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Fairfax I.S.

Fairfax is an innovative international investment bank providing a full investment banking service to a wide range of clients.

Fairfax Marketing Report including Hghland Gold, EMED Mining, Pan African Resources plus others

30th Dec 2011, 8:15 am

Morning View:

Economic News:

US – Chicago PMI totalled 62.5 in Dec, little changed to a 7-month high of 62.6 in Nov. A reading above 50.0 indicates an improvement of business conditions.

· Pending home sales of previously owned houses climbed by 7.3%mom in Nov compared to 1.5%mom forecasted and a 10%mom rise in Oct.

· Initial jobless claims exceeded analysts’ estimates and added 15k to 381k in the week ending Dec 24th. An increase of 9k was expected.

Australia – House prices in 8 capital cities dropped by 3.7%yoy in the first 11 months, the largest drop in almost 12 years, as the European debt crisis limits country’s economic growth outlook.

· 4 largest lenders in the country accounting for 87% of mortgages say central bank’s benchmark rate cuts hardly support housing market. Home loans advanced 5.7%yoy in the 12 months through Nov, the weakest pace since 1977.

· First-time buyers, the most interest rate sensitive consumer group, increased purchases in response to rate cuts, while buyers of luxury properties were less eager to spend according to Commonwealth Bank of Australia.

· Economists’ estimates range between a 2.5% rise in house prices in 2012 and a 2.5% drop.

· Central bank said private lending by banks and other financial institutions advanced by 0.3%mom in Nov.

UK – House prices dropped for the 1st time in 4 months in Dec and may further slide in 2012 as incomes being challenged by rising inflation and state spending cuts, Nationwide said.

· The average cost of a home dropped 0.2%mom to c. £163,800, a 1%yoy increase.

· 10-year gilts returned 17% on average in 2011, including reinvestments, beating German Bunds and US Treasuries according to Bloomberg.

Europe – Germany may contribute as much as €8.6bn to the European Stability Mechanism in 2012, twice the amount previously planned, as it tries to persuade other Euro zone members to double instalments and speed up payments.

Italy – The country auctioned €7bn worth of bonds, less than the €8.5bn maximum target. The yield on the 10-year bonds equalled 6.98%, nearly 0.5 percentage points less than at last sale (7.56%).

· Italy plans to raise €440bn in bills and bonds in 2012.

China – National manufacturing contracted for a 2nd month in a row indicated by HSBC and Markit Economics PMI of 48.7 in Dec, little improvement from 47.7 last month.

· Slowing external demand in the face of the European sovereign debt crisis and state policy on restricting speculation in the housing market are behind weak manufacturing figures.

· In Nov, China recorded the weakest growth in exports since 2009.

· Local developers point to lower prices in Shanghai, Beijing, Shenzhen and Guanzhou in Nov compared to last year.

South Korea – Inflation surpassed the central bank’ target of 2-4% and totalled 4.2%yoy in Dec. The median analysts’ estimate was 4%.

· Electricity prices significantly contributed to Dec inflation rate. The state increased power charges following the government-owned Korea Electric Power incurring a loss in the first 9 months.

Russia – Government borrowing costs exceed that of lower-rated developing countries’ such as Indonesia and Philippines amid growing number of anti-government protests and demonstrations after alleged ballot box fraud during parliamentary elections.

Currency – Euro is off this morning and on track to record an annual decline against the US dollar.

· Australian and New Zealand dollars are up against the US dollar as positive business sentiment data and strong house sales in the US boosted interest for high-yielding currencies.

· Chinese yuan reached a 17-year high.

Commodity News:

Precious:

Gold US$1,560/oz vs US$1,552/oz yesterday – Gold is trading higher this morning after the metal dropped to the lowest level in 6 months and nearly slipped into a bear market.

· SPDR gold trust holdings remained at 1,255t (40.336moz) value US$61.730bn.

Platinum US$1,380/oz vs US$1,358/oz yesterday

Palladium US$632/oz vs US$632/oz yesterday

Silver US$27.53/oz vs US$26.88/oz yesterday

Rhodium US$1,365/oz vs US$1,350/oz yesterday

Precious Metals: 2011 performance

Gold 10.6%

Platinum -22.1%

Palladium -21.0%

Silver -9.5%

Rhodium -44.6%

Base metals:

Copper US$ 7,518/t vs US$7,410/t yesterday – Prices are up supported by encouraging data from the US and a decrease in Italy’s borrowing costs.

· Workers at Grasberg mine in Indonesia (Freeport-McMoRan) will resume work next week and plan to return to full capacity by Jan 20 according to labour union representative.

· Shanghai Futures Exchange monitored Copper stockpiles increased by 10,936t to 93,219t this week.

Aluminium US$ 2,005/t vs US$1,995/t yesterday

· Alcoa, the largest US aluminum producer, was accused of bribing officials of Bahrain state and Aluminium Bahrain to exctract more than US$400m in illegal earnings.

Nickel US$ 18,390/t vs US$17,893/t yesterday

Zinc US$ 1,856/t vs US$1,815/t yesterday

Lead US$ 2,009/t vs US$1,963/t yesterday

Tin US$ 18,875/t vs US$18,900/t yesterday

Base Metals: 2011 performance

Copper -21.2%

Aluminum -18.8%

Nickel -25.9%

Zinc -24.1%

Lead -21.2%

Tin -21.2%

LME Base Metals Index -23.1%

Energy:

Oil US$108.0/bbl vs US$107.9/bbl yesterday – Prices are little changed this morning. Oil heads for a 3rd annual increase amid growing tensions in the Middle East and better-than-expected macro data from the US.

· US crude inventories increased 3.9mbbl to 327.5mbbl in the week ended Dec 23 according to the Energy Department. A 2.5mbbl decrease was forecasted.

Natural Gas US$3.014/mmbtu vs US$3.143/mmbtu yesterday

Uranium US$51.75/lbs vs US$52.25/lbs last week

Energy: 2011 performance

Oil 13.8%

Natural Gas -31.7%

Uranium -20.1%

Other

Steel – Steel demand growth may slow down through 2015 and forecasts of growth equivalent to the last 5 years are “unrealistic” according to the China Iron and Steel Assocition.

· Japanese steel exports may decline to the lowest reading in more than 2 years in Q1 2012 due to weak external demand.

· Crude steel production in Japan is likely to drop 4.4%yoy to 105.9mt in the year ending Mar 2012, government estimates suggest.

Company News:

Mining this week:

EMED Mining (LON:EMED) – posted gains of over 16% yesterday on loan conversion news

Hambledon Mining* (LON:HMB) – Fine of £1.17m following rupture to liner in tailings dam

Highland Gold Mining (LON:HGM) – closes Novoshironkinskoye deal

Pan African Resources (LON:PAF) – cautionary statement

Outotec - New roasting process to purify Copper and gold concentrates

Areva / Eramet – Areva in talks to sell stake in Eramet

Concordia – deal with Swala goes through

*Fairfax employees may have previously held, or currently hold, shares in the companies mentioned in this note.

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Fairfax Marketing Report including Hghland Gold, EMED Mining, Pan African Resources plus others