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Morning View:

Indaba Mining conference – Cape Town – February 6th – 9th February

The mining sector is busy preparing for the Indaba conference

Mining equity prices normally rise through the conference period 

Typically a rise in commodity prices following the Chinese New Year also helps the sector

· Cape Town hotels and airlines have ramped up their prices in preparation for 5,000 extra visitors

· Speakers are working on their presentations

· Companies are preparing their press releases, field trips and golf days 

· Consultants are finishing off their updated JORC resources and feasibility studies 

· Aspiring miners tying up meetings with brokers and investors around the conference

· IR companies and some of the more adventurous brokers are planning their lavish parties

· The more successful investors are having their private jets prepared for flying dignitaries around the continent

· The number of smaller companies operating in the sector continues to rise 

While Cape Town is largely bug free we warn that investors may well be bugged by miners looking for money!

Miners should also watch out as many investors are also looking for blood with their money! 

Economic News:

Commodity News:

Precious:

Gold US$1,667/oz vs US$1,642/oz yesterday – Gold picked up this morning as China grew faster than forecast in Q4 and dollar weakened.

· Chinese gold production grew 32% yoy to 83t in Dec, the National Bureau of Statistics said. Total supply of gold was 731t in 2011.

· Indian physical gold demand on Jan 13 was the highest since late December, UBS said.

· European states sold 4.8t of gold since Sep last year outpacing total sales in the previous 12 months, the period of a central bank accord to limit gold disposals.

· South Korea plans to launch spot gold trading by the year end on investors’ growing interest in bullion amid low interest rates and falling equities.

· South Korean Finance Ministry said smuggled gold trading accounted for as much as 70% of the nation’s US$4.3bn gold market in 2010.

· Morgan Stanley forecasts gold to average US$1,845/oz (+17% yoy) in 2012 on more investment buying, central bank purchases and less hedging by producers.

· Commerzbank forecasts gold to rise to US$1,900/oz by the end of 2012 and silver to US$38/oz.

· SPDR gold trust holdings remained at 1,254t (40.322moz) value US$65.935bn.

Platinum US$1,528/oz vs US$1,491/oz yesterday

Palladium US$654/oz vs US$640/oz yesterday

Silver US$30.53/oz vs US$29.81/oz yesterday

Rhodium US$1,325/oz vs US$1,355/oz yesterday

Base metals:

Copper US$ 8,246/t vs US$8,031/t yesterday – Copper prices climbed today supported by Chinese Q4 GDP data. GDP saw a 4th consecutive slowdown in growth to 8.9% beating expectations.

· Chinese refined copper production increased 8% yoy to 457kt in Dec, the National Bureau of Statistics said. Total production for 2011 advanced 14% to a record 5.18mt.

· Earlier this year it has been reported that Chinese scrap imports gained to 450kt in Dec, the highest in more than 2 years, and unwrought copper and products imports surged to record 508,942t in the same month.

· Copper inventories monitored by the Shanghai Futures Exchange increased to a 5-month high of 120,452t as of Jan 12.

· Market participants argue that increased local production, record imports and building up inventories may potentially limit further copper imports putting pressure on London prices.

· Morgan Stanley expects copper prices to pick up this year on a restocking in China with market recording a deficit of 300kt in 2012, the 3rd consecutive annual shortfall.

Aluminium US$ 2,194/t vs US$2,147/t yesterday

Nickel US$ 19,639/t vs US$19,550/t yesterday

Zinc US$ 1,995/t vs US$1,953/t yesterday

Lead US$ 2,064/t vs US$2,030/t yesterday

Tin US$ 21,290/t vs US$21,000/t yesterday

· Tin may return 23% this year according to Bloomberg forecasts as demand for electronic devices is forecast to exceed US$1tn in 2012 and stockpiles are at the lowest level in almost 3 years.

· Demand is expected to exceed supply by 9.4kt for a 3rd consecutive year according to ITRI estimates, an England-based industry group.

· Supply is forecast to rise 0.6% to 355kt and consumption to total 364.4kt in 2012.

· Demand may undershoot forecasts should Europe, which accounts for 16% of total consumption, fall into recession, ITRI said.

· Heavy rains and adverse weather conditions may continue for another week potentially disturbing tin smelting. 

Energy:

Oil US$112.03/bbl vs US$111.38/bbl yesterday – Oil edges up this morning- US crude is at US$100.58/bbl on the New York Mercantile exchange with WTI at US$100.62/bbl on London-based ICE futures exchange as Europe’s debts woes curb Chinese exports. China’s economy has expanded at its slowest pace in 10 quarters.

· The U.S. is now leaning on South Korea to reduce Iranian crude oil imports. 

· Rockhopper has said it will consider relinquishing operational-control of its potentially 1.3bn/bbls oil resource at the Sea Lion project off the coast of the Falkland Islands, if farming-down interest is high enough. 

· Rockhopper share price has climbed by 10% since last Friday. 

· The downside to any deal is the geo-political sensitivity between Great Britain and Argentina. 

· In December 2010 Argentina passed a law laying claim to the Islands which include South Georgia. A move the UK government has rejected. 

· Following the recent British led oil exploration programme Argentina introduced a rule whereby all ships flying the Falkland Island flag in its waters must have a permit. Brazil, Chile and Uruguay all recently rallied around Argentina by agreeing to turn away any ships without said permit. 

· Energy security is very much the issue here with vast natural resources potentially recoverable. 

· Afren announces discovery offshore Nigeria at its Okoro East exploration well.   

Natural Gas US$2.589/mmbtu vs US$2.605/mmbtu yesterday – 

Uranium US$53.70/lbs vs US$53.70/lbs yesterday –

Coal- Xstrata Plc’s SA coal unit has completed a sale of its Spitzkop and Tselentis colleries in the area of Mpumalanga to Imbawula Group for an undisclosed sum.

· There will be no job losses as a result of the deal a report said.

Other:

Iron ore – China launches iron ore spot trading platform.

· China is looking to have greater influence over iron ore prices probably on the downside

· Chinese steelmakers and industry is generally aggrieved at the high cost of iron ore and continues to move to acquire iron ore production and better quality near term projects in order to generate greater self sufficiency in this area.

· Current indexes generally used for spot price calculations eg the MB, Platts Index and Steel Index SI give higher spot prices than local Chinese indices.  

· "Monopoly practices and price  manipulations have a massive  impact on current iron ore prices and have also inflicted fatal harm on Chinese steel enterprises,"  state media  reported CISA's  deputy chairman  Wang Xiaoqi saying at the launch ceremony. (Interfax)

Steel – Chinese annual production advanced at 8.9% to a record 683.27mt in 2011, the slowest pace in 3 years, the National Bureau of Statistics said.

· Slower growth is attributed to a slower demand from construction and auto sectors. 

· Domestic prices for hot-rolled coil, a benchmark price, dropped 8.5% since Oct to US$669/t yesterday. 

Company News:

Firestone Diamonds (LON:FDI) – Philip Kenny resignes as Chairman of Firestone

· Lucio Genovese is taking over as a non-exec Chairman 

· Mr Genovese, the current ceo of NAGE capital management,  has 24 years of experience in merchant banking and finance and was formerly at InCentive Asset management.  Previously at the Armajaro commodity funds and was a member of the board of Ferrexpo and previously employed a Glencore.

· We are shocked and saddened to see the departure of Philip Kenny and will be enquiring to circumstances surrounding his sudden departure although we do note the fall in Firestone’s shares which are off 67% on last year.

Goldplat (LON:GDP) – First Gold Pour at Kilimapesa Gold Mine

· Goldplat have announced the first gold from its wholly owned Kilimapesa Gold Mine in Kenya. 

· This follows the successful commissioning of the Elution Plant for smelting and producing gold dore on site. 

· The initial smelt produced 12.4kg (399 oz) of gold dore bars which has been sold to Rand Refinery in South Africa. 

· Dore bars: We expect the dore bars to run 85-85% gold with the rest as mainly silver.  

· Production has run for some months with gold dore production pending completion of the new elution plant.  The mine should produce some 35-40kg (1,123-1,284oz) of gold dore over the coming weeks as the smelter catches up on mine production.

· Revenue of $2-3m should result from the processing of this gold and silver over the next few weeks.

· Production target: The company is targeting gold production of 10,000 oz at Kilimapesa.  The cost of this expansion is expected to be around $500,000 and is easily supported by ongoing cash flow.  Further expansion should come as the company gains increasing confidence in the quality of the gold resource.

· The exploration and development of the mine has re-started following receipt of the mining licence and the project is looking to increase the JORC resource to potentially 500,000 oz of gold in time.  

· Planning is also progressing well to increase the plant capacity to 3,000 tonnes per month. 

· Costs: The initial target is to produce at a rate of 5,000 oz gold increasing to 10,000 oz over the next year at a projected cash cost of $700 per oz. 

· The mine should become self sufficient from cash flows from production. 

· JORC resource:  The maiden JORC resource is 1.65 Mt at 2.44 g/t gold for 129,000 oz gold. 

· We expect to see an increased JORC resource towards the 500,000oz target later this quarter.

· Goldplat is a market leader in precious metal recovery from by-products of the mining process such as woodchips, fine carbon and waste grease. 

Conclusion:  Starting gold production even on a small basis is a key mile stone for the company which is benefitting from strong cash flows from its gold recovery businesses to fund its expansion into gold mining and production. The Kilimapesa project as the first asset in this strategy.  The company has other exploration assets with the Nyieme Licence in Burkina Faso and the Banka Gold project with drilling programmes to prove economic viability.

We are in the process of building our forecasts for the company but based on their track record and historic profits of the company, the company appears undervalued at the current share price. 

For the year ended 30th June the company reported operating profits of £3,054,000, a 48% increase over 2010 of £2,059,000. The net cash position stood at £3,010,000 (following a £5.179m fund raise) for June year end against £1,018,000 June 2010.

These results were based on the South African gold recovery performing well and gold recovery from Ghana moving up significantly. The company has large stockpiles of recovery material which will continue to build up revenues and cash flows from the gold recovery business.

Revenues from gold production will materially change Goldplats business – based on the initial target of 5,000 oz this would give revenues of $7.5m based on a gold price of $1500 – this is more than double the 2011 revenues from the gold recovery business with gold production at a much higher margin.

Earnings per share on a fully diluted basis stood at 2.12 pence, putting the stock on a historic PE of 5x. Profits attributable to Goldplats shareholders were up 70% in 2011 to £2.6m in 2011 from £1.53m in 2010.

London Mining (LON:LOND) – Operations Update from Marampa

· Production: Production at Marampa is ramping up with a rate of 3,500 tpd with 57,000 t of concentrate produced to 16 Jan 2012. 

· The concentrate is being stockpiled at the loading terminal at Thofeyim – 5,782 has been loaded on barge and moved to Port Loko channel before being shipped to Freetown Bay for onward shipping to Europe. 

· The concentrate quality is high at 66.2% Fe, 1.88% silica and 1.02% alumina. 

· The company plan to use a higher proportion of tailings to weather ore to maximise plant recoveries – this will result in the plant capacity to 4,100 tpd or an annualised production of 1.5 Mt in 2012 before a new ball mill is commissioned in Q3 2012. 

· The company is forecasting production of 3.5 Mt in 2013 and 4.6 Mt in 2014 based on the installation of gravity circuit in Q4 2012 and a duplication of the processing capacity. 

· As a result of the increase in nameplate capacity to 5Mtpa (from 4Mtpa) for the Phase 1 plant, estimated capex has increased from US$234m to US$260m of which US$168m has been spent. 

· In addition, the company estimate a further spend of between US$40 to US$50m to ensure smooth running of the plant – this would result in a total capex increase of $76m or 32%. 

· Capex will be funded from future cash flows from operations 

· The company is also capitalising owner’s team construction salaries of US$25m of which US$14m has been capitalised to date. 

· The increase in capacity will result in better economies of scale bringing down the forecast operating cost of US$35/t. 

· The company is also reviewing the BFS for Phase 2A expansion and the potential to reconfigure the Phase 1 processing plant to increase processing capacity to 9 Mtpa of 65% sinter concentrate. 

· The first BFS is expected to be completed in 2012 with a further study to be conducted to increase capacity to 17 mtpa in Phase 2. 

· Resource: Drilling has been completed on the primary orebody – the recent resource model update increased the indicated primary mineral resource from 566 Mt at 31.5% Fe to 832 Mt at 31.8% Fe. 

· The total mineral resource at Marampa including tailings is estimated to be 1,078 Mt of which 81% is classified as indicated. 

· The highly weathered material has increased from 21 Mt to 75 Mt which is being considered for processing in Phase 1. 

· Isua: The BFS is now expected to be completed at the end of Q1 2012. 

· London Mining Colombia: Coke ovens have been commissioned with first production expected in January. 

· Cash at the end of December was US$70m of which US$55m is restricted cash required to be held back under the terms of the Standard Chartered Bank revolving facility. 

Conclusion:  London Mining is revising its production schedule as they get into their first production – reducing their output by 0.5 mtpa – this will impact year 1 cash flows but as the company are planning to increase capacity by 2014 this should not materially impact the NPV. Capex has gone up which is not surprising as most of these operations have seen a revision up in capital required. It would be more important to see how the company gets the concentrate to market as they ramp up production to ensure they have the cash flows to re-invest in the business to build up capacity.

Medusa Mining (LON:MML) - Drilling Update at Banaghilig Deposit

· The company has updated on drill results from the Bananghilig Deposit where they are aiming for 1 m oz of reserves to trigger a feasibility study. 

· The reserve of a 1m oz would target production of 200,000 oz of gold per year from a new milling capacity. 

· During the period 31 August 2011 to 31 Dec 2011 8,568.95 metres of DC drilling has been done with 21 holes completed. 

· The drilling at Bananghilig has been to validate and upgrade the resource base at the deposit and these drill results should provide further definition of the resource.

· The deposit is hosted in a structurally complex intermediate-sulphidation, epithermal gold breccia type system – mineralisation is located partly within the Bananghilig diatreme breccia which measures at least 1,000 metres west to east and is still open to the south.

· The deposit consists of three zones – the Sorex, Garden and Malianao zones - each approximately 1 km long and open in all directions.

· The zones have been broadly defined based on projections in the plan of greater than or equal to 0.5 g/t gold drill hole intersections.

· There are seven rigs active in the area and the company intend to continue drilling at Banaghilig throughout this year.

Conclusion: These drill results are part of the process to upgrade the resource base at Bananghilig and the company are on course to do this. The stock has had a 20% move following our strong buy recommendation on the 19th December. We continue to believe that Medusa offers upside value and have a target price of 573 pence.

Mining this week: 

Anglo Asian Mining* (LON:AAZ) – Mined gold grades rise at Gedabek gold / copper mine

Alecto Minerals (LON:ALO) – Drill Programme Finalised for Wad Amour Copper/gold Project

EMED Mining (LON:EMED) – Quarterly highlights timetable to re-start Rio Tinto in Q3

North River Resources (LON:NRRP) – Drill Results from Tsawichas Prospect at Ubib Copper-Gold Project

Paragon Diamonds (LON:PRG) – Initial diamond grade and volume estimate for Motete Dyke