🕐15.07.14 - 09:27 Uhr

INVESTEC GLOBAL NATURAL RESOURCES DAILY - MINING - TUESDAY 08 JULY - GLEN LN, WH
C AU, PNA AU, OZL AU, CFE AU, IVN CN, CMCL LN, WTI LN, HZM LN, STEL LN, ORM LN, 3948 HK



[cid:image001.png@01CFA004.83378180] Tuesday, 15 July 2014 [cid:image006.jpg@01CFA004.8377E5E0]
Snapshot � Company news highlights: Glencore withdraws from BHP nickel asset sale, Whitehaven coal sets production and sales records, PanAust to achieve upper end of guidance, Oz Minerals lifts 2014 production target, Cape Lambert to receive A$51.6m from MMC following dispute settlement, Ivanhoe Mines reports intercepts from Kipushi, Caledonia production update, Weatherly quarterly update, Horizonte plans to raise $10m, Stellar diamonds positive result reprocessing bulk sample, Ormonde Mining permitting advances, Yitai Coal receives NDRC approval for coal to oil project � Commodity review highlights: Gold near four week low, iron ore approaching 7 week high, small improvement in coking coal prices anticipated, Glencore agrees price linked to spot to Japanese power major Tepco. � Other economic news: Chinese regional governments generate own stimulus, Chinas Central bank approves first thermal coal and iron ore swap contracts � African resources update: Zambian President pictured chairing meeting to allay fears of ill health, NUMSA strike action in SA causes further industrial problems, SA mining output contracts, todays African proverb � Market notes: : Treasuries and gold fell hard yesterday as Portuguese bonds advanced on the back of easing concerns over the state of the Portuguese banking sector.

In China, the news is focussed squarely on the drive by regional governments to stimulate their local economies as the central government has cut support (see notes below). Commodities: gold was the standout yesterday, falling 2.3% - the most in 7 months - to US$1,306.70/oz as Portuguese banking concerns eased.

Zinc prices rose to a 3yr high as LME inventories extended their fall, now down 29% YTD to the lowest since 2010, amid signs of higher demand.

WTI fell to its lowest in 2 months of US$100.93/bbl, ahead of inventory data that is likely to show stockpiles grew by 900Kbbls to 215.2Mbbls.

Iron ore saw a nice bounce as port inventories dropped from their record levels of 113.8mt.

This comes as the daily average rate for Capesize vessels fell to a record low of US$9,926, according to the Baltic Exchange.

Interestingly and quietly, the PBoC approved the launch of the countrys first iron ore and thermal coal swap contracts overnight with the new contracts to be priced in the RMB and trade OTC, with clearing handled by the Shanghai Clearing House. Data due: UK: Inflation Data, EUROZONE: Germany - ZEW Survey Current situation and Expectations; Eurozone - ZEW Survey; Italy - Inflation data; US June retail sales (est.

+0.6% m/m, prior +0.3%); Fed Chair Yellen Semi -Annual Senate Testimony; Empire Manufacturing July; Business Inventories Data for May
Company news � Glencore (GLEN LN) exits BHP Billitons (BLT LN) nickel sale.

According to the Australian Financial Review, Glencore has bowed out of the bidding process for BHPs Nickel West business, a move that eliminates one of the highest-profile contenders.

Earlier this month, six parties had entered due diligence for the West Australian assets, which are expected to fetch between $0.5bn and $1.0bn, with analysts setting the value at around $0.8bn.

Source: MiningNews Investec view: Earlier reports had indicated that the six bidders were Trafigura, MMG, X2, Sherritt, Jinchuan and Glencore.

We are not surprised if Glencore has bowed out in light of what could significant competition that could lead to a high price for the asset, above Glencores targeted returns on investment. � Whitehaven Coal (WHC AU) sets production and sales records for FY14.

Whitehaven reported FY14 (Jun YE) ROM/saleable coal production of 11.5mt/10.3mt (100% basis), up 27%/26% y-o-y, with production records set at Narrabri, Tarrawonga and Werris Creek.

Construction at Maules Creek is now >50% completed and the project remains on schedule and budget for first coal to be railed in March 2015.

Source: Company Investec view: Whitehaven expects the thermal coal market to remain over supplied in the next 6 months.

In contrast, the company expects a modest recovery in coking coal prices in DecH14 following production cuts of c.

19mtpa from the US, Canada, Australia and Mozambique. � PanAust (PNA AU) to achieve upper end of 2014 production guidance after JunQ14 production results.

PanAust reported JunQ14 production from its Phu Kam mine in Laos of 16.5kt copper, 13.5koz gold and 75.8koz of silver at a C1 cash cost of US$1.36/lb of copper after by-product credits.

Gold production from the Ban Houayxai Gold-Silver mine was 24.7koz in the quarter with a C1 cash cost of US$699/oz.

The company expects its 2014 group production to be towards the upper end of its previous guidance of 65-70kt copper and 160-165koz gold.

Source: Company Investec view: PanAust has opened a data room to allow Guangdong Rising Asset Management (GRAM) and other interested parties to undertake due diligence.

GRAM, who has a 23% interest in PanAust, submitted a AU$2.20/share cash, indicative, non-binding and incomplete proposal to PanAust on 10 April 2014.

This was subsequently raised to AU$2.30/share.

PanAust is currently trading at AU$2.15/share, a modest 6.5% discount to the GRAM informal offer but well above the AU$1.58/share price before the informal offer was made public on 13 May 2014.

Given GRAMs 23% interest in PanAust a competitive bidding scenario is unlikely in our view.

The PanAust board may be able to extract slightly more from GRAM but we see little sense in GRAM paying a significant control premium. � OZ Minerals (OZL AU) lifts 2014 production guidance after JunQ14 production results.

OZ Minerals reported JunQ14 copper/gold production of 22.18kt/30.7koz at a C1 cash cost of US$1.09/lb.

The company now expects 2014 copper production of 85-90kt (75-80kt previously) with a run rate of 100ktpa in DecH14.

Gold production guidance has been maintained at 130-140koz.

OZ Minerals is finalising its Carrapateena pre-feasibility study and discussions with parties interested in the project are continuing.

Source: Company � Cape Lambert (CFE AU) to receive A$51.6m dispute settlement from MCC (1618 HK).

Cape Lambert Resources has settled its dispute with Metallurgical Corporation of China over an A$80m payment due to Cape Lambert for A$51.6m.

The disputed payment was the final amount owed to Cape Lambert as part of MCCs acquisition of the Cape Lambert iron ore project for AU$400m in 2008.

Source: Company Investec view: Following receipt of the MCC settlement Cape Lambert will have cash, receivables, and listed securities of AU$100m, including A$70m of unrestricted cash.

Management has indicated that the board will finalise a dividend and/or capital return within the next two weeks.

We believe the settlement and any capital return will be viewed positively by the market given CFEs market cap of c.

A$50m is well below its cash balance, although Cape Lambert may retain some of the settlement proceeds given ongoing cash requirements and potential substantial tax liabilities owed to the Australian government. � Ivanhoe Mines (IVN CN) reports drill results from Kipushi.

The company yesterday reported the first assay results from the underground diamond-drilling programme at the DRC mine.

Among the first significant results were three holes drilled to validate historical models of the down-plunge continuity of Big Zinc mineralisation, returning zinc grades of 40.9% over 349m, 44.8% over 339m, and 33.3% over 306m.

The down-plunge geometry did not allow it an estimate of true width.

Kipushi staff are progressing with the upgrade of the underground and surface infrastructure to support the drilling programme and prepare the mine for potential future redevelopment, subject to engineering and other studies.

Source: MiningWeekly Investec view: Stunning drill results, but not entirely startling, given that these are confirmatory drill holes into a known deposit. � Caledonia (CMCL LN) 2Q production update and reduced FY14 guidance.

Caledonia has reported 2Q gold production from its 49% owned Blanket of 11,223oz (100% basis) a 9.6% increase on 1Q.

While the Q1 MD&A had forewarned that the average head grade would reduce from previous quarters, the tonnes mined and milled in the Q2 did not increase sufficiently to offset the lower grade.

As a result, guidance for 2014 has been reduced from 48koz to 45koz.

Source: Company Investec view: While Caledonia suffers from its Zimbabwe exposure it overcomes this to some extent though its transparent channel from operations to shareholders by paying quarterly dividends. � Weatherly International (WTI LN) quarterly update.

The company reported 4Q production of 1,507t at cash costs of $2.59/lb, the highest volume and lowest costs in the last two years.

This enabled it to reduce debt by US$0.55m to US$1.38m.

The Tschudi project, now 57% complete, remains on schedule and budget, being financed by the loan from Orion Mine Finance.

Source: Company � Horizonte Minerals (HZM LN) plans offering to raise up to $10m in Canada.

The net proceeds are to be used to fund the development of the companys Araguaia nickel project and for general working capital purposes.

Source: Company � Stellar Diamonds (STEL LN) re-processing of bulk sample at Tongo kimberlite dyke in Sierra Leone has lifted grade to 155cpht from 120cpht delivering a total of 843 carats, at a modelled value of US$248/carat implying an ore value of US$384/t.

Blasting and extraction of final sample has commenced.

The company has a 5tph DMS plant.

The diamonds from the re-crush are typically of high colour and quality, but are generally smaller than the stones recovered on first pass.

Source: Company � Ormonde Mining (ORM LN) permitting for Barruecopardo tungsten project is in final stages with conclusion of the process expected late this month.

To date the authorities have not identified any concerns in relation to the cancellation of historic mining concessions and that the review has been largely completed, although an additional procedural step has been introduced with regards to the historic mining concessions requiring consent from the historic owners.

Source: Company Investec View: It has been a long slow process for Ormonde to secure its permits and it appears the company is nearly there, however, the protracted and bureaucratic process clearly highlights the challenges of operating in Spain.

We hope the permits will be given by the end of this month, otherwise we would not be surprised if it gets delayed till the Autumn as government offices effectively shut down over August. � Yitai Coal (3948 HK) receives NDRC approvals for coal-to-oil project.

Inner Mongolia Yitai Coal has received National Development and Reform Commission (NDRC) approval to carry out preliminary work on its coal-to-oil demonstration project located in Xinjiang province that will produce 1.02mtpa of oil and other by-products.

Source: Company
[cid:image007.png@01CFA004.8377E5E0] Commodities news � Gold near four week low having dropped sharply yesterday as equities performed and profit taking ensued.

Market participants raise concerns of further downside risk.

However, worlds largest ETF, SPDR Gold trust saw holdings rise 8.68t to 808.73t yesterday.

XX.

Source: Thomson Reuters � Iron ore approaching 7 week high approaching US$100/t cfr (US$97.9/t) China as steel prices firmed triggering buying interest in response to infrastructure spending plans such as railway infrastructure in poorer regions.

However, a recovery to above US$100/t could trigger smaller domestic miners to restart operations putting pressure on prices.

China Iron & Steel Association has cautioned steel producers from restocking aggressively as prices recovery.

Ore stockpiles at Chinese ports stood at 113.4mt last week, close to record high of 113.7mt the previous week.

Source: Thomson Reuters � Small improvement in coking coal prices anticipated by Australian producer Whitehaven Coal (WHC AU) as producers cut supplies, although the company sees oversupply continuing in thermal coal over the next 6 months.

Source: Thomson Reuters � Glencore (GLEN LN) agrees to sell thermal coal to Japanese power company Tepco on prices based on the spot index, whereby Tepco will pay a premium of US$2-3/t to the globalCOAL price at Australias Newcastle port.

The benchmark spot price current stands at around US$70/t, well below this years current contract fix of US$81.8/t.

Source: Thomson Reuters Investec View: Clearly with spot prices well below contract there has been increasing pressure to price closer to spot.

The development if rolled out to many other customers could hurt earnings for coal producers for some time as the market is widely expected to struggle from over supply for some time.
Other economic news � Chinese regional governments generate their own stimulus.

In the absence of material stimulus from central authorities, Chinas regional governments are starting to their own stimulus measures.

Northern Hebei province, whose 4.2% 1Q expansion growth was less than half that of a year earlier, is to invest 1.2tn yuan ($193bn) in areas including railways, energy and housing, equivalent 42% of 2013 GDP, in a region where the government is cutting steelmaking capacity.

Heilongjiang province in the northeast, with 2.9% growth Chinas lowest in the Q1, will spend over RMB300bn over two years in areas including infrastructure and mining.

Neither government specified how it would finance the spending, adding to concerns over spiraling local government debt levels.

Another province outlining spending plans is Guangxi, which will spend RMB630bn over three years on 166 infrastructure projects.

Source: Bloomberg � Chinas Central Bank approves launch of first iron ore and thermal coal swap contracts to enable market participants to hedge.

The contracts are also hoped to allow the country to have greater influence on pricing of the commodities.

A swap contract is a cash-settled derivative between a seller and a buyer at a fixed price for a set time.

With iron ore imports of 820mt last year (60% of global seaborne trade) and coal imports of 330mt last year there is clear need for such contracts.

Source: Thomson Reuters
African resources update � Zambian president Michael Sata pictured chairing a cabinet meeting to allay fears that he is critically ill.

The president has been receiving medical treatment in Israel.

The last time Sata had been seen in public was on 19 June.

Source: Thomson Reuters � Strike action in SA by major union NUMSA has led to Ford suspending production at one plant and Toyota planning to follow suit as the union action disrupts component supplies.

Other manufacturers such as Mercedes Benz warn of being forced to halt production soon.

NUMSA rejected the latest pay offer on Sunday and called on members to intensify strike action.

Source: Thomson Reuters � SA mining output contracts by 24.7% in Q1.

Data released yesterday by Statistics South Africa has revealed that output from South Africas mining and quarrying industry had contracted by 24.7% in Q1, due to subdued commodity prices, low productivity and prolonged strike activity.

Source: Mining Weekly � Todays African Proverb.

"Staying near the anthill made the hartebeest brown".

Source: Bloomberg Investec View: For those who dont know what hartebeest brown, its a brown coloured type of antelope otherwise known as a gnu.

Were not quite sure what this saying means though.
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