04.08.14 - 11:27 Uhr
 
[cid:image001.png@01CFAFBA.8884B4D0] Monday, 04 August 2014

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Snapshot

Company news highlights: Freeport to resume copper concentrate exports by Wednesday, Poseidon resource update at Black Swan, Labrador Iron Mines doesnt resume seasonal production

Commodity review highlights: Codelco to receive US$4bn in state financing, Baosteel, puts production in 2013 at 6% above official data, hedge funds backing away from gold rally,

Other economic news: Diggers & Dealers kicks off today, gold M&A activity reaches 3yr high, resolution to Chinese metal financing fraud could take years, Russian sanctions to have broad reaching consequences

African resources update: Mine contractors plan class action against AMCU, Chad receives approval for US$122m loan from IMF, Ghana to seek assistance from the IMF todays African proverb

Company news

Freeport MacMoRan (FCX US) to resume copper concentrate exports by Wednesday. The company plans to make an initial shipment of 10kt to China, the first export shipment of the year. Traders report that the market has largely priced in the resumption of supply. The company is expected to export 756kt of copper concentrate in H2 of this year, on which it will pay a 7.5% duty that will decline as it spends to build a smelter. Source: Thomson Reuters

Poseidon Nickel (POS LN) resource update at Black Swan to 30.7mt at 0.58% Ni for 178.7kt contained nickel, of which 8.4mt at 0.7% is in the indicated category. The resource has more than doubled Poseidons resource base to over 330kt of nickel. Blackswan was acquired from Norilsk Nickel. Source: Company

Labrador Iron Mines (LIM CN) doesnt resume seasonal production. The seasonal iron-ore miner has not resumed mining operations this summer season, citing the 30% drop in the iron ore price from January to June. The company, which owns 20 DSO deposits in the Labrador Trough, has said that it will need C$30m in additional capital to be able to successfully restart mining, primarily for a working capital deficit and to fund development of the Houston project. Source: MiningWeekly

Investec View: Another company that will not be producing iron ore as current prices gradually kill off the marginal producers. While LIM produces a DSO product, the narrow margin is quickly eroded by freight charges, a key cost also impacting the West African producers.

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Commodities news

Codelco to receive US$4bn in state financing through till 2018 to help with its investment plans. The funds would be transferred annually based on completion of the companys goals. The company was nationalized in the 70s and gives all its profits to the state that then determines annually how much to return to the miner. The company has a US$23bn capex programme scheduled over the period to offset declining grades. Source: Thomson Reuters

Chinese steel major, Baosteel, puts production in 2013 at 822mt, nearly 6% above official data indicating that the supply glut is worse than previously expected. The industry suffers considerable oversupply pressuring margins. The government has been trying to crack down on the sector restricting new capacity growth and forcing older capacity to close. Official capacity last year stood at 1.106mt putting utilisation rates at 74.3%. The steel major sees negative growth in H2 of this year. The nation produced 412mt in H1 of this year up 3% yoy, however, apparent consumption stood at 376mt, up only 0.4% yoy. Source: Thomson Reuters

Investec View: Falling production levels in H2 could put further pressure on iron ore prices in the months ahead.

Hedge funds backing away from gold rally. Funds have cut their net-long position by 10% in the week through July 29, the most since June, with prices dropping for a third week, the longest slide since July 2013. Gold fell 3% in July, snapping a 10% rally in the 1H14. Investors sold as signs of quickening American expansion reignited concern that the Federal Reserve will raise borrowing costs. Source: Bloomberg

Other economic news

The annual Diggers & Dealers kicks off today. Kalgoorlie-Boulder will today welcome 1,900 men and 3 women, for Australian minings biggest annual attendance since the Poseidon nickel boom days in 1969. Gina Rineharts Roy Hill Holdings is regarded as a shoe-in for Dealer of the Year for raising more than $7bn on global debt markets to complete funding for the $10bn namesake iron ore project in the Pilbara. Source: West Australian

Gold M&A activity reaches three year high. A surge in acquisitions by producers, led by the $3.4bn Osisko takeover by Agnico Eagle (AEM CN) and Yamana (YRI CN), has pushed takeover deals to a three-year high. Deals worth about $14bn have been announced or completed so far this year, according to data compiled by Bloomberg, the highest annual total in three years. Mid-sized and small producers are acquiring assets discarded by larger competitors as they trim portfolios to focus on their most profitable operations, with the 10 largest producers proposing or completed sales worth $91m. Source: Bloomberg

Investec view: The divestment activity may have been prompted by a desire to focus on core assets, but will no doubt have been accelerated by the recent gold price rally and the opportunity to get a decent price for the divested assets.

Resolution to Chinese metal financing fraud could take years as various banks initiate lawsuits since Chinese authorities launched a legal probe into whether Decheng Mining used fake warehouse receipts to obtain multiple loans. Appetite to lend money using metal as collateral is likely to have been impacted by the scandal. Chinese refined copper imports hit a 13 month low in June down 8% yoy as banks reduced lending for metal imports following the probe. Source: Thomson Reuters

Russian sanctions to have broad reaching consequences, with Russia retaliating by imposing food sanctions against US Chickens. Source: Thomson Reuters

African resources update

Mine contractors plan class action against AMCU. A legal firm is signing up contractors financially harmed by the five-and-a-half month platinum sector strike in an effort to sue the Association of Mineworkers & Construction Union (AMCU). It has so far gathered 110 names so far with damages claims totaling a collective ZAR33m to ZAR44m. A Pretoria advocate said the intention was to consolidate the complaints into a group action and then argue that AMCU acted unreasonably in dragging the strike out so long, with strike irrational since it was eventually settled at a level not much different to the first offer from employers. Source: MiningMX

Chad receives approval for US$122.4m three year loan from the IMF to help the country address its balance of payments tied to oil revenues. Source: Thomson Reuters

Ghana to seek assistance from the IMF. Ghana is to seek immediate talks with the IMF to help stem the worlds worst currency slide (down 36 against the dollar this year). Since having most of its debt cleared in 2005 as part of a global debt-relief campaign for poor nations, Ghana has racked up borrowing, while failing to keep government spending under control. Source: Bloomberg

Todays African proverb: "If a dog bites you and you dont bite him back, it will say you have no teeth" Source: BBC

Investec Global Natural Resources Research Team:

UK

South Africa

Hunter Hillcoat
Tel: +44 (0) 20 7597 5182

Albert Minassian
Tel: +27 (0) 21 416 1454

Marc Elliott
Tel: +44 (0) 20 7597 5189

Investec Global Natural Resources Sales Team:

UK

Hong Kong

South Africa

Adam Bidwell
Tel: +44 (0) 20 7597 5089

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:

UK

Callum Macpherson
Tel: +44 (0) 20 7597 5070

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