🕐11.04.14 - 10:27 Uhr

INVESTEC GLOBAL NATURAL RESOURCES DAILY - MINING - FRIDAY 11 APRIL - GFI SJ, LUC
CN, FDI LN, BAO LN, 1898 HK, PDY AU



[cid:image001.png@01CF555D.53556AA0] Friday, 11 April 2014 [cid:image006.jpg@01CF555D.53A697E0]
Snapshot � Company news highlights: Goldfields production guidance update, Lucara exceptional stone tender result, Firestone Diamonds update on fund raising, Baobab Resources completes further metallurgical test work, China Coal to suspend payment of restoration costs, Padbury Mining secures funding for US$6bn port and rail deal. � Commodity review highlights: Miners at conference in Chile highlight tough times, gold holding onto gains, De Beers data breach, China net exporter of oil, Uralkali to up output, Queensland braces for cyclone � Other economic news: China rules out short term stimulus, direct share trading between HK and Shanghai within 6 months � African resources update: South African platinum production falls, US$1bn to clean up South Africa toxic water problems, SA mining companies have highest level of female representation, Mali highlights pro-active permitting regime � Market notes: FTSE futures off 48 points this morning.

Following a steep fall in US markets overnight (Dow -1.62%, S&P -2.09%) led by a tech sector sell off and coupled with the poor Chinese trade data.

Asia has followed suit (Nikkei -2.38%, Hang Seng -0.65%, ASX200 -0.95%).

The market is moving out of the tech sector on fears of overvaluation.

Chinese inflation data remains below the government target whilst the producer price index recorded its 25th straight decline giving the government more scope to introduce further measures to target growth. Commodity markets - gold +0.12% $1,321/oz, silver +0.02% $20.05/oz, platinum -0.05% $1,459/oz, copper +0.08% $3.05/lb, nickel +2.29% $17,031/t, iron ore -0.25% $119.10/t, thermal coal $74.25, WTI -0.29% $103.11/bbl, Brent -0.22% $107.22/bbl, zinc +1.03% $2,032/t.

Dual listed - BHP -0.82% A$37.87, RIO -1.30% A$64.10.

Nickel continues its run with data showing that global inventories dropping in 7 of 8 sessions this month.

Gold moved up further over concerns about China and the US.

WTI is off marginally as Libyas national oil company lifts force majeure on Hariga terminal shipments with first shipments set to commence next week.

Finally, market commentators are suggesting the potential the liquidations of copper stocks as finance contracts unravel are overplayed and is likely to remain in China. Economic data due today: US - PPI final demand MoM (forecast 0.1%), University of Michigan confidence (81.0).

Eurozone - Spanish CPI MoM (1.6%), UK construction output MoM (-1..3%).
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http://www.extelsurveys.com/ Company news � Gold Fields (GFI SJ) Q1 guidance update.

GFI has announced attributable group gold production of approximately 557,000 gold equivalent ounces.

All in sustaining costs are expected to be approximately US$1,095/oz and all in costs are expected to be US$1,115/oz.

Production guidance of 2.2Moz has been reiterated, at all in sustaining costs of US$1,125/oz.

Source: Company Investec view: The company looks to have made a good start to the year, with production looking firmly on track to meet full year guidance.

Given lower costs for Q1 that the group is guiding to for the year as a whole, it seems likely that costs will rise in the forthcoming quarters. � Lucara (LUC CN) exceptional stone tender result.

LUC has announced the results from its first exceptional stone tender of Karowe diamonds.

There were 20 single stone lots and all 20 diamonds, totalling 1,191cts were sold for gross revenues of US$50.5m.

The highest value stone was a 167ct diamond which sold for US$12.7m.

In addition to the exceptional stone tender, the company held two regular diamond tenders which resulted in revenue of US$33.6m.

Source: Company Investec view: This looks a good result to us, with the separation of the exceptional stones looking set to maximise diamond revenues into the future.

The next exceptional stone tender is expected to take place in Q3 2014. � Firestone Diamonds (FDI LN) update on fund raise and 10 for one share consolidation.

New equity money of US$140m had been agreed along with a US$10m bridge facility that is no longer required leading to increase in the subscription from US$60m to US$70m, although the monies from RCF and Pacific Road will not change.

If the full amount to be taken under the open offer, the equity proceeds should come to around US$146.7m.

An EGM to agree the equity issue has been set for 28th April.

The equity needs to be agreed to ensure the US$82m ABSA debt facility is provided to fund the Liqhobong Diamond Mine to completion.

Source: Company Investec View: It was a major and impressive step by management to finance the project and has likely been a frustrating process for new and existing shareholders to progress the financing from agreement to reality.

Following shareholder agreement, we look toward projects updates as development can then advance to plan. � Baobab Resources (BAO LN) completes second bench scale metallurgical test work demonstrating that the iron ore can be converted to pig iron of 99% Fe content.

Otherwise it is estimated that a sufficiently pure commercial product can be produced that after removal of vanadium a 95-95.5% Fe product with 4% carbon and a range or other impurities.

Both the titanium and vanadium can be largely removed to separate slag products.

Source: Thomson Reuters � China Coal (1898 HK) to suspend payment of environmental restoration costs.

China Coal announced that as per notice received from the Department of Finance of Shanxi Province, the company will suspend payment of environmental restoration and coal mine industry transformation taxes from 1 January 2014 until implementation of the national coal resource tax reform.

The company expects some increase in net profits from these measures.

Source: Company Investec view: Coal taxes in China are set to change to a rate of 2%-10% of sales value.

There are also a number of other initiatives that will continue to reshape the industry including a possible ban on the import of low calorific value coal and ongoing consolidation and elimination of small scale mines. � Padbury Mining (PDY AU) secures funding to develop Oakajee port and rail.

Iron ore explorer Padbury Mining announced that it has secured the necessary funding to construct the US$6.0bn, 35mtpa-45mtpa Oakajee port and rail project in the Midwest region of Western Australia.

Funding will be provided by undisclosed private Australian equity investors in three tranches: 1) US$0.47bn to complete project specifications, early works, and long lead time item procurement; 2) US$3.45bn for initial construction funding; and 3) US$2.55bn for final construction funding with Padbury retaining a 36% interest in the infrastructure company.

Source: Company Investec view: Construction of the long delayed Oakajee port and rail project has potential to significantly increase Australias iron ore exports from the Midwest region.

Padbury has released relatively few details regarding Oakajee including what iron ore projects the full 35mtpa-45mtpa of iron ore necessary to justify the port and rail project will be sourced from so we believe markets will remain somewhat sceptical of the companys plans.

Next steps for Padbury include selecting an EPC contractor and formalising development agreements with the Western Australia government.
[cid:image007.png@01CF555D.53A697E0] Commodities news � Miners at Chilean conference highlight change of focus toward cutting costs and reducing debt rather leading to a reduction in exploration expenditure.

SNL Metals & Mining estimate that exploration spending went from US$2bn in 2002 to US$21.2bn by 2012, an all-time high.

Since exploration spending has fallen some 30% last year to US$15bn which is expected to fall another US$2bn this year.

Source: Thomson Reuters � Gold holding onto yesterdays gains at highest in 2.5 weeks in response to weaker equities and expectation that the Fed will hold off on raising interest rates.

However, physical demand in Asia continues to be weak, and key Chinese buying activity undermined by the weak Yuan with domestic prices trading at a discount to London prices for over a month.

Source: Thomson Reuters � De Beers data breach.

The company has incurred a vast data breach in South Africa, including the publication of its Price Book, a top secret listing of the companys diamond categories that it uses to establish prices for the companys sighting system, which depends on a secret pricing mechanism and zero quibbling.

The data is circulating freely in South Africa and can be bought for the price of an Audi.

The company is yet to make a formal statement.

Source: Global Mining Observer � China a net oil product exporter for first time since Jan 2010.

China in March became a net exporter of refined oil products for the first time in more than four years.

Exports of were 650,000 barrels a day, up 3.4% YoY, while imports totalled 560,000 barrels a day, down almost 25 % YoY and the lowest since August 2012.

Analysts believe the trend towards more Chinese net exports will intensify, driven by expansions of domestic refining capacity.

Source: FT � De Beers data breach.

The company has incurred a vast data breach in South Africa, including the publication of its Price Book, a top secret listing of the companys diamond categories that it uses to establish prices for the companys sighting system, which depends on a secret pricing mechanism and zero quibbling.

The data is circulating freely in South Africa and can be bought for the price of an Audi.

The company is yet to make a formal statement.

Source: Global Mining Observer � China a net oil product exporter for first time since Jan 2010.

China in March became a net exporter of refined oil products for the first time in more than four years.

Exports of were 650,000 barrels a day, up 3.4% YoY, while imports totalled 560,000 barrels a day, down almost 25 % YoY and the lowest since August 2012.

Analysts believe the trend towards more Chinese net exports will intensify, driven by expansions of domestic refining capacity.

Source: FT � Major potash producer, Uralkali (URKA LI) said it had not held talks to return to trading alliance with Belarus and planned to take to 23% this year from 17% in H1 of 2013.

The company is on track to produce 12mt this year with market demand of 56-58mt up from 53-54mt last year.

Source: Thomson Reuters � Queensland braces for cyclone.

The state is bracing for a cyclone that is stronger than the one in 2011.

Severe Tropical Cyclone Ita (Category 5) will hit the coast tonight between Cape Melville and Cooktown, about 1,500km northwest of Brisbane.

Yasi struck the Queensland coast three years ago as a category 5 cyclone, swamping coal mines in a state.

Source: Bloomberg Investec view: The impact on coal operations should be negligible as the cyclone is predicted to make landfall to the north of the states main coal producing regions.

A yellow alert has been delayed for Cairns, however, which is an important supply and service centre to the mining industry, including Freeport (FCX US).
Other economic news � China rules out short term stimulus.

Despite weak recent trade figures, China will not resort to short-term stimulus measures.

In a recent speech, Mr Li acknowledged some of the challenges facing the economy but insisted that his government was capable of propping up growth while implementing difficult reforms to put it on a more sustainable base.

Source: FT Investec view: This is potentially disappointing news for metals markets and therefore the mining sector, which may have been hoping for some assistance from China.

China is set to report its Q1 GDP figures next Wednesday and this will be important data in terms of whether China might meet its 2014 growth target of about 7.5%.

According to the FT, most economists expect the Q1 result to show a sharp decline in growth in Q1 2014 from Q4 2013, which was 7.7%. � Direct share trading between Hong Kong and Shanghai stock exchanges possible within six months.

Regulators announced yesterday new rules to allow direct share trading between Hong Kong and Shanghai stock exchanges.

The new rules could be implemented within the next six months and would allow Chinese institutions with at least CNY500k in their securities account to buy Hong Kong listed shares through mainland brokers.

There will be a daily cap of CNY10.5bn.

Hong Kong investors in A-shares will be able to use their local brokerages to purchase up to CNY13bn per day.

A total of 266 Hong Kong stocks and 560 A-shares are included in the scheme.

Source: SCMP Investec view: For companies listed on both exchanges the scheme is likely to see a narrowing of the spread between H-shares and A-shares, which typically trade at a premium valuation.

In the resources sector H-shares of China Moly (3993 HK) were up 14.5%, H-shares of Chalco (2600 HK) were up 12.5% and H-shares of Yanzhou Coal (1171 HK) were up 6.2% yesterday but substantial valuation differences persist between H-shares and A-shares.
African resources update � South Africas platinum production falls in February.

South Africas platinum production fell by 36% in February, the biggest fall in 2 years, due to the on-going strike in the sector.

Following the issues in the platinum sector, year on year mining output in total fell by 4.8%.

Source: Miningmx Investec view: This result is unsurprising given the extent of the strike underway at the platinum mines.

We do not expect the figures for March to look much better. � Cleaning up South Africas toxic mine water will require $1bn.

The Department of Water Affairs has said that it will need to spend as much as $1bn to make toxic water leaking from abandoned mine shafts (referred to as acid mine drainage) drinkable.

While the government and mines would foot part of the bill, the cost would mostly fall on consumers.

A potable-water operation is expected to generate 150m litres of clean water a day, versus the 4bn litres used by Johannesburg and its environs every day.

Source: Bloomberg � SA mining companies have highest level of female representation, Australia the lowest: PwC.

A recent report by PwC, analysing the largest 500 listed mining companies, has found that South Africas mining companies have the highest level of female representation at board level (>20%), followed by Canada, while Australia has the lowest percentage of women in executive management positions.

Source: MiningWeekly � Mali highlights its proactive permitting.

Africas third largest gold producer has highlighted that it has granted gold permits to Papillon Resources (PIR AU), Robex Resources (RBC CN), New Gold Mali, Glencar Mining (GEX LN) and Etruscan Resources, whose total reserves of 9.7-million ounces.

Source: Reuters
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