🕐30.10.13 - 10:27 Uhr

INVESTEC GLOBAL NATURAL RESOURCES DAILY - MINING - WEDNESDAY 30 OCTOBER - ABG LN
, CZA LN, MML LN, ABX US, BHRB LN, SBLM LN, AR LN, FQM LN, KYS LN, EQX AU, GDO AU, FMG AU, TIG AU, 358 HK347 HK, 323 HK, 276 HK



[cid:image001.png@01CED548.37D79540] Wednesday, 30 October 2013 [cid:image006.jpg@01CED548.6531B0C0]
Snapshot � Company news highlights: African Barrick solid 3Q13 production but still some way to go, Coal of Africa funding update, Medusa Mining announces A$25m placing, Barrick Gold looks likely to raise capex estimate on struggling Pascua Lama project, Beacon Hill Q3 report, Sable Mining looking to raise US$27.1m, Archipelago Resources closes offer, First Quantum continues to second earn-in stage with Zincore Metals, Kryso Resources change of name, New Badondo exploration target from Equatorial, Gold One SepQ13 production, Fortescue Metals pursuing debt restructure, Tigers Realm Coal quarterly, Jiangxi Copper SepQ13 results, Angang Steel reports small profit in SepQ13, Maanshan Iron and Steel just above breakeven in SepQ13, Mongolia Energy US$60m convertible due in November. � Commodity review highlights: Gold producers may cut hedge books this year, US plans leverage with global development banks to limit financing for coal fired power stations, Turkey and Japan complete technical negotiations on feasibility studies, World Federation of Diamond Bourses warns that it will not stand for the passing off of synthetic diamonds as natural diamonds, China faces shortage of natural gas undermining ability to move away from coal, WTO rules against China on REEs, Russia warns Ukraine on gas supplies. � Other economic news: Japanese industrial output rises less than forecast. � African resources update: South Africas DMR draft of new mining policy is an improvement. � Market notes: FTSE futures +13 points this morning, tracking the strong performance from Asia (Nikkei +1.23%, Hang Seng +1.60%, ASX 200 + 0.28%) as investors are optimistic about the Fed announcing this evening that it will continue to buy bonds at the current rate.

There is also important US data out this evening including ADP employment and CPI plus earnings reports from General Motors, Sprint and Comcast.

Volumes may be subdued leading into the FOMC announcement. Commodity markets - gold +0.11% (US$1,346.47/oz), silver +0.67% (US$22.6833/oz), copper +0.90% (US$3.308/lb), iron ore -0.38% (US$131.30/t), platinum +0.19% (US$1,464.70/oz), WTI -0.51% (US$97.70/bbl), and Brent -0.06% (US$108.93/bbl).

Dual listed - BHP AU +0.21% (A$37.67), RIO AU +0.05% (A$63.44).

Brent futures fell to US$108.59/bbl on expectations that fresh disruptions over the weekend in exports from Libya could be short-lived.

The premium over WTI narrowed by around 40c to US$10.55.

Aluminium fell as fund-buying and short-covering looks to have dried up, with 3 month LME futures ended at US$1,883/t.

Spot iron ore fell to U$131.30/t as the spread between the 6mth and 24mth futures narrowed further.

In copper, Antaike has stated that Chinas 2014 refined copper consumption will rise by 6.5% YoY to about 8.7Mt and that the refined copper deficit will likely be about 1.9Mt as production only rises to 6.8Mt.

The company expects imports to rise in the new Shanghai Free-Trade Zone because of preferential trade and forex policies.

Finally, The WTO dispute settlement panel has issued a preliminary report to China, supporting claims by the US, EU and Japan that Chinas rare earth export tariffs breach global commerce rules. Economic data due today: US - ADP employment change (forecast 150K), CPI MoM (0.2%), FOMC rate decisions (holding at 0.25%), MBS purchase ($40bn), Treasury purchases ($45bn).

Eurozone - German CPI (flat), Spanish GDP (forecast 0.1%),Spanish CPI (0.4% harmonized), German unemployment change (flat).
Company news � African Barrick (ABG LN) solid 3Q13 production, but still some way to go.

ABQ delivered a very good 3Q with production of 165koz at cash costs of $730/oz, well ahead of consensus at 153koz at cash costs of $910/oz, for EBITDA of $65m (Consensus $44m) and EPS of 4.3cps (Consensus 0.5cps).

It has indicated that FY13E production is expected to exceed the upper end of guidance of 540-600koz at cash costs of $925-975oz.

Source: Company Investec view: This is a good result from the company and it is encouraging that it is continuing to meet operational targets, while it makes good progress on delivery of cost savings.

Our analyst does remain cautious, however, bearing in mind that FY13E guidance was a low-ball target, in our view, that 3Q all-in-sustaining-costs were $1,275/oz (just $35/oz below the received gold price) and that operating activities generated cash of $40m, well short of capex of $83m, so that ABG drew down a further $30m of borrowings.

ABG still has ample cash ($289m) but is still some way from being comfortably cash generative. � Coal of Africa (CZA LN) funding update.

CZA has announced that it has finalised an 18 month ZAR210m (US$21m) working capital facility from Investec.

The funds will be used to allow the group to continue to execute its turnaround strategy.

The loan will be made available in two tranches linked to the disposal of non-core assets.

The first 50% of the facility is available now.

Source: Company Investec view: CZAs debt package is positive for the group as it will alleviate near term concerns on the groups tight cash position.

The group is attempting to sell non-core assets Woestalleen, Mooiplaats, Opgoedenhoop and Holfontein and, assuming these assets are sold, the group should be able to repay this loan with the proceeds. � Medusa Mining (MML LN) announces A$25m placing at A$1.80/share with funds to be used to pay down existing creditors and for working capital purposes.

Yesterdays quarterly output highlighted the difficulties with the ramp up as new power cells for the new mill failed, and mined grades have been under pressure.

At the end of September the company had A$5.99m in cash and gold equivalents with US$7m drawn of a US$14m overdraft facility.

Source: Company Investec view: It is not surprising that the company is seeking to boost its capital reserves following the various difficulties it has faced in ramping up its expansion.

We look toward the start-up of the expanded plant to get the company back on track later this year. � Barrick Gold (ABX TO) looks likely to raise capex estimate on the struggling Pascua Lama project.

Last November the estimate stood at US$8.5bn, however, environmental violations in Chile have halted the development whilst a new water management system is developed.

Previous capex estimates had been below US$5bn.

Source: Thomson Reuters � Beacon Hill (BHRB LN) Q3 report highlights Phase 2A washplant installed and commissioning remedial actions identified, updated reserve statement of 16.16mt saleable material sufficient for 15 year minelife.

Phase 2B and 2C upgrades subject to senior debt finance.

During the period production reached 79kt ROM leading to 17.9kt saleable coal.

As well as facing some operational difficulties during the ramp up, the company has been struggling with poor power availability; consequently future development phases will include installing generators.

At the end of the quarter the company had US$7.6m cash, since boosted by US$19.4 in convertible loan notes of which US$4.1m has been drawn.

Source: Company � Sable Mining (SBLM LN) looking to raise US$27.1m at 9.5p/share to advance the companys Nimba Iron Ore project in southeast Guinea, including completion of a BFS.

The asset has a resource of 135.5mt at 59.4% Fe located near rail infrastructure.

Source: Company � Archipelago Resources (AR LN) offer closes.

AR has announced that the recommended cash offer by PT Rajawali closed yesterday.

Rajawali now owns 87.92% of the issued capital.

Source: Company Investec view: Following the end of several years of permitting issues, AR became a real success story.

We believe the asset is well suited in the hands of the Indonesians, in an acquisition which seems fair to AR shareholders. � First Quantum Minerals (FQM LN) continues to second earn-in stage with Zincore Metals (ZNC CN).

ZNC has announced that it has received notification that FQM has elected to proceed to the second earn-in stage for the Dolores copper porphyry project in Southern Peru, some 40km from FQMs Haquira project.

FQM has earned 30% of the project and may earn an additional 20.1% of the project by completing the second earn-in requirements.

Source: Company Investec view: Dolores remains at a relatively early stage of exploration, although the asset looks promising, hence FQMs interest.

FQM has encountered some permitting issues at Haquira but we believe that the group is committed to progressing this asset towards development in the future.

Clearly, an additional porphyry in the area could provide synergies. � Kryso Resources (KYS LN) change of name.

KYS announced yesterday afternoon that it has been renamed China Nonferrous Gold Limited.

The groups ticker will change from KYS to CNG from 1 November.

Source: Company � New Badondo exploration target from Equatorial (EQX AU).

Following incorporation of drilling results from its initial Badondo drill program, which included deep, near-surface intersections exceeding 60% Fe, Equatorial has revised its exploration target for the project.

It is now targeting enriched haematite of 370-620mt at 58-67% Fe, within a total target of 2.8-4.6bnt at 35-67% Fe.

The company is preparing for a larger scale drilling program to define a maiden resource.

Source: Company Investec view: Encouraging results from EQX, particularly the near doubling of the enriched haematite target, including a lift in the targeted grade range from 40-65% Fe to the current 58-67% Fe.

In our view, Badondo could be an important part of a greater regional consolidation, pulling together the numerous high-grade iron ore deposits in the RoC and Cameroon. � Gold One (GDO AU) SepQ13 production.

South African gold producer Gold One reported SepQ13 gold production of 71.74koz, up 5% QoQ, at a cash operating cost of US$1,044/oz (total cost of US$1,291/oz).

The company is guiding for production of 68.55koz in DecQ13 (27koz from Modder East, 32.8koz from Cooke and 8.75koz from Randfontein).

Gold One also announced that its Chinese consortium of controlling shareholders has received Chinese regulatory approval for the merger of its West Rand assets with Sibanye Gold in return for a 17% interest in Sibanye Gold.

Source: Company Investec view: Costs in South Africa under pressure from higher electricity costs and wage increases of 7.5-8% effective 1 July 2013.

Conditions precedent for the merger of assets with Sibanye Gold are expected to be met by early 2014. � Fortescue Metals Group (FMG AU) pursuing debt restructure.

FMG is requesting an extension to the maturity and reduced interest payments on its US$5bn senior secured credit facility due October 2017 which currently has a coupon of 5.25%.

FMG is pursuing the revised terms given the companys improved financial position.

Source: Company Investec view: Reporting from Bloomberg suggests FMG is proposing to pay LIBOR + 3.5% with a 4.5% floor, which would reduce interest rates by 0.75% (US$37.5m per year if fully drawn), as well as remove a number of maintenance covenants from the facility to enhance financial flexibility. � Tigers Realm Coal (TIG AU) quarterly activities report.

TIG confirmed that the feasibility study at its Project F (Amaam North) coking coal project in far-east Russia would be completed in MarQ14 with first coal production still targeted for late 2015.

Permitting and approvals are the critical path for Project F.

The company expects to announce a revised resource in DecQ13 at its larger Amaam project, which already has a 412mt resource.

TIG had cash of A$8.25m as at the end of SepQ13.

Source: Company Investec view: See our analysts latest research report on TIG, Positive pre-feasibility study dated 3 September 2013. � Jiangxi Copper (358 HK) SepQ13 results.

Jiangxi Copper reported SepQ13 earnings of CNY1.23bn (CNY2.47bn YtD) under PRC accounting, up 356% QoQ.

Source: Company Investec view: Bloomberg consensus earnings for CY13 is just CNY2.9bn, suggesting upgrades are likely particularly if copper prices hold. � Angang Steel (347 HK) reports small profit in SepQ13.

Angang reported a small profit of CNY63m in SepQ13 including a positive contribution of CNY10m from extraordinary items under PRC accounting.

Revenue was CNY19.2bn in SepQ13, up 1.3% YoY, implying a slim net margin of 0.3%.

Source: Company � Maanshan Iron & Steel (323 HK) just above breakeven in SepQ13.

Angang reported a small profit of CNY3m in SepQ13 under PRC accounting.

Revenue was CNY19.4n in SepQ13, down 0.3% YoY, and during the period Maanshan produced 476kt/490kt/468kt of pig iron/crude steel/steel products, up 7.9%/11.9%/13.9% YoY.

Source: Company Investec view: Despite growing production, Chinese steel mills are operating at breakeven and continue to have very high days receivables outstanding. � Mongolia Energy (276 HK) US$60m convertible note due in November.

Mongolia Energy has approached Sculptor Finance, the holder of HKD467m of convertible notes due on 12 November 2013 controlled by hedge fund Och-Ziff, and requested a moratorium on repayment.

The company is also assessing a comprehensive debt restructuring plan with holders of all existing convertible notes and loans.

Source: Company Investec view: Something needs to give at Mongolia Energy as the company is loss making, not currently producing coal and had debt of HKD3.5bn as at end March 2013.

We do not believe the company is in a position to repay the convertible.
[cid:image007.png@01CED548.6531B0C0] Commodities news � Gold producers may cut hedge books this year after reducing them further by 16t (529koz) in Q2 of this year.

This took the global hedge book to 3.09moz, the lowest since 2002 when records were collated.

Evidence of new hedging activity has been limited so far this year despite volatile gold prices.

Source: Thomson Reuters � US plans leverage with global development banks to limit financing for coal fired power stations abroad as part of a policy to combat climate change, only supporting such finance in the worlds poorest countries if they had no efficient or economical alternative.

It would only support such projects in richer countries if carbon capture techniques are employed.

Miners in the US have recently been protesting against Obamas policies that are claimed to be damaging to the coal industry.

Source: Thomson Reuters Investec View: Such a policy will unlikely have a material impact on the development of coal fired power plants in China where rapidly growing power demand has triggered many developments, although the government is increasingly focussed on reducing pollution.

India too is set to be a rapidly growing source of coal fired power generation. � Turkey and Japan complete technical negotiations on feasibility studies over a second nuclear power plant in Turkey estimated at US$22bn to come on stream in a decade.

The plant would produce 4.8GW located on the Black Sea at Sinop.

Turkeys power consumption has been growing rapidly and set to continue to do so with an estimated 3.5GW required each year to keep pace.

Source: Thomson Reuters � World Federation of Diamond Bourses (WFDB) warns that it will not stand for the passing off of synthetic diamonds as natural diamonds and would work with agencies to prosecute those participating in such activity.

Source: Mining Weekly � China facing shortage of natural gas undermining ability to move away from coal to heat homes and offices.

The country has been targeting pollution reduction policies, which in the north of the country is estimated to reduce life expectancy by 5.5 years versus the south of the country.

Many users have switched to gas but face difficulties with supply.

The country often uses district heating in cities, fed by coal that generates considerable pollution.

Coal provides 66.8% of the countrys energy with the government aiming to reduce this to 65% by 2017.

PetroChina indicates that it would take at least 4-5years to build up new gas supply infrastructure that would still be insufficient.

Source: Thomson Reuters � WTO rules against China on REEs.

The World Trade Organisation has judged that Chinas export restrictions on rare earth metals are incompatible with its rules.

This is the second time that Chinas use of export quotas and tariffs has been challenged - last time was in 2012 when Japan, Europe and the US brought a case.

The issue also relates to tungsten and molybdenum.

China is expected to appeal against the ruling.

Source: FT � Russia warns Ukraine on gas supplies.

Ukraine faces another shut-off of Russian gas to the country after Gazprom warned Ukraine that is must repay its overdue US$900m overdue bill.

Source: FT Investec view: This issue has wider implications as pipelines also pass through Ukraine to other European countries, and has previously led to the EU moving to be less reliant on Russian gas.

Ukraine is struggling financially and this also has a knock-on effect to key mining company, Ferrexpo (FXPO LN), which is owed cUS$300m in VAT by the government.
Other economic news � Japanese Industrial output rises less than forecast.

Japanese industrial output increased by 1.5% in September, below the median estimate of a gain of 1.8%.

Output increased by 5.4% from the previous year.

Source: Bloomberg.
African resources update � South Africas DMRs draft of new mining policy is an improvement but failed to address producers concerns that the government would force them to sell part of their output below market prices.

The revised law proposes giving the minister of mines the right to designate any mineral for local beneficiation and decide what percentage must be made available to processors.

Source: Bloomberg Investec view: While we think negotiations on this bill continue and investor-friendly amendments may result in due course, we have difficulty reconciling the states seemingly inflexible stance on beneficiation and discretion.

Simultaneously high increases in electricity costs have severely compromised the profitability of the SA chrome and manganese alloy industry - traditionally typical value-add possibilities.

It also ignores the Chinese flood of steel exports where in our view China has positioned itself to supply cheap steel to the world hence eroding much of any advantage of low cost feed to SA.

We also note that some 70-80% of SAs mineral wealth lies in PGMs and it is not clear how the new law can help maximise value within the mining space given that sales are in the form of refined metal - and any further value addition its up to industry and outside the scope of mining.
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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