustaining capital.

At current negative cash flows, the company expects the South African gold industry to be remodelled.

Source: Mining MX � China Vanadium Titano-Magnetite Mining (893 HK) announces discovery of niobium and tantalum.

China VTM has announced the discovery of niobium and tantalum at its Baicao mine in Sichuan province.

Unfortunately the discovery will disrupt the current mine plan resulting in up to 300kt less iron ore concentrate production in DecH13 and up to 250kt less production in JunH14 severely reducing revenue and profitability.

Source: Company � China Nonferrous Mining (1258 HK) profit warning.

Sino-Zambian copper miner China Nonferrous Mining issued a profit warning for JunH13 that results are expected to substantially decline as compared to the net attributable profit of USD55.4m in JunH12.

Source: Company
[cid:image007.png@01CE7ED5.C51E3C70]
Commodities News � Baosteel and Wuhan keep August steel prices flat.

Baosteel will keep prices for its main steel products flat in August whilst Wuhan will raise prices by CNY50-100/t.

Source: Reuters � Indian Jewellers support gold bar and coin ban.

In a bid to support the Indian governments efforts to reduce the current account deficit, Indian jewellers have decided to voluntarily ban gold coin and bar sales for the next six months to curb imports.

Coins and bars account for more than a third of gold sales in the country.

Severe restrictions on gold by the Indian government and Reserve Bank have already borne fruit.

In June, Indias gold and silver imports declined 70% to around $2.5bn (vs.

$8.4bn in May).

Source: Mineweb Investec view: While the move by the Indian jewellers to stop selling coins and bars appears a noble effort to assist the government in reducing the current account deficit, we note that they have not stopped selling gold.

Retail investors wanting gold exposure will therefore simply buy gold jewellery instead. � US gold output down 5% QoQ: USGS.

In its latest Mineral Industry Survey, the U.S.

Geological Survey has reported that USA gold production declined 5% in the first quarter of the year.

Production for the quarter totalled 54,000 kg (1.74moz).

Source: Mineweb � Indian Mines Ministry indicates foreign developer access to restart Kolar gold mines.

Indias top court this week ruled that the government could proceed to restart the Kolar gold mines.

Whilst potentially positive for prospective developers, officials from the Geological Survey of India have expressed caution as the mines were closed 12 years ago due to poor quality ore and declining resources.

Source: Company
Other economic news � Chinese minister points to growth of 6.5%.

Chinese Finance Minister Lou Jiwei signalled the worlds second biggest economy may expand less than the governments target this year and that growth of as low as 6.5% may be acceptable in the future.

In March, the government set a 2013 growth target of 7.5%, and the Finance Minister says he is confident in China growing at 7% this year.

Source: Bloomberg � Brazil eases banking restrictions.

Brazil eased restrictions on local banks ability to raise funds abroad, adding to government efforts to slow a decline in the currency.

The monetary authority eliminated capital requirements which had increased the costs for banks to bring foreign currency loans raised by foreign subsidiaries into the country.

Source: Bloomberg
African Resources update � South African gold production falls.

Mining output overall decreased by 0.7% in May, and the fall in gold output of 2.4% was the largest contributor.

On the positive side, manganese ore production increased by 1.5%.

The gold sector remained the key mineral export, accounting for 8.8% of total export revenues in the first 5 months of the year.

South African is now only the 6th largest gold producer, and is now behind China, Australia, the US, Russia and Peru.

Source: Mining Weekly Investec view: The rise of newer, near-surface, lower-cost mines outside South Africa has been responsible for the relative reduction in gold output on a global level.

However, in the past couple of years, South African issues have made it harder for mining companies to maintain their output, particularly in a cost effective manner.

There are many factors, but in no small part are related to the heavy hand of the government in terms of section 54 stoppages but also to increased militancy and demands of unions. � Democratic Republic of Congo delays copper concentrate export ban.

The DRC has reportedly delayed a proposed ban on the export of copper and cobalt concentrate until year-end.

Source: Reuters Investec view: The proposed ban is contentious and the governor of Katanga province has already said he will not enforce the ban.

The proposed ban has no impact to MMG Ltd.s (1208 HK) Kinsevere mine which produces copper cathode but MMG does have an equity interest in Mawson West (MWE CN) who produce a copper concentrate.

Mawson West however produces a sulphide concentrate which is unable to be treated in-country and has export protections from its mining convention. � Chinas Sinosteel in talks to acquire Nigerian steel mill.

Sinosteel is in talks to acquire a Nigerian state-owned steel mill.

Source: The Economic Times
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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