[cid:image001.png@01CF1D92.A436CFC0] Thursday, 30 January 2014 [cid:image006.jpg@01CF1D92.C2D71520]
Snapshot � Company news highlights: Research notes out on Glencore Xstratas Las Bambas and on Antofagasta, good FY14E production guidance from Centamin, Kazakhmys FY13 production update, Lonmin Q1 production, Aquarius sale of non-core assets, first results from Amaras Baomahun optimisation work, good progress at DiamondCorps Lace, DecQ updates for Tigers Realm, Fortescue, Indophil and Independence Group, IRC update on placement, China Hanking profit warning, Firestone diamond director stepping down � Commodity review highlights: Freeport awaiting permits to export Indonesian concentrate, gold under pressure as Lunar New Year demand eases, cyclone impacting Australian coal exports, India planning 300mtpa steel production � Other Economic News: Chinese factory output slows, rate hike fails to strengthen South Africa Rand � African Resources Update: Wage offer for striking platinum workers, amendments to SA mining legislation to be endorsed soon, SA positioned to regain leadership role in seaborne coal, todays African proverb � Market notes: FTSE futures +1 point this morning, coming back from being down 13 points earlier.

Following a volatile day in Europe yesterday US markets closed down (Dow -1.19%, S&P -1.02%).

Emerging market concerns coupled with a disappointing Chinese PMI number (49.5 vs.

50.5 in Dec) has pushed Asian markets down (Nikkei -2.45%, Hang Seng -0.48%, ASX200 -0.78%, Shanghai Composite -0.82%).

Yesterday the US Fed also decided, as generally expected, to taper a further US$10bn equally across treasury and MBS purchases. Commodity markets - gold -0.52% $1,260.65/oz, silver -1.14% $19.5359/oz, platinum -0.28% $1,404.20/oz, copper +0.05%, $3.2425/lb, nickel -1.10% $13,943.00/t, iron ore -1.05% $122.60/t, thermal coal $80.65, WTI +0.07% $97.43/bbl, Brent -0.06% $107.78/bbl, zinc -0.60% $1,983.00/t.

Dual listed - BHP -0.49% A$36.69, RIO +0.00% A$65.80.

Concerns over emerging markets sent the gold price higher yesterday despite the additional Fed tapering however the price is slipping back this morning as Chinese demand eases into the CNY.

WTI is up marginally as demand for distillate fuel countered a second weekly increase in US crude stockpiles, mainly due to cold weather.

Copper eased back following the disappointing Chinese data and iron ore slipped as data showed Chinese stockpiles were at their highest level of 2013 (81.3Mt). Economic data due today: US - Annualised GDP (forecast 3.2%), personal consumption (3.7%).

GDP price index (1.2%), initial jobless claims (330K), continuing claims (3000K), Dec pending home sales (-0.3%).

Eurozone - German unemployment (forecast 6.9%), German CPI MoM (-0.4%), UK mortgage approvals (72.9K), EC economic confidence (-2.9), EC consumer confidence (-11.7), EC services confidence (0.8), EC business climate indicator (0.35).
Company News � Glencore Xstrata (GLEN LN) research note published discussing the sale of Las Bambas.

Glencore Xstrata is required to sell Las Bambas as part of the agreement with the Chinese to have allowed the merger with Xstrata.

It is a major, tier 1 copper mine that is under construction which we attribute US$4.5bn of value for.

Our NPV is US$6.2bn and there has been media speculation of values exceeding this.

Las Bambas is a key event for Glencore that could drive the price up or down depending on the result.

Funds realised from a sale could be used to reduce gearing, fund an acquisition, a share buyback or provide a special dividend, or a combination of these options.

An unsuccessful sales process is not a disaster if it eventuates, we believe the company has ample resources to complete the development that longer term would enhance earnings.

Source: Investec � Antofagasta (ANTO LN) updated research note following strong results for FY13E and updated guidance for FY14E providing clarity on the year ahead.

The updated numbers and guidance for FY14 have led to an increase in EPS for FY13E and FY14E from 80.8cps and 61.2cps to 87.3cps and 78.5cps respectively.

We continue to view Antofagasta as overvalued, however, the improved earnings may be supportive of a special dividend that previously looked unlikely.

Prelim results due on 11th March should provide more clarity.

Source: Investec � Centamin (CEY LN) FY14E production guidance.

CEY is guiding 18% higher production than FY13A, to deliver 420koz at cash cost of $700/oz.

Key to CEYs higher guidance is very encouraging underground exploration results, pointing to significant high grade zones.

The companys longer term guidance remains for 450-500koz/pa.

An analyst site visit is currently underway at Sukari.

Source: Company Investec view: This is encouraging guidance from CEY.

Given its recent tendency to under-promise an over-deliver, it must be confident of producing a significant uplift in underground performance to bolster the planned higher open pit throughput.

Guidance equates to 7% higher production at 5% lower costs than our analyst had been expecting and would result in a 21% uplift in EPS, all else being the same, if our analyst applied CEYs exact guidance. � Kazakhmys (KAZ LN) FY13 production update.

During FY13, KAZ produced 294,000t of copper cathode equivalent.

The company produced 14Moz of silver, 134,000t of zinc and 108,000oz of gold.

The company will deliver its FY13E results on 27 February.

Source: Company Investec view: The companys output was above our analysts estimate of 291,000t and to the top end of the guidance range of between 285,000t and 295,000t.

However, our concern with KAZ is not with its ability to meet its targets, which it is consistently good at.

The issue continues to be the high cost nature of its core copper business and the declining grade profile into the future.

The market awaits a solution to these problems from the company, which we believe will come under increasing pressure if a way forward is not outlined in the near term. � Lonmin (LMI LN) Q1 production report sees 196koz platinum up 45% yoy, and sales of 139koz up 24% yoy.

Mining performance however suffered fatality and safety disruptions with 2.6mt mined down 10% yoy.

Milled output was at 2.9mt, benefitting from healthy stockpiles leading to platinum in concentrate of 180koz.

It is important to note that the same period 4QCY12 was disrupted by strike action.

The main issue the company is tackling currently are wage negotiations and the current strike, before which the company was guiding to over 750koz Pt and capex of US$210m which has not been updated.

The company is losing around 3,100ozpd of platinum currently.

Lonmin also yet to achieve full BEE compliance to take it from 18% to 26%, which it aims to achieve through share ownership schemes and other methods.

Source: Company Investec View: A solid quarter of platinum production as the company had considerable inventory in the pipeline to process, offsetting the weaker mining performance.

Certainly the build-up of stockpiles will help it better manage the strike, and with 139koz platinum sales against 196koz of production, Lonmin may have metal inventory to sell during this period of disruption. � Aquarius Platinum (AQP LN) sale of non-core assets.

AQP has announced that it has agreed terms to dispose of its Kruidfontein asset for US$30m.

The company has also agreed to dispose of its interests in Blue Ridge and Shebas Ridge to China National Arts and Crafts for a total of US$37m in cash.

The sale agreements are subject to a number of conditions such as Chinese government approvals, South Africa competition commission approvals and a number of DMR approvals.

The outside date for fulfilment of the conditions has been fixed at 30 June 2014 but may be extended if required.

Source: Company. Investec view: This is a positive release for Aquarius which the market should take well.

The terms for the Kruidfontein deal in particular look complex, with the company highlighting that the sale could result in net cash inflows to AQP of US$27m before tax.

AQP must repay its US$300m convertible by December 2015, and we believe that it will have to raise US$250m (we assume in debt) in order to do this.

In our view, the sale of these assets will not mean that the company can afford to repay its debt, but the proceeds could certainly be a big help. � Amara Mining (AMA LN) first results of Baomahun optimisation focusses on a 10 year 1mtpa operation targeting a smaller higher grade open pit.

Pre-production capital costs are down 43% to US$143m that will support output of 88kozpa for total cash costs of US$711/oz (down 11%) over years 1-6 (62.5kozpa LOM).

All in sustaining cash costs are forecast at US$975/oz.

A US$1,250/oz gold price indicates an IRR of 17% and post-tax NPV of US$50m at 8% discount rate.

The company is investigating underground mining potential that could extend the mine life.

Work is also continuing investigating further optimisation.

Source: Company Investec View: An encouraging outcome for the company, however, with the current uncertainty over the outlook for the gold price, financing a project such as this may be challenging.

Further optimisation may well improve the IRR and NPVs at US$1,250/oz. � DiamondCorp (DCP LN) outlines good progress over development of Lace Mine with underground development close to schedule and under budget.

The fleet has 90% availability with considerable progress being made at the plant and the mine development.

The weakening of the ZAR is also benefitting the company.

The company is to commence diamond sales in February, selling stones recovered from historical tailings.

Source: Company � Tigers Realm Coal (TIG AU) DecQ13 update.

Russian coking coal explorer Tigers Realm Coal updated the market on recent activities, indicating that substantial progress has been made on the Project F (Amaam North) bankable feasibility study (BFS).

Completion of the Amaam North BFS is now expected in early JunQ14, a small delay from the prior target of MarQ14, due to scaling back of certain programs as the company conserves cash until the recent A$62.5m capital raising completes in March given the companys relatively meagre cash position of A$3.7m at end 2013.

Management expect to announce new resources and exploration targets at Amaam and Amaam North in MarQ14 following the completion of 15,000m of winter drilling programs that are currently underway.

Source: Company Investec view: There werent any major surprises in the DecQ13 production report.

The minor Amaam North BFS delay is neutral in our view as it will not hinder the regulatory and permitting processes, which are the projects critical paths, and we expect the company to be amply funded shortly with Bruce Gray now having resolved his dispute with TIG that has delayed completion of the recent A$62.5m raising.

Our analysts continue to like the potential for a low capex, low cost, direct shipping operation at Project F.

The prefeasibility study for Amaam North (80% TIG) released in September 2013 suggests that TIG will be able to build a c.

1mtpa coking coal mine with a cash costs of c.

US$75/t for pre-production capex of US$52m and first production as soon as DecH15 at Amaam North.

See our analysts latest research report on TIG, Positive pre-feasibility study dated 3 September 2013, for more details. � Fortescue (FMG AU) ships 28.0mt in DecQ13.

Australian iron ore producer Fortescue shipped 28.0mt of iron ore (26.7mt attributable, up 8% QoQ) at a C1 cost of US$33.0/wmt (down 1% QoQ), despite rising strip ratios, while realising a price of US$125/dmt (down 2% QoQ).

Management continue to expect to ramp-up to 155mtpa by end MarQ14 as first ore from Kings was delivered in DecQ13.

Source: Company Investec view: The production report was mixed in our view as revised FY14 shipment guidance of c.

127mt is at the low end of guidance for 127mt-133mt due to weather disruptions in January and operational problems at the ore processing facility but revised FY14 C1 cash cost guidance US$34/wmt is better than prior estimate of US$36/wmt due to the falling A$. � Indophil Resources (IRN AU) DecQ13 activities report.

Work on the Tampakan copper project (62.5% Glencore/37.5% Indophil) in the Philippines has slowed significantly and just US$10m is budgeted to be spent progressing the project in 2014.

Source: Company Investec view: There remains considerable uncertainty around the future of Tampakan.

Glencore Xstrata (GLEN LN) has indicated its preference to divest its interest in the project and the ban on open pit mining in South Cotabato, Mindanao remains.

Indophil had cash of A$215m as at 31 December 2014 versus a current market capitalisation of A$198m. � Independence Group (IGO AU) reports A$21.5m profit in DecH13.

Independence Group reported DecQ13 gold production of 95koz (100% basis) from the Tropicana JV (30% IGO, 70% AngloGold Ashanti), nickel production of 2,737t from the Long mine, and 8,425t zinc/2,028t copper production from the Jaguar mine.

Cash costs at Long and Jaguar were both beneath the low end of company FY14 guidance.

Independence Group reported an unaudited profit of A$21.5m for DecH13 and a year-end cash balance of A$45.8m.

Source: Company � Equatorial Resources (EQX AU DecQ13 report.

Main highlights are that the Mining Licence application for Mayoko-Moussondji has been lodged with the Republic of Congo Government, the total JORC mineral resource estimate at Mayoko-Moussondji has been upgraded by 78% to 182Mt @ 35.7% Fe; the exploration target for both DSO hematite and itabarite at Badondo significantly increased based on completed drilling program and management is still investigating a strategic partnership and other funding opportunities to fast track progress of Mayoko-Moussondji into production.

Cash reserves are A$45.4m with no debt.

Source: Company � IRC Ltd (1029 HK) update on General Nice/Minmetals Cheerglory placement.

IRC Ltd has provided an update on the second tranche share placement to General Nice and Minmetals Cheerglory.

The placement was due to complete on or before 30 December 2013 but General Nice was unable to secure financing in time.

General Nice has now agreed to pay at least HKD155m (c.

US$20m) by 24 February 2014 and the balance of HKD606.5m (c.

US$78m) by 22 April 2014.

Minmetals Cheerglory will complete their subscription post the General Nice subscription.

The subscription price remains HKD0.94/share.

Source: Company Investec view: We view this announcement positively, although there is still no guarantee General Nice will make the payments as scheduled.

Our analysts assume the placement is completed by the end of June 2014 but at a lower subscription price (HKD0.80/share).

IRC is yet to provide a revised construction timetable for the 3.1mtpa K&S stage 2, which the equity placement was to fund, and our analysts only assume first production from K&S stage 2 in 2017.

See our analysts report Financing for K&S stage 2 falters dated 2 January 2014. � China Hanking (3788 HK) profit warning.

Chinese iron ore producer China Hanking expects to record a c.

30% YoY decrease in profit in CY13.

Profitability was flat YoY from the companys core iron ore mines but losses increased from financing costs, options expenses and losses from the newly acquired Australian gold mining operations.

Source: Company Investec view: The profit warning implies Hanking will report a profit of c.

CNY253m/CNY153m in CY13/DecH13, down from a profit of CNY361.3m in CY12, and the company is trading on a trailing PE of c.

8.6x. � Firestone Diamonds (FDI LN) director Tim Wilkes to step down following leadership transition with Stuart Brown now CEO of the company having taken on the role from Tim on 1st December.

Source: Company
[cid:image007.png@01CF1D92.C2D71520] Commodities News � Freeport McMoRan (FCX US) awaiting permits to ship copper concentrate from Indonesia.

Freeport is yet to commence exports of copper concentrate from its Grasberg mine in Indonesia following the imposition of a ban on raw ore exports and progressive taxes on concentrate exports imposed by the Indonesian government in mid-January 2014.

Approximately 40% of copper concentrate from Grasberg is smelted in Indonesia but the remainder exported.

Source: Bloomberg Investec view: Freeport believes the new regulations introduced by the Indonesian government conflict with its existing Contract of Work (CoW).

Freeport has estimated a loss of 40mlb copper and 80koz gold per month that the export permits are delayed. � Gold prices under pressure in morning trading as Chinese demand eases ahead of the Lunar New year which sees markets closed for a week from tomorrow.

Premiums in the country are reported at around US$4/oz, down from US$20/oz earlier this month.

Source: Thomson Reuters � Australian coal exporting ports in Queensland close due to strengthening cyclone.

Tropical storm Dylan is expected to continue to move in a South-westerly direction and to intensify to hit land early tomorrow.

Interruptions to shipments are expected to have limited impact on markets.

Hay Point, Mackay port, Abbot Point and Dalrymple Bay terminals are shut.

Source: Thomson Reuters � India planning 300mtpa steel production.

India plans to increase its steel production by 300mt from the current 80mt and the India Steel Minister has reportedly held discussions with Australian ministers yesterday on a long term supply agreement, with Australia to supply of coking coal on a "priority basis".

Source: Commodity Online Investec view: While India tends to take a lot longer than expected to deliver on even its own plans, it eventually gets there.

Therefore while 300mtpa probably wont happen for many years, it does provide the prospect of an additional 220mt of steel, requiring an additional c.

350mt of iron ore.
Other economic news � Chinese factory output slows.

The unofficial HSBC and Markit PMI has showed a weak start to the year in Chinese manufacturing.

The figures dropped from 50.5 in December to 49.5 in January, which is a slight downward revision from the 49.6 reported in the "flash" PMI last week.

Source: FT � Rate hike fails to strengthen South Africa Rand.

The currency is trading close to five-year lows after a 50bp central bank rate hike, the first interest rate increase in nearly six years, failed to halt a currency sell-off.

The hike was reportedly aimed at containing inflation.

The rand has been swept up in the volatility that has hit other emerging markets, such as Turkey and India, Source: Thomson Reuters
African Resources update � Lonmin (LMI LN) offers AMCU workers a wage increase ranging from 7.5-9.0% in year 1 of a proposed three year agreement, which falls well short of the ZAR12,500pm demand for entry level workers, which would more than double current levels.

Miners are trying to push forward a multi years strategy to deliver the demands of AMCU, however, the major increase in one year as the union demands, is not a viable option.

Source: Thomson Reuters & Mining MX � South African amendments to mining legislation are expected to be endorsed in the days ahead.

A key issue will be accelerating the process permitting a mine for construction with estimates that it takes around 3.5 years from point of permit application through to construction of a mine.

Minister Susan Shabangu indicates that there are currently no plans to impose export quotas on coal that has been designated as a strategic mineral, although commentary indicates some form of action to ensure there are no energy shortages in the country.

Source: Mining MX � South Africa positioned to regain a leadership role in seaborne coal.

Speaking at an IHS McCloskey coal conference, the MD of DH Minerals stated that SA could add 60mtpa of coal exports, replacing banned Indonesian coal, but that it would require new mines, increasing rail and port capacity for Cape-size vessels in particular, and maintaining political and social stability.

Coal exports from Richards Bay (RBCT) rose to a record 70.2mt in 2013, 1.9mt more than 2012, thanks to Transnet railing 70.4mt, 2.8% more.

RBCT can handle 91mtpa, 10mtpa more than the 81mtpa rail line.

RBCT has plans to expand beyond the 100mtpa mark.

Source: MiningWeekly � Todays African Proverb: "One falsehood spoils a thousand truths".

Source: BBC
Investec Global Natural Resources Research Team: UK Hong Kong South Africa Hunter Hillcoat Tel: +44 (0) 20 7597 5182
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