🕐03.03.14 - 11:27 Uhr

INVESTEC GLOBAL NATURAL RESOURCES DAILY - MINING - MONDAY 3 MARCH - GEM LN, IMP
SJ, KGI LN, RMM LN, SBLM LN, COOL LN, VGMS LN, 2600 HK, 2899 HK, NGF AU



[cid:image001.png@01CF36B8.6B552BE0] Monday, 03 March 2014 [cid:image006.jpg@01CF36B8.791C3D90]
Snapshot � Company news highlights: Interim results from Gemfields, Weak interim results from Impala, more positive drilling from Kirkland, Rambler makes last payment to Sprott, positive PFS for Ramblers Nimba, interim loss from Continental, Vatukoula update on financing, small Chalco profit assisted by disposals, Zijin subsidiary Norton Gold Fields posts profit � Commodity review highlights: Indonesia may revise concentrate export taxes, gold up on Ukraine tensions, copper at 3m low on Chinese demand concerns, European coal down to $73.5/t � Other Economic News: Mixed readings from China PMIs, Panama Canal expansion financing closer due this week, Norges cuts 27 investments in gold and coal miners � African Resources Update: Tanzanian gold earnings down 18%, Todays African proverb � Market notes: FTSE futures -67.5 points.

Poor Chinese data combined with escalating tension between Ukraine and Russia are sending world-wide markets down strongly.

Whilst US markets are yet to feel the brunt, closing up on Friday (Dow +0.30%, S&P +0.28%), both futures are indicating the weakness in European will spread.

Asian markets are down as expected (Nikkei -1.27%, Hang Seng -1.34%, ASX200 -0.38%).

Official Chinese PMI data for Feb deteriorated further from 50.5 in Jan to 50.2, whilst still indicating an expansion, the pace is continuing to slow.

However the HSBC/Markit result was 48.5 indicating a 3rd monthly decline. Commodity markets - gold +1.61% $1,347.79/oz, silver +1.72% $21.5918/oz, platinum +0.43% $1,453.10/oz, copper -0.16%, $3.1685/lb, nickel +1.92% $14,699.00/t, iron ore +0.08% $118.10/t, thermal coal $77.55, WTI +1.21% $103.82/bbl, Brent +1.59% $110.80/bbl, zinc +0.70% $2,085.00/t.

Dual listed - BHP -2.55% A$37.40, RIO -1.57% A$65.79.

Natural gas prices rose for the second day as more winter storms in the US and the potential for a Russian invasion of the Ukraine would disrupt supplies further.

Gold is also benefiting from the tensions in the Ukraine as investors make a run for safe haven assets whilst copper slips further on Chinese manufacturing data. Economic data due today:- US - Jan personal spending (forecast 0.1%), Jan personal income 90.2%), ISM manufacturing (52.0), ISM prices paid (57.4), construction spending (-0.5%), domestic vehicle sales (11.90m), total vehicle sales (15.4m).

Eurozone - Feb PMI manufacturing - Italy (52.9), France (48.5), Germany (54.7), UK (56.8), EC (53.0).
Company News � Gemfields (GEM LN) interim results show revenue of US$65.7m (US$48m from Kagem mine), EBITDA of US$18m and net profit of US$1.4m (US$4.7m previous year).

Cash at the end of the period stood at US$14.8m with debt of US$8.8m.

The company also reduced its inventory position over the 6 months from US$76.3m to US$69.3m.

Emerald production from Kagem stood at 10.4m carats.

Gemfields also recovered 5.1m carats of rubies from Montepuez taking the total to 7m carats with a first auction due in the coming months.

Faberge revenues rose strongly YoY as Gemfields works on building up the business to generate profits and assist with marketing coloured stones.

Source: Company Investec View: Comparing the business YoY is not appropriate as Gemfields has undergone significant change in the time having taken on Faberge last year and started trial mining at Montepuez, hence despite stronger revenue and gross profit, earnings are down YoY.

The growth in US$/carat for high quality stones that is being achieved is encouraging and we look forward to developments across the portfolio and in particular the first ruby auction due this FY. � Weak interim results from Impala Platinum (IPM SJ).

1H14 HEPS were on the weak side.

While unit costs were well controlled on higher production (ca.

9%) sales volumes were 8% below production, leading to a gross profit margin decline to 11% from 17% in 1H13 and 16% in 2H13.

Even at normalised sales levels, gross profit margins of about 15-17% would be well below the recent (since 1H08) average of >30%.

Cash flow from operations fell from ZAR3bn to ZAR1.9bn and net debt rose by ZAR1bn from the 2013 fiscal year end level to ZAR4.2bn.

Source: Company, Investec Investec view: Implats faces a tough six months to its fiscal year end and full recovery from the strike is likely to take several quarters.

An already difficult profitability environment is exacerbated by labour strife and a difficult path back to meeting operating and capex targets once the strikes end.

A silver lining is the potential positive impact of reduced supply on PGM prices while under the circumstances Zimplats looks the better prospect compared to SA mines. � Kirkland Lake (KGI LN) announces further positive drilling results.

KGI has been undertaking underground drilling aimed at expanding the SMC mineralisation in the areas formerly held by Queenston, which KGI acquired in Aug12.

A new hole has identified high-grade mineralisation (1.1m intersection grading 354g/t) approximately a 150m step away from the last known drill hole.

Source: Company Investec view: More encouraging drilling results from the company, following the near surface drill results announced last week.

All of KGIs planned stope development for FY14E and FY15E is planned to take place predominantly in the SMC zone, and this result indicates that KGI is likely to keep mining the SMC well beyond this timeframe. � Rambler (RMM LN) makes final Sprott payment.

Rambler has announced a final C$1.0m payment to Sprott, thereby fully repaying the $10.0m credit facility ahead of schedule.

It ended February with cash of C$5.5m.

Source: Company � Sable Mining (SBLM LN) announces PFS and maiden reserve for Nimba.

Sable has announced a maiden reserve of 54mt at 61.6% Fe from the Aug13 resource of 136mt at 59.4%.

The PFS identifies a 3mtpa production rate at FOB costs of $44-49/t.

after capex just short of $300m (incl a $40m contingency).

The planned operation encompasses truck and shovel mining, on-site screening, road haulage to a rail transfer yard 65km away, with rail haulage to Port Buchanan.

The company expects to complete a BFS in the 2H14 and commence production from the start of 2016.

Source: Company � Continental Coal (COOL LN) interim results.

The company announced an EBIT loss of $3.7m (loss of $1.1m in 1H12A) and a net overall loss of $16.7m (loss of $7.3m in 1H12A).

COOL ended the period with cash of $4m and borrowings of $88m.

Subsequent to 1H14 COOL executed a term sheet Empire Equity to provide a $5m bridge funding.

As part of the agreement it has made payments to current creditors and negotiated a 3m standstill period, while making significant changes to board and management.

Source: Company � Vatukoula (VGMS LN) update on financing.

The company is implementing a$40m capital investment plan with Zhongrun International Mining, as announced in Aug13.

The $20m equity component was completed last year, while the $20m loan (secured notes) was due to be completed at the end of last month.

VGMS has announced a delay with Zhongrun awaiting approval from the Chinese State Administration of Foreign Exchange (SAFE).

Zhongrun expects the funds to be cleared this month.

Source: Company � Chalco (2600 HK) posts small profit in CY13 helped by disposals.

Chalco reported CY13 attributable earnings of CNY975m versus a loss of CNY8.23bn in CY12.

The result was helped by a c.

CNY2.7bn gain from the disposal of equity interests in aluminium fabrication entities and a c.

CNY5.4bn gain from the disposal a 65% equity interest in Chalco Iron Ore (Simandou).

Improved operating earnings were due to a 9% YoY reduction in alumina production costs and a 5% YoY reduction in aluminium production costs.

Source: Company Investec view: Reported earnings of CNY975m matched Chalcos profit warning on 13 January suggesting a headline profit of c.

CNY1.0bn but were considerably better than Bloomberg consensus forecasts of a CNY2.4bn loss, although it is unclear how consensus has accounted for the disposal gains.

Chalcos core aluminium operations remain unprofitable however, which we see little hope of changing without a recovery in the aluminium price, and the company would have been loss making without disposal gains. � Zijin (2899 HK) subsidiary Norton Gold Field (NGF AU) posts A$22.4m profit for CY13.

Norton Gold Fields reported an A$22.5m profit for CY13, substantially improving on the A$22.5m loss in CY12, as the company benefitted from improved production at its Paddington operations.

Norton also announced it had added to its gold hedges with 25koz to be delivered over the next year at a forward price of A$1,497/oz, bringing its total hedge book to 84.7koz at A$1,476/oz.

Source: Company Investec view: Nortons CY14 results are likely to be similar to CY13 based on Nortons guidance for 176koz-184koz gold in CY14, up from 172.7koz in CY13, at a C1 cash cost of A$870/oz-A$930/oz, better than the A$960/oz in CY13, and forward sales covering half of production at A$1,476/oz, slightly beneath the average realised price of A$1,496/oz in CY13.

Zijin has already reported CY13 preliminary results.
[cid:image007.png@01CF36B8.791C3D90]
Commodities News � Indonesia may revise mineral concentrate export taxes.

Indonesias Deputy Minister of Energy and Mineral Resources Susilo Siswoutomo told the Wall Street Journal that the country is considering reducing the export duty imposed on the export of mineral concentrates.

Source: Wall Street Journal Investec view: A revision to the recently imposed punitive taxes on the export of mineral concentrates has been hinted over the last week as a solution to the reduced production at Freeports (FCX US) Grasberg mine.

We believe that any rollback in the taxes will require companies to have credible plans to build in country smelting/upgrading capacity.

Copper concentrate exports from Grasberg and Newmonts (NEM US) Batu Hijau mine are most likely to resume in the near term in our view given the importance of the mines to Indonesias economy, potential for the companies to present credible smelting plans, involvement of relatively few companies, and legal avenues available to both companies given their mines are protected by Contracts of Work.

Bauxite and nickel ore exports are less likely to resume in our view given the fragmented nature of both industries and inability to present credible smelting/upgrading plans. � Gold prices up sharply this morning in response to political tensions as Ukraine mobilises for war after Russia seized Crimea where it has a naval base.

Speculative long positions are at levels last seen in mid-December 2012.

Physical demand for jewellery is not reported to be strong currently with premiums in Asia largely unchanged.

Source: Thomson Reuters � Copper prices at 3 month low in response to concerns over Chinese demand following economic data, as well as rising local stockpiles of the metal.

Source: Thomson Reuters � European physical coal prices stood at US$73.5/t at the end of last week.

Demand for the commodity has been weak due to the mild winter conditions.

Supplies are expected to increase as Drummond will soon start shipping again from its Colombian operations.

Source: Thomson Reuters
Other economic news � Mixed readings from China PMIs.

The final HSBC China manufacturing PMI settled at 48.5 in February, up slightly from the flash reading of 48.3 but down from the final reading for January of 49.5.

In contrast, the official government PMI was 50.2 for February, down from 50.5 in January and slightly ahead of consensus estimates for 50.1.

Source: Bloomberg Investec view: The PMI readings suggest that Chinese manufacturers are struggling but it should be noted that January and February data are noisy given Chinese New Year impact. � Panama Canal authority expects to sign financing deal this week to finish work on expanding the canal and ending a dispute on cost overruns for the project.

Work is expected to finish by December 2015.

Various parties have been disputing the US$1.6bn in extra costs to complete the project that was first expected to cost US$5.25bn.

Source: Thomson Reuters � Major sovereign wealth fund Norges with US$840bn under management has cut 27 investments in gold and coal miners and is reviewing the entire mining sector due to environmental concerns.

The fund owns around 1% of all global stocks.

Investments in the Basic Materials sector accounts for around 6.4% of its equities portfolio or around US$33bn.

The Norwegian government has said that it would separately set up a panel to examine whether the fund should quit oil, gas and coal firms due to their possible environmental impact.

Norges has however, been a big buyer of government debt in the last three months cashing in profits from its equity investments.

Source: Thomson Reuters Investec View: Such action is likely to be concerning for the mining industry, particularly if other sovereign wealth funds follow suit.
African Resources update � Tanzanias gold earnings were down 18.2% last year, undermined by lower output and prices.

The countrys is Africas fourth largest producer of gold and earned US$1.73bn from the metal in the year, accounting for 37.3% of total goods exported in 2013.

Source: Thomson Reuters � Todays African Proverb: "A baby goats tail sweeps where it sleeps".

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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