🕐06.03.14 - 09:27 Uhr

INVESTEC GLOBAL NATURAL RESOURCES DAILY - MINING - THURSDAY 6 MARCH - ABG LN, LO
ND LN, EXX SJ, AUE LN, AVM LN, LMI LN, VED LN, SXX LN, 975 HK, RIO LN, 1088 HK



[cid:image001.png@01CF3913.FF80B2A0] Thursday, 06 March 2014 [cid:image006.jpg@01CF3914.11C07B30]
Snapshot � Company news highlights: Research published on African Barrick, London Mining FY13A results, Exxaro FY13 result at high end of guidance, Aureus Mining full year results reflect progress, Avocet Mining tough full year results, Lonmin update on wages: negotiations suspended as respective parties too far apart, Tom Albanese to be Vedantas new CEO, Sirius Minerals to raise funds, Mongolian Mining Corporation refinances debt facility, Rio Tinto announces board changes, Shenhuas Chairman resigns. � Commodity review highlights: Iron ore exports to China from Australias Port Hedland rose 36% YoY in February, European coal prices up US$1.5/t, EU plans voluntary rules on conflict mineral imports, coal thefts in Indonesia � Other economic news: Bakrie vows protectionism for Indonesian natural resources � African resources update: Zimbabwes only reserves are gold coins valued at US$501,000, Ivory Coast passes long awaited mining code, South Africa looks marginally better in Fraser Institute score, Eskom power emergency, DRC miners facing power supply shortage. � Market notes: FTSE futures +19 points this morning.

Markets will be cautious ahead of the ECB and BOE announcements this afternoon combined with official payrolls data out of the US tomorrow.

US markets were relatively flat (Dow -0.22%, S&P -0.01%) with weaker payrolls data and energy names being soft post Exxon results.

Asian markets are mainly up (Nikkei +1.59%, Hang Seng +0.55%, ASX200 -0.01%). Commodity markets - gold -0.28% $1,333.17/oz, silver -0.10% $21.148/oz, platinum +0.16% $1,478.90/oz, copper +0.02%, $3.2025/lb, nickel +0.79% $15,247.00/t, iron ore -0.09% $116.70/t, thermal coal $74.95, WTI -0.33% $101.12/bbl, Brent +0.20% $107.98/bbl, zinc -0.67% $2,118.50/t.

Dual listed - BHP -0.37% A$37.66, RIO -0.35% A$64.58.

Industrial metals all rose, some to new highs, after the NPC reiterated Chinas 7.5% GDP target for 2014.

Zinc was the standout after LME data also showed that inventories fell to 753Kt, the lowest since Dec 2011.

Coal was weaker during the day as data showed that thermal coal port inventories in China rose 18.3% in February.

Expectations are that seasonal buying will end earlier than normal and that seaborne price support will fall.

Onto coking coal and QLD prices are now at their lowest levels since 2009 after falling ~4% in February, on top of the 6% falls in January.

Expectations are the 2Q14 settlement will be lower than the current US$143/t price. Economic data due today:- US - initial jobless claims (forecast 336K), continuing claims (2970K), factory orders (-0.5%).

Eurozone - UK Halifax house prices (forecast 0.7%), German factory orders (0.9%), BOE rate announcement (0.5%), ECB rate announcement (0.25%), BOE target purchases (�375bn).
Company News � Research published on African Barrick (ABG LN).

Although not yet approved, our analyst has incorporated two of ABGs growth options, Bulyanhulu Upper East and North Mara underground, into our forward assumptions.

For relatively modest start-up capex they together add c.100koz/pa production to the profile (to over 700koz/pa on a sustained basis) and reduce our long-term forecast cash costs for ABG by US$40/oz to c.US$740/oz, with long-term all-in-sustaining-costs at $1,105/oz.

The additional production increases our estimated EPS by 22% in FY14E, 27% in FY15E and 38% in FY16E.

ABGs share price has performed significantly better than its peer group and it now absolutely need to deliver on its growth potential.

Source: Investec � London Mining (LOND LN) FY13A results.

Sales of 3.7mt (already reported) at cash costs of $57/t (Investec $61/t, FY12A $72/t) resulted in EBITDA of $54.1m (Investec $56.3m) versus the FY12A loss of $14.2m.

Net debt at $247.5m was in line with our expectations of $256.2m.

The company has guided FY14E production of 4.9-5.4mt at cash cost at or below $50/t (Investec 5.0mt at $51/t).

New offtake agreement with Cargill (good terms) takes total offtake to 5mtpa (including Glencore and Vitol).

Source: Company Investec view: The result was overall in line with our analysts expectations, as is forward production guidance.

The extension of the mining licence, doubling the land position to 28km2, should greatly ease market concerns over the limited footprint for future tailings.

The outlook is in-line and our analyst does not expect to make any major changes to assumptions, although we look forward to seeing a reduction in net debt levels. � Exxaro (EXX SJ) FY13 result at high end of guidance.

The company delivered HEPS of 1463cpc, near the top end of guidance of 1370-1478 cps as per the trading statement last week (Consensus at 1404-1442 and INL at 1473).

The full year dividend of 550cps was 10% above our expectation.

While coal operations have done well on higher volumes (exported 4.5mt vs.

guidance 4mt) and a weaker ZAR, the company is cautious as spot coal prices are weak.

Construction on the Grootegeluk Medupi Expansion Project (GMEP) to supply Eskoms Medupi power station with 14.6mtpa of coal is now 97% complete.

Source: Company Investec view: We expect associates Kumba (KIO SJ) and Tronox, particularly the former, to continue to provide the bulk of earnings with the coal rump continuing to be trading at PEs below 2X by our estimates.

At first glance we do not expect major changes to our view, earnings and TP but will review following analyst presentation later today � Aureus Mining (AUE LN) full year results reflect progress with construction of New Liberty project that is fully financed.

Loss for the year totalled US$7.4m.

Cash and equivalents stood at US$39.4m with US$100m of facilities available.

The companys results reflect US$-5.3m of operating cashflow and US$-49.86m of investing cashflow as it develops the mine.

First gold pour due for Q1 2015.

New Liberty is expected to produce 119kozpa of gold for the first 6 years at an all in sustaining cash cost of US$850/oz and a US$136m capex.

The company also has an extensive exploration programme underway in its tenement packages.

Source: Company Investec view: AUE has an attractive gold project that is advancing toward production, and fully financed which is impressive in light of the challenging gold market environment over the past year.

We look toward updates on the development of the asset to drive further share price movement. � Avocet Mining (AVM LN) tough full year results following production of 118koz for cash cost of US$1,203/oz and a pre-tax loss of US$149.4m or US$46.0m pre-exceptional items.

EBITDA was down US$58.8m to US$-10.5m in the year.

FY13 suffered a fall in the gold price and major problems at the mine leading to disappointing operational performance.

A new life of mine plan is being developed currently in light of the weaker gold price and including the installation of a carbon blinding circuit due mid-year to deal with carbonaceous ores.

The company maintains its need for US$20-30m of financing to proceed with its new plan, the shortfall partly a consequence of required maintenance shutdowns.

Avocet has US$76m of debt plus nearly US$3m in finance leases.

It has yet to pay the US$15.7m Elliott loan that was due for repayment at the end of December.

Cash stood at US$15.2m.

Source: Company Investec view: The poor 2013 should come as no surprise as Avocet has continued to struggle at Inata.

Going forward, we hope the new life of mine plan will demonstrate value to be enhanced from exploration work underway that could contribute to the operation longer term.

We await the results of the studies and financing discussions. � Lonmin (LMI LN) update on wages: negotiations suspended as respective parties too far apart.

The major platinum miners have proposed 3 year wage agreements with increases of 7.5-9.0%, with the lowest paid employees receiving 9% in year one.

AMCU has lowered its demand, however it effectively is still seeking a 30% increase in year one.

As of today, LMI has lost around 90Koz of saleable platinum which will result in it missing its targeted 750koz target for the year to September, and unit costs will also suffer.

Source: Company Investec view: We understand the smelter has also been halted, which wasnt the case at the time of the late 2012 disruptions, and consequently the ramifications of the current protracted strike could be more problematic.

The company had built up considerable inventories but these could now be running low.

The strike will no doubt adversely impact the companys earnings. � Tom Albanese to be Vedantas (VED LN) new CEO.

VED has announced that former Rio Tinto CEO, Tom Albanese, will take over as CEO of VED from 1 April.

Source: Company � Sirius Minerals (SXX LN) to raise funds.

SXX has announced the proposed placing of new shares at a placing price of 12p to raise a minimum of �30m.

The company will issue one warrant, which will have an exercise price of 18p, with every two placing shares subscribed.

Fund will be used to progress the York potash project and complete a DFS.

Source: Company � Mongolian Mining Corporation (975 HK) refinances debt facility.

Mongolian Mining Corporation (MMC) has entered into a facilities agreement with two international banks for an US$150m coal pre-export loan facility with a greenshoe option of up to US$50m.

The facility will be used to refinance the existing term loan facilities of up to US$300m of which US$130m is currently outstanding.

Source: Company Investec view: This is positive news in our view as it improves MMCs cash situation over the medium term whilst the company waits for coking coal prices to improve.

MMC has not disclosed the interest rate of the US$150m facility agreed but it is likely to be considerably higher than the LIBOR + 3.25% of the previous term loan.

The loan will be amortised monthly over a 33 month period, extending the duration of the previous term loan facilities, and improving cash flow in the short-term.

With coking coal prices still depressed MMC will have to continue to aggressively manage its free cash flow.

Whilst the company has recently realised US$90m in cash from the sale of the UHG mine to Gants Mod road, MMC still has an US$105m payment to Kerry Mining due in 2014.

We believe there will be some flexibility around the timing of this payment. � Rio Tinto (RIO LN) announces board changes.

RIO has announced that Anne Lauvergeon and Simon Thompson will join the boards of Rio Tinto Ltd and Rio Tinto Plc, and Vivienne Coxs will retire on 15 April 2014.

Anne was previously CEO of AREVA Group (the French nuclear power group) and an advisor/chief of staff at the French Presidency.

Simon held a number of senior roles at Anglo American.

RIO is also making progress towards identifying another Australian non-executive board member.

Source: Company � Shenhuas (1088 HK) Chairman resigns.

Shenhuas Chairman, Dr Zhang Xiwu, has resigned as Chairman of Shenhua due to an adjustment of work arrangements.

Source: Company Investec view: Local press speculation is that Dr Zhang will be appointed as deputy of the State-owned Assets Supervision and Administration Commission of the State Council (SASAC) - a promotion.

The SASAC is responsible for managing Chinas SOEs.
[cid:image007.png@01CF3914.11C07B30]
Commodities news � Iron ore exports to China from Australias Port Hedland rose 36% yoy in February to 21.34mt, the difference is partly a consequence of the timing of the Lunar New Year.

Total shipments from the port in the period came to 27.79mt up from 19.9mt the previous year.

February also saw heavy rains in the Pilbara which sources the iron ore for the major export ports.

Source: Thomson Reuters � European coal prices up US$1.5/t yesterday to US$75/t in response to higher freight rates that are priced into contracts.

Source: Thomson Reuters � EU plans voluntary rules on conflict mineral imports.

On Wednesday, the EU proposed voluntary rules to prevent European countries from importing conflict minerals after the USs tougher legislation had backfired, forcing many companies to stop operating in Africa.

This has resulted in people losing their jobs and livelihood in Africa.

Key mineral concerns are tin, tungsten, tantalum and gold.

About 880,000 EU companies use sensitive minerals, but Brussels insists it will focus on the 400 main importers which is realistic to control.

Source: FT � Coal thefts in Indonesia.

Lawyers at law firm Macfarlanes have reportedly been asked to investigate claims that up to 2mt/month of coal is being stolen from Bumi Resources (BUMI IJ) 70% owned Arutmin mines.

Source: Bloomberg Investec view: Whilst there is probably some illegal mining in Indonesia the volumes quoted seem exaggerated - Arutmin reportedly only produced c.

27mt (100% basis) in 2013.
Other economic news � Bakrie vows protectionism for natural resources if he is elected in July.

According to Aburizal Bakrie who rates himself to win a presidential election in July and whos Bumi coal mining business has faced financial probes, said Indonesia should keep more resources such as natural gas at home to bolster its domestic industries.

Source: Bloomberg
African resources update � Zimbabwes only reserves are gold coins valued at US$501k according to the finance minister, highlighting the countrys disastrous finances.

The country produced 13t of gold last year well down from the record of 29t in 1998.

The country expects to spend 70% of its US$4.1bn budget on salaries this year.

Source: Thomson Reuters � Ivory Coast passes long awaited mining code that is hoped to draw in more investment and double gold output by next year.

The new code extends permit holding from 7 to 10 years with a possibility of an extra 2 years, although permit areas are to fall from 1,000km2 to 400km2.

A controversial windfall tax has not been contained in the new code.

Source: Thomson Reuters � South Africa looks marginally better in Fraser Institute score.

South Africas attractiveness as a mining investment destination has improved marginally, achieving a score of 39.8 out of 100, up from 35 in the 2012/13 survey.

The top ranked country in the world is Sweden.

Source: Miningmx � Eskom power emergency.

The South African state power company has declared a new power emergency today, stating that there was a strong possibility that it would have to implement rolling blackouts for the first time in six years.

The grid has come under strain due to heavy rains in Mpumalanga making coal supplies wet.

Source: Reuters � DRC miners facing power supply shortage.

The DRC has urged mining companies to halt expansions because the country doesnt have the electricity capacity to service them.

Source: Miningmx
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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