🕐11.11.13 - 10:00 Uhr

INVESTEC GLOBAL NATURAL RESOURCES DAILY - MINING - MONDAY 11 NOVEMBER - GEM LN,
LMI LN, AUE LN, KAZ LN, 1878 HK, FMG AU, GUF AU, ABU AU, CCJ US, PDN AU, FXPO LN, AMS SJ, VED LN



[cid:image001.png@01CEDEB5.0E7E5410] Monday, 11 November 2013 [cid:image006.jpg@01CEDEB5.2A6FF430]
Snapshot � Company news highlights: Gemfields research note, strong performance from Lonmin, new resources from Aureus, Kazakhmys ENRC update, resource increase for Sable, SouthGobi delays SepQ result, Fortescue completes $5bn credit restructuring, Guildford to issue convertibles, ABM trial processing going well � Commodity review highlights: Chinese rebar futures fall, lower Chinese iron ore imports but still at high levels, new 2000t gold vault in Shanghai, Indonesian coal price up, Kazakhstan halts uranium expansions � Other Economic News: China plenary session concludes tomorrow, Franklin Templeton takes $5n Ukrainian debt, NGOs taking PNG to court over Nautilus, BIS Shrapnels Mining in Australian report � African Resources Update: Amplats workers held underground, Zambia cancels Vedanta work permit � Market notes: FTSE futures +33.5 points.

Following a strong US non-farm payrolls on Friday US markets surged (Dow +1.08%, S&P +1.34%).

Asian markets are following suit (Nikkei +1.30%, Hang Seng +0.97%, ASX200 -0.25%) with the Australian market cooling off in the afternoon as investors locked in profits from the recent stellar run in the banking sector.

Tapering speculation continues to mount following Fridays jobs announcement and wed expect to see gold remain under pressure, although the bulk of economists still forecast the tapering delay until March.

In China, industrial production data beat expectations (10.3% vs.

10%) and inflation came in a 3.2% versus the governments 3.5% target.

In China, the Plenary session of the Communist Party has concluded with reforms expected to be announced shortly.

Speculation that that the one child policy will be eased, rural land rights will be changed, more urbanisation and local government bond issues are the most talked about reforms - most of which are generally commodities market positive - worth keeping an eye out for. Commodity markets - gold -0.13% (US$1,286.83/oz), silver -0.51% (US$21.40/oz), copper +0.22% (US$3.2615/lb), iron ore -0.73% (US$135.90/t), platinum +0.00% (US$1,442.90/oz), WTI +0.30% (US$94.88/bbl), and Brent +0.39% (US$105.53/bbl).

Dual listed - BHP AU -0.11% (A$37.91), RIO AU -0.28% (A$65.07).

Gold had its biggest 1 day fall in a month on Friday after the strong US data.

Spot fell through US$1,300/oz to US$1,285.06/oz with December futures also down significantly as net long positions dropped 13% to 87,689 futures in the US.

Spot has held steady this morning in early Asian trade, recovering slightly, but still weak as trading reports show that India and China have not stepped up purchases on price dips recently, as they are apparently waiting on more clarity on Fed monetary policy.

Iron ore fell to US$135.90/t on Friday amid concerns over potential credit curbs for the steel industry.

Brent rose by nearly US$2/bbl as short positions were covered going into the weekend and as many waited for an update on the talks with Iran.

Futures closed at US$105.12/bbl after John Kerry said that there are "some important gaps" in reaching an accord that would ease sanctions against Irans oil exports in exchange for concessions on its nuclear work.

WTI rose to US$94.60/bbl, but was tempered by the better-than-expected jobs data. Economic data due today: US - no data.

Eurozone - Sept Italian industrial production MoM (forecast 0.2%).
Company News � Gemfields (GEM LN) research note out reviewing operation following continued increases in emerald prices being secured and progress across portfolio, notably the Montepuez ruby mine where the company is building up a ruby and corundum stockpile ahead of a planned auction in 1H14 that could give an indication of the potential value to be unlocked from the asset that would be a major game changer.

The Faberge business is now fully integrated with the company aiming to get it to a break even position by the FY16E.

The company has yet to resolve the Zambian governments stance on emerald sales outside of the country and consequently is holding back on committing to underground development for the time being, however, there is open pit potential at other sites near to the Kagem mine that could be developed in time.

Source: Investec � Lonmin (LMI LN) year end results shows strong operational performance well ahead of guidance as the recovery plan has delivered results.

The company produced 751koz Pt in concentrate (Investec 725koz), and sales of 696koz Pt (Investec 669koz).

Underlying EBITDA stood at US$321m with attributable profit of US$109m pre-exceptionals totalling of US$67m with stronger than expected sales lifting results.

The company finished with net cash of US$201m.

Guidance for the year ahead stands at sales over 750koz (Investec 766koz) platinum, unit costs to rise by less than inflation and capex of US$210m.

Source: Company Investec View: This has been a transition year for the company following last years refinancing.

However, the company has yet to settle wages and faces a volatile PGM market and South African rand.

Thankfully the company has a strong balance sheet to help manage unexpected surprises. � Aureus Mining (AUE LN) resource statement.

AUE has announced maiden resources for its Ndablama and Weaju projects within the 100% owned Bea Mountain mining licence in Liberia.

AUE has an inferred resource of 451,000oz at 2.1g/t Au at Ndablama and of 178,000oz at 2.1g/t Au at Weaju.

Source: Company Investec view: AUE now has gold resources of approximately 2.4Moz in the Bea Mountain area.

Clearly there is more work to do in order to ascertain whether there will be other mines at these two sites, but todays early indications, particularly at Ndablama, are encouraging and we continue to believe that AUE has a prospective land package in Liberia. � Kazakhmys (KAZ LN) ENRC update.

KAZ has announced that, following the settlement of the ENRC deal, it has now received �887m cash and 77m KAZ shares which it will cancel.

KAZ will now have 458.4m shares on issue.

Source: Company Investec view: Todays news is positive as it finally separates the group from ENRC which we believe is extremely positive.

KAZ is now also around US$1.4bn richer, and these funds will be very useful to the group in building its two new mines. � Sable (SBLM LN) lifts Nimba resource by 32%.

The resource has been increased from 136mt to 178mt at 59% Fe (75% indicated, 25% inferred), getting close to the companys exploration target of 200mt.

Additional drilling is underway, aimed at expanding and upgrading the resource base, with a PFS due for completion by the year end.

Source: Company � SouthGobi (1878 HK, SGQ CN) delays SepQ13 results.

SouthGobi delayed filing SepQ13 results in order to restate prior financials using more conservative revenue recognition accounting.

Management did however disclose that SouthGobi continued to be cashflow negative, with cash falling US$3.2m QoQ to US$16.1m, and production was back in full swing at 1.13mt in SepQ13.

Source: Company Investec view: The accounting issue has no bearing on the companys future in our view given it is backwards looking and a legacy from pre Rio Tinto management.

SepQ13 data appeared to be better than our analysts forecasts but cant be fully judged without more details.

We continue to avoid SouthGobi given the challenges the company faces due to low semi-soft coking coal prices, a low cash balance and unsustainable selective mining practices.

See Revenue recognition changes dated 11 November 2013 by Matthew Whittall and Leavitt Pope for further details. � Fortescue (FMG AU) completes US$5bn credit facility restructuring.

Australian iron ore producer Fortescue has completed restructuring its US$5.0bn senior security credit facility resulting in the interest rate reducing by 1.0% to 4.25% (LIBOR with a 1% floor + 3.25%), which will save US$50m per annum, as well as extending maturity of the facility by c.

2 years to June 2019.

The facility margin will fluctuate depending on the companys debt to EBITDA ratio, potentially reducing by a further 0.50% if it decreases to beneath 2.5x.

Source: Company Investec view: This is a good outcome as the rate reduction exceeded initial media reports that a 0.75% rate improvement was proposed and shows the financial benefits of FMG entering into deleveraging mode. � Guildford Coal (GUF AU) to issue convertible bond.

Mongolian coal explorer Guildford Coal has entered a binding term sheet with hedge fund OCP Asia totalling US$65m comprising convertible bonds due 2015 and amortising notes due 2016 with detachable warrants.

Proceeds will be used to refinance US$40m of existing convertible debt and meet additional capital requirements until the companys Baruun Noyon Uul mine begins sales in MarQ14.

Source: Company Investec view: GUF is targeting production of 3mtpa from its North Pit mine and 2mtpa from its East Pit mine.

We believe the economics of these projects are likely to be marginal given the current low pricing environment for unwashed hard coking coal product on the Mongolia/China border. � ABM Resources (ABU AU) trial processing continues to go well.

Australian gold miner ABM provided the market an update indicating that trail processing at Old Pirate continues to go well with 5,067t of ore now processed resulting in 2,178oz of gold production with a 91.1% recovery.

Old Pirate has a resource of 1.88mt at an impressive grade of 11.96g/t gold.

Source: Company Investec view: As trial processing passes the halfway point of the 10kt ore program, it appears likely that ABM will be ready to advance its low capex, high grade project into full scale development.
[cid:image007.png@01CEDEB5.2A6FF430]
Commodities News � Chinese rebar futures fall on property market tightening concerns.

May 2014 rebar futures fell as much as 0.8% to CNY3,633/t, the lowest level since 31 October, as the China Securities Journal reported that a nationwide property tax was being proposed starting in 2015.

Source: Bloomberg � China iron ore imports fall in October.

China imported 67.8mt of iron ore in October, a 12% MoM retreat from the record rate in September but up 20% YoY.

Source: Bloomberg Investec view: The 799mtpa import rate was robust in our view, particularly given the golden week holiday during the period. � New 2,000t gold vault facility in Shanghai.

Logistics and precious metals storage firm, Malca-Amit Global, has opened a 2000-tonne gold vault in Shanghais free trade zone, in anticipation of rising Chinese demand.

Demand in China is set to exceed 1,000t this year, according to the World Gold Council.

Global 2Q13 demand was 856t, with two thirds of this in jewellery.

India and China together accounted for almost 60% of jewellery demand and around 50% of total bar and coin demand.

Source: Reuters, MiningNews, WGC � Indonesian HBA increases MoM to US$78.13/t.

Indonesias benchmark HBA thermal coal price index increased US$1.52/t MoM to US$78.13/t (FOB), the highest level since July 2013.

Source: Inside Coal � Kazakhstan halts uranium expansions.

The CEO of Kazakh state nuclear company Kazatomprom said the company has put the brakes on implementing uranium output expansions given the poor pricing environment and that he expects Kazakh production in 2014 to be flat on the projected 2013 level of a bit more than 21kt.

Source: Bloomberg Investec view: Supply discipline from Kazakhstan, the worlds fastest growing and largest uranium producer (c.

37% of global mine production), is welcome news for the beleaguered uranium market and will benefit companies Cameco (CCJ US) and Paladin (PDN AU).

The spot uranium price has languished at c.

US$35/lb, below the lows in 2008-09, as the closure of Japanese reactors has created an overhang in the uranium market.
Other economic news � China plenary session to conclude tomorrow.

Top Communist Party leaders are currently meeting in a four day conference that will lay out a blueprint for future policy.

A statement summarising the proposed reforms will be released when the plenum concludes tomorrow.

Source: Bloomberg Investec view: Theres plenty of speculation and uncertainty as to what will be reformed but easing of the one child policy; changing rural land rights and hukou, further urbanisation measures and allowing local governments to issue bonds seem to be the most talked about. � Franklin Templeton takes US$5bn in Ukraine debt.

US fund manager, Franklin Templeton, has bought almost US$5bn in Ukrainian international debt, equating to nearly 20% of the countrys outstanding government bonds.

The country faces a funding and currency crunch and it is believed that it is only a matter of time before there is a trigger point.

Source: FT Investec view: We can see positives in almost any resolution to the current Ukraine situation for iron ore miner Ferrexpo (FXPO LN) which is an important Ukrainian business and is currently owed cUS$300m in VAT which the government cannot afford to repay.

While we believe the market is assuming that FXPO does not get its money back, there could be a pleasant surprise ahead as, if the country is bailed out, we believe it will have to, at least in some way, repay its creditors.

A devaluation of the currency would have a positive impact on FXPOs operating costs which are largely local currency related, as opposed to revenue which is dollar denominated. � NGOs taking PNG to court over Nautilus.

An alliance of NGOs has pledged to take the PNG government to court over the worlds first ocean bed copper-gold mine.

The groups are mounting a legal challenge to revoke a government licence to Nautilus Minerals (NUS CN), which plans on mining at an initial rate of 1.2-1.3mtpa to produce 80ktpa copper and 150kozpa gold.

The NGOs argue that the potential environmental impact of the mining is not sufficiently understood, given that seabed mining has never been done before.

Source: MiningNews � Australian mining boom - "not the beginning of the end, but the end of the beginning": BIS Shrapnel.

In its annual Mining in Australia report, the economic forecaster expects mining production to grow 41% over the next five years, led by LNG and iron ore, with mining as a share of GDP to rise from 18.7% to 19.8%.

However, mining investment is to fall 20%, creating a divisive future for a number of mining sectors, with suppliers and contractors being hit while production booms.

Overall employment is expected to fall 12% over the next five years, despite operational mining employment expected to rise 11%, representing a sharp drop in mining-related construction employment.

Source: MiningNews
African Resources update � Anglo American Platinum (AMS SJ) mine workers held underground.

2,300 employees at AMSs Dishaba mine in Limpopo province have been on an underground strike since yesterday morning, and some are being held against their will.

The workers are demanding as halt to the suspension of an AMCU shop steward.

Source: Bloomberg. � Zambia cancels Vedanta (VED LN) work permit.

Zambia has upped the ante by reportedly cancelling the work permit Vedantas (VED LN) CEO for "being very arrogant".

This comes as the company announced 1,529 job cuts at its Konkola Copper Mine unit after the President threatened to cancel the companys license if it dismissed any employees.

Source: Bloomberg Investec view: It is becoming increasingly difficult for mining companies to make economic decisions in isolation as there is a broad base of stakeholders that must now also be considered, with governments playing an increasing role, as has recently been seen in South Africa.

However, investment capital is global and governments need to be cautious that their involvement does not impact the long-term attractiveness of their respective countries as investment destinations.
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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