🕐25.02.14 - 09:27 Uhr

INVESTEC GLOBAL NATURAL RESOURCES DAILY - MINING - WEDNESDAY 19 FEBRUARY - GLEN
LN, PAF LN, RMM LN, BTR AU, TIG AU, IAU AU, MGX AU, FMG AU, WES AU, 1088 HK, FXPO LN



[cid:image001.png@01CF2D49.676BBC10] Wednesday, 19 February 2014 [cid:image006.jpg@01CF2D49.6E800560]
Snapshot � Company news highlights: Glencore research note out (recommendation change), Pan African interim results, Rambler 2Q14 quarterly, Blackthorn update on Perkoa, increase in Amaan resource for Tigers Realm, Intrepid to receive A$90m in Tujuh Bukit settlement, Fortescue and Mount Gibson 1H14 results, Wesfarmers provides weak coal market outlook, Shenhua production data � Commodity review highlights: Iron ore being bought in China as collateral, European coal prices slip on warmer weather � Other Economic News: Turn for the worse in Ukraine, China reduces US Treasury holdings, Australias Treasurer warns of QE "morphine", US fuel efficiency standards point to greater aluminium usage � African Resources Update: SA rand recovery vindicates interest rate move, Zimbabwe shortlists two companies to build platinum refinery, todays African proverb � Market notes: FTSE futures -6 points.

US equities opened post Presidents day finishing mostly higher in a quiet session.

US economic data missed (Empire Manufacturing 4.48 vs.

forecast of 8.5; NAHB Housing Market 46 versus forecast 56) but this failed to ignite slowdown concerns for US investors.

In European equity markets stocks were little changed, after a couple of days gains, as German ZEW fell more than forecast.

Comments from ECB officials also had muted impact.

EMs underperformed but no notable influence from escalating crisis in Ukraine. Commodity markets - gold -0.29% $1,318.21/oz, silver -0.95% $21.7281/oz, platinum -0.53% $1,416.90/oz, copper +0.03%, $3.2865/lb, nickel +0.54% $14,434.00/t, iron ore +0.00% $124.40/t, thermal coal $77.45, WTI +0.35% $102.79/bbl, Brent -0.13% $110.31/bbl, zinc +0.48% $2,073.50/t.

Dual listed - BHP -0.39% A$38.74, RIO -0.96% A$70.20.

Gold slipped back on speculation that the Fed minutes will should policy makers backed further stimulus cuts, bringing silver back along with it.

WTI rose to highest levels in 4 months amid speculation that stockpiles at Cushing fell as cold weather in the US boosted demand for distillates. Economic data due today: US - PPI final (forecast 0.1%), housing starts (950K), building permits (975K), FOMC Jan meeting minutes.

Eurozone - BOE minutes from Feb meeting, UK claimant count (forecast 3.6%), UK jobless claims change (-20K), UK average weekly earnings (1.0%), UK employment change (250K).
Company News � Glencore (GLEN LN) research note published, with change in recommendation and updated earnings following production report and reflecting higher sector yields.

The company has yet to sell Las Bambas that could be a material catalyst for the stock either up or down if a successful sale is achieved or not, and how management re-distribute funds realised e.g.

shareholder returns or not.

The recent production report provides some clarity on the industrial side of the business but not trading activities, which should become clearer in the prelims due on 4th March.

We have also examined how GLEN trades versus other publically listed trading companies and note that such companies are trading on 14x and 10.7x P/E for FY13E and FY14E, versus GLENs multiples of 17x and 14x (Investec) respectively indicating that it is trading ahead of other trading companies, although it offers a more attractive dividend yield.

Source: Investec. � Pan African Resources (PAF LN) interim results.

During the 6 months to December 2013, PAF sold 100,172oz of gold.

The group reported revenue of �85m and earnings of �17.3m or 0.95p/share.

The groups all in cash costs were US$1,044/oz and the company sustained a head grade of 11.5g/t Au.

Source: Company Investec view: PAFs results look good to us and demonstrate the contribution of the new Evander mine.

While there is no real Reuters interim consensus for PAF, consensus is looking for EPS of 1.67p for the full year to June, so the 0.95p/share interim EPS could potentially be ahead of where analysts expected the group to be at this time. � Rambler (RMM LN) delivers mixed 2Q14 production quarterly.

Tonnes milled of 50,957t was 8% below the previous quarter, while copper concentrate of 6,818t was 3% higher QoQ (contained copper up 1%, contained gold down 6%).

Cost data is to be provided with the 2Q14 financial results on or before the 28 March.

Rambler has maintained FY14E guidance of 5.7-6.8kt of copper in concentrate, with 4.5-5.5koz gold and 32-39koz silver.

Source: Company Investec view: The production result was better than the modest gain it suggests, given the extreme weather that the company faced over the quarter. � Blackthorn Resources (BTR AU) updates on Perkoa zinc mine business plan review to verify and challenge information provided by operators Glencore Xstrata prior to committing to a final plan by the end of March.

Current options include putting the mine on care and maintenance due to current difficult operating conditions.

Source: Company Investec View: The current zinc price is certainly not at a low and has been firming over the past 6-12 months; therefore clearly the asset is fundamentally more challenging than anticipated as indicated by the disappointing grades being mined. � Tigers Realm Coal (TIG AU) increases coal resources at Amaam.

Tigers Realm Coal announced an increase in coal resources at its Amaam coking coal project in far-east Russia by 12.6% to 464mt.

A further exploration target of 120mt-205mt has been estimated at Amaam.

At Amaam North/Project F, where the company has already identified a 26.8mt resource, the potential strike of coal seams has been extended by over 9km and the company has a further exploration target of 55mt-490mt.

Across both the Amaam and Amaam North licenses the company now has up to 1.2bt of coal potential based on current resources and exploration targets.

Source: Company Investec view: Tigers Realm Coal will hold a shareholder meeting on 21 March 2014 to approve an A$62m capital raising package announced in December 2013 underpinned by investments from Baring Vostok Private Equity and the Russian Direct Investment Fund.

Proceeds from the placement will go a long way towards helping TIG realise first production from its low capex, low cost 1mtpa Project F (Amaam North) in DecH15E, and TIG will have a high quality share register with capacity to support future funding requirements.

Our analysts assume that TIG will need to supplement this placement with c.

A$70m of debt and c.

A$20m of equity, although this would be lower, and possibly the last equity raising if managements A$52m pre-production capex target for Project F is achieved. � Intrepid Mines (IAU AU) to receive A$90m in dispute settlements.

Intrepid has signed binding agreements to settle all disputes surrounding ownership of the Tujuh Bukit copper/gold project (80% IAU) in Indonesia that will see the company receive A$90m (US$80m) in cash.

The agreements were brokered by Saratoga Capital and Provident Capital.

Under the agreement Intrepid will receive a bond convertible into a 15% pre-IPO shareholding in the companies holding the Tujuh Bukit assets from its former Indonesian partners and an US$37.5m option to acquire a further 7.5% of the shares in the Tujuh Bukit assets at the time of an IPO.

Intrepid has on sold its convertible bond and option to Kendall Court for US$80m.

The transaction is subject to shareholder approval.

Source: Company Investec view: Following completion of the transaction, Intrepid will be a cash shell.

The company had cash of A$88m as at 31 December 2013 and with cash of A$90m from the dispute settlement, total cash exceeds the companys market capitalisation of A$156m. � Mount Gibson (MGX AU) DecH13 results.

Mount Gibson reported net profit after tax of A$78.3m in DecH13, up 111% YoY, and cash reserves of A$484m at the end of the reporting period with minimal debt; just A$21m in equipment leases.

No dividend will be paid for the period given the companys policy of a single annual dividend payment.

MGX remains on track to achieve iron ore sales of 9mt-9.5mt in FY14 (Jun YE) from its Koolan Island/Tallering Peak/Extension Hill operations.

The company also announced that Lee Seng Hui, a Non-Executive Director of controlling shareholder APAC Resources (1104 HK), will replace Geoff Hill as Chairman.

Source: Company Investec view: Whilst almost half of the companys market capitalisation is now cash, the market seems increasingly concerned about the ability of management to deploy that cash effectively to extend a depleting production profile.

MGX is attempting to maintain Midwest production levels by pursuing near mine exploration around Extension Hill, where it has a 5mt-7mt exploration target at Iron Hill, as well as purchasing the 6.1mt Shine deposit and Fields Find exploration tenement. � Fortescue Metals Group (FMG AU) DecH13 results.

Fortescue reported DecH13 earnings of US$1.72bn, up 260% YoY, and an EBITDA of US$3.2bn.

Fortescue had net debt of US$8.7bn at end December 2013, down from US$10.5bn at end June 2013.

The company is guiding for C1 cash costs of US$34/t in FY14 (Jun YE) at a US$/A$ of 0.90 and estimates a cash breakeven iron ore price of US$70/t (62% Fe, CFR China).

Iron ore shipments in FY14 are targeted at 127mt but are dependent on weather and the ramp-up of ore processing facilities.

The company declared a 1H FY14 dividend of A$0.10/share.

Source: Company � Wesfarmers (WES AU) provides coal market outlook with half year results.

Wesfarmers expects FY14 (Jun YE) coal sales of 7.5-8.5mt with a sales mix of 41% hard coking coal, 31% semi-soft coking coal and 28% PCI.

The company expects weaker pricing in JunQ14 given weakness in the spot market and remains focused on reducing cash costs.

Source: Company � Shenhua (1088 HK) January 2014 production data.

Shenhua reported commercial coal production of 26.8mt in January, down 4.3% YoY.

Coal sales of 31.5mt were however up 18.4% YoY.

Total power output dispatch of 16.31bn kwh was down 10.9% YoY.

Source: Company
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Commodities News � Iron ore is being bought in China by steel mills and traders to use the mineral as collateral to secure loans, helping boost imports and stocks, rather than underlying demand growth which is reportedly slowing.

Typically copper and rubber have been used as collateral, however, tighter regulations has prompted the use of iron ore for financing.

Source: Thomson Reuters � European coal prices continue to slip due to mild weather with the bid/offer spread at US$76-77.25/t yesterday afternoon, down US$1.5/t from the day before.

South African prices are also under pressure at US$79/t, down 30c/t from the previous day, as are Australian prices reported at US$76.55/t.

Chinese coal import demand is reported to be slowing as the country reduces its use on the densely populated eastern coast.

Source: Thomson Reuters
Other economic news � Turn for the worse in Ukraine.

25 people have been killed in Kiev last night, including seven policeman, after the bloodiest day since the Ukraine won its independence.

Opposition leaders said they had quite talks with President Yanukovich without reaching an agreement.

Source: Reuters Investec view: The ongoing issues in Ukraine continue to worry the market and are likely to be perceived to be a negative for Ferrexpo (FXPO LN).

While we believe the company is unaffected operationally, the recent sovereign downgrades from the ratings agencies is likely to make accessing low cost debt more difficult for the group.

The country continues to struggle financially and, at the interim stage, US$370m of FXPOs net debt was represented by overdue VAT which the government owes the company and prepaid corporation tax.

The wider market is probably concerned that the political unrest is likely to delay an economic solution for the country. � China reduces US treasury holdings.

China has pared back its holdings by 3.6%, or $47.8bn, to $1.27tn, the largest decline since Jul11, as the Fed announced its move firmly into tapering.

Chinese holdings rose 4% last year, while Japanese holdings (the second-largest) rose for the sixth consecutive year, climbing 6.4% to $1.18tn.

Source: Bloomberg � Australias Treasurer warns world must be weaned off QE "morphine".

Ahead of the G20 debate, Australias finance chief has hit out at the US, Europe and emerging market economies calling for them to wean themselves off the "morphine" of easy money and embrace reform.

He criticised the US congress for blocking budget increases and reforms to the IMF and warned Europe against trying to side-line the G20 as the worlds premier trouble-shooter.

Source: FT � Fuel efficiency standard requirements in the US leading to GM working toward developing largely aluminium bodied pick-up trucks by late 2018.

Both Alcoa and Novelis are working to increase aluminium sheet capacity to supply the next generation of pick-up truck.

Ford has already switched to aluminium, with the latest upgrade in the F150 95% aluminium in the body cutting the weight by up to 700lbs.

Source: Thomson Reuters
African Resources update � SA rand recovery appears to vindicate move to raise interest rate.

The Reserve Banks surprise decision to raise interest rates last month appears to be bearing fruit, as a rebound in the rand reins in investor inflation bets, with the yield gap between fixed-rate debt and inflation-linked bonds (both 2018) dropping 42bp (to 6.78%) since Jan 29, the day the Bank increased its rates by 50bp.

The rand has gained 4.2% against the dollar since then.

Source: Bloomberg � Zimbabwe has short listed two companies to build a platinum refinery in the country and is looking to resolve a dispute with miners over a 15% levy imposed on unrefined exports of the metal last month.

The principal operators in the country are PGM majors Amplats and Implats.

Last year the country produced 430koz platinum.

The cost of a refinery has been estimated by the government at US$3.2bn.

Source: Thomson Reuters Investec View: In light of unreliable power, unpredictable government policies and difficulties of operating in country, we feel that such a major investment in a PGM refinery will be exceptionally challenging to justify for any party.

Ironically, such a policy if carried through by the government could help improve the longer term outlook for platinum, if it effectively leads to a winding down and closure of Zimbabwes platinum production. � Todays African proverb.

"A bird that flies away and lands on an anthill is still on the ground".

Source: BBC
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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