🕐22.05.14 - 10:27 Uhr

INVESTEC GLOBAL NATURAL RESOURCES DAILY - MINING - THURSDAY 22 MAY - FXPO LN, PO
LY LN, GLEN LN, RMM LN, TALV LN



[cid:image001.png@01CF7593.AAD08BB0] Thursday, 22 May 2014 [cid:image006.jpg@01CF7593.B3DE5B10]
Snapshot � Company news highlights: Update note on Ferrexpo, Polymetal makes +$600m acquisition, Glencore to close Newlands mine, Rambler 3Q results, Talvivaara need to find JV partner � Commodity review highlights: Key commodities (copper and iron ore) up, Indias Central Bank has eased gold import rules, global steel output rose at second fastest level in April, European physical coal prices continue to fall � Other economic news: Better than expected Chinese PMI. � African resources update: Hopes that talks in SA will result in PGM strike settlement, Egypts former President given jail sentence, todays African proverb. � Market notes: While the US market finished higher yesterday there were still no real drivers.

April FOMC minutes didnt really provide any additional insight into the timing of the first rate hike or how aggressive the early stages of the tightening cycle will be.

The USD gained against the euro amid concern the European Parliament elections starting today may shift the balance of power.

The yen reached a three-month high after BoJ refrained from expanding stimulus Commodities.

WTI crude rose to a one-month high as a government report showed U.S.

supplies tumbled last week.

Brent oil gained on unrest in Libya.

Some reprieve for iron ore but still below that $100/t level as talks of tug strikes increase.

BHP is likely to ask the Aussie govt to intervene to stop the threatened strike.

Gold declined as the Fed said it sees a muted inflation risk from continued stimulus. Data due: EUROPE: French Production Outlook; French Manufacturing Confidence; UK GDP (fcast 0.8% Qoq); UK Import and Export Data Qoq; UK Borrowing data; Markit Manufacturing and Services data for Eurozone, France, Germany; Irish PPI; US: April existing home sales fcast 4.68m (prior 4.59m); leading index fcast +0.4% (prior +0.8%); weekly initial jobless claims fcast 310,000 (prior 297,000); Consumer Comfort data
Company news � Update note on Ferrexpo (FXPO LN).

Comparing the UK-quoted iron ore stocks against the iron ore price in 2014 indicates that FXPO now has the closest correlation to its underlying commodity, with Rio Tinto (RIO LN) outperforming iron ore and African Minerals (AMI LN) and London Mining (LOND LN) now underperforming it.

While the FXPO share price did occasionally appear to reflect Ukraine political concerns, it recovered each time and the stocks close correlation with the iron ore price now suggests that the market is factoring in little, if any, country risk.

Source: Investec � Polymetal (POLY LN) makes initial US$618.5m Kazak acquisition.

Polymetal has entered binding agreements with Sumeru Gold (Private) to acquire the Kyzyl gold project, located in NE Kazakhstan.

Consideration is $318.5m cash and $300m of POLY shares, with additional extended cash considerations of up to $500m, contingent on a number of conditions, including a higher POLY share price.

The asset will add 6.7moz at 7.5g/t to POLYs reserves, increasing reserves by 50% and enabling a +20yr life, with good exploration upside beyond this.

The acquisition is expected to complete in 4Q14 and POLY expects to complete a feasibility study by 4Q15 and be in production in 2018.

Source: Company Investec view: Clearly the outcome of the feasibility study will determine the likely margins that POLY can generate on this project, but the initial acquisition cost of $92 per ounce of (high-grade) reserves appears to be a very reasonable, particularly if exploration upside offsets the cost of any additional consideration.

The project will assumedly provide an additional growth step for the company, which otherwise had a reasonably flat growth profile, with production peaking at 1.4mozpa Au-Eq. � Glencore (GLEN LN) to close Newlands underground mine in 2015 electing not to extend the life of the mine.

The mine produced 2.75mt of thermal coal last year.

This follows a resent suspension at its Ravensworth underground mine in reaction to weak coal prices.

Source: Thomson Reuters Investec View: Glencore is heavily exposed to coal that despite contributing around 13% of EBIT in 2013, the business unit can make a material difference to earnings if coal firm back toward US$90/t.

At current prices c.

US$74/t spot, margins for most major producers are exceptionally thin and certainly below the incentivisation price to develop capacity.

We note that the Australia thermal coal production for the group totalled 56mt last year and the closure is unlikely to have a material impact on the groups earnings. � Rambler (RMM LN) 3Q14 results.

Rambler produced 6,238t of concentrate, down 9% on the 2Q numbers, from milled tonnes of 49,355t (down 3%), delivering 1,829t of copper (down 8%) and 1,608oz of gold (up 4%).

Production was impacted by the extreme winter conditions but the company remains confident of meeting or exceeding the top end of its operational and production guidance, including 200-220kt ore at 3.98% copper.

Source: Company � Talvivaaras (TALV LN) administrator states that the company needs to find a JV partner.

The company has collapsed and is undergoing debt restructuring.

Operations were suspended last year as a court led debt restructuring process was under taken.

Source: Thomson Reuters Investec View: Ironically the recent resurgence in the nickel price could make the asset base more viable, although we note that since starting production it has faced numerous technical difficulties and so whether the asset can ever deliver on its previous targets is questionable.
[cid:image007.png@01CF7593.B3DE5B10] Commodities news � Key commodities, copper and iron ore, up.

Following two days of decline copper prices are up this morning from a 9 day low yesterday in response to a more positive economic view on China from good performance in the factory sector and no expectation of rate hikes in the US for the near term.

Iron ore futures for June settlement advanced 1.6% yesterday, reaching $100/t for first time in four days.

Source: Thomson Reuters, Bloomberg � Indias Central Bank has eased gold import rules by allowing 7 more private agencies to ship the precious metal that could enable imports to rise quickly from current levels.

Over 20 entities comprising state banks, private banks and agencies will now be able to import gold that will likely lead to a decrease in premiums that currently stand at around US$40-50/oz.

Source: Thomson Reuters Investec View: India is historically the worlds largest consumer of gold, but government policies to curb the trade deficit drastically cut gold imports.

A gradual resumption to more normal volumes should be supportive of gold pricing longer term, although prices appear primarily driven by investment flows, in particular via ETFs that are at five year lows having steadily dumped inventories as theyve been sold down. � Global steel output rose at second fastest level in April at 137mt up 1.7% due to an increase in Europe and the Middle East and China.

Rising output in China especially has added to the oversupply situation depressing prices.

Source: Thomson Reuters � European physical coal prices continue to fall trading around US$72.05/t, down 45c from the previous day.

Heavy selling is reported in the region pulling prices to a discount versus South Africa and Australia where the commodity is trading at around US$74-76/t.

Coal prices are down 40% in three years due to oversupply and slowing demand growth.

Source: Thomson Reuters
Other economic news � Better than expected Chinese PMI.

Chinas factor sector put in best performance this year in May, but still reflected a fifth monthly contraction according to the HSBC/Markit Flash data with PMI at 49.7, following 48.1 in April.

The good news is that it exceeded the 48.3 median estimate of analysts surveyed by Bloomberg.

Source: Thomson Reuters, Bloomberg
African resources update � Hopes that court mediated talks in South Africa will result in a settlement of strike action lift PGM miners this morning.

Militant union AMCU has indicated that it is optimistic over the outcome of the talks that are due to last three days.

Source : Thomson Reuters & MiningWeekly Investec View: If a solution is agreed, it will enable the major miners to implement recovery plans, although there has likely been some permanent damage to the asset base and restructuring appears inevitable.

Furthermore, we wait to see how the platinum price responds since a recovery in supplies could undermine prices subject to the permanent cuts and time required to ramp back up. � Egypts former President, Hosni Mubarak, given jail sentence.

A court in Egypt has sentenced the former President to three years in prison after finding him guilty of embezzling public funds, while his two sons, Alaa and Gamal, were given four-year terms.

Mubarak is also on trial for abuse of power and conspiring in the killing of protesters during the 2011 uprising that forced him to resign.

Source: BBC � Todays African proverb.

"First find an escape route before taunting the cobra".

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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