🕐27.01.14 - 09:54 Uhr

INVESTEC GLOBAL NATURAL RESOURCES DAILY - MINING - MONDAY 27 JANUARY - AMI LN, R
RS LN, AUE LN, 1898 HK, 899 HK



[cid:image001.png@01CF1B36.94457E80] Monday, 27 January 2014 [cid:image006.jpg@01CF1B36.A0D87D00]
Snapshot � Company news highlights: African Minerals meets its FY13 guidance, Randgold plans to improve recovery at Tongon, Aureus Mining Ndablama update, China Coal profit warning, Asia Resources halts iron sands shipments from Indonesia. � Commodity review highlights: Chinese steel makers and power plants forced to shop around for higher quality raw materials, India to review gold curbs by the end of March, Chilean port workers end strike at the weekend, nickel falls for third day on speculation over Indonesia ban. � Other economic news: Caterpillar sales reflects sluggish demand, Australia Day holiday today, Minerals wont buy Greenlands independence, China bank regulator issues alert on loans to coal companies. � African resources update: Anglo American Platinum losing R100m a day, Rand continues to weaken, todays African proverb. � Market notes: FTSE futures -32.5 points this morning.

Following a sharp sell-off in the US on Friday (Dow -1.96%, S&P -2.09%) all Asian markets have followed suit (Nikkei -2.51%, Hang Seng -1.94%, ASX200 closed).

Markets are concerned about slower economic growth in China and what the long-term ramifications of less liquidity in global markets will be as the Fed continues to taper fiscal stimulus.

Emerging markets remain at the forefront of the onslaught with currencies from Turkey, Malaysia, India and Argentina continuing to be put under pressure. Commodity markets - gold -0.13% $1,268.35/oz, silver -0.41% $19.8644/oz, platinum +0.54% $1,436.30/oz, copper -0.06%, $3.2695/lb, nickel -1.24% $14,455.00/t, iron ore +0.32% $124.30/t, thermal coal $81.75, WTI +0.04% $96.68/bbl, Brent -0.24% $107.65/bbl, zinc -1.36% $2,013.00/t.

Dual listed - Australian market closed for Australia day.

Gold rallied to a two-month high as a rout in emerging market assets fuelled demand for the safe haven asset.

Emerging market currencies remain under pressure following the devaluation of the Argentinian peso and a manufacturing slowdown in China.

Oil keeps on its march higher as the US continues to freeze.

March WTI hit US$97.15/bbl and Brent rose to US$107.94/bbl.

The strikes at South Africas platinum mines are set to enter a 3rd day today as Anglo American, Implats and Lonmin are still unable to reach agreement with the AMCU.

The rand has slipped over 2.5% as a result. Economic data due today:- US new home sales (forecast 455K), Dallas Fed Manufacturing activity (3.3).

Eurozone - German IFO business climate, current assessment, expectations (forecast 110.0, 112.4, 108.0).
Company news � African Minerals (AMI LN) meets its FY13 guidance.

In its 4Q13 production report today, AMI announced 4Q sales of 3.8mt, taking FY13A sales to 12.1mt, in the mid-range of guidance of 11-13mt (Investec 12.1mt).

The company is confident of achieving the targeted 20mtpa rate in 2014 but will only provide guidance at end of March.

The Tewoo transaction is still proceeding with two test shipments accepted.

AMI expects to start PhII expansion later this year, adding an extra up to 10mtpa.

The Shandong off-take agreement has been altered to reflect a phased ramp up.

At end of 4Q AMI had debt of $830m and cash of $362m.

Source: Company Investec view: AMI had previously indicated that it would achieve 20mt in 2014 so its current aim of hitting this rate in 2014 suggests that delivered production for the year will be below 20mt.

That said, a record nine shipments in December is encouraging.

The companys announcement that it will proceed with construction of Phase II at the end of 2014 is encouraging, although it remains short on details over what this will entail.

It does suggest that the Tewoo transaction is still very much in process, as this funding will be necessary to finance construction. � Randgold Resources (RRS LN) plans to improve recovery at Tongon.

Production rates have increased and recovery rates are up 2% by optimising the existing recovery circuit, however rates struggle to break 80% for the year.

To achieve the targeted up 80% recovery rates, an expansion of the flotation process to capture most of the sulphide in the ore will be necessary, which initial estimates put at US$12m expenditure for completion by the end of this year with an 8-10month payback.

Output for 2014 is forecast at 260koz.

Source: Company Investec view: RRSs last guidance for Tongon - as per the FY12A annual report - was 300koz so this is c.10% weaker than it had expected back then.

This is a small negative but not hugely material, in our view, with Kibali and the LGC the key assets. � Aureus Mining (AUE LN) encouraging drilling results from 10 hole programme at the Ndablama gold project.

The company completed 2,483m of drilling with highlighted significant intercepts ranging from 18-24m at 1.2-3.5g/t.

The drilling has confirmed continuity of mineralisation of the system for a further 130m with mineralisation starting 90m below surface.

The ore body remains open in all directions.

A total of 50 diamond drill holes are planned for some 10,000me over a 1km target.

The results will contribute to a resource increase from the current 451koz at 2.1g/t inferred.

Source: Company Investec view: An encouraging result and we await further updates on from this project to see whether it can evolve into an economic ore body.

Although near term, more important news flow will be surrounding the progress at the New Liberty project that is under construction. � China Coal (1898 HK) profit warning.

China Coal expects its CY13 net attributable profit under China GAAP to decline between 55-65% YoY.

The primary reason given for the decline is lower coal prices.

Source: Company Investec view: China Coal reported a net attributable profit of CNY8,842m under IFRS and CNY9,281m under China GAAP in CY12A.

Guidance implies a net attributable profit of between CNY3,248m to CNY4,176m in CY13.

Guidance is well below Bloomberg consensus of CNY5,183m and suggests the company was close to breakeven in 2H13 considering the 1H13A net attributable profit of CNY3,221m.

Given still weak coal prices CY14 consensus earnings of CNY4,768m are also likely to be revised lower. � Asia Resources (899 HK) halts iron sands shipments from Indonesia.

Indonesias Ministerial Regulation No.

1/2014 banned the export of unprocessed mineral products from the country.

However the export of iron ore has been exempt from the export ban for a period of 3 years subject to exported iron ore having a minimum grade of 56% Fe.

Exports will however be subject to a progressive export tax equal to 20% of its value in year 1 increasing to 60% in 2016.

Due to the regulations Asia Resources will cease exports from its Dampar iron sands operation.

Source: Company Investec view: China imported 17.8mt of iron ore from Indonesia in CY13.

This is likely to reduce considerably in CY14.
[cid:image007.png@01CF1B36.A0D87D00]
Commodities news � Chinese steel makers and power plants being forced to shop around for higher quality raw materials to meet tougher air pollution standards that will be good news for miners producing high quality iron ore and coal.

Higher grade iron ore is more efficient for steel makers and contains fewer additives thereby cutting emissions.

With regards to coal, imports have surged due to cheap supplies from Indonesia and Vietnam, however, tighter regulations would be more supportive of higher quality Australian sourced coal.

Indonesian coal typically has a calorific value of 3,800kcal/kg, however, importers are switching to minimum 4,700kcal/kg material.

Source: Thomson Reuters � India to review gold curbs by the end of March according to the finance ministry.

The government imposed restrictions in order to reduce its current account deficit.

However, smuggling has been boosted as a consequence.

India is typically the worlds largest consumer of gold, overtaken by China last year.

Source: Thomson Reuters � Chilean port workers end strike at the weekend following three weeks of action that slowed exports of copper, amongst other commodities from the country.

Source: Thomson Reuters Investec view: This may be a slight negative for copper as ports exporting the metal will be able to catch up with the interruption. � Nickel falls for third day on speculation over Indonesia ban.

In recent trading, nickel declined by 0.9% on the LME to US$14,354/t on speculation that Indonesia, the worlds top nickel miner, may not impose a complete ban on ore shipments.

Source: Bloomberg
Other economic news � Caterpillar, the worlds largest maker of construction and mining equipment released unaudited dealer sales on Friday, reflecting sluggish demand for its machinery and engine products, ahead of quarterly earnings due out today.

Asia was particularly sluggish with sales falling 19% yoy.

Source: Thomson Reuters � Australia Day holiday today.

ASX closed due to Australia Day holiday. � Minerals wont buy Greenlands independence.

In a new report recently published, 13 Nordic experts agree that the minerals, particularly uranium and oil, which have been found in Greenland would not be enough to grant the country economic independence from Denmark.

The report believes that the country will be dependent on Denmarks annual subsidy of EUR457m for at least another 25 years.

Greenland would need about 24 large scale mines to match its current spending levels as a welfare state.

Source: Reuters � China bank regulator issues alert on loans to coal companies.

The China Banking Regulatory Commission has reportedly told its regional offices to increase scrutiny of credit risks in the coal mining sector.

Source: Bloomberg Investec view: The warning comes as a c.

US$500m loan, distributed by ICBC, to a Shanxi coal company, Zhenfu Energy, is due on 31 January 2014.

Zhenfu has according to Forbes already been declared bankrupt and is likely to default.
African resources update � Anglo American Platinum (AMS SJ) losing R100m a day.

AMS is losing 4,000oz/day of platinum, resulting in a daily loss of R100m as a result of the ongoing union action at its Rustenburg, Union and Amandelbult operations.

AMCU started its strike on Thursday.

Both AMS and Impala (IMP SJ) reported attendance of only 10% at its affected operations.

Lonmin (LIM LN) and IMP expect to lose 3,100oz/day and 2,800oz/day respectively.

Source: miningweekly � Rand continues to weaken.

South Africas rand was weaker this morning at 11.148 against the dollar, driven down by the platinum strikes.

The exchange rate is nearing a 5 year low.

Source: Reuters � Todays African proverb.

"The log on the woodpile does not laugh at the log in the fire".

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
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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