[cid:image001.png@01CF62D7.4CF24430] Monday, 28 April 2014 [cid:image002.jpg@01CF62D7.4CF24430]
Snapshot � Company news highlights: Kirkland Lake resource update includes near surface ounces, Mick Davis reportedly bidding for BHP Billiton assets, Firestone Diamonds enters into revised mining lease and updates on fund raising timetable, Aureus Mining meets all conditions to enable first drawdown of US$100m debt facilities, Shanta Gold Q1 update, Sierra Rutile deal update, Prairie Downs scoping study result, Shenhua 1Q14 attributable earnings od CNY11.1bn, China Coal 1Q14 results, Angang Steel 1Q14 attributable earnings down 51.6% YoY, Hidili 1Q14 sales down, BC Iron MarQ14 shipments of 1.22Mt, Vale provides update on Simandou. � Commodity review highlights: Newmont Mining reported to be running out of space to store copper concentrate, Pressure for higher coal mining standards, China iron ore inventories at record levels. � Other economic news: IMF says Asia must pursue structural change, Tired of working in the city - fancy a sea change? � African resources update: Platinum mining companies pushing forward with negotiating directly with employees, World Bank to spend US$8bn in Nigeria, Zimbabwe may soften indigenisation stance, but not for mining, Todays African proverb. � Market notes: FTSE futures +22 points.

European markets looking to open well this morning despite the poor performance in the US on Friday (Dow -0.85% S&P -0.81%) mainly due to Amazon and Ford who were down sharply on reduced guidance.

Tension in Ukraine will keep a cap on markets performance today with pro-Russian rebels taking European military inspectors hostage and seizing control of a TV station in the Eastern city of Donetsk.

Asian markets down as a result (Nikkei -0.98%, Hang Seng -0.37%, ASX200 +0.09%).

European diplomats continue to work in tandem with the US to impose further sanctions on Russia should they continue to ignore Obamas warning against provocation.

Looking forward, the FOMC meeting kicks off tomorrow with the announcement due out Wednesday evening, plenty of US data to come this week as well (including GDP, manufacturing PMI, and non-farm payrolls). Commodity markets - gold -0.08% $1,302.11/oz, silver -0.35% $19.6689/oz, platinum +0.35% $1,429.30/oz, copper -0.05%, $3.091/lb, nickel +0.54% $18,428.00/t, iron ore -1.94% $111.00/t, thermal coal $74.15, WTI +0.44% $101.04/bbl, Brent +0.17% $109.77/bbl, zinc -0.83% $2,052.00/t.

Dual listed - BHP -1.21% A$37.83, RIO -1.70% A$61.88.

Gold up on geopolitical tension + on speculation the Indian jewellery buying festival (starts this week) will boost demand.

Oil is up on speculation more sanctions against Russia will be announced today which is also pushing nickel higher on potential supply disruptions. Economic data due today: US - Pending home sales (forecast 0.7%), Dallas Fed Manufacturing Activity (6.0).

Italian CPI (forecast 101.2).

Irish retail sales.
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Company news � Kirkland Lake (KGI LN) resource update includes near surface ounces.

The Company replaced both its SMC and Main Break reserves while expanding the overall resource base.

The 2013 exploration program focussed on expanding the South Mine Complex ( SMC) on the properties previously held under a JV with Queenston, while also exploring for near surface mineralisation.

Reserves in the SMC showed an overall increase of 0.5% although mine-wide reserves decreased by 5%, with c.70kozs along the `04 Break at the deeper levels declassified to resources.

The inventory update includes near surface (less than 1000ft) resources for the first time, with 152koz of resources grading 12g/t.

Source Company Investec view: The addition of high-grade, near surface material, which would be accessible through a decline, offers a new opportunity for the company to extract lower cost ounces.

While it will need more than the current 152koz to justify this, we note that most of the 2015 exploration program (budget $5.1m) continue to be focussed on expanding the near surface inventory. � Mick Davis reportedly bidding for BHP Billiton (BLT LN) assets.

BHP Billiton has reportedly received a bid from Micks, X2, for its thermal coal unit.

The private equity firm is reportedly also looking at buying BHPs aluminium, nickel and manganese projects & operations, divisions BHP Billiton has deemed non-core.

X2 has amassed $3.7bn of backing from investors while JP Morgan has reportedly been appointed to provide up to $8bn in debt.

Source: Sunday Times Investec view: It is interesting, but not surprising, that Mick is restarting his foray back into mining with thermal coal.

This is the commodity that he cut his teeth on while at Billiton and which was the foundation for Xstrata.

It is also perhaps the most unloved commodity at the moment, and therefore one to offer the best upside when the market turns around - classic Mick Davis tactics. � Firestone Diamonds (FDI LN) enters into revised mining lease and updates on fund raising time table.

The fundraising sees a placing extension to allow time for agreements concerning a review of the debt facilities, so the share subscription admission date is now no later than 30th May.

The open offer has now been closed (totalling US$2.8m of acceptances) with the deadline for completion extended to 30th May.

An EGM to approve the placing will be held at 10am today.

The revised mining lease allows mining to 30th June 2021 with the ability to renew for a further two 10 year periods.

Royalty rates will be reduced from 8.0% to 4.0% until the benefit of the reduction reaches US$20m after which it will revert to 8.0%.

However, an obligation to pay withholding tax of around US$12m during construction phase and US$8.0m over the debt repayment period offsets the benefit from the royalty adjustment agreement.

Source: Company Investec view: It has been an impressive accomplishment to agree financing for the Liqhobong diamond mine and gives confidence in the economic viability of the project.

However, the financing is proving a surprisingly complex process to finalise.

We note also that the royalty benefits only come after construction, whilst the government takes the benefits from the withholding taxes before cash flows, the company has budgeted US$24m of contingency that should cover the requirement. � Aureus Mining (AUE LN) meets all conditions to enable first drawdown of US$100m debt facilities.

The company intends to draw down US$32m immediately to fund ongoing construction activities, with the plant currently under construction.

Source: Thomson Reuters � Shanta Gold (SHG LN) Q1 update.

SHG has reported FY14E Q1 gold production of 20,300oz.

This represents a record quarter for gold output and is 3.5% higher than the previous quarter.

Cash costs and all-in sustaining costs were US$767/oz and US$965/oz respectively.

The company has reaffirmed its production and cost guidance.

The group generated cash flow from operations of US$10m and, at the end of the period, had net debt of US$45m, with cash of US$19m.

Source: Company Investec view: The company has highlighted that its gold production for the quarter was ahead of expectations.

However, it does flag that this has helped offset some delays which are being experienced at plant improvement projects so clearly progress in terms of these modifications is something to keep an eye on.

The companys reiteration of full year guidance should be well received. � Sierra Rutile (SRX LN) deal update.

SRX announces the cessation of discussions with parties which were potentially interested in making an offer for the company.

Given the strong outlook for the company, the SRX board did not believe that these offers constituted good value for shareholders.

Source: Company � Prairie Downs (PDZ AU) scoping study results outline thermal coal project producing up to 6.7mtpa thermal coal over 22 years for a cash cost of US$37/t, toward the bottom end of the cost curve.

Capital costs are estimated at around US$684.4m including ECPM and contingency.

Key capex items include the shaft at US$227.4m and plant and facilities of US$153.1m.

Sustaining capital estimated at US$5.78/t.

The study assumes a third party builds and operates a 15-20km rail link to connect the mine with the rail network.

The company has assumed a coal price of US$86.4/t FOR, a premium to long term prices based on the high quality of the product.

A PFS is due to commence in the coming weeks.

Source: Company Investec view: This is a substantial project and we await further updates on the ongoing feasibility work.

The project is set to benefit from excellent local infrastructure and route to market.

We await confirmation of demand in the region, however, if necessary there are three export ports to take product overseas, although this would add cost. � Shenhua (1088 HK) 1Q14 attributable earnings of CNY11.1bn.

Shenhua reported 1Q14 attributable earnings of CNY11.08bn, down 8.2% YoY.

Commercial coal production for the quarter of 79.9mt was flat YoY but coal sales of 109.5mt were down 1.8% YoY.

Total power output dispatch of 48.04bn kwh was up 2.1% YoY.

The company disclosed that as at the end of the quarter c.

78% of its coal sales target for CY14 was contracted with quarterly pricing that would be adjusted with reference to the Bohai Bay Thermal Coal Price Index.

Unit costs for self-produced coal increased 4.5% YoY to CNY126.9/t although average costs for power output dispatch decreased 6.7% YoY to CNY262/MWh as coal prices fell.

Source: Company Investec view: In 2014 Shenhua expects coal supply to be slightly greater than demand with potential regional coal surpluses or shortages.

The company maintained its guidance for flat YoY coal production and power output dispatch.

Shenhua remains far better positioned than peers to weather a prolonged period of low coal prices given the natural hedge provided by its power segment and its move into petrochemicals. � China Coal (1898 HK) 1Q14 results.

China Coal reported MarQ14 attributable earnings of CNY613.79m (IFRS), down 67% YoY.

Whilst the companys sales volume fell to 33.3mt, down 9.4% YoY, realised selling prices fell further, down 10% YoY to CNY401/t.

Positively, the companys unit costs of sales for self-produced coal fell to CNY202.9/t, down 6.1% YoY.

Source: Company Investec view: The company has warned that it expects a decrease in aggregate net profit in 1H14 versus 1H13 due to a prolonged period of low coal prices. � Angang Steel (347 HK) 1Q14 attributable earnings down 51.6% YoY.

Angang Steel reported MarQ14 attributable earnings of CNY248m, down 51.66% YoY.

due to mainly to the fall in steel prices.

Source: Company � Hidili (1393 HK) 1Q14 sales down.

Hidili reported MarQ14 clean coking coal sales of just 89kt, down 47% YoY, at a price of CNY939/t, down 16% YoY.

Source: Company Investec view: Hidilis listed debt is trading at a 57.7% yield-to-maturity - enough said. � BC Iron (BCI AU) MarQ14 shipments of 1.22mt (100%).

BC Iron reported MarQ14 iron ore shipments of 1.22mt (0.76mt attributable) from the Nullagine Joint Venture (75% BCI, 25% Fortescue) in the east Pilbara, Western Australia.

Sales of 1.22mt (100%) were above guidance of 1.13mt despite the effects of the wet season.

C1 cash costs were AUD54/t.

Source: Company Investec view: The company reaffirmed FY14 sales guidance of 5.8-6.2mt with an expected run-rate of 6.5mtpa for 9 months of the year and a run-rate of 4.5mtpa during the wet season. � Vale (VALE US) provides update on Simandou.

Vale has advised the market that the government in Guinea has revoked the mining licenses at its Simandou and Zogota iron ore concessions.

Vale acquired a 51% interest in the concessions from BSG Resources in April 2010.

The Guinean government has accused BSG Resources of fraudulent conduct in the acquisition of the concessions.

Vale has not been implicated in the fraudulent activity and may participate in the process to reallocate the licenses.

Source: Company Investec view: Vale committed to paying BSG Resources US$2.5bn for a 51% interest in the Simandou concessions.

US$500m was paid up front with the remaining payments to be made as milestones were met.

The Vale BSG JV invested a further c.

US$1bn in developing the concessions.

An expensive lesson for Vale.
[cid:image003.png@01CF62D7.4CF24430] Commodities news � Newmont Mining (NEM US) reported to be running out of space to store copper concentrate in Indonesia as a dispute with the government has halted exports.

Source: Thomson Reuters � Pressure for higher coal mining standards "Bettercoal" to come from shareholders of European utility companies pushing the companies to source coal in a more ethical and environmentally friendly way.

Norways major sovereign wealth fund has halved its exposure to coal producers, and invests in around 160 companies that use coal.

Source: Thomson Reuters Investec view: Such anti-coal pressure from major funds might encourage companies to spin out their coal operations e.g.

X2s potential bid for BHPs coal division. � Chinas iron ore inventories at record levels.

Inventories at ports rose 1.4% WoW to 109.55mt, the highest level ever, amid demand to use iron ore as collateral to get credit and as mills ramped up production in a peak season.

Crude steel output reached 202.7mt in the 1Q, up from 191.9mt a year earlier.

Iron ore shipments into China rose 19% to about 222mt in the first quarter, running way ahead of the run rate of last year, which saw 820mt of imports in total.

Source: Bloomberg
Other economic news � IMF says Asia must pursue structural change.

According to the IMF, Asian policy makers must push ahead with structural changes to ensure that the region continues to lead global growth and withstand volatility as the US reduces monetary stimulus.

Source: Bloomberg � Tired of working in the city? Fancy a sea change? Fortescue (FMG AU) has complained that the tug boats at Port Hedland are holding Western Australia to ransom and that the company will have to shut its mines within days if tug-boat crews walk off the job.

A ballot of workers is being conducted, with a decision on whether to take action expected in about a fortnight. Investec view: It is worth noting that deckhands earn about A$140k/pa (�80k/pa) and tugboat masters earn A$300/pa (�170k/pa).
African resources update � Platinum mining companies pushing forward with negotiating directly with employees, circumventing AMCU.

The companies are sending text messages to the 70,000 striking employees.

A key issue once an agreement is reached will be the time it takes for operations to ramp back up which could take some weeks.

Source: Thomson Reuters & Mining MX Investec view: We also wait to see whether the miners will, as has been indicated, cut output and work force from certain shafts that will no longer be economically viable, and perhaps even damaged by the protracted strike. � World Bank to spend US$8bn in Nigeria.

The World Bank has said it will provide Nigeria with projects worth US$8bn targeting job creation, social services and governance as part of its new country partnership with Africas largest economy.

Source: Bloomberg � Zimbabwe may soften indigenisation stance, but not for mining.

Empowerment deals signed with foreign-owned mining firms in Zimbabwe under the 51% indigenisation law, will "stick", said Finance Minister Patrick Chinamasa, and for the resources sector there is to be no compromise, but the minister indicated that this could change for other sectors outside the resources sector, in a "sector-by-sector approach".

Parliament passed the 51% ownership law in 2008 and mining companies such as Impala Platinum (IMP SJ), Anglo Platinum (AMS SJ) and Aquarius Platinum(AQP LN) have already complied with the law.

In non-resources sectors, Mr Chinamasa said the percentages of black ownership and their time-frames would be negotiable.

Source: Business Day � Todays African proverb.

"Follow the river to find the sea".

Source: BBC
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