🕐12.03.14 - 09:54 Uhr

INVESTEC GLOBAL NATURAL RESOURCES DAILY - MINING - WEDNESDAY 12 MARCH - KIO SJ,
FXPO LN, KMR LN, HOC LN, WLFE LN, HUM LN, AMA LN, NEM US, PDN AU, 3788 HK, 1208 HK, 508 HK, ELM AU, IDC AU



[cid:image001.png@01CF3DCB.2EA4EE50] Wednesday, 12 March 2014 [cid:image006.jpg@01CF3DCB.68ECD280]
Snapshot � Company news highlights: Research note on Kumba and iron ore, FY13 results from Ferrexpo, Kenmare and Hochschild, Wolf Minerals in trading halt pending capital raising, Hummingbird increases Tuzon resource, Amara PEA for Yaore, Newmont sells Paladin stake, China Hanking increases resources, MMG CY13A profit, Shenhua issues first short-term debentures, update on Dingyis bid for Elemental, Indochine in trading halt pending capital raising � Commodity review highlights: China to change coal tax basis in 2014, China steel production lift, coppers collapse prompted by China bond default, platinum ETFs hit record high, Glencore believes iron ore near bottom � African Resources Update: SA current account deficit narrows, todays African proverb � Market notes: FTSE futures down 31.5 points this morning.

Taking a lead from the US (Dow -0.41%, S&P -0.51%) and Asia (Nikkei -2.59%, Hang Seng -1.56%, ASX200 -0.55%).

Chinese growth and the Ukrainian issues continue to linger in markets combined with the sharp sell-off in copper and emerging market currencies. Commodity markets - gold +0.66% $1,357.91/oz, silver +1.16% $21.0898/oz, platinum +0.53% $1,472.40/oz, copper +0.12%, $2.955.00/lb, nickel +0.62% $15,515.00/t, iron ore +0.19% $104.90/t, thermal coal $72.75, WTI -0.73% $99.29/bbl, Brent -0.48% $108.03/bbl, zinc -2.14% $1,990.00/t.

Dual listed - BHP +0.17% A$35.99, RIO +0.28% A$61.39.

Copper was the standout loser, as futures fell to lowest since July 2010.

JP Morgan has opined that it sees Chinese net copper imports coming "under considerable pressure" this year as domestic output rises 12.5% to 6.95Mt.

KME has stated there will be "panic" in the scrap market.

Iron ore was flat overnight at US$104.90/t, but the commentary remains fever pitch.

Baosteel has stated that the recent slump is "normal" and marked a return to its intrinsic value after years of inflation, with a price over US$100/t "a bit too high" Economic data due today: US - MBA mortgage applications.

Eurozone - Spanish CPI EU harmonised (forecast -0.2%), EC industrial production (0.5%).
Company News � Research note out on Kumba (KIO SJ) and iron ore.

For several years the market has acknowledged the risk of a Chinese demand slowdown and supply growth to drive prices lower.

This risk remains, and whether the current price fall is the beginning of the end or simply a seasonal correction remains to be seen.

For now we leave our recommendation unchanged.

It is also worth noting that in September 2012 when iron ore prices slumped to US$87/t, KIOs share price was US$55/share vs.

c.US$35/share today at an iron ore price of US$105/t.

This compares to unit cost growth of only around US$6/t for Kumba over the same period.

Source: Investec � Ferrexpo (FXPO LN) FY13 results.

FXPO has reported revenue of US$1581m, PBT of US$305m and EPS of 44.7c.

We were looking for revenue of US$1570m, PBT of US$307m and EPS of 42.8c.

Company compiled consensus estimated EPS of 42.4c.

The company reported a final dividend of 3.3c, plus a special dividend of 6.6c, taking the total FY13 DPS to 13.2c, twice that of the 6.6c which both our analyst and consensus were expecting.

Net debt at year end was US$639m, of which 63% had been used to finance outstanding VAT and pre-paid corporation tax.

Total liquidity was US$671m as of 31 December 2013.

The group highlights that the push to 12Mt of iron ore capacity during 2014 should result in reduced costs, which should also benefit from the weaker local currency which, although theoretically pegged, has weakened by 16% so far in 2014.

Source: Company Investec view: All in all, FXPO has delivered a positive set of results.

In terms of the concentrator at FYM, there is some commentary on the fact that the group finalised the design for the 10Mt/year concentrator during the year.

Studies are ongoing as to transportation and pelletising options and we may get more detail on the likelihood of the group pushing ahead with an expansion in the analyst meeting.

However, the company may want to see a clearer outlook for Ukraine, and in particular a solution to the VAT issues, before committing to significant additional capital expenditure. � Kenmare (KMR LN) FY13A results.

The results highlight a significant fall in earnings from the previous year, with EBITDA of $29m (down from $99m in FY12A) for a reported loss of $44.1m ($49.5m profit in FY12A).

Net cash from operating activities was $1.4m ($98.8m in F12A).

The weak result in attributed to a combination weaker market conditions and inconsistent power supply in Mozambique.

The company raised $106m equity back in Oct13 and in Feb14 restructured its debt repayment profile, deferring most repayment of a subordinated $143m balance to the latter part of the decade.

Source: Company Investec view: FY13A was a challenging year for the company and it did well to strengthen its balance sheet to better withstand lacklustre market conditions until global demand picks up.

It is, however, very much reliant on such a recovery. � Hochschild Mining (HOC LN) preliminary results for FY13 sees revenues fall 24% yoy to US$622m leading to adjusted EBITDA of US$195.5m down 49% yoy and EPS of -15cps pre exceptionals and -36cps that incorporated a US$90.7m impairment.

Cash at the end of the period stood at US$291m against debt of US$436m.

Debt included US$115m of FY14 convertible notes and a US$266m syndicated loan with effective interest of 25.26%.

The company has since concluded a US$350m bond refinancing due 2021 with a 7.75% coupon.

Cash flow optimisation work continues with US$145m of savings delivered leading to all in sustaining costs down 14% yoy to US$18.6/oz for main operations, with 20.5moz Ageq produced.

For FY14 the company aims to produce 21moz Ageq with 2moz sold forward at US$22/oz with some small cost reductions hoped for.

Sustaining capex estimated at US$130m and exploration of US$30m.

Source: Company Investec View: A grim set of results as the company has had to adjust to weaker gold and silver prices (30% yoy drop in realised silver price) whilst still pursuing significant capital spend to grow its asset base, and refinance debt facilities.

HOC is focussing on delivering its Inmaculada project to be commissioned at the end of this year. � Wolf Minerals (WLFE LN) trading halt announcement.

WLFE has announced that trading of its shares have been halted in Australia until 14 March 2014 due to a proposed capital raising.

Source: Company � Hummingbird Resources (HUM LN) increases resource inventory at Tuzon to 2.0moz at 1.5g/t Au indicated using a US$1,500/oz gold price with a further 435koz at 1.32g/t inferred.

Within the indicated resource there is a higher grade 1.054moz at 1.72g/t Au.

At a US$1,200/oz pit shell and 0.5g/t cut off the indicated resource falls to 1.879moz at 1.56g/t with the higher grade portion remaining largely unchanged.

This takes the companys total indicated inventory to 4.2moz.

HUM is in the process of being paid US$5m as part of its royalty agreement with Anglo Pacific Group, taking total cash to US$10m that will be sufficient to fund the DFS.

Source: Company Investec View: The increase was material and we await new economic numbers to better ascertain the economics of the project.

The higher grade zone that has been delineated is encouraging, and we wait to see whether this can be selectively mined as a starter pit to strengthen project economics. � Amara Mining (AMA LN) PEA for Yaoure project reflects an IRR of 32% and post-tax NPV of US$688m at US$1,250/oz, or US$406m at US$1,100/oz, for a capex of US$408m including US$92m for owner operator fleet.

Annual production is forecast at 325kozpa over a 12 year mine life from a 4.2moz open pit at an average life of mine cash cost of US$655/oz or US$691/oz all in sustaining.

The company sees potential to improve the economics of the project that it is currently investigating.

The PEA is based largely on inferred resources, so infill drilling is required to give greater confidence in the potential.

The mine plan would process 8mtpa of ore at an average grade of 1.39g/t at a 94.6% recovery rate and a 5.2:1 strip ratio.

Source: Company Investec View: The PEA is a positive development, delineating a sizeable gold project, and the economics are impressive for the low grade and reasonable strip ratio, we note the relatively low processing costs of US$9.9/t that will assist with this.

The company also has its Baomahun project to advance.

Therefore, to finance these projects, it may have to sell stakes or one of the projects in entirety to allow it to advance.

We also look toward staged development routes that will lower the initial capex requirements at both assets � Newmont Mining (NEM US) continues non-core divestments.

NEM has confirmed that it has sold its 5.4% stake in Paladin (PDN AU) via a block sale this morning.

The stake was acquired following the takeover of Fronteer Gold (FRG US) in 2011.

The stock crossed at A$0.525/share and the company expects to net $24m cash from the sale.

Source: Company � China Hanking (3788 HK) increases JORC gold resources.

Following a drill program at the Frasers South gold deposits, part of the Southern Cross Operation, China Hanking has increased gold resources by 99koz to 2.5moz contained gold.

Source: Company Investec view: China Hanking acquired 100% of the Southern Cross Operations from St Barbara (SBM AU) in April 2013 for A$18m.

Since the acquisition China Hanking has focused on consolidating the assets, maintenance of facilities and mine planning. � MMG Ltd (1208 HK) announces CY13 attributable profit of US$103.3m.

MMG Ltd reported CY13 attributable profit of US$103.3m, better than our analysts forecast US$74.4m profit.

The company declared an A$0.01/share final dividend which was unexpected.

Source: Company Investec view: The result was positive with cash costs lower than our analysts forecast and a dividend representing a 51% payout ratio.

The company has already provided CY14 production and cost guidance so there was little read through for future periods.

The company may comment further on its speculated bid for Las Bambas and development of Dugald River at the analyst briefing later today. � Shenhua (1088 HK) issues first tranche of super short-term debentures.

Shenhua has issued CNY5bn of super short-term debentures.

The debt has maturity of 270 days with principle and interest paid on maturity on 5 December 2014.

The coupon is SHIBOR9M + 10bp (5.10%).

Proceeds will be used to supplement working capital.

Source: Company � Update on the Dingyi Group (508 HK) bid for Elemental Minerals (ELM AU).

Dingyi held a hearing with the Stock Exchange of Hong Kong (SEHK) over the SEHKs decision to classify Dingyis bid for Elemental as a reverse takeover.

The hearing was confidential but Dingyi expects a written decision in the short-term.

Source: Company Investec view: Elemental, owner of the Sintoukola potash project in the Republic of Congo, continues to trade at a substantial 56% discount to the A$0.66/share offer by Dingyi suggesting the market still has little confidence in the deal completing. � Indochine Mining (IDC AU) is in a trading halt pending an announcement on a capital raising.

Indochine Mining is in a trading halt pending the release of an announcement concerning a capital raising.

Source: Company Investec view: Indochine is working towards a decision to mine at its Mt Kare project in PNG by mid-2014.

The company previously disclosed that it was aggressively pursuing a range of funding options including short and long-term debt in conjunction with a possible share placement.

The company last raised capital of A$6m at A$0.07/share in October 2013 in a 2 for 5 non-renounceable rights issue.

The company had cash of A$0.5m as at 31 December 2013.
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Commodities News � China to change coal tax basis in 2014.

China will reportedly change the tax on coal from a volume to a price basis this year according to Chinas State Taxation Administration.

Coal taxes will reportedly be set at 2-10% of revenue, a significant increase from the CNY2-8/t currently.

Source: The Economic Times Investec view: Any increase in taxes will put further pressure on Chinas already struggling coal producers. � China steel production increases in late February 2014.

The China Iron and Steel Association (CISA) reported average daily steel production of 2.0817mt (759.8mt annualized) in the last 10 days of February, a 5.86% increase compared to mid-February.

Source: Steel Orbis � Coppers recent collapse prompted by Chinas first domestic bond default raising concerns over financing deals that have been concluded against copper inventories bought up to use as collateral.

If loans are not renewed, financing deals could unravel leading to copper inventories being dumped onto the market.

Shanghai warehouse inventories are up 65% since early January at 200kt with estimates of a further 745kt of metal held in bonded warehouses.

Source: Thomson Reuters Investec View: Clearly a challenging time for copper markets with metal plentiful, the threat of inventory unwinding, rising supplies, and muted demand growth from China. � Platinum ETF holdings hit record high this week as continued strike action in South Africa prompts speculators to buy up the metal.

Major South African ETF Newplat that only started last April now has holdings of 909koz Pt.

Source: Thomson Reuters Investec View: With strike action continuing at the South African platinum majors and all parties far from reaching an agreement it seems unlikely that a resolution will be coming any time soon.

It looks increasingly likely that platinum prices will rise sharply if the strike isnt soon resolved since the affected producers are likely to be close to running out of inventory by the end of the month.

Inventory holders such as catalyst recyclers and elsewhere may well sit on holdings reducing supplies as they expect price increases. � Glencore (GLEN LN) trader believes iron ore close to bottom.

A company trader has stated that it believes that iron ore is now close to a bottom and should start to rebound in mid-to-late March on seasonal return of construction activity.

Source Bloomberg Investec view.

March can traditionally be a volatile period for iron ore as mills run down the stocks they acquired prior to the Chinese New year and as traders build up stocks in anticipation of restocking.

Tightened Chinese credit controls have hampered some of the trading activity but the impact of this may be overstated.

Whatever the case, spot iron ore of $105/t (62% fines, CFR China) has some recovering to do to meet the consensus average for 1H14E of $125/t.
African Resources update � South Africas current account deficit narrows in the 4Q.

The deficit on the current account narrowed to 5.1% of GDP from a revised 6.4% in the 3Q, Reserve Bank data showed.

Consensus had been forecasting 5.5% of GDP.

Source: Business Day � Todays African proverb.

"Dogs do not actually prefer bones to meat; its just that no-one ever gives them meat." Source: BBC
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