🕐25.04.14 - 09:54 Uhr

INVESTEC GLOBAL NATURAL RESOURCES DAILY - MINING - FRIDAY 25 APRIL - ABG LN, LMI
LN, VALE US, CLF US, YITAI COAL (3948 HK)



[cid:image001.png@01CF605D.0D0F1130] Friday, 25 April 2014 [cid:image006.jpg@01CF605D.11C80560]
Snapshot � Company news highlights: Research note on African Barrick, Lonmin indicates no resolution on wage negotiations, Vale wins tax appeal against Brazilian government, Cliffs facing activist investor on continued losses, Yitai Coal reports +CNY1bn MarQ profit � Commodity review highlights: Japanese ferronickel producers see lower output, higher costs, Gold ETFs losing shine in India, Investors starting to look at commodities again, Copper at 7 week high � Other economic news: Russias sovereign rating cut, China changes pollution legislation � African resources update: Major platinum producers to take wage offers directly to employees, Zimbabwe to reduce number of companies at its main gem field over revenue losses, Angola aiming to be Africas busiest maritime hub, Ethiopia to pay for Nile dam itself, Todays African proverb � Market notes: FTSE futures down 9.5 points this morning.

US markets were flat overnight (Dow 0.00%, S&P +0.17%) despite the likes of Apple being up sharply after strong numbers and Zimmer up 12% following news of an agreement to buy Biomet for $13.4bn.

Asian markets are mixed (Nikkei +0.17%, Hang Seng -1.32%, ASX200 +0.24%) as tensions between Russia and Ukraine continue to escalate with Ukrainian troops killing 5 pro-Moscow rebels and Russian military drills re-commencing near the border.

Much of this concern will spread to European markets today as John Kerry warns Russia that the widow to change their course in Ukraine is closing. Commodity markets - gold -0.05% $1,292.93/oz, silver -0.40% $19.5912/oz, platinum +0.21% $1,412.50/oz, copper +0.02%, $3.0885/lb, nickel -0.16% $18,329.00/t, iron ore +0.89% $113.20/t, thermal coal $73.75, WTI -0.17% $101.76/bbl, Brent -0.06% $110.26/bbl, zinc +0.79% $2,069.25/t.

Dual listed - BHP +0.21% A$38.28, RIO +0.30% A$62.98. Economic data due today: US - Markit Composite PMI, Services PMI (forecast 55.5), University of Michigan confidence (83.0).

Eurozone - UK retail sales (forecast -0.5%), UK mortgage approvals.
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Company news � Note out on African Barrick (ABG LN) following Q1 and project approvals.

We had already incorporated the Upper East and Gokona underground developments and have therefore merely tweaked the assumed parameters.

The good Q1 result and faster-than-expected new developments are offset by higher assumed D&A charges.

The net result is a 4% lift in combined FY14E/FY15E EBITDA, but a reduction in earnings per share, with FY14E and FY15E EPS reduced by 4% and 5% respectively.

A key positive of the changes is now a growing forecast net cash position from FY15E (previously flat).

Source: Investec � Lonmin (LMI LN) update on wage negotiations reflect no resolution following meetings with all parties.

The strike is into its 13th week and the company is urging AMCU leadership to accept the settlement offer that would remuneration reach ZAR12,500/month for entry level workers by July 2017.

Highest paid employees would see wages increase 7.5% and 9.5% for the lowest earners.

The increases over the period would cost the company over ZAR17,500/month per employees.

As well as cash the package includes medical, pension, over time and bonuses.

Source: Company Investec View: Clearly frustration continues for producers with Lonmin likely to be completely out of any stockpiles of metal to supply customers.

The other two majors have some production and we note the continued lacklustre pricing for platinum that indicates the market remains unconcerned over shortages. � Vale (VALE US) wins tax appeal against Brazilian government that could see it receive a US$10bn tax rebate.

The company has been in a decade long dispute with the government that led to agreeing to pay US$10bn in a settlement covering the period 2003-2012 on profits from overseas units.

The government can still appeal the decision.

Vale has already started to make payments that it may seek to recoup.

Source: Bloomberg � Cliffs Natural (CLF US) facing off activist investor on continued losses.

The company posted a Q1 loss of $83m, vs.

profit of $97m a year earlier, with company citing lower iron ore and coal prices and a harsh US winter.

It has still maintained full-year sales and production volumes for all business segments, stating that demand from North American customers is very strong.

CLF is being targeted by hedge fund, Casablanca Capital, which is arguing that the international assets are weighing on its cash-generating US business and should be spun off.

Source: Reuters, Mining Weekly Investec view: The Q1 results do not support Casablancas argument, with Australian iron ore sales margins at $25/t (similar to last year), albeit still below the US sales margin of $33/t (down from $51/t YoY).

Canadian operations were, however, running at a $31/t loss. � Yitai Coal (3948 HK) reports CNY1.03bn profit in MarQ14.

Yitai Coal reported MarQ14 coal production of 10.79mt, up 2.8% YoY, while coal sales totalled 13.98mt in the quarter, down 1.4% YoY.

The company reported a quarterly net attributable profit of CNY1.03bn, down 0.6% YoY, on revenue of CNY5.37bn, down 8.5% YoY.

Source: Company Investec view: Profit was flat YoY as Yitai managed costs well and benefitted from lower government tax and surcharges.
[cid:image007.png@01CF605D.11C80560]
Commodities news � Japanese ferronickel producers see lower output, higher costs.

Indonesias nickel ore export ban is curbing Japanese ferronickel output according to the Japans biggest producers.

Japanese buyers are increasing nickel ore purchases from the Philippines and New Caledonia due to the Indonesian export ban that went into effect in January 2014 but are buying lower grade material at higher cost.

Source: Bloomberg Investec view: The Indonesian raw ore export ban has been highly supportive of nickel prices and Sumitomo Metal estimates there will be a 30kt nickel deficit in 2014 as compared to its estimate for a 55kt surplus earlier this year.

Nickel Asia (NIKL PM), the Philippines largest nickel ore producer, is one of the largest beneficiaries of this trend. � Gold ETFs losing shine in India.

According to the Association of Mutual Funds of India, gold ETFs have lost 18% of their investor base since May 2013, recording net outflows of US$375m, against net inflows of US$231m.

Assets under management of gold ETFs declined by US$327m.

Source: Mineweb � Investors are starting to look at commodities again.

According to hedge fund manager, Pierre Andrund, investors are growing concerned about their exposure to equities and are looking to place contrarian bets in other asset classes such as commodities.

After a record US$50bn in redemptions last year, total inflows into passive commodity index funds and commodity related funds has so far totalled US$6bn.

Source: FT Investec view: This article follows another yesterday on Bloomberg, citing UN researchers, which noted that the retreat by the major investment banks from commodities trading was helping to re-establish true supply and demand fundamentals as the key factor in setting prices. � Copper at 7 week high following yesterdays rally in response to firm demand from China as would normally be expected seasonally.

However, futures are not rising further due to concerns over the Ukrainian situation.

Further impetus to price escalation came from the rumoured Chinese State Reserve Bureau buying as much as 500+kt this year.

Source: Thomson Reuters
Other economic news � Russias sovereign rating cut.

Russias sovereign rating has been cut to BBB- from BBB by Standard& Poors as the Ukraine conflict adversely affects the countrys economy.

BBB- is the lowest investment grade rating for S&P.

Source: Bloomberg � China changes pollution legislation.

China has passed the biggest changes to its environmental laws in 25 years, outlining plans to punish polluters more severely as leaders work to limit contaminated water, air and soil.

The changes provide a strong incentive for polluters to come into compliance as violators can be fined on a daily basis whereas previously polluters could often pay less in fines than it would cost to install and operate pollution controls.

According to the Ministry of Environmental Protection, Beijings air quality in 2013 failed to meet government standards on 52% of the days.

Source: Bloomberg
African resources update � Major platinum producers to take latest wage offers directly to employees as the strike continues for a 13th week.

AMCU that is leading the strike views such action as underhanded.

The loss of output as a consequence of all the strike could be as high as 900-1,000koz of platinum according to GFMS.

Source: Thomson Reuters Investec View: Despite the loss in actual production, producers had been building material inventories in finished metal and material in process prior to the strike, against what must have been lack lustre demand if it was possible to build such inventories.

Therefore the market supply situation, as implied by minimal price reaction to date.

We would also expect that downstream consumers, cognisant of possible strike action had also built up inventory. � Zimbabwe to reduce number of companies at its main gem field over revenue losses.

The country plans to reduce the number of companies running the Marange diamond fields from seven to one or two by the end of the year, after they reportedly failed to properly account for revenue.

A parliamentary committee last year said "tens of millions" of dollars of revenue due to the government were never received.

The Mines Ministry expects Zimbabwe is expected to produce 16.9m carats this year, from 8m carats last year.

Source: Bloomberg � Angola aiming to be Africas busiest maritime hub.

Angolas main port in Luanda is aiming to reduce its cargo unloading time by 80% as the government plans to build a new terminal bigger than Africas busiest, Durban in South Africa.

Luanda port processes about 80% of cargo shipped to Angola, but a proposed port at Dande, 50km north, is aimed at becoming a regional hub, transferring shipments by railways and rivalling Durban as a gateway to landlocked countries such as Zambia.

Source: Bloomberg � Ethiopia to pay for Nile dam itself and threaten Egypts control over the Niles waters and could transform Ethiopia into a hydropower hub as it has rejected an offer from Cairo for financing the project.

The dam is a quarter built and will start producing its first 750MW of power by the end of this year.

The final installation is expected to generate 6,000MW.

Ethiopia has spent US$1.5bn so far on the project that will cost a total of c.

US$4.3bn (77bn birr).

The IMF has warned that the cost to the country could hurt economic growth.

Source: Thomson Reuters � Todays African proverb.

"The tears of a cow being slaughtered are the happiness of the dog expecting to enjoy the bones".

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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