Weekly Mining & Projects Roundup

The relatively strong performance of the Bloomberg World Mining Index over past weeks is set to reverse as it meets with stiff resistance around the 250 mark. Approaching Q413, we forecast increased headwinds for metal prices as Chinese metal demand growth weakens due to structural economic slowdown. To quantify this outlook we have initiated a bearish iron ore view. I ron ore prices have the potential to move down to US$110/tonne by end-year, approximately 15% below current levels.

Glencore Xstrata 's solid performance this month supports our view that the company is well positioned to weather the mining sector storm due to its diversified portfolio and significant proportion of revenue derived from its trading arm. Norilsk Nickel 's announcement for significant capex cuts and restructuring have allowed for a similarly solid monthly performance. We highlight that the ground gained by Peabody Energy is more indicative of a very poor performance over the previous 12 months , as weak coal prices and rising environmental legislation mean that the outlook for pla yers in the US coal industry remains broadly negative. Perhaps the most surprising performance is that of AngloAmerican , considering its positive trajectory despite a month of strike action and uncertainty in the South African mining sector. To explain this we highlight that much of the industrial unrest had already been priced into the company's stock.

Key Developments: EMEA

Uptrend To Meet Resistance
Bloomberg World Mining Index (Weekly Chart)

The relatively strong performance of the Bloomberg World Mining Index over past weeks is set to reverse as it meets with stiff resistance around the 250 mark. Approaching Q413, we forecast increased headwinds for metal prices as Chinese metal demand growth weakens due to structural economic slowdown. To quantify this outlook we have initiated a bearish iron ore view. I ron ore prices have the potential to move down to US$110/tonne by end-year, approximately 15% below current levels.

Uptrend To Meet Resistance
Bloomberg World Mining Index (Weekly Chart)

Glencore Xstrata 's solid performance this month supports our view that the company is well positioned to weather the mining sector storm due to its diversified portfolio and significant proportion of revenue derived from its trading arm. Norilsk Nickel 's announcement for significant capex cuts and restructuring have allowed for a similarly solid monthly performance. We highlight that the ground gained by Peabody Energy is more indicative of a very poor performance over the previous 12 months , as weak coal prices and rising environmental legislation mean that the outlook for pla yers in the US coal industry remains broadly negative. Perhaps the most surprising performance is that of AngloAmerican , considering its positive trajectory despite a month of strike action and uncertainty in the South African mining sector. To explain this we highlight that much of the industrial unrest had already been priced into the company's stock.

Respite Will Be Temporary
Global - Mining Equities % Chg. Over Past Month (LHS) & Past 12 Months (RHS)

Key Developments: EMEA

Guinea: Further Delays For Iron Ore Boom - Our view that Guinea's iron ore boom will occur much later than anticipated by the government was supported this week as Rio Tinto announced that completion of the Simandou mine will occur in 2018 at the earliest . The original production start date for the mine was to be in early 2015 at production of 90mntpa. This development is part of a larger trend of miners shelving expensive start-up operations in favour of focusing on their core assets elsewhere. For example Norilsk Nickel announced this week plans to sell Tati Nickel in Botswana, Nkomati in South Africa and various projects in Australia, in order to focus on its core assets. Inadequate infrastructure will remain a key factor hindering the development of Guinea's iron ore sector. The Guinean government is unable to afford to build the necessary railway to connect the mining hub to port. While Rio Tinto refused to shoulder the expenses of the whole railway project, a positive development has been the possibility of Chinese financing.

Pushing Back The Boom
Guinea Iron Ore Production & Growth

Turkey: Export Boom For Mining Products - This week's announcement by the Istanbul Mineral Exporters' Association of strong mineral export growth ties into our forecasts for Turkeys' mining sector to outperform its European peers. Turkey's mining sector exports increased to US$3.3bn for the period January - August 2013, a y-o-y growth of 26.5%. China is the main market for Turkish mineral exports, with Chinese mining imports from Turkey up 51% y-o-y. Although we maintain that Turkey's mining sector will continue to outperform other countries in the region, we highlight that a structural slowdown in the Chinese economy will mean that exceptional mineral export performance is likely to be unsustainable over the medium and long term. Instead, strong domestic mineral demand will help underpin growth in Turkey's mining sector.

Outperforming Its Regional Peers
Turkey - Mining Industry Value & Growth

Key Developments: Asia

Indonesia: China's Rising Interests In NPI Plants - According to Beijing Antaike Information Development Co Ltd, around half of the twelve to thirteen Chinese firms operating nickel mines in Indonesia are planning to construct plants for the production of nickel-pig-iron (NPI) or standard ferro-nickel. A growing number of Chinese miners in Indonesia are likely to step up investment in to NPI plants in a bid to continue the shipments of nickel ores back to China , in response to Indonesia's latest mining policy reversal. Under the proposed revision, mining companies with smelters under construction would be allowed to continue to export unprocessed minerals in 2014. As we have written extensively, the minerals export ban in 2014 is one policy that will have to be rolled back over the coming months ( see ' Dimmer Outlook For Miners But Potential For Policy Moderation', October 3, 2012 ), especially in the face of a slowing domestic economy.

Slowdown In Sight
Indonesia - Real GDP Growth (%)

Philippines: Miners Pushing For Competitive Tax Structure - Philippines' largest mining companies are urging the government to develop a single tax rate regime that is internationally competitive and will provide an equitable share of proceeds between the government and investors. At present, two types of mining contracts are awarded by the Philippine government - the Mineral Production Sharing Agreement (MPSA) and the Financial or Technical Assistance Agreement (FTAA). While both contracts are subject to a 2% excise tax, MPSAs are required to pay an additional 5% ro yalty. Indeed, we believe it is ever more important for governments in frontier markets to adopt positive reforms towards the mining sector. The threshold of attracting foreign investment into the mining space will be much lower than anticipated by many emerging market governments now that the commodities supercycle has run its course.

Boom Is Over, Frontier Mining Losing Attraction
Global - Copper & Iron Ore Prices (US$/tonne)

Key Developments: Americas

US: New Coal Regulations Introduced - Reports this week indicate that the Obama administration will soon release proposed rules that impose restrictions on all new coal power plants, mandating that any new plants be built with emissions capturing technology that stores carbon dioxide underground. Given the costs associated with such technology, the new rules will provide disincentives to build such plants. Reports indicate that new plants would be restricted to emissions of 1,100 pounds of carbon dioxide per megawatt hour, a level far below current standards. Though the rules won't apply to existing plants, the administration is preparing to release emissions standards on existing power plants in mid-2014. Should the newly-proposed rules survive legal challenges and become implemented, US coal miners are likely to further push for expanding exports to Europe and Asia. However, existing port infrastructure is insufficient to see significant export growth ( see ' Asia Export Trend Looking Increasingly Tenuou s', August 15, 2013 ). Cheap coal prices have led to increasing use of coal at existing US power plants, though we see stagnant growth over the medium term. Thus, we expect further troubles ahead for already struggling US coal miners.

Wyoming & Appalachia To Be Most Affected
US - Map of Coal Producing States, % Contribution To Total

Peru: Further Chinese Investment Likely - After putting its US$5.9bn Las Bambas copper mine up for sale, Glencore Xstrata is now expecting up to four separate offers from Chinese firms interested in the asset. Th e mine is expected to produce 400kt of copper per year, as well as gold, silver, and molybdenum, when it starts production in 2015. We first reported on the development after Chinalco Mining Corp approached Glencore in late August. Now, Chinese firms MMG and Jiangxi Copper may submit bids, though Glencore has not revealed a fourth name. Glencore agreed to sell the mine as a condition for gaining the Chinese government's approval for its merger with Xstrata. Given the Chinese government's involvement with the deal though, it is unlikely to allow firms to make rival offers. The firms interested in submitting bids have all made prior investments in the Americas before, and reflect Chinese interest in securing mineral supplies in the region. We note though that our forecast for falling copper prices leads us to believe the asset could see its value decrease in the coming years. However, Chinese state interest in securing mineral supplies appears to supersede such concerns.

Projects Announced This Week
Source: BMI, Company Announcements
Country Company Mine Commodity Update
Argentina Patagonia Gold Plc Lomada de Leiva Gold Construction of main pad is 90% complete. Loading of the main pad with ore is scheduled to commence in mid Q313
Austria Noricum Gold Schonberg Gold Results confirm the Company's view that this area is a high priority exploration target
Azerbaijan Anglo Asian Mining Gedabek Gold Production from the Agitation Leach plant reached 7.6koz in August
Brazil Horizonte Minerals Araguaia Nickel Final set of results from the completed infill resource drilling programme announced
Canada Golden Valley Mines Lac Barry Diamond First-phase drill program tested two separate target areas on the property
Ecuador SolGold Cascabel Copper-gold Intersection of porphyry copper mineralisation at Alpala prospect announced
Nicaragua Condor Gold La India Gold Drilling programme completed
Peru Sulliden Gold Shahuindo Gold Ministry of Energy and Mines approved Canadian firm's Environmental Impact Assessment (EIA)
United States Tertiary Minerals MB Fluorspar Fluorspar Beginning of Phase 2 drilling programme
Zambia African Rainbow Minerals Lubambe Copper Feasibility study to be completed by year-end

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This article is tagged to:
Sector: Mining
Geography: Global, Global, China, Guinea, Peru, Philippines, Turkey, United States, Global, Global
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