🕐04.07.14 - 09:27 Uhr

INVESTEC GLOBAL NATURAL RESOURCES DAILY - MINING - FRIDAY 04 JULY - BZM LN, ERA
FP, 2133 HK, NRRP LN, AQA AU, EVN AU, SSLT IN, GLEN AU, PGIL LN



[cid:image001.png@01CF975F.58921650] Friday, 04 July 2014 [cid:image006.jpg@01CF975F.79DA4A30]
Snapshot � Company news highlights: Research note on Bellzone, Eramet may delay investment decision on Weda Bay, China Polymetallic unusual price movement and trading volume, North River gets PE backing, Baosteel/Aurizons increase their interest in Aquila, Evolution produces 427.7koz in FY14, Sesa Sterlite comments on plans to restart mining in Goa, Glencore responds to Australian tax accusations � Commodity review highlights: A step back to gold hedging, Chinese gold imports could fall 400t this year, Iron ore prices at highest level since late May, Chilean blackout has limited impact � Other economic news: US posts strong jobs growth in June, Morgan Stanley to buy Deutsche Banks bulk commodities trading book � African resources update: Namibia planning to follow Botswana example and sell diamonds separately from De Beers, SA police disperse workers blocking Eskoms Medupi power station, Todays African Proverb � Market notes: The Dow got there going through 17k but the S&P missed the 2k level despite adding another 55bps and setting a new high.

Better than expected jobs data the key to the climbs in the shortened pre-holiday session.

The 5th month on the spin that jobs data has beaten expectations.

The unemployment rate lowered to 6.1 (expected 6.3).

European stocks posted their biggest three-day rally in 10 weeks as the European Central Bank left its benchmark interest rate at a record low.

Banks rose over 2% showing the biggest increase among the 19 industry groups on the Stoxx 600.

The US dollar strengthened the most in a month as jobs gains that exceeded analyst estimates boosted speculation the Federal Reserve may bring forward the timing of interest-rate increases.

The U.S.

currency rose against all but one of its 16 major peers as the prospect of higher borrowing costs set the U.S.

apart from other nations that are adding to currency-debasing stimulus measures to boost growth. Commodities: WTI crude fell for a sixth day, marking its longest retreat in more than two years on easing supply concerns in Iraq and Libya..

Gold futures dropped most since May in New York; China import iron ore benchmark rose to the highest since May 28.

Iron ore exports to China from Australias Port Hedland declined from an all-time high last month amid record stockpiles at ports in China.

Shipments from the worlds biggest bulk export port to China were 29.2m metric tons from the record 29.9mn tons in May.

Total shipments were 33.6m tons from a record 36.1m tons in May. Data Due: US: Market closed for Independence Day, EUROPE: German Factory Orders; Italian Deficit to GDP; Eurozone Markit Retail PMI for Eurozone, Germany, France, Italy.; UK New Car Registrations data
Company news � Research note on Bellzone (BZM LN).

Our analyst has put out an update note, post the recent FY13A results, which reported a loss of $156.5m, including a $92.2m impairment of the ill-fated investment in the For�cariah JV.

Following cash outflows of c.$39m since the start of 2013, BZM has sufficient cash until August, while it pursues funding for Kalia.

The updated company valuation assumes no cash contribution from Forecariah (currently not shipping ore) but continues to assume start-up of Kalia in 2016, the BFS for which had indicated robust economics.

Ultimately, any valuation is inherent on Bellzones success in securing a strategic partner to finance Kalias $865m development cost.

Source: Investec � Eramet (ERA FP) may delay investment decision on Weda Bay nickel project in Indonesia to as late as mid-2017 due to uncertainty over fiscal regime.

The company has been going through difficult negotiations with the government on tax and ownership terms.

The company delayed its investment decision last year due to weak nickel prices, but anticipates a deficit from the end of this year that could last till 2017.

Source: Thomson Reuters Investec View: The asset is expected to be developed to produce an initial 35ktpa Ni and eventually expanding to 65ktpa and is planned to use a new hydrometallurgical process, although we note that these large nickel projects are typically very challenging with major capital over runs.

Furthermore, operating in Indonesia is becoming increasingly challenging due to government policies. � China Polymetallic Mining (2133 HK) unusual price movement and trading volume.

China Polymetallics share price was up 15.6% on Thursday to HKD0.43/share with volume of 9m shares traded.

The company is not aware of any reason for the share price move.

Source: Company Investec view: China Polymetallic Mining owns the Shizishan silver/lead/zinc mine in Yunnan province, China.

Shizishan has an exceptionally high grade reserve (9.3% lead, 6% zinc, 250g/t silver) but in the 2.5 years since mine commissioning company management have not come close to operating the mine in line with feasibility study forecasts due to excessive ore dilution and low number of operating days.

Our analysts see value in the stock but it will probably take a change of management to realise that value.

See our latest update on the company A diluted value story dated 14 March 2014. � North River (NRRP LN) gets Private Equity backing.

North river has announced a binding investment agreement with Greenstone Resources, whereby Greenstone will invest up to $12m in a series of tranches (equity and convertibles), subject to certain milestones.

The funding should enable North River to complete the approval process for its Namib lead and zinc mine restart, accelerate development through early works and the place long-lead item orders.

Source: Company � Baosteel/Aurizons increase their interest in Aquila (AQA AU) to 69.31%.

The joint off market A$3.40/share bid for Aquila by Baosteel/Aurizon has now received acceptances equal to 69.31% of Aquila shares on issue.

The minimum acceptance condition has now been met with both Mineral Resources (MIN AU), who had a 12.78% interest, and the Aquila CEO, Tony Poli, who had a 28.9% interest, accepting the offer.

Source: Company � Evolution (EVN AU) produces 427.7koz of gold in FY14.

Evolution Mining has reported FY14 (Jun YE) gold production of 427.7koz, in line with guidance of 400-450koz and up 9% y-o-y.

Source: Company � Sesa Sterlite (SSLT IN) comments on plans to restart mining in Goa.

Sesa Sterlite believes iron ore mining could resume in Goa as soon as September/October 2014.

The company however believes that with low grade iron ore prices at just c.

US$60/t, a 30% export duty and an expected increase in royalties mining will be uneconomical unless iron ore prices rise.

Source: Reuters Investec view: Indias Supreme Court lifted an 18-month ban on iron ore mining in Goa in April 2014.

Mining companies have however had to reapply for licenses and production will be capped at 20mtpa.

Sesa Sterlite believes its mines in Gao could produce c.

7mtpa, subject to government allocations, once production resumes, significantly below its capacity of 14.5mtpa. � Glencore (GLEN AU) responds to accusations that it has avoided paying tax at its Australian operations.

Glencore has responded to recent claims by the Sydney Morning Herald that it has avoided paying taxes in Australia in an internal email to employees, seen by the FT.

Glencore claims that it has paid A$8bn in royalties and taxes in Australia since 2007 including A$2bn of corporate income tax.

Source: FT
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Commodities news � A step back to gold hedging.

Polyus (PGIL LN) has announced the largest hedging transaction in six years, raising the prospect (threat?) that forward selling may be on the increase, at least for the smaller players.

The hedging programme (totalling 2.83moz, including 2.52moz of options) aims to increase the certainty of cash flows for the company as it develops its Natalka project.

Source: FT Investec view: Hedging can be justified as a financial tool in certain cases.

The trouble begins when too many companies hedge, thereby creating an effective oversupply, which supresses the price, so more companies have to hedge, etc, etc � Chinese gold imports could fall 400t this year as government tightens controls on gold financing deals and domestic demand eases.

Gold imports into Hong Kong in May fell to lowest level since January last year implying that gold lending was being partly wound down.

Chinese gold imports reached nearly 1,800t last year if factoring official and unofficial shipments.

As much as 1,000t of gold could be tied up in financing transactions.

Source: Thomson Reuters Investec View: This is not an insignificant concern if the volumes are as high as indicated.

China was the worlds largest consumer of gold last year, and if its buying activities are to be materially curb, it could well restrain and undermine the gold price. � Iron ore prices at highest level since late May with yesterdays Chinese price reported at US$96.5/t CFR.

Steel producers expect prices to reach US$100/t soon and so are taking the weaker priced environment to stock up.

Inventories at medium sized Chinese steel producers are typically around 20-30 days but had fallen to 15-20 days.

Port inventories were down slightly at 112.65t last week from a record high of 113.65t the previous week.

Source: Thomson Reuters � Chilean blackout reported on Wednesday lasted a short time with 65% of industrial users receiving power by midnight.

The outage impacted a number of mines including Chuquicamata, Escondida, Collahuasi, Minera Centinela, although typically these larger mines would have had back up power to keep key parts of operations running.

Source: Thomson Reuters Investec View: We dont expect the outage to have a material impact on copper output from the country, however it does highlight the challenges faced in Chile with mining companies often investing in power projects to minimise such risks.
Other economic news � US posts strong jobs growth in June.

The US unemployment rate fell to 6.1%, nearly a six year low, after payrolls grew by 288k workers in June.

The result beat the consensus estimate for 215k new jobs, pushing the S&P 500 to a new all-time high and driving expectations that the Federal Reserve will begin raising interest rates sooner.

Source: Bloomberg � Morgan Stanley (MS US) to buy Deutsche Banks bulk commodities trading book dealing in coal, iron ore and freight forward contracts.

This is a return to iron ore for MS that had exited the space last year.

The move comes at a time that the bank finds itself under increased scrutiny from regulators for commodities trading activities.

Source: Thomson Reuter
African resources update � Namibia planning to follow Botswana example and sell diamonds separately from De Beers.

Namibia is negotiating to sell some of the gem production from Namdeb Diamond Corp, a JV with the government and Anglo Americans (AAL LN) De Beers, separately from the agreement it has De Beers.

The government is intending to emulate the model set by Botswana.

Botswanas Okavanago Diamond Co.

started selling 13% of the countrys gems in December, after De Beers agreed to a new 10-year marketing pact.

Nambia expects negotiations with De Beers on setting up the new diamond company to be completed by December.

Source: Bloomberg � South African police fire rubber bullets to disperse workers blocking Eskoms Medupi power station as NUMSA strike action continues.

The strike has disrupted construction work at Medupi and Kusile power stations which the country needs to improve the challenging power situation in country.

Source: Thomson Reuters � Todays African Proverb.

"No matter how tall the Iroko tree grows, it never touches the sky".

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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