🕐24.10.13 - 09:54 Uhr

INVESTEC GLOBAL NATURAL RESOURCES DAILY - MINING - THURSDAY 24 OCTOBER - KAZ LN,
AQP LN, FRES LN, MML LN, BAO LN, ABG LN, CG CN, 1088 HK, 2600 HK, UNV AU, SFR AU, GBG AU, SLR AU



[cid:image001.png@01CED090.0A004160] Thursday, 24 October 2013 [cid:image006.jpg@01CED090.2CA211D0]
Snapshot � Company news highlights: Kazakhmys 3Q13 report, Aquarius 1Q14 report, Fresnillo special dividend and update, Medusa production downgrade, Baobab electricity MOU, African Barrick board additions, Centerra likely to see Kumtor agreement cancelled, Chinese electricity tariff changes impact Shenhua, new debt for Chalco, first Witbank coal for Universal, Sandfire lifts copper production, Gindalbie shipments grow, record gold production from Silver Lake � Commodity review highlights: China to retain ban on in-country overseas commodity exchange warehouses, EU thermal coal price rally may be short-lived, further news on Caterpillar � Other Economic News: Jump in China flash PMI, Australian bill to repeal MRRT � African Resources Update: Ethiopia and Kenya secure power line funding, SA platinum again threatened with strike action, SA downgrades growth outlook, Zimbabwe suing EU over sanctions � Market notes: FTSE futures +36.5 points.

Despite a mixed lead from Asia (Nikkei +0.42%, Hang Seng -0.68%, ASX200 +0.31%) European markets are set to open higher today with a raft of companies reporting including Santander, Daimler, Renault, and Unilever.

Chinese PMI came in at 50.9 in October, well ahead of the 50.4 consensus number however the continued surge in Chinese money market rates is keeping a lid on the Shanghai Composite Index (-0.73%).

The cut in sales and profit forecast for Caterpillar due to slumping orders from commodity producers may also have an impact on the sector today. Commodity markets: gold +0.17% (US$1,335.74/oz), silver +0.48% (US$22.6630/oz), copper -0.15% (US$3.2630/lb), iron ore -0.08% (US$133.30/t), platinum +0.12% (US$1,441.30/oz), WTI +0.63% (US$97.47/bbl), and Brent +0.07% (US$107.92/bbl).

Dual listed - BHP AU -0.40% (A$37.35), RIO AU +0.31% (A$63.85).

WTI crude fell to the lowest level in 3 months as supplies rose more than expected in the US to 5.25Mbbls, versus analyst forecasts of 3Mbbls.

Gold futures fell slightly again to US$1,334/oz, after its biggest loss in more than a week on Tuesday, this time on signs of slowing purchases of bars and jewellery in China and on concerns over the Shibor rate.

Shanghai market spreads for gold have fallen to about US$8/oz from above US$25/oz last week.

Iron ore fell to US$133.20/t and is beginning to look like it is back in a downward trend.

Copper fell from a 1 month high on the surging interest rates in China, with LME 3 month futures down to US$7,264/t. Economic data due today: US - trade balance (forecast -$39.4bn), initial jobless claims (2870K), leading index (0.6%).

Eurozone - French PMI manufacturing (forecast 50.1), PMI services (51.3), Spanish unemployment (26.10%), German PMI manufacturing (51.4), German PMI services (53.7), EC PMI services (51.4).
Company News � Kazakhmys (KAZ LN) Q3 production report.

KAZ has produced 71,000t of copper cathode equivalent during Q3, bringing the total for the 9 months to 30 September to 215,000t.

Copper cathode equivalent is now being reported as sales of copper concentrate to China commenced in September.

Both ore extraction and grade have been higher than the comparable 9 months of FY12.

Power generation for the 9 month period was 9% below the comparable period in FY12, driven by lower domestic commercial demand.

Source: Company Investec view: KAZs Q3 copper production demonstrates that the group is on track to meet its full year production guidance of approaching 295,000t.

The group is also on track to meet its by-product metals output guidance as well.

KAZ is a reliable producer and, while the group has work to do on its core copper business, this is reflected in the shares. � Aquarius Platinum (AQP LN) Q1 FY14 update.

AQP has reported 3E PGM production of 106,441oz from its Kroondal mine in South Africa, of which 50% is attributable to the group.

55,110 3E PGM oz have been produced at Mimosa in Zimbabwe, of which 50% is attributable to AQP.

Costs on a per tonne basis in local currency respectively were ZAR541/t and US$76/t.

The group has reported revenue of US$59.7m and a net loss of US$10.2m.

Source: Company Investec view: In terms of production, AQP has reported an in line start to the year, although we bear in mind that this is a traditionally relatively strong quarter for the South African PGM producers.

In our view, the financial numbers reflect a business (and a sector) which is still struggling. � Fresnillo (FRES LN) extraordinary special dividend, explosives permits and appointment of COO.

Fresnillo intends to pay a special dividend of 22.39cps (US$165m) and has appointed Roberto Diaz as COO from 1st November 13, who was previously VP operations and project development.

Unfortunately the company has still not had its ban lifted on use of its explosives relating to the Noche Buena mine at some of the pits.

The company had expected the ban to be lifted, however the Eijdo agrarian community has obtained a temporary stay order in its favour for which an initial hearing is due early November.

Overall gold production guidance will be given following the results of the hearing.

Source: Company � Medusa Mining (MML LN) announced yesterday quarterly production downgrade as a consequence of technical problems with the power cells used to start the new SAG Mill will result in a reduction in DecQ production.

The repaired power cells are expected to be back on site on 4th November with new power cells ready for shipment by month end.

The extent of the lost production is yet to be determined as the old mill can operate concurrently with the new one once the repaired power cells are fitted.

The current mill can operated at 2.5ktpd.

Source: Company � Baobab Resources (BAO LN) MOU signed with Mozambique state electricity company to jointly commission a detailed network option study on the Tete Projects power requirements.

Other developments on its BFS for its Tete Pig Iron and ferro-vanadium project include an approved Environmental scoping report, on-going drilling, bench scale test work nearing completion, a bulk sample now collected and dispatched for pilot scale testing, and the recent discovery around 5km away of a limestone deposit that could be used as a flux in a furnace.

Source: Company Investec View: This is encouraging news as the cost of power will be key to the economic potential of such a project.

We wait to see development on other test work to see if this is a viable project. � African Barrick (ABG LN) appoints two new NEDs.

The company has announced the appointment of Steve Lucas and Rachel English as Independent Non-Executive Directors with immediate effect.

Both have chartered accounting backgrounds and bring "strong focus on cost control and operational efficiency".

Source: Company Investec view: The appointments appear complementary to the technical operating expertise being introduced at the executive level. � Centerra Gold (CG TO) sees Kyrgyzstan government likely to cancel agreements on Kumtor gold project and seek a 67% stake in the asset, following a deal last month where an MOU was signed paving the way for the country to swap its 32.7% stake in the firm for a 50% stake in the venture that would own Kumtor.

The current president had previously resisted calls to nationalise the mine but appears to be bowing to political pressure.

Source: Thomson Reuters Investec View: Clearly working in Kyrgyzstan is challenging with companies facing an uncertain political climate. � Shenhua (1088 HK) earnings to be negatively impacted by c.

US$100m due to electricity tariff changes.

Chinese coal producer Shenhua expects that adjustments to Chinese electricity tariff rates will reduce pre-tax net income by CNY610m (c.

US$100m) in 2013.

Chinas National Reform and Development Commission (NDRC) reduced coal-fired electricity rates by CNY0.009/kWh-CNY0.0025/kWh depending on the region, effective 25 September 2013, at the same time as it increased renewable energy electricity rates by CNY0.008/kWh-CNY0.01/kWh, de-nitration compensation for coal-fired electricity by CNY0.002/kWh and dust emission control compensation for coal-fired electricity by CNY0.002/kWh.

Source: Company Investec view: Chinas move to incentivise renewable energy, as well as less polluting coal-fired energy technologies, by modifying the structure of electricity rates has been facilitated by falling coal prices that have resulted in larger margins for power producers.

The first order impact to Shenhua is principally due to its electricity generation operations but we expect Chinas bias against coal will be an ongoing headwind for coal prices. � Chalco (2600 HK) issues US$350m, 6.625% perpetual debt.

Chinese aluminium producer Chalco will issue US$350m of perpetual unsubordinated unsecured securities that will initially bear interest at 6.625%, resetting every five years to the US treasury rate plus 5%.

Source: Company � Universal Coal (UNV AU) mines its first Witbank coal.

The South Africa-focused coal company has mined its first run-of-mine coal at first coal operation, Kangala.

Kangala is set to deliver its first production by Feb14 and the company aims to produce 2.1mtpa of saleable thermal coal, of which 2mtpa has been allocated to Eskom.

UNV reported that the A$46.8-million project remains on budget.

Source: MiningWeekly � Sandfire (SFR AU) increases copper production 15% QoQ.

Australian copper producer Sandfire Resources produced 16.4kt copper in concentrate in SepQ13, up 15% QoQ, at a C1 cash cost of US$1.28/lb, down slightly from US$1.37/lb in JunQ13, as copper head grades increased while ore milled and recoveries were broadly flat QoQ.

Gold production was 8.6koz in SepQ13, down 24% QoQ.

FY14 production guidance was maintained at 65kt-75kt copper and 35koz-45koz gold, weighted towards JunH14, at a C1 cash cost of US$1.05/lb-US$1.15/lb.

Source: Company Investec view: SepQ13 production results suggest Sandfire is on track to achieve FY14 production guidance.

Copper production is expected to grow in DecQ13 as SFR recently started exclusively processing primary ore sourced from its underground mine that should have recoveries >90%, well above the 82% level achieved in SepQ13 with mixed ores. � Gindalbie (GBG AU) shipments grow in SepQ13.

Australian iron ore miner Gindalbie Metals announced it shipped 0.69mt/1.04mt of magnetite/direct-ship-ore inclusive of third-party ore from its 50% owned Karara mine in SepQ13, up 1.6%/43% from JunQ13.

Production continues to be negatively impacted by previously disclosed problems with the magnetite production circuit but shipment guidance was maintained for 1.5mt-2.0mt/1.9mt-2.1mt magnetite/direct-ship-ore in DecH13.

Source: Company Investec view: Work continues to rectify problems in the tailings dewatering system of the magnetite production circuit that are limiting production to well below nameplate capacity of 8mtpa (100% basis).

Karara is likely to be loss making until production increases given fixed costs and take-or-pay contracts but has fortunately received support from JV partner Ansteel including a US$230m funding package including iron ore presales as well as bank loan guarantees. � Silver Lake (SLR AU) record gold production in SepQ13.

Australian gold producer Silver Lake Resources produced 59.9koz gold in SepQ13, up 7.7% QoQ and a new quarterly record, as production increased at its Mount Monger and Murchison mines due to a combination of higher ore processing volumes and grades.

Group production guidance remains unchanged at 180koz-200koz gold for FY14.

Source: Company Investec view: Silver Lake must find substantial cost improvements at Murchison as current all-in sustaining costs of AUD1,919/oz are not viable in the long term.

Mount Monger has adapted well to lower gold prices and reduced all-in sustaining costs to AUD1,098/oz in SepQ13 from AUD1,347 in JunQ13.
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Commodities News � China plans to retain a ban on overseas commodity exchanges setting up warehouses in country.

It had been hoped that following the acquisition of the LME by the Hong Kong Stock Exchange that it would be allowed to open up warehouses in country.

The securities regulator is apparently opposed to overseas exchanges opening warehouses as they could pose a serious challenge to the Shanghai Futures Exchange.

Source: Company � Thermal coal price recovery may be short-lived: Inside Coal.

Discussions at the recent Coaltrans coal conference in Berlin suggest that the recent rally in API 2 and API 4 pricing could only last 2-3 weeks.

API 2 has climbed $5.30/t to $79.25/t in 15 days of trading, while API4 is up $7.20/t to $80.70.

Source: Inside Coal � Further news on Caterpillar cuts to forecasts.

Mining equipment manufacturer Caterpillar cut sales and profit forecasts due to slumping orders from commodity producers with its SepQ13 results.

2013 sales guidance was revised to c.

US$55bn from US$56bn-58bn while initial 2014 sales guidance was given at the 2013 level +/-5%.

Source: Bloomberg Investec view: Sales to the resource industry are now expected to drop 40% YoY in 2013.

CAT had previously expected sales to recover in DecH13 due to growing production volumes in select commodities but this has not materialised and management now say they have little order book visibility.
Other economic news � HSBC flash China manufacturing PMI jumps to 50.9 in October.

The HSBC flash China manufacturing PMI rose to 50.9 in October, above the median estimate of 50.4 as well as the final reading for September of 50.2.

Stocks fell, however, on concerns that the government could tighten credit and clamp down on the property market.

Source: Bloomberg � Australian government releases draft bill to repeal MRRT.

The new Australian government led by Tony Abbott has released a bill to repeal the Minerals Resource Rent Tax (MRRT) from 1 July 2014.

Source: Bloomberg Investec view: We dont believe many companies are currently paying the MRRT but this will nevertheless be welcome news as it reduces the accounting complexity and compliance costs that the tax created.

One side effect if the bill passes will be the write down of deferred tax assets that were created when the MRRT was introduced.
African Resources update � Ethiopia and Kenya have secured funds for a US$1.26bn power line to be completed in two years time.

Ethiopia is poised to generate revenues from exporting power to Kenya which has been suffering constant blackouts.

The power line will extend 1,068km with 2,000MW of capacity.

Ethiopias hydro power potential is estimated at 45,000MW.

The country is building a 6,000MW dam on the Nile for completion in four years time.

Source: Thomson Reuters � Strike action in South Africa threatens once again for the platinum producers as militant union reportedly intends to declare a dispute over stalled wage talks with Anglo Platinum (AMS SJ).

The company recently suffered an 11 day strike that cost it around US$100m in lost revenue.

Wage talks between Implats (IMP SJ, no.2 platinum producer) and AMCU have gone to a government mediator.

Talks are underway between AMCU and Lonmin (LMI LN).

Source: Thomson Reuters � South Africa downgrades growth outlook to 2.1% this year versus 2.7% forecast in February.

Widespread labour strikes and power supply constraints have impacted the economy.

Spending in the current financial year was predicted at ZAR1.14trillion against revenue of ZAR999bn, spending is set to rise to ZAR1.24trillion in 2014/15 and 1.44 in 2016/17.

Source: Thomson Reuters � Zimbabwe sues EU over sanctions losses.

The Zimbabwean government is suing the EU for losses to its economy arising from the blocs sanctions on President Robert Mugabe and members of his government.

The lawsuit has now come before the General Court of the European Court of Justice in Brussels, Belgium.

The Zimbabwe government is apparently contending that the EU sanctions since 2001 have cost the country $42bn in lost revenue.

The lawsuit is to serve as a precedent against US-imposed sanctions.

An EU representative stated that "The restrictions are against 10 individuals and one company and not against the whole of Zimbabwe.

There is no such thing as sanctions against Zimbabwe." Source: BDlive
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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