🕐18.09.13 - 10:27 Uhr

INVESTEC GLOBAL NATURAL RESOURCES DAILY - MINING - WEDNESDAY 18 SEPTEMBER - FXPO
LN, SXX LN, CCC LN, HGM LN, SHG LN, SIR AU, FMG AU



[cid:image001.png@01CEB446.70A7AB30] Wednesday, 18 September 2013 [cid:image006.jpg@01CEB446.80D5AAC0]
Snapshot � Company news highlights: Ferrexpo acquires stake in Ferrous, Sirius Minerals maiden reserve, Continental Coal Botswana deal, good Highland Gold interims, Shanta exploration update, Sirius Resources scoping study on Nova-Bollinger, Fortescue redeems preferred shares � Commodity review highlights: Iron ore prices starting to fall, global iron-ore oversupply unlikely: Aquila, India increases import duty on gold jewellery, gold falls through $1,300/oz, aluminium buyers and sellers at odds, Chinese copper smelters looking for 50% higher TC/RCs � Other Economic News: EPA set to limit new coal-fired power plants, new ASX bookbuild tool close to launch, China home prices continue rising in August � African Resources Update: ArcelorMittal to sell stake in Algerian steel plant � Market notes: FTSE futures +2.5 this morning - markets looking mildly optimistic ahead of the Fed announcement this evening where expectations are for a $5-10bn tapering with a pledge to keep interest rates near zero until US unemployment falls to 6.5%.

Gold and precious metals are reacting accordingly with gold falling through US$1,300/oz overnight and settling at US$1,303 this morning.

Asian markets also reflect subdued trading ahead of the announcement (Nikkei +1.35%, Hang Seng +0.02%m, ASX200 -0.25%).

Chinese property prices continue to rise in almost all cities fuelling speculation that more sustainable measures to subdue prices are required. Commodity markets: gold -0.55% (US$1,303.56/oz), silver -0.63% (US$21.6080/oz), copper +0.34% (US$3.2335/lb), iron ore -2.24% (US$131.10/t), platinum -0.04% (US$1,421.80/oz), WTI +0.27% (US$105.68/bbl), and Brent -0.20% (US$107.97/bbl).

Due listed - BHP AU -0.14% (A$36.09), RIO AU -1.69% (A$61.70). Economic data due today: US - MBA mortgage applications, housing starts (forecast 917K), building permits (forecast 950K), FOMC rate decision and announcement regarding MBS & treasury purchases (forecast $40bn each).

UK - BOE monetary policy committee minutes.

Eurozone - EC construction output.
Company News � Ferrexpo (FXPO LN) acquires 14.4% strategic stake in Ferrous Resources for US$80m over the period of January to September.

Ferrous Resources operating in Brazil has a 4bn resource and as of June 2013 a production run rate of around 5mtpa of 62% Fe iron fines, with permits in place to lift output to 15mtpa.

Source: Company Investec View: The stake offers geographic diversification for Ferrexpo providing potential alternatives to Ukrainian production.

This may signal a lower likelihood of progressing its own organic expansions.

Ferrexpo may also see synergies on the marketing of iron ore into its growing Chinese customer base. � Sirius Minerals (SXX LN) maiden ore reserve of 250mt at 87.8% polyhalite from 1% of project area that would enable the phase 1 development to continue for over 50 years with scope to double following exploration of inferred resource.

The mining schedule that the resource is based on is a 5mtpa mining operation, although work is underway examining a 12mtpa scenario.

Mining would be room and pillar.

Source: Company Investec View: This is positive news following the disappointing news on Monday over delaying the permitting process, however, until all permitting has been secured and agreed, unlocking value from the reserve will obviously not be possible.

Thereafter the company will need to find means of funding the US$1.9bn development. � Continental Coal (CCC LN) close to deal on Botswana licenses.

CCC has entered into a binding term sheet with a third party, for it to earn into two of CCCs Botswana prospecting licences.

The unnamed party will be able to earn into a maximum 80% of two prospecting licences by assuming exploration activities and costs up to Nov14.

CCC is to retain a free-carried interest of 20% up to the completion of a BFS, leaving the third party an option to acquire this stake at fair value.

Source: Company Investec view.

A positive for CCC as it retains some upside in the Botswana ground without incurring additional costs and without distracting it from its more immediate operations and developments. � Interims from Highland Gold (HGM LN).

Notwithstanding the weaker gold price in the 1H13, HGM generated a relatively good result with EBITDA of $63m off a production base of 106koz (1H12 was $72koz off of 102koz) and generated a net profit of $17m (1H12: $48m).

Cash inflows of $72m exceeded capex of $68m, excluding the $207m Kekura acquisition.

Cash costs were $717/oz and AISC costs were a very competitive $912/oz (1H12: $981m).

The asset base remains unimpaired.

HGM declared an interim dividend of 2.5p per share (1H12 was a 4.8p per share special dividend).

Source: Company Investec view.

A good overall result for HGM.

All-in sustaining costs of $912/oz put the company at the low-cost end of its peer group.

While HGM did not make any asset impairments, we note that the spot gold price is now close to the $1,300/oz level that HGM applies in its impairment testing. � Shanta Gold (SHG LN) exploration programme update indicates that mineralisation continues below current indicated resources at the New Luika gold mine, with some high grade intercepts of as much as 15.02g/t over 10.42m at depth, although other intercepts were considerably lower.

The company has concluded 4,751m of diamond drilling in 20 holes to test the two main ore bodies at the project.

Source: Company Investec View: The directors see potential for gold enrichment at depth despite some of the weaker results.

This would imply there is scope to develop underground to extend the mine life and add value, although considerably more work will need to be done to confirm this potential. � Sirius (SIR AU) releases Nova-Bollinger scoping study.

Australian nickel explorer Sirius Resources released scoping study results for its 70% owned Nova-Bollinger nickel project in Western Australia.

The scoping study envisages an underground mine and 1.5mtpa processing plant that will produce an average of 28ktpa nickel / 11ktpa copper / 900tpa cobalt (100% basis) from mid-2016 at a C1 cash cost of A$1.75/lb of nickel after by-product credits over a 10-year mine life.

Pre-production capex is estimated to be A$471m (100% basis).

No NPV was provided but average cashflow is projected to be A$350m/year based on a nickel price of A$10.00/lb, copper price of A$3.30/lb, cobalt price of A$12.00/lb and A$/A$ exchange rate of 0.90.

Source: Company Investec view: Nova-Bollingers economics appear to be compelling with low cash costs of A$1.75/lb of nickel and projected average cashflow of A$350/yr.

The next step is to complete a feasibility study, which is expected in mid-2014. � Fortescue (FMG AU) redeems preferred shares.

Fortescue has begun paying down debt, issuing notice to redeem A$140m of preferred shares with a 9% coupon due 2017.

Source: Company Investec view: FMG management must be feeling more comfortable with its balance sheet as expansion capex is winding down and operations throw off strong operating cashflow with iron ore prices above US$130/t.
[cid:image007.png@01CEB446.80D5AAC0] Commodities News � Iron ore prices fall ahead of Chinas mid-autumn festival.

Iron ore prices have fallen to A$131.10/t (62% Fe, dry, CFR China) ahead of the mid-autumn festival holiday in China.

Chinese markets are shut Thursday/Friday.

Source: Reuters Investec view: The spread between the 6 month and 24 month futures continues to indicate that spot prices are high relative to longer-term prices.

With steel prices falling we see still further downside risk to spot iron ore prices in the short-term. � Global iron-ore oversupply unlikely: Aquila (AQA AU).

CEO Tony Poli told journalists in Johannesburg that the expectation of iron-ore oversupply was largely strategic posturing by the majors.

"While there is a chance that there could be a surplus, the cost of producing in China and the positive Purchasing Managers Index and New Orders Index - which continue to illustrate strength in the country - lead us to anticipate an iron-ore price of at least A$100/t in future," he commented.

Source: MiningWeekly � India increases gold jewellery import duty to 15%.

India has increased the import duty on gold jewellery from 10% to 15%.

The import duty on raw gold remains at 10%.

The increase in duty is aimed at protecting Indias domestic jewellery manufacturers Source: Reuters Investec view: India continues to try to reduce gold imports as it struggles to manage its current account deficit. � Gold falls through US$1,300/oz in trading this morning as the US Fed decision on tapering quantitative easing looms.

Price volatility is also reported to have muted physical demand that had been strong in response to lower prices.

Source: Thomson Reuters � Top aluminium producers and consumers at odds over prices and premiums to secure metal, with fewer fixed term supply deals expected this year.

An industry gathering currently taking place will see consumers and producers get together, with consumers potentially able to leverage off the US regulatory scrutiny into claims that big banks and trading houses have inflated premiums by building backlogs at LME warehouses.

Spot premiums for duty paid aluminium in Rotterdam were around US$235-255/t in September, from US$275-295/t in June.

However, premiums are rising in Japan at around US$250/t.

Source: Thomson Reuters � Chinese copper smelters seeking to raise TC/RCs by 50% after spot levels hit two year highs.

Chinese smelters are talking figures of around US$105/t and 10.5c/lb when they meet miners at LME week on 7 October.

The current benchmark in Europe is US$70/t and 7c/lb, with talk of settling at US$90/t and 9c/lb in the EU.

The expectation of rising TC/RCs reflects growing supplies of copper concentrate and supportive of an expected surplus next year.

Source: Thomson Reuters Investec View: Rising TC/RCs is not a positive development for miners that produce significant concentrate.

Particularly if a growing surplus will undermine the underlying copper price exacerbating the impact.

For a 25% Cu copper concentrate the current benchmark adds around 20c/lb to the cash cost of production, which at US$105/t and 10.5c/lb would rise to 30c/lb.
Other economic news � US EPA set to block new coal-fired power plants.

New regulations proposed by the Environmental Protection Agency will effectively ban the construction of new coal-fired power plants, without costly carbon capture equipment.

The EPA is also set to propose new rules for existing plants, scheduled to be finalised in Sep14, which would impact the coal-fired generators that provide 39% of US electricity.

Source: FT Investec view: The ban is unlikely to have any serious immediate impact, since there is little incentive for power producers to construct new coal-fired power plants, given the abundant supply of lower cost gas.

The FT reports that in 2013-2015, the US industry is planning to build 8 new coal-fired generators and 138 new gas-fired units. � New ASX bookbuild tool close to launch.

A new facility first announced by the Australian Securities Exchange a year ago, ASX Bookbuild, is due to launch on October 8.

The facility will allow a bookbuild to be conducted electronically allowing any ASX participant to electronically submit bids on behalf of their eligible clients.

The facility has been welcomed by the Association of Mining and Exploration Companies, especially in the current tight equity market.

Source: Miningnews � China home prices continue rising in August.

Chinese home prices rose YoY in 69 of 70 cities surveyed in August as the new government hasnt enacted new property price control measures.

Prices in Beijing/Shanghai/Guangzhou were up 15%/15%/19% YoY.

Source: Bloomberg Investec view: A buoyant property market is one factor enabling continued high levels of Chinese steel production.
African Resources update � ArcelorMittal to sell 21% of Algerian unit at a nominal price to the Algerian State.

The company operates the El Hadjar plant which was previously state owned.

The plant has been hit by strike action over pay rises and produced 580kt of flat and long steel in 2012.

The government plans to lift output to 2.2mtpa.

Source Thomson Reuters
Investec Global Natural Resources Research Team: UK Hong Kong South Africa Hunter Hillcoat Tel: +44 (0) 20 7597 5182
Matthew Whittall Tel: +852 3187 5075
Albert Minassian Tel: +27 (0) 21 416 1454
Marc Elliott Tel: +44 (0) 20 7597 5189
Leavitt Pope Tel: +852 3187 5074
Louise Collinge Tel: +44 (0) 20 7597 5779
Investec Global Natural Resources Sales Team: UK Hong Kong South Africa Jamie Campbell Tel: +44 (0) 20 7597 5038
Will Robbins Tel: +852 3187 5098
Hayden Smith Tel: +27 (0) 21 416 1401
USA Thomas Lawrence Tel: +1 212 2595604
Alistair Roberts Tel: +852 3187 5097
Investec Commodity Hedging Team: http://treasury.investec.co.uk/products-and-services/commodities.html UK Callum Macpherson Tel: +44 (0) 20 7597 5070
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