🕐20.05.14 - 10:54 Uhr

INVESTEC GLOBAL NATURAL RESOURCES DAILY - MINING - TUESDAY 20 MAY - CAML LN, ABX
US, MNOD LI, NCCL LN, HFR AU, 486 HK



[cid:image001.png@01CF7404.213E5CA0] Tuesday, 20 May 2014 [cid:image006.jpg@01CF7404.2A391930]
Snapshot � Company news highlights: CAML Kounrad completion and expansion, Barrick pushes to advance Pascua Lama, Norilsk indicates it will find a way around potential sanctions, Ncondezi FY13A results, PFS from Highfield Resources potash project � Commodity review highlights: Iron ore and rebar languish, Indonesian ore ban until end 2015, Chinese aluminium cuts to have limited impact, China Q1 gold demand down 18%, platinum tracking sideways, Central bank agreement extended, European coal prices slip � Other economic news: Local Chinese governments may sell bonds directly � African resources update: Boko Harem suspected of attacking Chinese work site in Cameroon, AfDB sees 4.8% growth this year, todays African proverb � Market notes: US equities closed higher after a quiet session yesterday.

Ukraine headlines appear to be lessening, although an attempted coup in Tripoli by forces supporting former general Khalifa Haftar kept geopolitical risks in the headlines.

This morning in Asia its more about the martial law declaration in Thailand which it has stated is not a coup.

Asia markets mixed early doors with the Aussie resource names weighing the ASX. Commodities: local gas names got a healthy tick up yesterday as the China/Russia natural gas supply deal is close to being signed as Putin meets President Xi.

Spot uranium price declined $1 to $28/lb, with delays in restarts of the Japanese reactor restarting.

Nickel producer Norilsk Nickel (MNOD LI) said that the market surplus will shrink to 24kt this year representing the smallest surplus in four years.

The CRU World Aluminium Conference continues today.

WTI traded near a four week high amid speculation that US refineries processed crude at higher rates to meet summer demands.

Brent for July settlement fell in London. Data due: BoJ begins 2-day MPM meeting with an announcement expected tomorrow, no big data releases due from US, EUROPE: UK Inflation Mom fcast 0.3% (prior 0.2%); UK RPI Mom fcast 0.5% (prior 0.2%); German PPI; Italian Industrial Sales; Italian Current Account Balance
Company news � Central Asia Metals (CAML LN) Kounrad transaction completion and expansion.

CAML has announced that the transaction to acquire the remaining 40% of the Kounrad copper project in Kazakhstan has completed.

The group also announces its plans to expand production from 10,000t of copper cathode annually to 15,000t at a capital cost of US$35m from 2016.

The expansion will be funded from cash flows and should not affect the companys ability to pay dividends.

Source: Company Investec view: Todays announcement is positive news supporting what the market was waiting for.

While not unexpected, the Kounrad transaction had rumbled on, so its conclusion is very comforting.

We undertook some sensitivity analysis on a potential Kounrad expansion in a recent note ("Defensive copper exposure", 12 May), and concluded that an increase in output to 15,000t copper cathode annual production would be positive for the company. � Barrick Gold (ABX US) pushes to advance giant Pascua Lama gold copper project that has already cost over US$5bn.

Discussions are in progress with Chilean officials under the new government after the president said she wanted to resolve outstanding problems.

Barrick shelved the project in October due to problems with political opposition, environmental permitting, labour unrest and cost over runs as well as a sharp drop in gold prices.

The environmental regulator indicated last May that it would be 1-2 years at the earliest to reactivate the project in light of the infrastructure required to avoid water pollution.

Source: Thomson Reuters � Norilsk Nickel (MNOD LI) exec indicates that it will find a way around sanctions to sell metal if its operations are targeted by Western sanctions.

The company accounts for 41% of global mined palladium output producing around 2.6mozpa as well as being a major nickel producer.

Source: Thomson Reuters � Ncondezi Energy (NCCL LN) audited results reflect progress with various agreements signed with the government in an effort to become a power producer.

The company had cash at the end of April of US$5.1m.

Management aims to conclude final negotiations on the Power Concession, Power Purchase Agreement, Coal Supply Agreement and Co-Developer process in the coming months.

The company is looking to develop a 300MW power station that would require around 1.5mtpa of coal.

Source: Company � Highfield Resources (HFR AU) delivers PFS for Javier potash project.

The PFS has highlighted a post-tax, unlevered IRR of 48.4% with EBITDA at full production at $US235m, using a potash reference price of $384/t.

The study focusses on a high grade resource of 154Mt at 12.9% K2O (21.5% K60 product), planned to deliver average production of 860ktpa of potash (K60 product) over 20yrs.

Pre-production capex is estimated US$250m (total capex of US$307.9m).

Source: Company
[cid:image007.png@01CF7404.2A391930] Commodities news � Iron ore and rebar continue to languish.

The spot iron ore price fell yesterday to $98.5/t, the lowest level since Sep12, while steel rebar October delivery on Shanghai fell to 3,080yuan/t, the lowest close for since 2009 inception.

The difference between Chinese iron ore and spot prices stand at $26.33/t, with the higher number making imports more attractive.

Source: Bloomberg Investec view: The growing difference between seaborne prices and domestic prices must eventually weigh on domestic production, leaving it unable to compete and creating better balance in the market.

This is part of the gambit that the majors are playing, as they ramp up their production.

While the iron ore price has fallen below $100/t and commodity analysts rush to reduce their 2014 forecast, we do need to bear in mind that it has averaged $117/t so far this year, so would need to be at $90/t for the remainder of the year in order to average $100/t for 2014. � Indonesian ore export until end 2015: Rusal.

The ban is expected to remain in place at least until end of 2015 according to the chairman of Rusal Australia, speaking at a CRU aluminium conference in Hong Kong today.

The company expects a global aluminium deficit of 2.2mt in 2015, with the ban adding $80-$100/t to production costs.

The aluminium price is expected to recover in the 2H14.

Source: Bloomberg Investec view: Rusals view at the HK conference doesnt quite match that of the conference hosts.

Paul Williams, head of aluminium at CRU Group, doesnt expect prices to recover before 2016, with capacity closures in China not enough to support the price. � China to phase out high cost primary aluminium output within 2-3 years bringing total capacity to around 40mt with a pledge to cut 420ktpa of outdated capacity this year.

In the meantime, aluminium major Alcoa sees primary aluminium demand to rise 7% this year driven by China for which demand is expected to rise 10%.

Source: Thomson Reuters Investec View: Expansion plans at newer operations will probably more than offset any government driven cuts and CRU does not expect the cuts to be enough. � China gold demand down 18% in Q1.

Demand has fallen as investors bought fewer bars and coins (down 55% to 60t), offsetting record interest in jewellery (up 10% to 203t), according to the World Gold Council (WGC).

Purchases declined to 263.2mt.

Total Chinese consumption in 2013 rose 32% to a record 1,065.8t, about 28% of global usage, with Chinese jewellery purchases of 669t accounting for 30% of the global total.

The WGC retains its long-term demand outlook which has Chinese consumption increasing to 1,350t by 2017.

Source: Bloomberg � Platinum prices tracking sideways this morning despite on gong labour action in South Africa showing no signs of any near term resolution.

Demand for both platinum and palladium is reported to be steady and indications are that there is plenty of inventory to hand to continue to meet requirements.

Source: Thomson Reuters � ECB renews five year Central Bank Gold agreement but with no limit.

The agreement was originally designed to limit gold sales.

However, there has been no fixed ceiling for bullion sales, that current stands at 400t in a year.

The signatories apparently broadly agree that they have no plans to sell significant amounts of gold.

With no ceiling it appears that the move is to ensure that the banks would co-ordinate any actions they took.

Source: Thomson Reuters � European coal prices continue to slip in response to warm weather reducing energy demand with cargoes reported at US$72.75/t.

Coal prices have lost 40% of their value in the last three years due to oversupply and weak demand from Europe and Asia.

Source: Thomson Reuters
Other economic news � Chinese central government indicated that it is closer to letting local governments sell bonds directly for the first time, and that it would phase out opaque financing vehicles that are thought to have built up trillions of dollars of high risk debt.

The NDRC stated that enacting the change is a first priority for the government and will help local government fund various plans.

By allowing the bonds to be issued, the process can be better formalised with improved disclosure thereby limiting risks.

A state audit of local government debt put the figure at US$3trillion as of June 2013.

Source: Thomson Reuters Investec View: This should help reduce the risk of new non-performing bonds that threaten the economy but it is not clear how possible high risk debt can be unwound.
African resources update � Boko Haram rebels from Nigeria suspected in attack on Chinese work site in northern Cameroon, killing at least one soldier with 10 Chinese workers missing.

The rebels also took 10 vehicles and a container of explosives belonging to the Chinese company Sinohydro that is repairing roads in the country.

The rebel group has apparently staged several attacks in Northern Cameroon.

Source: Thomson Reuters � African Development Bank sees economic growth to accelerate to 4.8% this year with financial inflows of US$200bn for the continent.

However, conflict remains the greatest threat to achieving these targets.

Source: Thomson Reuters � Todays African Proverb.

"Whoever underestimates a short person has never stepped on a scorpion".

Source: BBC
Investec Global Natural Resources Research Team: UK Hong Kong South Africa Hunter Hillcoat Tel: +44 (0) 20 7597 5182
Matthew Whittall Tel: +852 3187 5075
Albert Minassian Tel: +27 (0) 21 416 1454
Marc Elliott Tel: +44 (0) 20 7597 5189
Leavitt Pope Tel: +852 3187 5074
Louise Collinge Tel: +44 (0) 20 7597 5779
Investec Global Natural Resources Sales Team: UK Hong Kong South Africa Jamie Campbell Tel: +44 (0) 20 7597 5038
Will Robbins Tel: +852 3187 5098
Hayden Smith Tel: +27 (0) 21 416 1401
USA Thomas Lawrence Tel: +1 212 2595604
Alistair Roberts Tel: +852 3187 5097
Investec Commodity Hedging Team: http://treasury.investec.co.uk/products-and-services/commodities.html UK Callum Macpherson Tel: +44 (0) 20 7597 5070
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