🕐23.05.14 - 09:27 Uhr

INVESTEC GLOBAL NATURAL RESOURCES DAILY - MINING - FRIDAY 23 MAY - ANTO LN, KGH
PW, IMP SJ, URKA LI, NAK US, IMP SJ, RRL AU



[cid:image001.png@01CF765D.D1363320] Friday, 23 May 2014 [cid:image006.jpg@01CF765D.D6667A30]
Snapshot � Company news highlights: Antofagasta research note, KGHM looking for US$2.5bn in loans, Implats CEO raises concerns over possible strike resolution, Uralkali plans to near maximise production, Northern Dynasty files suit against EPA, Regis Resources updated production guidance � Commodity review highlights: Indonesian ban on ores continues to impact nickel market, palladium scrap supplies tightening as recyclers hold off for higher prices, aluminium premiums near record, Pilbara tug boat strike on hold � Other economic news: Australian M&A activity weak in Q1 � African resources update: Taureg separatists seize several towns in Mali, Ghana to suspend issuing prospecting licenses, Zimbabwe plans to use diamonds to secure loans, Todays African proverb � Market notes: A better close in the US and Europe, with small caps leading the gains overnight as the better China PMI and the US housing numbers offset broadly weaker Eurozone data and the US jobless print.

Expectations of imminent ECB easing offset jitters about the EU elections, where results are due on Sunday evening, with bonds stable overnight.

Talk of M&A remains with BAT reportedly in merger talks with Reynolds American.

Of note in the IPO world, JD.com rose 10% on its trading debut last night in the US, hitting US$20.90/share after the raise was upsized. Markets: Bouncing in the early openings on the back of the better US data, with Japan leading the gains on a weaker Yen.

Concerns over the state of Thailand are rising after a military coup, with the army suspending the constitution and instituting marshal law.

The Baht remains stable though at around 32.

In China, it is all about the housing market, with the local papers reporting on the comments from the PBOC that there may be bubbles in certain cities.

However, the China Securities Journal is citing researchers at the Housing Ministry who have stated that the government may soon remove its curbs.

Interesting to note that the HK market continues to weaken with Cheung Kong (1 HK) reportedly offering discounts of up to 16% on its latest residential project here.

The Chinese government is also considering heavier "resources" taxes on rare earth producers, with changes likely to be announced in 2H14 Commodities: gold bounced overnight on the weaker jobless numbers in the US, with futures rising close to US$1,300/oz.

Copper had a decent bounce after the Chinese PMI print inched towards the all important 50 level and as LME stockpiles fell for a 22nd day to 177.3Kt, the lowest since September 2008.

July futures closed at US$3.142/lb in the US.

Iron ore futures rose overnight to US$100/t on the SGX, following the moves in rebar overnight post the better China PMI print.
Company news � Antofagasta (ANTO LN) research note published incorporating likely higher taxes from FY17.

Chairmans statement highlighted two key issues, likelihood of increasing taxes to 35% from FY17, and the uncertain near/midterm copper outlook.

The company is in a consolidation phase focussing on getting costs down and delivering capital programmes.

These factors look set to undermine special dividend potential for the foreseeable future which was always a strong attraction for holding Anto.

The balance sheet has been much reduced following the 140% ratio dividend pay-out (US$937m).

Cash generation over the next 2-3 years we believe will prevent it rebuilding to last years levels (US$1.3bn net cash in Dec 13 and US$2.4bn in Dec 12) unless copper prices rally strongly.

Source: Investec � KGHM (KGH PW) in talks with banks for a possible US$2.5bn five year loan.

The company currently has no debt and earlier this year indicated that it would tap the market for debt financing to pay for its planned mining projects including the Sierra Gorda Chilean (120ktpa) copper project.

Source: Thomson Reuters � Implats (IMP SJ) CEO yesterday provided negative views on talks underway to resolve strike action suggesting that the strike could continue for some time as the two parties remain too far apart.

Implats is losing around 60% of its gross output as a consequence of the strike.

The company flagged up concerns over working capital that would be required to get production back to normal levels, as well as that a year-end dividend looks unlikely.

The company is also looking to re-establish a pre-existing base metals refinery to process nickel and copper and would cost US$100m, however, the government is putting pressure on miners to develop a US$2-3bn PGM refinery.

Source: Thomson Reuters Investec View: Clearly the company is facing major difficulties with the strikes in progress that will undermine its ability to make such material investments in Zimbabwe.

Furthermore the economic case for developing additional supply is questionable, particularly in such a challenging jurisdiction. � Uralkali (URKA LI) plans to near maximise production.

The Russian potash producer, the worlds largest, has stated that it plans to produce around 12mt of its 13mt of available capacity, with demand from Brazil and China said to be strong.

URKA will consider next year whether to continue expanding production by a further 4.5mtpa, through development of two new projects.

The company states that while renewing a trading partnership with Belaruskali is an option for Uralkali to increase shareholder value, it is only one of several options and that there is no urgent need for the partnership.

Source: Thomson Reuters � Northern Dynasty (NAK US) files suit against EPA.

The battle between the Canadian mining hopeful and the US Environmental Protection Agency (EPA) has become even more acrimonious.

Plans to develop the Pebble deposit in Alaska were halted by the US Environmental Protection Agency (EPA), which applied a seldom-used regulatory process under the Clean Water Act (CWA) veto the project.

NAKs lawsuit is intended to halt this, arguing that the federal agency has exceeded its authority.

Source: MiningWeekly Investec view: NAK is left to battle along alone, after Anglo American (AAL LN) pulled out of the project in September last year with Rio Tinto (RIO LN) following suit thereafter, eventually gifting its 19.1% holding to two Alaskan charities. � Regis Resources (RRL AU) has updated its 2015 production guidance to 305-355koz Au for its 3 operations at Duketon, with Moolart Well expected to be in the 95-105koz, Garden Well between 145-165koz and Rosemont 65-85koz..

The company provided an update after reviewing its mining schedules available for Garden Well and Rosemont after the recent flooding at both projects.

Source: Company
[cid:image007.png@01CF765D.D6667A30] Commodities news � Indonesias ban of unprocessed minerals continues to have an impact particularly on the nickel market helping to support prices.

Chinese nickel in pig iron producers have been living off inventory and been hoping for a reversal of the policy that looks unlikely at least for this year.

Thus far nickel ore imports from the Philippines have not increased to offset the decline in Indonesian supply, with only 4.7mt imported Jan-Apr, flat yoy.

Source: Thomson Reuters Investec View: At certain price levels we would expect other nickel ore sources to be increasingly economic for the nickel in pig iron producers which will limit upside to prices for the metal.

However, clearly Indonesian product was the highest grade and best quality making it the most economic to import for this market. � Palladium scrap supplies have tightened in response to junkyards holding off on sales in anticipation of still higher prices.

Collection volumes are reported to be flat or even declining.

Last year nearly one in five ounces of palladium came from recycled autocat converters of which 70% were sources from North America.

The average age of a scrapped catalyst is around 15 years.

Source: Thomson Reuters � European and Japanese aluminium premiums at record levels, with the European spot premium now at US$390-405/t and Japan at US$380-385/t.

Source: Reuters � Pilbara tugboat strike on hold.

The union that represents tugboat workers at Port Hedland will suspend taking strike action for the next 30 days to seek a settlement after "productive" discussions.

However, it has applied to extend the period in which it can take industrial action by 30 days.

Fortescue Metals (FMG AU) has stated that jobs will be put at risk if the deckhands go on strike.

Source: ABC News Investec view: The delay in strike action ensures that iron ore exports carry on as usual.

Good for the companies directly involved, although a touch of commodity price support would have been a welcome reprieve for the others, including Rio Tinto (RIO LN).
Other economic news � Australian mining M&A activity declined in Q1 according to Ernst & Young with only 45 transactions with a combined value of US$511m.

Globally only 135 deals were completed in the mining sector totalling US$6.7bn down 67% yoy.

The recently announced US$1.4bn Baosteel bid for Aurizon may indicate a turning point for transactions.

Source: Mining Weekly
African resources update � Tuareg separatists seize several towns in northern Mali following clashes with government forces, although they have said they would respect calls for a cease fire.

The army had launched an offensive to take control of the separatist stronghold of Kidal that was repulsed.

The government has ordered a ceasefire.

Source: Thomson Reuters � Ghana to suspend issuing gold prospecting licenses.

The country will suspend issuing permits while it carries out audit of existing licenses.

The minerals commission intends to sort out its system since some companies are holding onto concessions without doing any prospecting work.

Source: Reuters, Bloomberg � Zimbabwe plans to use diamonds to secure loans, presumably from China.

In a letter sent to diamond miners in Zimbabwe from the countrys mines secretary, they have been instructed to sell their production through the central bank, which then intends using the stones to secure government loans.

The deputy mines minister Fred Moyo said previously that Zimbabwe may use mineral exports, including gold and diamonds, to underwrite loans from China.

Producers have been instructed to prepare parcels that must be sorted and evaluated with the involvement of the Minerals Marketing Corp of Zimbabwe, a state company, with payment will be made soon after.

Diamond mining companies in Zimbabwe include Rio Tinto Group.

Source: Bloomberg Investec view: It will be interesting to see how the parcels are evaluated, given the involvement of a state bureau, just as it will be interesting to see how soon the miners receive payment subsequently.

The article notes that one of the private miners in the country is still to be paid the $5m it is owed after a gem sale in Dubai run by the Zimbabwean government. � Todays African proverb.

"The person who spends time on the seashore does not eat dry rice".

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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