🕐18.12.13 - 11:00 Uhr

INVESTEC GLOBAL NATURAL RESOURCES DAILY - MINING - WEDNESDAY 18 DECEMBER - CEY L
N, POG LN, FXPO LN, EMED LN, NCCL LN, TIG AU, 1088 HK, 2899 HK, AKG CN, RES AU, 508 HK



[cid:image001.png@01CEFBC8.AFDA3FB0] Wednesday, 18 December 2013 [cid:image006.jpg@01CEFBC8.D921B920]
Snapshot � Company news highlights: Reserve downgrade from Centamin, Petropavlovsk strategic review update, Ferrexpo free float, EMED Mining to raise �5.5m, Ncondezi Energy has completed a �3m equity issue, Application to takeovers panel by Tigers Realm Coal shareholder, Shenhua announces November 2013 operational data, Zijin Mining proceeds with strategic investment in NKWE Platinum, Asanko Gold to acquire PMI Gold, Resource generation provides update on Blumont placement, Dingyi considering its options with regard to the proposed Elemental acquisition. � Commodity review highlights: Australia expects a 23.3% increase in iron ore exports in 2013/14 fiscal year, European coal prices slipped yesterday, Chinese steel production falls in first 10 days of December. � Other economic news: Emerging economies facing taper crunch, include South Africa, Russia agrees US$15bn bailout for Ukraine. � African resources update: Mozambique raises coal railway and port project costs to US$5bn, Ivory Coast plans to issue US$1bn Eurobond, Egyptian economic growth forecast at 2% in the second fiscal quarter. � Market notes: FTSE futures +18.5 points.

US markets were down slightly overnight (Dow -0.06%, S&P -0.31%), Asian markets are mixed (Nikkei +2.02%, Hang Seng +0.44%, ASX200 -0.14%).

Slightly lower than expected inflation data in the US yesterday has relieved market expectations that stimulus tapering is imminent however markets will be watching the FOMC announcement this evening very closely, overshadowing housing starts data due in early afternoon.

In Asia the Nikkei outperformance is being driven by the weaker Yen. Commodity markets - gold +0.20% (US$1,233.08/oz), silver +0.05% (US$19.9195/oz), copper -0.20% (US$3.3150/lb), iron ore -0.44% (US$134.30/t), platinum +0.45% (US$1,350.70/oz), WTI +0.22% (US$97.43/bbl), and Brent -0.01% (US$108.43/bbl).

Dual listed - BHP +0.36% ($35.79), RIO +0.05% ($65.33).

Gold futures fell first time in 3 sessions in New York.

China import iron ore benchmark grade fell for 5th session (Steel Index).

WTI rose after industry data showed crude stockpiles declined for a third week in the US.

Copper snapped its longest winning streak in three years as the market focus on the Fed headlines. Economic data due today: US - MBA mortgage applications, Housing Starts (forecast 954K), building permits (990K), Fed QE3 pace ($85bn/month), FOMC rate decision (0.25% maintained), Fed releases economic projections summary.

Eurozone - German IFO business climate (forecast 109.5), German IFO current assessment (109.5), German IFO expectations (106.5), Oct EC construction output.

UK - BOE monetary policy commitment minutes, claimant count rate (forecast 3.8%), jobless claims change (-35k), ILO unemployment rate (7.6%), employment change (165K).
Company news � Reserve downgrade from Centamin (CEY LN).

Centamin has updated its resource and reserve inventory, which includes a sizeable reduction in reserves to reflect the increased cost associated with the assumed loss of the fuel subsidy.

Combined open pit and underground reserves have reduced by a significant 1.9moz, from 10.1moz to 8.2moz.

Measured and indicated resources have increased slightly, from 13.1moz to 13.4moz.

Source: Company Investec view: While the reserves downgrade appears substantial, our analyst sees only a small impact (2p per share) on his valuation for the company, given the long life (c.25yrs) of the operation.

However, it is interesting to note that while reserves have decreased by 1.9moz, the average reserve grade has also reduced, from 1.13g/t to 1.11g/t, when one would normally expect this to increase.

We note also that CEY is now using a $1,300/oz gold price in its reserve calculations, up from the previous US$1,100/oz.

While it is odd that it would do so in a declining gold price environment, it is then also strange that overall reserve ounces have declined.

We hope to gain an understanding of what has happened to strip ratios. � Petropavlovsk (POG LN) strategic review update.

Yesterday afternoon, POG announced that it had identified an additional 5.7Moz of non-refractory gold resources (Russian classification system) which can be processed at Pioneer, Albyn and Malomir.

This increase is expected to support non-refractory gold production until 2019.

Operating costs should improve from 2015 onwards to about US$750/oz.

The group has reduced its net debt to below US$1bn.

POG expects to produce between 620,000 and 630,000oz in FY14E at a cash cost of c.US$950/oz.

Source: Company Investec view: Yesterdays announcement is a significant positive for POG which has now ensured the continuation of non-refractory production until 2019 and bought itself time to address the POX plant.

Investors should see an improvement in the companys cash generation potential from 2015 onwards when costs should be meaningfully reduced.

As another positive, the groups hedging strategy looks smart as the company still has 309,000oz outstanding at a gold price of US$1,439/oz, which compares favourably to the current gold price of c.

US$1,233.

We continue to believe that POG has an excellent land package in Russia and its track record of finding new resources and projects is impressive. � Ferrexpo (FXPO LN) free float.

FXPO has to increase its free float from 23.3% to 25% by 4 March 2014 in order to remain within the FTSE UK Series.

In order to achieve this Zhevagos company is to sell 4.1m shares which would reduce his effective interest from 51% to 50.3% and therefore increase the free float to 24%.

In addition, BXR Group has indicated that it intends to dispose of enough shares to bring the free float up to 25% before 4 March.

Source: Company Investec view: BXR owns 25% of the company, meaning it would have to sell 1% of FXPOs shares in order to enable the group to remain within the FTSE UK series.

Assuming the group disposes of these shares as it has indicated to FXPO, this should not be an issue. � EMED Mining (EMED LN) to raise �5.5m to advance funding engineering and related works at its Rio Tinto copper project in Spain post permitting.

The company plans to issue 68.75m new shares at 8p in a private placing.

EMED continues to advance the permitting process with Administrative Standing expected at the start of next year.

Source: Company Investec view: The company is likely to have relatively high working capital requirements as it will continues to wait for permits to start construction and development of the Rio Tinto mine. � Ncondezi Energy (NCCL LN) has completed an equity issue for �3.03m before expenses at 5p per share that will result in the issuance of 60.6m new shares taking the total to 181.7m shares.

Source: Company � Application to Takeovers Panel by Tigers Realm Coal (TIG AU) shareholder.

Dr Bruce Gray, a 19.1% shareholder in Tigers Realm Coal has lodged an application with the Takeovers Panel in relation to TIGs announced A$62m capital raising on 12 December 2013.

Dr Gray is seeking final orders that the A$21.6m first tranche investment by Baring Vostok, the A$1.65m share purchase plan, escrow agreements, and indemnity given by Tigers Realm be subject to shareholder approval (the remaining tranches are already subject to investor approval) from shareholders that have not entered escrow agreements and/or made voting statements.

Source: Company Investec view: We view the investment by Russian Direct Investment Fund and Baring Vostok Private Equity extremely positively.

See our analysts research report titled Russian private equity steps up dated 12 December 2012.

The capital raising at A$0.165/share was only marginally more dilutive than our analysts forecasts.

Whilst Dr Gray objects to the terms of the placement the reality is that the placement was negotiated by an extremely experienced TIG management team that all have an equity interest in TIG and it is difficult to see how they could have achieved better terms in the current market environment.

The Takeovers Panel has not decided at this stage whether to conduct proceedings and has made no comment on the merits of the application. � Shenhua (1088 HK) announces November 2013 operational data.

Shenhua reported November 2013 coal production/sales of 26.8mt/49.3mt up 10.7%/17.9% respectively YoY.

Total power output dispatch of 16.85bn kwh was up 8.4% YoY.

Source: Company Investec view: Shenhua is on track to exceed 2013 forecast coal production/sales volume of 315mt/464.6mt (290.9mt/462mt YtD) and power output dispatch of 205bn kwh (191.98bn kwh YtD). � Zijin Mining (2899 HK) proceeds with strategic investment in Nkwe Platinum (NKP AU).

The strategic investment by Zijin was first announced in April 2013.

Zijin will invest A$20m in Nkwe through a 3 year convertible bond.

The first tranche (A$7m) of the convertible bond, which was originally expected to be issued in October, has now been issued.

The second tranche (A$13m) will be issued on or before 31 December 2013.

Zijin will also purchase 145.88m shares for A$18.36m from Genorah, Nkwes largest shareholder and Black Economic Empowerment (BEE) partner.

Nkwe has formed a strategic partnership with Zijin to progress the Garatau project in South Africa.

Source: Company Investec view: The cash was much needed.

As at the end of September 2013 Nkwe had cash of just A$0.5m.

The first tranche of the Zijin convertible will however just be used to refinance an existing Genorah loan and for working capital. � Asanko Gold (AKG CN) to acquire PMI Gold (PVM AU).

Asanko and PMI have entered a definitive agreement whereby Asanko will acquire all the shares of PMI.

PMI shareholders will receive 0.21 Asanko shares for each PMI share implying a valuation of CAD0.441/PMI share.

The offer price represents a 79% premium to the 20 day VWAP.

Asanko and PMI intend to combine their neighbouring Esaase and Obotan gold projects in Ghana.

A proposed merger at the same exchange ratio was terminated in early 2013 due to a lack of shareholder support, however since then Asanko has made considerable progress at its Esaase project.

Source: Company Investec view: Consolidation in the gold sector continues particularly where companies have assets in close proximity to each other and as the importance of synergies is accentuated by a weak gold price.

A combination of Esaase and Obotan will create a company with resources of 10.4moz targeting annual production of 400koz by 2017.

The combined company will be well funded with cash of US$280m and US$150m debt facility. � Resource Generation (RES AU) provides update on Blumont (BLUM SP) placement.

Blumont was due to subscribe to an A$22.57m placement in Resource Generation at A$0.22/share by 4 December 2013.

The subscription was not completed following the collapse in the Blumont share price.

Blumont has now agreed to deposit A$2.5m with Resource Generation by 31 December 2103 and to complete the placement by 26 February 2013.

Source: Company Investec view: Blumont will forfeit the A$2.5m deposit if they do not complete the placement by 26 February so there does appear to be some intent by Blumont to complete the placement although the A$2.5m could just be viewed as an option by Blumont.

RES remains well capitalised with A$27.3m in cash as at the end of September and following their October A$52.2m entitlement offer. � Dingyi (508 HK) considering its options with regard to the proposed Elemental (ELM AU) acquisition.

The Hong Kong Stock Exchange has informed Dingyi that it views its proposed acquisition of Elemental Minerals, 93% owner of the Sintoukola potash project in RoC, as a reverse takeover which circumvents new listing requirements.

Dingyi will consider its options in light of the HKSE decision.

Source: Company Investec view: The Dingyi A$0.66/share cash off-market takeover offer made on 1 July 2013 is currently due to close on 31 January 2014.
[cid:image007.png@01CEFBC8.D921B920] Commodities news � Australia expects a 23.3% increase in iron ore exports 2013/14 fiscal year to 650mt, up from 615mt forecast just 3 months ago.

China is the main buyer of Australian iron ore which is expected to import 850mt next year from an estimated 800mt this year.

Source: Thomson Reuters � European coal prices slipped yesterday as the Euro weakened against the dollar and expectations of normal supply from Columbia increased.

Prices settled at US$86.95/t.

January South African cargoes were reported at around US$85.88/t down slightly from Mondays settlement of US$86.1/t.

Source: Thomson Reuters � Chinese steel production falls in first 10 days of December.

Chinese average daily steel production in the first 10 days of December fell 3.7% to 2.013mt per day (734.7mtpa rate) from 2.091mt per day in the last 10 days of November.

Source: Reuters Investec view: Demand for steel is seasonally weaker in winter when construction activity typically slows.

The fall in steel production has been matched by a fall in the iron ore price from USD139.70/t (62% Fe, CFR China) on 4 December 2013 to USD134.30/t currently.
Other economic news � The emerging economies facing taper crunch, include South Africa.

Pravin Gordhan, the South African finance minister, has said highlighted the need for greater clarity and communication from the US Fed around tapering to negate potential shocks.

However, the governments of emerging economies need to start getting serious about their own domestic reforms.

The FT mentions five "fragile" economies that are particularly vulnerable due in part to large current account deficits; Brazil, India, Indonesia, South Africa and Turkey have been raising interest rates to counter plunging currencies but are yet to tackle the difficult domestic reforms, including tax and labour, to attract the long-term investment they need - not least as all five face elections in 2014.

Source: FT � Russia agrees US$15bn bailout for Ukraine.

Yesterday, Russia agreed a US$15bn bailout for Ukraine and cut the price of gas exports.

Protestors gathered again in Kiev, although Angela Merkel said that Kiev should not be forced to ally itself with either Russia or the EU to the exclusion of the other.

Source: Reuters Investec view: An improvement in the economic situation in Ukraine should be positive for FXPO and may pave the way towards the group getting some sort of resolution to its VAT issues.
African resources update � Mozambique raises coal railway and port project costs to US$5bn.

Mozambique now estimates total costs of US$5bn to build a railway and port needed to boost coal exports, up from the US$3bn previously estimated.

The Italian-Thai Development Bank will construct the 525km railway line from Tete province to Zambezia province and a port able to handle 25Mt of cargo annually.

Source: Reuters � Ivory coast plans to issue US$1bn Eurobond as a first venture on to international capital markets since a 2011 default caused by a post-election civil war.

Since the crisis the country has resumed coupon payments on the defaulted US$2.5bn Eurobond, following the securing of US$4bn of debt relief in June 2012 under the IMF-World Bank scheme.

Source: Thomson Reuters � Egyptian economic growth forecast at 2% in the second fiscal quarter from 1% recently that saw growth impacted by violent protests.

The government is targeting 3.5% growth in the year to June 2014.

The country looks likely to vote on a new constitution in mid-January with elections to follow.

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
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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