[cid:image001.png@01CF9CDE.0C6BD520] Friday, 11 July 2014 [cid:image006.jpg@01CF9CDE.0CCFEE20]
Snapshot � Company news highlights: Fortescue achieves production rate but shipments miss guidance, Rusal has started work on Guinea bauxite project, Syrah Resources confirms takeover interest, Phoenix Gold acquires 2.3mtpa heap leach processing plant, Regal announces maiden DRC resource, South Gobi Q2 production report, Datang International Power reports lower output, China Gold international issues US$500m bond. � Commodity review highlights: Maggot meal in Cape Town, Steel rebar continues to rise, gold up yesterday, India maintains import duty, Shenhua further cuts coal prices � Other economic news: Chinas property co.

share prices rise on signs of loosening restrictions, Bank of China accused of money laundering � African resources update: No Mozambique tax cuts for Vale, over half of Chinas foreign aid went to Africa, todays African proverb � Market notes: US stocks closed lower yesterday with weakness largely attributed to the selloff seen in Europe.

An unexpected plunge in Japan machinery orders plus softer Chinese trade numbers also added to the negative sentiment..

European stocks fell for a fifth day as a gauge of lenders declined to its lowest level this year and equities in the so-called peripheral nations tumbled.

Banks in Portugal, Italy and Spain sank, sending an industry gauge to the fourth slump in five days.

Asia opening weaker first thing. A busy day in currency markets with the euro snapping a three-day climb versus the dollar as missed debt payments of a Portuguese bank raised concern the regions economy remains vulnerable to shocks as it emerges from the sovereign-debt crisis.

Japans currency advanced against all of its 16 major counterparts on investors demand for safer assets, and after the FED minutes yesterday boosted speculation that U.S.

interest rates will remain near zero this year.

Australias dollar retreated from the highest in a week after the nations jobless rate climbed and imports by China grew slower than economists forecast. Commodities - A softer oil environment for sure this week with WTI crude headed for a slump as supply concerns eased in Iraq and Libya and inventories at Cushing rebounded from a five-year low.

Brent also declined.

Futures dropped for a 10th day, poised for the longest retreat since the contracts began trading in 1983.

Libyas production rose as output from the western Sharara field climbed according to National Oil Corp.

Gold prices sent up Aussie golds; China import iron ore benchmark +0.3%.

Copper tracking sideways this morning after climb yesterday. Data Due: US - Commerce Department expected to issue decision on penalty duties for steel pipe imports from 9 nations incl.

Korea, Europe - German Inflation data; French Current Account Balance; Spanish Inflation; UK Construction Output; Irish Industrial Production
Company news � Fortescue Metals Group (FMG AU) achieves 155mtpa production rate in JunQ14 but shipments miss guidance.

Fortescue reported JunQ14 iron ore production of 38.7mt, an annualized rate of 155mt.

Production in the month of June of 13.3mt represented an annualized rate of 160mt.

Total shipments for FY14 (Jun YE) reached 124.2mt, below company guidance of 127mt.

In FY14 Fortescue reported an average realised iron ore price of US$106/t (dry) and a delivered cost of US$52/t (wet).

Source: Company � Rusal (486 HK) has started work on its Dian-Dian bauxite project in Guinea.

Rusal is the worlds largest aluminium producer is in discussions over restructuring its debt (net debt at US$10.3bn at end March).

Dian-Dian is the worlds largest bauxite deposit with reserves of 564mt.

3mtpa of capacity is scheduled to come on stream by end 2016 with scope to expand to 6mtpa.

First stage investment is forecast at over US$220m.

Source: Thomson Reuters � Syrah Resources (SYR AU) confirms it has received takeover interest as it calls trading halt whilst it prepared an answer to the ASX as share price rallies.

The company has said it occasionally received informal, confidential and non-binding enquiries from different parties.

Press speculation in Australia is that Glencore (GLEN LN) could be willing to pay up to A$2bn for the company.

Source: MiningNewsPremium Investec View: We remain very skeptical that Glencore would make a bid for a greenfield graphite and vanadium pentoxide project. � Phoenix Gold (PXG AU) acquires 2.3mtpa heap leach processing plant.

Australian gold explorer Phoenix Gold has reached an agreement to acquire a 2.3mtpa heap leach processing facility from St Ives Gold for A$2.0m.

Phoenix plans to relocate and refurbish the plant, which is currently on care and maintenance, to process low grade ore stockpiles at its Castle Hill project.

Source: Company Investec view: With a lower grade ore reserve of 15mt at 0.6g/t containing 280koz gold, the heap leach plant could add 25kozpa-30kozpa to complement Castle Hills higher grade ore processing.

Phoenix plans to begin mining high grade ore at Castle Hill for toll processing in DecQ14. � Regal (RER AU) announces maiden resource of 276kt copper.

Regal Resources announced a maiden inferred resource of 10mt copper at 2.65%, which includes 4.0mt of cobalt at 0.72%, plus 1.94mt of cobalt at 0.69% at its Kalongwe JV (30% RER) in the DRC.

Total contained resources are 276kt copper and 42.5kt cobalt.

Source: Company � SouthGobi (1878 HK) announces select 2Q14 data.

SouthGobi reported 2Q14 raw coal production of 0.55kt and sales of 0.91kt (0.4kt standard semi-soft coking coal and 0.51kt thermal coal).

Sales were in line with our analysts forecasts although raw coal production was lower than forecast.

Whilst sales volumes were up 133% q-o-q the company continues to operate under difficult market conditions with coal prices falling further in 2Q14.

In response to market conditions the company placed 50% of its workforce in furlough in June, which is expected to last at least until the end of July.

Contracted sales will be met from existing stockpiles and reduced production volumes.

SouthGobi reported cash of US$8.8m as at 30 June 2014, down from US$9.9m as at 31 March 2014.

Source: Company Investec view: SouthGobi remains in a precarious financial position.

The company has a cash interest payment of c.

US$8m due on the CIC convertible note on 19 November 2014.

The company did secure a US$10m revolving credit facility from Turquoise Hill in May 2014 of which US$3.8m has been drawn down, we however believe the company will require funding of at least US$30m to meet its obligations over the course of the year.

The company continues to actively seek additional financing. � Datang International Power (991 HK) reports lower JunH14 power generation.

Datang reported JunH14 power generation of 90.927bn kWh, down 2.08% y-o-y.

The company attributed the drop to the slowdown in economic growth in China and the decrease in overall regional on-grid utilization hours of thermal power generation units.

Source: Company Investec view: China consumed c.

3.4bn tonnes of coal in 2013 and the National Development and Reform Commission has forecast a 1.6% y-o-y increase in demand in 2014 versus 2.6% y-o-y growth in 2013. � China Gold International (2099 HK, CGG CN) issues US$500m 3.5% bond.

Gold miner China Gold International has issued a US$500m bond due July 2017 at an interest rate of 3.5%.

The bond is rated BBB- by Standard & Poors and proceeds will be used for working capital and to develop the companys mine expansions.

Source: Company Investec view: As a Chinese state owned company, China Gold International has been able to raise debt financing at a relatively low interest rate as compared to private companies, in our view.
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Commodities news � A new addition to the commodity market.

The worlds biggest fly farm is to be developed in Cape Town as maggot meal takes on soy in the global animal-feed market.

The farm will harvest maggots from about 8.5bn flies housed in giant cages.

Due to be completed next year, the farm plans to take in 110tpd of organic waste (out-of date-food, uneaten food from restaurants, abattoir waste, etc) and produce 23.5tpd of protein meal and oils and 50tpd of fertilizer.

Fish and chicken farmers have already signed contracts to buy the feed.

The company expects returns on investment in the mid- twenties.

Source: Bloomberg � Steel rebar continues its rise, heading for 4th weekly gain.

Steel reinforcement-bar futures are up +0.6% this week, advancing for 4th week, the longest weekly rally since August last year.

Chinas daily crude steel output by large mills averaged 1.78mt in last 10 days of June, down 3.2% from previous 10 days.

The difference between domestic iron ore and seaborne stands at $11.84/t, the lowest level since April 10 (a higher number makes imports more attractive).

Source: Bloomberg Investec view: In its quarterly statement today Fortescue (FMG AU) has reiterated the generally held view that iron ore prices will stabilise as higher-cost production leaves the market.

The price certainly seems to be stabilising around current levels of $95/t, although the market has still to face the 2H surge in new production while the domestic-seaborne discount has come down significantly. � Gold up sharply yesterday approaching 4 month high as troubles at Portuguese bank trigger safe haven demand for gold.

Tensions in the Middle East and Ukraine are also contributing to price support.

Platinum prices also supported by sentiment in gold.

Source: Thomson Reuters � India maintains gold import duty at 10% in fiscal budget, a move that is likely to limit overseas purchases by worlds biggest consumer of the metal.

Premiums are currently at around US$10/t and are expected to rise as buyers were holding back in anticipation of a reduction in the import duty.

Indias gold imports collapsed last year due to policies aimed at reducing imports, however the World Gold Council estimates that 200-250t have been smuggled into the country.

Source: Thomson Reuters � Shenhua (1088 HK) further cuts coal prices.

Shenhua has reduced its thermal coal price for long-term customers by a further CNY10-15/t to CNY495/t (5,500kcal/kg NAR).

This follows a CNY10-20/t price reduction at the end of June 2014 from CNY510/t.

Source: Platts Investec view: Spot prices at QHD port are currently CNY494/t.

The only hope of an increase in prices seems to be warmer weather and increased power demand as the summer progresses.
Other economic news � Chinas property co.

share prices rising on signs of loosening restrictions.

Prices of the nations two biggest developers are up on news that that Jinan has become the latest city to scrap home purchase limits.

There is some commentary that relaxing restrictions on property purchasing, reintroducing discount mortgages or introducing further monetary easing are likely, given the importance of the property sector in the economy and its multiplier effects, with no-one willing to be held responsible for bursting the bubble.

Source: Bloomberg � Chinas fourth largest lender, Bank of China (BoC) has been accused of money laundering by state broadcaster.

The countrys Central Bank is investigating the allegations.

The accusation is focused on a service offered by BoC called You Hui Tong which is designed to help individuals take part in overseas investment emigration programs to get cash offshore in amounts that exceed the annual cap.

Since the mid 90s an estimated 16-18,000 Communist party officials have disappeared overseas taking a possible US$133bn.

Source: Thomson Reuters
African resources update � No Mozambique tax cuts for Vale.

Responding to a request from Vale (VALE US), Mozambiques Tax Authority has in the short term rejected any cut in taxes levied on resources sector, although there is the possibility of "exceptional and case by case" reductions.

Vale has argued that logistics problems were damaging the competitiveness of the local coal industry, with rail and shipping costs, as well as the drop in coal prices, the causes of the Moatize operations $44m loss in the Q1.

In a response, the Tax Authority has said that "the sustainability of the entire machinery of the State budget" did not allow for such a cut and that "the law is characterised by its universality, equity and tax justice" and "this means that the law is valid for everyone." Source: MiningWeekly Investec view: The sustainability of the entire machinery of the State may be sorely tested if coal prices remain at current levels and Vale decides to exit its operations. � Over half of Chinas foreign aid of over US$14bn over 2010-12 went to Africa.

Aid was given in the form of grants, interest free loans and concessional loans, and nine countries had been forgiven a total of RMB1.24bn in mature interest free loans including Equatorial Guinea, Mali and Zambia.

There are reports that some of the Chinese projects benefit locals little with materials and labour imported from China.

Source: Thomson Reuters � Todays African Proverb: "No matter how sharp a knife is, it cannot cut its own handle" 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
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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
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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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