Our forecast for a near-term bounce in mining equities has played out extremely well, with the FTSE 350 Mining Index breaking resistance at the 20,000 level. Whilst we expect the rally to extend over the coming months, buoyed by the aversion of US ' fiscal cliff ' and a rebound in China ' s economy, we remain medium-term bears and expect the bounce to eventually fade beyond H113. S timulus measures will fail to sustainably reverse the economic slowdown in China and import demand from the world ' s largest consumer of industrial metals will disappoint over the medium term.
|Major Gains Are Over|
|UK - FTSE 350 Mining Index (Weekly Chart)|
A large number of miners posted stellar gains this week followin g the US Congress deal to stop a recession-threatening ' fiscal cliff ' of tax increases and spending cuts. M iners such as Vale and Rio Tinto continued to benefit from the su rge in iron ore prices of late, amid signs of rebounding Chinese growth and anticipation for further infrastructure stimulus measures. However, we believe the boost in prices will be short-lived and demand from Chinese ste el mills will eventually weaken. Indeed, the rebalancing of the Chinese economy away from fixed asset investment will significantly crimp demand for commodities and cast a dark cloud over the future prospects of the mining industry.
|Miners Gain On Fiscal Cliff Deal|
|Global - Select Mining Equities, % Chg. Over Past Month (LHS) & Past 12 Months (RHS)|
Asia: Key Developments
Indonesia: Tin Exports To Further Move Up The Value Chain - In a bid to further raise the value of exports , the Trade Ministry of Indonesia is planning to increase the minimum purity requirements for tin ingot exports with effect from July 2013. Under the new rule, tin smelters operating in the world's largest tin export er are mandated to ship only tin ingots and refined products with 99.9% purity level, up from 99.85% at present. While the revision to tin export purity level would inevitably lead to higher refining and smelting costs for companies, we do not expect such a move to have a substantial impact on domestic production. Indeed , Indonesia's top two producers, state-owned PT Timah and unlisted PT Koba Tin , are already exporting tin that meets the requirement.
|Major Miners Unscathed by New Ruling|
|Indonesia - Tin Production By Company (2011)|
Australia: Fortescue ' s Kings Project Back In The Game - Australia's largest pure iron producer Fortescue Metals Group has recently announced its decision to resume expansion of the Kings deposit at the Solomon mine hub following the surge in iron ore prices of late. The expansion is expected to raise iron ore output by 40mntpa (million tonnes per annum), for a total production target of 155mntpa by December 2013. T he Kings project, which was put on hold in September amid a cash crunch, was buoyed by the strong bounce in iron ore prices of recent weeks. The company has also been offloading assets to shore up its balance sheet and is currently in talks for the sale of a minority stake in its Pilbara infrastructure business that could fetch as much as US$5bn. In view of the pipeline of projects scheduled to come online in the years ahead, we forecast Australia's iron ore production to reach 634mnt by 2017, growing at an annual average rate of 4.4% from 2011 levels. Nevertheless, this will mark a sharp slowdown from the previous decade during which growth averaged 10.3% per annum.
|Mining Boom Shifts Gear|
|Australia - Iron Ore Production & Growth|
Philippines: Mining Law On Hold, Investment Targets Slashed - A recent assessment by the Philippines' Mines and Geosciences Bureau (MGB) has seen mining investment targets for the next four years slashed by 218% to US$3.1bn due to deferred developments in a number of key projects. The new mining policy, laid out in an Executive Order by President Aquino, prohibits the issuance of mining applications until a new law rationalising the revenue-sharing scheme between the government and mining firms is implemented. We believe the mining sector will experience a continued slump in investment until at least mid-2013, when we expect Aquino's Liberal Party and its coalition partners to retain broad control of congress. To highlight, Xstrata ' s plan to develop the US$5.9bn Tampakan copper-gold mine has been delayed by three years, from 2016 to 2019. The mine, which would be the country's single largest foreign direct investment, is estimated to hold more than 15mnt of copper and 17.6moz (million ounces) of gold.
|More Project Deferrals On The Horizon|
|Philippines - Mining Investment Targets (US$bn)|
Americas: Key Developments
Canada: ArcelorMittal Sells Canadian Asset - In an effort to raise cash to pay off debt, ArcelorMittal , the world ' s biggest steelmaker, is selling a 15% stake in one of its iron-ore operations in Canada. The stake in ArcelorMittal Mines Canada will be sold to South Korean steelmaker POSCO and Taiwan-listed China Steel. ArcelorMittal has struggled as of late with slow global economic growth and waning steel demand , particularly in the European car and construction industr ies . The company has seen a decline in revenues and an increase in its net debt. Indeed, given both weak demand and overcapacity in many top steel producing countries, we forecast steel to average US$370/tonne in 2013 and US$360/tonne in 2014 compared to US$559/tonne in 2014 . The company ' s Canadian operation maintains two large iron ore mines in Quebec province. This will give POSCO, the world ' s fourth-largest steelmaker, greater access to iron ore, a significant development for the company given its reliance on imported raw materials.
|ArcelorMittal Turns In Weak Performance|
|ArcelorMittal - Share Price (EUR)|
Canada: Government Considering Chinese Arctic Investment - The Canadian government is reportedly considering a proposal by Chinese miner MMG to develop a major zinc and copper project in Nunavut, Canada's northernmost territory. The project would be situated in the Izok Corridor, southeast of Kugluktuk. The project is expected to produce 180ktpa ( thousand tonnes per annum) of zinc and 50ktpa of copper. It would also necessitate infrastructure investments in the form of a port, permanent camps, airstrips, and an all-weather road. The potential deal has raised numerous security and environmental concerns. Aboriginal groups and environmentalists expressed concern to the Nunavut Impact Review Board, while others expressed unease with China buying control of a major portion of Canada ' s natural resources. The proposed deal comes in the wake of the recent purchase of energy firm Nexen by China ' s CNC. The deal also highlights two trends we have reported on previously , namely increasing Chinese investment into the natural resources sector in Africa and the Americas, and mining companies exploring and developing frontier assets as ore grades, and hence output, decrease at many existing mines.
|Canada - Mining Industry Value & Growth (%), 2009-2017|
Key Developments: EMEA
Liberia: Joining In West Africa ' s Iron Ore Boom - Severstal, the Russian steelmaker, has increased its resource estimate by 38% to 4.4bnt . Combined with projects owned by BHP Billiton and Vedanta , among others, Liberia has more than 1.5bn tonnes of iron ore reserves due to come online in the next few years, which will see output rapidly expand from negligible at present to approximately 50mntpa (m illion tonnes per annum) by 201 7 . As with Sierra Leone and Guinea, many of these projects are high-grade deposits, a particularly pertinent issue at present as mining companies are seeing margins squeezed by rising energy and labour costs as well as lower metal prices in 2013 and 2014 .
|Ore To Play For|
|Liberia - Iron Ore Mines|
DR Congo: Rebel Instability Could Deter Investment - The M23 rebel group in the DR Congo have threatened to pull out of peace talks and renege on a ceasefire agreement with the government. Whilst the country has witnessed much instability, the formation of the M23 group has seen an uptick in violence in the east of the country. If talks fail to provide a semblance of peace it would disproportionally affect the country's gold reserves which are located in the east and northeast of the country, whilst the copper sector will be unscathed as production is centred in the relatively stable province of Katanga. Therefore, should negotiations break down and there is an uptick in violence in the east, it would pose significant downside risks to our bullish gold production forecast.
|Instability Could Derail Growth|
|DR Congo - Gold & Copper Production|
Egypt: Miners To Tread With Caution - The Egyptian Customs Authority has prohibited London-listed gold miner Centamin PLC from exporting its gold shipment due to a failure in obtaining the necessary permit from the Ministry of Petroleum. Although we believe an increasing number of miners will venture abroad in search of stable, long-term supply of mineral resources, we continue to cast doubts on the near term prospects of Egypt's mining industry and expect capital inflows to remain subdued in the years ahead. Egypt's political transition has taken a turn for the worse in recent weeks and this reinforces our conviction that the country will continue to be characterised by policy drift in the coming quarters, with the government's willingness to pursue structural reforms likely to be minimal. Unless considerable efforts are taken to improve the overall investment climate, we believe the pervasiveness of political turbulence will remain a salient constraint to further development in the mining space.
|Source: BMI, Company Announcements|
|Australia||Evolution Mining||Mt Carlton||Gold, Silver, Copper||Commencement of commissioning|
|Cameroon||West African Minerals||Binga||Iron ore||Intersected zones of enriched iron mineralisation confirmed|
|Canada||Colossus Minerals||Serra Pelada Project, Pará, Brazil||Gold, Platinum, Palladium||Project has reached mineralization in its secondary development|
|Canada||Gold Bullion||Granada||Gold||Proceeding to preliminary feasibility study|
|Canada||Premier Gold||Trans-Canada||Gold||Measured and indicated resource @ 4.1moz|
|Colombia||Samaranta Mining||Guadalupe||Gold||Identified four targets for further exploration|
|Fiji||Vatukoula||Vatukoula||Gold||Quarterly production @ 10.5koz|
|Ghana||PMI Gold||Kaniago (Adansi)||Gold||Assay results received, encountered significant gold intercepts|
|Guinea||Bellzone Mining||Forecariah JV||Iron ore||First shipment of iron ore dispatched|
|South Africa||Strategic Natural Resources||Elitheni||Coal||Initial coal seam thickness greater than predicted|