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Fairfax Marketing Report including Pan African Resources, Hambledon Mining, Highland Gold plus others

3rd Jan 2012, 10:13 am
Morning View:

· The markets opened the New Year on an optimistic tone with commodity and equity markets rising.
· Both gold and Copper are up this morning as the dollar retreats a little from its recent strength.
· Forecasts for global growth are generally pessimistic with most economists forecasting a significant slowdown in Eurozone and the UK with the US continuing to outperform on growth.
· Short term visibility of the EU sovereign debt crisis is limited with details of the Dec 9th pact yet to be clarified.
· China remains the big unknown and could potentially surprise on the upside.
· Any improvement in the performance of shares or bonds of developed market banks could act as a leading indicator of sentiment and health of the developed economies.
· The FT carries an interesting article today on Africa with a number of banks taking a bet on Africa as an investment and business destination.

Economic News:

China –Beijing based logistics federation said in an emailed statement yesterday that Chinese PMI rose to 50.3 from 49 in November. The figure beat analyst expectations and could possibly suggest that the recent slowdown in the Chinese economy is stabilizing. 
· According to the China Federation of Logistics and Purchasing the official purchasing manager’s index for non manufacturing sectors rebounded strongly to 56.0 from 49.7 in November. 

US – Estimates before a report due for release later today suggest that manufacturing in the US continues to progress at a relatively solid pace. 
· Forecasts expect the institute for Supply Management’s factory index to rise to 53.4 in December from 52.7 in November. 
· Manufacturing accounts for around 12% of the US economy. 

UK – Figures released today show that business confidence fell last month to the lowest level in 3 years. 
· The index, compiled by Lloyds fell by 3 points from November to -23. 
· The poor figures suggest that the economy will most likely begin the new year by contracting. 

Europe – European stocks were up in early trading on the back of optimism surrounding the US manufacturing industry. 
· The ECB has announced that overnight deposits rose to €446.3bn – close to an all time high that was reached on Dec 27. 
· Additionally financial institutions borrowed 14.8bn euros at the rate of 1.75% 
· In Q1 2012 close to €157bn of debt will mature. 
· By the end of Q1 leaders have pledged to draft a new rule book for controlling government spending – but the question remains will this make any real difference. 

India – Similar to China manufacturing in India improved in December. The PMI rose to 54.2, the most in 6 months from 51 in November. The announcement is a positive but could also spark inflationary concerns. 
· Bloomberg is reporting that The Society of Indian Automobile Manufacturing may cut its annual domestic passenger car sale target as high rates and rising fuel prices impact demand. 
· Currently the Reserve Bank of India’s repurchase rate is 8.5% on the back of 13 increases since mid March 2010. 
· Wholesale inflation stands at 9.11% as of November, down from 9.73% in October. 

Australia – Manufacturing expanded at the first time in six months in December. 
· The index of manufacturing rose to 50.2 last month from 47.8 in November. 

Brazil – Figures released yesterday show that Brazil’s trade surplus rose to a 4 month high in December exceeding all estimates. 
· The country’s surplus widened to US$3.8bn from US$582 million in the previous month. 
· Exports rose to $22.1bn from 21.8bn in November. 

Argentina –New figures show that Argentina’s GDP increased to 9.3% in Q3, beating estimates of 8.4% 

Egypt – The third round of parliamentary elections starts today – at the same time as the commencement of the trial of former President Hosni Mubarak. 
· Islamist groups are expected to consolidate the gains they made in earlier rounds 
· The Muslim Brotherhood’s Freedom and Justice party is leading, ahead of the more conservative Nour party. 

Singapore – For the second time in two quarters Singapore’s economy shrank for the second time in 3 quarters. 
· GDP fell by an annualised rate of 4.9% in Q4 from the previous 3 months when it climbed a revised 1.5%. 

Somalia – Ethiopian armed forces have entered south – central Somalia in an effort to drive out the Islamic militant group al- Shabaab. 
· The semi autonomous region of Somalia, Puntland has welcomed the move according to officials. 
· The move is the second intervention in Somalia by Ethiopian troops since 2006.

Currency – The dollar is off this morning on the back of signs that manufacturing is expanding in both the US and China, diminishing demanding for safe haven assets. 
· The Euro is up this morning on the back of the optimism coming from the US and China. 

Commodity News:

Precious:

Gold US$1,587/oz vs US$1,560/oz last week – Gold is up this morning on weaker US dollar index.
· Gold imports by Turkey, the 4th largest gold consumer measured by jewellery demand, climbed to 2.6t in Dec from 730.6kg in Nov, the Istanbul Gold Exchange said.

· SPDR gold trust holdings remained at 1,255t (40.336moz) value US$63.484bn. 

Platinum US$1,414/oz vs US$1,380/oz last week

Palladium US$657/oz vs US$632/oz last week

Silver US$28.39/oz vs US$27.53/oz last week
· Silvercorp Metals, the China-focused miner, will hire internationally recognized geological consultants – AMC Mining Consultants and Golder Associates – to confirm its grade and resources at Chinese silver mines. The company was previously targeted by anonymous reports claiming it had overstated its financial performance.
· Turkish silver imports increased to 7.2t in Dec compared with 5.2t in Nov.

Rhodium US$1,360/oz vs US$1,365/oz last week

Base metals:

Copper US$ 7,680/t vs US$7,518/t last week – Copper gained slightly this morning on positive manufacturing data in China and India.
· Normally, Chinese Copper orders increase prior to the Lunar New Year with a weeklong break commencing on Jan 23 as producers stockpile material to ramp up operations following the break.
· Sterlite Industries, the Indian largest Copper producer, increased Copper cathodes prices by 0.6% effective Jan 1 according to the website.
· Codelco informed Anglo American of its intention to exercise its options and purchase 49% of the company. Codelco plans to pay US$6bn for the stake. Previously Anglo American sold 24.5% of its Anglo Sur unit to Mitsubishi Corp reducing the share available to Codelco to 24.5% and valuing the unit at US$22bn versus US$12bn implied by Codelco offer. 
· KGHM Polska Miedz, the only Copper and silver producer in Poland, may be subject to lower tax rate tha previously forecasted as the Finance Ministry refrained from introducing a new mineral extraction levy.

Aluminium US$ 2,023/t vs US$2,005/t last week

Nickel US$ 18,710/t vs US$18,390/t last week

Zinc US$ 1,862/t vs US$1,856/t last week

Lead US$ 2,050/t vs US$2,009/t last week

Tin US$ 19,300/t vs US$18,875/t last week

Energy: 

Oil US$108.82/bbl vs US$108.0/bbl last week – The European benchmark has been rising steadily as we lead into the New Year as Iran continues to test missiles, including one land to sea missile near the Straits of Hormuz.
· US crude was at US$100.78/bbl on the New York Mercantile Exchange 
· Exxon Mobil has been awarded by the ICC US$908m compensation in an arbitration battle that started back in 2007 following Venezuela’s nationalisation of assets. 
· The compensation amounts to just 10% of the compensation sought by Exxon. Venezuela has said it will only pay $255m. 

Natural Gas US$3.004/mmbtu vs US$3.014/mmbtu last week

Uranium US$53.30/lbs vs US$51.75/lbs last week

Other

Iron Ore – Prices are likely to fall by 11% on average in 2012 and equal US$150-160/t according to IG Markets estimates.
· 62% content iron ore shipped to the port of Tianjin, China, averaged US$167.60/t in 2011 and stood at US$138.50/t on Dec 30.
· India’s iron ore shipments my drop by 50% this fiscal year (Mar 31 year end) from 97.65mt in 2010 as the export tax on all iron ore grades was increased to 30% from 20% effective Dec 30, the Federation of Indian Mineral Industries said.
· It is the 2nd increase in the duty on iron ore in the last 10 months as the government tries to secure supplies for local steelmakers.

Steel – Emirates Steel Industries, the state controlled company operating the biggest steel mill in the United Arab Emirates, launched operations at its US$650m Heavy Section Mill.
· Plant is currently capable of producing 3.2mtpa of direct-reduced iron and 2.8mtpa of steel. Total production is expected to reach 6.5mtpa in 4 years.

MolybdenumMoly Mines will stop its operations at its Spinifex Ridge molybdenum and Copper site in Western Australia. China Development Bank Corp halved its funding for the project due to low molybdenum prices.
· Prices decreased almost by a third since the start of 2011 to the lowest reading in nearly 2 years. 

South Korea – The Public Procurement Service that is responsible for about 8% of the nation’s base metals demand said it plans to increase its budget by 50% in 2012  and plan to spend around US$461m.
· The agency said metals are likely to remain downbeat until the end of H1 2012 before prices start to increase.
· Volatility is expected to rise amid European sovereign debt crisis and instability in the Middle East.

Egypt –The government will raise prices of natural gas and power to steel, cement, fertilizer and ceramic producers by 33% from Jan, the Finance Ministry said.

Company News:

Mining last 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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