[cid:image001.png@01CF4E4B.C0C0FAA0] Wednesday, 02 April 2014 [cid:image006.jpg@01CF4E4B.CF0133F0]
Snapshot � Company news highlights: Anglo American CEO indicates that divesting platinum division is an option, Barrick introduces new executive incentive scheme, Gold Fields CEO takes pay cut, UK Coal on verge of collapse, Finders resources re-commences copper production at Wetar Island, Noble sells 51% of agriculture unit to COFCO. � Commodity review highlights: Major earthquake in Chile, Chinese copper production was up 13.6% YoY in 2013, Brazil aluminium producers battling on-going energy shortfall, South Africa palladium ETFs have a strong start, Drummond restarts thermal coal exports from Colombia. � Other economic news: Anglo American and Glencore CEOs see difficulties for PE groups, Senior trading figures remain confident that there will be no interruption on energy flows from Russia, China stimulus through relaxation of property rules, Japan winning battle against 15 years of deflation, Eurozone unemployment flat. � African resources update: South Africa needs to make decision soon on how to add capacity to the grid, South African PMIs, Marriott International makes aggressive move into Africa, Todays African proverb. � Market notes: FTSE futures +14 points.

European futures looking strong this morning following another record level high by the S&P last night as US markets received positive ISM manufacturing numbers and better-than-expected car sales (Dow +0.46%, S&P +0.70%).

With factory order and ADP payrolls today it will be interesting to see if the market can push through to the next level.

Asia is also looking strong this morning (Nikkei +1.04%, Hang Seng +0.12%, ASX200 +0.26%).

Markets in Europe will remain poised ahead of tomorrows ECB monetary policy meeting. Commodity markets - gold +0.42% $1,284.38/oz, silver +0.44% $19.8489/oz, platinum +0.10% $1,431.00/oz, copper +0.38%, $3.046/lb, nickel +0.79% $15,995.00/t, iron ore +0.68% $117.60/t, thermal coal $74.35, WTI -0.13% $99.62/bbl, Brent +0.04% $106.60/bbl, zinc -0.58% $1,960.25/t.

Dual listed - BHP +0.86% A$37.37, RIO +0.39% A$64.10.

WTI fell the most in 3 weeks as inventories rose by 2.5Mbbls, the 11th week of gains, and as PMI print was not supportive of increasing demand.

Futures fell 2% to under US$100/bbl, with Brent following suit, down 2% to US$105/bbl.

Gold was virtually unchanged overnight, down just 0.3% to US$1,280/oz, after touching its lowest level since early Feb.

The falls over the past few days are now the longest since November. Economic data due today: US - MBA mortgage application, ADP employment change (195K), Factory Orders (1.2%).

Eurozone - EC PPI (forecast 0.00% MoM), Irish unemployment, UK construction data.
Company news � Anglo American (AAL LN) CEO indicates that divesting the platinum division is an option if it doesnt perform as well as others.

The company likes the long term fundamentals but recognises the challenges in the industry.

Anglo Platinum (AMS SJ) has sent force majeure notices to some of its suppliers at South African Mines.

Source: Thomson Reuters Investec view: This may well be an attractive option to AAL as it could reduce its exposure to this troubled platinum sector that faces militant unions, rising capital intensity and operating costs.

Furthermore we note that AMS is on a considerably higher multiple at 19 and15 X P/E on consensus numbers for FY15 and FY16 versus AALs multiples of 11 and 9.5X. � Barrick (ABX US) introduces new executive incentive scheme.

Under the plan the bulk of executives compensation is to be based on performance, to be paid in units that convert into Barrick shares and that then cannot be sold until the executive retires or leaves the company.

Shares awarded under the plan take three years to vest, and if executives leave to join a competitor they forfeit shares that have not vested.

Shares that have vested become available over two years.

All shares awarded under the long-term compensation plan will be bought on the open market to avoid dilution.

ABX also laid out new minimum ownership requirements, including requiring the CEO to own shares worth 10x salary by 2020.

Source: Reuters, MiningWeekly Investec view: The changes clearly follow the outcome of poor investment decisions in previous years, such as that of Equinox Minerals (EQN AU), and investor criticism that managements interests are not aligned with shareholders.

The plans certainly appear to address this, albeit indicating that executive will have to retire if they want to liquidate their shareholdings. � Gold Fields (GFI SJ) CEO takes pay cut.

Nick Holland, the CEO of GFI, took a 45% cut in pay during FY13, being paid ZAR24.9m compared to ZAR45.3m the previous year.

He declined a cash bonus following governance failings related to the sale of a stake in its South Deep mine in 2010.

Source: Miningmx � UK Coal on verge of collapse.

UK Coal is appealing to the government for support to stave off a collapse that would cost 2,000 jobs at its Thoresby and Kellingley coal mines.

The company, which was rescued by the Pension Protection Fund last year, said that the strong pound and cheap imports had affected its sales.

Source: FT � Finders Resources (FND AU) re-commences copper production at Wetar Island project.

Finders Resources recommenced cathode production at its 3ktpa Wetar Island project on 31 March 2014, after upgrading the facilities.

Cash flow from the 3ktpa project will help finance the upgrade of the Whim Creek plant to 25ktpa.

Source: Company Investec view: Finders has commenced earth works for the 25ktpa Whim Creek plant but further construction is dependent on the finalisation of financing.

An updated bankable feasibility study for a single stage expansion of Whim Creek estimated capex of US$132.4m and operating costs of US$0.88/lb copper. � Noble (NOBL SP) sells 51% of agriculture unit to COFCO.

Noble Group will divest 51% of its agricultural products trading unit to a consortium led by Chinese state owned company COFCO.

The consortium has made an initial US$1.5bn payment and deal price will be finalised at 1.15x book value.

Source: Company, Bloomberg
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Commodities news � Major earthquake in Chile.

There has been an earthquake which measured 8.2 in magnitude off the coast of Northern Chile.

A tsunami alert has been triggered and five people have been killed.

Source: BBC, Reuters. Investec view: While the copper price is already up following this news, it appears that the copper mines are largely undisturbed.

Antofagasta (ANTO LN) has said that its copper operations were unharmed.

Codelco has also said its mines are fine, as has Teck (TCK CN).

However, port operations are halted due to the tsunami risk so this may delay copper shipments. � Chinese copper production was up 13.6% yoy in 2013 at 6.84mt reflecting accelerating growth as smelting capacity has been building up rapidly in recent years.

However, consumption growth of the metal is slowing, at 6.4% yoy last year versus 10% the previous year following an inventory build-up.

Source: Thomson Reuters � Brazil aluminium producers battling on-going energy shortfall.

Brazilian aluminium companies, already producing at the lowest level in 12 years, expect power supply to be rationed within a year as a drought curbs hydroelectric generation.

The industry is already struggling under high power costs, twice the levels of the US and China, with CEO of Votorantim Metais indicating that the country wont be competitive again in aluminium if it doesnt rethink its energy pricing model.

Source: Bloomberg � South Africa palladium ETFs have strong start.

Two new South African palladium exchange traded funds have had a strong start.

Standard Banks AfricaPalladium ETF had grown to ZAR300m, equivalent to US$28m or 33,000oz in its first four days.

Absas new palladium ETF had grown to 25,000oz since 27 March.

Source: Company Investec view: The timing of these introductions looks smart given that, not only have the platinum mines in South Africa been hit by strikes for over 2 months, Russia, which is the worlds largest palladium producer, faces a variety of sanctions due to its actions in Crimea. � Drummond restarts thermal coal exports from Colombia.

Drummond restarted coal loading at its Columbian export terminal on Monday, 31 March 2014.

Operations had been suspended on environmental grounds since 7 January 2014.

Source: Platts Investec view: This is likely to put some downward pressure ARA thermal coal prices.

Drummond shipped 22mt in 2013 and is targeting 25mt in 2014.
Other economic news � Anglo American (AAL LN) and Glencore (GLEN LN) CEOs see difficulties for PE groups to make a return if betting on a recovery in commodity markets to support the case for buying distressed assets.

PE firms typically use high gearing to make acquisitions that need a high level of return in order to pay the interest on the debt that is likely to be a challenge in the volatile sector.

Furthermore, many of the assets being sold off are not the best assets in a portfolio.

Source: Thomson Reuters � Senior trading figures remain confident that there will be no interruption on energy flows from Russia to Europe in response to sanctions being imposed on Russia due to the crisis in Ukraine.

Traders are of the view that European bargaining power is greater than they think if they threaten Russia with alternative energy sources e.g.

other sources of gas or increased coal usage, reducing their need for Russian gas that would harm its economy long term.

Source: Thomson Reuters � China stimulus through relaxation of property rules.

Commentary from the Investec Hong Kong office is that while stimulus talk is everywhere now, with thought that it may at least partly address the property space.

Of the 40 cities in China that currently have restrictions on 3rd home ownership, some are looking to relax this, with Wenzhou having already applied to the central government and two more cities about to follow suit.

There is also speculation that the down payment requirement for 2nd homes, currently 70% for places like Shanghai, might also be relaxed.

Elsewhere, its worth noting another potential high profile default in China overnight, with a building materials company - Xuzhou Zhongsen Tonghao New Board Co - reportedly missing a 10% coupon payment on 28th March on its RMB180m of notes, potentially the first default in Chinas private-placement market.

Source: Investec, newswires � Japan winning battle against 15yrs of deflation.

The market is now expecting the inflation rate to be 1.5% in a years time and 1.7% in 3-5yrs, according to surveys.

While short of the stable 2% central bank target, the forecasts show that the country is succeeding in fuelling inflation expectations.

The data give the central bank another reason to hold off from any immediate additional monetary easing as it assesses the blow to economic growth from yesterdays sales-tax increase.

The inflation report follows unprecedented easing in April last year, with the odds of additional easing now receding.

Source: Bloomberg Investec view: While China is the engine driving the commodity markets, Japan is still a key consumer and the on-going recovery in its economic health can only be supportive of higher consumption. � Eurozone unemployment flat.

The jobless rate for the Eurozone remained flat at 11.9% and estimates of unemployment for the year have now been reduced from 12% to 11.9%.

Source: Reuters
African resources update � South Africa needs to make decision soon on how to add capacity to the grid as it struggles to fix current power supply shortages that stem from lack of investment.

Current thinking is to focus more on coal, hydro and gas capacity than nuclear plants.

However, to support coal power stations there are long term coal supply issues that will need to be addressed.

Current power problems are being compounded by rising maintenance required on its aging power plants with nearly a quarter of its 42,000MW of capacity out of action for maintenance.

9,500MW of delayed new capacity is still not ready with four power emergencies declared since November with rolling blackouts or "load shedding" imposed for the first time in 6 years.

Source: Thomson Reuters Investec view: Power capacity programmes are very long term investments requiring considerable capital and planning.

The government and Eskom must take decisive action in the near term to avoid a repeat of the current problems in the future.

This is concerning for miners that also have to consider investments on a long time scale, with power being a key input to operations. � South African PMI.

South Africas purchasing managers index slipped to 50.3 in March from 51.7 in February, which was lower than analysts expected although still represents expansion.

Source: FT � Marriott International makes aggressive move into Africa.

The worlds 2nd largest publicly-traded hotel company, has said it will continue expanding into African markets following the $200m acquisition of South Africas Protea Hospitality Holdings.

Marriott has 25 hotels under construction in seven countries in Africa, and will be operating from 16 countries in Africa by 2017.

The transaction almost doubles (to c.23,000) the companys rooms in Africa, where a growing middle class and rising travel are fuelling the fastest pace of hotel development in the world.

Source: Bloomberg � Todays African proverb.

"A single bracelet does not jingle".

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