🕐26.04.13 - 09:54 Uhr

INVESTEC GLOBAL NATURAL RESOURCES DAILY - MINING - FRIDAY 26 APRIL 2013 - G-RESO
URCES, ABX US, WTL LN, AR LN, SKR LN, 1171 HK, 3948 HK, 1393 HK, DML AU, AGO AU



[cid:image001.png@01CE4254.453C0310] Friday, 26 April 2013 [cid:image006.jpg@01CE4254.732A2130]
Snapshot � Company news highlights: Initiation of G-Resources, Barrick laments issues with new projects, Weatherly gets environmental clearance, Archipelago and Sunkar resource updates, 1Q13 results for Yanzhou, Titai and Hidili coal companies, Discovery reportedly raising A$75m, Atlas Iron completes Corunna Downs acquisition � Commodity review highlights: 1Q13 met coal volumes to China up 40% YoY, gold bouncing from lows, WGC estimates that private investment in gold is now $1.9 trillion. � Other Economic News: Investec-hosted conference call with Mongolias Deputy Minister of Mining, US growth figures out today, Chinas politburo comments on risks, illegal smuggling of milk powder in China now bigger than heroin � African Resources Update: Nigeria gets US$9bn low interest loan from China, pressure on SA bond yields � FTSE futures down 2 points: the S&P closed up 6.37 points (0.40%) thanks to better than expected jobless claims data.

The Bank of Japan maintained plans to boost the money supply at a policy meeting today amidst further falls in consumer prices.

Asian markets are mixed with the Nikkei falling 0.30% in response to some disappointing large cap results (Advantest & Shiseido), the Hang Seng is up 0.80% with better than expected results from Bank of China and China Life Insurance, the ASX200 closed down 0.10%, off low volumes due to yesterdays public holiday.

UK market commentary suggests some week-end profit taking is expected on the FTSE today. Commodity markets this morning are mixed: gold is +0.34% to US$1,472.9/oz, silver -0.44% to US$24.2855/oz, platinum +0.45% to US$1,470.70/oz, copper -0.43% to US$3.2285/lb, iron ore -0.37% to US$134.60/t, nickel +0.94% to US$15,357.

And zinc +0.90% to US$1,910.50/t.

On the energy front WTI is off 0.66% to US$93.03 and Brent crude is off 0.47% to US$102.92/bbl.

RIO and BHP on the ASX closed up 2.27% and 2.78% respectively. Iron ore watch: despite small fall in spot iron ore prices last night to US$134.60/t, steel reinforcement bar futures in China this morning climbed as much as 1%to 3,683 Yuan/t as short seller closed positions, traders and end users stepped up purchases ahead of a 3 day holiday.

The China Iron & Steel Association will also release its output estimated for the mid-April period - production is expected to have risen. Economic news due out today: US: 1Q GDP (forecast 3% annualised), 1Q personal consumption (forecast 2.8% annualised); EU: Eurozone M3 YOY for March (forecast 3%).
Company News � Investec initiates coverage on G-Resources (1051 HK).

Our analysts believe G-Resources is inexpensive relative to other Hong Kong listed gold producers, particularly on EV/oz of production and EV/EBITDA metrics.

They believe there is upside to the companys CY13 gold production guidance given potential for better than expected grades and recoveries, although silver production guidance is a risk.

The company also has a number of options to increase the Martabe mine-life and grow production.

Source: Investec Investec view: For further comments see our initiation report: G-Resources - G for production: dated 25 April 2013. � Barrick Gold (ABX US) AGM highlights new project concerns.

While the company remains enthusiastic about its two major growth projects, Pueblo Viejo in the Dominican Republic and Pascua-Lama in Chile, it acknowledged that they "were in trouble".

At Pueblo Viejo, a JV with Goldcorp (GG US), the government is seeking a larger share of returns after the project reached commercial production in January.

Meanwhile at Pascua-Lama, construction on the Chilean side had to be suspended earlier this month after a court injunction was filed over environmental concerns (construction was around 46% complete with $4.8bn spent so far).

ABX founder, Peter Munk, stated resource nationalism was the "ultimate threat to the very lifeline of our industry".

ABX has not ruled out the suspension of the entire project.

Source: MiningNews Investec view: ABX shares hit a 13yr low this month and the company acknowledges that it is now facing the consequences of pursuing growth, rather than simply maintaining steady production and generating cash.

In fairness this is the strategy the market wanted at the time, and these are quality assets.

They do highlight, however, the risks in pursuing growth into higher-risk jurisdictions / environments. � Weatherly International (WTL LN) has received environment clearance for its Tschudi project in Namibia.

Source: Company Investec View: This is a positive development for the company, although we await news on the financing from Red Kite necessary to develop the mine. � Archipelago Resources (AR LN) resource update.

AR has released an updated mineral resource statement for its Toka Tindung mine in Indonesia.

Toka Tindung now has a total resource of 70.3Mt at 1.33g/t containing 3.0Moz of gold, representing a 400,000oz increase on the previous estimate.

AR will continue drilling in this area in 2013, and will revisit the resource statement again in the future.

Source: Company Investec view: Todays news is very positive for AR, and reflects the significant remaining exploration potential around this mine, which is proving to be a high quality asset. � Sunkar Resources (SKR LN) resource update.

SKRs updated mineral resource statement for the Chilisai project revealed total measured and indicated resources of 484Mt at a grade of 10.53%P2O5, giving a total of 51Mt of contained P2O5.

Inclusive of inferred resources, the total resource is 1.13Bnt at 10.28% P2O5 for 116Mt of P2O5.

This represents a total increase in all resource categories of 130%.

The group will update its reserve estimate before the end of Q2 2013.

Source: Company � Yanzhou Coal (1171 HK) sees JunH13 net income down >75% YoY.

Chinese thermal coal miner Yanzhou Coal reported MarQ13 production of 14.9mt, down 2.1% YoY, and sales of 17.5mt, down 18.0% YoY.

China GAAP net attributable profit was CNY481m, down 77% YoY, due to lower prices and lower sales volume.

Management expects net attributable profit in JunH13 to reduce "more than 75%" as compared to JunH12.

Source: Company � Yitai Coal (3948 HK) MarQ13 net income down 47% YoY.

Chinese thermal coal miner Inner Mongolia Yitai Coal reported MarQ13 production of 10.5mt, down 9.6% YoY, and sales of 14.2mt, down 21.6% YoY.

China GAAP attributable net profit was CNY1,038m, down 47.3% YoY and up 30.7% QoQ.

Source: Company Investec view: Chinese coal companies including Yanzhou Coal and Yitai Coal continue to struggle with lower thermal coal pricing, due in part to increased competition from seaborne coal and lower electricity demand growth.

We see little reason for optimism in the near term. � Hidili (1393 HK) MarQ13 production down 71% YoY due to mine shutdowns.

Chinese coking coal miner Hidili reported a substantial YoY decrease in coal production in MarQ13 as a number of its mines were closed for safety inspections.

Production of clean coking coal was 117kt, down 71% YoY, while raw coal production was 302kt, down 69% YoY.

The majority of the closed mines are now reopen.

Source: Company � Discovery Metals (DML AU) that is currently in a trading halt is reported to be undertaking an A$75m equity raise.

Major shareholder (13.7%) that attempted a hostile takeover, Cathay Fortune, has indicated that it would not support and equity raise and would rather the company seeks an acquirer.

Source: MiningNews � Atlas Iron (AGO AU) Completes acquisition of Corunna Downs tenements from Gondwana Resources (GDA AU).

Atlas entered into a staged exploration option to acquire 100% of Gondwanas interest in Corunna Downs and adjacent tenements in November 2011.

Today GDA announced the option had been exercised and the sale of tenements completed, with AR1.4m received and a royalty of A$1.13/t iron ore, with (and it pays to look on the bright side) A$0.2/t due for every tonne in excess of 2bt JORC Reserves.

Source: Company Investec view: AGO probably didnt sweat the detail over a payment for the definition of JORC reserves (not resource!) in excess of 2bt from the tenements.

An unlikely problem to face in our view.
[cid:image007.png@01CE4254.732A2130]
Commodities News � 1Q13 met coal volumes to China up 40% YoY.

Chinese metallurgical coal imports in the 1Q13 totalled 17.2mt, up a significant 4.9mt (40.3%) YoY.

Australia accounted for 7.9mt (46%) of the total imports, with volumes more than double the 3.8mt delivered last year.

Imports from Mongolia totalled 1.7mt (10% of the total), down 2.2mt (56.1%) YoY.

The average Australian price has fallen from $213/t in 1Q12 to $157/t in 1Q13, while the Mongolian price has been relatively stable ($84/t, down from $86/t).

Source: TEX Report � Gold prices bouncing from lows as consumers buy up the metal in response to the weaker prices.

India is the worlds biggest consumer with news reports indicating that jewellery stores are seeing a frenzy of buying activity.

Volumes on spot contracts in China on the Shanghai Gold Exchange have exceeded 20t every day since 16 April when prices collapsed.

Source: Bloomberg � The World Gold Council estimates that private investment in gold is worth US$1.9 trillion, representing 1% of all financial assets.

Fixed income makes up 51%, equities 37% and money markets 6%.

Golds share of all financial assets stood at 14% in 1980 and fell to as low as 0.4% in 2000.

Source: Bloomberg
Other economic news � Conference call with Mongolias Deputy Minister of Mining.

We hosted a conference call with Mongolias Deputy Minister of Mining, Mr Erdenebulgan Oyun.

The key message was "Mongolia is open for business".

The Oyu Tolgoi negotiations with Rio Tinto (RIO AU) are "going well" and the government is not looking to increase its equity interest.

Mongolia welcomes foreign investment in the mining sector but is cautious of foreign SOEs exerting too much influence.

Revisions to the mining law are yet to be finalised and will be resubmitted in October but are aimed at creating a simple and transparent law.

We would note that whilst Mongolia has recently proved a challenging investment destination it is clear that some action is now being taken by the government to address a number of identified issues and the government is softening its rhetoric. Investec view: For further comments see our research: Mongolia - mining policy: Re-opening for business dated 25 April 2013 � US growth figures due today.

Today the US will report its Q1 economic growth figures, which are forecast to show a 3% annualised increase.

For FY12, the US economic recovery broadened and analysts believe that Q1 2013 figures will demonstrate that the worlds biggest economy is becoming more resilient.

At 2.2%, manufacturing was the biggest contribution to overall 2012 growth, adding 0.71% to the total.

Source: FT � Chinas politburo comments on the need for the country to guard against financial risks and boost consumption on signs of a faltering economy as the manufacturing index reflected slower growth to 7.7% in Q1.

Source: Bloomberg � Illegal smuggling into China of milk powder may be exceeding that of heroin as more people have been arrested for smuggling milk powder than heroin.

Mainland Chinese people do not trust locally made milk powder following safety scandals.

Source: Bloomberg
African Resources update � Nigerias National Economic Council has approved a US$9bn loan from lenders including Chinese parties.

The loan forms part of the countrys 2012-2014 borrowing plan to fund new infrastructure, invest in agriculture and create jobs.

Interest rates are expected to be as low as 2% with a 40 year repayment period and a 10 year moratorium.

Source: Bloomberg � South African Reserve Bank indicates that rising inflationary pressure caused by weaker rand and wider current account deficit to weigh on government bond yields.

SA bonds have traded near record highs recently in response to signs of weaker global growth.

Source: Engineering News
Investec Global Natural Resources Research Team: UK Australia Hong Kong South Africa Hunter Hillcoat Tel: +44 (0) 20 7597 5182
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