🕐24.09.14 - 11:27 Uhr

INVESTEC GLOBAL NATURAL RESOURCES DAILY - MINING - WEDNESDAY 24TH SEPTEMBER - KA
Z LN, FMG AU, VALE US, GBG AU, AQP LN, TRQ US, RIO LN, VED LN



[cid:image001.png@01CFD7CF.796C5A60] Wednesday, 24 September 2014 [cid:image006.jpg@01CFD7CF.8475F9C0]
Snapshot � Company news highlights: Kazakhmys update on Aktogay, Fortescue signals further cost cutting, Vales bondholders punished by iron-ore collapse, Karara stake worthless for Gindalbie, Aquarius appoints new chairman, Oyu Tolgoi tax dispute � Commodity review highlights: Iron ore fall continues as Australia cuts price forecasts, Antwerp diamond dealers face financing issues, copper finely balanced for the next decade � Other economic news: The mining boom is officially over: FT � African resources update: Zambian power restrictions impact copper production, Zimbabwe finance minister says state wage bill unsustainable, todays African proverb
Company news � Kazakhmys (KAZ LN) update on Aktogay.

Kazakhmys has awarded the contract for the construction of the sulphide concentrator at Aktogay, KAZs 2nd major copper growth project, to Non Ferrous China (NFC).

This is the largest item in the capex for Aktogay, where total capex has now been confirmed to be in the region of $2.3bn.

Aktogay remains on track for first copper from sulphide in 2017.

Source: Company Investec view: Another step forward for the company, with confirmed capex of $2.3bn is in line with our analysts $2.35bn. � Fortescue (FMG AU) signals further cost cutting.

Fortescue CEO, Nev Power, signalled that the group will continue to cost costs of production despite the fact that they will not cut any further jobs.

Cost reductions will be achieved by operational changes such as reducing the amount of overburden stripping.

Source SNL Investec View.

Cutting costs via reduced overburden stripping can result in severe constraints to production going forward.

Short term gain - long term pain. � Vales (VALE US) bondholders punished by iron-ore collapse.

The companys $2.25bn of notes due 2022 have lost 2.72% this month, exceeding the 1.93% average decline for debt securities issued by steel and mining companies with investment-grade ratings.

Vale has the highest ratio of capex to sales among 11 global steel suppliers with annual revenue above $5bn, data compiled by Bloomberg shows, and it cannot reduce its spending dramatically until it finishes some of its projects.

Source: Bloomberg � Karara stake worthless for Gindalbie.

Gindalbie Metals (GBG AU) has written down its 48% stake in the troubled Karara magnetite project, with the $A592.3m write-down helping the company post a $585.m loss for the year.

The massive write-down was first flagged in August, and recognises lower-than-forecast production levels due to capacity restrictions and a lower iron ore price.

Looking ahead, GBG highlighted key uncertainties regarding the future funding requirements for the project, which hinges on operational performance and financial support from lenders (a Chinese banking syndicate) and JV partner Anseteel.

Source: MiningNews Investec view: Another iron ore casualty and certainly not the last, as market forecasters rush to down grade iron pre price assumptions. � Aquarius (AQP LN) appoints Nigel Rudd as chairman.

The appointment of Sir Nigel Rudd to board and as chairman designate is with effect from 1st November 2014.

Nicholas Sibley, a director since 1999 and chairman since 2002, will be stepping down on 28th February, 2015 with Sir Nigel to become chairman on 1st march, 2015.

Source: Company � At least someone is confident the Oyu Tolgoi tax dispute will be settled.

Turquoise Hill (TRQ US) states that the tax dispute with the Mongolian government remains unresolved, but the man behind its birth, Robert Friedland, remains "100% certain" the issues will be settled.

TRQ notes the tax ruling handed down last week, which reduced the outstanding tax bill from $127m to c.

$US30m, stating "there are aspects of the ruling that require further clarification".

The JV partners, TRQ and Rio Tinto (RIO LN), this week released the feasibility study for the expansion with the reserve case having capital costs of $4.9bn.

Friedland notes that developing a "truly world-class mine is like a woman having a 100kg baby - its painful and it takes time".

Source: MiningNews
[cid:image007.png@01CFD7CF.8475F9C0]
Commodities news � Iron ore fall continues as Australia cuts price forecasts.

Sounding like a broken record, spot iron ore continued its fall yesterday hitting US$79.40/t.

Australias Bureau of Resources and Energy Economics (BREE) cut its price forecasts for both 2014 and 2015 to US$94/t citing increasing supplies that will outpace demand growth in China.

Source: Bloomberg Investec view: The latest cuts to BREEs 2014 forecasts, from US$119/t at Dec to US$110/t at March, to US$105/t at June and now to $94/t, mirror a rather sorry story across most of the sector.

The read through for the iron ore miners is bleak.

It was interesting to read this morning that the Western Australian Treasurer has refused to guarantee a surplus this financial year since royalty revenues are 20% of WAs state income.

Vale stated overnight that it is now nervous about the iron ore price and that the only catalyst for a turnaround in the short term is Chinese stimulus, which is looking less likely by the day.

One major to keep an eye on is Fortescue (FMG AU) which has a breakeven cost of US$73-74/t.

Articles out today highlight that the yield premium over the swap rate on FMGs US$1.5bn note due 2019, its largest outstanding bond, widened to 533bps in late trading overnight from 339bps at the end of 2013. � Diamond dealers face financing issues after losing bank.

The Antwerp Diamond Bank (ADB), a source of finance to the local industry for 80 years, will stop lending after a sale by KBC Groep NV to Chinas Yinren Group collapsed last week.

Its likely to make loans scarcer in an industry that relies on debt for working capital.

ADB, accounted for more than 10% of the $15bn diamond-finance market and its demise may weaken Antwerps pre-eminent position as it competes with traders in lower-cost cities like Mumbai and Dubai.

Source: Bloomberg � Copper finely balanced for the next decade.

First Quantum (FQM LN) highlighted the finely balanced nature of the copper supply/demand equation over the next decade in its latest presentation to shareholders.

The chart shows the market being in effective balance over the next four years and then illustrates a widening deficit from 2018 onwards.

News today from Newmont (NEM US) that they will only produce 120-125kt of copper in the full year illustrates that the market will remain vulnerable to supply side shocks.

Source Company, SNL
Other economic news � The mining boom is officially over: FT.

The Financial Times carries an article on the effect of the Chinese slowdown on the Australian resource industry stating that the "mining boom is over": something we in the industry knew, but secretly hoped was not the case.

Source FT Investec View.

Despite Chinas insistence that GDP growth will be maintained at 7.5% for 2014 the effects of an over-invested mining industry are coming home to roost and the world is finally waking up to the new reality that prices for many commodities will continue to fall, or remain moribund for the next few years.

The way forward for company earnings growth is to slash costs that went out of control during the boom.

Such evidence that this is already happening is that employment in Australias mining industry fell by over 10% in the three months to August.
African resources update � Zambian power restrictions impact copper production.

Zambias Konkola Copper Mines (KCM), owned Vedanta Resources (VED LN), was forced to shut down its Nchanga concentrator on Saturday after the local power supplier restricted electricity over an unpaid bill.

KCM has so far lost 482t of copper output worth $3.3m.

Zambias Energy Minister on Monday called for dialogue between Copperbelt Energy Corp and KCM to end the dispute.

The power company is alleging that KCM has unpaid electricity bills totalling $44m.

Source: MiningWeekly � Zimbabwe finance minister says state wage bill unsustainable.

Around 76% of Zimbabwes revenue goes to paying salaries of more than 250,000 civil servants, leaving little money to pay down debt or to rebuild public infrastructure.

Robert Mugabe raised salaries for government workers by 14% early this year, making good on election promises.

Patrick Chinamasas comments that "its not good, its not sustainable" echo criticism from the IMF as the country looks to regain access to international credit lines.

Zimbabwe is undergoing an IMF monitoring programme aimed at helping it clear or defer debt repayments of about $9bn, which would give it access to much-needed international credit.

Source: Business Day � Todays African Proverb.

"When the frog in front falls into a pit, those behind take care".

Source: BBC Investec view: Thats why lemmings arent frogs
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: http://treasury.investec.co.uk/products-and-services/commodities.html UK Callum Macpherson Tel: +44 (0) 20 7597 5070
In the United Kingdom, this document is a "marketing communication" and not a "research recommendation" as defined by The Financial Conduct Authority (the "FCA").

This document has been produced for information purposes only and is not to be construed as investment advice or a solicitation or an offer to purchase or sell investments or related financial instruments.

Any expressions of opinion in this document are subject to change without notice.

The investments referred to in this document may not be suitable for all recipients.

Recipients of this document should make their own investment decisions based upon their own financial objectives and financial resources and, if in any doubt, should seek advice from an investment advisor. This document is not for general distribution and should not be passed, directly or indirectly, to persons outside your organisation. This document and any investment to which this document relates is intended for the sole use of the persons to whom it is addressed, being persons who are Eligible Counterparties or Professional Clients as described in the FCA rules or persons described in Articles 19(5) (Investment professionals) or 49(2) (High net worth companies, unincorporated associations etc) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (as amended).

It is not intended to be distributed or passed on, directly or indirectly, to any other class of persons and may not be relied upon by such persons and is therefore not intended for private individuals or those who would be classified as Retail Clients. Investec Bank plc is authorised by the Prudential Regulation Authority and regulated by the Prudential Regulation Authority and the Financial Conduct Authority (register number 172330) and is a member of the London Stock Exchange.

Registered office 2 Gresham Street, London, EC2V 7QP.
_____________________________________________________________________ Investec Bank plc is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. Registered in England and Wales (No.

489604).

Registered office at 2 Gresham St, London EC2V 7QP. Investec Asset Finance plc is authorised and regulated by the Financial Conduct Authority for credit-related regulated activities (including hiring).

Investec Asset Finance plc is also an appointed representative of Investec Bank plc for the purposes of insurance mediation activities.

Registered in England and Wales (No.

2179313).

Registered office at Reading International Business Park, Reading RG2 6AA. We may monitor e-mail traffic data and the content of email.

Calls may be monitored and recorded. This email and any files transmitted with it are confidential and intended solely for the use of the individual or entity to whom they are addressed.

If you have received this email in error please notify the sender.

This e-mail is subject to terms available at the following link: www.investec.co.uk/emaildisclaimer.

By communicating electronically with us, you consent to these terms. _____________________________________________________________________ _____________________________________________________________________ This email has been scanned by the Symantec Email Security.cloud service. For more information please visit http://www.symanteccloud.com Private & Confidential / Disclaimer: This document is private and confidential and remains the property of Bell Pottinger.

Its contents may not be copied, forwarded or duplicated in any form or by any means without the permission of Bell Pottinger.

Bell Pottinger is made up of Bell Pottinger Private Limited, a limited company registered in England & Wales with registered number 08024999 and Bell Pottinger LLP, a limited liability partnership registered in England & Wales with registered number OC380478, together with their subsidiaries.

Our registered office is at 6th Floor, Holborn Gate, London WC1V 7QD.

A list of the members of Bell Pottinger LLP is open for inspection at our registered office.



Products & Services | Jobs