[cid:image001.png@01CFA0CD.9F51C5F0] Wednesday, 16 July 2014 [cid:image006.jpg@01CFA0CD.C3F1B050]
Snapshot � Company news highlights: Rio Tinto delivers solid Q2 report, African Minerals NED resigns, Gem Diamonds positive revised reserve and resource statement, Hochschild (HOC LN) Q2 production report, flat 2Q production from Fresnillo, Newmont at risk of seeing Batu Hijau mining contract ended, positive drill results for Stratex Fare South prospect, Iluka JunQ14 production report, Atlas and Altura officially open Mt Webber mine, Turquoise Hill JunQ14 production report, Northern Iron reports record JunQ14production but negative EBITDA, Rockwood to be acquired by Albemarle � Commodity review highlights: Cerrejon coal mine partially closed, Fortescue sees inevitable closure of more Chinese iron ore production, Chinese daily steel output hits new record in June � Other economic news: Trafigura launches online store in India to sell aluminium, copper and other metals, Chinese credit expands at fastest pace in 3m, � African resources update: Sierra Leone plans first foreign debt sales for power projects, todays African Proverb � Market notes: European stocks declined for a sixth time in eight days, with 14 of the 18 western-European markets falling.

Even Germany, who welcomed back their World Cup heroes, slid 70bps.

Chinas National Bureau of Statistics released 2Q GDP numbers - 7.5% versus consensus at 7.4% (same as Q1).

The pound reached the highest level in almost six years versus the greenback as U.K.

inflation accelerated more than economists forecast. WTI oil fell below $100 and Brent fell to a three-month low as supply-disruption concerns eased with Libyan output gains and Iraqi shipments are unaffected by an insurgency.

Gold futures fall to 3-week low in New York causing Aussie gold names to drop this morning. Data due: US: June industrial production est.

+0.3% m/m (prior, revised +0.6%); producer price index excl.

food & energy est.

+0.2% m/m (prior -0.1%); Fed releases Beige Book business survey.

Europe: Italian Trade Balance; UK Jobless Claims and Claimant Count data; Eurozone Trade Balance; Spanish Trade Balance
Company news � Rio Tinto (RIO LN) delivers solid Q2 report.

The Q2 iron ore sales of 75.7mt were up 13% QoQ to deliver 1H sales of 142.4mt (+20% YoY).

RIOs share of 1H production of 109.9mt was in line with consensus 110mt.

RIOs FY14E iron ore production guidance is maintained at 295mt (100%) but with shipments guided to 300mt.

The Pilbara expansion to 360mtpa is continuing as planned, with 330mt expected in 2015.

Other key commodities: 1.67mt aluminium in 1H (consensus 1.66mt), mined copper 323kt (consensus 322kt).

For FY14E copper guidance has been increased 2.6% to 585kt, thermal coal +4.8% to 17.5mt, coking coal -9.8% to 7.4mt and alumina -5% to 7.6mt.

Source: Company Investec view: A positive quarter for the company, with its iron ore operations racing along, offsetting the reduced iron ore price - full steam ahead and damn the icebergs! The market has clearly taken it well with the stock up 1.3% in Australia versus BHP Billiton up 0.6%. � African Minerals (AMI LN) NED resigns.

Dermot Coughlan, an independent non-executive director since 2010, has resigned with immediate effect.

Source: Company Investec view.

The timing is interesting given that Dermot was the subject of a FT article on July 02, questioning related party transactions.

The company has denied categorically any wrongdoing or anything remiss around the subject of the FT article. � Gem Diamonds (GEMD LN) positive revised reserve and resource statement lifts indicated resource at Letseng extending depth from around 100m below current pit to 350m below pit on both satellite and main pipe ore bodies.

Allowing for significant increase in probably reserves with the entire 22 year Life of Mine plan now classified as reserve.

Gross resources total 25.54m carats at 6.35cph.

Probable reserves are now at to 131.9mt and 2.26m carats up 67% in tonnage terms and 64% in carat terms.

Average diamond prices have also risen 19% to US$2,045/carat.

The company also indicates that the average diamond price for its Ghagoo project is now up 9% in line with market prices for the goods expected.

Source: Company Investec View: A positive result for the company, affirming the quality and long life of Letseng in particular which is a key source of large high value stones. � Hochschild (HOC LN) Q2 production report shows 5.9moz AgEq taking H1 to 11.9moz AgEq with company on track to achieve target of 21moz AgEq.

Inmaculada advancing with commissioning to begin toward end of Q4.

Cashflow optimisation programme leads to c.

US$200m of savings and expects to see all in sustaining costs per ounce fall by 0-5% this year.

Cash at the end of the period stood at US$225m, minority investments of US$40m.

The company issued US$350m in senior notes due 2021 at 7.75% coupon in the period.

Average realised prices in the period stood at US$20.3/oz for Ag and US$1,310/oz for Au.

The company hedged 2moz of silver at US$22/oz and 33koz of gold at US$,1338/oz in the period and has since hedged a further 2moz Ag at US$21/oz over H2.

Source: Company Investec View: This appears to have been a solid quarter with company maintaining its full year target. � Flat 2Q production from Fresnillo (FRES LN).

Attributable silver production for 2Q was 10.926moz versus 10.928moz a year earlier.

The output was flat as FRES processed more ore at Saucito and raised output at Silverstream to compensate for lower ore grades at Fresnillo.

The company has reiterated FY14E guidance of 43moz of silver and 450koz attributable gold ounces.

Source: Company, Reuters � Newmont (NEM US) at risk of seeing its mining contract ended for its Batu Hijau mine in Indonesia unless it withdraws a legal challenge to export taxes.

The company filed for arbitration following a minerals export ban and export taxes impacting the operation that led to disruption of production and declaration of Force Majeure.

NEMs contract could be revoked 90 days after the government declares it to be in default or negligent.

The company has challenged the government directly which has been viewed as a risky approach.

Source: Thomson Reuters Investec View: The saga drags on and we dont expect to see a final resolution until after a new government is firmly in place following the elections.

However the developments clearly highlight the high political risk of operating in Indonesia. � Stratex (STI LN) positive drill results from Fare South prospect in Senegal with two diamond drill results highlighted including 12m at 7.09g/t Au as well as a selection of reasonable intercepts and grades reported close to surface.

Follow up drilling is planned for October.

Mineralisation is assumed to extend beyond the southern limit of the 600m long zone identified at Fare South.

Source: Company � Iluka (ILU AU) JunQ14 production report.

Iluka reported total zircon/rutile/synthetic rutile production of 141.1kt in JunQ14 and 252.1kt for JunH14.

Iluka reported revenue of A$343m in JunH14, a 10% y-o-y decline, due primarily to lower realised prices.

Total cash costs in JunH14 were A$201m.

The average price per tonne of zircon/rutile/synthetic rutile was A$1,015/t and average unit costs of goods sold A$897/t.

Source: Company Investec view: Iluka is seeing more robust zircon demand from US and Chinese markets whilst demand in Europe remains subdued.

Sales to South East Asia, Japan and India remain well below run rates in previous years.

The company continues to observe an encouraging recovery in high grade feedstock demand, particularly in the chloride pigment sector, and demand from North American/European pigment and paint producers. � Atlas (AGO AU) and Altura (AJM AU) officially open Mt Webber mine.

Atlas Iron and Altura Mining have formally opened the Mt Webber mine (70% AGO, 30% AJM) in Western Australia following the commencement of crushing and screening operations from 1 June 2014 and with haulage operations set to begin from 18 July 2014.

Production will initially be 3mtpa ramping-up to 6mtpa in DecQ14.

Source: Company Investec view: Mt Webber had an impressively low capex of just A$212m, capex intensity of just A$35/t of annual capacity.

This compares to capex intensity of USD120-130/t for Rio Tintos Pilbara expansions from 290mtpa towards 360mtpa. � Turquoise Hill (TRQ CN) JunQ14 production report.

Turquoise Hill (50.79% Rio Tinto) reported JunQ14 copper in concentrate production from its Oyu Tolgoi mine (66% TRQ) in Mongolia of 36.2kt (versus 25.3kt in MarQ14) and gold production of 113koz.

Concentrate sales in the quarter exceeded production as customer logistics and marketing improved.

Turquoise Hill expects production volumes to increase in DecH14 as deeper, higher-grade ore is accessed.

Source: Company Investec view: Guidance remains for copper and gold production of 135-160kt and 600-700koz respectively in 2014. � Northern Iron (NFE AU) reports record production, negative EBITDA in JunQ14.

Norwegian iron ore producer Northern Iron reported record quarterly iron ore production of 626kt (2.5mtpa), up 13% QoQ.

EBITDA was however negative USD3.0m after deferred waste amortisation expense as realised prices after hedging tumbled to USD75/t FOB, down 21% QoQ, outpacing improvements in cash costs to USD72/t, down 8% QoQ.

Source: Company Investec view: Northern Irons production report highlights that there are ex-China mines that have become marginal at current iron ore price levels.

Management has made impressive strides in lowering unit costs by improving production volume, and is working on further unit cost reduction initiatives, but ultimately requires higher realised prices.

Northern Iron remains in a precarious financial position with net debt of USD59m as at end JunQ14 that was in violation of EBITDA covenants, although waivers were secured for JunQ14 and SepQ14. � Rockwood (ROC US) to be acquired by Albemarle (ALB US).

Rockwood Holdings and Albemarle Corp announced they will merge in a cash and stock deal that values Rockwood at USD6.2bn.

Rockwood shareholders would receive USD50.65 in cash and USD0.4803 Albemarle shares for each Rockwood share.

Source: Company Investec view: Rockwood is the largest lithium producer globally.

Other significant lithium producers are SQM (SQM US), FMC (FMC US), and Tianqi (002466 CH).

According to Albemarle, it is acquiring the business at 11.3x 2014 EBITDA after synergies.
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Commodities news � Cerrejon coal mine partially closed in an effort to keep particulate levels within legal limits following insufficient rainfall.

The mine is a major operation in a JV between Glencore (GLEN LN), BHP Biltong (BLT LN) and Anglo American (AAL LN).

Exports are expected to rise from the 33mt last year.

There is a threat of further disruption from an ongoing mechanics strike in the country.

Source: Thomson Reuters � Fortescue (FMG LN) sees inevitable closure of more Chinese iron ore production helping to balance the market.

A trend toward higher quality ore blends means that realised prices are expected to range between 85-90% of the 62% Platts index going forward.

Source: Thomson Reuters Investec View: Positive news if it eventuates for iron ore prices, although we would expect any stronger price rally could trigger a restart of smaller higher cost operations limiting upside. � Chinese daily steel output hits new record in June of 2.31mtpd, bucking the expected trend of declining seasonal output.

Total production in the month reached 69.3mt up 4.5% yoy, although down from Mays record of.

Total annualised output reached 828.6mt.

Domestic demand however is reportedly relatively weak, with output benefitting from improved export demand.

CISA recently warned that apparent steel consumption is rising more slowly than production with May apparent consumption seeing the fourth consecutive monthly decline.

Source: Thomson Reuters Investec View: Clearly a mixed picture, and if underlying domestic demand is weakening, then the outlook for iron ore prices may be undermined if a fall in consumption follows should steel mills cut output in response to possible oversupply.
Other economic news � Trafigura launches online store in India to sell aluminum, copper and other metals in an effort to move into the US$8bn market in the country, aiming to become the first big commodities trader to cater to the many small manufacturers across the country.

Small and medium businesses make up over a third of the market and rely on more traditional forms of procurement.

The online store will sell consignments of 1-24t of aluminium, copper, lead, nickel, tin and zinc at index linked prices.

Customers will take delivery from new warehouses built near manufacturing centers in Gujarat, Rajasthan and West Bengal with additional ones planned.

Source: Thomson Reuters � Chinese credit expands at fastest pace in 3m.

Using data provided by the Peoples Bank of China on Tuesday, the FT calculates that new credit totaled Rmb1.96tn ($316bn) in June, which is the highest monthly total since March.

Broad M2 money supply increased by 14.2% (consensus 13.5%).

Source: FT
African resources update � Sierra Leone plans first foreign debt sales for power projects.

Sierra Leone plans to offer the bonds to rebuild power infrastructure that was destroyed during the civil war.

It is to issue 60bn leones ($14m) of notes maturing in 2016 and will consider selling three-year bonds.

The electricity infrastructure budget includes 60bn leones in 2014, and the country further plans to sell 339.4bn leones in two-year notes to cover power infrastructure in 2015 and 2016.

Source: Bloomberg � Todays African Proverb.

"Even the crazy can make some sense".

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
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