[cid:image001.png@01CFC8E0.9B562FA0] Friday, 05 September 2014 [cid:image006.jpg@01CFC8E0.9BB58DB0]
Snapshot � Company news highlights: Gem Diamonds opens Ghaghoo mine, African Rainbow sees iron ore price correction, Papillon merger with B2 Gold on track, African Rainbow may consider Amplats PGM assets but only in a separate structure � Commodity review highlights: Nickel set for 5th weekly gain, Vale equity at 2009 lows in line with iron ore, EPA rules appear to encourage consumption of dirtiest coal in US, Japan agrees to US$420/t aluminium premiums, Japan looking to secure 60% of rare earth supply from non-China sources, tin premiums under pressure with plentiful supply, Japan may see a quarter of nuclear reactors scrapped due to new legislation � Other economic news: Chinese rail majors may merge to avoid undercutting each other overseas � African resources update: Zimbabwe to receive help from China to build special economic zones, Tunisia considering Yen bond issue, todays African proverb
Company news � Gem Diamonds (GEMD LN) opening of Ghaghoo mine to add to the companys production base from Letseng.

It is an underground mine and will undergo a phased development with the first phase aimed at confirming the grade, diamond prices and recovery process.

Following the results the company will then be better placed to define later phases of development.

Source: Company Investec View: An important step for the company and we look toward the development and sales process of diamond recovered to ascertain the potential of the asset. � African Rainbow (ARI SJ) sees iron ore correction.

Mike Schmidt, CEO of ARI, said yesterday that, "we dont foresee that the iron-ore price is going to be sustainable at US$85/t for the next five to seven years.

At US$85/t, theres about 300-500mt thats under the water.

There has to be a rerating and a correction somewhere down the line", adding that a correction may lift prices to as high as US$90-100/t.

"We dont believe its 120 or 140," he said.

Profit excluding one-off items from the companys ferrous unit (iron ore, manganese and chrome) made up 91% of FY14A earnings.

Source: Bloomberg Investec view: All iron ore producers are singing from the same hymn book.

It just doesnt make pleasant listening at the moment.

Those most exposed to iron ore sing a little more forcefully. � Papillon Resources (PIR AU) merger with B2Gold (BTO CN) on track for completion by 3 October.

The A$650m friendly merger will lead to the delivery of PIRs Fekola project that is expected to produce 306kozpa Au.

Construction is expected to start toward the end of the year.

The combined company will have cash and equivalents of US$190m with an unused debt facility of US$150m.

Capex for the project is estimated at US$300m with B2Gold currently estimated to be generating around US$100mpa of free cashflow currently ensuring that Fekola is fully financed.

Source: MiningNewsPremium � African Rainbow Minerals (ARI SJ) CEO indicates that he may consider acquiring Anglo Platinums assets that are expected to be sold off provided that the assets would sit in a completely separate structure and that it made commercial sense.

Amplats is looking to divest itself of its Rustenburg shafts and its Union mine.

Source: Mining MX
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Commodities news � Nickel set for 5th weekly gain on Philippine supply concerns.

The Philippine environment secretary said yesterday that the government should ban mineral-ore exports, backing a proposed bill in the Philippines calling for restrictions aimed at boosting the countrys downstream metals industry.

Source: Bloomberg Investec view: This follows the ore export ban taken by Indonesia, which has remained surprisingly steadfast and appears to be bearing fruit, as Chinese companies move towards developing downstream operations in Indonesia.

The Philippines has become the de facto nickel ore exporter to China after the Indonesia channel closed, albeit at a more limited scale.

According to Nickel Asia (NIKL PM), Indonesia produced about 72ktpm of nickel ore and concentrates in 2013, while the Philippines produces only 28ktpm. � Vale now at 2009 lows, in line with iron ore at 2009 lows.

Vale (VALE US) closed at its lowest since Mar09 in Brazil overnight (though not quite at its Sep13 low in US$-terms).

This follows the fall in iron ore (62% Fe to Qingdao) at $84.3/t, lowest since Oct09.

Prices are 56% below a record $191.70/t reached in Feb11.

Source: Bloomberg Investec view: Down and down it goes, where it will stop, nobody knows.

We are in somewhat uncharted territory, with steel demand slowing at the same time as iron ore supply ramps up significantly.

Data shows that Sept steel demand usually drops ~10% MoM before a 4Q pickup, so there could be further downside in the iron ore and rebar spot prices from here.

However, we note that the spread between domestic Chinese iron ore and imports has risen to US$22.61/t, its widest this year, reiterating the attraction of imports while ore inventory restocking levels and trade history show that Nov-Dec are positive for prices, with 5% and 7% MoM gains. � Dirtiest US Coal becoming most popular on EPA rules.

In an ironic twist, tightening emission standards have led to an increase in demand for coal from the Illinois Basin, as sales of (cleaner) Appalachian and Powder River product slow or stagnate.

Illinois basin coal has greater sulphur content than the other coals and therefore either costs less or has higher heat content, meaning that it is now sought after by the utilities that have been forced by EPA rules to install scrubbers in their power plants.

Source: Bloomberg � Japan agrees to US$420/t aluminium premium.

Aluminium buyers in Japan, Asias biggest importer, have agreed to pay premiums of US$420/t in the coming quarter, up from a range of US$400-408/t this quarter.

This is the 4th consecutive record premium.

Source: Bloomberg � Japan looking to secure 60% of its rare earth needs from outside of China within four years in an effort to curb its dependence on the nation.

Japan hopes to sign a deal this month that would give it supply from India and has helped fund other potential sources.

China currently produces around 90% of the worlds rare earth metals.

Japanese demand is expected to reach 18ktpa in 2018 with Australian company Lynas supplying 8.5ktpa and India providing 2.5ktpa.

Longer term recycling of rare earths should help boost domestic supplies but this source is not expected to be overly material until after 2025 as more hybrid vehicles reach end of life for recycling.

Source: Thomson Reuters � Tin premiums slipping as market faces weak demand as producers supplies pick up.

Premiums are currently US$450-550/t down from US$500-600/t for high grade material.

The market is understood to be in surplus as top Indonesian producer sees output recover from a temporary halt.

Indonesia introduced a ban last year on low grade tin ingots that has prompted consumers to secure such product from alternative sources such as Bolivia, Myanmar and Malaysia.

Rising LME warehouse inventories also add evidence to oversupply that are up nearly 30% since January to 12,435t yesterday.

Source: Thomson Reuters � Japan to push nuclear operators to draft plans to scrap a quarter of the nations 48 reactors that are too old or too costly to upgrade to meet new standards.

All of the nations reactors remain shut down after the 2011 nuclear crisis at Fukushima.

Two reactors have been given initial clearance to restart but hurdles remain.

Source: Thomson Reuters
Other economic news � Chinese state owned train majors China CNR and CSR Corp may merge to prevent them undercutting each other when chasing overseas business.

The local press released the news which has not been confirmed by the companies.

The companies were created from the Ministry of Railways in the early 2000s to stimulate the industry.

Source: Thomson Reuters
African resources update � Zimbabwe to receive help from China to build special economic zones and industrial parks to help jump start the economy.

Investors in the zones would benefit from special tax breaks and not have to comply with the onerous black economic empowerment laws.

Source: Thomson Reuters � Tunisia Central Bank eyeing Yen bond issue.

The Central Bank of Tunisia has hired Nomura to explore bond issuance opportunities in the yen market with a series of investor meetings to be organised in Japan.

In 2012, the EU was Tunisias largest trading partner with a total trade accounting for 62.9% of Tunisian trade.

Japan was not in the top 10.

Source: Bloomberg, European Commission Investec view: There have been a number of African government bond issues this year, mainly into Europe, but central bankers are clearly keen on testing new geographies. � Todays African Proverb.

"The horns of the snail are not enough for it to challenge the bull for a fight".

Source: BBC
Investec Global Natural Resources Research Team: UK South Africa
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