13.08.14 - 11:27 Uhr
  [cid:image001.png@01CFB6CE.2D5977B0] Wednesday, 13 August 2014



Company news highlights: Glencore H1 production broadly in line, update note on Randgold, London Mining receives additional financing, good drill results from Amara, Oz Minerals H1 loss

Commodity review highlights: (Legal) Indian gold imports dropping, bauxite price to rise with Ebola woes, Chinese steel output up but pricing weak, Codelco to blend high arsenic concentrate with 3rd party material, copper prices continue to come under pressure, new Trafigura iron ore export port may be delayed to next year, Australian coal miners feeling the squeeze

Other economic news: Japan suffers biggest economic contraction since March 2011, weak economic data from China

African resources update: Sibanye looking at significant changes to SA gold-sector labour practices, todays African Proverb

Company news

Glencore (GLEN LN Hold TP 319p) H1 production report broadly in line. Copper production of 741kt (Investec 741kt) down 13% QoQ due to mine sequencing and grades but up 13% yoy, zinc output of 650.4kt (Investec 636kt) down 11% yoy due to previously announced shutdowns of two mines, nickel at 49.1kt (Investec 48kt) down 8% yoy with certain mines on care and maintenance offset to an extent by higher output at INO and continued ramp up at Koniambo (4.1kt produced), coal production 71.2kt (Investec 70kt) with a mixed performance of productivity improvements offsetting some disruptions and cuts being made in light of weak pricing, oil output of 14.0mmbbl (Investec 14.15mmbbl) up 41% yoy as output continues to build. Source: Company

Investec View: A solid result in line with guidance, with interim financials schedule for next week that will provide more insight across the different business units, in particular trading.

Update note on Randgold (RRS LN). Our analyst has made modest changes to production and EBITDA forecasts post 1H14A but earnings forecasts have reduced due to increased D&A assumptions, particularly Kibali, and therefore reduced contribution of earnings from JVs. FY14E is impacted most (EPS down 13%), while FY15E and FY16E are reduced by c.6%. We note that the impact on free cashflow is negligible with forecast net cash, leaving ample capacity for increased dividends, which we feel the market is still under-calling. RRSs limited growth outlook cannot justify its premium to peers, but its high-grade orebodies and low-cost ounces offer greater surety of earnings. We have lifted our TP to reflect the roll forward of our model and greater weighting towards higher-earning years, leaving our recommendation unchanged. Source: Investec

London Mining (LOND LN) receives additional financing. LOND has taken on a new $25m debt facility from existing lenders to provide additional flexibility through the wet season. In addition to the same 8.5% interest margin and arrangement fees of the existing secured facility, there are additional fees of $3.5m (14% of loan value) and 2.8m warrants (2% of share capital). Meanwhile, securing a strategic partner to reduce debt and fund future capex is progressing: non-binding interest has received from a number of parties that have performed due diligence and LOND remains confident the process will be concluded this year. Source: Company

Investec view: The additional loan provides working capital through the wet season and covers the impact of the reduced iron ore price against prepayments the company has received. This should provide the market with some comfort, although the loan does come at a hefty cost. The Company reports its H1 results on 21 August.

Good drill results from Amara (AMA LN). The company has released good results from its current drilling program at Yaoure, demonstrating high-grade areas within the Yaoure Central zone and confirming continuity of mineralisation across previous "information gaps". Source: Company

Investec view: Intersection vary from wide, medium grade (42m at 3.2g/t from 184m) to narrow, high-grade (2m at 45.8g/t), providing the resource geologist with a challenge. The first resource update is due in September, with a second update anticipated in Q4 2014.

Oz Minerals (OZL AU) H1 loss of A$7.4m versus A$268m profit a year ago, although EBITDA more than doubled to A$122.3m from A$50m leading to underlying net loss of A$14.3m after tax. The company declared a dividend of 10Ac/share. Cash at the end of June stood at A$154.9m with US$200m debt facility undrawn. Production stood at 40.4kt Cu and 64.5koz Au with guidance raised to 85-90kt Cu for the year and gold output guidance maintained at 130-140koz. Source: Company


Commodities news

(Legal) Indian gold imports dropping as the country protects its currency. Foreign purchases may drop 15% to 700t this year, according to a Bloomberg compilation of analyst views. Imports fell 44% YoY to 350t. India increased its gold import duty three times last year to 10% as it sought to reduce the record current-account deficit and stem a decline in the currency. Importers also have to supply 20% of their cargo to jewellers for re-export. Source: Bloomberg

Investec view: While the controls have reportedly helped narrow the current account deficit from a record $88bn last year to $32bn this year, were not convinced how much of this was due to gold curbs since the World Gold council estimates that as much as 150-200tpa of gold may be coming into the country through illegal channels.

Bauxite price to rise with Ebola woes adding to Indonesian export ban. The ooutbreak of Ebola in West Africa has raised concern over bauxite output and export disruptions from Guinea, which represented 7% of global production in 2013. The death toll from Ebola in Guinea now stands at 370. Source: Bloomberg

Investec view: This is the first instance where Ebola is being mooted as a contributor to increased commodity prices. Given that all listed-producers in Ebola-impacted nations are still reporting normal production levels, it may be too soon to be predicting rising prices.

Chinese steel output up, but pricing weak. Chinas crude steel output rose 1.5% in July to 68.mt, the National Bureau of Statistics said today, taking steel output for Jan-July to 480.76mt, up 2.7% YoY. Rebar for January delivery fell 0.4% to 3,052 Yuan/mt while spot iron ore at Tianjin Port fell 1.4% yesterday to $94/t. Source: Bloomberg

Codelco to blend high arsenic concentrate from its Ministro Hales mine with third party material for sale in China in an effort to resolve problems from its newest mine. Copper trader Ocean Partners has done the deal with Codelco which will buy clean standard concentrate to blend with its high arsenic product. The move follows Codelcos need to cancel some sales to Chinese smelters. The company hopes to get the mine to full capacity of 183ktpa refined copper by September. Source: Thomson Reuters

Copper prices continue to come under pressure this morning with geopolitical tensions leading to concerns over global economic growth. However, Europes biggest copper smelter, Arubis saw rising demand for key products plus an increased cathode premium allowing it to deliver a quarterly profit of Euro114m. It is hoping the healthy demand continues and that cathode premiums stay at current good levels. Source: Thomson Reuters

New iron ore export terminal Porto Sudeste to be controlled by Trafigura start up may be pushed back to next year, despite comments by the company that the port would open in Q3. Steelmaker Usiminas is expecting the delay on the 50mtpa port which was bought from Eike Batistas mining company MMX late last year for just under US$1bn. Source: Thomson Reuters

Australian coal miners feeling the squeeze with limited scope to reduce costs further. Coaltrans conference taking place this week indicates that coal prices will have to rise or mines face further closures. Mining costs have fallen marginally with site costs in New South Wales falling from around A$65/t to A$63/t this year, and in Queensland from A$61/t to A$60/t at thermal coal mines. Coking coal operations are under greater pressure with spot cargoes at US$114/t, down from US$133/t at the start of the year. Domestic coal producers are hopeful of some currency relief as the A$ remains firm. Source: Thomson Reuters

Other economic news

Japan suffers biggest economic contraction since March 2011 as an April 1 sales tax hike impacted spending leading to an annualized fall in growth in Q2 of 6.8% yoy versus 6.1% yoy growth seen in Q1 as consumers went on a shopping spree ahead of the tax hike. The Bank of Japan sees the slump as temporary with the economy on course for a moderate recovery and has no plans to expand stimulus any time soon. Source: Thomson Reuters

Weak economic data from China showing money flowing into the nation slowed to the lowest level in nearly 6 years raising fears over sustaining the economic recovery into H2. Chinas total social financing aggregate fell to RMB273.1bn in July, around one seventh of Junes level and the lowest monthly reading since October 2008. The Peoples Bank of China issued a statement straight after the data to reassure markets that credit and financing growth was still reasonable. Source: Thomson Reuters

African resources update

Sibanye (SGL SJ) looking at significant changes to standard gold-sector labour practices. The company is in discussion with the labour unions with the goal of changing shift arrangements. This should allow migrant workers to return home more regularly (once a quarter instead of the current once a year). Additional staffing and a new working shift arrangements would see the number of days worked increase from the current 270 to 320 days a year. Plans are also underway for profit through gain share initiatives that reward employees in line with investors and management. Source: MiningWeekly

Todays African Proverb. "Even the lion will eat grass if he is starving". 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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