🕐02.12.13 - 11:54 Uhr

INVESTEC GLOBAL NATURAL RESOURCES DAILY - MINING - MONDAY 02 DECEMBER - POLY LN,
AUE LN, 0267 HK, SNR LN, CW AU, RRS LN, 1393 HK, PDN AU, FCX US



[cid:image001.png@01CEEF36.20040590] Monday, 02 December 2013 [cid:image006.jpg@01CEEF36.38077B90]
Snapshot � Company news highlights: Polymetal enters into new US$400m facility, Aureus Mining update on New Liberty project shows progress on construction, CITIC Pacific loads first iron ore ship from its magnetite mine in Western Australia, Strategic natural Resources update on liquidation notice, Caravel Minerals enters into LOI with First Quantum Minerals, Randgold CEO talks about the issues facing the gold industry, Hidili disposes of lithium deposit, Paladin provides update on the sale of a minority interest in Langer Heinrich, Fatality at Grasberg mine. � Commodity review highlights: China limitation on size of coal mines, Australian gold production up in the third quarter, Chilean copper output up 6.5% YoY and 3.8% MoM in October to 508Kt, Tin market deficit expected to grow from 7.4Kt this year to 12.4Kt next according to industry group ITRI, Chinese companies reported to be seeking cheap overseas coal assets, S&Ps GSCI spot index of 24 raw materials fell in December 83% of the time since 1971. � Other economic news: The good news and the bad news: Australian Bureau of Statistics mining report, European energy prices expected to remain up to three times higher than in the US for the next 20 years, HSBC China PMI at 50.8 in November, Ukraine prepares for new protests. � African resources update: Five East African nations agree to common currency. � Market notes: Early openings in Asia are mixed, with Japan slightly higher thanks to a weaker yen and Australia dragging on weakness in the miners and banks.

HK shares closed at their highest in 31 months on Friday, as H-shares had their biggest monthly gain in nearly 2 years.

Mainland shippers led the charge on reports of a plan to rejuvenate the sector.

Over the weekend Chinas CSRC has lifted a 14-mth ban on IPOs and streamlined the application process to make the financial system more market-based.

There are reportedly around 50 of 700 Chinese companies waiting to list that will be ready by end of Jan 14.

The CSRC has also decided to launch a trial for preferred stocks to meet actual demand.

In Japan, a Nikkei survey has shown that companies remain eager to invest and are planning the biggest YoY rise in capital spending since the global financial crisis, 13.1% rise to JPY25.9tn.

Finally, it is kicking off again in Thailand again as the opposition demonstrators have given the government 2 days to leave office.

Watch this space. Commodity Markets: Gold is down slightly this morning after rising to US$1,251/oz on Friday.

Losses for November were >5% per cent and around 25% so far this year.

Traders are reportedly stating that the next resistance levels for gold are at US$1,255/oz and US$1,290/oz to the upside, while support stands at US$1,220/oz.

Sri Lanka has scrapped its 100% surcharge on gold imports and cut import duty with immediate effect and Chinas net imports from Hong Kong reportedly climbed to the 2nd highest level on record in October.

3mth LME copper closed at US$7,055/t and iron ore closed unchanged at US$136.40/t.

Brent fell for a 2nd day, reducing its premium over WTI on a strengthening USD.

WTI capped a 3rd monthly decline, the longest losing streak in almost 5 years. Economic Data due today: US: Nov Market PMI (54.3 fcst), Nov ISM Manufacturing (55.1 fcst), Oct Construction Spending (0.4% fcst).

US VP Biden visits Japan, China, South Korea.

Eurozone: UK - Halifax House Prices Nov (0.8% fcst), Nov PMI Manufacturing (52.5 fcst), Eurozone - Nov PMI Manufacturing (51.5 fcst), Germany - Nov PMI Manufacturing (52.5 fcst), France - Nov PMI Manufacturing (47.8 fcst), Italy - Nov PMI Manufacturing (50.8 fcst), Budget Balance Nov (-EUR11.5bn prev), JAPAN: 3Q Capital Spending (1.5% Actual, 3.6% fcst), Company Sales 3Q (0.8% Actual, -0.5% prev), Nov Vehicle Sales (17.3% prev) BOJ Governor Kuroda gives speech and press conference in Nagoya, AUSTRALIA: Oct Building Approvals (-1.8% Actual, -5.0% fcst), Nov Commodity Index AUD (88.1 prev)
Company news � Polymetal (POLY LN) enters into new $400m facility.

The five year facility with JSC Sberbank of Russia will be used to pay down existing loans and to provide additional flexibility.

The facility is payable in five years and pushes the companys debt maturity profile out to more than three years.

Source: Company, Bloomberg Investec view: In its last reported financials (1H13), POLY had cash of $21m and total borrowing of $1,316m ($685m of this current current) for net debt/EBITDA of 1.6x.

The new facility provides it with greater flexibility, while it should releasing additional cash through drawdown if its inventories.

Like many companies in the sector, however, it still remains under pressure from a moribund gold price. � Aureus Mining (AUE LN) update on New Liberty project shows progress on construction of the mine with some items such as the ball mill ahead of schedule.

Source: Company � CITIC Pacific (0267 HK) loads first iron ore ship from its long delayed and over budget US$8bn magnetite iron ore project in Western Australia.

The project is Chinas biggest investment in Australia and was originally due to start up in 2010.

The first of two concentrator lines will produce 8mtpa of concentrate one third of the eventual target.

Source: Thomson Reuters � Strategic Natural Resources (SNR LN) update on liquidation notice.

On 29 November, SNR announced that its 74% owned subsidiary Elitheni had received a liquidation notice.

The company now states that the notice was for significantly more than the legitimate claims of creditors and Elitheni is taking action in South Africa.

The liquidation notice is due to be heard on 10 December.

If the court finds that all claims are due and payable immediately, in the absence of further capital, the court will place Elitheni into liquidation.

Source: Company Investec view: SNR represents another casualty of the challenging mining market which is seeing many juniors on the cusp of production struggling to raise the necessary additional funds. � Caravel Minerals (CW AU) enters into LOI with First Quantum Minerals (FQM LN).

CW has entered into a non-binding letter of intent with FQM whereby FQM will acquire a 12.9% stake in the company for A$1.25m.

The two companies will enter into a technical cooperation agreement which will enable CW and FQM to accelerate the exploration and evaluation of the Calingiri copper molybdenum project in Western Australia.

Source: Reuters Investec view: FQM is a very active company, often making small strategic investments in promising juniors which potentially hold significant deposits. � Randgold (RRS LN) CEO talks about the issues facing the gold industry.

Mark Bristow told investors in Toronto on Friday that the gold industry was in a terrible state and that one of the key reasons for this is that the industry is not replacing its mined ounces with ounces of the same quality and it is only if grades are kept high that operating costs will be reduced.

In the past 12 years, the gold industry has not even replaced 50% of the ounces mined.

Looking back on the gold sector over the last few years, there has been relatively consistent production and an increasing gold price, but gold miners did not make as much money as the market expected.

Source: Mining Weekly � Hidili (1393 HK) disposes of lithium deposit.

Chinese coking coal producer Hidili will dispose of a lithium deposit to Sichuan Guoli for CNY414m (US$67m).

The lithium deposit has estimated reserves of no less than 510kt and Hidili expects to record a gain on disposal of CNY103m.

Source: Company Investec view: Any cash injection will be welcomed by the company with the yield to maturity on HIdilis debt at 30% currently. � Paladin (PDN AU) provides update on the sale of a minority interest in Langer Heinrich.

Paladin has announced that it remains in discussions with a number of parties interested in acquiring a minority interest in the Langer Heinrich uranium mine in Namibia.

The company did not however provide any timetable for the proposed sell down.

Source: Company � Fatality at Freeport McMoRans (FCX US) Grasberg mine.

There has reportedly been a fatality at the Grasberg underground copper/gold mine in Indonesia following a rockfall.

The fatality follows the May 2013 tunnel collapse that resulted in 28 fatalities and the suspension of mining operations.

Source: Reuters
[cid:image007.png@01CEEF36.38077B90] Commodities news � China limitation on size of coal mines.

China is to raise the threshold on new coal mines and halt approval on those that do not meet specified requirements, in the latest effort to regulate the oversupplied sector.

New mines with output below 0.3mtpa will no longer gain approval, says a circular from the General Office of the State Council.

Last weeks circular also promised to strengthen quality checks on imports and improve the exit mechanism to allow swift closure of exhausted mines.

Source: China Daily � Australian gold production up in the third quarter, costs down: Surbiton Associated.

The consultancy indicated that Australian gold output rose to 69.5t from 67t in the previous quarter, up 12% YoY.

A notable feature was a "substantial" decline in cash costs, as companies increased ore grades and focussed on cost reduction.

Source: MiningNews � Chilean copper output up 6.5% YoY and 3.8% MoM in October to 508kt following improvements at various mines including a strong recovery at Collahuasi, for which output is up 43% YoY in the first 9 months.

Chile is expected to produce 5.7mt of copper this year up 5% YoY and do a historic high.

Source: Thomson Reuters Investec View: Higher copper output statistics are supportive of an easing supply demand balance that has led to weaker prices over the course of the year. � Tin market deficit expected to grow from 7.4kt this year to 12.4kt next according to industry group ITRI, with prices likely to rise to an average of US$26,000/t.

Electronics demand is expected to improve in the year ahead with no new meaningful supply scheduled.

Source: Thomson Reuters � Chinese companies reported to be seeking cheap overseas coal assets.

Companies are seeking higher quality coal sources in response to government pressure to tackle pollution.

The need for higher quality coal could drive a greater price differential between different qualities.

Chinas thermal coal imports are forecast to rise 17% over five years to 281mt and 23% to 107mt for metallurgical coal according to ABARE.

With global coal prices depressed, then there should significant opportunities for acquisitions.

Source: Thomson Reuters � S&Ps GSCI Spot Index of 24 raw materials fell in December 83% of the time since 1971.

If history is a guide, Standard & Poors analysis demonstrates that the commodity slump which has spurred bear markets in everything from gold to corn this year is likely to deepen by the end of December.

Source: Bloomberg
Other economic news � The good news and the bad news: Australian Bureau of Statistics mining report.

The ABS quarterly report cited the third consecutive quarter of an upward trend in gross operating profits in mining, but a 8.5% QoQ decrease in exploration spending to $612m and a 31.4% decline YoY.

Gold was the hardest hit commodity, down 11.9% in exploration spending.

Source: MiningNews � European energy prices expected to remain up to three times higher than in the US for the next 20 years unless domestic supplies and greater efficiencies can be achieved according to the IEA.

This will undermine the regions competitiveness.

Source: Thomson Reuters � HSBC China PMI at 50.8 in November.

The HSBC China manufacturing PMI of 50.8 was down marginally from the 50.9 reported in October but was above the preliminary November PMI reading of 50.4.

The HSBC PMI number was below the official PMI of 51.4, unchanged from October.

Source: Business Standard � Ukraine prepares for new protests.

Many protestors camped out in Ukraines capital, Kiev, last night preparing for new demonstrations demanding that President Viktor Yanukovych steps down.

Source: BBC Investec view: These protests are due to the Presidents refusal to sign a deal with the EU which would bring the country closer to the west.

These issues are making Ukraine a difficult place to invest, especially given the downgrading of sovereign bonds by rating agencies, which increases the cost of borrowing in the country.
African resources update � Five East African nations agree to common currency.

The leaders of Kenya, Uganda, Tanzania, Rwanda, and Burundi have signed a protocol for the adoption of a common currency in 10 years, with the aim of offering businesses greater freedom to trade and invest.

Source: Business Day
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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