[cid:image001.png@01CEBF45.FA90DF10] Wednesday, 02 October 2013 [cid:image006.jpg@01CEBF45.FAD11C60]
Snapshot � Company news highlights: Chalco divests Simandou stake to Chinalco, Hochschild to raise equity and debt to finance acquisition of 40% of Pallancata Mine and Inmaculada project, China Moly to issue convertible bond, Norilsk Nickel cuts dividend, Jubilee advances Tjate and issues equity, Mwana Africa upgrades gold resource in DRC, MZI Resources gets financing from RCF, Mirabela potentially in debt default, Nyrstar enters into marketing agreement with Noble Group, Ivanhoe Mines site visit feedback. � Commodity review highlights: Gold slipped through US$1,300/oz level, Glencore and Tohoku Electric settle coal contract at US$85.8/t, Indonesia tries to claw back as much as US$460mpa in lost coal export tax revenues � Other Economic News: Australia forecasts 17% increase in exports, IEA expects Southeast Asian oil exports to more than double by 2035, slow week ahead in China, Mongolia to build Chinese gauge track between Tavan Tolgoi and China � African Resources Update: South African PMI at 8 month low, Kenyas economic growth at 4.3% in Q2, Tenke Fungurume suffers power outages � Market notes: It seems that the fallout over the government shutdown is not going to be as bad as first feared, with a deal expected to be struck in the coming days and tapering from the Fed to be delayed further.

Talk is that the partial shutdown will cost at least US$300mpd with estimates that a weeks shutdown hitting GDP by 0.2% in 4Q and a 21 day shutdown per 1995-96 would cut growth by 0.9-1.4%. The euro zones manufacturing PMI expanded for a 3rd straight month in September, up 51.1 in line with expectations.

Also, Eurostat, the European Unions statistics agency, said euro zone unemployment fell for a 3rd straight month in August.

However, German unemployment unexpectedly rose again raising concerns that growth is slowing. In Asia Pacific, the Aussie dollar strengthened further overnight after RBA Governor Stevens omitted for the 3rd time any mention of having scope for further monetary easing.

The Australian Bureau of Resources and Energy Economics has raised its 2014 iron ore estimate from $112/t to $119/t on stronger demand from China and has forecast that gold will $1,275/oz in 2014 vs $1,439/oz in 2013.

In Japan.

PM Abe will proceed with his "3rd arrow" next year consisting of the planned sales-tax increase from 5% to 8% in April and a JPY5tn stimulus plan.

China remains on holiday today and for the rest of the week although the Non-manufacturing PMI print is released today.

Yesterdays PMI came in at 51.1, slightly below expectations but still in growth territory. � Commodity Markets: Gold fell to its lowest level in 8 weeks on the US government shutdown, dropping under the psychological US$1,300/oz level, despite the World Gold Council forecasting that Chinese consumer gold demand may rise over 29% this year and may reach 1,000t and overtake India.

Chinas PBoC has released some draft rules that state that financial institutions and companies that produce more than 10tpa of gold may be considered for import and export licenses.

Elsewhere, iron ore was unchanged at US$131.40/t as the markets in China remain closed.

3 mnth LME copper fell sharply yesterday and stands at around US$7,180/t and WTI fell to a 3mth low on the US government shutdown. The Feds investigation of the US banks commodity operations as a response to charges of price rigging has been widened to include Goldman and Morgan Stanley
Company News � Chalco (2600 HK) to divest Simandou stake to Chinalco.

Chalco will sell its 65% stake in Chalco Iron Ore, which is earning a 44.7% interest in the Simandou iron ore project by funding development expenditure, to controlling shareholder Chinalco for appraised value.

Simandou is majority owned by Rio Tinto (RIO LN) and the partners are planning on building a 95mtpa iron ore project that involves construction of a 670km railway across Guinea as well as a new deep water port near Conakry.

Source: Company Investec view: This transaction is good news for Chalco shareholders in our view as it reduces gearing and eliminates potentially large capex funding requirements.

We believe Chalco will receive a consideration near book value for its Simandou stake resulting in net proceeds of c.

US$0.9bn, equal to 65% of Chalco Iron Ores gross assets of US$1.84bn less debt of US$0.44bn. � Hochschild Mining (HOC LN) plans to raise US$48-96m at around 175p representing up to 9.99% of the issued shares, to fund the acquisition of the 40% interests in the Pallancata Mine and Inmaculada projects in which it currently holds a 60% interest.

The company has also arranged a US$340m bridging loan subject to the cancellation of the US$140m Suyamarca loan facility.

The companys Crespo project is to be deferred to focus on capex for Inmaculada.

The cost of the acquisition for around US$280m.

The acquisition is expected to be completed by Q4.

Source: Company � China Moly (3993 HK) to issue convertible bond.

China Molybdenum has proposed to issue up to CNY4.9bn in bonds convertible into A-shares with a six year maturity bearing a floating interest rate in order to fund the acquisition of the Northparkes mine.

Existing A-share holders will have the right to proportionally subscribe to the issuance.

Source: Company Investec view: This transaction is potentially highly accretive for H-share holders given the A-shares currently trade at a c.

200% premium to the A-shares.

However, the convertible bonds have a few interesting and potentially toxic terms including a downward conversion price adjustment mechanism if the bond trades below 85% of the conversion price and are puttable back to the company after three years if the bond trades below 70% of the conversion price. � Norilsk Nickel (GMKN RX) revises dividend policy, implications for 30% owner Rusal (486 HK).

Norilsk Nickel announced that in respect of 2013/2014 it will pay dividends equal to 50% of EBITDA but not less than US$2bn.

This follows weaker nickel and palladium prices undermining earnings.

Source: Company Investec view: Rusal had previously expected US$3bn in dividends in respect of 2013/2014. � Jubilee Platinum (JLP LN) receives notification of acceptance of its mining right application for the Tjate Platinum Mine project and is now consulting with the DMR to agree the timing and deadlines for submission of scoping and environmental studies.

The company is also issuing 11m shares to raise GBP666k as part of an agreement for the right to process the Dilokong Chrome Mine tailings for PGMs.

The company is also issuing a further 1.6m shares to raise GBP84k to YA Global Master.

Source: Company Investec View: Tjate is a long term significant PGM asset that will likely require major capital resources to develop, and could be difficult to finance, particularly in the current challenging environment for PGM miners. � Mwana Africa (MWA LN) updates Zani Kodo resource in the DRC with 2.975moz at 2.43g/t, up 13% from the February resource statement.

The indicated portion of the resource stands at 634koz at 3.33g/t.

The resources are spread across five deposits with mineralisation within relatively narrow steeply dipping veins starting close to surface.

Source: Company � Resource Capital Fund provides US$41.5m funding to MZI Resources (MZI AU).

Resource Capital Fund (RCF) will provide US$41.5m to MZI Resources for the development of the Keysbrook mineral sands project in Western Australia.

The funding comprises a royalty, convertible loan and a bridging loan.

Source: Company Investec view: MZI is targeting first production from Keysbrook in DecQ14 with production ramping up to 110ktpa heavy mineral concentrate and 91ktpa of product. � Mirabela Nickel (MBN AU) may be in default of debt covenants.

One of Mirabelas two customers, smelting company Votorantim, informed Mirabela that it was closing its facilities as of November 2013 due to the weak nickel market.

Mirabela has an US$50m loan facility with Banco Bradesco secured against the contract with Votorantim.

If Banco Bradesco chooses to enforce repayment this may trigger a cross default on US$395m of Mirabelas senior unsecured notes.

Source: Company � Nyrstar (NYR BB) enters into marketing agreement with Noble Group (NOBL SP).

Nyrstar has entered into a 4 year strategic off-take agreement with Noble Group to market and sell 200ktpa of its zinc metal produced at its European smelters.

Noble will also acquire a 1% interest in Nyrstar.

Nyrstar continues to look for a partner for the marketing of a further 150ktpa.

Source: Company Investec view: Noble replaces Glencore who had to give up its marketing agreement with Nyrstar following the Glencore-Xstrata merger. � Ivanhoe Mines (IVN TO) site visit summary.

Kipushi, DRC (68% owned) currently being refurbished and dewatered now down to 1,000m level and due to reach 1,150m by 2Q14, at which point company plans to refurbish infrastructure and confirm mineral resources that last stood at 17Mt at 17% zinc (non-JORC).

Prior to additional resources being identified plans looked at producing 230ktpa of zinc-in-concentrate with potential to expand reserves with further de-watering.

Kamoa, DRC (95% owned) a substantial grassroots project west of the "traditional" Kolwezi cluster of mines has an indicated mineral resource in excess of 700Mt at 2.7% Cu with potential to mine grades in excess of 4% for the first few years from an 18-60m thick ore body.

Underground exploitation of the mine is likely to start at 200m and progress to 1000m below surface with scoping study soon to be completed.

First production is intended around 2018 initially selling copper-in-concentrate, with the project likely to be economic without by-product credits.

Platreef, SA (aka Flatreef, 90% owned) is probably the most advanced of the projects with pre-feasibility around 50% complete.

Drilling to date has demarcated a large resource (indicated 29Moz 4E at 4.1g/t plus inferred 47Moz at 3.5g/t) with scope to increase further.

The ore body defined thus far has an average thickness of 24 meters at a 2g/t 4E cut-off with substantial nickel and copper by-product credits.

Japanese investors, invested US$290 million for a 10% stake in the project sufficient to fund an $80m 800-metre shaft soon to be developed to complete bulk sampling required for the development.

Bulk sampling permit has been received with work underway to secure licensing requirements that will lead it to obtain a mining right for which it filed an application in mid-2013.

It is intended to mine initially at 4Mtpa with scope for further expansion in phases to 12Mtpa.

Source: Ivanhoe & Investec Investec view: The company has been accelerating its pace of activity across the asset base.

In both jurisdictions (DRC, SA) local relations are of paramount importance and likely to pose challenges - albeit not insurmountable in our view.

In the DRC sourcing and marketing logistics are likely to be the next biggest challenge as well as delivery of power and general infrastructure.

Given the DRCs long tradition in mining, availability of skills should help, particularly at Kipushi. The Platreef project is likely to be the largest mining project in SA over the next few years.

Since the Marikana fatalities last year, relations between mining companies, the state and labour have become strained posing a new set of challenges for producers although not an insurmountable issue resolvable through innovative thinking and local community and state buy-in.

The Platreef project has the potential to be a "game changer" in platinum mining profitably by exploiting its thick flat ore body, but will doubtless pose new technical challenges e.g.

developing local skill set for mechanised mining. All three assets benefit from a high value per tonne of ore with Kipushi grades as high as 38-39% (almost possible to ship directly), Kamoa copper grades of 2.7% to >4% and for the Flatreef project ore worth some US$165/t at spot prices versus about $90 for Anglos Mogalakwena by our estimates.
[cid:image007.png@01CEBF45.FAD11C60] Commodities News � Gold fell through the US$1,300/oz level yesterday following US government shutdown which surprised many market participants since gold is typically a safe haven in uncertain economic times.

Physical demand from China remains weak due to the holiday period.

Source: Thomson Reuters � Glencore (GLEN LN) and Tohoku Electric Power settle thermal coal annual contract at US$85.80/t.

Glencore and Tohoku Electric Power have reportedly settled annual (September year-end) thermal coal (6,322kcal/kg, GAR) contracts at US$85.80/t, down 11% from the US$96.90/t settlement last year, and down 10% from the April 2013 settlement of US$95/t.

Source: Bloomberg Investec view: Whilst down YoY the settlement still represents a premium to spot prices which are currently US$78.65/t (NEWC). � Indonesia trying to claw back lost revenues from the US$5bn of coal that is mined illegally each year since export and consumption data indicates that 12-15% more coal annually is produced than the ministry of energy and mineral resources reports.

The lost tax revenues are estimated at around US$460m.

The country may have produced as much as 451.9mt of coal in 2012, 56mt higher than ministry estimates.

The government is considering increasing royalties on coal from 5-7% currently to 13.5% from early 2014.

Coal is Indonesias largest export earner with US$2bn per month being shipped.

Source: Thomson Reuters Investec View: Raising royalties on coal production would likely be detrimental and encourage additional illegal exports since coal producers are already suffering thin margins, so some operations could be forced to close with others taking steps to avoid exporting through official channels.

It is likely that the royalty increase proposal will be pushed back, but if not, it could lead to a lift in global coal prices as a major source of supply would be reduced.
Other economic news � Australia forecasts 17% rise in exports in the 2013/14 fiscal year as operators of mines and other assets ramp up output despite signs of slowing demand growth.

Iron ore exports of 615mt are forecast versus 527mt the previous year.

Metallurgical exports are also expected to increase to 160mt from 154mt previously.

Source: Thomson Reuters � International Energy Agency expects net oil imports to more than double for Southeast Asia by 2035, costing US$240bn at todays prices.

This would lead to imports of over 5mmbblpd from the current level of 1.9mbblpd.

Coal demand in the region is set to escalate significantly as the power sector will require US$1trillion of investment, although coal consumption could be mitigated by as much as a fifth if coal fired plants constructed were as efficient as those used in Japan today.

Source: Thomson Reuters � Expect a slow week in China.

Chinese markets are shut until 8 October for the National Day Golden Week.

Source: Investec � Mongolia to build Chinese gauge rail track linking Tavan Tolgoi to China.

Mongolias Deputy Minister for Economic Development has said that Mongolia will now build the rail line between the Tavan Tolgoi coalfields and the China border in Chinese narrow gauge not Russian wide gauge.

Source: Bloomberg Investec view: With the collapse in coal prices and foreign direct investment the Mongolian government has had to give up on its desire for a country-wide Russian gauge rail system and focus on commercial realities.

A Chinese gauge rail track will be lower cost (capex and opex) and will increase the possibility of Chinese investment.

The Mongolian government has yet to make any progress on either financing or construction of the rail link between Tavan Tolgoi and the Mongolia/China border at Gants Mod since its decision to create a unified rail plan in June 2012.
African Resources update � South Africa PMI at 8 month low at 49.1 in September in response to strike in auto sector.

Augusts figure stood at 56.5.

Source: Thomson Reuters � Kenyas annualised economic growth up 4.3% yoy in Q2, slightly slower than the 4.4% growth figure a year ago.

Agriculture, manufacturing and financial sectors drove the growth.

Source: Thomson Reuters. � Production at Freeport McMoRans (FCX US) Tenke Fungurume copper/cobalt mine disrupted by power outages.

Production at the Tenke Fungurume mine (56% Freeport, 24% Lundin Mining) in the Democratic Republic of Congo (DRC) has been reduced due to frequent power failures.

Source: Bloomberg Investec view: In July Freeport guided for 2013 sales of 450mmlbs of copper and 2mmlbs of cobalt from Tenke Fungurume.

In JunH13 sales from Tenke Fungurume totalled 224mmlbs copper and 11mlbs cobalt.

The power outages are symptomatic of difficulties of operating the DRC that requires considerable investment in power generation.
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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