🕐24.07.14 - 10:27 Uhr

INVESTEC GLOBAL NATURAL RESOURCES DAILY - MINING - THURSDAY 24 JULY - NCM AU, CL
F US, AQP LN, SLP LN, PDN AU, FCX US, BKY LN



[cid:image001.png@01CFA718.49CE3C20] Thursday, 24 July 2014 [cid:image006.jpg@01CFA718.4A09BE80]
Snapshot � Company news highlights: Newcrest Mining cuts valuation of assets, Cliffs reports bigger than expected loss, Aquarius Platinum and Sylvania solid quarterly production updates, Paladin successfully refinances, Freeport McMoRan may soon be allowed to resume copper exports from Indonesia, Berkeley Resources quarterly update � Commodity review highlights: Chinese gold demand falls 19.4% in H1, Codelco problems with newest mine, Posco sees earnings fall � Other economic news: China factory activity strengthens, BHP and Anglo American may sell manganese assets, Australian tug boat deckhands approve another strike � African resources update: South Africa shake up of land policy, Todays African proverb � Market notes: Chinese ADRs hit a 3 year high, led by the property names on speculation the housing market will recover.

Also of note, Chalcos ADR continued their strong run, now up 15% in 4 sessions, as aluminium continues further into bull market territory and as many expect further stimulus from the central government.

However, negative news included Caterpillars June machine sales numbers were poor again, with rolling 3 month sales down another 10% MoM.

This comes after the drop of 12% in May.

Most worryingly were the numbers when split geographically, with Asia Pac down another 30% MoM, Latam sales down 18% and EMEA sales down 21%.

Only the US spared the blushes, up 14% MoM.

Chinese local papers are reporting that 2Q growth in 20 of 25 provinces that reported yesterday showed an acceleration thanks to further central and local government stimulus.

This comes as 1Q growth in 30 of 31 provinces was below goals set out by the respective regions.

Japans trade deficit number released this morning was JPY822bn, much larger than forecast after an unexpected fall in exports.

This comes after the government cut its growth forecast for FY03/15 as consumption has fallen post the sales tax rise.

In Australia, the better than expected inflation number has sent the AUD back over 94.4, with many expecting some more hawkish tones from Glenn Stevens at the next RBA meeting. Commodities: Coal looks ever weaker with the latest downgrades, this time from Marex Spectrum, hitting the tapes yesterday afternoon, who cite thermal coal stocks of over 100Mt in May and the share of thermal power as part of the total power output falling in June to its lowest since Sept 2012 of around 75% as reasons for continued bearishness on the sector.

The expectation of increased hydropower output in 3Q will continue to displace thermal production resulting in additional downside risk to prices.

Coking coal doesnt look any better either after data out yesterday showed that Chinese coking coal imports fell to 5.7Mt in June from Mays 5.9Mt on weaker demand.

Steel rebar for January delivery fell in China to RMB3,036/t, a new low, as Shanxi Jianbang Group became the latest mill to cut prices to spur sales.

Iron ore prices fell 1.2% to US$94.30/t after Rio Tintos (RIO AU) Sam Walsh stated yesterday that India may resume exports and add to the short term oversupply in the market.

December gold futures fell overnight to US$1,306.50/oz as the S&P rose to a new record high and as data showed that Chinese gold consumption in 1H14 fell 19% YoY to 569.45t, with demand for gold bars dropping 62%.

Elsewhere, Sumitomo Metal Mining (5713 JP) has cut its 2014 nickel deficit forecast by 43% to 17Kt citing higher Chinese volumes of nickel pig iron. .
Company news � Newcrest Mining (NCM AU) has completed its carrying value review of all assets and will make cuts to book values of between A$1.5-2.5bn, primarily due to Lihir, but also Telfer and Bonikro.

These cuts will adversely impact gearing by 3-6%, although Cadia Valley, Gosowong and Wafi Golpu actually have values above their carrying value.

The company remains comfortable with its current gearing levels in the short-medium term and has no plans to undertake a capital raising.

Source: Company � Cliffs Natural Resources (CLF US) reported bigger than expected quarterly loss to US$2m or 1cps versus US$133m profit a year ago.

It also lowered its forecast for full year sales to 22mt of iron ore (previously guided 22-23mt) and coal sales of 7mt (previously guided 7-8mt).

The company is working on reducing costs, however faces hedge fund activism from Casablanca Capital with AGM due on 29th July.

Source: Thomson Reuters � Aquarius Platinum (AQP LN) production results sees attributable output up 4% qoq or down 1%yoy producing 167koz 4E PGM, of which 108koz came from Kroondal and 61koz from Mimosa.

Attributable output to AQP is 50%.

Kroondal saw slightly weaker output offset by stronger output at Mimosa.

Kroondal however benefitted from a weaker ZAR improving PGM prices in local terms whilst cash costs remained flat 101 at ZAR9,396/oz, up 9% yoy.

Cash costs at Mimosa net off retrenchment costs were down 10% qoq or 2% yoy to US$803/oz.

The company has also concluded three year wage agreements at Kroondal without interruptions.

Source: Company Investec View: A reasonable quarter operationally and progress made on bolstering the balance sheet following a rights issue that reduced debt to bond holders from US$298m to US$125m, cash balance not disclosed but apparently considerably stronger.

That wage agreements have been resolved is also a positive. � Sylvania Platinum (SLP LN) quarterly update saw output from dumps rise for a fifth quarter, to 15,185oz up 17% qoq.

Total production for the year is up 22% achieving a record 53,808oz modestly exceeding guidance.

Quarterly revenue stood at US$14.2m leading to EBITDA of 17% to US$4.66m.

Group cash position in the quarter increased from US$4.8m to US$5.3m.

Source: Company � Paladin (PDN AU) successful refinancing of Langer Heinrich mine following US$190m sale of stake in the asset leading to a reduction in debt to US$70m, US$32m reduction in debt payments over 2014-2017 with repayments set at US$9.2mpa to 2018.

The new facility strengthens the companys balance sheet with first payment not due until December.

Source: Company � Freeport McMoRan (FCX US) soon to be allowed to resume copper exports as the company approaches an end to 6 month dispute with Indonesian government according to a senior official.

However, no such progress has been reported with Newmont (NEM US) which has filed for international arbitration.

The two miners account for 97% of the nations copper output.

The government wants the companies to develop smelting capacity in country, however the mines have said that building such capacity does not make economic sense.

Source: Thomson Reuters Investec View: If a resolution is achieved then copper prices could come under pressure as more of the metal will become available to markets. � Berkeley Resources (BKY LN) quarterly report highlights progress made at Salamanca uranium project in Spain with progress continuing with permitting Retortillo deposit with mining license granted with the rezoning of the land hoping to be finalised.

There are two key deposits to be developed sequentially and progress continues permitting the second, Alameda.

Work on the DFS for the project advances with drilling and metallurgical work continuing.

In addition the company is also exploring its tenement package to identify other potentially economic deposits.

At the end of June the company had A$20.2m in cash.

Source: Company Investec View: Berkeley has an exciting uranium project to develop, however, the uranium market is weak with spot prices at around US$28.5lb.

The resumption of nuclear power generation in Japan when it occurs should enable prices to escalate.

In the meantime BKY has the luxury of a strong balance sheet and can advance its asset base in anticipation of improving market conditions, at which point it can advance toward a development decision.
[cid:image007.png@01CFA718.4A09BE80]
Commodities news � Chinese gold demand fell 19.4% in H1 of this year standing at 569.45t, although production was up strongly to 211.1t up 9.47% yoy as miners ramped up output to maintain profit margins.

Chinese consumers appear to have been seeking other alternatives as inflation hedges as sales of gold bars and coins fell 62.1% and 44.3% respectively.

Jewellery sales however, were up 11% yoy to 426.17t with industrial consumption up 11.3% yoy.

Source: Thomson Reuters � Worlds largest copper producer Codelco admits for first time that its newest mine is behind schedule due to problems with its roaster at its Ministro Hales project that is operating at 90% capacity following start-up in late December.

The roaster processes high arsenic ores.

The mine is central to the companys US$23bn five year plan to combat falling output and high energy prices.

Ministro Hales is expected to produce around 183ktpa Cu once at full capacity.

Source: Thomson Reuters � Steel major Posco saw Q2 operating profit fall at quickest rate in 3 quarters as local strong currency undermined competitivity in a global market where demand growth has been weak.

Operating profit totalled US$548.81m, down 20% yoy.

Source: Thomson Reuters
Other economic news � Chinas factory activity expanded at fastest pace in 18 months in July as new orders surged, with the HSBC/Markit flash PMI rising to 52 in July from 50.7 in June.

Mini stimulus packages appear to be affective although there are indications that the economic recovery appears patchy.

Source: Thomson Reuters � BHP Billiton (BHP AU) and Anglo American (AAL LN) are reportedly in talks to sell their jointly owned manganese assets in South Africa and Australia.

Potential buyers include X2 Resources.

Source: Wall Street Journal � Tugboat deckhands at Port Hedland have approved industrial action for a 2nd time this year over leave and wages, with the Maritime Union of Australia stating that members have approved an unlimited number of 2-hour and 4-hour stop-work meetings and unlimited work stoppages of 6 hours and 12 hours.

The disruption may cost miners about A$100m/day.
African resources update � South Africa plans radical shake up of land policy to limit foreign ownership and could submit legislation to parliament by December.

The proposal is part of a reform package sponsored by the ANC that includes the expropriation of land deemed to have been illegally acquired.

The principal is that foreign nationals should not own the land but should have a long lease of minimum 30 years.

Source: Thomson Reuters � Todays African proverb: "A man with a cough can never conceal himself" 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
Investec Global Natural Resources Sales Team: UK Hong Kong South Africa Adam Bidwell Tel: +44 (0) 20 7597 5089
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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