🕐07.05.14 - 09:54 Uhr

INVESTEC GLOBAL NATURAL RESOURCES DAILY - MINING - WEDNESDAY 7 MAY - AQA AU / SB
SG CORP, 005490 KS, ARMS LN, KGI LN, VALE US, HAR SJ, NEM US, WHC AU, ELM AU



[cid:image001.png@01CF69CA.DB188040] Wednesday, 07 May 2014 [cid:image006.jpg@01CF69CA.DE1AC3C0]
Snapshot ¢ Company news highlights: Baosteel bids A$1.4bn for Aquila Resources, Posco looking to raise Won2tr, Asia Resource Minerals update on demerger, Kirkland lake Q4 production results, Vale says access to China desirable but not necessary for Valemax ships, Harmony may pay dividend, Newmont said it will be forced to cut Indonesia production from 1st June, Whitehaven coal recommences Narrabi longwall production, Elemental Minerals announces Dougou exploration target ¢ Commodity review highlights: Gold prices firm, coal M&A may accelerate, nickel close to 15 month high, Chinese iron ore inventories continue to rise, Indian thermal coal imports fall, Indian steel consumption at 5 year low, De Beers to keep increasing diamond prices ¢ Other economic news: Chinese property slump risks, top hedge fund managers earnings up 50% on 2012 ¢ African resources update: South African elections today, China may take Zimbabwe minerals as loan payments, China Railway signs US$13.1bn deal in Nigeria ¢ Market notes: FTSE futures off 18 points this morning.

European markets are following losses in the US (Dow -0.78%, S&P -0.90%) due to weaker numbers from AIA, Twitter falling 12% as the IPO lock up expires and more tension in Ukraine as Russia rejects a European push for peace talks unless pro-Russian militants opposing the Ukraine interim government are involved in negotiations.

Asian stocks are broadly lower (Nikkei -2.93%m Hang Seng -1.18%, ASX200 -0.83%) as trading resumes following the long weekend combined with a slip in the HSBC services PMI (falling from 51.9 to 51.4) indicating the economy continues to slip.

Markets will be focused on any comments from Janet Yellan who is due to testify before the Joint Economic Committee of Congress today and cautious ahead of tomorrow’s BOE and ECB announcements. Commodity markets – gold +0.28% $1,312/oz, silver +0.51% $19.69/oz, platinum -0.19% $1,455/oz, copper -0.15% $3.06/lb, nickel +1.53% $18,536/t, iron ore +0.09% $106.00/t, thermal coal $73.45, WTI +0.64% $100.14/bbl, Brent +0.25% $107.31/bbl, zinc +0.32% $2,050/t.

Dual listed – BHP -1.30% A$37.17, RIO -1.62% A$60.50.

Crude rose as much as 0.7% following the American Petroleum Institute report showing inventories shrank by 1.82mmbls, despite a weak start gold has moved up overnight as investors weigh tensions in Ukraine against signs of an improving global economy, rebar prices in China fall to Rmb3,202/t (off 0.6%) with the steel sector likely to see less support from demand growth this month. Economic data due today: US – Non-farm productivity (forecast -1.2%), unit labour costs (2.8%), consumer credit ($15.5bn).

Eurozone – German factory orders (actual -2.8% versus 0.3% forecast), French industrial production MoM (forecast 0.3%), French manufacturing production MoM (0.1%), French trade balance (-€4,650m), UK Halifax House Prices MoM (0.9%).
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http://www.extelsurveys.com/ Company news ¢ Baosteel (SBSG Corp) makes A$1.4bn offer for Aquila Resources (AQA AU) at A$3.4/share in cash, a 39% premium to the pre-bid closing price.

The company acquired a 15% stake in Aquila at A$6.50 in 2009 and a further 4.6% stake last December.

The deal along with Aurizon (Australia’s largest haulage company) a half stake in the A$7.4bn West Pilbara iron ore, port and rail project in WA.

Source: Bloomberg ¢ Posco (005490 KS) looking to raise 2tr Won in asset sales.

Posco is reportedly looking to sell assets including its c.

20% stake in Daewoo International and Finex mill according to local press reports.

The restructuring plans are due to be announced on 16 May 2014 at the company board meeting.

Source: Bloomberg ¢ Asia Resource Minerals (ARMS LN) update on demerger options.

A number of ARMS major shareholders have requested that the company’s shares in PT Berau be distributed in specie to its shareholders, thereby removing the need for a London based management team and listed vehicle.

Certain other shareholders have indicated a preference to maintain the existing corporate structure.

The board now believes that it must assess shareholder acceptance of these ideas.

Due to these developments, the company has delayed its AGM until 27 June 2014.

As previously announced, the company still intends to distribute at least US$400m to its shareholders.

Source: Company Investec view: We can see the merit in the in specie distribution of the PT Berau shares but it really would be a dramatic end to this whole Bumi / ARMS saga in London.

We suspect major shareholder Rothschild may not be a supporter of the shareholder distribution option…. ¢ Kirkland Lake (KGI LN) 4Q production results.

The company produced 29,721oz in the 4Q, thereby delivering 122,309oz in the full year and enabling KGI to meet its FY14E guidance of 120-125koz.

Average head grades have improved from 10.6g/t in January, when the new mine plan was implemented, to 13.4g/t currently as the company applies a lower tonnage approach, focussed on higher-grades.

This strategy is to be continued into FY15E, with a focus the South Mine Complex over the Main Break.

As previously announced, KGI is guiding FY15E production of 140-155koz.

Source: Company Investec view: No mention of costs, as is the norm at this stage.

The 4Q production was the lowest quarterly production since 3Q13A but is a good result given that it incorporates adoption of a new mine plan, and the bedding down process this requires.

The benefits of this show through in the higher grade, the highest since 1Q12A. ¢ Vale (VALE US) says access to China is desirable but not necessary.

VALE has established enough access for its 400,000t deadweight Valemax vessels at ports around the world that it does not need China to lift its ban on these ships.

The Valemaxes can berth in Japan, South Korea, the Philippines and Malaysia.

The company currently has 30 Valemaxes and will increase this to 35 by mid-2014.

Source: Thomson Reuters ¢ Harmony Gold (HAR SJ) may pay dividend.

CEO, Graham Briggs, raised the prospect that shareholders could be paid a year-end dividend after delivering an improved Q3 and suggesting Q4 could be better.

Due to lower currency exchange translation losses and a higher rand gold price, HAR reported a Q3 net profit of c.US$3m, up from the previous quarter’s loss of c.US$10m.

Source: Miningmx ¢ Newmont (NEM US) said it will be forced to cut production at its Batu Hijau copper gold project in Indonesia from around 1st June if talks remain unresolved over exports, permits and taxes.

The government wants to impose a 25% export tax that rises to 60% by H2 2016.

Source: Thomson Reuters Investec View: The Indonesian economy is reported to suffering from its minerals export policy at a time of approaching elections.

Clearly the ability for foreign companies to operate in country is becoming increasingly difficult undermining the attractiveness for investors. ¢ Whitehaven Coal (WHC AU) recommences Narrabri longwall production.

Whitehaven reported that longwall production at its Narrabri mine has resumed at normalised production levels.

Source: Company Investec view: Full year production guidance from Narrabri was downgraded on 24 April from 5.5mt to a range of 4.8-5mt but the company has revised guidance back upwards to 5-5.2mt (100%) following sooner than expected rectification of longwall horizon control related issues.

Full year saleable coal production for the company is forecast to be in the range of 10-10.2mt. ¢ Elemental Minerals (ELM AU) announces Dougou exploration target.

Elemental Minerals announced a 1-1.4bt exploration target grading between 23-25% KCI at its Dougou project (part of the larger 93% owned Sintoukola project) in the Republic of Congo.

Source: Company Investec view: Dougou is the second area of mineralisation now identified at the Sintoukola project.

Elemental has already completed a pre-feasibility study on the Kola deposit.

Since the 18 March 2014 collapse of the A$0.66/share Dingyi bid Elemental announced that they are in discussions with a large African conglomerate to advance the Kola project.

As at the end of March 2014 the company had a modest cash balance of US$11.5m.
[cid:image007.png@01CF69CA.DE1AC3C0] Commodities news ¢ Gold prices continue to strengthen trading close to a 3 week high as US$ weakens and tensions in the Ukraine.

However, physical buying in Asia is reported to be weak due to volatile prices as consumers expect prices to drop further, as well as a weaker Chinese currency.

Source: Thomson Reuters ¢ Coal M&A may be set to pick up pace with ex-CEO of Gloucester Coal lining up US$200m of PE money to buy up metallurgical coal projects in Australia, New Zealand and Indonesia to take advantage of weak valuations in the sector.

Denham Capital is backing the venture that is known as Pembroke Resources.

Source: Thomson Reuters Investec View: There has been mention of quite a few M&A deals in the coal space in recent months as prices remain depressed with many assets struggling with an oversupplied market in both thermal ant metallurgical coal.

Eventually prices should recover, however it may be some time before healthy profits can be achieved with many producers under water currently.

Time to incubate assets where possible. ¢ Nickel prices close to 15 month high as Chinese nickel pig iron producers run down stockpiles following Indonesia’s minerals export ban.

Prices for nickel ore in China are reportedly rising rapidly and at around US$100/t cif from US$65/t cif mid-March for 1.8% Ni laterite ore.

Some Chinese stainless steel producers are reverting to buying refined nickel and scrap metal to feed production.

Source: Thomson Reuters ¢ Chinese iron ore inventories continue to climb, having reached record high of 112.63mt by the end of April.

Spot prices into China are reported at around US$106/t yesterday close to a 7 week low.

Futures contracts are also reported to be under pressure.

This price action is coming at a time of higher seasonal industrial activity that may lend some support in the weeks ahead.

Source: Thomson Reuters ¢ Indian thermal coal imports fall.

In April, India’s thermal coal imports fell by 6% MoM to 15.2Mt.

This is the first dip in three months, as power and steel producers used up stockpiles previously built up.

Source: Reuters ¢ Indian steel consumption growth at 5yr lows.

Production of crude steel in 2013-14 increased 3.8% to 81.3mt.

However, Indian steel consumption has risen at the slowest rate in five years as economic growth was 4.5%, the slowest in 10 years and 265 projects valued at US$230bn remain backlogged, according to the Cabinet Committee on Investment.

Source: Bloomberg ¢ De Beers to keep increasing diamond prices.

The company plans to raise prices by 5% per annum, on the expectation that demand will continue to outstrip supply.

It has already increased prices 5% this year with further increases unlikely this year.

One of the company’s objectives is to create more stable prices and drive volatility out.

Rough diamond prices increased c.10% in the past after more than doubling in the past five years.

De Beers predicts global diamond demand to grow 4.0-4.5% this year.

Source: Bloomberg
Other economic news ¢ Chinese property slump adds danger to local finances.

Chinese land sales in 20 major cities fell by 5% in March MoM, which is the biggest fall in at least a year, according to China Real Estate Information Corp.

The value of land sales in third tier cities declined by 27% last month.

This weakening property market poses an increasing danger to local governments, threatening their finances which may intensify an economic slowdown.

Source: Company ¢ Top hedge fund managers earnings up 50% on 2012 levels.

The world’s 25 best-paid hedge fund managers took home a combined $21.1bn last year, 50% more than in 2012.

David Tepper, the founder of Appaloosa Management, was the highest earner, taking home $3.5bn and topping the list for a 2nd consecutive year.

He was followed by Steven Cohen (founder of SAC Capital) who made $2.4bn and John Paulson, who took home $2.3bn.

Source: FT
African resources update ¢ South African elections today.

Polls have opened in South Africa today for the 5th general election since the end of apartheid 20 years ago.

The ANC is widely assumed to win the election, meaning that President Zuma would return for a second five-year term.

The full result is not expected before Friday.

Source: BBC ¢ China may take Zimbabwe minerals as loan repayments.

China and Zimbabwe are negotiating on whether Zimbabwe will use its mineral proceeds to guarantee any future loans, as the governments negotiate over further funds in a comprehensive financial rescue package for the failing Zimbabwean economy.

The Chinese Exim bank has provided US$1.5bn over the last 3 years, ~37% of the 2014 national budget that is now too burdensome for the government to repay, so officials alongside MOFCOM are discussing how much collateral China would get before releasing more funds.

Source: NewsZimbabwe.com ¢ China Railway signs US$13.1bn deal to build a high speed railway in Nigeria that will extend 1,385km and allow trains to run 120kph, although no details about the location of the line have been provided.

Source: Thomson Reuters
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