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Today's Market View Including Mwana Africa plc, Stratex International, Northwest Resources, New World Resources and others

Last updated: 06:52 18 Apr 2013 EDT, First published: 05:52 18 Apr 2013 EDT

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Gold $1,387/oz – prices show some recovery following technical fall 

ETF fund holdings have fallen by 2.8% since Monday last week representing 2.2moz out of 76moz held

Total ETF holdings represent 83% of one year’s world gold mine supply of 91moz

All known gold ETF have fallen by a total of 10% since the start of this year representing 8.6moz

Oil prices continue to fall with Brent Oil falling to $97.5/bbl

China – to close polluting Antimony smelters

The Metal Bulletin reports that China is to close antimony smelters in a new campaign to crack down on pollution

Many of the country’s smelters are know to be polluting and the environmental protection bureau of Hunan has asked local governments to “immediately halt production” at smelters without environmental review approvals and to shut smelters that fail to meet standards by prescribed deadlines. 

Metal Bulletin staff have seen a notice issued to local governments which targets all antimony smelters and mine processors in the region, especially those in the Zijiang area and the city of Chenzhou. 

Antimony is principally used as a fire retardant and is seen as a critical material by the EU

Tanzania – worried that fall in gold prices may lead to mine closures

The Ministry of Energy & Minerals in Tanzania is concerned that falling gold prices may cut investment into the country.

The government is known to be one of the world’s fastest at issuing mining licenses and permits to mine.

Tanzania has its own issues but 100% mine ownership, low royalties and a speedy mine permitting process makes it more attractive than many other African destinations.

US Supreme Court rules that Royal Dutch Shell was not complicit in crimes committed by the Nigerian government.

Nigerian groups had filed a lawsuit claiming that RDS had been complicit in atrocities within Nigeria.

The ruling is seen as setting a precedent for other cases against corporations brought in the US.  Eg Rio Tinto in PNG or Exxon Mobil in Indonesia.

The US court has ruled the ‘Alien Tort Statute’ a law passed in 1789 could not be used against RDS as the law was not intended for use outside the US.

Other cases with better connection to the US may be able to use this ancient law.

It is difficult for mining companies to rely on state protection when local police and security officers fail to comply with Western standards of policing and crowd control

There are many cases where local police have killed or wounded protestors in the protection of mining assets and law and order.  Local opposition groups are often driven by local economic interests, environmental concerns or are simply part of ‘rent-a-mob’.  

The ruling that corporations are not seen as responsible for the action of foreign states in US courts is important for the protection of mines and miners worldwide.

Lonmin’s incident at Marikina is perhaps the most notable in recent years.

Grasberg:  We expect to see further disruption at the giant Grasberg copper mine in Indonesia.  The mine is important for global copper supply and with the copper market now poised to move to deficit following the pit wall failure at Grasberg any disruption at Grasberg might be sufficient to send copper prices higher.  We have long had the somewhat cynical view that disruption seems to occur at Grasberg at critical times for copper pricing, though it may simply be that copper prices move when the mine is disrupted.  Grasberg accounts for around 5% of world copper supply.  The mine produces copper concentrates which are mainly contracted to Chinese smelters.  Disruption has a significant impact on the market for copper concentrates and Treatment & Refining charges as well as LME copper prices.

Copper concentrates:  We understand the market for clean copper concentrates is extremely tight at present with very good rates on offer.  Traders are able to blend less pure concentrates with cleaner material enabling the sale of previously unacceptable or expensive to process concentrate material.  The low rates being offered for clean concentrates suggests to us that traders are increasingly desperate to blend less acceptable materials.  

Economic View

US - Fed’s Beige Book released yesterday showed economic activity expanded at “moderate” pace last month led by gains in residential housing and auto industries more than compensating for a weakness in defence sector.

Weekly unemployment claims are forecast to pick up slightly in the week ended Apr 13 and total 350k, compared with 346k in Feb.

Apr Philly Fed manufacturing index is estimated to come in at 3.0, up from 2.0. A reading above 0.0 indicates expansion.

China - Despite a slow down in CPI growth, property prices do not show signs of abating suggesting the government might continue with the real estate market regulatory curbs.

Prices increased in 68 of 7 cities tracked by the government in Mar, the most since Sep 2011.

Private data suggest prices climbed the most in more than two years from Feb (SouFun Holdings, the country’s largest real estate website operator).

House sales gained 69%yoy to US$194bn in Q1 this year, the biggest first-quarter increase in three years.

On a separate note, Chinese foreign direct investments gained 5.7%yoy to US$12.4bn in Mar, a second consecutive monthly increase. FDI recorded a decline 8 months in a row through Jan.

UK - Retail sales declined more than forecast in Mar on unusually cold weather during the month which affected purchases clothing and household items. Sales fell 0.7%mom last month, compared to a 2.1% increase in Feb and a 0.6% decline forecast.

Rising prices and weak income growth squeeze household purchasing power.

Yesterday, a separated report showed unemployment climbed 70,000 to 2.56m in the three months through Feb. This is the fastest increase since Nov 2011. The unemployment rate increased to 7.9% from 7.8% in the previous quarter.

This puts more pressure on the government to potentially review the pace of budget cuts and the Bank of England to ease its monetary policy.

The BoE published this month’s Monetary Policy Committee meeting yesterday which showed six of none members voted to avoid expansion of the Bank’s quantitative easing programme.

Japan - Weaker yen boosted nation’s outbound shipments in Mar. Exports gained 1.1%yoy and the trade deficit nearly halved to JPY 362.4bn, the Finance Ministry said.

Shipments to China and the EU were down 2.5%yoy and 4.7%yoy, respectively. Exports to the US increased 7.0%yoy.

Despite a 53%mom decline in trade deficit, the shortfall for the year through Mar was at record high as the nation is forced to expensive fossil fuels amid nuclear plants shutdowns.

Canada - Mark Carney left the benchmark rate on overnight loans between commercial banks unchanged at 1% as expected.

The Bank of Canada cut its economic growth outlook for this year to 1.5%, down from 2%, on weaker business investment and state spending. This matches IMF’s forecasts and makes Canada the slowest-growing economy among Group of 20 countries outside Europe.

“A material degree of slack has re-emerged in the Canadian economy,” Carney said.

The economy is not expected to reach “full capacity” before mid-2015, compared with previous forecasts for H2 2014, according tot the Bank.

North Korea - The US should remove all its nuclear weapons from the Korean peninsula and stop military exercises with South Korea before North Korea will agree to negotiations, the official Korean Central News Agency said.

The US has already rejected these conditions.

US$1.3044/eur vs 1.3181/eur yesterday. Yen 98.04/$ vs 98.31/$. SAr 9.187/$ vs 9.118/$. $1.525/gbp vs 1.535/gbp

Commodity News

Precious:

Gold US$1,387/oz vs US$1,385/oz yesterday - Prices trade in a US$1,380-1,390/oz range this morning.

SPDR gold holdings fell 0.96% to 1,135t (36,485koz) valued at US$50.770bn from 1,146t (36,843koz) yesterday.

Platinum US$1,419/oz vs US$1,444/oz yesterday

The Department of Trade supported by a number of private entities is pushing the bill through the South African parliament to establish a special economic zone (SEZ) to attract domestic and international investment for beneficiation and value-addition of PGM resources in the country. In  particular, the legislation is aimed at providing the fundament for the development of value-added manufacturing for the PGM catalysis value chain with the aim to gain 25% of global market share by 2020.

Palladium US$659/oz vs US$674/oz yesterday

Silver US$23.10/oz vs US$23.53/oz yesterday

Base metals:

Copper US$ 6,936/t vs US$7,205/t yesterday - Prices broke below US$7,000/t for the first time since late 2011 dragged by a general sell off in commodities, lower-than-expected Chinese GDP numbers and IMF world economic growth downgrades.

Aluminium US$ 1,884/t vs US$1,913/t yesterday

Nickel US$ 15,321/t vs US$15,625/t yesterday

Zinc US$ 1,854/t vs US$1,889/t yesterday

Lead US$ 2,001/t vs US$2,050/t yesterday

Tin US$ 20,100/t vs US$21,000/t yesterday

Energy:

Oil US$97.5/bbl vs US$100.2/bbl yesterday

Natural Gas US$4.197/mmbtu vs US$4.209/mmbtu yesterday

Uranium US$40.40 (close 17/04/13) vs US$40.50 (close 16/04/13)

Other:   

Iron ore 62% Fe spot (cfr Tianjin) US$139.3/t (close 17/04/13) vs US$139.4/t (close 16/04/13)

Steel - Reinforcement-bar futures fell to the lowest in more than 4 months on the back of slowing Chinese growth.

The contract for Oct delivery on the SFE fell 2.7% to US$582/t this morning, the lowest since Dec 7.

Company News

AngloGold Ashanti (ASX:AGG) - Srinivasan Venkatakrishnan, cfo, AngloGold Ashanti tipped to be next ceo.

Mark Cutifini, the former ceo, has taken over at Anglo American creating a management vacuum at AngloGold.

Problem is that the position is not so easy to fill.

Any new ceo needs to be based in South Africa, well versed in South African politics and related issues 

The new ceo will need to deal with the official unions, unofficial unions and other political groups who influence mine workers

The applicant needs to be comfortable with fortress like accommodation, barbed wire and armed security.

The South African government has blocked proposals to split AngloGold into separate domestic and offshore units.

Reports suggest that AngloGold’s Savuka, Great Noligwa, Mosh Khotsong and potentially TauTona mines have cash costs of around $1400/oz.  

The South African portfolio is effectively untenable and in a world where investors can more easily buy ETFs for leverage the SA mines do not have investor appeal 

We suspect there will come a time when the company will be tempted to ditch its South African assets in favour of its international portfolio.

Any new ceo is likely to be faced with some tough decisions on shutting shafts and laying off staff as gold prices render higher cost production units untenable

Venkatakrishnan is well known and well respected and should be seen as a good appointment if chosen.

If gold prices fall further it might be that the board decide to hand over the keys to many, once great, the South African gold mines.  

Perhaps Julius Malema will get to see the effective nationalisation of the gold mines after all along with their losses, HSE challenges and union issues – sometimes you have to be careful what you wish for! 

Mwana Africa (LON:MWA)– First Shipment of Concentrate from Trojan Mine on Target

First shipment of concentrate from Trojan was trucked to Durban.

The shipment was part of the existing offtake arrangement with Glencore where all concentrate will be bought at a price linked to the LME.

Conclusion: So far restart of Trojan is going to plan. The share price does not reflect the potential at Trojan and the other assets within this portfolio. We continue to see value in the shares. Production at Trojan is expected to ramp up to 7,000 tpa of nickel in concentrate. The current valuation is underpinned by gold production from Freda Rebecca even with the sell off in gold. Now that shipment has started from Trojan the market should start assigning some value to the nickel production.

New World Resources (LON:NWR) – Q1 2013 Trading Update

Q1 Coking coal prices were €101/t and the agreed price of €104/t a 3% increase which will be a combination of 39% hard coking coal, 52% semi soft and 9% PCI coking coal.

Coke prices were €246/t in the first quarter with Q2 2013 prices expected to be flat.

Thermal coal prices were €64/t in the first quarter with an average price of €60/t negotiated for Q2 2013 – 80% of deliveries are on an annual basis with 20% on a quarterly basis giving an average blended price in the second quarter of €59/t.

Q1 2013 production was 2,147 kt for coking and thermal coal and 168 kt for coke.

Conclusion: Coking coal prices look as if they have stabilised with thermal coal prices still edging down.

Stratex (LON:STI) – Sale Proceeds received from Inlice

Payment has now been received from the sale of Inlice of US$3.75m after tax and interest from a sale price of US$4.5m.

Following the receipt of sale proceeds, cash now stands at £17.5m.

Conclusion: The sale of Inlice was done at an in-situ reserve value of $167/oz which looks good in today’s pricing environment. The current valuation is well supported by cash which now accounts for 75% of the value of the company with a significant portfolio of assets in West and East Africa. The company has demonstrated it can extract value from its exploration assets and has the funds to progress the current portfolio and buy into distressed situation. This should provide good upside in the shares.

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