[cid:image001.png@01CF5882.2DA84930] Tuesday, 15 April 2014 [cid:image006.jpg@01CF5882.375A95F0]
Snapshot ¢ Company news highlights: Glencore Xstrata research published, Rio Tinto Q1 production results, Aquarius Platinum bond update and rights issue update, Aureus Mining to raise US$15m with IFC, Amara Mining FY13 results, Hochschild Q1 production, Zanaga feasibility study update, OZ Minerals MarQ14 production, Cokal receives price query from the ASX, Turquoise Hill production falls in MarQ14. ¢ Commodity review highlights: Iron ore prices under pressure, Up to 1000t of gold could be tied up in Chinese financing deals, Chinese gold buying set to ease…, …but strong demand for gold expected in the next four years. ¢ Other economic news: WTO raises global trade forecasts ¢ African resources update: Ivory Coast signs US$1.4bn deal to build rail urban line in Abidjan, Temasek invests further in Africa, Today’s African proverb. ¢ Market notes: FTSE futures flat this morning.

US markets recovered overnight (Dow +0.91%, S&P +0.82%) however Asia is showing us mixed cues this morning (Nikkei +0.62%, Hang Seng -1.37%, ASX200 +0.55%) with weakness in HK due to disappointing Chinese economic data.

Markets are subdued this morning due to disappointing figures from L’Oreal and Roche plus a new batch of concern from the Ukraine as they raise interest rates by 3% in an attempt to prop up the currency.

Chinese money supply measures fall below expectations fuelling concerns the economic growth will miss government targets.

Janet Yellan speaks at the Atlanta Fed today and we see more large cap earnings announcements from the likes of Johnson & Johnson and Coca-Cola. Commodity markets – gold -1.01% $1,314.50/oz, silver -1.01% $20.0090/oz, platinum -1.03% $1,452.00/oz, copper -0.51%, $3.021/lb, nickel +2.24% $17,761.00/t, iron ore +0.09% $117.00/t, thermal coal $74.55, WTI -0.67% $103.36/bbl, Brent -0.28% $108.76/bbl, zinc +1.35% $2,045.50/t.

Dual listed – BHP +1.12% A$37.78, RIO +0.14% A$63.35.

Gold slips back as the market becomes more comfortable with the situation in Ukraine.

WTI also slipped on speculation US inventories increased.

Chinese data send industrial metals including copper lower.

More importantly Steel stockpiles in China fell 600Kt to 18.8Mt last week (a 3% fall). Economic data due today: US – empire manufacturing (forecast 8.00), CPI MoM (0.1%), Net long-term TIC flows ($30bn), NAHB housing market index (49).

Eurozone – UK CPI MoM (forecast 0.2%), UK RPI MoM (0.3%), Greek ZEW survey – current situations (51.5), expectations (45.0), EC trade balance (€15bn).
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http://www.extelsurveys.com/ Company news ¢ Glencore Xstrata (GLEN LN) research note published updating numbers following c.

US$1.4bn bid for oil producer Caracal in Chad following on from agreed sale of Las Bambas for US$5.85bn.

Glencore has been working with Caracal since 2012 and has frequently indicated an interest in the oil sector, particularly since it is a significant oil trader.

Oil, remains a relatively small part of the business at c.

5% EBITDA in FY15E that our analyst forecasts at US$16.6bn.

Source: Investec & Company ¢ Rio Tinto (RIO LN) Q1 production results.

Rio Tinto (RIO LN, Buy, TP 3645p).

RIO delivered a mixed result with iron ore and coal exceeding our Q1 expectations but with most other commodities lacking.

There were weather impacts across the iron ore and coal operations, but of lesser impact than anticipated.

In terms of FY14E guidance, most is unchanged (particularly iron ore - 290mt, copper- 570mt and aluminium - 3.4mt).

Iron ore already been running at 290mtpa, albeit intermittently, while the infrastructure expansion to 360mtpa remains on track for 1H15.

Alumina guidance is reduced fractionally (8.1mt to 8.0mt), as is hard coking coal (8.5mt to 8.2mt) as thermal coal is prioritised (was 16.5mt, now 16.7mt) given better margins, while uranium production from ERA remains uncertain.

All up, our analyst expects there may be a very modest reduction in our FY14E numbers but nothing material.

Source: Investec ¢ Aquarius Platinum (AQP LN) bond update and rights issue update.

AQP has announced that US$172.6m of the US$300m convertible bonds have been tendered for repurchase by the company.

The minimum tender amount was for US$150m and this has therefore been achieved.

The rights issue will be a 2 for 1 offer, with an issue price of 14p, representing a 65% discount to the closing price on 11 April of 40p.

Source: Company Investec view: We believe that the read across to the bond part of this announcement is actually relatively positive in that the remaining US$125m+ bondholders are comfortable enough to hold their bonds and take the coupon, plus 100p in the pound rather than the 92p which is being offered, and wait to be repaid at the end of next year.

The company will now launch the rights issue and announce the results of that on 15 May.

In our view, the company needs to raise close to the maximum figure of US$225m or could still face a funding shortfall at the end of next year, depending on platinum prices.

The offer price is at a substantial discount to the current share price which, given the difficulties in the platinum market, would probably be required to encourage shareholder support. ¢ Aureus Mining (AUE LN) to raise US$15m with the IFC at 27p per share (29.5p close yesterday) consisting of one common share and half a warrant at 37.8p valid for 42 months.

The deal is subject to meet IFC due diligence standards.

At the end of March the company had cash of US$18m of which US$11m is ring fenced as equity contribution to the project on which US$57m has been spend to date.

Cash resources must be maintained at US$5m under the terms of the US$100m debt facility until fully utilised.

The capital to be raised will be spent US$8m on New Liberty as condition of the draw down if required, up to US$4-6m on New Liberty pre-production drilling, and US$2m on overheads and working capital.

Source: Company Investec view: The IFC’s involvement if all signed off from a DD perspective is a positive, however, the fund raising that comes with the warrants highlights the risk that the company’s finances were looking tight to see New Liberty into production. ¢ Amara Mining (AMA LN) full year results focusses on outlook for development projects.

Production guidance for 2014 at Kalsaka/Sega stands at 60-70koz at cash cost of US$900-1,000/oz following FY13 production of 42koz at cash cost of US$1,383/oz.

Mining is scheduled to stop in Q1 next year, with some continued leaching of heaps likely to deliver a few more ounces.

The company posted a loss of US$52m post US$33m impairment, EPS stood at -27.2cps or -9.88cps pre impairments.

At the end of the period the company had cash of US$11.3m and debt of US$13.2m.

Since the year end the company has been undertaking an equity placing to raise US$30.5m to advances its development projects Yaoure and Baomahun.

Source: Company Investec view: A tough year operationally suffering from weaker operating performance and gold price.

Kalsaka/Sega is approaching end of life and any cash generated will likely go toward meeting debt.

The future of the company is focussed on Yaoure and Baomahun as possible projects to develop to production subject to an appropriate financing deal.

In light of the capital requirements JVs are probably the least dilutive solution to developing the projects. ¢ Hochschild (HOC LN) Q1 production.

During Q1 FY14, HOC produced 5.9M attributable silver equivalent ounces and is on track to meet its full year target of 21Moz.

The group is on track to deliver US$200m of savings through its optimisation programme, having already achieved savings of US$145m.

The group completed a refinancing, issuing US$350m in 7.75% senior notes in January.

Source: Company ¢ Zanaga (ZIOC LN) feasibility study update.

ZIOC has announced that the feasibility study for its Zanaga project should be completed and the results published in early May 2014.

Source: Company ¢ OZ Minerals (OZL AU) MarQ14 production.

OZ Minerals reported MarQ14 production of 18.18kt copper and 33.79koz gold at a C1 cash cost of US1.22/lb.

Copper production was broadly flat QoQ while unit cash costs were down QoQ due to improved mining efficiency and the weaker AUD.

Work on the Carrapateena pre-feasibility study is ongoing and expected to be ready for internal review by end JunH14.

Source: Company Investec view: The company did not mention or make revisions to guidance given in February for 2014 production of 75-80kt copper and 130-140koz gold at a C1 cash cost of USD1.15-1.25/lb.

Copper production was expected to be just c.

30kt in JunH14, which OZL is well on its way to achieving, and biased towards DecH14. ¢ Cokal (CKA AU) receives price query from the ASX.

Following the fall in its share price from AUD0.17/share to an intra-day low of AUD0.13/share Cokal received a price query from the Australian Stock Exchange.

Cokal confirmed that it did not know the reason for the share price fall and confirmed that it expects final government approvals for its BBM coking coal project in Central Kalimantan, Indonesia, shortly.

Source: Company Investec view: Our analysts’ believe the next potential share price catalyst is ministerial sign-off for the Forest Rent Use Permit (operation/production stage), required imminently if first production at BBM is to be achieved in MarQ15.

See our report ‘BBM funding secured’ dated 31 March 2014. ¢ Turquoise Hill (TRQ CN) production falls in MarQ14, underground project financing commitment letters extended.

Mongolian copper producer Turquoise Hill announced contained copper/gold production of 25.3kt/66koz in MarQ14, down 23.1%/10.8% QoQ, as ore milled dropped sharply due to a rake blade failure that shut one production line for seven weeks partially offset by modest improvements in head grades and recovery rates.

Sales were 13.1kt contained copper, up QoQ, but still below production rates.

Production guidance for 2014 was reiterated at 135-160kt copper and 600-700koz gold.

Management flagged that it is monitoring production levels and will adjust them if necessary to match customer requirements with the goal of returning inventory to normal levels by year end and also announced that lenders have agreed to extend project financing commitment letters for the underground project until 30 September 2014 as negotiations continue with the Mongolian government.

Source: Company Investec view: Operational performance in MarQ14 was weak due to teething issues as Oyu Tolgoi ramps up, although this should have been expected by the market as both the production line shutdown and continued concentrate inventory build were announced in March with the release of Turquoise Hill’s CY13 results.
[cid:image007.png@01CF5882.375A95F0] Commodities news ¢ Iron ore prices could come under pressure as a consequence of a Chinese crack down on financing transactions backed by iron ore.

Tightening credit on such transactions has led to buyers defaulting no around US$300m of soybean imports, and copper financing deals have threated to see an unwinding of inventories built from financing deals.

Around 30mt or US$3.5bn in iron ore stocks are believed to be tied up in financing deals that unlike copper is largely unhedged.

Iron ore is more challenging to store than other metals due to its lower value per tonne requiring more storage capacity.

Source: Thomson Reuters Investec view: We note that 30mt is only around half a month of Chinese consumption so the threat to prices may be less meaningful than how underlying demand will evolve in the coming months. ¢ As much as 1000t of gold could be tied up in Chinese financing deals according to the World Gold Council as the metal is used for purely financial transactions that accounts for around 1/3 of global production or US$43bn.

The build-up has been taking place since 2011 with borrowers typically hedging the gold at risk.

Using Letters of Credit to import metals offer cheap short term financing for companies and wealthy individuals in China.

Source: Thomson Reuters Investec view: This is a significant concern for gold markets since unwinding such material inventories could prompt unwinding of other physical gold holdings such as ETFs that could have a material impact on the gold price.

We wait to see how Chinese policy evolves and whether the gold can gradually be consumed by the jewellery market. ¢ Chinese gold buying set to ease...

According to the World Gold Council, Chinese demand for bullion will cool this year after the exceptional growth in demand of 32% last year.

Source: FT ¢ …but strong demand for gold expected in the next 4yrs: WGC.

Private sector demand for gold in China is poised to increase by 25% from the current level of 1,100tpa (35moz/pa) to at least 1,350tpa (43moz/pa) by 2017, the World Gold Council (WGC) said on Tuesday, in a report entitled Chinas gold market: progress and prospects.

Last year saw China become the world’s largest gold market and while 2014 is expected to be a year of consolidation, gold demand in the succeeding years is expected to see ongoing growth, driven by rising real incomes, a deepening pool of private savings and rapid urbanisation across China.

The next six years should see China’s middle class grow by 200m to 500m people, compared with the US population of 319m.

Source: MiningWeekly
Other economic news ¢ WTO raises global trade forecasts.

The WTO has raised its forecast for growth in global trade to 4.7% from its previous estimate of 4.5% Economists had expected the WTO to lower their figures, rather than raise them.

The reasons given were due to the global recovery and upturn in the US.

Source: FT
African resources update ¢ Ivory Coast signs US$1.4bn deal to build rail urban rail line in Abidjan with France’s Bouygues and South Korea’s Hyundai and Dongsan Engineering.

The line would extend 37km from the international airport through the city centre to the northern suburbs.

Source: Thomson Reuters ¢ Temasek invests further in Africa.

Singapore’s state investment company has closed its first major investment deal in Nigeria, paying S$150m to become one of the largest shareholders in oil and gas group Seven Energy.

The deal comes only five months after Temasek spent US$1.3bn to buy a 20% stake in Tanzanian-based Ophir Energy.

Source: FT ¢ Today’s African proverb.

“Crying eyes still see the road ahead clearly”.

Source: BBC
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