🕐05.03.13 - 13:27 Uhr

INVESTEC GLOBAL NATURAL RESOURCES DAILY - MINING - TUESDAY 5 MARCH 2013 - GLEN
LN, XTA LN, ANG SJ, AAL LN, 3788 HK, 578 HK, MT US, UNV AU, KAS AU, CNR LN



[cid:image001.png@01CE1979.EAEDE700] Tuesday, 05 March 2013 [cid:image006.jpg@01CE1979.FEFBDFE0]
Snapshot � Company news highlights: Glencore-Xstrata results, Lunch with Mark Cutifani, Hanking profit falls, Rosan coal mines to reopen, ArcelorMittal to expand Liberian iron ore, Universal approves South African coal project, resource upgrade for Kasbah, positive PEA for Condor, � Commodity review highlights: BHP lifts manganese prices, Gold picking up, bearish iron ore comments, Colombian thermal coal recovering, record Chinese chrome ore imports, Gladstone coal exports down 21% � Other Economic News: China plans to curb budget deficit, gold M&A continues, Chinas NPC starts � African Resources Update: Eskom plans 1,000MW of buy-backs, Sudan hoping for gold windfall, SA copper theft decreasing, Zambian currency issues, Zimbabwe not allowing election observers � FTSE Futures up 30.5 points (7am) - following a 38 point rise on the Dow overnight off the back of continued world-wide stimulus speculation with comments from Janet Yellen, Vice Chairman of the Federal Reserve, stating the benefits of low interest rates and the $3.09bn balance sheet outweigh any risk of financial instability.

In Japan, Kikua Iwata, a nominee for the Bank of Japan deputy governor said the central bank should buy longer-term term bonds to help achieve a 2% inflation target.

In China, following the first day of the NPC there are plans to raise the budget deficit by 50% this year, cutting taxes and boosting measures to support consumer demand.

The growth target was also maintained at 7.5% with inflation of 3.5% targeted. In Europe, officials indicated potential budget policy easing to prevent further backlashes in relation to austerity measures.

These potential measures are off the back of the deadlocked Italian election and Frances refusal to make further budget cuts.

In Australia the market had a strong run closing up 65 points (1.29%) with the RBA leaving interest rates unchanged at 3%.

In the UK, the deterioration in the value of the pound is expected to continue with increased stimulus and subdued manufacturing and construction data providing support for further QE out of the UK. In commodity markets copper is reversing losses from the past 4 sessions - up 1.04% to US$3.537/lb, thanks to the Chinese announcements however other base metals are off (Nickel down 0.79%, Zinc down 1.1%).

Iron ore fell to US$148.80/t yesterday however with steel re-bar futures rising overnight by 0.5% off the back of Chinese announcements, traders could be putting upward pressure on the iron ore price. Data due today:- US ISM non-manufacturing composite (forecast 55 vs.

55.2 prior), Eurozone, retail sales (forecast 0.3% vs.

-0.8 prior), German PMI Services (forecast 54.1).Australian Market:
Company News � Xstrata/Glencore merger update extends the longstop date for the merger to 16th April.

Approval from China and completion of the Xstrata court process set out by the New Scheme document that contains commitments required by the EC are still outstanding.

Source: Company � Glencore (GLEN LN) FY12 results: 15% increase in revenue but EBITDA off 8% yoy to US$5.9bn.

Net income (pre-exceptionals) was off 25% to US$3.06bn, and post exceptionals was down 75% to US$1.0bn.

Net debt of US$15.4bn was up 19% yoy.

GLEN is proposing a 5% increase in the full year dividend to 15.75c/share (final dividend of 10.35c/share).

Completion of the merger with Xstrata (XTA LN) remains conditional on Chinese approvals and the completion of the various processes required by the EC.

The increase in revenue was largely due to higher oil volumes handled in the year.

GLEN reported impairments of US$1.65bn principally on fair value adjustments with regards to its interest in Rusal (RUALR RU), as well as recognising its share of XTAs exceptionals.

Source: Company � Xstrata (XTA LN) preliminary results reflect a decrease in earnings and revenue.

Revenues were down 7% yoy to US$31.6bn, taking EBITDA down 30% to US$8.1bn leading to attributable profit (pre-exceptionals) of US$3.65bn, down 37% yoy (US$1.18bn post exceptionals).

EPS came to 124c/share (40c/share post exceptionals), full year dividend of 45.5c/share, up 14% yoy.

Net debt at the end of the year came to US$14.7bn reflecting gearing of 24%.

Within the exceptional costs there was a one off reversal of 2011 tax provisions leading to an effective tax rate of 14%, which pre-exceptionals before the adjustment would have been 24% tax.

Impairment of assets reduced earnings by US$2.6bn included the write down of XTAs investment in Lonmin (US$840m) as well as other write downs totalling some US$978m.

Source: Company � Lunch with Mark Cutifani : CEO AngloGold Ashanti (ANG SJ) and shortly CEO Anglo American (AAL LN).

Investec Securities Australia hosted a lunch for Mark Cutifani yesterday.

Discussions were wide ranging including some improvements on the horizon in South Africa, industry cost pressures and the need for more discipline to concentrate on returns rather than volume growth.

AngloGold continues to target sustainable gold production of 5moz by 2015 and full costs in the order of US$1,250/oz including US$200/oz sustaining capital and US$200/oz development costs.

This points to a 15% ROCE at the same time as being able to pay a 3-5% yield, which should highlight the opportunity costs for investors that hold ETFs.

The objective is very clearly to build a sustainable business without constantly over investing to achieve unsustainable production growth.

There was some broad discussion of how Mark may approach his first three months at Anglo America; (1) an overview of the markets that Anglo is in (2) asset review including endowment and capacity upside (3) state of the systems and their integration across the Group (4) Balance Sheet/Financing options and flexibility (5) Review of the Organisational Structure including the right people in the right roles.

We note that this is the same sort of program that Mark has applied successfully in his rejuvenation of AngloGold Ashanti. � Hanking (3788 HK) profit falls c.

20% in CY12.

Chinese iron ore producer China Hanking Holdings issued a profit warning indicating that it expects to report a c.

20% YoY decrease in profit in CY12 due to a 21.8% YoY decrease in its average iron ore selling price partially offset by higher sales volume.

Hanking reported attributable profit of CNY404m on production of 1.26mt of iron ore in CY11.

Source: Company � Rosan Resources (578 HK) coal mines in China receive approval to reopen.

Rosan Resources (formerly China CBM Group) announced it received government approvals to reopen two of its coal mines while operations at three of its mines remain suspended.

Rosan announced on 4 February 2013 that five of its coal mines in Henan province, China were suspended for safety inspections.

Source: Company Investec view: We expect a number of Chinese coal mines that were closed for safety inspections in late January and early February to reopen in the near future. � ArcelorMittal (MT US) gets approval for Phase Two upgrade in Liberia.

The Companys Board has approved plans for the 11mtpa lift in capacity of its Liberian iron ore operations.

The Company has so far invested over US$1b into development of its Liberian operations, with Phase Two resulting in a new ship loader and the construction of a concentrator producing iron ore pellets, enabling a production capacity of 15mtpa.

This announcement follows recent news of an agreement with the Liberian Government to build a 70km road connecting Ganta and Yekepa.

Source: Tex Report. � Universal Coal (UNV AU) approves development of Kangala thermal coal project, in the Witbank coal field of South Africa, with first sales to Eskom expected by mid-2014.

Following a $49m capital development, the project is expected to produce 2.1mtpa of product at cash costs of $15/t over the initial 8-yr life.

Source: TEX Report � Resource upgrade for Kasbah Resources (KAS AU).

KAS has reported a threefold increase in measured and indicated resources, from 5.3mt to 14.7mt at 0.86% Sn (containing 126.7kt on tin), after incorporating 43,000m of new data from 100 diamond drill holes.

Source: Company � Positive PEA for CONDORs (CNR LN) Nicaraguan project.

The preliminary economic assessment by SRK Consulting on CNRs 100%-owned La India Project has identified a 13yr life with average production of 152koz/pa for first 8 yrs.

Total production is 1.46moz at average cash costs of US$575/oz, with pre-production capex of US$180m and life of mine capex of US$287m.

Estimated payback is 3yrs, with a post-tax NPV of US$325m (US$1,400/oz gold, 5% DR).

Source: Company Investec view: Attractively low cash costs of $575/oz, although we note that LOM capex adds another $200/oz.
[cid:image007.png@01CE1979.FEFBDFE0]
Commodities News � BHP Billiton (BHP AU) raises manganese prices for April shipments to China.

Ore prices presented for April Mn shipments were up US$0.20/dmtu from the preceding months price, with South Africa low grade ore (38%-40%) having risen to US$5.40/dmtu.

This pricing increase coincides with a progressive rise in Chinese Mn imports, from 948kt in Oct12, to 1.15mt in Dec12.

Source: Tex Report. � Gold picks up in morning trading on speculation of continued stimulus measures from the US, EU and Japan to sustain the economic recovery.

Source: Bloomberg � China bear forecasts sub US$60/t iron ore.

Andy Xie has predicted sub US$60/t iron ore prices on the back of measures to curb Chinas "overheated" property market.

As restrictions on second time home buyers (such as capital gains tax, rises in mortgage costs and increased deposit requirements) come into effect, it is predicted that Chinese steel production growth will slow, and this will flow on to a reduction in iron ore demand.

Source: Australian Financial Review. Investec view: As new supply gathers pace from the low cost miners, we expect iron ore prices to gradually decline over the next 4 years to a long term FOB price of US$85/t.

We note that under this scenario, valuations continue to look favourable.

We also note that the build in steel stocks in China over the 20 years to 2010 was a very low 4 tonnes per capita.

Over the next 20 years it is projected to be 12 tonnes per capita.

In comparison, steel stocks in the US over the 20 years to 1980 grew 10 tonnes per capita, and In Japan over the 20 years to 2000 grew by 12 tonners per capita. � Canada exported 34.5mt of iron ore in 2012, with half going to Asia, including 15.2mt (43.9%) to China.

Source: TEX Report � Columbian thermal coal strike nearing a climax? The labour union at the Cerrejon mine, Columbias largest producer, has stated that it has reached a preliminary wage accord that may end the month-long strike.

Terms will be presented to workers today.

The mine is jointly owned by Xstrata (XTA LN), BHP Billiton (BLT LN) and Anglo American (AAL LN) and BHP Billiton Ltd.

(BHP).

Source: Dow Jones � Meanwhile Drummond resumes export of Colombian coal.

Exports from Columbias second largest exporter have resumed after the government lifted a ban that it had imposed 23 days ago, following an environmental incident.

Meanwhile the strike at Cerrejon, the largest coal mine continue.

Source: TEX Report � Record Chinese chrome ore imports.

Chinese chrome ore imports rose sharply in Jan13, up 33.9% from Dec12 to a new monthly record of 970kt.

C.52% came from South Africa.

Source: TEX Report Investec view: With a large component of South African ferrochrome production stalled due to Eskoms power buy-back scheme, producers are clearly resorting to exporting chrome ore as a means of cash-flow � Feb13 Gladstone Coal exports down 20.6% on Feb12.

Coal exports through QLDs Gladstone port totalled 3.3mt for Feb13, down 860kt (20.6%) on Feb12, mainly as the result of decreases in exports to India and China (350kt and 580kt respectively).

Source: Tex Report.
Other economic news � China plans to raise budget deficit by 50% this year as the government cuts taxes and takes action to boost consumer demand.

The gap is expected to widen to US$193bn this year, amounting to some 2% of GDP.

Fiscal spending is targeted to rise 10% to RMB13.8 trillion and revenue to rise 8% to Rmb12.66trillion.

Source: Bloomberg � M&A transactions in the gold space are not over with Hecla Mining operating silver mines in North America agreeing to buy gold producer Aurizon mines for C$782m in cash and stock (C$4.75/share), beating a rival offer.

Aurizons board have backed the offer.

Alamos Gold which has a 16% stake previously made a bid of C$4.65/share.

Hecla has received commitment of US$500m from Bank of Nova Scotia and wont require shareholder approval.

Source: Bloomberg � Chinas National Peoples Congress (NPC) starts today.

The National Peoples Congress has started today with the headlines for the 2013 budget hitting the tapes already.

Main points include: 7.5% GDP growth targeted, Military spending to rise 10.7%, 2013 budget deficit expected to be c.

2% of GDP (RMB1.2tn) as spending increases, FAI to rise 18% and the property tax trial will be expanded further.

Source: Bloomberg
African Resources update � South African power utility, Eskom is planning 1,000MW of buy backs, and is looking at options for more supply including obtaining gas from Mozambique.

The company has also instructed contractors to fire workers who dont arrive for work at its Medupi plant where work has been suspended for 6 weeks due to a labour dispute.

Source: Bloomberg � Sudan hoping for gold windfall.

Sudan has issued almost 100 exploration and mining licences as it seeks new sources of state income and FX.

Gold has become Sudans biggest export, partially replacing oil revenues which made up +50% of income until 2011, when South Sudan took away most oil reserves with its independence.

The government is targeting 2013 gold output of around 50t (1.6moz), which would make it Africas 3rd largest gold miner behind South Africa and Ghana.

Much of Sudans output comes from some 750,000 artisanal miners.

Source: Mining Weekly � SA copper theft falls to lowest level since 2009.

So reported the South African Chamber of Commerce and Industry (Sacci), highlighting a decreasing trend in copper theft to ZAR11.1m ($1.3m) during Jan13, from ZAR17.0m in Aug12.

The progress comes from improved police cooperation with social partners, as well amendments to the Second-Hand Goods Act.

Source: Mining Weekly � Zambian finance minister has accused members of the Bankers Association of Zambia of manipulating the currency which has fallen 2.9% against the US$ this year.

The association has denied the accusation.

Source: Bloomberg � Zimbabwe has denied US or EU observers into the country for the elections due on 16 March, and will only allow friendly groups such as SADC, African Union and Comesa.

The elections are expected to end in a continuation of the power sharing agreement between MDC and Zanu-PF.

Source: Bloomberg
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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