🕐08.07.14 - 10:54 Uhr

INVESTEC GLOBAL NATURAL RESOURCES DAILY - MINING - TUESDAY 08 JULY - AMI LN, FXP
O LN, SRX LN, CMCL LN, FCX US, AMA LN, KMR LN, AOH AU, 975 HK, PGIL LN, IGO AU, 1205 HK



[cid:image001.png@01CF9A84.816934F0] Tuesday, 08 July 2014 [cid:image006.jpg@01CF9A84.96908D10]
Snapshot � Company news highlights: Research notes on African Minerals (incorporating Phase 2 friable haematite processing) and Ferrexpo (2Q14A), Sierra Rutile 2Q production report, Caledonia announces third quarterly dividend, Freeport agrees MOU with Indonesian government, Amara Mining positive infill drilling results at Yaoure, Kenmare Q2 production report, Altona enters agreement to sell Finnish assets for US$95m, Mongolian Mining releases 1H14 coking coal production data, Polyus Gold considered sale of stake in Natalka, Independence Group FY14 production above guidance, CITIC Resources files claim against bonded warehouse operator at Qingdao port � Commodity review highlights: Copper prices decline as Korean stockpiles rise, iron ore prices ease off, coal prices in EU remain weak, gold under pressure � Other economic news: ECB under pressure to weaken Euro, German exports and imports weaker than expected � African resources update: Ethiopia approves 15% increase in spending, workers return to work at Implats Marula mine, todays African Proverb � Market notes: Alcoa kicks off the Q2 earnings season tonight.

The timing of the Feds next hike rate was in focus with forecast chatter expecting rate hikes will now be sooner post the better jobs data last week.

In Europe stocks fell the most in almost two weeks as investors assessed equity valuations following the biggest rally since March.

US dollar fell the most in more than a week against the yen as investors gauge the timing of Fed interest-rate increases after reports last week showed a strengthening jobs market.

South Africas rand slumped as a strike by metal workers entered a second week. Commodities.

WTI crude fell for a seventh day, the longest stretch of losses since Dec09.

Brent touched a 3 week low as Libya prepared to increase exports from two ports closed for a year.

Gold futures dropped for a 2nd session in New York; China import iron ore benchmark falls most in almost a week, according to Steel Index.

China Qinhuangdao coal prices decline to 505-515 Yuan/Mt.

Benchmark price for China power-station coal with energy value of 5,500 kcal/kg falls from 510-520 yuan/mt last week.

Stockpiles at QHD were down from last week to 7.12mt (from 7.59mt). Data due: US: NFIB Small Business Optimism data for June; JOLTs Job Openings for May.

EUROPE: German Trade Balance data for May; French Budget Balance for May; French Trade Balance; UK Industrial Production Mom for May.

GENERAL: Moodys conference on South and Southeast Asian banks in Singapore; U.K.

Foreign Secretary William Hague, Chancellor George Osborne visit India for two days of talks
Company news � Research note on African Minerals (AMI LN).

Our analyst has published update note post the engineering study on Phase 2 friable haematite processing, which should enable a staged ramp up of concentrate production.

The key benefit is ability to deliver 25mtpa of a higher-quality, higher-margin, mixed DSO-concentrate product, deferring the high capital lump required to develop a single, central, saprolite concentrator.

The staged development and staggered capital call makes for a far more palatable financing profile that previously - it now appears that AMI can proceed without relying on the Tewoo transaction.

Source: Investec � Ferrexpo (FXPO LN) update note.

The 2Q production report, released yesterday midday, reported total pellet production of 2.55mt, down 9.4% on the Q1 as a result of planned refurbishment.

The company remains on target for a 12mtpa rate in the 2H14E.

We retain our FY14E production of 11.4mt, increasing to 12.0mt in FY15E.

While our production and cost outlook remains unchanged, our TP has reduced following the recent c.$10/t (c.9%) reduction in our near-term iron ore price assumptions.

FY14E-FY16E EPS estimates have reduced by c.30% (vs.

16% for RIO and c.60% for AMI, LOND).

Notwithstanding reduced cash flows, our analyst still sees FXPO capable of proceeding with its proposed FYM concentrator, should it elect to do so.

Source: Investec � Sierra Rutile (SRX LN) 2Q production report.

The company reported a 3% YoY increase in rutile production, but lower than planned due to higher than expected volumes of other non-valuable heavy minerals, while there was a 13% YoY drop in ilmenite production.

The company expects 2H production to improve as grades improve and as the plant is upgraded and it expects to meet FY14E forecasts.

Cost focus continues with a 24% reduction in cost per tonne versus 1H13A, to $609/t.

SRX ended the period with cash of $10.8m and has received approval for a $20m working capital facility.

Source: company � Caledonia (CMCL LN) announces third quarterly dividend.

The company has declared a dividend of 1.5 Canadian cents per share, in line with previous quarterly dividends.

It remains debt-free with last reported cash of $26.7m.

All-in sustaining cash costs at its Blanket mine are sub-$1,000/oz.

Source: Company Investec view: Caledonia is a rare beast, announcing and paying out dividends on a quarterly basis.

While it remains heavily discounted due to its Zimbabwe exposure (trading at an EV of c.1x FY13A earnings) it is managing to operate successfully there, against all odds.

We were admittedly gravely concerned by the decree that all Zimbabwe gold producers have to sell their gold to the local refinery, but Caledonia has been doing this since January and it receives its cash the next day after delivery, which it transfers internationally as it needs to (these dividends for instance) . � Freeport McMoRan (FCX US) agrees MOU with Indonesian government on contract recognitions as the government and the company look to end the six month dispute that has halted concentrate exports following the introduction of a minerals export ban aimed at forcing companies to build smelters and refiners in Indonesia.

The MOU still needs to be approved by cabinet and the president.

Source: Thomson Reuters Investec View: If the MOU breaks the deadlock, then Newmont (NEM US) can likely follow suite.

However, the result could be a near term negative for copper prices as more supply becomes available.

We await more details on the terms of the MOU. � Amara Mining (AMA LN) positive initial drilling results from 2014 infill programme at Yaoure confirms mineralisation in areas that were information gaps and therefore previously classified as waste.

Three highlighted intercepts from diamond drilling were 18-22m grading 2.3-3.6g/t Au starting 60-244m down hole.

Five diamond drill and one reverse circulation drill rig are on site due to be increased to eight and two respectively.

The company is on track to provide two mineral resource updates in H2 2014.

The company is fully funded to deliver a PFS in Q1 2015.

Source: Company Investec View: These are encouraging results and clearly the pace of activity at Yaoure is accelerating with 52 diamond holes completed and five in progress with a total of 13,578m drilled since 2nd May. � Kenmare (KMR LN) Q2 production report reflects record production of ilmenite and primary zircon, with company on track to achieving name plate capacity on a sustainable basis.

Quarterly ilmenite production was up 11% QoQ reaching 234.8kt, and zircon output at 12.6kt was up 43% QoQ, of which primary accounted for 10.6kt.

Total shipments in the period reached 205.1kt up 6% QoQ and yoy for the half year stood at 399kt up 36%.

Power stability has improved in recent months due to better seasonal weather conditions.

A 7.5MW genset is in country and due to be installed over the course of the next month to be in place to protect against failure of transmission systems.

Unfortunately global pigment markets are recovering more slowly than hoped for.

Source: Company � Altona Mining (AOH AU) enters agreement to sell all Finnish assets to Boliden for US$95m, which with adjustments for working capital, net debt and net capital expenditure during the period is expected to deliver US$100m cash.

The deal is expected to close on 1st October 2014 but needs to be approved by shareholders.

Upon closure the company estimate that it would have between A$120-125m in cash after costs, of which management plan to return A$80m as a 15c/share dividend or a buyback of shares equal to the amount.

The company intends to retain the remaining cash to advance its Little Eva project in Queensland.

Source: Company � Mongolian Mining (975 HK) releases 1H14 coking coal production data.

MMC reported its 2Q14A production figures bringing total JunH14A coal exports up to 3.2mt, including 2.0mt of washed hard coking coal (2Q14A exports of 1.0mt) and 1.2mt of middlings (2Q14A exports of 0.3mt).

The company has lowered its CY14E sales guidance to 5mt washed coking coal, previously 6mt, and 2mt middlings.

Lowered guidance reflects still weak demand and a washed coking coal price on the Mongolia/China border that remains stubbornly low at
Source: Company Investec view: We believe the current share price is pricing in realised hard coking coal prices of just c.

US$90/t in perpetuity.

With an EV of just c.

US$66/t of installed washing capacity, and at a P/B of 0.45, we believe MMC is trading well below replacement value. � Polyus Gold (PGIL LN) considered sale of stake in Natalka.

Polyus has reportedly held discussions with Chinese banks about potential loans and has also considered a sale of a minority stake in its Natalka gold deposit in the Magadan region of far-east Russia.

Polyus has US$269m of debt due in 2014 but as at the end of March 2014 the company had US$728m of cash.

China Investment Corporation (CIC) already holds a 5% interest in Polyus.

Source: Bloomberg Investec view: Polyus is guiding for 2014 gold production of 1.58-1.65moz.

The Natalka mine is only due to be commissioned in mid-2015. � Independence Group (IGO AU) FY14 production above guidance.

Independence Group has reported FY14 (Jun YE) gold production of 104.5koz (attributable), nickel production of 10.8kt, zinc in concentrate production of 41.16kt, and copper in concentrate production of 7.69kt.

Source: Company Investec view: The company will include JunQ14 unit cost detail and FY15 production guidance in its June 2014 quarterly report. � CITIC Resources (1205 HK) files claim against bonded warehouse operator at Qingdao port.

On 17 June 2014 CITIC Resources announced that the Qingdao court in its enforcement of sequestration orders had been unable to sequester c.

123,446t of alumina which CITIC has stored at Qingdao port and to which CITIC holds the title documents.

CITIC has title documents to a total of 223,270t alumina and 7,486t copper at Qingdao port.

As part of its efforts to recover its alumina and copper CITIC has now filed a claim in Qingdao Maritime Court against the operator of the bonded warehouse.

Source: Company
[cid:image007.png@01CF9A84.96908D10]
Commodities news � Copper prices decline as stockpiles in Korea rise.

Copper prices fell yesterday as LME copper inventories in Busan, South Korea increased by 1.8% to 159.35kt.

Source: Bloomberg Investec view: The fall in copper prices also coincides with news that Freeport McMoRan (FCX US) has signed an MoU with the Indonesian government that could see resumption of copper concentrate exports from its Grasberg mine which have been halted since January 2014. � Iron ore prices eased back below US$96/t yesterday in China as mills held back from replenishing stocks further having lifted them back up to around 28-30 days.

The recent rally may have been driven by speculative traders who have too much port stocks.

Last week 113.7mt of iron ore was imported.

Source: Thomson Reuters � European coal prices remain weak with cargoes reportedly trading around US$71.6/t.

Weaker oil and gas prices have been dragging on coal.

A major house has also apparently been offloading physical stocks.

Current prices are likely forcing many mines to operate at a loss currently.

Source: Thomson Reuters � Gold under pressure due to concerns over US interest rate increase, with platinum prices behaving similarly, whilst palladium holds onto gains.

Source: Thomson Reuters
Other economic news � ECB under pressure to take action against the strong Euro, with Airbus CEO asking that it intervenes to reduce the value for the currency by 10% to US$1.2-1.25/Euro.

Politicians in some Eurozone countries have also been making similar requests.

However, comments from a member of the ECB board rejected calls to focus on exchange rates explicitly and that there was no pressing need for another round of QE.

Source: FT � German exports and imports dropped by more than expected in May, showing that seasonally adjusted exports fell by 1.1% in the month whilst imports dropped 3.4%, the steepest fall since November 2012.

Source: Thomson Reuters
African resources update � Ethiopia approves 15% increase in spending for 2014/15 budget to US$9.2bn boosting spending on education, health and road building.

Economic growth is set to rise to 8.5% according to the IMF which warns that huge sending on roads, railways and power is suffocating private lending.

Ethiopia is Africas second most populous country after Nigeria and aims to expand its road network to 136,000km by 2015 from less than 50,000km in 2010.

Source: Thomson Reuters � Workers return to work at Implats (IMP SJ) Marula mine with discussions underway to address worker concerns.

Source: Thomson Reuters � Todays African Proverb: "When a madman walks naked it is his kinsmen who feel ashamed".

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
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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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