[cid:image001.png@01CE6CC3.912F9400] Wednesday, 19 June 2013 [cid:image006.jpg@01CE6CC3.B0C0C910]
Snapshot � Company news highlights: Ferrexpo initiation of coverage, Coal of Africa DFS on flagship Makhado project, Whitehaven Coal Tinkler exits stage left, Rio Tinto cuts executive jobs in Perth, Coalspur board approved development plan for Vista thermal coal project, Bandanna Springsure Creek update � Commodity review highlights: Chinas zinc advantage, Chinese steel production rate holding steady in early June � Other economic news: US$4.9bn Brazilian IPO suspended China to expand property tax trials � African resources update: Mozambique coal trains restarted following attack, South Africa and Russia not on same page with PGM alliance talks � FTSE futures up 18.5 points (7:20am) despite modest moves from both the Dow and S&P overnight (up 0.91% and 0.78% respectively), European markets are looking to open relatively flat this morning as caution mounts ahead of the US Fed decision due this evening (see Investec comments below).

Asian markets are mixed - the Nikkei is rallying 1.83% as data shows exports rose more than expected in May, the Hang Seng is off 0.47% and ASX 200 is up 0.98% led by consumer goods and industrials. US FOMC announcement - tonight: The Feds monetary policy announcement is due at 7pm UK time tonight, alongside its economic forecasts.

Chairman Bernanke gives his press conference at 7.30pm.

We expect no change on the Federal funds target rate (0-0.25%).

The focus will be on QE3 and the Feds Chairmans intentions to taper.

We dont expect any tapering to be announced tonight so purchases should continue at the $85bn/month pace.

It looks most likely that any steer on tapering would come in Bernankes press conference on 7.30pm, though he is unlikely to give concrete guidance on timing of the taper, instead perhaps again saying it is possible within a few meetings but saying this depends on substantial jobs market improvement, providing little new clarity on the scale or timing of the taper.

Our own view (close to broad expectations) is the 18 September Fed meeting is most likely, but with only a modest taper likely at that time and with purchases continuing into 2014.

Finally expect Bernanke to be asked about him leaving the Fed in January, with Obamas recent TV comments indicative that he is likely to be replaced, adding a further element of market uncertainty over the long-term Fed policy stance. Commodity markets - gold -0.09% (US$1,366.43/oz), silver -0.13% (US$21.6525/oz), copper +0.24% (US$3.1750/lb), iron ore +2.35% (US$117.70/t), platinum -0.55% (US$1,432.20/oz), WTI +0.13% (US$98.60/bbl), and Brent +0.06% (US$106.08/bbl).

Due listed - BHP AU +0.92% (A$32.99), RIO AU -1.55% (A$54.38). Economic news due today: US - FOMC announcement and press conference (forecast 0.25%), UK - MPC bank minutes and QE.

Europe - Eurozone construction output.
Company News � Ferrexpo (FXPO LN) initiation of coverage.

We have initiated coverage on FXPO.

The company is a Ukrainian iron ore miner which should produce approaching 11Mt of 62%Fe and 65%Fe iron ore pellets this year.

By FY15, FXPO should produce 12Mt of iron ore pellets all of which will contain 65%Fe.

The group controls a substantial resource - in excess of 20Bn tonnes of both JORC and Soviet resources - and there has been a lot of work undertaken on this deposit in the past.

FXPO is one of the few larger companies not to have fallen into the trap of pushing for expansions, irrespective of whether or not they deliver shareholder value.

Given the size of the groups reserves and resources, it has many options for expansion, but we would only expect this company to commit capital if the iron ore market looks robust as we believe it is very prudent financially.

Source: Investec � Coal of Africa (CZA LN) DFS on flagship Makhado project.

The definitive feasibility study (DFS) has highlighted a NPV (8%) of US$697m for the Makhado mine, assuming a 12.6mtpa ROM operation, producing 2.3mtpa of coking coal and 3.2mtpa of thermal coal.

CZA uses a US$205/t long term coking coal price and assumes a credit for the thermal coal, which takes operating costs down to US$88.7/t.

Capex is estimated at US$406m, with a peak funding requirement of $433m.

Source: Company Investec view.

Funding will clearly be THE key challenge for CZA, with the company indicating that it is in discussions with BEE and strategic partners.

CZA aims to complete funding in the 1H14.

We believe a sell down of a direct interest in the project is the most likely scenario, with CZA wishing to maintain majority ownership, while avoiding additional equity.

Makhado is likely to be just the first stage of opening up a new hard coking coal basin in the Greater Soutspansberg, in our view, and this provides CZA with leverage during negotiations with potential partners. � Whitehaven Coal (WHC AU) Tinkler exits stage left.

Farallon Capital Management issued a change in substantial holder notice for WHC, increasing to 16.6%, having acquired ~9.9% of WHC from the Tinkler Group and 1.6% from ASM Equities Fund.

We understand the ASM Equities Fund was a junior member of the debt syndicate to the Tinkler Group.

Farallon acquired the shares at a deemed price of A$2.96/share (a 40% premium to yesterdays close), and this transaction "partly repays debt".

A 271 day deferred purchase price agreement will see the Tinkler Group receive a higher price if the 60-day VWAP of WHC between 14 Jan14 and 15 Mar14 is above the A$2.96/share initial price.

Subsequent to the Farallon announcement WHC issued a statement that is has been advised the remainder of Tinkler Group shares have also been sold to members of the Tinkler lending syndicate, and the Tinkler Group is no longer a shareholder in WHC.

Source: Company Investec view: The departure of the Tinkler Group from the register is a significant positive for WHC, bringing it back into the consideration set for many potential investors, and it appears the holding has gone to long term holders.

Upcoming catalysts are the final approval of Maules Creek (doubted by many in the market) and rectification of moisture issues in Narrabri thermal coal.

While timing of the former is out of WHCs hands, we would expect an announcement regarding Narrabri thermal coal in the next fortnight. � Rio Tinto (RIO LN & AU) Rio cuts executive jobs at Perth office.

RIO has made 50 middle to senior management roles redundant at its regional iron ore headquarters in Perth, WA.

Most of the people affected will leave Rio Tinto, though some managers may move to other divisions.

Source: Dow Jones Investec view: Cost cutting is being carried out across all divisions including the most profitable By the end of 2014 plan to have reduced annual costs from Energy by at least US$1b and maybe US$1.0b from Aluminium.

With another US$1b from copper, iron ore, industrial minerals, corporate and exploration.

We understand costs reductions are going very well (not surprising given the extent of the increases). � Coalspur (CPL AU) Board approved development plan for Vista thermal coal project.

The CPL board has approved a development plan for Vista providing 6mtpa clean coal capacity for a capital cost of C$458m, some C$197m lower than the previous development plan.

The mine will now be constructed as a 6mtpa mine in a single stage with capex for the previous 3mtpa start up option being just C$21m lower than the 6mtpa option.

CPL expects to produce 3mtpa in 2015, increasing to 6mtpa in 2016.

The overland conveyor and rail load out infrastructure will be built with capacity for 12mtpa while the washplant is a modular design to enable future expansion to 12mtpa.

Regulatory approvals have taken longer than expected and CPL now expects to receive approvals by September 2013 (previously 30 June 2013) with first coal expected in mid 2015 Source: Company Investec view: Delayed regulatory approval appears a recurring theme in coal projects globally.

The C$197m reduction in expected capital (~30%) is impressive, and with a fixed price, fixed term EPC contract for C$221m of that capital it appears it is a buyers market for contractors at present.

Subject to shareholder approval CPL has a US$350m debt facility with EIG Global Energy Partners, providing ~80% of development capital.

CPL expects to fund the remainder via a strategic partner or an off-take agreement, but we note the EIG debt was provided as alternative funding solutions were unavailable at attractive terms. � Bandanna (BND AU) Springsure Creek update.

BND is forecasting first development coal from underground Springsure Creek thermal coal project (5,600kcal) will commence in mid-2015, subject to securing regulatory approvals and funding by the end of 2013.

On that front, Bandanna is targeting completion of the Environmental Impact Statement (EIS) process by 30 September 2013.

Discussion with potential Chinese and Korean investors are ongoing, and it is possible the finalisation of an investment may take longer than originally proposed, due to market conditions and number of competing assets for sale in Australia.

Source: Company Investec view: The timeline looks tight for Bandanna.

Looking at things the other way, construction of Wiggins Island Stage 1 is approximately 60% complete and based on its October 2012 construction schedule WICET expects to commence shipping in April 2015.

Given BNDs 4mtpa take- or-pay commitments are tied to port commissioning, we would imagine BND would be more than happy to accommodate some slippage in the WICET construction timetable.

With the project as yet unfunded, approvals still pending and a 1 year construction lead time prior to first development coal and a 2 1/2 year lead time to first longwall coal there dont appear to be any easy answers if WICET is not delayed.
[cid:image007.png@01CE6CC3.B0C0C910] Commodities News � Chinas zinc advantage.

Our Hong Kong analysts have published a report highlighting the differences in capex intensity between MMG Ltds (1208 HK) Dugald River project in Australia and China Polymetallic Minings (2133 HK) Shizishan mine in Yunnan province, China.

The report concludes that incremental zinc supply should come from China not the West.

Source: Investec Investec view: See our full report Base metals: Chinas zinc advantage dated 18 June 2013 � Chinese steel production rate holding steady in early June.

Chinas steel production was 2.156tpd in early June, up 0.1% on the steel production rate in late May, according to data from the China Iron and Steel Association.

Chinese steel production in May totalled 67.03mt, down 1.2% MoM and up 9.5% YoY on a daily production rate basis, according to data released by Chinas National Bureau of Statistics today.

Source: Bloomberg
Other economic news � US$4.9bn Brazilian IPO suspended.

Votorantim Cimentos, Brazils largest cement producer with 37% of the market share, has suspended a US$4.9bn IPO due to a mixture of regulatory, economic and political concerns.

Offers were below the R$16-R$19 range as investors said the valuation was too high.

The final blow was dealt by the Brazilian president who sent a proposal to congress regarding increasing royalties on mining companies from 2% to 4% which would adversely affect this company.

Source: FT � China to expand property tax trials.

China may extend property tax trials to more cities soon.

Beijing, Shenzhen, Nanjing, Hangzhou and Qingdao have all reportedly drafted property tax trial plans.

China currently has property tax trials in Shanghai and Chongqing.

Source: Bloomberg Investec view: A slow down in the property sector is clearly a risk for commodity producers.
African Resources update � Mozambique coal trains restarted following attack.

Yesterday, Mozambique restarted coal trains from Vales Moatize mine to Beira after suspending them on Monday following an attack on an arms depot in the Savanne region yesterday.

Extra troops have been deployed to the area.

Source: Mineweb � South Africa and Russia not on same page with PGM alliance talks Following comments from mines minister Susan Shabangu, on inviting platinum companies to work with her department to leverage the relationships they have established with Russia.

It would appear the two countries have different interests.

The Russians desire market share while South Africa seeks price control and revenue from potential additional taxes.

Commentary now seems to suggest that this opec-style approach will not work.

Source: Miningmx
Investec Global Natural Resources Research Team: UK Australia Hong Kong South Africa Hunter Hillcoat Tel: +44 (0) 20 7597 5182
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