🕐25.03.14 - 11:00 Uhr

INVESTEC GLOBAL NATURAL RESOURCES DAILY - MINING - TUESDAY 25 MARCH - FXPO LN, A
AL LN, SDL AU, NOBL SP, GLEN LN, HZM LN, 1878 HK, RIO LN, 914 HK



[cid:image001.png@01CF4810.B44F82A0] Tuesday, 25 March 2014 [cid:image002.jpg@01CF4810.B44F82A0]
Snapshot � Company news highlights: Ferrexpo research note out, Anglo American halts Los Bronces operations, Sundance secures off-take from Noble, Glencores Tintaya-Antapaccay hit by 48hr strike, Horizonte completes PFS, South Gobi likely to require funding, Anhui Conch CY13 profit � Commodity review highlights: Platinum talks going nowhere, China drops steel consolidation plan, Friedland sees copper flat for years � Other Economic News: Pace of Chinese urbanisation slowing, European March PMI, Russia braced for $70bn capital outflows � African Resources Update: Platinum strike to reduce SA growth by 0.25%, todays African proverb � Market notes: FTSE futures up 19.5 points.

Following a rough day in Europe yesterday and a weak lead from the US overnight (Dow -0.16%, S&P -0.49%) the UK market is looking to open in the green this morning.

Weak manufacturing data out of the US compounded by the continued tensions in Ukraine and the risk of Russia entering a recession as more sanctions are proposed is keeping a lid on markets for the moment.

Asia is also weak (Nikkei -0.36%, Hang Seng -0.46%, ASX200 -0.19%) with the gold sector in Oz being sold off quite significantly. Commodity markets - gold +0.41% $1,314.36/oz, silver +0.54% $20.062/oz, platinum +0.06% $1,432.00/oz, copper +1.04%, $2.976/lb, nickel +0.05% $16,089.00/t, iron ore -0.18% $110.50/t, thermal coal $73.50, WTI -0.19% $99.40/bbl, Brent -0.20% $106.60/bbl, zinc -0.49% $1,936.25/t.

Dual listed - BHP +0.50% A$35.92, RIO +1.43% A$62.38.

Gold lifted slightly on Ukrainian tension, WTI drops on rising stockpiles in the US, copper advances for the second time in 3 days on speculation China will take measures to bolster growth and supplies from Anglo Americans Chilean mines will be disrupted following protests. Economic data due today: US - House price index (forecast 0.6%), consumer confidence index (78.5), Richmond Fed manufacturing index (4), new home sales (445K).

Eurozone - French manufacturing confidence (forecast 100), French business confidence (95), German IFO business climate (110.9), German current assessment (114.5), German IPF expectations (107.7).

UK - CPI (forecast 0.5% MoM), RPI MoM (0.5%).
Company News � Ferrexpo (FXPO LN) update note.

Note out today on FXPO with three key areas of interest: (1) Factors FXPO will want comfort on before developing its 10Mt FYM concentrator: Russian situation, Ukraine economy (especially VAT situation), iron ore price, (2) the broad range of broker iron ore price assumptions and potential impact on FXPO, including a c.US$300m spread in FY15E and FY16E revenue, and (3) dividend potential, noting that If FXPOs special dividend were to become the norm, it would offer the highest yield in the sector at c.5.6% on the current share price.

Source: Investec � Anglo American (AAL LN) halts operations at Los Bronces.

Following violent protests by contract workers, AAL has halted the processing plants and plans on evacuating staff.

Contractors have reportedly looted the site and damaged installations.

The companys other mines in Chile are running normally.

Source: Bloomberg Investec view: Los Bronces contributes 35% of the companys attributable copper production, and given that the copper division is expected to contribute 22% of total FY14E EBITDA, it would remove 8% of total EBITDA if the disruption lasted for the full year.

Our analyst would expect only a negligible impact on earnings if this dispute with contractors gets resolved reasonably quickly. � Sundance (SDL AU) closer to financing Mbalam-Nabega.

The company has signed a 10-year offtake deal with Noble Group (NOBL SP), for all direct shipping ore (DSO) outside that allocated to project equity participants.

SDL has the option to claw back up to 50% to allocate to eventual project partners.

Around 80% of the $4.7bn capex is for port and rail and SDL has narrowed the EPC tender process for this down to two parties, a Chinese SOE and a European infrastructure provider, with the preferred bidder to be announced in the JunQ.

SDL aims to announce financing in late 2014/early 2015, with production from 2018.

Source: Bloomberg, MiningNews Investec view: This is a significant development for the company, since it will provide a degree of comfort to potential debt financiers.

While the infrastructure hurdle remains onerous, we have long believed that Mbalam-Nabega should form the core of a new iron ore province that is independent from the majors. � Glencore Xstrata (GLEN LN) Tintaya-Antapaccay copper mine in Peru hit by 48hr strike over union wage demands.

The mine produced 151.2kt Cu last year and is reportedly operating normally with 900 of 1,200 workers downing tools.

Source: Thomson Reuters � Horizonte Minerals (HZM LN) PFS completed on Araguaia project outlining a 15ktpa Ni production over a 25 year mine life for a cash cost of US$4.16/lb (bottom quartile) for a capex of US$582m generating an IRR of 21% and NPV post tax of US$1,204m at US$19,000/t copper and 8% discount rate.

The operation would process 900ktpa of ore at 1.76% Ni.

A larger 2.7mtpa scenario has also been examined that would produce 40ktpa Ni for a capex of US$1.436m at US$4.24/lb cash cost.

The operation would produce ferronickel using standard proven rotary kiln technology.

Source: Thomson Reuters Investec View: This is a key milestone for the company as it advances its Araguaia project.

The smaller lower capital scenario is clearly more within reach of a junior miner than the larger project.

Furthermore, the company has Teck Resources as a major shareholder 42.5% that should assist with financing such a project on completion of a BFS.

We note also the changing landscape in the nickel market as the Indonesian mineral exports ban is set to cut significant nickel in pig iron production in China helping to better balance the market. � SouthGobi (1878 HK) reports CY13 loss of US$238m.

SouthGobi, controlled indirectly by Rio Tinto (RIO LN), posted a CY13A loss of US$238m, of which US$139m was incurred in DecQ13A.

This was substantially worse than our forecast loss of US$104m due to a bevy of noncash items.

Source: Company Investec view: Investec view: Outlook commentary was bleak with management indicating that slow demand post Chinese New Year and further coal price falls have left the SouthGobi actively seeking financing to satisfy its obligations.

Our analysts believe that the company will require US$30m of funding over the course of the year to meet its obligations.

Asset sales, a rights issue, or loans are options to address the cash shortage but will potentially come at a high cost and complicated by the CIC convertible bonds terms.. � Anhui Conch (914 HK) reports CY13 profit of CNY9.4bn up 48.3% YoY.

Chinese cement producer Anhui Conch reported a CY13 attributable profit of CNY9.4bn, up 48.3% YoY.

The company produced 183mt of clinker and 189mt of cement in CY13, up 16% and 25% YoY respectively.

At the end of the reporting period the company had installed clinker/cement capacity of 195mtpa/231mtpa respectively.

The company expects 2014 capital expenditure to be CNY8.5bn, excluding M&A, and the company expects to increase clinker/cement production capacity by 19mt/30mt respectively in 2014.

Source: Company Investec view: The company expects further improvements in supply and demand conditions in the cement sector in 2014.

The company expects steady growth in cement demand with huge potential in the central and western regions.

New supply will be constrained by the Guidelines on Addressing Severe Overcapacity (Guo Fa No.

41) and environmental protection standards will see some capacity phased out.
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Commodities News � Platinum wage talks update from the three PGM majors indicate that whilst open to negotiations with AMCU, no talks are currently underway, highlighting that the strike is at a stage where some of the impacts on the companies, employees, local businesses, suppliers and communities are becoming irreparable.

ZAR10bn revenue has now been lost and ZAR4.4bn earnings.

Source: Platinum Wage Negotiations 2014 Investec View: As producers run down remaining inventories we would expect platinum prices to rally.

It is however, concerning that platinum prices have not performed more strongly and in fact are tracking gold most recently, implying that there is still metal readily available.

We would expect that some consumers will have been building up stockpiles at suitable opportunities.

Palladium prices in contrast have performed better benefitting from concerns over Russian sanctions. � China has dropped its plan to bring 60% of steel output under control of the 10 biggest companies by 2015.

The plan has been criticised by companies such as Baosteel for causing a build-up in unprofitable capacity.

The plan had been part of a state strategy to help state owned steel firms become more competitive by swallowing up smaller rivals which has led to a number of mergers.

Chinas top 10 steel producers last year accounted for 39.4% of output.

Utilisation rates last year were 72%.

Source: Thomson Reuters Investec View: Over capacity in the steel industry is a material issue that the government has been trying to resolve.

We wait to see whether new policies will be introduced to curb capacity developments and perhaps close less competitive more polluting plants. � Friedland sees copper flat for years to come.

Robert Friedland, chairman of Ivanhoe Mines (IVN CN), speaking at Mines and Money in Hong Kong, stated that he sees US$3/lb as the equilibrium price for copper until 2017-2018, but with a "huge copper price rally" to then follow, given the lack of new discoveries and lack of investment into new mines.

Source: Bloomberg, MiningNews Investec view: Friedland gets quite of the day from us.

Referring to the 2017-2018 date, he says, "Im sorry that sounds like a long time, but Im a miner.

2018 to me is literally like tomorrow morning."
Other economic news � Pace of Chinese urbanisation slowing.

A government report released this month projects a 6.3% rise in urban dwellers from 2013 to 2020, down from the 9.4% gain in the previous seven years.

Premier Li Keqiang, an advocate of the urbanisation-growth strategy, is facing headwinds including a shrinking pool of rural workers, high levels of local-government debt (up 253% since 2008) and pollution in almost all large cities.

A report today from the World Bank and the State Councils Development Research Center, recommends changes on land use to spur more-efficient and denser cities, which can save China $1.4tn from a projected $5.3tn in infrastructure spending over the next 15 years.

Source: Bloomberg � Eurozone PMI for March.

The Eurozone March PMI fell slightly for March from 53.3 to 52.2.

Given that it remained above 50, this marks an expansion in activity.

Source: FT � Russia braced for US$70bn in outflows.

According to Russias deputy economy minister, the Russian government is braced for the countrys capital outflows to soar to approaching US$70bn in the first 3 months of the year as investors aim to distance themselves from the fears of tighter sanctions hitting the economy.

Russia has also been suspended from the G8.

Source: FT
African Resources update � Platinum strike to cost South Africa 0.25% in growth.

According to a Reuters article, the eight week long strike in the platinum sector would reduce economic growth by 0.25% given that the ZAR9bn lost in platinum revenues would be taken out of South Africas current account as the revenue would mainly be exports.

Source: Reuters, MiningMX � Todays African proverb.

"Vultures are bald but they are not all elders".

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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