[cid:image001.png@01CEF712.95962480] Thursday, 12 December 2013 [cid:image006.jpg@01CEF712.9F307C70]
Snapshot � Company news highlights: London Mining 2013 production downgrade, Kirkland Lake Q2 FY14 results, Rio Tinto investor seminar in London, Day 2 of BHP Billitons US onshore petroleum analyst visit, Rio Tintos Sam Walsh not afraid of a downgrade by ratings agencies, Sibanye Gold to buy Wits Gold, Ncondezi signing power plant project vehicle ownership binging heads of terms, Hot Chili more positive drilling results from Habanero zone, Tigers realm Coal A$62m placement, China Moly parent increases shareholding, ABM Resources trial processing production exceeds 3,000oz. � Commodity review highlights: Indias demand for imported iron ore could surge, global nickel demand is forecast to rise 4.5% next year to 1.85Mt, Japanese nickel producers to boost ore purchases from the Philippines and New Caledonia, Chinese rebar prices at 11 week high, Is North Korea selling significant amounts of gold to China, BHP Billiton reduces coking coal price offer. � Other economic news: Australia boosts payrolls, Joy ends year with an 87% earnings drop. � African resources update: Ghanas inflation at three year high � Market notes: FTSE futures -35 points.

European markets are taking a lead from the US (Dow -0.81%, S&P -1.13%) and Asian markets (Nikkei -1.12%, Hang Seng -0.58%, ASX200 -0.82%) as investors become more concerned about fiscal tapering out the US despite comments from Atlanta Fed President Lockhart that lowering the Fed funds rate is among "ideas that are still in play". Commodity markets - gold +0.17% (US$1,254.30/oz), silver +0.12% (US$20.3196/oz), copper +0.08% (US$3.2980/lb), iron ore -0.22% (US$139.10/t), platinum +0.02% (US$1,385.50/oz), WTI -0.10% (US$97.34/bbl), and Brent -0.01% (US$109.69/bbl).

WTI futures rose to US$98.41/bbl as the US government reported inventories fell the most in a year last week, down 10.6Mbbls vs 3Mbbls forecast.

Brent fell to US109.04/bbl however.

Gold futures fell again on the US budget news, with futures falling back to US$1,258.80/oz.

Stocks are taking a beating again.

Iron ore fell overnight to US$139.10/t on talk of softer demand in China from steel mills.

Copper rose for a 4th session to reach a fresh 1 month high of US$7,220/t on the back of better mainland demand forecasts from Chinese brokers. Economic data due today: US - Nov Retails Sales Advance (forecast 0.6%), initial jobless claims (320K), continuing claims (2757K), import price index (-0.7%).

Eurozone - French CPI Nov (forecast flat), Italian CPI EU harmonized YoY (0.6%), EC industrial production Oct (0.3%).
Company news � London Mining (LOND LN) 2013 downgrade.

London Mining has downgraded its FY13E production guidance from a range of 3.6-3.9mt to 3.3-3.4mt, with sales guidance reduced from 3.9-4.1mt to 3.5-3.6mt, due mainly to slower completion of plant upgrade and extended impact of wet season.

Conference call at 9am.

Source: Company Investec view: While this is not a big deal in the grand scheme of things (LOND is NOT a FY13 earnings story) it is a small negative mark against management, which had previously extolled its management of the wet season.

It is disappointing that it left this announcement so late in the quarter and it had presumably been desperately trying to play catch-up.

Our analyst does not expect much impact on forward numbers - this is more about sentiment. � Kirkland Lake Gold (KGI LN) 2Q14E financials.

KGI had already reported 2Q14 production, with operating costs now reported at $1,105/oz.

Cost per ton of $328 per ton were an improvement on the previous quarters $344 per ton but still well above the targeted $250 per ton, which is going to require a lift in overall production.

In this regard, KGI has advised that FY14E production will be at the low end of its guidance of 150-180koz.

With a new CEO the mine plans are evolving and the forward outlook is now a work in progress.

KGI ended 11 December with cash of $63m, down from $77m at the end of the 2Q.

Source: Company Investec view: While KGI still has comfortable cash buffer (after it had received a $50m cash injection from the sale of a royalty), the new CEO does face a challenge in both stemming the cash outflow AND growing the production base.

Recently announced plans point towards concerted efforts in this regard and these should start to bear fruit in 2014. � Rio Tinto (RIO LN) Investor Seminar in London.

RIO hosted an Investor Seminar in London yesterday with presentations from Sam Walsh (CEO) and Chris Lynch (CFO) and from the respective heads of the Diamonds & Minerals, Energy (coal and uranium) and Iron Ore divisions.

The presentations provided a good overview of how the respective divisions are meeting their objectives, be they cost reductions, productivity improvements or volume management.

The company restated its "discipline and unrelenting execution of (the) strategy" to invest in long-life, low-cost, expandable operations.

RIO expects a solid increase in the progressive dividend in FY14E but was clear to point out that its first priority is reducing debt.

Rio has divested of US$3.3bn of non-core assets this year.

Source: Investec � The second day of presentations from the BHP Billitons (BLT LN) US onshore petroleum analyst site visit presented a roadmap for extracting value from its US onshore assets by directing capex towards maximising liquids production, minimising holding costs and benefiting from learning curves and extraction technology improvements.

In our view, the debate among investors over what is achievable with these assets is likely to be stimulated further before it settles.

Source: Investec & BLT Investec view: Our analyst believes that our current assumptions are overall close to the revised guidance, with some changes offsetting one another, e.g.

higher liquids, but lower gas.

An update will follow in due course. � Rio Tintos (RIO LN) Sam Walsh is not afraid of a downgrade by ratings agencies.

Sam Walsh has said that agencies such as Standard and poors and Moodys were using yardsticks that were of limited relevance to the miner and its shareholders and that he no longer saw the companys single A rating as sacrosanct.

He said "I believe we have done all of the things we need to retain an A rating.

But I am not about to be driven by a rating which takes into account things that we and our shareholders dont take into account".

Source: FT � Sibanye Gold (SGL SJ) to buy Wits Gold (WGR SJ).

Yesterday, SGL announced it was to acquire 100% of WGR for ZAR407m (c.US$39m), representing ZAR11.55/share.

This is at a 47% premium to the WGR 30 day VWAP.

WGRs projects are adjacent to SGLs Beatrix operations in the Southern Free State.

Source: Company, Mining Weekly. Investec view: We are starting to see more M&A activity in the sector now, particularly amongst the struggling gold stocks.

On Tuesday, Centamin (CEY LN) announced its plans to acquire Ampella Mining (AMX LN) and Nyota Minerals (NYO LN) announced the proposed sale of 75% of its key project, Tulu Kapi, to Kefi Minerals (KEFI LN) yesterday. � Ncondezi (NCCL LN) signing of Power Plant Project Vehicle Ownership Binding Heads of Terms with government for its 300MW integrated thermal coal mine and power project.

The state power company is to have a base 5% participation to be funded by a mechanism to be agreed by Ncondezi with an option to acquire a further 10%.

The countrys citizens will also have the opportunity to take up 5% equity.

Source: Company Investec view: Having the various terms agreed for the power/coal project is important and more work remains.

However, the bigger issue will be funding the development. � Hot Chili (HCH AU) more positive drilling results from Habanero zone within the Productora project in Chile to help increase resource update planned for early 2014.

The mineralised zone now extends 600m remaining open to the north.

Highlighted drilling results have returned 20-50m intercepts grading 0.8-1.1% Cu with 0.2-0.3g/t Au.

Discussions with local major miner CMP concerning an infrastructure agreement are also well advanced which will facilitate developments considerably.

CMP is Chiles largest iron ore producer and Productora since inside its infrastructure including port, rail, easement corridor and other assets.

Source: Company Investec view: Productora is evolving into an increasingly attractive copper project with management progressing rapidly having drilled over 100,000m this year.

CMP is now a major shareholder and its involvement will help reduce capital costs and difficulties with developing such a project. � Tigers Realm Coal (TIG AU) A$62m share placement.

Tigers Realm Coal has completed an A$62m placement at A$0.165/share led by two Russian private equity investors.

Proceeds will be used to complete the Project F (Amaam North) feasibility study, begin development of Project F and additional exploration drilling at Amaam/Amaam North.

Source: Company Investec view: We view the fundraising as a major share price catalyst as it derisks the company with enhanced equity funding certainty, and geopolitical risk insurance is obtained with a Russian state company becoming a shareholder.

Our analysts maintain their BUY rating but reduce their NPV-based target price to A$0.46/share from A$0.49/share due to slightly higher than forecast dilution.

See the note Russian private equity steps up for further details. � China Moly (3993 HK) parent increases shareholding.

Cathay Fortune repurchased 12.45m H-shares on market on 10 December (Tuesday), increasing its controlling shareholding position to 34.26%.

The shares purchased represent 0.95% of the companys H-shares and 0.25% of all shares.

Source: Company Investec view: Cathay Fortunes purchases led to a very substantial jump in daily trading volume on Tuesday and represented 76.5% of the companys trading volume.

We suspect that Cathay Fortunes buying continued on Wednesday given the even more robust trading volume.

Under the 2% creep rule, Cathay may purchase up to c.

7.7% of China Molys H-shares before triggering a general offer given the two class share structure.

Cathay Fortunes buying may help reduce the A-share / H-share spread, which is abnormally large with the H-shares at a c.

61% discount to the A-shares, along with the potentially increased supply of A-shares from China Molys recent A-share convertible bond issuance. � ABM Resources (ABU AU) trial processing production exceeds 3,000oz.

Australian gold miner ABM provided the market an update indicating that trail processing at Old Pirate continues to go well with c.

9,000kt of ore now processed resulting in 3,017oz of gold production plus an estimated additional c.

1,000oz of gold in circuit.

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

Source: Company Investec view: The trial processing program is nearly complete with mining finished and c.

1,000t of ore left to process.

ABM is likely to rapidly advance its low capex, high grade Old Pirate project into full scale development given the success of trail production with low dilution narrow vein mining methods confirmed, gold grade reconciliations above geological model, additional gold veins identified during mining and strong processing plant recoveries of c.

89%.
[cid:image007.png@01CEF712.9F307C70] Commodities news � Indias demand for imported iron ore could surge if the country achieves its targeted steel production target of 300mt by 2025 according to the countrys Steel Ministry.

Several brownfield and greenfield projects are in the pipeline that would require around 480mtpa of iron ore versus current production of around 136mtpa, down from the 213mt produced in 08/09.

Due to the in country shortage the ministry plans to maintain its 30% export tax on iron ore.

Source: Mining Weekly Investec view: The potential rising demand from India could well coincide with a possible decreased in dependence from China on imported iron ore as it will have more recycling available to it as the economy matures, since around 50% or steel in developed economies is sourced from recycling. � Global nickel demand is forecast to rise 4.5% next year to 1.85mt, but supply is expected to reach record levels as new projects come on stream and existing operations ramp up output taking supply to 1.97mt according to the International Nickel Study Group.

The surplus in the first 9 months of this year was estimated at 127.1kt.

Source: Thomson Reuters � Japanese nickel producers to boost ore purchases from the Philippines and New Caledonia as an alternative to ore from Indonesia as the country is due to enforce a ban on raw mineral exports next year.

Sumitomo is to secure 40% and 60% of supply from the Philippines and New Caledonia respectively.

Output is not expected to be affected as the company has built up stockpiles.

In China which has the main producer of nickel in pig iron sourced from ore imports, around 24mt of ore is reported to be stored at Chinese ports, sufficient for half a years demand.

Source: Bloomberg Investec view: Although it remains likely that Indonesia will eventually work out a way to overcome the ban since its economies needs to encourage exports, it appears that the impact of the ban if it does go ahead for a period will have a muted impact on nickel markets in light of the stockpiles built up by off takers in preparation, consequently there may be negligible impact on nickel prices as a consequence. � Chinese rebar prices at 11 week high as steel mills are under government pressure to reduce output due to environmental considerations.

Prices are reported at around US$615/t.

Source: Bloomberg � Is North Korea selling significant amounts of gold to China? South Korean reports suggest that North Korea is selling large quantities of gold to China due to its economic crisis.

North Korea does not report its gold holdings to the IMF but in 2007 it was estimated that the country held reserves of around 2,000t (64Moz) which would have made it one of the worlds largest holders of the metal.

Source: Mineweb � BHP Billiton (BLT LN) reduces coking coal price offer.

BHP Billiton (BLT LN) is reportedly offering Peak Downs brand hard coking coal for US$143/t Australia FOB for the month of January, a large drop on the US$150/t December price.

Source: Inside Coal Investec view: BHPs low January pricing levels suggest that the MarQ14 coking coal settlement price is likely to be c.

US$143/t-US$145/t, down on US$152/t in DecQ13.
Other economic news � Australia boosts payrolls.

Australian employers boosted payrolls by 21,000 in November, adding to evidence a two year interest rate cutting cycle is boosting demand.

Analysts expected an increase of only 10,000.

Source: Bloomberg � Joy (JOY US) ends the year with an 87% earnings drop.

Mining equipment producers, Joy Global, posted an 87% fall in earnings during Q4 FY13 when compared to Q4 FY12.

The numbers reflected a US$155m impairment and a 26% fall in sales.

Bookings have decrease3d by 19% from last year.

Source: mining.com
African resources update � Ghanas inflation at three year high of 13.2% in November, up from 13.1% in October well ahead of governments 11% target for the year.

Non-food items were the key contributors to the increase.

The government is facing some short term fiscal difficulties but has plans to correct this.

Interest rates therefore may be increased next year.

Source: Thomson Reuters
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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