[cid:image001.png@01CEF0C7.4C382870] Wednesday, 04 December 2013 [cid:image006.jpg@01CEF0C7.5A8B9BA0]
Snapshot � Company news highlights: Gold sector note published today, Moodys places First Quantum Minerals ratings on review for downgrade, Base Resources commencement of concentrate processing, Beacon Hill agreement to acquire up to 70% interest in an exploration licence, Potash Corp of Saskatchewan to cut 18% of its workforce, Cokal receives nonbinding conditional debt funding offer, G Resources commits to 25% payout ratio, Equatorial resource increase, Atlas Iron announces new iron ore contracts. � Commodity review highlights: Indian gold smuggling surges as government gold import policies limit throughput through official channels, Copper output halted at Codelcos Chuquicamata mine following worker protest for higher pay, European coal futures at 14 month low in November to 77Mt, De Beers to offer clients opportunity to bid on future diamonds supply, iron ore hits three month high of US$138/t, Vale points to a turning point for nickel, Gold hits new lows � Other economic news: Brazilian economy grows less than expected, South Africas current account deficit widens � African resources update: Ethiopia seeks credit rating � Market notes: FTSE futures up 10 points.

Further concerns regarding tapering in the US pushed markets down overnight (Dow -0.59%, S&P -0.32%) and left Asian markets mixed (Nikkei -2.17%, Hang Sang -0.53%, ASX 200 +0.34%).

Markets are set to remain cautious ahead of the ECB and BOE meetings tomorrow however the better than expected manufacturing data out of the US will most likely keep a lid on moves for the remainder of the week. Commodity markets - gold -0.33% (US$1,219.25/oz), silver -0.17% (US$19.0955/oz), copper +0.33% (US$3.177/lb), iron ore +1.02% (US$138.20/t), platinum -0.28% (US$1,352.00/oz), WTI +1.19% (US$97.18/bbl), and Brent +0.06% (US$112.69/bbl).

Dual listed - BHP AU +0.96% (A$36.80), RIO AU +1.22% (A$66.29).

gold futures fell hard again overnight on concerns over Fed tapering.

Although spot prices have recovered a little this morning to US$1,223.49/oz, futures sank to US$1,214.60/oz in the session, the lowest level since July.

The next technical & psychological support levels for gold remain US$1,220/oz and US$1,215.45/oz.

Of note as well, data from the US Mint showed sales of gold American Eagle coins fell to 48Koz in November, down from 136.5Koz in November 2012.

Silver and platinum followed suit, falling to US$19.065/oz and US$1,335.80/oz respectively.

Looking at oil, and WTI gained the most since September after TransCanada Corp (TRP CN) said it will begin operating the southern leg of its Keystone XL pipeline to the Gulf Coast in January 14.

January futures rose 2.4% to US$95.79/bb and sharply narrowed the discount to Brent as January futures closed at US$112.45/bbl.

Russia is reportedly planning on boosting output to meet its export commitments to Asia & Europe and sees "no scope" for coordinating with OPEC, whilst Iran and Iraq are reportedly giving notice to OPEC at its latest meeting that others "will need to give way" to make room as they both intent to raise output by 1Mbpd apiece.

Finally, iron ore rose 1.02% overnight to US$138.20/t post the comments from Rio. Economic data due today: US - MBA mortgage applications, ADP employment change (forecast 170K), trade balance (-$40bn), ISM non-manufacturing composite (55.0), Oct new home sales (429K).

Nov PMI services - Italy (50.4), France (48.8), Germany (54.5), EC (50.4), UK (62.0), EC retail sales Mom (flat).
Company news � Gold sector note out today.

The gold price continues to face headwinds (fallen from $1,700/oz at start of year to $1,220/oz currently), most notable being likely Fed tapering, exacerbated by the Indian government clamp down on physical gold imports.

The gold market is rapidly becoming increasingly reliant on Chinese demand and our concern is that this may not be enough.

Todays note (Running out of reasons to hold gold) looks at the larger gold companies under our coverage: Randgold (RRS LN), Centamin (CEY LN) and African Barrick (ABG LN), under a range of gold price scenarios.

Our analyst still sees value under our gold price assumptions, but not at the current spot gold price of c.$1,220/oz.

Our ongoing recommendations are therefore also reliant on a gold price recovery.

Source: Investec � Moodys places First Quantum Minerals (FQM LN) ratings on review for downgrade.

Yesterday, Moodys placed all the ratings of FQM (currently Ba3) on review for downgrade following the disclosure by the company that a dispute has arisen with certain bondholders who are claiming that a breach of the terms has occurred on bonds totalling nearly US$2bn.

The review is driven by the potential consequences for FQMs liquidity position.

Source: Moodys Investec view: This news could be negative for FQM if a ratings downgrade results in higher borrowing costs in the future, especially in terms of major capex programmes such as Cobre Panama.

FQM has sought legal advice from two leading law firms, and continues to dispute that any default has occurred. � Base Resources (BSE LN) commencement of concentrate processing through mineral separation plant (MSP) at Kwale project with first production of ilmenite and rutile.

A small shipment is planned for this month.

Construction of the zircon circuit of the MSP is in final stages of construction with commissioning expected in January.

Source: Company � Beacon Hill (BHRB LN) agreement reached to acquire up to 70% interest in an exploration license in Tete province of Mozambique with potential for pig iron mineralisation for which the company sees synergies with its coking coal operations.

The project could also provide a source of magnetite to be used in the companys coal washing process.

Beacon hill can spend US$200k over 12 months for a 20% stake in the license, thereafter it can take its stake to 51% if a maiden JORC inferred resource is completed within 36 months rising to 70% if a DFS is completed within 48 months.

Source: Thomson Reuters � Potash Corp of Saskatchewan (POT US) to cut 18% of its workforce.

POT said yesterday that it plans to close a Canadian potash mine, reduce output at another and stop a processing mill.

The industry has been challenged since Uralkali quit a sales accord with its Belarusian competitor.

Source: Bloomberg Investec view: Such views are not surprising.

We note that in Q3, sales volumes for Canpotex, of which POT is the largest member, were down 20%, and the price was down 26% YoY. � Cokal (CKA AU) receives nonbinding, conditional debt funding offer.

Indonesian coking coal exploration company Cokal announced that it has received a nonbinding, conditional debt funding proposal for a USD150m debt facility from a consortium led by hedge fund Platinum Partners.

Proceeds would be used to develop Cokals 2mtpa BBM coking coal project (60% CKA).

Source: Company Investec view: Securing funding to develop BBM would be a significant positive for Cokal, in our view.

It is unclear that Platinum Partners proposal is the full solution however, given it is only for a debt facility and additional equity may be required.

Moreover, it is unlikely to come cheaply and deal completion is far from certain if Platinum Partners prior deals are any indication.

Platinum previously announced a series of deals with Asiasons (ACAP SP), Blumont Group (BLUM SP) and LionGold (LIGO SP) that were eventually scrapped following share price collapses and at least one of which included a convertible bond with a potentially downward spiralling conversion price that readjusted daily to a discount to VWAP.

Our analysts assume that Cokal raises USD40m of equity at AUD0.18/share and c.

AUD70m of debt financing is available to develop BBM with construction starting in JunH14. � G-Resources (1051 HK) commits to 25% payout ratio, changes fiscal year to Dec YE.

Indonesian gold miner G-Resources has committed to a dividend payout ratio of not less than 25% of NPAT starting from the year ending December 2014 onwards.

The company will also change its financial year end to December from June, bringing its reporting period in line with Hong Kong listed peers.

Source: Company Investec view: We view G-Resources commitment to pay a dividend as a marginal positive.

The new policy implies a 1.8% dividend yield in CY14 based on our analysts earnings forecasts and 25% payout ratio. � Equatorial (EQX AU) resource increase.

Equatorial Resources announced an increase in hematite iron ore resources by 78% to 182mt at 35.7% Fe at its Mayoko-Moussondji project in the Republic of Congo.

Total resources at Mayoko now stand at 917mt at 31.4% Fe Source: Company Investec view: Metallurgical testing conduction by Equatorial suggests that the hematite resources at Mayoko can be upgraded to a 64.1% Fe product.

Equatorial is targeting to develop Mayoko into a 2mtpa mine that leverages existing infrastructure with FOB operating costs of USD41/t based on a scoping study completed in July 2013.

See our report 700mt gorilla missing in West Africa dated 19 November 2013 for more details. � Atlas Iron (AGO AU) announces new iron ore contracts.

Australian iron ore producer Atlas Iron announced the signing of a number of new iron ore sales contracts referenced to the spot market price for 0.4mtpa-1.2mtpa for between one and three years in duration.

Atlas has now contracted 60% of anticipated 2014 production and expects to contract an addition 20% shortly with the remaining 20% to be allocated to spot market sales.

Source: Company Investec view: Interestingly, Atlas indicated that quality discounts has reduced materially in the new contracts.

This is part of a broader trend in our view with the cost per unit of iron in lower grade (58% Fe) iron ore increasing relative to higher grade material (62% Fe) over the last several years.
[cid:image007.png@01CEF0C7.5A8B9BA0] Commodities news � Indian gold smuggling surges as government gold import policies limit throughput through official channels.

As much as 150-200t could be snuck into the country illegally this year according to the World Gold Council.

Apparently whistle blowers on smugglers can get a bigger reward in India than those who help catch cocaine and heroin smugglers.

Source: Thomson Reuters � Copper output halted at Codelcos Chuquicamata mine following worker protest for higher pay.

The mine produced 237kt of copper in the first 9 months of the year, down 5% yoy.

Major capital spend is underway to move mining operations underground.

Source: Thomson Reuters � European coal futures at 14 month low in November to 77mt following record September and October after a trading house took a large physical position to support another position in the futures market which led to activity dropping after positions were closed out.

A warmer than expected January and February being forecast is undermining demand for new coal futures.

South African cargoes are reported at around US$83.5/t, with Australian prices for January at US$85/t.

Source: Thomson Reuters � De Beers to offer clients the opportunity to bid on future diamond supply in addition to current spot auctions, enabling clients to plan more effectively and meet agreements with their customers.

The purchase price for the required volume of rough diamonds would be determined by a customers bid relative to the spot price for the same type of goods at auction when the contract matured.

Source: Thomson Reuters � Iron ore hits three month high of US$138.2/t cfr China yesterday with market participants speculating on US$140/t soon being achieved.

Source: Thomson Reuters Investec view: Iron ore prices have been surprisingly strong during a period where many had assumed prices would be weaker.

Stockpiling ahead of winter may be contributing toward the stronger demand. � Vale points to turning point for nickel.

The CFO for Vale (VALE US) has stated that the upcoming ban in Indonesia for unrefined nickel may be the turning point for the commodity, as oversupply in the market can change "almost overnight".

Management believe that while an outright ban might not be enforced, "some sort of restrictions will be in place", either export taxes or quotas that will help with the current oversupply in the next 2-3 years.

Source: Bloomberg, Company � Gold hits new lows.

Spot gold hit as low as US$1,215/oz, the lowest level since July, before recovering to USD1,220/oz as concerns over US Federal Reserve tapering of quantitative easing escalated.

Source: Bloomberg
Other economic news � Brazilian economy grows less than expected.

The Brazilian economy shrank by 0.5% in Q3.

Investment fell by 2.2% QoQ and exports fell by 1.4%.

Source: FT � South Africas current account deficit widens.

South Africas current account deficit widened in Q3 to ZAR233bn from ZAR197bn in Q2.

The trade deficit also widened to ZAR108bn from ZAR77bn.

Source: FT
African resources update � Ethiopia seeks credit rating.

Africas fastest growing economy over the past 5 years plans to obtain a credit rating to attract more foreign direct investment and offset a decline in exports.

The government will select agencies to assess the country although says it has no plans to tap international debt markets for funds at this stage.

Source: Bloomberg � Todays African proverb: "Lack of seriousness will make you feed on pumpkin leaves".

Source: BBC
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
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Louise Collinge Tel: +44 (0) 20 7597 5779
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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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