🕐05.03.14 - 10:54 Uhr

INVESTEC GLOBAL NATURAL RESOURCES DAILY - MINING - WEDNESDAY 5 MARCH - FXPO LN,
BLT LN, ABX CN, GEMD LN, OSK CN, SNR LN, 893 HK, CLA AU



[cid:image001.png@01CF3849.780930B0] Wednesday, 05 March 2014 [cid:image006.jpg@01CF3849.786D49B0]
Snapshot � Company news highlights: Ferrexpo results preview, BHP Billiton defends coal as power source, Barrick Gold states that it is not looking to hedge, Gem Diamonds sells two exceptional diamonds, Osisko drops lawsuit against Goldcorp, SNR financing update, China VTM update on Baicao mine, Celsius Coal signs MOU with two Chinese customers. � Commodity review highlights: Spot iron ore oversold but too early to be bullish, Glencore optimistic on zinc market, Jiangxi copper sees Chinese demand growth at 7.5%, gold prices stable overnight, Indias gold industry may strike, Chinese aluminium smelters to close further capacity, European physical coal prices slip � Other Economic News: Chinas National Peoples congress kicks off, Mongolia may lift ban on new exploration permits, steel and grain exports continue to flow from Ukraine � African Resources Update: Perception of SA as a mining jurisdiction improves slightly, AMCU revises wage demands, todays African proverb. � Market notes: FTSE futures down 7 points this morning with markets taking a breather following yesterdays sharp rally follow signals from the Russian president that the crisis in the Ukraine would not be escalated.

Markets will return their focus back to the global economy, focusing to ECB and BOE announcements tomorrow with further speculation that Draghi will loosen lending conditions given inflation is well below the target of 2%.

US markets closed up (Dow +1.41%, S&P +1.53%), Asia is following suit (Nikkei +1.20%, Hang Seng -0.31%, ASX200 +0.85%). Commodity markets - gold +0.04% $1,335/oz, silver +0.13% $21.20/oz, platinum -0.05% $1,4630/oz, copper +0.12% $3.22/lb, nickel +2.86% $15,128/t, iron ore -0.76% $116.80/t, thermal coal $76.10, WTI +0.01% $103.33/bbl, Brent -0.21% $109.07/bbl, zinc +2.44% $2,133/t.

Dual listed - BHP +1.18% A$37.36, RIO -1.55% A$64.81.

Base metals bounced back overnight as China retains its economic growth target (7.5%) for 2014, surprising commentators who were expecting a fall to 7.3%.

Gold trades sideways as tensions in Ukraine continue to subside. Economic data due today: US - ADP employment change (forecast 155K), ISM non-manufacturing composite (53.5).

Eurozone - PMI services - Italy, France, Germany, UK, EC (Forecasts 49.9, 46.9, 55.4, 58.0, 51.7), EC PMI composite (52.7), EC GDP QoQ (0.3%), EC retail sales (0.8%).
Company News � Ferrexpo (FXPO LN) Investec research published.

Ferrexpo is due to report its FY13E results on Wednesday 12 March and our analyst estimates that the group will report EPS for the full year of 43cps.

We are looking for a 3.3cps final dividend, bringing the total for the full year to 6.6cps.

While the Ukraine political uncertainty has adversely affected Ferrexpos share price, a sustainable weakening of the Ukraine Hryvnia is looking an increasingly likely outcome and this would have a positive effect on the companys costs.

A worsening economic situation could also precipitate a refinancing package which could see Ferrexpo being repaid at least some of the c.US$300m which it is owed in VAT.

However, continued political unrest is likely to delay a long term economic solution for the struggling country.

Ferrexpo exports its iron ore from its port to the west of Odessa, about 200 miles from Sevastopol.

Source: Investec � BHP Billiton (BLT LN) defends coal as a power source: Speaking at a CERAweek conference in the US, BH CEO Andrew Mackenzie, stated that coal and fossil fuels will remain central to the global energy mix, given their affordability and availability.

The company expects that by 2030 over 70% of the worlds energy will be supplied by oil, gas and coal.

While gas is expected to show the strongest growth.

BHP does not expect to see gas replace coal globally at the scale and pace as seen in the US.

Source: Company, MiningNews Investec view: BHPs warnings against the ban on fossil fuel investment, stating that it would seriously slow global economic growth, come as the Norwegian government has decides to investigate whether Norges, the 3rd largest shareholder in BHP Billiton, should be banned from investing in coal, oil and gas.

Ironic, given the source of Norways sovereign wealth. � Barrick Gold (ABX CN) states that it is not looking to hedge gold as it anticipates a sharp increase in the coming years.

The company also does not wish to undermine the exposure to gold prices which its investors may be seeking.

Source: Thomson Reuters � Gem Diamonds (GEMD LN) sells two exceptional diamonds which it recently recovered.

The 162ct stone sold for US$11.1m (US$69,000/ct) while the 161ct stone sold for US$2.4m (US$15,000/ct).

Source: Company Investec view: While one stone was clearly considerably higher quality than the other, the price achieved for both stones was much higher than the average for Letseng, which was US$2,500/ct in Q4 FY13).

Letseng consistently produces stones which are of much higher value per carat than other mines.

Revenue from these stones falls straight down to the PBT line and should therefore materially boost earnings. � Osisko (OSK CN) drops lawsuit against Goldcorp (GG US) as hostile bid is deferred.

Osisko had filed the suit in the Quebec Superior Court, arguing Goldcorp had misused confidential data from previous talks to then pursue a C$3.0bn hostile bid.

Goldcorp is now to put its offer on hold, while Osisko has agreed to waive its shareholder-rights plan and allow Goldcorp full access for due diligence, which could open the way for an increase to the bid.

Osisko and Goldcorp have held negotiations about a transaction at various times since 2008.

Source: MineWeb � Strategic Natural Resources (SNR LN) update on financing with talks continuing with strategic investor to recapitalise the company.

The companys rolling stock provider has commenced legal proceedings against the company to repossess the containers currently rented by the company.

Discussions are underway with the SNRs principal lender as well.

Source: Company � China VTM Mining (893 HK) announces that niobium and tantalum uneconomic at the Baicao mine.

After extensive exploration and test work since July 2013, China VTM has announced that the extraction of niobium and tantalum from its Baicao mine in Sichuan province would be uneconomic.

Source: Company Investec view: China VTM will continue to mine titanomagnetite at its Baicao mine which has nameplate capacity of 700ktpa concentrate, although historically production has been lower.

The company expects earnings in JunH14 to be substantially lower than the CNY125.9m attributable earnings reported in JunH13. � Celsius Coal (CLA AU) signs MOU with two Chinese customers.

Celsius Coal, owner of coking/thermal coal deposits in the Kyrgyz Republic, has signed a non-binding memorandum of understanding (MOU) with China Minmetals and Bayi Steel (a division of Baosteel) to facilitate trial shipments of coking coal for metallurgical testing and validation of logistics routes.

The MOU also covers the potential to deliver up to 500ktpa of coking coal between 2015-2019.

Source: Company Investec view: The MOU is a positive for Celsius Coal, who is looking at a small 500-600ktpa starter mine at the Kokia/Kargasha deposit.

Project development could be as quick as 10 months with initial capex of just US$20m-US$25m.

Initial coal test work indicates reasonable specifications and a 1/3 coking coal/gas coal product under the Chinese classification.

The downside remains distance to market and potentially low realised prices.

Mongolia Energy Corporation (276 HK) also signed an off-take agreement with Bayi Steel, but that did not help the companys realised prices or project economics/success.
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Commodities News � Spot iron ore becoming oversold but too early to be bullish.

Our iron ore timing model triggered a SHORT signal for spot iron ore in August 2013 and the spot price (62% Fe, CFR China) has subsequently fallen to USD117.7/t, down 17.6% from its peak of USD142.8/t.

We remain cautious on the outlook for iron ore prices (and equities) in the near-term given the risk of further price falls should high port inventories and ongoing negative price momentum lead to a destocking cycle.

We will only look to turn bullish with a LONG signal once spot price momentum turns positive, although our model suggests iron ore is already oversold.

Source: Investec Investec view: Our model suggests that there is not a compelling case to buy iron ore equities right now, given the downside scenario that equities catch up to the fall in the spot iron ore price, a situation that could be compounded by record iron ore inventories at Chinese ports (102.7mt currently), keeping prices lower for longer.

The most positive scenario for iron ore equities would be rapid restocking into the spring construction period in China, but we think investors can afford to wait for spot price momentum to change first.

See our report Spot iron ore becoming oversold but too early to be bullish dated 4 March 2014. � Bullish comments from Glencore Xstrata (GLEN LN) on the outlook for the zinc market.

Glencore made some bullish comments on the zinc market outlook in their preliminary financial results presentation yesterday - "The much anticipated tightening of zinc mine supply is starting to materialise." Glencore commented that there was a zinc metal deficit in 2013, the first in five years, and that there was insufficient new mine supply to replace closures (Brunswick/Perseverance in 2013, Century in 2015 and Skorpion in 2016).

Whilst Glencore sees Chinese mine supply as the deciding factor, Glencore believes that inefficient mines with declining grades within a fragmented industry will offer few upside supply surprises.

Source: Company Investec view: Within Investecs coverage universe China Polymetallic Mining (2133 HK) and MMG Ltd (1208 HK) are potential beneficiaries in a rising zinc price environment.

See our report Chinas zinc advantage dated 18 June 2013. � Jiangxi Copper (358 HK) sees China copper demand growth at 7.5% in 2014.

Jiangxi Copper Chairman Li Baomin said he expects Chinas copper demand to grow by 7.5% in 2014, in line with the countrys GDP growth target, with a moderate supply surplus and prices to average US$7,100/t (US$3.22/lb) for the year.

Source: Bloomberg � Gold prices largely unchanged over night following sharp drop yesterday as fears over military action by Russian and Ukraine eased as Putin said he would only use force in the Ukraine as a last resort.

Indications of physical demand in China are not overly positive as premiums have eased, and higher prices have put off buyers following the Lunar New Year.

Source: Thomson Reuters � Indias gold industry on strike.

India Bullion and Jewellers Association has asked Indias entire gold industry, from bullion dealers to jewellers, to strike for one day next week in protest over the government efforts to control smuggling, as moves to curb imports fuel illicit trade in the worlds second largest market for gold.

Source: FT � Chinese aluminium smelters to shut around 2mt of capacity to limit losses as prices fall with the government pushing to slash over capacity.

Already this year Chinese capacity has been reduced by around 400-500ktpa.

Idle capacity could expend to 2mt in H2 of this year.

Source: Thomson Reuters � European physical coal prices slip US$1/t since the start of the week to US$74.2/t yesterday as fears of gas supply cuts from Russia ease undermining the appeal of coal as an alternative power supply.

Source: Thomson Reuters
Other economic news � Chinas National Peoples Congress kicks off.

Reports submitted to the annual National Peoples Congress (NPC) indicate that the Chinese governments economic targets for 2014 include GDP growth of c.

7.5%, CPI inflation of 3.5%, M2 money growth of 13%, fixed asset investment growth of 17.5%, retail sales growth of 14.5%, and a government budget deficit of 2.1% of GDP.

Initiatives announced include creating a bank deposit insurance system, rationalisation of 27mtpa of outdated/polluting steel capacity and further CNY exchange rate reforms.

Source: Bloomberg Investec view: There havent been any big surprises out of the NPC so far with the GDP growth target of c.

7.5% equal to expectations and policy initiatives incremental in nature.

The fixed asset investment growth target of 17.5% is beneath the 2013 growth level of 19.6% but is larger on an absolute basis given the higher starting base and we believe is fairly supportive for steel and cement demand. � Mongolia may lift ban on new exploration permits.

According to Mongolias mines minister, a moratorium on new mining exploration licenses in Mongolia could be lifted during the spring session of parliament.

The ban has been in place since June 2010 and has left many projects in limbo.

The country is trying to attract foreign investment again after a slump last year.

Source: Reuters � Steel and grain exports continue to flow from Ukraine via Black Sea terminals with ports operating normal schedules, having shipped 22.7mt of various cargoes since the start of the year, in line with that achieved last year.

Source: Thomson Reuters
African Resources update � Perception of SAs mining framework slightly improved: Fraser Institute.

The annual survey of mining and exploration companies has resulted in SA achieving a policy perception index (PPI) score of 39.8 and a ranking of 64/112, as opposed to a score of 35 and a ranking of 64/96 in the previous years survey.

Botswana remained the highest ranked African jurisdiction with a PPI of 74.2 and a ranking of 25, albeit down from last years score of 78.1 and ranking of 17.

Source: MiningWeekly � In a major step, South African union AMCU has said that it has revised wage demands as strike action continues and the various parties have yet to reach agreement.

AMCU president told a briefing that it would be willing to accept the sought for wage increase of ZAR12,500/month for entry level workers to be reached in three years time, versus a demand that the increase be immediate.

However, both sides of the wage negotiations remain far apart.

AMCU is planning a protest march tomorrow.

Source: Thomson Reuters Investec View: The saga continues with inventories at producers and in the pipeline cushioning the impact of the disruptions leading to underwhelming price performance in platinum. � Todays African proverb.

"If there are no cracks in the wall, the lizard wont be able to get in".

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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