[cid:image001.png@01CE1651.D1148CB0] Friday, 01 March 2013 [cid:image004.jpg@01CE1652.82188F20]
Snapshot � Company news highlights: Glenstrata merger to take longer, RIOs Canadian iron ore up for sale, good exploration results from Archipelago, Sierra Rutile exploration licences, unsuccessful corporate results for Forte Energy, Turquoise Hill update, G-Resources interims, Bellzone appoints Investec, Kenmare secures more debt, Mongolian Mining downgraded, Lonmin update, improving Continental Coal earnings, Blackthorn Perkoa update, Gryphon sells Papillon stake, � Commodity review highlights: Zinc treatment charges for FY13 up 10% � Other Economic News: China Feb PMI, Canadian regulators to extend poison pills � African Resources Update: Eskom power to increase 8%/pa, SA trade gap, cost of SA strikes, Kenya elections Monday, fresh fighting in DRC � FTSE Futures - off 18.5 points (6:30am) - with US spending cuts coming into effect today markets may take a pause to absorb the impact.

China - PMI came in at 50.1 for Feb down from 50.4 in Jan, still indicating an expansion but at the weakest pace in 5 months.

The HSBC/Markit economics PMI data was 50.4 compared to 52.3 in Jan.

Whilst the Chinese New Year holidays would have an impact on the Feb data, market commentary is arguing that this is not sufficient to justify the weakening of the Chinese recovery.

The new Chinese leadership will officially take power over the next couple of weeks and we expect some blueprints from new president Xi Jinping and premier Li Keqiang on how they will manage the economys weakening growth. � US - the Dow gave back a 65 point gain in afternoon trading to close down 21 points as investors prepared for a rebalancing of indices and the $85bn of spending cuts. � Japan - Nikkei was up 47 points on speculation the Bank of Japan will add stimulus as early as April as the new governor Haruhiko Kurodo may look to demonstrate a more aggressive approach to 15 years of falling prices. � Euro - futures across the board lower this morning in reaction to US and Chinese news.

Draghi announced that the European Central Bank is far from exiting stimulus measures and economists estimate a small reduction in the European manufacturing gauge when the PMI data is released at 9am this morning.
Company News � Glencore/Xstrata (GLEN LN/XTA LN) merger update indicates that it will not now be possible to complete a merger by 15 March.

The companies are due to release their prelim results next Tuesday.

Source: Company � Rio Tinto (RIO LN) has offered its Canadian iron ore operations according to reports with Credit Suisse and Canadian Imperial Bank of Commerce tasked with the sale of all or part of Rios 58.7% stake in Iron Ore Company of Canada.

In other news Rio has indicated that construction funding of Oyu Tolgoi has been extended whilst talks continue with the government.

The two parties are in a dispute of taxes, with the government having once temporarily frozen Rios local bank accounts as part of the dispute whilst the company has considered idling the project until all issues are resolved.

Production is due to start as planned in June.

Source: Bloomberg Investec View: These assets were top of our analysts list in a report last October on potential asset sales.

RIO gets its best rest returns from the Pilbara, which is also closest to China.

IOCC is not a bad asset but difficult work, with seasonal weather challenges and relatively inflexible labour. � Archipelago (AR/ LN) releases further positive drill results from its drill programme at its Blambangan and Pajajaran deposits at its operating Toka Tindung Mine in Indonesia.

Deeper mineralised zones have been tested at the projects and returned good results with highlighted intercepts ranging between 3.4g/t and 10.3g/t over 4-13m within which there are some higher intercepts of up to 22g/t with the deepest hole down to 235m down hole.

The results from the 2012 drill programme indicate high grade extensions to depth at these deposits.

Source: Company Investec View: These results further confirm the potential for the existing asset base to support the mine long term and even the potential for expansion. � Sierra Rutile (SRX LN) receives approval for two exploration licenses over the Jagwbwema deposit, adjacent to its current mining license.

The new licenses are in addition to the Sembau exploration granted last August.

A previous investigation of the areas under reconnaissance licenses indicated sufficient levels of heavy mineralisation to warrant a full exploration programme.

The company has budgeted on a US$1.5m exploration programme on these new licenses.

Source: Company � Forte Energy (FTE LN) indicates that negotiations over prospective corporate transactions that have been going over the past few weeks have been unsuccessful.

Trading on the ASX has been suspended since 1st Feb pending the release of quarterly reports and the results of discussions, trading should resume shortly.

Source: Company � Turquoise Hill (TRQ CN) update on discussions with Mongolian government.

Turquoise Hill (51% owned by Rio Tinto) has announced that discussions with the Mongolian government regarding the Oyu Tolgoi Investment Agreement will continue through Mar 13.

Discussions include project development and costs, operating budget, project financing, management fees and governance.

The Oyu Tolgoi board has approved continued funding so that the project can progress whilst discussions continue.

Source: Company Investec view: We remain cautious on Mongolia ahead of presidential elections in May/June 2013.

See our recent research Mongolian Coal: the State versus foreign mining companies dated 27 Feb 13. � G-Resources (1051 HK) interim results.

G-Resources announced a loss of US$7.99m for the six months ended 31 Dec 12.

The company has maintained production guidance of 250koz gold and 2.2Moz silver for 2013 at a cash cost of US$450/oz after silver by-product credits.

Cash costs during DecH12 were US$680/oz as operations ramped-up.

Source: Company Investec view: Gold production of 42koz up until the end of Feb 13 shows the company is on track to achieve production guidance although it is still early in the year.

Production will likely be helped by gold recoveries of 90% in Dec 12; well above feasibility study estimates of c.

70% as the company is mining the oxide ore cap. � Bellzone Mining (BZM LN) appoints Investec Bank plc as its joint corporate broker, with immediate effect.

The Company remains on track to provide the market with an update by the end of 1Q13.

Source: Company � Kenmare (KMR LN) secures more debt from ABSA.

Kenmare has established a $40m corporate facility with Absa Bank, an existing lender to KMR.

As at 31 Dec12 KMR bank debt amounted to US$324.4m, most of which is medium-long term.

Source: Company � Mongolian Mining Corporation (975 HK) downgraded by Moodys.

Moodys has downgraded MMCs debt to B2.

Source: Bloomberg Investec view: Despite the downgrade MMCs debt is still trading at a 7% YTM, well below the issue yield of 8.875%.

We forecast MMC to make a loss of USD12m in 2012E but expect earnings to improve in 2013E as coking coal prices increase.

Coking coal prices on the China/Mongolia border have increased from c.

USD100/t in Dec 12 to c.

USD107/t currently. � Lonmin (LMI LN) announced yesterday progress update on new proposed operating structure announced in October.

The ramp up element of the renewal plan continues to progress ahead of schedule.

Around 150 management positions however are to be affected initially as part of the restructuring aimed at cutting costs (ZAR200mpa).

The company continues to engage with unionised employees.

LMI employs 28,000 people Source: Company Investec View: The staffing of the company was set up to support the ramp up to 950koz Pt prior to the troubles of last year.

Since then the renewal plan aims for 750kozpa production over the next two years before more gradually ramping up and so staff cuts could be made.

LMI is trying to avoid any cuts to the bulk of the frontline work force which would be a delicate issue to manage.

Also, having cut contractors last year there is less pressure to cut permanent staff.

We note that platinum prices are well down from recent highs (of over US$1,700/oz to currently US$1,600/oz) likely influenced by the weakness seen in gold prices. � Improving financial results for Continental Coal (COOL LN).

Mixed 1H13A results: EBITDA of $0.6m (vs.

-$4.0m in 1H12A) and EBIT of -$1.1m (vs.

-$6.3m), assisted by a 59% reduction in admin costs to $4.5m, but with NPAT loss of $6.4m (vs.

-$2.2m), largely reflecting exchange rate differences on translation of foreign operations ($3.4m).

Operating activities saw cash outflows of $2.2m while COOL invested $22.8m into operations (mainly development of Penumbra).

COOL finished the period with $1.1m cash and borrowings of $61.2m (including $15.3m bank debt, $14.5m of convertibles and $25.8m of non-traditional loans from its BEE partner).

Source: Company Investec view: While the balance sheet leaves little room for error, even given COOLs recent financing initiatives, we do expect cash flows to improve henceforth, with potential upside from the strategic partnerships and/or asset sale process that is underway. � Blackthorn Resources (BTR AU) Perkoa Project update.

BTR has advised that continued negotiations with Glencore on funding alternatives for the Perkoa Project are advancing, and a further announcement can be expected in the near term once a binding agreement has been reached.

Source: Company � Gryphon Resources (GRY AU) sells stake in Papillon Resources (PIR AU).

GRY has sold their entire holding (~16m shares, 6.27%) in Papillon for consideration of A$19.98m.

Having bought its stake of PIR in February 2012 for A$13.7m, the resulting ~A$6m gain over the 12 months represents a return of ~44%.

Source: Company
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Commodities News � Commodities - precious metals generally flat this morning, copper (US$3.531/lb) is slightly weaker of the back of the Chinese PMI numbers as is nickel at US$16,548/t.

Iron ore remains resilient at US$151.7/t.: � Zinc treatment charges up +10%.

Teck (TCK US) and Korea Zinc (010130 KS) have agreed to 2013 processing fees of $210.50/t, up from 2012s benchmark of $191/t.

Source: Mining Weekly
Other economic news � China manufacturing PMI 50.1 in February.

The official China manufacturing PMI was 50.1 for February, confirming the preliminary private PMI reading that showed a sharp deceleration in the pace of expansion of Chinas manufacturing sector.

Source: Bloomberg � Canada regulators to propose extended poison pills.

Canadian securities regulators plan to bring more coherence to Canadas regulatory regime, particularly the use of "poison pill" defences to fend off unwanted suitors.

Poison pills effectively raise the price of a hostile bid by giving existing shareholders, excluding the hostile bidder, the right to buy additional stock at a discount.

In Canada, target companies of hostile bids typically have limited time to bring an alternate proposal before shareholders, whereas the revised plan may allow poison pills to stay in place indefinitely.

A revised plan is due to be published in draft form on March 14.

Source: Mining Weekly
African Resources update � The South African energy regulator, Nersa, announced that Eskom would be allowed to increase electricity tariffs at an average annual rate of 8% between 2013 and 2018, half of what Eskom was seeking.

The new tariffs would take effect from 1st April, with Municipal customers receiving the increases from 1st July.

Source: Mining Weekly � South African trade gap at 33% in January was worse than the most pessimistic forecasts raising concerns leading to a drop in bond prices.

Source: Bloomberg � Strikes in 2012 cost South Africa ZAR15.3bn (US$1.8bn) in mining output: National Treasury.

Mining output between July and October fell by 16.7% YoY.

While it rebounded somewhat in the last two months of 2012, annual output was down 3.1% YoY.

Copper production declined 21.8% YoY, gold down 14.5% and PGMs down 12%, while iron-ore production was up 15.7% YoY.

Source: Mining weekly � Kenya holds nationwide elections on Monday.

There have been some incidents of violence, but the police inspector general expects a peaceful vote.

Source: The Independent � Fresh fighting in the DRC, less than a week after peace accord.

Fighting erupted on Thursday between Congolese troops and the rebel group, Alliance of Patriots for a Free and Sovereign Congo (APCLS) in Kitchanga, about 90km from Goma.

On Sunday, the DRC signed an agreement with 10 other African nations including Rwanda and Uganda, which were accused in a UN report last year of aiding the more prominent rebel group (M23), who captured the key eastern Congo city of Goma in November.

A looming leadership struggle also threatens to split M23, which some fear could lead to more waves of violence there.

Source: The Independent
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