🕐18.03.14 - 10:00 Uhr

FW: INVESTEC GLOBAL NATURAL RESOURCES DAILY - MINING - TUESDAY 18 MARCH - ANTO L
N, GEMD LN, AUE LN, GLEN LN, 1208 HK, 508 HK, ALM AU, KCN AU, 893 HK, AMS SJ



[cid:image001.png@01CF4281.7CD8EF80] Tuesday, 18 March 2014 [cid:image006.jpg@01CF4281.88875A60]
Snapshot ¢ Company news highlights: Dividend surprise from Antofagasta, positive FY13A results from Gem Diamonds, Aureus progress update on New Liberty, Las Bambas sale could be imminent, Elemental bid lapses, Kingsgate capital raising, China VTM CY13 results ¢ Commodity review highlights: Newcastle thermal coal price at 2009 lows ¢ Other Economic News: Chinese property developer collapses, US factory output rises, unexpected positive from China’s bond default ¢ African Resources Update: AMCU to march on Amplats office today, Chinese companies win Transnet tenders, Today’s African proverb ¢ Market notes: FTSE futures off 14 points this morning.

Following a strong run in the US (Dow +1.13%, S&P +0.96%) and Asian markets following suit (Nikkei +0.94%, Hang Seng +0.34%, ASX200 +0.51%).

London is expected to open down this morning despite positive cues from Asia as the sanctions imposed on Ukrainian and Russian leaders weren’t as bad as originally feared however cautious is expected particularly in conjunction with the 2 day FOMC meeting commencing today with an announcement tomorrow.

Markets are still expecting a $10bn cut in the bond buying program and Janet Yellan’s commentary will be key. Commodity markets – gold -0.54% $1,359.77/oz, silver -0.86% $21.00/oz, platinum -0.57% $1,460/oz, copper +0.70%, $2.973/lb, nickel +0.91% $15,860.00/t, iron ore -0.45% $109.60/t, thermal coal $75.35, WTI -0.03% $98.05/bbl, Brent +0.25% $106.51/bbl, zinc -0.74% $1,953.75/t.

Dual listed – BHP +0.60% A$36.07, RIO +0.90% A$61.85.

Gold fell from 6 month highs to US$1,366.28/oz on the better US data and as concerns over the Crimea situation appeared to abate.

Further pressure is expected as we await the Fed tapering decision.

Data from the CFTC showed the recent increase in the gold price was largely driven by speculation, as net long positions rose to 106,000 contracts, with Commerzbank stating overnight that correction potential is building up with prices potentially falling quickly towards US$1,300/oz.

Elsewhere, WTI and Brent both fell on speculation that US and EU sanctions against Russia are unlikely to disrupt oil shipments.

Finally, iron ore dropped below US$110/t overnight to US$109.50/t on weaker rebar prices. Economic data due today: US – CPI Feb (forecast 0.1%), housing starts (910K), building permits (960K), net long TIC flows ($40bn).

Eurozone – ZEW surveys – current situation (forecast 52.0) expectations (52.0), EC trade balance (€13.9bn).
Company News ¢ Strong final dividend from Antofagasta (ANTO LN).

Antofagasta’s FY13A results included a surprisingly strong final dividend of 86.1cps (US$936.6m) for a 142% pay-out ratio, bringing the FY13A total to 95cps (FY12A 98.5cps).

EBITDA was US$2,702m (Investec US$2,664m), with PBT of US$2,084m (Investec US$2,089m), leading to EPS of 67cps (Investec 87cps & 89.9cps consensus) leaving net cash of US$1,472m .

The lower earnings YoY were impacted a withholding tax on the higher dividend pay-out ratio that the company has elected to provide.

Typically the pay-out ratio has been guided toward 35% with a change in dividend strategy now to set a minimum level related to profits and factoring in the excess cash in the group.

Management is focussed on cost controls at its operations, which are up as previously indicated in the production report, with guidance for the year ahead of 700kt copper production at 180c/lb pre-credits, with mention possible pricing pressure due to surplus copper globally.

Source: Company Investec View: Earnings pre-tax were in line with expectations, however taxes pulled down the final number.

The big event in today’s announcement is special dividend that despite previous commentary from the company indicated limited scope for a special dividend, the extent is surprising as the company plans to return some of its strong cash position to shareholders.

Going forward however, we expect earnings to decline due to lower guidance and weaker commodity prices. ¢ Gem Diamonds (GEMD LN) FY13 results.

GEM has reported revenue of US$213m and EPS of US$15.3m.

Cash at 31 December was US$71m which was broadly the same as the cash position at the end of FY12, with cash from operations and a receipt of proceeds from the sale of Ellendale being broadly offset by capex and waste stripping at Letseng.

The company flags that strong diamond prices have continued into Q1 FY14.

During FY14, GEMD plans to push ahead in developing Ghaghoo and will also make investments in X-ray technology and additional security measures at Letseng.

GEMD has announced its intention to pay a maiden dividend to shareholders at the end of FY14.

Source: Company Investec view: GEMD’s results reflect s strong operational performance with revenue and profits slightly ahead of Reuters consensus expectations (revenue US$206m, EPS 14c).

The Ghaghoo mine development appears to be progressing, with over US$71m of the total Phase 1 US$96m capex having already been spent.

The group remains on track to commence production from this mine in H2 FY14. ¢ Aureus Mining (AUE LN) New Liberty progress.

AUE has announced that it has completed the pouring of concrete for its ball mill at the New Liberty project in Liberia.

The mill itself should arrive in Liberia in June FY14 and commissioning should commence in Q4 FY14, scheduled to be completed in Q1 FY15.

Source: Company Investec view: Today’s announcement highlights the progress which AUE is making in developing its New Liberty gold mine.

The group remains on track to complete commissioning in Q1 FY15. ¢ Sale of Glencore Xstrata’s (GLEN LN) Las Bambas copper project could be imminent.

The Wall Street Journal has reported that Glencore and representatives from a consortium led by Minmetals Group are due to attend a meeting in London on Tuesday to finalise the sale of the Las Bambas copper project in Peru.

The consortium of buyers reportedly includes Minmetals Group, MMG Ltd (1208 HK), CITIC Group and China Reform Holdings.

Source: WSJ Investec view: The Las Bambas sale price is reported to be in excess of US$5bn with a further US$2.4bn of capex required in 2014/2015 to complete construction.

Las Bambas is expected to produce 460ktpa of copper in concentrate over the first 10 years with first production in mid-2015.

See our analyst Marc Elliott’s research ‘Glencore Xstrata: With or without Las Bambas?’ dated 30 January 2014.

MMG Ltd has historically paid/bid c.

US$21,000/t of installed annual copper production capacity for the acquisition of Anvil Mining/unsuccessful bid for Equinox.

Whilst this valuation methodology ignores many factors it does suggest, albeit simplistically, that the consortium could pay up to US$9.5bn (acquisition cost and remaining capex) for Las Bambas, based on 460ktpa of production. ¢ Dingyi (508 HK) offer for Elemental Minerals (ELM AU) to lapse.

Dingyi’s has been unsuccessful in its efforts to overturn the Stock Exchange of Hong Kong’s ruling that the proposed takeover of Elemental Minerals (93% owner of the Sintoukola potash project in Republic of Congo) was a reverse takeover.

Dingyi is now unable to fulfil the Dingyi Shareholder Approval Condition in its Bidder’s Statement and as such its offer for Elemental will lapse on 31 March 2014.

Source: Company Investec view: The Elemental share price has fallen 22% intraday to AU$0.21/share but has consistently traded well below the AU$0.66/share Dingyi offer price suggesting that very few in the market expected Dingyi to be successful. ¢ Kingsgate (KCN AU) to raise between AU$39.2m and AU$59.4m.

Kingsgate will raise up to AU$59.4m via a placement of 14.7m shares and a 3 for 11 accelerated non-renounceable entitlement offer, both at AU$1.00/share.

The offer price represents a discount of 22.5% to the last closing price.

Proceeds of the offer will be used to repay corporate debt, fund pre-development expenditure at Nueva Esperanza, completion of the Bowdens feasibility study and for general corporate purposes.

Source: Company ¢ China VTM (893 HK) CY13 results.

Iron ore, vanadium and ilmenite producer China VTM reported CY13 attributable earnings of CNY179.1m, 58.7% lower than the CNY433.7m reported in CY12.

The company produced 1.8mt of titano-magnetite concentrate in CY13, down 16.2% YoY, as production was negatively impacted by exploration work.

Source: Company Investec view: The result was in line with the company’s profit warning on 18 December 2013 highlighting the expectation of a fall in earnings of no more than 60%.

The company provided a fairly bearish outlook for the Chinese steel sector with the focus in 2014 likely to be on eliminating excess capacity in the sector.

China had 1bt of steel capacity in 2013 with utilisation rates of just 72% according to the Ministry of Industry and Information Technology.
[cid:image007.png@01CF4281.88875A60]
Commodities News ¢ Newcastle thermal coal prices have fallen to the lowest level since 2009, with 6,700kCal FOB coal prices hitting US$73.10/t overnight.

This came as exports dropped from 2.935mt to 2.165mt in the last week, the lowest level since 1Q13.

Source: Bloomberg
Other economic news ¢ Chinese property developer collapses.

A Chinese property developer, Zhejiang Xingrun Real Estate, located in the eastern city of Fenghua, has reportedly collapsed with debt of CNY3.5bn.

China Construction Bank was reportedly the largest lender with loans of CNY1bn outstanding.

Source: Bloomberg Investec view: The market remains extremely wary of the contagion risk from a slowing economy and the potential knock on effect from the reduced availability of credit on commodity demand. ¢ US factory output rises.

Factory production rose by 0.8% in February which was the largest increase in 6 months.

This follows a slump of 0.9% in January.

Source: Bloomberg ¢ China’s bond default has unexpected positive effect on local governments.

China’s first bond default has highlighted the country’s financial risks as US$400bn in debt falls due this year for Chinese local governments.

Bonds issued by local governments have long been seen as one of the biggest financial issues facing the country, although have recently found favour amongst domestic investors and brokers, and credit costs have fallen, making it easier for the local governments to access the cash to pay off their maturing debts.

Chinese bond yields have declined in general over the past few weeks although the spread between the yields of their AA bonds and top rated central government bonds has narrowed by more than 50bp.

Source: FT.
African Resources update ¢ AMCU to march on Amplats (AMS SJ) offices today.

The union plans on starting the strike-related march at 10am, with the aim of delivering a list of its grievances to Amplats CEO, Chris Griffith.

The strike is now entering its eighth week and has so far taken c.544koz of platinum out of production (Amplats, Implats and Lonmin), resulting in lost revenue of over US$820m.

With no end in sight, this could be the largest mining strike in the post-apartheid era, with comparisons now drawn to 1987 gold sector strike.

Source: Mining Weekly, Reuters ¢ Chinese companies gain over 50% of Transnet’s train tender.

China’s two largest rolling-stock manufacturers, China South Rail (CSR) Zhuzhou and China North Rail (CNR) are the biggest winners of a ZAR50bn deal to manufacturer more than 1,000 locomotives for Transnet, as part of the company’s target to expand freight capacity from 82.6mt currently to 170mpta by 2019, through a ZAR309bn program.

Source: Business Day. ¢ Today’s African proverb.

“A clever bird builds its nest with other birds’ feathers.” 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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