🕐19.09.13 - 09:54 Uhr

INVESTEC GLOBAL NATURAL RESOURCES DAILY - MINING - THURSDAY 19 SEPTEMBER - ABG L
N, KGI LN, VALE US, EMED LN, DML AU, URKA MM, BHR LN, 1208 HK, CKA AU



[cid:image001.png@01CEB50F.B9291FA0] Thursday, 19 September 2013 [cid:image006.jpg@01CEB510.F9DFC8E0]
Snapshot � Company news highlights: African Barrick appoints new CFO, Kirkland Lake drill results show continued extension of SMC mineralisation, Vale to sell control of its VLI SA general rail and port cargo unit, EMED Mining CEO resigns, Discovery Metals US$108m recapitalisation proposal with Blumont, Uralkali major shareholder Suleiman Kermiov to sell his 21.75% stake for US$3.7bn, Beacon Hill to delist from ASX, MNG suspends major earthworks at its Dugald River Project, Cokal completes third tranche of Blumont placement � Commodity review highlights: Gold price and equities up strongly on Bernankes dovish statement, Indias gold imports expected to total some 750t in the current fiscal year to March 2014, Recognising the pitfalls in mining companies accounts � Other economic news: The Fed doesnt taper � African resources update: Miners in South Africa contest the proposed MPRDA bill, Ghana leaves interest rates unchanged, Strikes in South Africa hit a 5 year high, Russian businessman buys 50% stake in South African ferrochrome business � FTSE futures up 82.5 points: Markets are looking to open up strongly this morning following leads from the US (Dow +0.95%, S&P +1.22%) and Asian markets (Nikkei +1.80%, Hang Seng +1.62%, ASX200 +1.10%) as the Fed surprises the market by not commencing any tapering to fiscal stimulus measures.

Gold and precious metals equities are the primary beneficiary and in Australia we are seeing large positive moves from gold and base metal equities (some as high as 20% OTD).

The decision was based on concerns that the sharp rise in borrowing costs in recent months could slow economic growth and gives the market an insight into how nervous the Fed actually is regarding the stability of the economic recovery in the US. Commodity markets - gold -0.06% (US$1,362.75/oz), silver +0.26% (US$23.0185/oz), copper +1.48% (US$3.3265/lb), iron ore +0.46% (US$131.70/t), platinum +2.98% (US$1,467.60/oz), WTI +0.31% (US$108.39/bbl), and Brent +0.30% (US$108.39/bbl).

Due listed - BHP AU +1.63% (A$36.68), RIO AU -+3.13% (A$63.70). Economic data due today: US - initial jobless claims (forecast 330K), continuing claims (2900K), current account balance (forecast -$97bn), Philadelphia Fed Business Outlook (forecast 10.3), existing home sales (forecast 5.25m), leading index (forecast 0.6%).

UK - retail sales including autos Mom (forecast 0.4%), CBI trends total orders (forecast 2).

EU - Irish GDP (forecast 1%), Greek unemployment.
Company News � African Barrick (ABG LN) appoints new Chief Financial Officer.

Andrew Wray, Head of Corporate Development and Investor Relations, has been appointed CFO, while he is to retain his existing responsibilities.

Jaco Maritz, the acting CFO, is to revert to his original position of VP, Finance.

Andrew recently led the ABG Operational Review that has identified + $185m of potential cost savings initiatives.

Source: Company � Kirkland Lake (KGI LN) drill results show continued extension of SMC mineralisation.

The current drill programme is aimed at expanding the South Mine Complex (SMC) and in particular the areas acquired 100% from Queenston Mining.

The latest drilling results have extended the SMC to the east, both up-dip and down-dip.

Further extension drilling continues.

Highlights of the results include 13.7g/t intersection over a true width of 1.6m, some 122m from a previously reported hole (102g/t over a true width of 3m).

This brings the known strike length of the SMC to nearly 1.1km, with a vertical component extending from the 1,430m to the 2,000m.

Mineralisation remains open to the east and at depth.

KGI is currently operating five exploration rigs (two from surface and three from underground).

Source: Company Investec view: KGI has reported excellent exploration results today and we believe that this demonstrates the potential of the South Mine Complex.

However, we feel that it would be beneficial for the company to also report its exploration successes in grams per tonne and metres which the UK market readily understands.

This is because we believe the market misses these exciting intersections if would-be investors have to convert them from ounces and feet ,as we have done above. � Vale (VALE US) to sell control of its VLI SA general rail and port cargo unit to Canadian, Japanese and Brazilian investors for around US$1.79bn.

Against a background of weaker economic markets and falling iron ore prices Vale is looking to cut costs and realise capital.

Source: Thomson Reuters � EMED Mining (EMED LN) CEO Harry Adams resigns effective immediately, Rod Halliday, current CEO of EMED Mining subsidiary Tartessus, and board member of EMED will be taking on the role of interim CEO.

Non exec director Jose Sierra has been appointed Chairman.

Source: Company Investec view: Harry has long served with EMED advancing what has proved to be an exceptionally difficult permitting process which we hope is approaching its conclusion.

However, Spanish bureaucracy should clearly not be underestimated. � Discovery Metals (DML AU) US$108m recapitalisation proposal with Blumont Group, involving the issuing of A$8.75m worth of new shares at 12Ac, plus US$100m in convertible bonds with 5% coupon and five year duration that would convert at 15cps.

The funds are to be used to repay the US$25m revolving facility, the US$129m finance facility is to be restructured including US$25m repayment, with the remainder to be repaid in 8 quarterly instalments between March 2016 and December 2017.

US$5.5m of the funds raised will be paid in corporate advisory fees and the balance for development, exploration and working capital purposes.

The directors are set to recommend the convertible.

Source: Company Investec view: Discovery has been struggling for some months with the development of its Boseto copper project, we hope that the additional funds and delaying the repayment of the bulk of the debt will be sufficient for the asset to deliver, however, the issue of new stock and convertible bonds will be highly dilutive to shareholders.

Blumont has numerous interests and its stake in Discovery forms part of its diversification strategy. � Uralkali (URKA MM) major shareholder Suleiman Kermiov to sell his 21.75% stake for US$3.7bn, with numerous investors apparently interesting in holding the shares.

Source: MiningNewsPremium � Beacon Hill (BHR LN) to delist from ASX.

BHR has announced its intention to delist from the ASX given low trading volumes, an extremely small shareholder base on ASX and an inability to raise capital and raise interest amongst Australian investors.

Source: Company � MMG Ltd (1208 HK) suspends major earthworks at its Dugald River project.

MMG has terminated an engineering procurement and construction (EPC) contract with Forge Group Minerals for the construction of the processing facility at its Dugald River lead/zinc project in Queensland.

Underground development and construction of access roads and the emergency airstrip is continuing.

The decision to suspend the EPC contract follows the announcement by the company in August 2013 that complexities in the ore body had been identified prompting a review of the mining method.

The company does not expect the termination of the contract to have any material adverse effect.

Source: Company Investec view: We believe the USD1.5bn Dugald River project is NPV dilutive at an 8% WACC and at our long-term zinc/lead price forecasts of USD1.00/lb/USD1.00/lb (real).

A development decision was due to be made by the board in late 2013 but has now likely been deferred as a review of the project, including production-scale testing with 74.8kt of ore at Century, is only due to be completed by the end of 2013. � Cokal (CKA AU) completes third tranche of Blumont (BLUM SP) placement.

Indonesian coking coal explorer Cokal completed the third tranche of its staged share placement to Singaporean investment company Blumont Group by issuing 14.1m shares at AUD0.16/share for proceeds of AUD2.25m.

Source: Company Investec view: Two more tranches remaining to be completed: AUD2.0m on 15 October 2013 and AUD0.5m on 15 November 2013.

Proceeds will be used to progress the BBM project feasibility study and drilling program.

We believe Cokal will require additional financing in late 2013 if it is commence construction at BBM in early 2014.
[cid:image007.png@01CEB510.F9DFC8E0] Commodities News � Gold price and equities up strongly on Bernankes dovish statement.

The Fed indicated that while it has seen an improvement in economic activity it was looking for more evidence of sustained progress before adjusting the pace of its purchases.

It is therefore keeping QE purchases at $85bn/month, versus the consensus expectation that it would ease back by at least $10bn/month.

As a result, the US$ weakened and gold was up strongly (currently up $55/oz or 4.1% to $1,365/oz) while US gold equities were up 8-10% accordingly.

Source: MiningNews, Bloomberg Investec view: Expect the same reaction in London today, where gold equities have been down 10-20% over the past week on expectation of QE tapering.

Amongst our larger cap coverage we would expect African Barrick (ABG LN) to benefit the most, given it is most leveraged to the gold price and was down 27% since our last note, followed by Randgold (RRS LN), with Centamin (CEY LN) likely to benefit the least of the three.

Kirkland Lake (KGI LN) should be up strongly, given it was up 16% in Canada, one of the best North American performers.

We note that we assume a flat $1,400/oz gold price in our target price generation and recommendations - still above where the spot has risen to! Investec view part 2: As an aside, we note also that US resource equities also responded positively to the continued stimulus, including the BHP Billiton ADRs up 2.2%.

This is ironic given that continued stimulus means a weaker US$, a stronger A$, and therefore the likelihood of limited benefit to Australian-centric earnings of BHP Billiton (and Rio Tinto for that matter) � Indias gold imports expected to total some 750t in the current fiscal year to March 2014, down 11% yoy following measures to curb imports.

380.5t of gold were shipped between April and July ahead of restrictions.

We are approaching the wedding season which typically sees a pick-up in demand.

Source: Thomson Reuters. Investec view: We wonder whether illegal smuggling of gold into India will rise to maintain overall gold imports by the nation, particularly as the weaker rupee will be encouraging gold buying as people seek investments that are set at global pricing offering some protection against further weakening of the currency. � Recognising the pitfalls in mining companies accounts.

As mining companies earnings have come under increasing pressure from falling commodity prices, analysing their accounting is becoming more and more important to understand the underlying financial picture.

The diversity of accounting methodologies used by mining companies all fall within internationally acceptable practices, yet the implications of these decisions can have quite meaningful impacts on reported earnings, EBITDA and categorisation of cashflow.

Our intention is to highlight how accounting decisions can potentially mislead investors by introducing timing differences between earnings and operating cashflow as well as significantly distort like-for-like comparisons between companies.

Source: Investec Investec view: See our research note Mining Asia: recognising the pitfalls in mining companies accounts dated 18 September 2013.
Other economic news � Fed doesnt taper.

The US Federal Reserve announced it will maintain monetary stimulus at USD85bn/month due to concerns that the sharp rise in borrowing costs in recent months could slow economic growth.

Source: Bloomberg Investec view: The Feds decision to maintain the current level of monetary stimulus took the market by surprise, leading to USD weakness.

The AUD/USD exchange rate returned to a three month high at 0.95.

Precious metals also rose in Asia and the US, with gold rallying to USD1,365/oz, up c.

4%, as did industrial metals.
African Resources update � Miners in South Africa contest the proposed MPRDA bill as it may contravene bilateral trade agreements and be vulnerable to constitutional changes.

A key objection to the amendment bill is that the mines minister would have discretionary powers in respect to declaring certain minerals strategic thereby controlling domestic pricing.

Source: Mining MX � Ghana leaves interest rate unchanged.

In line with expectations, Ghanas central bank left its benchmark interest rate unchanged at 16% to counter sluggish growth and a weak currency.

Source: Bloomberg � Strikes in South Africa hit a 5 year high.

In 2012, a total of 99 strikes were recorded in South Africa, of which close to 50% were unprotected or illegal.

Source: Mining Weekly � Russian businessman buys 50% stake in SA ferrochrome business.

Russian businessman Alibek Issaev has acquired a 50% stake in low and medium carbon ferrochrome beneficiator FerroChrome Furnaces.

The transaction is expected to result in a doubling of production from the planned smelting facility during the next three years.

Source: Mining Weekly
Investec Global Natural Resources Research Team: UK Hong Kong South Africa Hunter Hillcoat Tel: +44 (0) 20 7597 5182
Matthew Whittall Tel: +852 3187 5075
Albert Minassian Tel: +27 (0) 21 416 1454
Marc Elliott Tel: +44 (0) 20 7597 5189
Leavitt Pope Tel: +852 3187 5074
Louise Collinge Tel: +44 (0) 20 7597 5779
Investec Global Natural Resources Sales Team: UK Hong Kong South Africa Jamie Campbell Tel: +44 (0) 20 7597 5038
Will Robbins Tel: +852 3187 5098
Hayden Smith Tel: +27 (0) 21 416 1401
USA Thomas Lawrence Tel: +1 212 2595604
Alistair Roberts Tel: +852 3187 5097
Investec Commodity Hedging Team: http://treasury.investec.co.uk/products-and-services/commodities.html UK Callum Macpherson Tel: +44 (0) 20 7597 5070
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