[cid:image001.png@01CE507A.0D9565D0] Tuesday, 14 May 2013 [cid:image006.jpg@01CE507A.648B3540]
Snapshot � Company news highlights: Lonmin wildcat strike, Kirkland Lake 4Q13, Gemfields quarterly update, Minera 1Q13 financials, African Barrick operational review update, Hochschild optimisation plan, modest 1Q profit for Rusal, China Coal approves $3.1bn coal to chemicals investment, South Gobi 1Q in line, NSW government backs Rio Tintos Warkworth appeal, South Bolder reaches potash agreement � Commodity review highlights: Johnson Matthey PGM review summary, reduced gold recycling likely, copper falls again, power to polluting Chinese steel mills cut, Chinas Jan-Apr steel production up 10.5% YoY � Other Economic News: Chinas April power output up 6.2%, Tata writes down European steel � African Resources Update: Transet to shut coal line for two weeks, SA miners to stop paying union salaries � FTSE futures up 26 points this morning: the S&P closed flat last night on weak volume despite the unexpected positive retail sales data for April (0.3% versus -0.1% estimate).

Asian markets are currently mixed - Nikkei off 0.07%, Hang Seng off 0.21%, and ASX 200 up 0.15%.

European markets are looking positive this morning ahead of the German investor confidence and euro-area industrial production numbers.

Golds recent fall has lured a few investors back into the physical market however we saw a further sell off of gold equities on the Australian market. Steel rebar futures in China fell overnight (-0.4% to 3,642 Yuan) following the disappointing industrial production and retail sales numbers however iron ore remains fairly resilient at US$129.40/t.

Commodity markets are mainly up this morning - gold up 0.76% (US$1,441.48/oz), silver +0.32% (US$23.7525/oz), platinum + 0.67% (US$1,494.50/oz), copper - 0.82% (US$3.3325/lb), WTI +0.44% (US$95.59/bbl), Brent +0.15 (US$102.98/bbl), nickel -0.55% (US$15,236.50/t), and zinc +.09% (US$1,845/t). Economic data due out today: US - April import price index (forecast -0.5%), NFID small business optimism (forecast 90.3); EU - Eurozone industrial production (forecast 0.5%), German ZEW economic sentiment survey (forecast 40).

Australia - Federal Budget will release the annual budget this morning with a $14bn deficit expected with healthcare, infrastructure and financials in focus.

AUD strengthen throughout the day.
Company News � Lonmin (LMI LN) wild cat strike by militant union AMCU reported to have led to suspension of all shafts at Marikana.

AMCU represents 70% of the category 4-9 workers which make up the majority.

The strike is understood to stem for anger over the weekend killing of an AMCU organiser over the weekend.

Source: Money Web, Bloomberg Investec View: The event is the third significant issue LMI has faced in recent weeks, following a fatality at its K3 shaft, and the shutdown of its No.2 smelter.

This follows a robust interim update released yesterday, and highlights the difficulties faced by miners in South Africa currently.

We are entering a period of wage negotiations for the majority of miners, so further militant union action in the industry is likely. � Kirkland Lake Gold (KGI LN) Q4 and full year production.

KGI produced 31,503oz of gold during Q4 from 89,000t at 0.37oz/t Au with a recovery rate of almost 96%.

For the full year, 91,756oz of gold were sold, which met the revised down production guidance.

The group has reiterated its FY14 production guidance.

Source: Company Investec view: KGI has had a challenging year but the Q4 production result demonstrates the groups progress.

Given the large fixed cost component of this mine, we expect operating costs for the quarter to reflect the improved output.

The groups production target for FY14 is underpinned by the increased hoisting capacity and we believe that the expansion work undertaken should finally start to bear fruit. � Gemfields (GEM LN) quarterly update shows a 33% yoy increase in gemstone production to 6.5m carats as grades increased from 236carats/tonne to 265carats/tonne, although QoQ production was largely flat.

Unit production is down 34% yoy to US$0.56/carat following better grades and reduced rock handling costs which were down by 18% yoy to US$3.06/t.

Cost performance also improved QoQ.

The company recorded a revenue of US$15.2m from a recent auction in Lusaka of lower quality stones.

At the end of March the company had US$22.1m cash and US$11m debt.

The company is also seeking to address a possible ban on foreign auctions by the Ministry of Mines that is seeking further local beneficiation; therefore Gemfields is hosting an emerald summit in Lusaka at the end of the month.

Source: Company Investec View: A solid quarterly performance by Gemfields reflecting improved operational performance and a strong balance sheet. � Minera IRL (MIRL LN) Q1 financials.

MIRL reported Q1 production of 5,660oz of gold.

The group reported revenue of US$9.2m and EBITDA of US$1.9m.

Cash at the end of the quarter was US$6.5m.

Cash costs were US$726/oz.

The group raised C$15.5m early in the quarter and has used a portion of the funds to develop the drive into Ollachea where the company has completed a BFS.

The EIS is on track for approval for this project in H2 2013.

Source: Company � African Barrick (ABG LN) update on operational review.

ABG reports that its review is making good progress, with measures already implemented to reduce sustaining capex by $50m, exploration by $25m and corporate by $8m.

Expat staffing in Tanzania has been reduced by 16% in the past year and this remains an area ABG will work at.

ABG is also assessing its expansion projects in light of current cash generation.

The Bulyanhulu CIL expansion project meanwhile remains on track.

ABG has engaged KPMG to assist in the Operational Review.

Source: Company Investec view: The reduction in what has been high expat staffing is a positive, with ABG perhaps trying to emulate the model that Randgold (RRS LN) has so successfully implemented.

ABG is highly leveraged to the gold price so the review has even greater bearing in light of the recent decline in the gold price. � Hochschild (HOC LN) cashflow optimisation plan outlines a 29% reduction in exploration budget to US$55m, 2013 production target maintained at 20mozpa silver equivalent, 2013 unit costs in Peru to rise by 10-15% from previous expectations of 15-20%, unit costs increase Argentina to be maintained at 10-15% this year, and sustaining capital expected to be around US$160m from US$180m.

The company is also reducing overheads reducing employees by 86.

Source: Company � Rusal (486 HK) posts modest profit in MarQ13.

Russian aluminium producer Rusal reported a net profit of USD19m in MarQ13, up from a USD411m loss in DecQ12.

Recurring net profit, removing asset impairment charges, was USD52m in MarQ13, up from a USD151m loss is DecQ12.

Adjusted EBITDA for the aluminium segment improved 11.3% QoQ to USD246m as aluminium production fell 3.0% QoQ to 1,007kt in MarQ13 while average realised sales prices rose 3.8% QoQ to USD2,306/t due to higher physical premiums and cash costs increased by 1.9% QoQ to USD1,971/t.

Source: Company Investec view: Rusal continues to tread water due to low LME aluminium prices and high leverage, although has gained some breathing room with the recently completed sale of USD620m of Norilsk Nickel shares to Millhouse and expected cash payments from Norilsk Nickels new high dividend policy. � China Coal (1898 HK) board approves USD3.1bn coal-to-chemicals investment.

China Coal its board had approved investment of CNY19.3bn (c.

USD3.1bn) to develop a coal-to-chemical processing plant in Shaanxi that will produce 0.6mtpa of engineering plastics from methanol acetic acid.

The project will be 70% debt financed and management expect to earn an IRR in excess of 12%.

Source: Company � SouthGobi (1878 HK) MarQ13 results inline.

SouthGobi reported a MarQ13A net loss of USD24.9m, in line with Investecs forecast loss of USD25.3m.

SouthGobi produced only 20kt of coal in the quarter after resuming operations in late March.

Coal continues to be sold from stockpiles but the average realised price for premium semi-soft coking coal of just USD45.81/t in MarQ13A marks a new low.

SouthGobi maintained 2013E production guidance of 3.2mt but coal markets remain weaker than hoped and we believe this target will only be achieved if there is a significant improvement in regional coal demand in DecH13.

Source: Company Investec view: See analyst note from Matthew Whittall and Leavitt Pope for further details. � NSW Government joins Rio Tinto (RIO AU) in appeal against NSW Supreme Court.

The NSW Gov.

has joined RIOs appeal against the decision to overturn approval of the Warkworth mine expansion.

The project was approved in 2012 by NSW planning MP Brad Hazzard, but was reversed by the land Court last month on the grounds of significant adverse impacts following community opposition.

The appeal is important as the reversal could become a precedent for the assessment of other mining projects in addition to having a significant negative impact on the Warkworth mine employees and associated businesses.

Source: Company � South Boulder Mines (STB AU) reaches agreement for Eritrean Potash JV.

STB has reached an agreement with the Eritrean National Mining Corporation (ENAMCO) regarding the Cellule Potash Project .

ENAMCO and STB will each hold a 50% ownership in the Project through a new company, Colluli Mining Share Company (CMSC).

It Project Development Costs for initial development will be funded 70/30 debt/equity.

To the extent that third party commercial debt is not available, STB will be required to provide the debt on arms length commercial terms.

The equity required (including ENAMCOs 50% share) for initial Development Costs will be funded by STB.

Source: Company
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Commodities News � Johnson Mattheys last ever PGM review yesterday didnt support a particularly positive in the near to medium term for PGM miners with a 6 month forecast of US$1,415-1,710/oz and an average of US$1,570/oz.

In any case despite falling South African output and a 2012 deficit estimated at 375koz Pt, there appears little to get excited about for some time (although the downside risk for the metal is likely to be limited).

We recently observed the difficulties Amplats faced in implementing cuts to output, and this is against a background of a demand side that is not in fantastic shape.

Source: Johnson Matthey Investec View: Despite new European legislation that is expected to raise the quantity of platinum per unit the resultant increase in demand will limited when Euro 6b is introduced next year on light duty diesel vehicles (accounted for 2.02moz of demand last year).

History has proved that auto companies along with catalyst manufacturers are consistently very effective and thrifting (reducing) the required metal in a system, In summary, despite a contraction on the supply side as miners struggle to maintain profit margins, in conjunction with labour action that looks like to disrupt operations that could lead to another year of deficit, the mixed sentiment on the consumption side will likely limit pricing improvement on a sustained period, although we do envisage price rallies in response to supply threats that will provide opportunities to trade the equities. � Falling gold prices likely to reduce the recycling of gold, with refiners expected to handle 1,550t of old jewellery this year, down 4% from last year as April was a particularly poor month for recycling as viewed by a cash for gold operator in New York.

Dealers in India are reported to be holding back on gold sales as the reserve bank of India has restricted banks from importing bullion on consignment basis with immediate effect.

Banks are charging a US$10/oz premium versus US$2/oz before the recent fall in prices.

Source: Bloomberg Investec View: Clearly ETFs have been dumping the metal, however, the physical liquidation through recycling has been hurt by the fall in price, against a background of surging demand by jewellers to take advantage of lower prices. � Copper prices fall for the first time in three days in response to speculation of a slowdown in China as industrial output missed estimates.

In addition power output last month was down mom to 399.4bnKWh versus 419.4bnKWh in March.

Source: Bloomberg � Tangshan cuts power to polluting steel mills.

Chinese city Tangshan, located in Hebei province, has reportedly cut power to a number of polluting factories including three sintering lines owned by Tangshan Iron & Steel and two plants owned by Guofeng Iron & Steel until they are upgraded to meet environmental standards.

Source: Bloomberg � Chinas steel production between Jan-Apr 2013 has risen 10.5% YoY to 334.5Mt, with Aprils steel production up 8.5% to 87.61Mt.

Source: Bloomberg
Other economic news � Chinas April power output up 6.2%.

Chinas power output in April increased 6.2% YoY versus growth of just 2.1% in March.

Electricity output totalled 399.4bn kWh in April according to the National Statistical Bureau Source: Reuters � Tata Steel (TATA IN) writes down European business.

Indias Tata Steel has taken a write down of US$1.6bn relating to its European business, due to the difficulties facing the group and other steel makers on the continent given the weak macroeconomic conditions in the region.

The group acquired its European assets when it bought Corus for US$13.1bn in 2008.

Speculation has increased that the group will look to sell assets within this division.

Source: FT
African Resources update � Transnet to shuts coal rail line to catch up on maintenance.

The state-owned rail utility is to shut its coal-export line for 12 days, from today to May 25, to catch up on its maintenance backlog.

The lower activity in May is an opportunity to replace old infrastructure and accelerate capital expansion/upgrade projects.

In the 2012/13 financial year, Transnet railed a record 69.2mt of export coal on the line.

Source: MiningWeekly � AngloGold (ANG SJ) to stop paying NUM salaries.

Payments made by South Africas major miners towards the salaries of National Union of Mineworkers (NUM) officials were discussed at length at ANGs recent AGM.

ANG stated that the practice was originally aimed at promoting an active trade union movement but with the rise of alternative unions in the sector, the issue was being discussed with other mining companies and the Chamber of Mines, with the arrangement likely to be terminated before year-end.

Source: Mineweb
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
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