🕐27.05.14 - 10:27 Uhr

INVESTEC GLOBAL NATURAL RESOURCES DAILY - MINING - TUESDAY 27 MAY - RIO LN, KGI
LN, FDI LN, GBU CN, FND AU



[cid:image001.png@01CF7983.015D6B90] Tuesday, 27 May 2014 [cid:image006.jpg@01CF7983.01A28AE0]
Snapshot � Company news highlights: Rio signs frame work agreement with Guinea over Simandou, Kirkland Lake appoints VP operations, Firestone enters into debt facilities, Gabriel Resources C$40m financing, Finders resources A$15.3m equity financing � Commodity review highlights: Copper prices up on Chinese stimulus, stronger nickel prices prompting stainless steel sales, Goro remains offline, gold slips, China to develop new gold exchange, Australian coal producers continue to suffer � Other economic news: Bank of Japan looks toward phasing out stimulus measures � African resources update: New South African mines minister appointed, todays African proverb Market notes: US market was shut for Memorial Day yesterday.

Early openings in Asia are inching higher and ever closer to new highs for the year after European stocks rose to their highest levels since 2008 on anticipation that the ECB will announce stimulus measures at its 5th June meeting.

This came after Mario stated at the inaugural ECB conference in Portugal that policy makers are ready to take action should they see low inflation becoming entrenched.

The Euro hit a 3 month low and fell below its 200DMA as a result.

Sticking with currencies and the Yen fell overnight after BoJ Deputy Governor said that excessive gains in the currency are bad for exports.

In China, markets are feeling positive as speculation rises that policy makers will take further steps to support growth after Premier Li said policy will be fine-tuned.

Of note, Yuan forwards fell after the PBoC cut the onshore reference rate to its lowest since September - now 6.1699.

Chinas Environment watchdog has asked the NDRC to revoke approvals for 2 petrochemical bases in Fujian and Dalian because they havent completed environmental impact assessments.

The State Council also announced yesterday that more than 5m ageing "yellow label" polluting cars will be taken off the roads this year, with 330,000 cars from Beijing, in the latest bid to cut emissions over the next 2 years. � Commodities:.

Copper rose sharply overnight, with July futures in the US touching US$3.2/lb during the session and SHFE August futures closing at RMB49,130/t, as many speculate about potential stimulus in China.

Talk of a reversal of gold curbs in India by the RBI is not getting too many excited, Finally, spot iron ore and rebar both bounced overnight on the prospects of Chinese stimulus. � Data Due: US$ - Durable Goods Orders April (est.

-0.7% MoM, prior +2.5%); March S&P/Case-Shiller 20 City Home Price Index (fcst +0.7% MoM, prior +0.76%); Consumer Confidence Index; Dallas Fed Manufacturing Activity, EU - Spanish Budget Balance YTD, Japan - Small business Confidence
Company news � Rio Tinto (RIO LN) and the Government of Guinea sign Simandou South Investment Framework.

The partners in blocks 3 and 4 of the Simandou iron ore deposit, the Government of Guinea (7.5%), Rio Tinto (46.57%), Chinalco (41.3%), and the IFC (4.625%) have signed an Investment Framework (IF) providing the legal and commercial basis for the projects development.

The IF is expected to be ratified by the Guinean National Assembly in the coming days after which the project partners will finalise a bankable feasibility study within c.

1 year.

Simandou South will cost c.

US$20bn and include a 100mtpa mine, 650km trans-Guinean multi-user rail, and a deep water port.

Key terms of the IF include: the right of the Guinean Government to increase its interest to 35% within 20 years (including a further 7.5% for free), a 30% income tax rate, royalties of 3.5% of the FOB price for all iron ore exports, a 0.25% contribution of turnover to local community development, and transfer of infrastructure to the government after 30 years.

The infrastructure is expected to be funded, built, owned and operated by 3rd parties.

Source: Company Investec view: Rio Tinto and its partners have a challenging task ahead in securing the project financing required for development of the port and rail at a time when markets are increasingly concerned about iron ore prices and increases in supply.

Whilst operating cash costs at Simandou are expected to be extremely competitive, capex intensity of at least US$200/t of annual capacity is relatively high.

The requirement to build a trans-Guinean railway is particularly punitive especially when considering the lower cost option of railing through Liberia.

Assuming the mine costs c.

US$6bn and the port and rail infrastructure c.

US$14bn to develop, Rio Tintos required investment will be c.

US$2.8bn for attributable iron ore production of 46.57mtpa (based on the Guinean Governments current 7.5% interest). � Kirkland Lake (KGI LN) appoints Chris Stewart as VP operations to implement turnaround plans developed under new CEO George Ogilvie.

Chris is a mining engineer previously CEO of Liberty Mines.

Source: Company � Firestone Diamonds (FDI LN) enters into the ABSA Debt Facility, Subscription Agreements and Mezzanine facility agreement in relation to its US$225.2m financing to develop the Liqhobong Diamond Mine.

The new shares are expected to be admitted to AIM on 29th May for a total of 488m additional shares at 6.15c/share.

The majority of the funds from the placing are expected to be used before drawing down on debt facilities.

Source: Company Investec View: It has taken a while to finalise the financing that was agreed earlier this year.

We now look toward development updates as the asset moves ahead. � Gabriel Resources (GBU CN) financing of C$40m from investors as it prepares arbitration case against Romanian government concerning tis Rosia Montana gold mine.

The financing is to be in the form of C$1,000/unit convertible subordinated unsecured notes with an 8% coupon, 298 common share purchase warrants and one arbitration value right.

The notes are to mature in June 2019 and to convert at C$1.255/share or a 35% premium to the 30 day VWAP prior to23rd May.

The warrants are set at C$1.674/share and the arbitration right will entitle the holder to a prop-rata proportion of up to 5% of moneys received from a settlement capped at C$130m.

Source: Company � Finders Resources (FND AU) launches A$15.3m equity raising.

Finders Resources will raise up to A$10m in a share placement and a further A$5.3m in a 1 for 15 entitlement offer.

The placement and entitlement offer will both be at A$0.14/share, a 12.5% discount to the last close of A$0.16/share.

Proceeds will be for expansion of the companys 95% owned Wetar copper project in Indonesia from 300tpa to 28ktpa by 2H15.

Source: Company Investec view: The equity raising follows the announcement on 12 May 2014 that the company had secured US$45m of project level equity from Daewoo International and US$165m of senior loan facilities.
[cid:image007.png@01CF7983.01A28AE0] Commodities news � Copper prices up again to 11 week high on expectations of rising Chinese demand following premiers comments that the government will adjust policy to help the real economy.

Source: Bloomberg � Higher nickel prices prompting stronger stainless steel sales as consumers buy up supplies to avoid higher raw material surcharges.

Outokumpu reported a 9.1% jump in stainless steel deliveries in its Q4.

Nickel typically accounts for half the cost of stainless steel, and mills impose surcharges to cover increases in expenses.

In addition, Chinese stainless makers have lost their price advantage following the nickel ore export ban from Indonesia.

Source: Bloomberg � Vale (VALE US) major Goro nickel mine remains suspended with dialogue continuing with government and local communities.

The operation was halted on 7th May following a spill of acid containing solution.

Source: Thomson Reuters Investec View: This event has help to drive up nickel prices that were already rising in response to the Indonesian ore export ban.

Although we note that LME inventories of the metal have been creating up over the last month or so and currently sit at around 280kt implying that there is metal around � Gold down sharply this morning on perception that the tensions in Ukraine are easing reducing the safe haven appeal of the metal.

Source: Bloomberg � China plans to develop a new gold exchange in Shanghai as it seeks to exert greater influence over gold pricing.

The timing coincides with the increased scrutiny over benchmark prices for gold as Barclays (BARC LN) became the first bank to be fined (�26m) over the manipulation of the 95 year old London gold market fix.

Source: Thomson Reuters � Australian coal producers suffering from low prices with around half the thermal coal mines and 45% coking coal above current prices with the Newcastle thermal coal spot price at around US$74.33/t, and coking coal at US$116/t.

Most producers have been trying to overcome weaker prices by ramping up volumes and cost cutting.

Source: Thomson Reuters Other economic news � Bank of Japan reported to be shifting focus from supporting growth toward phasing out its massive stimulus programmes.

Inflation is now pas the half way mark of achieving 2% and the economy appears to have held up following last months tax increase.

Source: Thomson Reuters
African resources update � New South African Mines minister appointed Ngaoko Ramatlhodi, to take over from Susan Shabangu as part of a number of changes in government.

News reports indicate that he may well be less mining friendly than his predecessor, with speculation that he will be keen to increase government stake in mines.

Source: Mining MX Investec View: We wait to see whether he can help unlock the stale mate between AMCU and the three major platinum miners. � Todays African Proverb: "A baby on its mothers back does not know the way is long" 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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