12.08.14 - 10:27 Uhr
[cid:image001.png@01CFB604.D10F50C0] Tuesday, 12 August 2014



Company news highlights: African Barrick research note, Caledonia interim results, Imperial Metals faces C$50-500m clean-up cost,

Commodity review highlights: Indonesia has no plans to reverse minerals export ban, copper prices slipping, International Coal Ventures to spend US$300m to expand Mozambique output from ex-Rio assets, Indias gold import restrictions may be relaxed

Other economic news: Citigroup and Mercuria fight over exposure to Chinese metals fraud, 2014 another year of "wait and see" in mining M&A

African resources update: South African municipalities owe Eskom ZAR10.85bn, South Africa stocks rally after African Bank rescued, todays African Proverb

Company news

Research note on African Barrick (ABG LN). The previously reported 2Q and 1H14A results were good but key takeaway for our analyst was operating cash flows exceeding investing cash flows for the first time in 10 quarters ($26m excess including $18m VAT refund). This has long been our key concern, but the trend is increasingly positive and we now expect continued cash generation at current gold price levels and have upgraded the recommendation accordingly. Modest changes to assumptions have resulted in a 20% increase in FY15E-16E EPS, with the exaggerated response exemplifying the companys leverage to margin improvements. Source: Investec

Caledonia (CMCL LN) 2Q and 1H results - FY guidance maintained. The Blanket mine produced 11,223oz in the 2Q to deliver 1H production of 21,262oz, down 3% YoY due to previously highlighted grade and throughput issues. All in sustaining costs were a very good $903/oz, down 4% YoY. 1H NPAT was $4.3m and cash from operations $7.9m. The company has maintained production guidance for the year of 45koz and it expects that that the existing dividend policy of 6c/pa, paid in equal quarterly instalments will be maintained in 2015. Source: Company

Investec view: While a modest producer, Caledonia continues to track along nicely, with the quarterly dividends providing comfort that producing gold in Zimbabwe - AND getting the cash for it - is being achieved.

Imperial Metals Corp (III CN) faces cleanup costs estimated at C$50-500m following major spill at its flag ship Mount Polley Mine. The miner had cash of C$1.5m and debt of C$464m at the end of March and may not have the means to cover the cost of the spill, especially as the mine is now shut down. The spill prompted the companys share price to fall from c. C$16.85 to C$10.52 most recently. The company may be forced to sell assets in order to meet the costs of the clean-up. Source: Thomson Reuters & Bloomberg


Commodities news

Indonesia has no plans to back track on ban on exports of unprocessed ore. The ban took effect 7 months ago and prompted a strong rally in nickel prices. Legally it is apparently difficult to change the ban since it stemmed from a law passed in 2009, so the president could be impeached by parliament if the law is breached. In order to process ore domestically there are apparently 102 nickel smelter projects on the table at various stages of development. Source: Thomson Reuters

Investec View: If the ban remains in place this is a strong positive for the nickel price, although near term we note the near record high LME inventories of 319kt implying that availability at present isnt a problem. We are also doubt whether many of the domestic smelter projects mentioned will ever be developed in short order.

Copper prices slipping with demand cooling and pressure on supplies easing as key smelters in China and South Korea restart after maintenance. Zinc has also come under pressure following a number of deliveries totalling some 50kt into exchange warehouses taking the total to 706kt. However, LME inventories were over 1.2mt at the start of 2013 and have been steadily declining since. Source: Thomson Reuters & Bloomberg

International Coal Ventures to invest U$300m expanding coal production from Benga mine in Mozambique that it has acquired from Rio Tinto for US$50m. The mine currently produces around 5mtpa, with ICVL initially planning to get production up to 11-12mtpa in the next 3-4 years and 16mtpa in the next 4-5 years. Source: Thomson Reuters

Indias restrictions on gold imports may be relaxed according to Commerce and Industry minister. The gems and jewellery industry has been suffering as a consequence of the restrictions, with smuggling activities surging. Gems and jewellery exports contribute around 15% to the countrys total outbound exports, worth some US$39.2bn last financial year. Source: Thomson Reuters

Other economic news

Citigroup and Mercuria fighting over US$270m exposure to Chinese metals fraud. Chinese authorities have been investigating claims of fraud three months ago at the ports of Qingdao and Penglai where it is claimed the same metal was pledged several times against loans. Commodities trader Mercuria has started proceedings against Citi after the US bank demanded early repayment of a US$270m repurchase agreement backed by metal held at ports. Source: FT

2014 another year of "wait and see" for mining M&A: EY. Mergers and acquisitions (M&A) and capital raising activity in the sector remained subdued over the 1H14, largely owing to a continuing capital discipline and a lack of urgency, given the relative lack of competition for assets. EY suggested that 2014 was shaping up to be another "wait and see" year. Mining deal values in the 1H14 were down 69% YoY, to $16.7bn, while deal volumes were down 34% over the same period. There have only been four megadeals, compared with 11 in the same period in 2013. Further, 87% of 1H14 deals were valued at less than $50m, but comprised less than 9% of total deal value. Source: MiningWeekly

African resources update

South African municipalities apparently owe Eskom some ZAR10.85bn (US$1.02bn) according to government minister Pravin Gordhan. Discussions are under way to find a solution to the problem. Source: Engineering News

South African stocks rally by most this year after African Bank rescued. SA stocks rallied by the most this year after the central bank stepped in to rescue the countrys largest provider of unsecured loans and emerging- market equities. The 164-member FTSE/JSE Africa All Share Index snapped three days of losses to advance the most since Dec. 27, with three stocks gaining for each one that fell. BHP Billiton, Cie Richemont and Naspers led the index higher. Source: Bloomberg

Todays African Proverb. "You learn a lot about a man by his behavior when hungry". Source: BBC

Investec Global Natural Resources Research Team:


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:


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

Thomas Lawrence
Tel: +1 212 2595604

Alistair Roberts
Tel: +852 3187 5097

Investec Commodity Hedging Team:


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

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