[cid:image001.png@01CECA48.21EA1C90] Wednesday, 16 October 2013 [cid:image006.jpg@01CECA48.44ED9500]
Snapshot � Company News Highlights: Research updates on London Mining and Berkeley Resources, Chalco appraises its Simandou holding, Quarterly results from Hochschild, Weatherly, IRC and Iluka, new MD for Wolf, Thor close to offtake deal, Stellar first blast, Lingbao profit warning, Freeport reaches pay agreement, arbitration in favour of Rusal � Commodity Review Highlights: China steel production up again, China coal imports down, Indian gold premiums hit $100/oz, increased industrial uses for gold � Other Economic News: US shutdown update, China committed to reducing overcapacity, good EU auto sales gain, new Australian government abolishing carbon tax and removing red tape for mining, new power generation for Japan � African Resources Update: Slowing Zimbabwean inflation, Kenya 12yr bond, new 10% tax for oil companies in Angola, Nigeria power privatisation one of worlds largest � Market Notes: FTSE futures down 12.5 points - the debt ceiling deadline is tomorrow and still no resolution.

US markets closed down 0.71% and we are seeing a mixed response from Asia (Nikkei +0.18%, Hang Seng -0.79%, ASX200 +0.07%) however investors will remain cautious over the next 24 hours and early signs in London indicate some risk is being taken off the table.

Odds of a default were raised when the US House of Representatives announced they would not vote on any measure to increase the debt ceiling.

The House will however vote on a short term measure to prevent a default.

Fitch has warned that the US may lose its AAA rating after putting it on negative watch. Commodity markets - gold +0.10% (US$1,283.73/oz), silver -0.20% (US$21.32/oz), copper -0.59% (US$3.2885/lb), iron ore +0.38% (US$133.60/t), platinum +0.48% (US$1,390.10/oz), WTI -0.10% (US$101.10/bbl), and Brent -0.09% (US$109.86/bbl).

Due listed - BHP AU +1.07% (A$35.78), RIO AU +1.44% (A$64.11).

Brent dropped by nearly 40� to US$109.90/bbl on news that the US Senate would suspend its talks until the House could come up with a plan.

WTI also fell to US$101.11/bbl on the news, but is up a little this morning on rumours of a settlement.

Iron ore was unchanged at US$133.60/t overnight but the equities are on a rally as expectations of a US debt ceiling deal and decent results from the sector are priced in Economic data due today: US - MA mortgage applications, NAHB Housing Market Index (forecast 57), US Federal Reserve Beige Book.

Eurozone - EU new car registrations (actual 5.4%), Italian Trade Balance, Italian current account, EC CPI MoM (forecast 0.5%), EC trade balance (11.8bn).

UK - claimant count rate (forecast 4.2%), jobless claims change (-25K), average weekly earnings (1.0%), ILO unemployment rate (7.7%).
Company News � Research update on London Mining (LOND LN).

Following a recent review of commodity price assumptions, our analyst has increased LONDs forecast received prices for FY13-14E by $5-6/t, resulting in a material upgrade in earnings and outlook.

The analyst retains a risked NPV-valuation approach in determining a target price, although LONDs recent consistent operating performance and project delivery suggests that such risking may prove conservative.

Source: Investec � Berkeley Resources (BKY LN) research note published with updated valuation following results of pre-feasibility study on its Salamanca uranium project that provided greater confidence in its economic potential.

In addition, the permitting process has advanced materially with the granting of the Environmental License at Retortillo leaving only the approval of the Exploitation, Reclamation and Closure Plans for the granting of the mining license.

However, uranium prices continue to perform weakly undermining interest in the uranium sector as Japanese reactors remain offline.

The company retains a strong balance sheet with A$28m ample to complete its BFS for next year.

Source: Investec � Update from Chalco (2600 HK) on the sale of its Simandou interest to its parent.

Chalco disclosed on 30 September 2013 that it would sell its 29% interest in the Simandou iron ore project in Guinea to its parent Aluminium Corporation of China Overseas Holdings.

Chalco has disclosed that the book value of the asset is US$1.19bn and the appraised value US$2.06bn.

The transfer price will not be lower than the appraised price.

The appraisal was done by China United Assets Appraisal Group.

Source: Company Investec view: The appraisal implies an US$7.1bn valuation for Simandou (50.35% RIO LN) on a 100% basis. � Hochschild Mining (HOC LN) Q3 production report shows 5.4moz silver equivalent (AgEq) with company on track to achieve 20moz AgEq target for the year.

Output QoQ was up 8% taking year to date output to 15,379oz AgEq.

Other highlights include the proposed acquisition of Pallancata and Inmaculada minorities for US$271m as well as US$72.8m equity placement and US$340m financing arranged.

Cost guidance going forward outlines an increase of 0-5% in Peru and 5-10% at San Jose in Argentina.

HOC finished the period with cash of US$345m and minority investments valued at US$69m against short term borrowings of US$90m.

Source: Company � Weatherly International (WTI LN) Q1 FY14 update.

During Q1 FY14, production from Central operations was 75,060t of ore, which produced 5,118t of copper concentrate containing 1,201t of copper metal.

The C1 cash costs of US$2.77/lb are 13% below the previous quarter.

As of 30 September, WTI had US$6.1m cash.

Importantly, the group continues to work closely with Orion Mine Finance to finalise the procedural requirements for drawdown of the loan for Tschudi and will update the market once this critical milestone has been achieved.

Source: Company � IRC Ltd (1029 HK) SepQ13 production.

IRC delivered another quarter of solid production at Kuranakh.

Iron ore and ilmenite production of 248.5kt and 33.6kt, respectively, in SepQ13 put the company on track to meet full year production guidance of 980kt iron ore and 160kt ilmenite.

Source: Company Investec view: Somewhat disappointingly, management indicated that commercial production from Stage 1 of the greenfield K&S project will be delayed by up to three months.

We believe commercial production from K&S in DecH14 will be a major earnings and share price catalyst. � Iluka (ILU AU) SepQ13 production.

Iluka reported combined zircon, rutile and synthetic rutile production in SepQ13 of 142.3kt, 11.9% higher than JunQ13.

Source: Company Investec view: Iluka reported subdued demand in most markets relative to the 1H run rate.

Lower demand and prices was confirmed by IRC Ltd (1029 HK) who reported a collapse in ilmenite prices from US$233/t in JunQ13 to US$189/t in SepQ13.

Iluka indicated that rutile prices had fallen 20% below the US$1,200/t average in JunH13. � Wolf Minerals (WLFE LN) change of Managing Director.

WLFE has announced that Humphrey Hale has stepped down and that the group has appointed a new Managing Director, Russell Clark.

Russell has more than 35 years experience in technical roles, general management and executive positions in the US, Africa, Papua New Guinea and throughout Australia.

Source: Company � Thor Mining (THR LN) receives offtake approach.

THR has received a letter of intent from US based Global Tungsten and Powders Corp of Pennsylvania in respect of offtake arrangements for 70-75% of the scheelite production for THRs wholly owned Molyhil tungsten project in the Northern Territory of Australia for the current 4 years planned mine life.

Source: Company Investec view: This provides an interesting read-across to the tungsten sector and demonstrates demand from end users for the speciality metal. � Stellar Diamonds (STEL LN) first blast.

STEL has reported that it has undertaken its first blast in the bulk sampling programme at its Tongo kimberlite dyke project in eastern Sierra Leone.

Source: Company � Lingbao Gold (3330 HK) profit warning.

Lingbao Gold expects to report a substantial loss for the 9 months ended 30 September 2013.

The loss is mainly due to commodity price declines and inventory write downs.

Source: Company � Freeport McMoRan (FCX US) reaches tentative agreement with workers over pay for the 2013-15 period having missed the deadline to resolve wages earlier this month.

The actions should therefore avoid strike action on this major copper gold asset.

Source: Thomson Reuters � Arbitration in favour of Rusal (486 HK).

An arbitration tribunal has found in favour of Rusal in a dispute with Tajik Aluminium Plant (TalCo) dating back to 2003.

The tribunal ordered TalCo to pay total damages of c.

US$275m.

Rusal intends to make every effort to enforce the award.

Source: Company
[cid:image007.png@01CECA48.44ED9500] Commodities News � China steel production up to 2.152mt/d in the last 10 days of September.

Chinas average daily steel production increased to 2.152mt in the last 10 days of September, an annualised rate of 785mt.

Source: Reuters Investec view: Average daily steel production has been creeping higher since mid-August 2013 but is still below the early May 2013 peak of 2.193mt. � China September coal imports down 0.9% mom to 25.7mt.

Despite a fall in imports, sales are reported to have increased in the month with volumes from major mines increasing.

Source: Thomson Reuters � Gold premiums in India hit record of US$100/oz due to a shortage of supplies to meet festival demand.

The shortages are a consequence of government policy to curb gold imports to better balance its budget, with imports practically dried up currently.

Source: Thomson Reuters Investec View: India has historically been the largest gold buyer in the world (China now overtaking) and the current period typically sees strong demand.

However, the restrictions on imports are likely to be contributing toward the current weaker gold price environment globally. � Mintek points to increased industrial uses for gold.

Research undertaken by South Africas Mintek said gold was breaking out of its classical typecasting on several fronts.

Gold is effective as a catalyst which oxidises carbon monoxide in fires and car exhausts in low temperatures.

Mintek is also focussed on using gold nanoparticles in cancer therapeutics and obesity research.

Source: Mining weekly.
Other economic news � US shutdown, day 16; Fitch puts US rating on negative watch.

House Republicans failed to agree on the proposed deal put forward by the Senate, which would have reopened the government until 15 January and extended the debt ceiling until 7 February.

As a result of the inability of the House GoPs to stop fighting Obamacare and the divisive partisan politics, Fitch put the US governments AAA rating on rating watch negative because of this "political brinkmanship" and reduced financial flexibility, if a deal isnt reached.

S&P still expects a last minute deal to emerge and Moodys has said it sees no risk of default even if the debt limit is not raised.

If a deal isnt reached by tomorrow it doesnt mean that the US automatically defaults.

It simply means that the Treasury can no longer take any extraordinary measures and will not be able to borrow money.

It will be left to rely on whatever cash it has on hand and on daily receipts.

The Treasury says it is impossible to predict the exact day the government would default as it depends on the flow of payments due on any particular day and the amount of cash available.

The Treasury insists it does not have the ability to prioritise payments.

However, we think they are most likely to ensure that international bondholders are paid, with other payments then having to be prioritised in some way.

Source: Investec � China committed to reducing overcapacity.

Chinas State Council has stated again that it will reduce overcapacity and promote M&A in sectors including steel, cement, electrolytic aluminium, flat glass and shipping.

Specific numbers include cutting iron ore production capacity by another 15mt, steel production capacity by 15mt and cement production capacity by 100mt by 2015.

Measures will include blocking approvals for new projects.

Source: Reuters, IBT � EU auto sales in September show biggest gain in two years with registrations up 5.5% yoy to 1.19m vehicles.

9 months sales however are down 4% yoy to 9.34m cars.

The September gain was only the third monthly gain in two years and the second lowest on record for September since results were tracked in 2003.

Sales have been boosted through discounts and self-registrations by dealers.

Source: Thomson Reuters & Bloomberg Investec View: If the EU auto market is starting to turn, then this is good news for PGM.

However, it remains early days to ascertain whether this is a sustainable recovery. � New Australian government moves to abolish carbon tax.

Wasting no time in delivering on one of its election promises, the newly elected Liberal government has released draft legislation to repeal the carbon tax that was implemented by the previous Labour government.

The repeal Bills will remove the carbon tax, end the carbon tax on fuels used in shipping, rail and air transport and on synthetic greenhouse gases.

The Climate Change Authority is also to be abolished.

Source: MiningWeekly Investec view: This will be welcome relief to the coal industry, which was particularly exposed to the taxes.

Australia had implemented a unique approach, applying a carbon price to the unavoidable fugitive gas emissions released during coal mining. � New Australian government commits to streamlining approvals process.

The government is proposing a "one-stop shop" approach, thereby cutting both green and red tape.

The Association of Mining and Exploration Companies (AMEC) described the approval of the framework as a major step forward, stating that "accreditation of the states will remove duplication in the approvals process, making the system more efficient, reducing timelines and the cost of approvals".

Source: Miningnews � Japan to start up 12 new gas and 2 new coal fired plants by the end of next year to reduce its dependency on more expensive oil.

Japan has faced an energy crisis following Fukushima that led to the closure of its reactors that generated around 30% of power requirements.

The new plants are expected to cost around US$7bn to build.

The gas fired plants should produce around 5.2GW and the coal fired to add 1.6GW, still considerably less than that lost through the closure of the nuclear plants.

Source: Thomson Reuters African Resources update � Zimbabwean consumer inflation has slowed to 0.86% yoy according to the National Statistics agency.

Source: Thomson Reuters � Kenya 12 year bond of 15.99bn shillings (US$188m) at 12.363% coupon has been successful.

The bond is to support infrastructure developments.

Source: Thomson Reuters � Angola to impose 10% tax on oil companies.

Africas second largest oil producer is imposing a consumption tax on petroleum companies that could raise some costs by as much as 10%, according to government documents, reports Bloomberg.

The law, which may come into effect as soon as next week requires companies to add a 5% tax to most services and supplies and double that for equipment rentals.

Angola set up a special tax reform branch in 2010 to work on increasing revenue and closing loopholes in a bid to simplify taxation.

Source: Business Day � Nigeria power privatisation one of worlds largest - BPE.

The Director General of the Bureau of Public Enterprises (BPE), has said that the over $3bn proceed expected from the privatisation of the 18 Power Holding Company of Nigeria (PHCN) successor companies makes it the biggest ever privatisation transaction in global history.

Source: Business Day
Investec Global Natural Resources Research Team: UK Hong Kong South Africa Hunter Hillcoat Tel: +44 (0) 20 7597 5182
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Albert Minassian Tel: +27 (0) 21 416 1454
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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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