🕐08.02.13 - 09:27 Uhr

INVESTEC GLOBAL NATURAL RESOURCES DAILY - MINING - FRIDAY 08 FEBRUARY 2013 - NCM
AU, MIRL LN, SGQ CN, 486 HK



Friday, 08 February 2013
Snapshot ¢ Company news highlights: Newcrest results reflect tough first half, Minera completes placement, Southgobi updates market on government investigations, Rusal quarterly production update ¢ Commodity review highlights: Gold prices constrained by sentiment, platinum also falls, Rebar prices up and iron ore spot holds firm, thermal coal prices unlikely to benefit from disruptions in Queensland ¢ Other Economic News: Australian mining taxes underperform Chinese PPI falls and CPI growth eases, global bond sales down this week. ¢ African Resources Update: French troops moving on from Timbuktu ¢ Iron Ore Review – We provide an overview of the supply demand picture for iron ore ¢ FTSE futures up 18 points – European markets are poised for positive moves today following a much better than expected Chinese trade surplus overnight - $29.15 billion for Jan versus $24.7 billion median consensus and overseas shipment increasing 25% YOY compared with 17.5% consensus whilst inflation remained at 2%.

Ahead of the week long Chinese new year this is a very positive sign of a bolstered recovery in China.

The EU leaders met overnight to discuss cuts to the European blocs budget, bowing to David Cameron’s request.

A spending ceiling of 960 billion Euro’s is proposed.
Company News ¢ Newcrest (NCM AU) Australia’s largest gold miner saw profits fall 51% in its first half yearly results to A$320m as production and sales fell over the period.

The company indicates that the results reflect a transition with the completion of two major growth projects and challenges at some operations.

Gold sales stood at 956koz down 18% yoy.

At the end of the period, the company had gearing of 16.9% and net debt of A$3.1bn up A$900m yoy.

Source: MiningNewsPremium ¢ Minera IRL (MIRL LN) announces that it has closed placing at 45p/share raising C$15.46m with 22m new shares to be issued.

The proceeds will be spent largely on the company’s Ollachea project as well as general exploration and G&A.

Source: Company Investec View: We look forward toward updates on Ollachea which is shaping up well, however, the major financing and construction will need to take place as well as for Don Nicolas. ¢ SouthGobi (1878 HK; SGQ CN) updates market on government investigations.

Mongolian coal miner SouthGobi Resources provided further details regarding investigations by the Mongolian Independent Authority Against Corruption (IAAC) and Mineral Resources Authority of Mongolia (MRAM).

Two issues related to SouthGobi were raised during the trail of the former MRAM Chairman: 1) minimum exploration requirements at some licenses are alleged to have not been made at four licenses including license 9442x, which SouthGobi continues to hold and is adjacent to its Soumber deposit although it does not contain any JORC resources and 2) one license was alleged to have been transferred to a third party in March 2010 in violation of anticorruption laws.

In addition, SouthGobi announced it was granted a pre-mining license on 18 January 2013for one of the tenements that contains resources at its Soumber deposit. Investec View: We view the update as generally positively as SouthGobi has previously provided the market little colour surrounding the investigations and the details provided today suggest the investigations are progressing towards resolution and are not a worst case scenario as SouthGobi’s most important licenses that cover the Ovoot Tolgoi, Soumber and Zag Suuj deposits are not involved.

SouthGobi continues to wait however for a pre-mining license at its 83mt Zag Suuj deposit, where its exploration license expired over one year ago.

¢ Rusal (486 HK) DecQ12 production, sees aluminium market growing 6% in 2013.

Russian aluminium producer Rusal announced DecQ12 production was 1,038kt aluminium (down 2% YoY), 1,806kt alumina (down 13% YoY) and 2,788kt bauxite (down 15% YoY).

Rusal also gave an outlook statement that is sees global aluminium demand growing 6% in 2013 to 50mt driven by China (9.5% growth), India (6% growth), Asia ex China (5.8% growth) and North America (5% growth) partially offset by Europe (2% decline).
Commodities News ¢ Gold prices continue to be undermined on speculation of falling demand from the US as both Chinese and US economies show signs of improvement.

Platinum also is pulling back from a recent high.

It is of note however that gold imports into China have been going from strength to strength, with total imports in 2012 at 834.5t nearly twice that of 2011, against a background of record domestic gold production.

Source: Bloomberg ¢ Iron ore price continued their climb back towards recent high settling at US$155.10/t with Shanghai rebar futures hitting a 9 month high of RMB 4,254/t.

Whilst a reflection of the strength in import data and restocking of inventory levels, activity post Chinese New Year will key to the sustainability of prices at these elevated levels.

Source: Bloomberg ¢ Thermal coal prices unlikely to benefit from the flooding in Queensland as the state is the world’s biggest exporter of metallurgical coal.

About 60% of the mines affected by the rail closures following cyclone Oswald produce coking coal with the rest producing thermal coal.

Around 40mt of coal shipments have been affected.

Thermal coal prices at Newcastle have risen by US$1.70/t to US$92.75/t.

Hard coking coal prices closed at US$168/t at the end of January, with quarterly contracts for the current period at a low of US$165/t.

Source: Bloomberg Other economic news ¢ Data due out today: EU – Germany Dec Trade Balance (€15bn f’cst), Dec Imports & Exports (+1.6% & +1.4% MoM f’cst), US – Trade Balance Dec (-$46bn f’cst) ¢ Australia’s new taxes on iron ore and coal profits raised A$126m in its first 6 months well behind targets, as the government hoped to receive A$2bn in the year to 30 June.

Revenues clearly down substantially, as mines are perhaps making less money that the government thought.

Current government headed by Julia Gillard is seeing support slump, as a A$15bn fiscal deficit is now anticipated.

Source: Bloomberg ¢ China’s PPI index fell 1.6% yoy in January, an 11th month of decline, although smaller than the 1.9% fall in December, however mom PPI rose 0.2% last month.

Annual consumer inflation eased in January from December’s 7 month high, despite rising food prices.

CPI rose 2% yoy in January and 1% mom, with food accounting for nearly 1/3 of CPI.

Food prices were up 2.9% yoy in January.

Source: Xinhua ¢ Bond sales around the world stumble this week following the busiest ever start to a year as a surge in yields have led investors to pull out of funds that by debt.

Company bond sales this week have totalled around US$48bn, less than half of a year ago and the lowest since the first week of this year.

The total bonds issued in January came to US$424.3bn.

Yields on corporate bonds have risen and reached 3.41% by 6th February.

February however, tends to be a weaker period.

Source: Bloomberg
African Resources update ¢ French troops now withdrawing from Timbuktu having secured the city and preparing to secure the northern city of Gao.

Source: Bloomberg
Iron Ore Overview ¢ Our seaborne iron ore demand estimates are based on Chinese GDP of 8.5% this year and thereafter 6.5% which gives a reasonably balanced market with growth from the iron ore majors meeting demand. ¢ However, under the ArcelorMittal view that China will continue growing at 7.5%-8.0% pa for the next decade then a substantial portion of new supply would need to come from projects that we classify as “probable”.

These are often projects owned by smaller players that do not yet have funding or larger projects in more risky geographies.

Examples include Sundance in West Africa, Simandou in West Africa and Hancock’s Roy Hill project in the Pilbara.

There is a good chance such projects go ahead in the right market but not without risk to timing and cost.

Under the Arcelor view we project an additional net 1.0bn tonnes will be required over the period 2011 to 2022 (versus 888mt under our current model assumptions).

SEE CHART BELOW. ¢ We note that Rio Tinto provides low cost, close to Asia (China), increasing Pilbara production (100% basis) from 230mt to a rate of 290mt by the end of CY’13 and 370mt by mid CY’15.
Investec Global Natural Resources Research Team: UK Australia Hong Kong South Africa Hunter Hillcoat Tel: +44 (0) 20 7597 5182
Tim Gerrard Tel: +61 (0) 2 9293 2168
Matthew Whittall Tel: +852 3187 5075
Albert Minassian Tel: +27 (0) 21 416 1454
Marc Elliott Tel: +44 (0) 20 7597 5189
Colin McLelland Tel: +61 (0) 2 9293 2140
Leavitt Pope Tel: +852 3187 5074
Simon Haggarty Tel: +61 (0) 2 9293 2462
Investec Global Natural Resources Sales Team: UK Australia Hong Kong South Africa Jamie Campbell Tel: +44 (0) 20 7597 5038
Rod Clarkson Tel: +61 (0) 2 9293 2278
Will Robbins Tel: +852 3187 5098
Hayden Smith Tel: +27 (0) 21 416 1401
USA Thomas Lawrence Tel: +1 212 2595604
Matt Martin Tel: +61 (0) 2 9293 2168
Alistair Roberts Tel: +852 3187 5097
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