07.08.14 - 10:27 Uhr
 
[cid:image001.png@01CFB217.01CBD040] Thursday, 07 August 2014

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Snapshot

Company news highlights: Rio Tinto delivers good interims, Randgold production update in line, Newmont seeks injunction to get workers back to Batu Hijau, Gemfields Q4 production update, Aquarius Platinum prelims

Commodity review highlights: Port Hedland iron ore shipments back at record levels, iron ore prices at one week high, gold up sharply

Other economic news: Port Hedland tugboat strike cancelled, deputy commissioner of Qingdao Customs dies of unnatural causes

African resources update: Ebola death toll at 932, Todays African Proverb

Company news

Good interim result from Rio Tinto (RIO LN). Rio delivered underlying earnings of $5.1bn versus Bloomberg consensus of $4.70bn (range $4.31-5.20bn), and our $4.78bn. Net debt has been reduced by a significant $1.9bn to $16.1bn, while capex guidance for FY14E has been reduced $2bn to $9bn, then $8bn/pa thereafter (as expected). The interim DPS was 96cps as expected. EPS was 277cps versus consensus at 249cps (Investec 259cps). This was 21% ahead of 1h13As 229cps, but below the 2H13A EPS of 324cps as lower iron ore prices impact margins before they can be offset by higher volumes. Source: Company

Investec view: Overall a good result, at first glance. We are encouraged by the reduced capex and the speed at which debt is being reduced. The company has stated that the focus this year will be on bolstering the balance sheet, and not shareholder returns, and it is making very good progress in this regard, which should bode well for shareholders in future years.

Randgold Resources (RRS LN) 2Q FY14 production update - in line. RRS produced 277koz in the 2Q at cash costs of $701/oz (Investec 286koz at $691/oz), taking 1H production to 718koz, en-route to guidance of 1.13-1.20moz (Investec 1.16moz). 1H14A earnings of $127m (EPS 138cps) were ahead of 1H13As $116m (EPS 126cps) but 21% below 2H13As $163m (EPS 174cps). Operating cashflow for the 2Q was $73m, up from $50m in the 1Q - positive. Capex for the 1H stands at $138m, versus $340m planned for the year. RRS has drawn down $50m of its credit facility but balance sheet is still very strong (this is the only debt it has). Source: Company

Investec view: RRS remains the go-to gold stock in London. While trading at not undemanding multiples, 25x earnings based on consensus numbers, it is not out of kilter with its growth-oriented global peers, Eldorado (ELD CN), Yamana (YMI CN) and Goldcorp (GG US).

Newmont Mining (NEM US seeking an injunction to get workers back to its Batu Hijau mine as it continues to fight with the Indonesian government over the proposed tax regime. Newmont has filed for international arbitration and halted copper production on 5th June saying concentrate storage facilities were full. The company took a hard line with the government and likely faces months to get operations moving again, in contrast Freeport McMoRan took a softer approach and is to start exporting copper concentrates very soon. Source: Thomson Reuters

Gemfields (GEM LN) Q4 production update delivers 6.3m carats of emeralds down 29% yoy but up 75% qoq mining ore grading 271cpt (322cpt a year ago). Total operating costs came to US$8.4m leading to a cost of 75c/carat. Rock handling costs came to US$3.31/carat down from US$3.6 a year ago. For the full year the Kagem mine produced 20.2m carats down from 30m the previous year for total cash cost of US$26.9m vs US$32.2m the previous year. Work continues at Montepuez extracting 0.2m rubies in the period down significantly from the 1.2m carats the previous quarter, however the quality of the stone extracted is considered considerably higher. Source: Company

Investec View: The nature of Gemfields asset base will lead to volatile output qoq, or even yoy subject to what ore bodies the company has exposed and is targeting. A clearer idea of value to be unlocked will come from the results of the auction processes for emeralds and rubies.

Aquarius Platinum (AQP LN) preliminary results for year to June delivers revenue of US$233m down 2% yoy and EBITDA of US$30m down 14% yoy due to weaker prices and reduced output. Underlying EPS came to -1.13cps. At the end of the period the company had cash of US$137m and a convertible bond of US$118m. The cash balance was up largely due to the US$226m of proceeds from a rights issue that took place. Source: Company

Investec View: Operationally the company appears to be delivering, however the PGM market remains a particularly tough place to be. Thankfully the rights issue gave the company breathing space.

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Commodities news

Port Hedland iron ore shipments back at record levels. Shipments to China were 30.6mt in July from 29.2mt in June and 20.4mt in July 2013. Total shipments were also at a record at 36.1mt from 33.6mt in June and 26.6mt a year earlier. The record iron ore exports to China climbed in July add to signs that demand for overseas supplies may be improving as local output is displaced. Inventory at ports in China reached a record 113.7mt in July and was at 111.55mt in the week ended August 1. Source: Bloomberg

Spot iron ore prices at one week high reaching US$95.9/t yesterday, however, clearly the commodity is unable to climb back up over US$100/t for now. Some Chinese steel mills are preferring to buy from iron ore stocks sitting at ports that are US$2-3/t cheaper than fresh seaborne cargoes. Source: Thomson Reuters

Gold prices up sharply yesterday as fears escalate over the situation in Ukraine and Moscow retaliates against Western sanctions banning al US food imports and fruit and vegetable imports from Europe. Physical demand in Asia is reported to have weakened in response to the firmer pricing. With premiums in China reported at a lowly US$1/oz. Source: Thomson Reuters

Other economic news

Planned Port Hedland tugboat strike cancelled for more talks. Tugboat engineers at Australias Port Hedland called off an intended strike since the relevant union didnt serve the action notice within the required period and had to withdraw it. The union will continue negotiations with Teekay Shipping and may ballot to strike again. Teekay is contracted by BHP Billiton (BLT LN). Source: Bloomberg

Deputy Commissioner of Qingdao Customs that manages the citys ports has died of unnatural causes. The port has been at the centre of an investigation into commodity financing fraud that has spooked commodity markets in recent months. Source: Thomson Reuters

African resources update

Ebola death toll now at 932 people. Liberia has introduced a state of emergency in order to help control the spread of the disease other nations affected are acting similarly. Source: Thomson Reuters

Todays African Proverb. "Things that you dont know are like a dark night". 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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