[cid:image001.png@01CE5142.E52D3680] Wednesday, 15 May 2013 [cid:image006.jpg@01CE5143.110063E0]
Snapshot � Company news highlights: Lonmin workers still on strike, Record quarterly earnings from Centamin, Investec note our on Polo Resources, Freeport McMoRan suffers tunnel collapse at Grasberg mine, Horizonte Minerals Q1 financial results, Village main Reef to shut loss-making gold operations, Mongolian Mining downgraded to B by S&P, Brockman Resources maiden resource at Duck Creek. � Commodity review highlights: Tangshan cuts power to polluting steel mills, Queensland metallurgical coal export market continues to weaken � Other economic news: US budget declining faster than expected, China planning a new wave of railway construction worth around RMB300bn, China state grid corp is marketing first international bond, Chinas April power output up 6.2% � African resources update: IMF forecasts growth of 5.4% in 2013 for sub-Saharan economies, South African bond yields jump up in response to fears over escalating violence at mines, Zambian railway operators plan to invest US$1.5bn over the next five years, Vedantas Zambian smelter up and running again, Vision for using SOC capex to spawn new black miners and industrialists. � FTSE futures up 25.5 points (7am) following a strong surge from the S&P overnight (up 1.01%) due to buoyant optimism over positive economic data the European markets are looking to open well this morning.

US indices finished up strongly in the last hour as import prices fell 0.5% in April (-0.2% in March), talk of the budget deficit shrinking to $642bn this year from $1.1tn in 2012 and the Index of Small Business Optimism rising in April to 92.1 from 89.5 in March and beating the 90.5 expectations.

US exports meanwhile fell 0.7% in April.

Asian markets are mixed with the Nikkei continuing its strong run (up 2.22%), Hang Seng (up 0.78%) but the ASX 200 is off 0.56% as basic material stocks get sold off heavily (BHP off 1.9% and RIO off 3.06%) as commodity prices continue to fall. Commodities remain down this morning - gold -0.19% (US$1,422.65/oz), silver -0.78% (US$23.23/oz), platinum -0.33% (US$1497/oz) copper flat (US$3.29/lb), iron ore -1% 9US$128.10/t). Economic data due today:- US: IP (-0.2% Apr fcst); MBA Mortgage Applications; Empire Manufacturing (May 4.00 fcst); PPI (0.8% YoY fcst); Capital Flows.

Europe: Eurozone GDP; French GDP & CPI, German GDP, UK Jobless Claims and Employment change.

BoE Inflation report.
Company News � Lonmin (LMI LN) workers still on strike.

LMIs Marikana mine remains closed today following the wildcat strike which commenced yesterday morning.

The company is to meet with the workforce today and if the matter is resolved, the earliest that production could recommence is at the nightshift this evening.

Protesters are demanding the closure of the NUM offices in favour of AMCU which now represents over 770% of the LMI workforce.

Source: Bloomberg, Mining Weekly. Investec view: The differences between the two unions has become a prominent feature of the platinum sector during the last 12 months and indeed this factor was linked to the violence at this mine last year.

The worry is that similar violence breaks out again.

While we would usually assume that reduced output from the worlds third largest platinum producer would have a positive impact on the platinum price, this certainly wasnt the case in 2012 when overall production was at a 12 year low due to various strikes and other stoppages in South Africa and the platinum price averaged US$169 lower than the previous year. � Record quarterly earnings from Centamin (CEY LN).

CEY had already reported record production of 87koz (or 27% of the FY13E guidance of 320koz).

The 1Q13 costs of $556/oz were well below the FY13E guidance of US$700/oz, reflecting temporarily lower open pit costs, but FY guidance has been retained.

1Q13 EBITDA of $82m was up 47% both YoY and QoQ, while EPS was up 40% YoY to 6.6cps.

The Stage 4 expansion (to a 10mtpa rate) remains on course for commissioning by the year end, which should enable production to expand further in FY14E with CEY targeting 450-500koz/pa from 2015.

CEY is debt free with liquid assets of $189m.

Source: Company Investec view: A very good result: CEY certainly appears to have its operations under control, having for some time now been able to match or exceed guidance.

Any negative outlook on the company is now related more to influences beyond its control, such as political issues or the gold price.

Unfortunately for CEY, the currently depressed gold price may prevent it from being able to match these quarterly earnings for some time. � Polo Resources (POL LN) Investec note out today.

POL yesterday announced major management and Board changes.

Michael Tang has joined the company as Executive Co-Chairman and Managing Director, buying an 11.77% stake through Mettiz Capital at 40p/share (a 50% premium to current share price).

Mr.

Tang takes over his Board and managerial position from Neil Herbert who built up POL with Stephen Dattels. Investec view: The 40p purchase price demonstrates clear confidence in further upside for POL shares on behalf of Mr Tang, particularly as the companys last reported NAV, as at 31 March 2013, was 35.9p/share. � Freeport McMoRan (FCX US) suffers tunnel collapse at major Grasberg mine in Indonesia that is reported to have killed two people and trapped 31.

The mine is the worlds third biggest copper mine.

Source: Bloomberg � Horizonte Minerals (HZM LN) Q1 financial results highlight progress made at the companys Araguaia nickel project in Brazil as exploration has continued identifying high grade zones on this substantial resource.

The company is infill drilling to convert sufficient resources to indicated to help delineate a 20 year mine life.

The current resource stands at 39.3mt at 1.39% indicated and 60.9mt at 1.22% inferred, with work indicating the optimum processing route being via a rotary kiln to produce a high quality ferronickel product.

A prefeasibility study is scheduled for completion in Q4.

Source: Company � Village Main (VIL SJ) to shut loss-making gold operations.

VILs gold assets include the Tau Lekoa, Blyvooruitzicht and Buffelsfontein gold mines, but it has announced that it is to shut the non-profitable Buffelsfontein and has started the required consultation processes.

This comes as a result of the lower gold price and higher electricity costs owing to winter tariffs.

Source: Mining Weekly Investec view.

VIL recently acquired a stake in Continental Coal (COOL LN), as a part of a strategy to become a diversified resources investment company, and todays announcement would appear to support the need for this strategy.

VIL CEO, Bernard Swanepoel, is to take up a board position at COOL. � Mongolian Mining (975 HK) downgraded to B by S&P.

Mongolian coking coal producer MMC had its credit downgraded to B with negative outlook from B+ by S&P citing weaker near-term cashflow due to falling coking coal prices and a declining corporate liquidity buffer with substantial debt maturities due in 2013.

Triggers for a further downgrade include hard coking coal prices dropping to below USD95/t at the China/Mongolia border for over four months, increased working capital requirements if customers delay receivables payment and inability to refinance debt due in JunH14.

Source: S&P Investec view: The bond market took S&Ps downgrade in stride with USD2m of MMCs 8.875% 2017 bond trading at 102 or better, down from 103.25, after the downgrade.

MMC was fortunate to have USD284m of cash as at end December 2012, which provides a liquidity buffer to repay debt maturing in 2013.

Falling coking coal prices are clearly a challenge for MMC however and we estimate the company requires a c.

USD90/t price at the China/Mongolia border for EBITDA to cover interest expense, which implies an Australia FOB price of c.

USD155/t based on the historical relationship between the two prices.

See analyst note Hope dies last from 18 April 2013 by Matthew Whittall and Leavitt Pope for further details. � Brockman Resources (159 HK, BCK AU) maiden resource at Duck Creek.

Australian iron ore explorer Brockman Resources announced a maiden resource at its Duck Creek project of 18.3mt grading 56.5% Fe (62.8% CaFe).

In addition, management expect to being drilling tenements acquired adjacent to its 290mt Ophthalmia project in September 2013.

Source: Company � Investec Sydney met with the following companies in town for the RIU conference: � Orbis Gold (OBS AU) - Market cap A$42m.

Burkina Faso gold explorer with excellent high grade intersections (3g/t Au) on the Natougou Project in the countrys East.

Also has Nabanga, a high grade discovery, with 3.2mt at 6.5g/t Au.

Scoping studies are in progress on both properties. � Peel Mining (PEX AU) - Market cap A$56m, advanced copper exploration in Cobar, NSW.

Key property "Mallee Bull".

Phase 3 drilling continues to enhance the previous 2 phases, recent holes included 53m @4% Cu and 32m @3.6% Cu.

Also has significant gold and silver by-products.

Company is hosting a site visit on Friday the 17th of May. � Tawana Resources (TAW AU) - miniscule market cap of A$6m.

Attractive iron ore property in Liberia, friable itabirite exploration target of 90-230mt.

In our view an unusually attractive opportunity with potential resources just 18kms from the coast. � Investigator Resources (IVR AU) - Market cap A$37m.

Paris Silver project in the Southern Gawler Craton with good potential for further, larger, lookalike targets.
[cid:image007.png@01CE5143.110063E0] Commodities News � 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 � Queensland Metallurgical Coal export market continues to weaken.

Following continued weakening in global demand for metallurgical coal, combined with resumption to more normal supply levels after the effects of cyclones in February and March, the spot export price for QLD coking coal has dropped to US$150/t FOB.

Source: Tex Report
Other economic news � US budget deficit declining faster than expected.

The rebound of the worlds largest economy is helping the US government to collect more tax revenues.

Figures released by the Congressional Budget Office showed the US budget deficit falling to US$642bn or 4% of GDP, a US$203bn improvement on the earlier projection 3 months ago.

On the other hand, figures to be released today are expected to show that the Eurozone contracted again.

Source: FT � China planning a new wave of railway construction worth around Rmb300bn (US$49bn) over 2013-2015 reported to be planned in Southern province Guangdong.

Source: Bloomberg Investec view: Such infrastructure projects will continue to support Chinas demand for commodities such as iron ore. � China State Grid Corp is marketing its first international bond of up to US$2bn to fund overseas acquisitions.

The company is seeking as much as US$50bn in international assets by 2020 and is expanding into Ethiopia and Brazil.

Returns being made on overseas assets have been 3-5 times more than for domestic assets.

Source: Bloomberg � 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
African Resources update � IMF forecasts growth of 5.4% in 2013 and 5.7% in 2014 for sub-Saharan economies due to rising investment and extractive industries.

The region is expected to be one of the fastest growing places in the world.

Source: Engineering News � South African bond yields jump up yesterday in response to fears over escalating violence at mines following the wild cat strike that started yesterday at Lonmins Marikana mine.

The ZAR has also weakened in response to the development.

Should further mine stoppages ensue similar to those that took place last year it will have a material impact on the countrys economy.

Source: Bloomberg � Zambian railway operators are planning to invest US$1.5bn over the next five years to upgrade the 1,200km system to support a 10 fold increase in volumes by 2016, cutting costs for mining companies as they increase output.

Zambia Railways has had a new management appointed and started running inter-mine trains for the first time since 2008 last month.

Railway volumes fell to 690kt in 2009 from 6mt in 1975 as copper production had also fallen over the period.

Volumes are expected to rise by 2/3 this year to 1.1mt and thereafter to 4-6mt in three years.

The number of trains being dispatched has apparently more than doubled to 68following some capital investment.

Source: Bloomberg Investec view: This is a positive development for the country and will doubtless benefit a number of copper miners shipping concentrate such as Vedanta, Glencore and First Quantum. � Vedantas (VED LN) Zambian smelter up and running again.

VEDs Konkola Copper Miness Nchanga smelter is restarting following production being halted in April.

The smelter should be operating at full capacity by Friday.

This smelter handles ore from other companies mines such as Lumwana and Lubambe.

Source: Mining Weekly � Vision for using SOC capex to spawn new black miners and industrialists.

The South African Public Enterprises has reported that initiatives are to be announced in the coming months to add momentum to the multibillion investment and upgrade programmes of State-owned companies (SOCs), with a focus on ensuring that previously disadvantaged entrepreneurs benefitted.

SOCs include Eskom, Transnet, Alexkor, and South African Airways.

One such initiative was the already announced Black Emerging Miners Strategy, where half of Eskoms future coal production is expected to be sourced from emerging black coal miners.

A key element of this strategy is establishing the Mine Development Fund to finance for the development of such mines.

Similar schemes are to be developed for other SOCs.

Source: Mining Weekly
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