🕐22.04.14 - 09:54 Uhr

INVESTEC GLOBAL NATURAL RESOURCES DAILY - MINING - TUESDAY 22 APRIL - AAL LN, PO
LY LN, NEM US, ABX US, SHG LN, PDN AU, DML AU, PDZ AU, 1878 HK



[cid:image001.png@01CF5E02.A4BA1DC0] Tuesday, 22 April 2014 [cid:image006.jpg@01CF5E02.A501AE10]
Snapshot � Company news highlights: Anglo American may exit Rustenburg platinum operations, Polymetal steady Q1, merger talks end between Barrick and Newmont, Shanta results, Paladin Energy and Discovery Metals quarterlies, Prairie Downs geotechnical review confirms long wall mining, SouthGobi weak quarter � Commodity review highlights: India lifts Goa iron ore mining ban, nickel futures at 14 month high, Chinese to help Mechel develop major Russian coal project � Other economic news: China expected to sign US$24bn nuclear reactor programme, Mongolia aims to stimulate mining investment, Japanese iron ore ship seized � African resources update: Platinum majors table new ill affordable wage offer, stricter rules required on African stock exchanges, todays African Proverb. � Market notes: FTSE futures +23 points this morning.

Markets looking to open modestly higher this morning following a positive finish from the US on Thursday (Dow +0.25%, S&P +0.38%).

Asia is mixed (Nikkei -0.85%, Hang Seng -0.35%, ASX200 +0.46%) with Japan slipping back from earlier gains thanks to thin trading and a lack of catalysts drying up momentum whilst Australian performance was driven by the banking sector.

In the US, corporate earnings will dominate activity today with McDonalds, Travellers, United Technologies, Xerox and Lexmark.

Private sector housing data should supplement this. Commodity markets - gold +0.06% US$1,290/oz, silver -0.37% US$19.38/oz, platinum +0.66% US$1,410/oz, copper -0.54%, US$3.01/lb, nickel +0.39% US$17,899/t, iron ore -2.75% US$113.30/t, thermal coal US$74.30, WTI -0.18%US $104.18/bbl, Brent -0.15% US$109.78/bbl, zinc -0.21% US$2,054/t.

Dual listed - BHP -0.47% A$37.92, RIO -1.09% A$62.68.

Iron ore fell sharply following the Indian Supreme Court overturning a ban on iron ore production in Goa and Chinese port inventories hit a new high (108Mt).

WTI and Brent remain elevated on better US growth expectations and the Russian/Ukraine debacle continues.

Signs of the improving US economy (and strengthening US$) has pushed gold lower. Economic data due today: US - FHFA House Price Index MoM (forecast 0.5%), Richmond Fed Manufacturing Index (2), Existing home sales (4.56%).

Eurozone - EC construction output, EC consumer confidence (-9.3).
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http://www.extelsurveys.com/ Company news � Anglo American (AAL LN) preparing to exit from South African platinum business, in particular its deep platinum mines at Rustenburg.

Talks are underway with the government on how to achieve such a divestment.

The Rustenburg mines produced around 20% of the groups output.

CEO Mark Cutifani has indicated he wants to continue the shift of platinum operations to bigger, less labour intensive surface mines.

Source: FT Investec View: It will be interesting to see if its possible to divest of Rustenburg operations without including other assets that are more attractive, since a new operator would being taking on what are clearly costly, capital intensive and troublesome operations. � Polymetals (POLY LN) Q1 a steady start to the year.

The company reported production of 316koz Au-Eq (up 2% on the 4Q13 and up 34% YoY), with gold production of 191koz up 57% YoY.

The improved YoY result was enabled by a combination of increased throughput and improved grades.

Source: Company Investec view: The company is guiding production of 1.3moz Au-Eq, a marginal increase on the 1.28moz Au-Eq produced in CY13E, with a slight lift expected again in CY15E, to 1.35moz Au-Eq.

With guided all-in sustaining costs around $1,000/oz Au-Eq and capex of $250m ( $192/oz Au-Eq), 2014 is not expected to be a particularly cash generative year for the company, given current gold prices sub $1,300/oz.

POLY last reported net debt of $1.045m. � Merger talks between Newmont Mining (NEM US) and Barrick Gold (ABX US) over, for now.

The Wall Street Journal has reported that merger talks were in the advanced stages, but that the evident synergies werent sufficient to convince the worlds two largest gold mining companies to merge.

The merged Co would have a combined market value of over US$30bn.

The companies last publicly disclosed serious merger discussion occurred in 2006.

Source: MineWeb, WSJ Investec view: The failed merger talks follow the announcement by Goldcorp (GG US) that it will not sweeten its hostile bid for Osisko, which in itself suggest that the industry is showing some discipline in its M&A activity. � Shanta Gold (SHG LN) annual results return pre-tax loss of US$4.4m and revenues of US$66m.

In the period the company also repaid US$15.3m of debt, renegotiated its debt leaving it with net debt of US$50m included US$14.6m in cash.

The company produced 64,054oz Au in the year and targets 80,000oz this year for an all in sustaining cost of US$900-1,000/oz.

The current mine life of at New Luika is 5 years with drilling underway to extend potentially underground.

SHG is also pursuing its Singida project that could produce 40kozpa over a 5.5year mine life, a prefeasibility study is due by end of Q2.

Source: Company Investec View: Management has done well to turn New Luika around, but will have to focus on extending the minelifes of the asset base since with c.

5 year mine lifes, it will be consistently on the back foot trying to find more ounces. � Paladin Energy (PDN AU) MarQ14 production.

Paladin reported MarQ14 uranium oxide production of 2.089mlbs from its Kayelekera and Langer Heinrich mines.

Production was 5% lower than in DecQ13 as production was ramped down at Kayelekera following the decision on 7 February 2014 to place the mine on care and maintenance.

The company realised an average sales price in the quarter of US$36.82/lb.

Source: Company Investec view: The company has maintained its FY14 (Jun YE) production guidance of 7.8-8.0mlb. � Discovery Metals (DML AU) MarQ14 production.

Discovery Metals reported MarQ14 production of 4.3kt of copper in concentrate.

The company continues to work towards executing the conditional non-binding term sheet for a US$105m recapitalisation signed with Montsant Partners on 1 April 2014.

Source: Company � Prairie Downs (PDZ AU) geotechnical review confirms low cost long wall mining solution at its Lublin coal project in Poland that should allow the mine to achieve bottom quartile mining cash costs.

Roof bolting would also be employed to support roofing in development roadways.

A scoping study is due out in the coming weeks.

Source: Company Investec View: This is an encouraging but not surprising development.

An advantage of this project is that the same methods being employed at successful, neighbouring Bogdanka mine can likely be copied and employed. � SouthGobi Resources (1878 HK) reports weak MarQ14 production/sales.

SouthGobi reported MarQ14 raw coal production of 0.64mt and coal sales of 0.39mt (0.29mt standard semi-soft coking coal and 0.1mt thermal coal).

Sales in MarQ14 were well below the 1.72mt of sales in DecQ13 due to slowing economic activity and a number of Mongolian and Chinese national holidays during the quarter.

The company had cash of US$9.9m as at 31 March 2014, down from US$21.8m as at the end of December 2013.

Source: Company Investec view: SouthGobi is still actively seeking financing to satisfy its obligations and will need to finalise additional financing soon.

The company has a cash interest payment of US$7.9m due to CIC on 19 May 2014.

Our analysts forecast SouthGobi will require funding of at least US$30m in CY14E to meet its obligations.

We believe asset sales, a rights issue, government support, prepayments and/or loans are options to address the cash shortage, but could be expensive and complicated by the US$250m CIC converts terms.

See our research Going concerns dated 25 March 2014.
[cid:image007.png@01CF5E02.A501AE10] Commodities news � Indias Supreme Court lifts mining ban in Goa.

Indias Supreme Court has lifted the 19 month old mining ban in Goa.

The court has however recommended capping annual output at 20mt.

Source: Reuters Investec view: This is potentially 20mtpa of iron ore that will find its way into the seaborne market.

Mining in Goa is however only expected to commence in September 2014, post the monsoon rains.

This is likely to be an incremental negative for iron ore prices.

The spot iron ore price is currently US$113.30/t. � Nickel futures hit 14 month high due to ongoing concerns of the impact on pricing from the Indonesian ban on unprocessed mineral exports and fears that developments in the Ukraine could impact Russian exports.

The metal is up around 30% this year trading at c.

US$18,200/t.

Source: Thomson Reuters Investec View: Despite fears over supplies, we note that LME warehouse inventories remain high at 277kt, and have not dropped materially in recent weeks.

This is a sizeable stockpile of metal, and should it start to erode quickly that would give an indication in market. � Chinese to help Mechel (MTL US) develop US$2-4bn Elga coal project in Russia and supply it with equipment in exchange for coal output.

The project has reserves of 2.2bn tonnes.

Source: Thomson Reuters
Other economic news � China expected to sign as early as next year the first of several contracts for eight new third generation reactors from Westinghouse that are expected to cost US$24bn.

The country currently has 20 nuclear power stations on line and another 28 under construction.

Chine plans to take installed nuclear capacity to 58GW by the end of the decade from the current 15.69GW.

Source: Thomson Reuters � Mongolia aiming to stimulate mining investment.

Mongolias government has stated over the weekend that it will submit two bills to parliament that could stimulate the local mining sector and foreign investment.

The first bill will annul the June 2010 law that suspended the issuance of new exploration licenses and the second would amend guidelines applied to a July 2009 law on rivers and forests that will allow mining in areas previously off-limits due to environmental concerns.

The earliest the bills could be passed by parliament is mid-May.

Source: Bloomberg Investec view: While an encouraging pro-mining stance, Mongolia will also need to instil confidence that the rules it puts in place today are not going to change again in the future, as has happened in the past.. � Japanese ship delivering iron ore to China seized.

A Japanese ship been ferrying Australian iron ore to Chinas Baosteel has been seized in a bizarre wartime claims row.

It is the first time a Chinese court has ordered the seizure of Japanese assets in relation to WWII.

The Shanghai Maritime Court seized the ship, which belongs to Japanese conglomerate Mitsui OSK, at a port near Shanghai at the weekend.

The dispute stems from two ships leased to a Japanese shipping line by Chung Wei Steamship, which were commandeered by the Japanese navy in 1937 as it prepared to invade China.

Through a series of takeovers, Mitsui OSK is heir to the shipping lines that operated the ships after they were requisitioned by the Japanese navy.

Source: FT Investec view: While a relatively minor, albeit strange issue, it does point to the increasingly strained relations between the two countries.
African resources update � Platinum majors Implats and Amplats have tabled a wage offer of ZAR12,500/month for entry level workers as demanded by AMCU, but to take effect from 2017.

Previously the majors were making offers of 7.5-9.0%.

To achieve the targeted wage level, increases must be 7.5-10% across the different wage bands However, the companies have indicated that the increases could be ill afforded but have been made in good faith to end 12 week strike action.

Labour costs amount to 55-60% of total costs.

The offer will be applied from 1st July 2013 so will be incorporated into back pay, however, the "no work, no pay" applies for the duration of the strike.

Source: Amplats & Mining MX Investec View: A reflection of the headwinds faced by South African producers, that they have given into wage demands, despite indicating that they can be "ill afforded". � Stricter rules needed to support growth of African stock exchanges.

Africas bourses are following the continents growth story, but stricter regulations, better banking systems and financial market education are needed, according to the Johannesburg Stock Exchanges (JSE) Strategy and Public Policy Director.

The JSE now made up 66% of the continents total market capitalisation, down from a previous high of 90%, because of the growth of other exchanges in Africa, with African 26 countries now with stock exchanges.

Source: Business Day � Todays African Proverb.

"The world is permanent but we human beings are not".

Source: BBC
Investec Global Natural Resources Research Team: UK Hong Kong South Africa Hunter Hillcoat Tel: +44 (0) 20 7597 5182
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