🕐04.06.14 - 09:27 Uhr

INVESTEC GLOBAL NATURAL RESOURCES DAILY - MINING - WEDNESDAY 4 JUNE - BZM LN, MI
RL LN, 1378 HK, ILU AU, VALE US, PIR AU, BTO CN, GRY AU, AREVA FP, GBU CN, 893 HK, CKA AU



[cid:image001.png@01CF7FCB.D900CA30] Wednesday, 04 June 2014 [cid:image006.jpg@01CF7FCB.F31CBFF0]
Snapshot � Company news highlights: Bellzone capital raising, Minera DFS for Ollachea, China Hongqiao to buy Guinea bauxite mine, Iluka signs joint development agreement with Vale, Papillon and B2Gold to merge, Gryphon signs US$60m financing mandate, French investigation into Arevas Uramin acquisition, Gabriels Romanian project rejected by parliament, China VTM profit warning, Cokal unaware of reasons for share price volatility � Commodity review highlights: Increasing discount for 58% Fe product, Port Hedland exports break another record, Rusal expects 3.5mt of Chinese production cuts, aluminium spot premiums to continue rising, China accelerating small coal mine closures, copper price at two week low, European coal future keep falling � Other economic news: Japans misery index � African resources update: Upbeat comments from AMCU over latest wage proposal, todays African proverb. � Market notes: Market Notes: US session saw a slight pull back from record highs as Eurozone inflation data came in below forecast ahead of tomorrows ECB meeting.

Hand sitting continues ahead of the highly anticipated announcement of easing, although the moves in the euro overnight suggest that some are expecting to be disappointed.

Chinas manufacturing PMI print hit a 4 month high yesterday and gave some cause for optimism, although the faltering housing market suggests that more needs to be done by the government.

With a RRR cut for certain lenders announced, it will be seeing what the next round of soft measures will be.

The local papers are forecasting that the PBoC will resume reverse-repo operations this month that will push the 7 day repo rate down further.

Finally in China, the Land Ministry has submitted draft rules on a property registration system to the State Council. Commodities: More bad news for coal as China follows the US in setting caps on greenhouse gas emissions.

Reuters reports this morning state that the government will introduce an absolute cap on emissions that will be written into the next 5-year plan.

Current emissions are 7-9.5Mt and are expected to peak at 11Mt in 2030.

Spot copper prices fell the most in 4 months overnight after the weaker than expected China PMI print.

Iron ore prices rose slightly overnight to US$92.50/t after October rebar futures bounced off their record lows.

Rio Tintos (RIO AU) Sam Walsh was interviewed on Bloomberg last night and stated that a further 13% slide in iron ore prices will put Rios competitors under significant pressure.

The company doesnt think that prices will hit US$80/t as many players will "disappear", with "somewhere north of US$100/t" being "more realistic". Data Due: US: Federal Reserve Beige Book Business Survey; May Service Industries (fcst 55.5, prior 55.2); ADP US Employment (fcst 210K, prior 220k); April Trade Balance (fcst -US$40.6bn, prior -US$40.4bn); MBA Mortgage Applications, Japan: Markit Services PMI May, Eurozone: PPI April MoM (fcst -0.1%, prior -0.2%); GDP 1Q QoQ (fcst 0.2%, prior 0.2%); Government Expenditure; Markit Services and Composite PMI; Spain - Markit Services and Composite PMI; Italy - Markit Services and Composite PMI, Budget Balance; France - Markit Services and Composite PMI; Germany - Markit Services and Composite PMI; Ireland - Industrial Production; Consumer Confidence;
Company news � Bellzone (BZM LN) to raise �1.1m.

The company has announced that it is raising �1.1m (51.3m shares at 2.5p, a 22% discount to closing mid-price yesterday) to keep it funded until August 2014, while broader funding discussions continue.

Existing major shareholder, China Sonangol (CS), is to procure placees or subscribe for the shares itself.

If the latter occurred its interest would increase to 29.9%.

Source: Company Investec view: BZM announced in late April that it remained in active funding discussion with CS (as well as other parties), but that it was no longer considered to be in an offer period for the purposes of the City Code on Takeovers and Mergers. � Mineral IRL (MIRL LN) results of DFS optimisation work at Ollachea shows a number of changes.

Total gold production up 9koz to 930koz, first two years of annual production at 100kozpa from 70.5kozpa, average life of mine annual production unchanged at 100kozpa for 9 years, capex trimmed from US$177.5m to US$164.7m as some pre-production capital is deferred, average cash costs up slightly to US$587/oz, payback decreased to 3.1 years from 3.7 years and an IRR up to 28.2% from 22.1% at US$1,300/oz.

Production target has been delayed by a quarter to 2Q16.

Source: Company Investec View: Versus other gold projects of a similar scale the economics appear reasonable, the key positive in our view is the stronger initial two years of production.

The company however faces not insignificant hurdles to finance the project in the current difficult market. � China Hongqiao (1378 HK) to buy Guinea bauxite mine.

Aluminium producer China Hongqiao has signed a memorandum of understanding to acquire 90% of a bauxite mine in Guinea with 2.2bt of resources, including 624mt categorised as measured and indicated, for US$121m.

Source: Company Investec view: We believe the target is most likely private company AMC Bauxite.

AMC has plans to construct a 10mtpa bauxite mine with expected capex of US$812m, cash costs of US$11/t FOB, and first production in 2016 based on a 2012 feasibility study.

Hongqiaos move is likely being driven in part by the company trying to secure bauxite following the implementation of Indonesias raw ore export ban. � Iluka (ILU AU) signs joint development agreement with Vale (VALE US).

Iluka has signed a joint development agreement and intellectual property agreement with Vale for the staged evaluation and development of the Tapira titanium-bearing deposit in Minas Gerais state.

Initially a 15-month scoping study will be undertaken.

In consideration for funding the scoping study, pilot plant and feasibility studies, Iluka can earn up to a 49% equity interest in a JV with Vale.

Source: Company Investec view: Iluka have estimated an in-situ exploration target at Tapira of 1-1.5bt with TiO2 content of 12-15% with a further 70-100mt of stockpiled material also grading at 12-15% TiO2.

The Tapira project is large in the context of Ilukas existing resources.

As at 31 December 2013 Iluka reported heavy mineral resources of 178.7mt. � Papillon Resources (PIR AU) and B2Gold Corp (BTO CN) sign merger implementation agreement.

Papillon and B2Gold have entered into a definitive merger implementation agreement to combine the two companies at an agreed ratio of 0.661 B2Gold shares for each Papillon share.

Post the merger Papillon shareholders will own c.

26% of the combined company.

Source: Company Investec view: The merger ratio implies an 18.6% premium based on B2Gold and Papillon share prices as at 3 June 2014. � Gryphon Minerals (GRY AU) signs US$60m financing mandate for its Banfora gold project.

Gryphon Minerals has signed a mandate letter with Macquarie Bank to act as sole arranger and underwriter for a loan facility of up to US$60m.

The facility, together with existing cash of c.

US$40m, will be used to fund development of the companys 90% owned Banfora gold project in Burkina Faso.

Source: Company Investec view: The company is targeting completion of a feasibility study for a 2mtpa heap leach operation by mid-2014. � Areva (AREVA FP) headquarters and homes of former executives being searched by Frances financial prosecutor as part of an investigation into the US$2.5bn UraMin acquisition for which the company has had to write down Euro1.9bn.

A preliminary report last month said that insufficient oversight and dissimulation were the reasons for the ill-fated acquisition.

Source: Thomson Reuters � Gabriel Resources (GBU CN) sees Romanias lower house of parliament reject bill on Tuesday that would have allowed the company to proceed to develop Europes biggest ever open pit gold mine that is now effectively on hold indefinitely.

The bill was initially approved by the prime minister but drew thousands of protestors.

The bill was rejected with 302 against and one in favour.

Gabriel has been waiting for over 15 years for approval to use cyanide to mine the Rosia Montana resource.

Source: Thomson Reuters � China VTM (893 HK) profit warning.

Iron ore producer China VTM issued a profit warning expecting to record a significant decline in profit during JunH14 as compared to the CNY125.9m attributable profit reported in JunH13.

Management cited reduced sales volume, lower realised iron ore prices, lower realised titanium concentrate prices, and higher unit costs due to production suspensions.

Source: Company Investec view: China VTMs profit warning highlights the difficult time Chinese iron ore producers are having given the sharp fall in iron ore prices.

Particularly notable is that reduced demand has caused China VTM to suspend production in some instances given the companys relatively low cost of production. � Cokal (CKA AU) not aware of reasons for recent share price volatility.

In response to a query from the Australian Stock Exchange (ASX) Cokal has said it is not aware of any information concerning it that has not been announced to the market.

Source: Company Investec view: Whilst Cokal has accepted a funding proposal for up to US$150m from Platinum partners to develop its BBM coking coal project in Central Kalimantan, Indonesia, the company is yet to receive ministerial sign-off for the Forest Rent Use Permit (operation/production stage).

The company had targeted first production by MarQ15, which is looking increasingly unlikely.
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Commodities news � Increasing discount for 58% Fe product.

Atlas Iron (AGO AU) has stated that discounts on 58% Fe to the 62% Fe benchmark have risen markedly.

This comes as supply has increased and as there has been a shift toward higher-grade ore at Chinese steel mills.

Source: Company Investec view: While the 62% and 58% prices have tracked each other for some time, they have diverged just recently.

This will have bearing on other lower grade producers, such as African Minerals (AMI LN) � Port Hedland exports break another record.

May iron ore exports to China from Port Hedland rose by 3.5% MoM and 28% YoY, to 29.9mt.

Overall iron ore shipments were 36.05mt, an annualised rate of almost 425mtpa.

Port Hedland is used by BHP Billiton (BLT LN), Fortescue (FMG AU) and Atlas Iron (AGO AU).

Source: Reuters Investec view: The reality is that the port will keep breaking records as the producers continue to ramp up their volumes.

The potential tug boat strike could, however, provide a disruption. � Rusal (486 HK) expects 3.5mt of cuts at Chinese aluminium producers, helping to tighten supplies and could push premiums to as high as US$500/t in Q3 and perhaps higher.

Premiums have already reached as higher US$400/t.

The cuts in Chinese output are a consequence of overcapacity and the impact of the Indonesian ban on mineral ore exports slashing a key source of bauxite supply thereby pushing up raw material costs.

Source: Thomson Reuters � Aluminium spot premiums to continue rising: Rusal.

Rusal (486 HK) has stated that it sees aluminium premiums exceeding US$500/t in 3Q14, a rise of 20%, as demand outside China exceeds production by 1.3Mt and as at least 75% of stockpiles in LME warehouses are tied into financing transactions and unavailable for immediate withdrawal.

Buyers in Japan, Europe and the US are expected to continue to pay record premiums for supplies as output outside China has reduced by 3Mtpa since 2012 and will fall by another 1.6Mt this year.

Source: Reuters Investec view: Spot premiums in Europe are up a staggering 47% this year to US$412.50/t. � China accelerating small coal mine closures.

Chinas State Administration of Work Safety stated on its website yesterday that more than 2,000 small coal mines will be closed by the end of 2015 to cut outdated production capacity.

The mines that face closure will be those with less than 30Ktpa and those with less than 90Ktpa who have had "relatively big" accidents.

Source: Website � Copper prices slip to two week low over concerns for Chinas economic health and access to finance in the country following a probe at a the Chinese port of Qingdao.

Source: Thomson Reuters � European coal futures fell yesterday out of the US$82.3-83.3/t range that has held since mid-April, and now at US$80.85/t.

Shipments for next month are price at around US$74.1/t.

Traders anticipate further weakening in the futures prices.

Source: Thomson Reuters
Other economic news � Japans misery index looks provides some perspective for us all.

Data released yesterday shows that Aprils base wages (excluding overtime and bonuses) paid to workers dropped YoY for the 23rd month in a row.

Things could get better, however, with a recent Nikkei survey indicating that average summer bonuses will be up 6% YoY.

However, income growth will be less than inflation, and the crude "misery index", which adds inflation to the unemployment rate, puts Japan is at its most miserable since June 1981.

Source: FT
African resources update � Upbeat comments from AMCU over latest wage proposal being pushed by new mines minister.

The latest proposals have not been endorsed by either the producers or the union, but may perhaps provide a route to advance discussions.

Source: Mining MX � Todays African Proverb.

"A dog that belongs to everyone will die of hunger".

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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