🕐25.01.13 - 10:54 Uhr

INVESTEC GLOBAL NATURAL RESOURCES DAILY - MINING - FRIDAY 25 JANUARY 2013 - AAL
LN, XTA LN, FCX US, AVM LN, PIR AU, AGO AU, WHC AU, BTR AU, 893 HK, 3668 HK



Friday, 25 January 2013
Snapshot � Company news highlights: Anglo production report, Xstrata US$5.2bn estimate for Las Bambas, Freeport to lift output, Avocet disappointing quarterly, Papillon Resources upgrades resource base, Atlas Iron quarterly, Whitehaven Coal receives approval for Tarrawonga expansion, Blackthorn quarterly, China VTM profit warning, Chinalco IPO. � Commodity review highlights: Iron ore prices expected to fall, mining company hedge books to have negligible impact, coking coal in Australia disrupted by weather, Eskom power buy-back to lift ferrochrome prices. � Other Economic News: Queensland job losses expected, US$60.2bn hurricane Sandy aid package to be voted upon. � FTSE futures off 7 points ((7:15) - despite a decent move from the Dow overnight (up 46 points) European markets are looking marginally negative this morning ahead of the GDP announcement this morning where consensus indicates a 0.1% drop from the previous quarter as the economic boost from the summer Olympic games subsides.

Copper at US$3.696/lb continues to gain on optimism from US home sales and signs Chinese construction activity is set for stronger rebound.
Company News � Strike impacted 4Q for Anglo American (AAL LN).

This was a strike impacted quarter (platinum and iron ore particularly) so production volumes will not mean much.

Overall, refined production of platinum was down 1% at 703,800oz as pipeline stocks continued to be processed through the strike period.

Amplats (AMS SJ) and Kumba (KIO SJ) earnings were already guided so production/sales volumes not likely to impact share price.

Source: Company Investec view.

The 4Q production results look generally better than our forecasts, while sales volumes may be a lot better than production, especially in platinum.

Decent performance from copper, coking coal in line. � Xtrata (XTA LN) announces $5.2bn definitive estimate for its Las Bambas copper project in Peru.

The project is already in full construction with the aim of producing 400ktpa of copper from 2015, at 1st quartile cash costs.

This should lift XTAs production in Peru to 700ktpa.

Source: Company Investec view: XTAs growth program in Peru has been aggressive and it is maintaining good momentum in delivering, with several projects commissioned over the past year, including the $1.5bn Antapaccay mine and the Antamina expansion.

� Freeport (FCX US) plans a big 2013.

The company aims to lift 2013 copper sales at Grasberg by 53% to 1.1bn pounds and its gold sales by 31% to 1.2moz.

Grasberg is in the Indonesian province of Papua.

The lift reflects a recovery from a significant shutdown in 2012, together with higher grades and a ramp-up in production at the Deep Ore Zone underground mine.

As part of the planned transition away from open pit mining in 2016, FCX is targeting several underground developments.

The Grasberg block cave development is due to start producing in 2017 while the Deep Mill Level Zone operation is expected to start in 2015.

Over the next five years, estimated aggregate capital spending on these projects is expected to average $US715mpa.

Source: Miningnews � Disappointing quarterly update from Avocet Mining (AVM LN) which will undermine further confidence in the company.

31koz produced at cash cost of US$1,246/oz up from previous quarter of 33koz at US$937/oz cash cost.

AVM indicates Q4 costs included consultant fees paid to Alexander Proudfood (which has been recruited to improve operating performance), a hired mining fleet and scheduled maintenance of the companys own fleet that should improve in subsequent quarters.

Movements in the gold circuit also added around US$190/oz in costs reflecting 4,568oz of gold added to the gold circuit inventory that could help output this quarter.

Recovery rates also fell substantially from 91% to 83%.

Full year production came to 135koz at cash cost of US$1,000/oz in line with revised guidance over the period. Investec View: The stock will likely trade down.

We hope to see improvements in subsequent quarters following the work by Alexander Proudfoot Consultants, and that the gold in circuit will be released enhancing income this quarter.

Inata is struggling with metallurgical issues which management is working to resolve. � Papillon Resources (PIR AU) 34% resource upgrade from 3.14moz at 2.4g/t to 4.21moz at 2.4g/t announced yesterday at its Fekola project in Western Mali (1g/t cut off).

Importantly, the company has moved the bulk of the resource into the measured category (2.77moz) having previously only had 930koz in the indicated category with no measured.

The majority of the resource is contained in a single continuous mineralised system.

A pre-feasibility is underway for completion in the June quarter.

Drilling at the project extends for around 3,800m and has been tested to 450m vertical depth in the central and parts of the northern extent.

The average depth of drilling across the resource is 120m.

Source: Company Investec View: This is an excellent result for Papillon demonstrating the quality of the resource as it advances.

A scoping study outlined the potential for a 231kozpa operation at a cash cost of US$596/oz and capex of US$300m.

These results give greater confidence in the potential of the asset. � Atlas Iron (AGO AU) sales of 1.75mt in December quarter.

Quarterly sales of 1.75mt took DecH12 sales to 3.34mt, with C1 cash costs at the low end of guidance (A$46-50/t).

The small Mt Dove mine has commenced production and Abydos is on track to ship at the rate of 2-3mtpa from June this year.

The Mt Webber feasibility study is due for release by mid-February, with mining due to commence by April and with logistics in place by the end of CY13 to lift production to a run rate of 12mtpa.

Source: Company Investec View: No negative surprises.

December Half sales of3.34mt were some 0.14mt ahead of our expectations, with strong interest in the companys low grade fines product leading to sales of almost 0.6mt in the half, 0.2mt (or 50%) ahead of our estimates.

Received pricing (US$82/t FOB WA) and forward growth plans were in line with our expectations. � Whitehaven coal (WHC AU) Tarrawonga expansion approval, appointment of an Executive General Manager - Operations.

WHC announced the receipt of NSW Planning Approval for the expansion of Tarrawonga and the appointment of Jamie Frankombe (director of operations at Fortescue for the last 12months) to replace Allan Davies who will be retiring after a transition period.

Source: Company Investec View: Planning approval for the expansion of Tarrawonga (JV with Idemitsu 30%) is a positive step.

The expansion is intended to utilise Idemitsus Boggabri wash plant (Idemitsu has a separate project to expand the Boggabri mine underway) and will free up capacity at WHCs Gunnedah wash plant.

With plans the development timing of Vickery now likely pushed back, this approval is slightly less significant than previously.

Allan Davies stepped down from the Board in November, and his retirement from an operational role is not unexpected.

He was well regarded and a high calibre replacement was required.

� Blackthorn Resources (BTR AU) quarterly released but trading halt (related to the Perkoa project) remains: Blackthorns quarterly revealed first test concentrate had been produced at Perkoa (BTR 39.9%, managed by JV partner Glencore), but some commissioning problems had pushed back the first marketable quantity of concentrates from the project to later in the current quarter.

Source: Company Investec View: BTRs statement that they are committed to working with Glencore to resolve Perkoa commissioning problems and optimise the projects budget does not sound like good news on first pass.

� China VTM (893 HK) profit warning.

China VTM is expected to record a profit decline of up to 40% in 2012 as iron ore prices and volume fell during the period.

In 2011 the company reported earnings of CNY612m.

Earnings in 1H12 of CNY200m together with the profit warning imply 2H12 earnings of c.

CNY170m.

Source: Company Investec View: China VTM shareholders are being offered HKD1.93/share in cash as the companys controlling shareholder attempts to privatise the company.

China VTM IPOd in October 2009 at HKD3.50/share. � Chinalco Mining (3668 HK) IPO.

Media reports that Chinalco Mining has raised c.

US$397m in its IPO at HK$1.75/share, middle of the HK$1.52-1.91/share range.

Shares will reportedly start trading on 31 Jan 13.

Source: Bloomberg
Commodities News � Iron ore prices expected to fall as Chinese re-stocking activities come to an end.

Supply disruptions from cyclones off the coast of Australia and inventory rebuild ahead of Chinese Lunar New Year holidays have contributed to the price rally.

Charter rates for cape size vessels shipping bulk commodities fell 3.1% to US$8,167/day.

Source: Bloomberg � Mining companies expected to reduce hedge book by around 20t in 2012 as hedges remained unchanged in Q3 according to GFMS.

The impact of hedging and de-hedging was effectively neutral in the quarter.

The consultancy group expect hedging activities to have minimal impact this year.

Source: Mining Weekly. � Japanese iron ore imports 131.1mt in CY12.

Iron ore imports were up 2% in CY12 to 131.1mt, but still below CY10 level of 134.3mt.

Source:Tex report � Coking coal: DBCT has a wind and rain outage, but its a tropical storm not a cyclone.

The Dalrymple Bay Coal Terminal, and Hay Point, in North Queensland were forced to stop loading after heavy rain and high winds (gusts up to 140km/h) made operations unsafe.

Source: Inside Coal Investec View: Mines in the north of the state have experienced heavy rain, but its a tropical storm rather than a more serious cyclone.

DBCT continues to see relatively subdued demand with just 17 vessel nominations for February, at this stage.

DBCT shipped 6.56mt on 57 vessels in December and 47 vessels are expected in January.

Given this level of demand, a tropical storm is probably not enough to drive a meaningful price response.

� Eskom buy-back expected to lift 2Q13 ferrochrome prices.

TEX Report recently interviewed senior Xstrata Glencore management (XTA LN, GLEN LN) gaining their outlook on the immediate outlook for global ferrochrome.

XTA estimates 2012 world FeCr was 9.10mt, down from 9.25mt in 2011 (South Africa produced 2.8mt, down from 3.3mt).

XTA-GLEN estimate a 350-400kt output loss in the 1Q13 due to the on-going Eskom power buyback, although smaller-scale producers may struggle to accept Eskoms proposal without interrupting contracted supply obligations.

Discussions are on-going between the government, the ferrochrome producers and the platinum miners (UG2 chrome concentrate producers) to find measures to control the exports not only of chrome ore but also UG2 concentrates.

ESKOMs plans to raise the power prices annually at 16%/p.a.

for five years (still pending approval) would add approximately US$0.06/lb in production costs EVERY year.

The current European benchmark price is $1.125/lb.

To mitigate the full impact of such cost increases, XTA has invested significant capital in cost efficient technology.

Source: TEX report Investec view.

The ferrochrome industry continues to struggle.

The mooted lifeline of a tariff on chrome ore exports, which would impact Chinas competitive position as a ferrochrome producer, looks to be languishing.

A hurdle is the fact that such a tariff would also need to be applied in some form against the UG2 concentrate production from the platinum producers.

Smaller producers such as Ruukki (RKKI LN) have announced that they no longer intend to pursue any growth plans, focussing instead on maximizing efficiency and cash generation from existing operations.


Other economic News � More Queensland job losses to come.

The Queensland mining industry should lose another 458 net job losses this year, according to a survey of 26 chief executives by the Queensland Resources Council.

This follows the minimum 3,372 workers lost (contractors and full-time employees) in the 2H12.

Source: Miningnews � US senate to vote on 28th Jan on US$60.2bn aid package for Hurricane Sandy victims.

US$33.5bn of the package is intended for long term reconstruction: Source: Bloomberg
Investec Global Natural Resources Research Team: UK Australia South Africa Hunter Hillcoat Tim Gerrard Albert Minassian Tel: +44 (0) 20 7597 5182 Tel: +61 (0) 2 9293 2168 Tel: +27 (0) 21 416 1454
Marc Elliott Colin McLelland Tel: +61 (0) 2 9293 2140
Tel: +44 (0) 20 7597 5189

Simon Haggarty Tel: +61 (0) 2 9293 2462
Investec Global Natural Resources Sales Team: UK Australia South Africa Jamie Campbell Rod Clarkson Hayden Smith Tel: +44 (0) 20 7597 5038 Tel: +61 (0) 2 9293 2278 Tel: +27 (0) 21 416 1401
Matt Martin USA
Tel: +61 (0) 2 9293 2168 Thomas Lawrence
Tel: + 1 212 2595604

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