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Morning View:

We are looking forward to a recovery in equity ratings next year as the global economy works towards new stability and commodity prices retain firm footing.

· Central banks are enabling the refinancing and restructuring of the banking system to prevent ‘deflation’

· Some inflation is a natural consequence of these actions as successive rounds of QE stimulate new growth

· The Roman empire was supported by silver mining in Carthage for some time, perhaps Spain may once again find support from Copper mining at Rio Tinto (EMED) and maybe the UK will mine tungsten again at Wolf Minerals.

Gold US$1,613/oz, Copper US$ 7,611/t – Copper continues to rise despite Asian growth forecasts cut by Fitch 

· High commodity prices suggest that fears over slower Chinese growth have not yet come to pass, though concerns clearly remain.

· US economic recovery appears on track

· Quiet London streets and half empty tube trains this morning suggest that many have already escaped the city for the Christmas break.

Economic News:

US – Final Q3 GDP growth rate was revised downwards to 1.8% from initial estimates of 2%.

· Unemployment claims decreased by 4,000 to 364,000 last week versus 380,000 expected.

· University of Michigan consumer confidence final reading rose to 69.9, a 6 month high, in Dec.

· Durable goods orders in Nov will be released today. Forecasts suggest a 2.2%mom increase last month versus a 0.7%mom drop in Oct.

· New home sales in Nov are expected to add 8,000 units to 315,000.

Europe – ECB executive board member Lorenzo Smaghi said quantitative easing may be considered in the future should the markets require further increase in liquidity and a risk of deflation emerge. 

· Unlike the US Fed and the BoE, the ECB offset liquidity created by its government purchases so that actions did not to quantitative easing feeding inflation.

· French economy rose 0.3%qoq in the Q3, 0.1% down from previously estimated. The economy contracted by 0.1%qoq in Q2.

ECB liquidity action – reported to be in advance of potential deflation

· We were concerned that the ECB’s action might have been to ensure that banks were able to meet Christmas payroll demands.

· Comments from an ECB board member call for European QE next year to prevent deflation (FT)

· We suspect that the ECB will follow other central banks, will need to allow some form of QE and will treat a fine line between moderate inflation and prevention of deflation.  Inflation rates below 5% seem acceptable to policy makers while deflation is seen as unacceptable as it implies negative economic growth.

India – Mining sector blamed for slowing Indian GDP growth

· Minign accounts for around 5% of $1.4trillion of sales within the Indian economy but is having a great impact as a result of production restrictions holding back other sectors.

· Insufficient coal supply in some key areas is reported to have idled some 22,000mw of power generation capacity.

· Indian domestic coal prices also rose by 13% in Q3 vs 7% yoy

· Some of the impact is blamed on a crackdown on illegal mining and restrictions on land held by Coal India the state monopoly coal producer.

UK – Governor of the BoE, Mervyn Knig, said the outlook for financial stability has “worsened” since Sep on worsening European sovereign debt crisis.

Singapore – Industrial production unexpectedly dropped 9.6%yoy in Nov for the first time in 6-month as worsening global outlook puts pressure on Asian nations. Government forecasts economic growth to deteriorate next year.

· Fitch Ratings cut its growth forecasts and increased inflation estimates for 2012 for Asian countries.

Vietnam – Inflation rate slowed down t 18%yoy in Dec compared to nearly 20% in Nov.

The Philippines – Government plans to sell dollar bonds after its outlook was changed to positive by Standard & Poor.

· Dollar notes from the Philippines and Indonesia are the best-performing in Asia in 2011, advancing 11% and 8.8% respectively, HSBC indexes show.

Indonesia – The country is looking to tap the market as Fitch raised its status to investment grade in December.

Japan - Bank of Japan (BOJ) Governor Masaaki Shirakawa has stated that the Japanese economy will more or less be flat for the time being due to the impact of slowing economies overseas outweighing positive signs in domestic demand.

· The policymakers kept short-term interest rate at around zero to 0.1% while maintaining the BOJ's asset-purchase program to boost economic growth in Japan.

Russia – The ruble gained for a fourth day against the dollar after Bank Rossii cut refinancing rate to 8%, with oil, Russia’s biggest export, advanced.

· Russia boost in exports to Europe will hasten Prime Minister Vladimir Putin’s goal of modernizing the country’s oil industry. 

Commodity News:

Precious:

Gold US$1,613/oz vs US$1,614/oz yesterday – Prices are up this morning as positive US economic data cut demand for the dollar as a safe haven.

· Holdings in gold backed ETPs dropped for the 6th day to a 1-month low of 2,321t yesterday. Holdings reached a record 2,360.8t on Dec 14.

· SPDR gold trust holdings dropped to 1,255t (40.336moz) value US$64.781bn from 1,267t (40.763moz).

Gold ETF fund flows fall as financial crisis reduces funds available for investment

· Fund flows into gold ETFs is reported to have halved through 2011

· 4.34moz worth of fund inflows in 2011 vs 9.9moz on 8 products monitored in 2010

· The UBS ETF trading scandal may also have held some investors back from ETF products

Platinum US$1,439/oz vs US$1,431/oz yesterday

Palladium US$655/oz vs US$631/oz yesterday

Silver US$29.43/oz vs US$29.52/oz yesterday

Rhodium US$1,350/oz vs US$1,350/oz yesterday

Base metals:

Copper US$ 7,611/t vs US$7,534/t yesterday – Copper advanced for a 4th day as US jobless claims dropped last week to the lowest reading since 2008 and consumer confidence grew in Dec boosting demand for the industrial metal.

· Global Copper inventories at a 2-year low according to Bloomberg data.

· Workers at Cerro Verde mine in Peru (Freeport-McMoRan) signed a 3-year labour agreement after ending a 61-day strike last month and are prepared to proceed with a US$3.5bn expansion.

Aluminium US$2,030/t vs US$1,991/t yesterday

· Emirates Aluminium, constructing the world’s biggest aluminum smelter, might look for US$3bn to finance the Abu Dhabi project.

Nickel US$18,750/t vs US$18,880/t yesterday

Zinc US$1,1,874/t vs US$1,871/t yesterday 

Lead US$2,015/t vs US$1,978/t yesterday

Tin US$19,300/t vs US$19,160/t yesterday

Energy: 

Oil US$108.23/bbl vs US$108.20/bbl yesterday- No surprise that there is little movement on the oil markets this morning as practically everyone has gone into Christmas holiday mode.

· U.S. crude is headed for it biggest weekly gain since October on the New York Mercantile exchange as it touches over US$100bbl. 

· Prices for Russia’s Urals oil are setting record highs as nations continue to debate imposing tougher sanctions on Iran, increasing refiners costs in Europe’s weaker economies. 

Natural Gas US$3.14$/mmbtu vs US$3.13/mmbtu yesterday– U.S. Energy Information Agency (EIA) expects Natural Gas spot prices on benchmark Henry Hub to continue to decline in 2012averaging $3.70per MMBtu $0.43 per MMBtu lower than in their Outlook in November.

Uranium US$52.25/lbs vs US$52.25/lbs yesterday – UN tells Libya to sell Uranium yellowcake

· UN experts are concerned that stockpiles of Uranium yellowcake are not secure for long term storage

· IAEA inspectors visited storage facilities in Tripoli and Sabha and reckon there is a risk to the safe keeping of the yellowcake material during Libya’s transition to democracy.

· The sale of this yellowcake material could have a detrimental impact on the Uranium price next year

Coal – Indonesia considers introducing export taxes on mineral products next year, in an effort to encourage investment for base metal and coal downstream industry development.

· The country produces mainly low-grade coal, used predominantly in India and China. 

· U.S. coal production totalled approx. 21.9 m short tons. 

· Coal-fired power plants across America are under a new directive from the Environmental Protection Agency (EPA) to either clean up their act or close. 

Other: 

Iron Ore – China’s iron ore imports grew by 28.56%mom to 64.2mt in Nov with Australia remaining the largest supplier, accounting for 47% of imported material during the month.

· Imports Jan-Nov increased 11%yoy to 622mt.

· The consortium of steel producers led by state-backed Steel Authority of India that won rights to develop the largest iron ore deposit in Afghanistan will be looking US$7.8bn in state aid and financing.

· US$5.5bn in 30-year interest-free loans to build a 6mtpa steel plant and US$2.35bn in aid to construct an 800-megawatt power plant.

REE – Rare Earth Elements – New DOE report shows 5 key minerals to be at risk

http://energy.gov/pi/office-policy-and-international-affairs/office-policy-and-international-affairs/office-policy--16

· Majors show lack of interest due to small market value and environmental issues.

· This may cause problems with future supply

· The DOE highlight dysprosium, terbium, europium, neodymium and yttrium supplies to be at risk in the short term and may hold back production of new energy efficient technologies going forward

· 16 elements are seen as critical for wind turbines, electric vehicles, photovoltaic cells and fluorescent lighting with half being REEs

· The high capital intensity of REE mining and processing is a major hurdle for miners with project capital ranging from $100m - >$1bn for new mines.

· We note that Tanzania and Kenya seems to be throwing up some interesting and new REE projects and that investors should look out for projects which are rich in the ‘heavy’ REEs.

Company News:

BHP to spend $6bn in China on mining infrastructure and consumables

· We think the Australian economy is really missing out here and Australians should be looking to compete to capture value from the production and supply of much of this.

· $6bn of expenditure in China probably equates to around $30bn of expenditure if goods were bought in Western economies 

· Goods will be things like heavy engineering items, mills for crushing and grinding, trains and rail, etc…

· Australian politicians should be creating incentives to encourage the development of manufacturing to capture more value from its national champions.  Anyone want another tinnie around the Christmas BBQ, sport!

Vital Metals (ASX:VML) – Tungsten recoveries improve on new flowsheet

http://vitalmetals.com.au/

· Vital Metals have updated the market on the Watershed tungsten project in Australia.

· Significant improvement has been made to tungsten recovery rates through optimisation of the flowsheet to give 66-78% recovery rates versus 51-61% recovered previously.

· Cores from 8 new holes covering 1,400m drilled have been submitted for analysis and results are due from February

· JOGMEC, the Japanese trade finance group, is funding project work and is expected to pass the project onto a Japanese industrial group for full financing on completion of the DFS feasibility study work.  Japan is keen to secure future tungsten supply in a market where the Chinese may have significant control.

· Burkina Faso:  RC drilling completed at Kollo and Boungou.  We expect results in January and February.  Former drilling of these prospects has shown some good results in places and reorientation of the drill program hopes to show more consistent results.  January’s results should give us a better indication of the potential value of these prospects.  Previous results from Kollo include: 18m at 2.95g/t, 31m at 3.19g/t, 44m at 6.39g/t

· Burkina Faso is a fast growing region for gold mining.  A number of new mines are in planning and exploration continues to throw up new discoveries.  In essence the gold geology of Burkina Faso is an extension to that seen in Ghana and we expect to see more new mine discoveries coming through in 2012.

Conclusion:  Vital Metals is making good progress in Tungsten and we are hopeful for better results from the gold prospects in Burkina Faso.  We encourage investors to watch progress on this stock

*Fairfax has raised funds for Vital Metals in the past.

Mining this week: 

Beacon Hill Resources (LON:BHR) – JV to develop new coal licence in Tete Province

Bellzone Mining (LON:BZM) – Forecariah JV Progress Update

Diamond Corp (LON:DCP) – Update on Botswana Exploration

Avocet Mining (LON:AVM)  - Updated resource at Tri-K Block exceeds expectations

GMA Resources (LON:GMA) – Sonatrach, the Algerian state oil producer, to acquire GMA’s Algerian gold mine

Ncondezi Coal (LON:NCCl) - Resource Update at South Block

Shanta Gold* (LON:SHG) – Debt funds for larger New Luika and to accelerate Singida mine

West African Minerals (LON:WAFM) – interim statement 

(Formerly Emerging Metals Ltd)

Condor Resources (LON:CNR) – Drilling Update at La India Project

Ferrex (FRX LN) – Final Results

Trans-Siberian Gold (LON:TSG) – Asacha mining and production update

Beacon Hill Resources (LON:BHR) – First Export shipment of Seabourne Coal from Minas Moatize in Mozambique

European Goldfields (LON:EGU) – Recommended Offer of C$2.5bn by Eldorado Gold

Frontier Mining (LON:FML) – Official Opening of Benkala Copper Project

London Mining (LON:LOND) – Update on Operations at Marampa Mine

IRC Ltd (1029 HK) – ICBC Drawdown and First Production from Vanadium Plant at K&S Project

Zanaga (LON:ZIOC) – Correction to comment on 16th Dec 2012 on Site Visit