🕐25.02.14 - 16:27 Uhr

INVESTEC GLOBAL NATURAL RESOURCES DAILY - MINING - MONDAY 24 FEBRUARY - RRS LN,
VALE US, LUC CN, WLFE LN, IFL LN, JLP LN, 2133 HK, TRY AU, PIR AU, BSL AU



[cid:image001.png@01CF3138.12B38C00] Monday, 24 February 2014 [cid:image006.jpg@01CF3138.132141F0]
Snapshot � Company news highlights: Research published on Randgold to pay stronger dividends, Vale in no rush to combine Sudbury operations with Glencore, Lucara Diamonds dividend update, Wolf results reflect progress, IFM back into profit, Jubilee strengthens balance sheet, China Polymetallic CEO resigns, Troy Resource reports loss, Papillon announces new gold discovery, Bluescope Steel reports profits. � Commodity review highlights: Trafigura pays US$150m for 30% interest in Chinese smelter, Rusal expects rising aluminium premiums, Chinese steel industry struggling, ICSG estimated copper deficit in November, Eramet delays Indonesian nickel mine � Other Economic News: G20 to add US$2tn to global economy, Chinese home prices rising, Chinese banks tightening lending, EU and US to build support for new Ukraine package, Australian mining services company reports loss � African Resources Update: Illegal mining in SA getting out of control, NUM considering further strike action at Northam, Guinea Bissau delays elections again, todays African proverb. � Market notes: FTSE futures -24 points this morning.

US markets closed down on Friday (Dow -0.19%, S&P -0.19%) on bearish home sales data.

Asian markets are mixed (Nikkei -0.19%, Hang Seng -0.91%, ASX200 +0.03%) and some Chinese banks tighten credit to the property sector and related industries such as cement and steel, resulting in a sharp drop in Chinese industrials (Shanghai Composite -1.75%). Commodity markets - gold +0.23% $1,327.26/oz, silver -0.13% $21.7657/oz, platinum +0.02% $1,428.20/oz, copper -1.04%, $3.2250/lb, nickel -0.00% $14,337.50/t, iron ore -0.41% $122.40/t, thermal coal $77.70, WTI +0.28% $102.49/bbl, Brent +0.20% $110.06/bbl, zinc -0.39% $2,041.00/t.

Copper dropped on concerns that demand in China will slow as inventories in Shanghai expended and some banks tightened lending in the property sector.

WTI futures rebounded as talk of a polar vortex returning to the US drives speculation around energy demand.

Gold is trading sideways as technical gauges signal a reversal after 3 weeks of gains.

Steel rebar falls 2.4% in Shanghai as inventories rise for a 9th week to 9.2Mt and certain banks tighten lending tot eh property sector. Economic data due today:- Chicago Fed national activity index (forecast -0.20), Dallas Fed manufacturing activity (3.0).

Eurozone - German IFO business climate, current assessment ad expectations (forecast 110.5, 112.8, 108.1), EC CPI MoM (-1.1%).
Company News � Research note out on Randgold (RRS LN), highlighting significantly improving dividends.

RRS has stated an intention to deliver increased dividends as Kibalis construction is completed, a meaningful shift in the companys policy.

Over the 5yr period (FY14E to FY18E) we now assume total dividends 70% higher than our previous total and more than double current consensus estimates.

Our assumptions equate to an average pay-out ratio of 32% over the period, while the yield approaches 3% per annum, near the top of its peer group.

We estimate that this still leaves RRS with cash of c.$1.3bn, assuming a $1,300/oz gold price, leaving it ample room to lift the pay-out further.

Source: Investec � Vale (VALE US) in no rush to combine Sudbury operations with Glencore (GLEN LN).

Vale has stated that it is not in a hurry to reach an agreement with Glencore to combine operations in the Sudbury basin in Canada.

Both companies initiated talks on jointly operating mines, mills and smelters in November, with a decision on a possible combination expected this quarter.

Source: Company � Lucara Diamonds (LUC CN) dividend update.

LUC has announced that its board has approved the issuance of semi-annual dividends and also the issuance of special dividends, where appropriate, from revenues based on special stones tenders.

The company has also announced that it has arranged for its first exceptional stone tender of 2014 which will be held in Gaborone and Antwerp on10 April.

Source: Company Investec view: This announcement from LUC demonstrates managements confidence in the Karowe mine in Botswana.

The chance of a special dividend on the back on exceptional stone tenders is an interesting move and one which other companies such as Gem Diamonds (GEMD LN) and Petra Diamonds (PDL LN) could now find themselves under increasing pressure to offer.

Both of these UK listed companies have recently produced exceptional stones, with PDL announcing that it has sold its stone for US$26m.

Petra has made a commitment to pay dividends from FY16. � Wolf Minerals (WLFE LN) H1 FY14 results.

For H1 FY14, WLFE has reported a net attributable loss of A$1.3m or 0.67c/share.

During the period, the group spent A$1.9m on its operating activities and A$37.6m on investing in its Hemerdon tungsten project.

Net cash from financing activities was US$28.9m, and the group ended the period with cash of A$8.9m.

As of 10 February, the company confirmed it has drawn down the second tranche of the Equity Bridge facility of A$38m.

Source: Company Investec view: Given that WLFE is not yet in production, its P&L is of little importance to the overall story.

These accounts do show that the group has been investing in its Hemerdon project which is being progressed towards production.

While the group has to repay the bridge facility in June, it does have a debt package lined up and off take agreements which are key to the development. � International Ferro Metals (IFL LN) moves into black.

IFL delivered 1H14A EPS of ZAR5.9cps, versus a loss of ZAR9.3cps in the previous half and a loss of ZAR13.6cps in the 1H13A.

EBITDA was ZAR 49.2m (US$4.5m), versus negative ZAR45.5m in 1H13A.

This was in spite of lower ferrochrome prices, while it followed good production results, including record ferrochrome production of 116.5kt during the half, with sales of 109.6kt.

With a focus on costs, the company states that it remains competitive in the Chinese market.

Net debt was up ZAR9m to ZAR372m due to increased working capital but the company expects this to reduce significantly by the end of FY14 (the facility totals ZAR500m).

Source: Company Investec view: A good result from IFL, which has done an admirable job in a difficult climate.

Earnings in the 2H14E should be assisted by the higher ferrochrome price (Q1 benchmark at US$1.18/lb, versus US$ 1.125/lb in the 1H14A) and the weaker ZAR (now c.11x to the US$, versus c.10x in the 1H14A). � Jubilee Platinum (JLP LN) strengthens balance sheet through placing (GBP435k), settlement of secured debt (GBP3.2m) and expiration of its equity financing facility of GBP10m.

The placing has been done at 1.75p.

The debt held by Investec of ZAR57m (GB3.2m) for construction and commissioning of the power plant in 2009 has been largely repaid leaving ZAR12m outstanding.

The company has also entered into a non-converting loan facility (sum not disclosed) to be put partly toward the completion and commissioning of a 3rd ARC furnace currently under construction.

Source: Company Investec View: A complex set of agreements that make it challenging to ascertain clearly the financial health of the company post the various transactions.

Jubilee has a number of different assets which we feel present many challenges for a junior miner with limited resources to advance. � China Polymetallic Mining (2133 HK) CEO resignation.

China Polymetallic Minings CEO Mr Ji He has resigned to pursue other interests.

The Chairman, Mr Ran Xiaochuan, will fill the role until the Board is able to fill the vacancy.

Source: Company Investec view: Mr He was only appointed CEO on 1 June 2013.

Mr He stood to receive shares equal to a 3% interest in the company on achieving 18 months of service and meeting certain profit milestones which will now lapse.

China Polymetallic Mining has struggled to ramp-up its flagship Shizishan silver/lead/zinc mine in Yunnan province, China and there has been little improvement in operational performance since the appointment of Mr He, who did not have a mining background.

We continue to believe the company needs to appoint strong technical management if they are to realise production at Shizishan anywhere near feasibility study projections. � Troy Resources (TRY AU) reports DecH13 loss.

Gold producer Troy Resources reported a net loss of A$6.8m in DecH13 as compared to a A$13.5m profit in DecH12 as revenue declined 31% due to lower precious metal prices and reduced gold sales volume.

Source: Company Investec view: Troy also had negative operating cashflow of A$11.7m in the period, highlighting the difficult operating environment for gold producers. � Papillon (PIR AU) announces new gold discovery.

Papillon Resources has announced a new gold discovery, Menankoto Sud, 13km to the north of Papillons Fekola project in Mali.

Better intercepts from the recent shallow drilling program include: 13m @ 7.3g/t from 33m and 13m @ 2.36g/t from 10m.

Source: Company Investec view: The widths and grades at Menankoto Sud are similar to the original Fekola discovery and the geology is analogous.

Papillon has completed a prefeasibility study on Fekola based on a resource (measured and indicated) of 44.31mt at 2.46g/t (3.5moz gold).

Papillon has received a mining permit for Fekola and expects to make a final investment decision by late 2014.

The potential for Menankoto Sud to increase existing resources, improving project economics, is significant. � Bluescope Steel (BSL AU) reports A$49.1m 1H FY14 underlying NPAT.

Bluescope Steel reported a 1H FY14 (Jun YE) NPAT of A$3.7m but an underlying NPAT of A$49.1m.

Source: Company Investec view: Bluescope expects 2H FY14 underlying NPAT to be similar to the first half.

Bloomberg consensus earnings for FY14 are currently A$118.1m.
[cid:image007.png@01CF3138.132141F0]
Commodities News � Trafigura pays US$150m for a 30% interest in a Chinese copper smelter.

Trafigura has reportedly paid US$150m for a 30% interest in a 400ktpa copper smelter in Fangchengang, Guangxi.

The agreement with Jinchuan Group is Trafiguras first direct investment in copper smelters in China.

Source: Bloomberg � Rusal expects aluminium premiums to continue rising.

Rusal (486 HK) has stated that it believes the aluminium deficit, driven by the new rules on warehousing, will worsen the current shortfall and drive premiums to over 50% of the market price.

The LMEs rules may compound the supply deficit as volumes will simply move to unofficial storage sites, with the judicial review of the new rules due to be heard at the end of this month.

Source: Company � Chinese steel producers struggling with reports that many mills are close to bankruptcy as slowing demand is undermining prices.

Capacity appears to be being cut back more as a function of the difficult economic environment rather than central government pressure to clear up air pollution.

Source: Thomson Reuters � The International Copper Study Group estimated a 129kt supply deficit in November largely in response to demand for refined metal in China.

Total deficit for the first 11 months stood at 375kt, down from a 576kt shortfall the same period in 2012.

Prices are currently being undermined by concerns over Chinese demand in response to restrictions being placed on property markets.

Source: Thomson Reuters � French miner Eramet (ERA FP) postpones flagship Indonesian nickel mine project due to weak nickel pricing and affirms support for the countrys ban on unrefined mineral exports as it should support a recovery in nickel prices.

The delay in the project is also in response to uncertainty ahead of parliamentary and presidential elections.

Source: Thomson Reuters
Other economic news � G20 to add US$2tn to global economy.

The worlds biggest economies have agreed to target reforms aimed at adding more than US$2tn to the global economy over five years, marking a shift in emphasis at the G20 level from austerity to promoting growth as the financial crisis recedes.

Source: FT � China home prices continue rising in January.

Chinese home prices rose YoY in 69 of 70 cities surveyed in January, including by 15%/18% YoY in Beijing/Shanghai.

Home prices rose MoM in 62 of the 70 cities.

Source: Bloomberg � Reports of Chinese banks tightening property sector lending.

Some Chinese banks including Industrial Bank have tightened lending to the property sector and related industries including steel and cement according to reporting by Shanghai Securities News.

Source: Bloomberg � EU and US to build support for a new Ukraine package from IMF.

As diplomats fear that Russia may be about to withdraw its economic lifeline to Ukraine, the EU and the US leaders are now scrambling to build support for a new Ukraine package from the International Monetary Fund.

These discussions happened shortly after President Viktor Yanukovich fled Kiev on Saturday.

Source: FT Investec view: This could be a positive development for Ferrexpo (FXPO LN) which is owed c.US$300m in VAT from Ukraine as the IMF could insist that creditors are repaid if a bail out solution is agreed. � Australian drilling services company Boart Longyear posted full year loss for 2013 of US$94m (exc exceptionals) versus US$116m profit the previous year.

The company booked restructuring and impairment charges of US$461m contributing toward the US$620m net loss as it suffered from weakness in the global mining industry and is not confident of a recovery in the next 12 months.

Source: Thomson Reuters
African Resources update � Illegal mining in SA getting "out of control": Shabangu.

Mineral Resources Minister, Susan Shabangu, has said that there are about 6,000 people involved in illegal underground mining and another 8,000 in illegal surface mining, estimating that illegal mining in 2011subtracted about ZAR6bn from the countrys fiscus.

Shabangu recently met with local stakeholders, including unions, mining industry players, the police, and the Department of Home Affairs, aiming to establish a local illegal mining forum.

Source: MiningWeekly � NUM considering new strike at Northam (NHM SJ).

The National Union of Mineworkers (NUM) may strike at the Zondereinde mine as the union strongly objects to the appointment of former Impala Platinum (IMP SJ) executive Paul Dunne as the new CEO of NHM.

The mine was the scene of a prolonged 11 week strike earlier this year.

Source: Mining weekly � Guinea-Bissau delays elections to April 13th from March 16th following political consultations.

Soldiers seized power in April 2012, days before the second round of a presidential poll.

Elections have twice been postponed since November last year.

Source: Thomson Reuters � Todays African proverb.

"Something which stays still too long turns to stone".

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
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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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