🕐23.04.14 - 11:54 Uhr

INVESTEC GLOBAL NATURAL RESOURCES DAILY - MINING - WEDNESDAY 23 APRIL - PDL LN,
IRC (1029 HK), SBLM LN, NCM AU



[cid:image001.png@01CF5ECB.ECAE9470] Wednesday, 23 April 2014 [cid:image006.jpg@01CF5ECC.169B2780]
Snapshot � Company news highlights: Petra Diamonds Q1 shows company on track, IRC MarQ run rate ahead of guidance, resource increase for Sable, good quarter from Newcrest takes it to top end of guidance � Commodity review highlights: Australian freight contracts prolonging the coal supply glut, India expects flat potash imports as reduced subsidies offset lower prices, Gecamines to boost DRC copper output, diamond prices expected to rise 5-10% this year, El Nino expected to keep coal price slow, Sumitimo forecasts nickel deficit � Other economic news: China flash PMI, Indonesia to start cancelling investment treaties, major banks shrinking commodities desks, increased US pressure to implement conflict minerals rules � African resources update: Zimbabwe nickel benefiting from Indonesian ban, todays African proverb � Market notes: FTSE futures -2 points this morning.

Markets set to open relatively flat today.

US markets were positive (Dow +0.40%, S&P +0.41%) thanks to a rally in the health care sector with a $45.7bn bid for Allergan and earnings releases from Netflix and Harley Davidson beating estimates.

Asian markets are mixed (Nikkei +1.09%, Hang Seng -0.98%, ASX200 +0.70%) with the Yen rallying off the back of BOJ Governor Kurodas comments about inflation exceeding the official estimate.

The flash Chinese manufacturing PMI print of 48.3 indicated a 4th straight month of contraction, however this was a smaller contraction than previous months (48 in March) and in line with analyst estimates. Commodity markets - gold +0.05% $1,284.43/oz, silver +0.17% $19.454/oz, platinum +0.28% $1,404.20/oz, copper -0.23%, $3.027/lb, nickel +2.27% $18,305.00/t, iron ore -0.71% $112.50/t, thermal coal $73.40, WTI -0.22% $101.53/bbl, Brent -0.18% $109.07/bbl, zinc +1.02% $2,075.00/t.

Dual listed - BHP +0.39% A$38.15, RIO -0.13% A$62.65.

Iron ore came under more pressure yesterday on new traders are under pressure to sell their port stocks to repay debts, positive US data and comments from San Francisco Fed president sent gold lower (now at 10 week low). Economic data due today: US - MBA mortgage applications, Markit US manufacturing PMI (forecast 56.0), new home sales (450K).

Eurozone - French manufacturing PMI (forecast 51.9), French services PMI (51.3), German composite PMI (54.0), German manufacturing PMI (53.8), German services PMI (53.3), Eurozone manufacturing PMI (53.0), EU services PMI (52.5), BOE minutes, UK public finances.
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Company news � Petra Diamonds (PDL LN) Quarterly production update reflecting ramp up across asset base driven by Finsch.

Output up 15% yoy to 743k carats putting the company firmly on track to achieve its 3.0, carats this year (YTD 2.38m carats).

Revenue in the period totalled US$163.9m up 55% yoy (including US$25.6m blue stone).

At the end of the period the company had cash of US$29.7m, diamond debtors of US$64.9m, diamond inventories of US$35m and debt of US$155m, well within its credit facilities, with net debt at US$118m.

Finsch put in a strong performance, Cullinan suffered grade volatility with the other assets putting in mixed performance.

Source: Company Investec View: Grade volatility at Cullinan undermined output at the mine.

However, this is likely to continue until the expansion programme opens up undiluted ore.

Finschs good performance offset this.

Note that 85+% of the value sits in Cullinan and Finsch, in our view. � IRC Ltd (1029 HK) MarQ14 production.

IRC reported MarQ14A iron ore/ilmenite production of 253.6kt/40.9kt at Kuranakh, a bit above our production forecasts and above the run rate required to achieve the companys conservative CY14E guidance of 900kt iron ore and 160kt ilmenite.

Source: Company Investec view: K&S stage 1 remains on schedule for commercial production in DecH14 and remains a major earnings and share price catalyst in our view.

However, General Nice/Minmetals Cheerglory have indicated they are still not in a position to complete the c.

US$238m share subscription announced in 2013, leaving IRC c.

US$88m short of equity financing for K&S stage 2. � Resource increase for Sable Mining (SBLM LN).

The company has provided a further Nimba resource update, increasing the total resource base to 181.8mt at 58.8% Fe, including 148.4mt in the Indicated category.

Metallurgical test work is underway to enable future marketing.

Source: Company Investec view.

The ongoing growth in the DSO resource is positive news for the company, which is aiming for commercial production from the end of 2015.

We note, however, news articles that suggest Sable will face a challenge gaining access to infrastructure, with the incumbent rail user in Liberia, Arcelor Mittal, indicating that it has no spare capacity on its rail line for Sable to use. � Newcrest Mining (NCM AU) MarQ14 production.

Newcrest announced MarQ14 gold production of 551.6koz and copper production of 21.0kt.

The average realised gold price for the quarter of A$1,450/oz compared to an all-in sustaining cost of A$988/oz.

Source: Company Investec view: The company has maintained FY14 production guidance but expects gold production to be at the top end of the guidance range (2.3moz) and all-in sustaining costs to be below the lower end of guidance.
[cid:image007.png@01CF5ECC.169B2780] Commodities news � Australian freight contracts prolonging the coal glut.

Australian coal producers are reportedly prolonging a supply glut because of freight contracts that make it cheaper to ship at a loss than to cut output.

The miners are tied to port and rail contracts that oblige them to pay transport fees even if they dont ship any coal.

Spot thermal coal at Newcastle in Australia is under $73/t, the lowest since October 2009, while the contract price with Japanese utilities was settled last month at $81.80 last month, the lowest level in five years.

Source: Bloomberg Investec view: Ironically, the current supply glut from Australia is at least partly due to additional infrastructure that was built in recent years to feed growing Asian demand, infrastructure that was underpinned by the take-or-pay contracts that are now prolonging the supply glut. � India potash imports flat, even with lower pricing.

According to officials in Indias Department of Fertiliser, the country is expected to import 3.5mt of potash during 2014/15 with domestic fertiliser producers expecting substantial savings from lower potash price offers.

India Potash has stated that it has signed a supply contract with Russian producer, Uralkali (URKA RX), for the import of 0.8mt at a $322/t.

Between Apr13 and Jan14, Indian potash imports were about 3.1mt at an average $416/t (including 2.5mt contracted at $427/t).

Canpotex is expected to match Uralkalis price.

Source: MiningWeekly, Reuters Investec view: If the report is correct then Indian imports in FY15E are only likely to be steady versus FY14E, notwithstanding the significantly lower price.

This is because there is unlikely to be much benefit to the end consumer since the government also intends reducing the fertilizer subsidies that it provides. � Gecamines to boost copper production by 46% in 2014.

DRC state mining company Gecamines plans to boost copper production by 46% to 60kt in 2014, up from 41kt in 2013, according to CEO Ahmed Kalej Nkand.

Growth will come in part from a 3kt/month copper tailings processing project being built with Trafigura at the Lupoto mine.

Gecamines is also seeking to financing development of its Deziwa and Ecaille C mining concessions with reserves of 4.85mt copper and 0.40mt cobalt.

Source: Bloomberg � Diamond prices expected to perform well this year rising by as much as 5-10% following recovering jewellery demand in developed and emerging markets according to head of Belgiums diamond lobby.

The global market came under pressure in 2013 following a weakening rupee and tight credit conditions in India supressing demand from the worlds biggest diamond polishing market.

Source: Thomson Reuters � Coal prices set to remain depressed over the summer months due to the expected return of the El Nino weather pattern allowing for higher coal output in the Southern Hemisphere whilst demand stays stagnant in the northern hemisphere.

Fewer tropical and subtropical flooding disruptions will occur in major coal exporting countries such as Australia and Colombia.

Spot coal prices in Europe are around US$77/t, for cargoes from Australia prices are at around US$73/t with concern of pricing falling to US$65-70/t.

Source: Thomson Reuters � Sumitomo Metal Mining (5713 JP) forecasts nickel deficit.

The company has forecast that the global nickel market will move into a deficit in late 2014, the 1st time since 2010, on the Indonesian export ban, with demand expected to exceed supply by 30Kt.

This compares with a January estimate for a 55Kt surplus and is an admission that the company "underestimated the impact of Indonesias ban on global supplies in January".

The comments come as Norilsk Nickel (MNOD LI) stated at the beginning of April that demand may exceed supply as early as 2Q14.

Source: Bloomberg
Other economic news � China flash manufacturing PMI 48.3 in April.

The HSBC flash China manufacturing PMI was 48.3 in April, the fourth consecutive month that the reading has indicated that Chinas manufacturing sector is contracting.

The reading however matched the median consensus estimate and was above Marchs final figure of 48.0.

Source: SCMP � Indonesian government to start cancelling investment treaties with 62 countries that could have a greater impact on the mining industry than banning mineral ore exports.

The agreements protect the rights of investors in each others countries, including the re-patriation of profits.

The motion appears to be a continuation of a move to ensure that Indonesian resources are controlled by the government and/or domestic investors.

Source: Thomson Reuters Investec View: Such action clearly increases the risk profile of operating in Indonesia still further.

Disputes would have to be settled in domestic courts and little recourse to international arbitration in a disagreement if treaties are cancelled. � Major banks shrinking commodities desks and increasing use of technology to drive precious metals trading activities into forex businesses, separate from other commodities businesses.

This is hoped to allow the banks to reduce costs for trading the metals.

Total commodity trading revenues of the top investment banks totalled around US$4.5bn last year, well down from US$14.1bn in 2008 at the height of the commodities boom.

Source: Thomson Reuters � US lawmakers urging regulators to implement conflict minerals rules requiring companies to disclose if their products come from the DRC.

The rule was struck down by a US appeals court, however, pressure continues to try to implement it.

The rule focusses on tantalum, tin, gold or tungsten.

Source: Thomson Reuters
African resources update � Zimbabwe nickel sales benefit from Indonesian ban.

Bindura Nickel Corporation (BNC), Zimbabwes major nickel producer, sold all nickel it produced in the Q1, with a 1.5% increase in the average price.

Zimbabwe produced about 12,000 tons of nickel in 2013, with the government aiming to lift output this year to 15,000t.

Source: Source � Todays African Proverb.

"You do not teach the paths of the forest to an old gorilla".

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
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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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