🕐10.03.14 - 09:27 Uhr

INVESTEC GLOBAL NATURAL RESOURCES DAILY - MINING - MONDAY 10 MARCH - GEM LN, CLF
US, CZA LN, KGI LN, HOT GR, 486 HK



[cid:image001.png@01CF3C38.516EBA40] Monday, 10 March 2014 [cid:image006.jpg@01CF3C38.51BFC070]
Snapshot � Company news highlights: Gemfields research note, Cliffs fights activist investor, Coal of African H1 results, encouraging Kirkland Lake drilling results, Hochtief to make proportional offer for Leighton Holdings, Rusal refinances bank debt. � Commodity review highlights: Iron ore and copper prices fall, gold speculative longs increase, Chinese iron ore imports, European coal prices under pressure � Other Economic News: Weak Chinese trade data � African Resources Update: Guinean committee recommends stripping BSGR and Vale of Simandou, Areva advances negotiations with Niger government, Eskom output continues to be threatened by heavy rains, todays African Proverb � Market notes: FTSE futures off 36 points this morning.

Despite a flat close to US markets on Friday (Dow +0.19%, S&P +0.05%) thanks to a far better than anticipated non farms payroll print, European markets are set to follow heavy falls in Asian markets this morning (Nikkei -1.01%, Hang Sang -1.78%, ASX200 -0.93%).

Chinese export data over the weekend unexpectedly tumbled 18% last month, swinging the trade deficit to $22.98bn whilst inflation rose 2% in February, down from 2.5% in Jan, signalling further reducing demand.

Closer to home, the Ukraine/Russian situation is back at the forefront of investors concerns as Russian soldiers reportedly attacked the Chenomorske border post, detaining Ukrainian border guards.

Putin has defended his actions to defend Crimea which he claims are aimed at guaranteeing the legitimate interest of the peninsulas population. Commodity markets - gold -0.61% $1,332/oz, silver -1.15% $20.70/oz, platinum -1.08% $1,468/oz, copper -1.77%, $303c/lb, nickel -1.15% $15,268/t, iron ore -2.31% $114.20/t, thermal coal $74.45, WTI -1.12% $101.43/bbl, Brent -0.89% $108.03/bbl, zinc -2.47% $2,055/t.

Dual listed - BHP -4.14% A$36.16, RIO -5.76% A$61.20.

Friday afternoon saw sharp falls in commodity prices, from copper and iron ore to gold.

Despite the rising tensions between Russian and the Ukraine gold remains weaker this morning following Fridays positive non-farms print.

Investors are particularly cautious copper (off ~6% since Friday) with concerns around the first corporate bond default and poor trade data.

Rebar prices in Shanghai sell 2.5% to 3,253 Yuan/t with iron ore officially moving into a bear market with a 20% falls in the benchmark price since Aug last year following the 2.3% slip on Friday (to US$114.20/t). Economic data due today: US - No data.

Eurozone - French industrial production (forecast 0.3% MoM), French manufacturing production (0.3% MoM), Italian industrial production (0.5% MoM), EC Sentix investor confidence (14.0).
Company News � Gemfields (GEM LN) research note updating valuation following recent interims and guidance on production profile.

Management continues to evolve its business as highlighted by the interim figures that reflect the integration of the Faberge business as well as progressing the mining asset base comprising the operating Kagem mine, the Montepuez ruby mine and other precious stone assets.

We have adjusted our modelled mine plan at Kagem and sales mix of stones to reflect the higher values being achieved.

Key value driver going forward will be the Montepuez ruby mine and we await first auction due in the next 2-3 months that will give an indication of possible value to be unlocked from this asset.

The stock has performed well up 60% since we initiated last August with considerable potential that should become clearer in the months ahead.

Source: Investec � Cliffs Natural Resources (CLF US) sees tensions rise after activist shareholder Casablanca Capital (5.2% stake) rejects offer to end a proxy battle to win control of the board.

Casablanca wants the CEO removed and the company to spin off its riskier assets from cash generating US assets, as well as nominating 6 directors for the 11 member board.

Cliffs offered the group two board seats and a third mutually agreed.

The companys shares are down 81% in just over 2.5 years.

Source: Thomson Reuters � Coal of Africa (CZA LN) H1 FY14 results.

CZA has reported a loss of US$46m, or 4.42c/share, against the EPS of -1.3c which we were looking for.

Key P&L items in this result included a US$16.5m impairment at Mooiplaats and a foreign exchange loss of US$12.6m.

The group ended December with US$4m in cash and short term debt of US$9m.

CZA has ZAR103m of its Investec facility undrawn.

The company has completed its studies on the Vele plant modification requirements and believes it will cost c.US$43m to complete the work, which should be funded by a combination of debt and equity.

CZA is in discussions with South African financial institutions and expects financing plans to be agreed before the end of March 2014.

Source: Company Investec view: CZA has made good progress with its turnaround strategy in the last twelve months, having concentrated on selling non-core assets and closing down loss making operations.

The company has significant latent value in its Vele and Makhado coal projects, with financing being the key hurdle for the company to overcome in the near term.

The commentary in todays report clearly shows that this is work in progress. � Kirkland Lake Gold (KGI LN) drilling results.

KGI has released the results of additional near surface drilling on the South Claims Property.

Encouraging intersections are as follows: 5.54oz/t over 1ft from 680ft below the surface, 0.67oz/t over 5ft and 5.18oz/t over 1.1ft of core from 450m below surface.

Source: Company Investec view: These drilling results continue to be very encouraging and highlight the potential for a meaningful near-surface resource which could be mined.

The group expects to input the results of this recent drilling work into an updated resource estimate which should be released in the next few months. � Hochtief (HOT GR) announces intention to make a proportional offer for Leighton Holdings (LEI AU).

Hochtief, which already holds a 58.77% interest in Leighton, has announced its intention to make a conditional, proportional, off-market offer to acquire 3 out of 8 shares held by Leighton shareholders for A$22.15/share in cash.

The offer represents an 18.8% premium to the dividend adjusted 5 day volume weighted average price of A$18.65/share.

If all shareholders accept the offer Hochtief will increase its interest in Leighton to 74.23% at a cost of A$1.155bn.

The offer is subject to Australian Foreign Investment Review Board (FIRB) approval.

Source: Company Investec view: Whilst Hochtief has said it sees benefits in Leighton maintaining an Australian listing and head office, it believes existing Leighton businesses can be more efficiently structured.

The Leighton share price opened above the Hochtief offer. � Rusal (486 HK) refinances bank debt.

Rusal has reached an agreement with Sberbank to extend the duration and modify terms of existing bank facilities totalling US$5.0bn plus RUB21bn.

Interest on the new US$ debt will be 1-year LIBOR + 4.2% cash + 1.25% payment-in-kind until September 2016 and 3-month LIBOR + 4.7% cash + 1.05% payment-in-kind thereafter with first principal repayments delayed until the sixth year of the loan.

Source: Company Investec view: We expect shareholders will be comforted by the refinancing as it removes the need for additional covenant holidays and the new terms will likely be earnings neutral but cashflow positive given the payment-in-kind component.

The old US$ Sberbank debt was due in 2016 and accrued interest at a rate of 1-year LIBOR + 4.5% + supplemental margin of up to 1.4% depending on the companys leverage ratio.
[cid:image007.png@01CF3C38.51BFC070]
Commodities News � Iron ore and copper prices take a tumble.

Spot iron ore prices fell on Friday from US$116.90/t (62% Fe, CFR China, dry) to US$114.20/t.

Copper also fell sharply with spot LME copper prices falling 3.7% from US$7,067/t to US$6,805/t.

Chinese futures price movements were also negative and in early trading on Monday a number of commodity futures were locked limit down as iron ore fell 4% on the Dalian exchange and copper dropped 5% in Shanghai trading.

Source: Bloomberg Investec view: See our recent report Spot iron ore becoming oversold but too early to be bullish dated 4 March 2014. � Speculative position in gold prices rising are increasing according to data from the Commodity Futures Trading Commission.

Concerns over military tensions in the Ukraine triggered the rally in the metal, although there was some price reversal on Friday in response to strong US jobs data.

Furthermore the recent price rally appears to be depressing jewelry demand in Asia, in particular China where gold were trading at a 5-6% discount to spot prices.

Source: Thomson Reuters � China imports 61.2mt of iron ore in February.

China reported it had imported 61.2mt of iron ore in February, down 21.9% MoM but up 8.5% YoY on an annualised basis.

Combining January and February, which would remove Chinese New Year distortions, saw iron ore imports of 148.1mt in 2014, up 21.4% YoY.

Source: Bloomberg � European coal price continue to come under pressure as warmer spring weather reduces demand and the outlook for supplies improve as Drummond is set to resume exports from Colombia.

Spot prices were reported at around US$72.35/t on Friday in Europe.

South African prices are also under pressure down 70c on Friday to US$76.5/t as power supplies improved following rolling outages earlier in the week.

The outages were partly a consequence of heavy rain soaked coal stockpiles at power stations.

Source: Thomson Reuters
Other economic news � Weak Chinese February 2014 trade data.

China reported a trade deficit of US$23bn in February versus an US$32bn surplus in January following an 18% YoY fall in exports and imports that remained stable with a 10% YoY increase.

Market expectations had been for a c.

7% increase in exports and an 8% increase in imports.

Inflation fell to a 13-month low with consumer prices rising just 2% YoY.

Source: Bloomberg Investec view: The extent of the miss is being partly attributed to distortions in the data due to fake trade invoices as well as the timing of Chinese New Year which started in late January and extended into the first week in February.
African Resources update � Guinean technical committee recommends stripping BSGR and Vale of rights to exploit Simandou.

Vale has reportedly spent US$1bn on the JV that it risks losing.

The committee alleges that BSGR used corrupt practices to secure the concessions in 2008.

It sold 51% of the assets to Vale in 2010 when it formed the JV.

BSGR has denied the allegations.

Source: Thomson Reuters � Areva (AREVA FP) moves forward on negotiations with Niger government on new contracts to mine uranium.

The government is trying to raise royalties that Areva state would make its business unprofitable.

The company anticipates a solution in the near future.

Source: Thomson Reuters � South African state power company Eskom remains vulnerable to supply shocks as a consequence of heavy rains falling on coal stockpiles principally at Kendal that led to conveyors being blocked and shutting down four power units as well as difficulties at other operations.

Last week the company implemented rolling blackouts, and indicates that 1,500MW could still be interrupted.

Eskom called on some 2,000MW from BHPs aluminium smelters, and was spared 400MW from the Platinum sector that remains on strike.

Source: Mining MX � Todays Africa proverb: "Living by the lakeside doesnt mean plates full of fish".

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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