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Morning View:

Gold US$1,657/oz - Copper US$ 8,377/t

· Positive economic news and sentiment encourages copper higher 

· Market remains concerned that policy makers in Europe may be ineffective

· US growth may partially Chinese slowdown and may improve sentiment for the next few months

· Chinese preliminary reading of PMI to 48.7 vs 48.7 in Dec. shows monthly improvement but still some contraction 

· Good earnings from Microsoft beat analyst expectations

· IBM also hit the top end of analyst forecasts

· Australian GDP growth led by ongoing demand from China

· It is interesting that Chinese demand for iron ore, coal and copper does not seem to have slowed down as yet

· Other metals, eg Nickel, ferrochrome etc may suffer more from slowing demand in high end products

Constellium - reckons demand for passenger jets and German cars should offset a fall in sales in the construction sector and a deteriorating European economy

(Constellium was formerly the aluminium products business spun off from Rio Tinto)

· The company sees these growth markets as enabling the business to turn a profit this year – lets hope so!

· The statement is significantly more encouraging than Alcoa’s difficult Q4 and year end release

The company was bought by Apollo Management a private equity fund last year

Economic News:

Europe – The Greek PM has urged political leaders to back the debt restructuring as the country’s coalition remains split over the required depth of cuts.  

· Greece has an election scheduled for April and concerns continue to resonate that political leaders are more concerned with political positioning rather than pushing through unpopular policies. 

· Recent reports indicate that officials are close to agreeing with creditors the terms of the current debt restructuring. Expectations are that the deal will be complete by Monday. 

· Looking at the broader union, reports indicate that the latest draft of the planned fiscal treaty has tougher rules on budget deficits – on the back of demands from the ECB. 

· Although a positive, we again must ask the question what is the point in creating tougher rules when certain peripheral countries have absolutely no chance of hitting original targets? 

· Additionally concerns continue to emerge that successful auction this week, and falling yields, may indicate only a temporary respite rather sustained solution as a result of ECB intervention. 

· Bring down yields beyond the period covered by ECB loans is the real challenge – Current intervention is purely a liquidity play and does nothing to address debt levels in general. 

· Figure released this morning show that producer prices eased in Germany in December. 

US – Yesterday figures showed that US consumer prices were flat in December increasing evidence that inflation is slowing. 

· Jobless claims dropped by 50,000 – more than estimated to 352,000. 

· The figure is the lowest level since April 2008. 

· Existing home sales figures will be released later today. Forecasts suggest sales rose 5.2%mom in December. 

· Yesterday the FT is reporting that investors bought inflation protected treasury securities at a negative interest rate for the first time indicating that inflationary concerns are growing. 

· Reports have emerged that America’s most senior military personnel have arrived in Israel for talks on how to deal with the growing threat from Iran. 

· Congress is under pressure to pass legislation that would ease any subsidy tariffs on imports from China.   

UK – Retail sales figures released this morning show that on an annual basis, retail sales excluding fuel rose 1.7% in December inline with expectations. On a mom basis the figure rose by 0.6%. 

China – The Preliminary January purchasing manufacturers’ index indicates that manufacturing may contract for a third month as a slowing economy boosts the case for further monetary loosening. 

· The preliminary reading of 48.8 compares to a reading of 48.7 in December. Anything below 50 is a contraction. 

· The figure is prompting economists to predict more economic loosening in the coming weeks. 

· Interestingly – China Investment Corp. the nation’s sovereign wealth fund has announced that it bought an 8.68% stake in Thames Water Utilities. 

Japan – Japanese stocks rose this morning as optimism continues to emerge from the US – with the most recent jobless figures beating estimates on the positive side. 

· The country’s economic Minister has called for companies to take greater advantage of the strong yen to increase overseas investments and buy assets overseas. 

· The minister urged investors to invest in overseas resources to firmly secure rights to energy and commodities. 

· Activity in the bond markets has indicated that the Bank of Japan will maintain its zero interest rate policy until at least 2016. 

Australia – Figures compiled by Bloomberg show that the Reserve Bank of Australia is expected to lower interest rates on the back of the worst year for unemployment since 1992  - revised to 5.2%

· New forecasts suggest GDP will grow by 3.25% 

Mozambique – A tropical storm has displaced 3,000 people in the southern district of Chokwe according to local media. 

Currency – The euro is off against the dollar this morning as concerns continue to emerge over Greece and whether officials will meet the deadline.

Commodity News:

Precious:

Gold US$1,657/oz vs US$1,661/oz yesterday – Gold held steady today after sliding a little yesterday from around US$1,670/oz, the highest level in more than a month, as investors booked profits.

· UBS forecasts gold to average US$2,050/oz this year and US$1,725/oz in 2013 saying the direction of European policy will define the gold’s price movements.

· Holdings in gold backed ETPs were at 2,355.5t yesterday, near a 4-week high.

· SPDR gold trust holdings remained at 1,256t (40.371moz) value US$66.797bn.

Platinum US$1,522/oz vs US$1,530/oz yesterday

Palladium US$675/oz vs US$668/oz yesterday

Silver US$30.75/oz vs US$30.48/oz yesterday

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

Base metals:

Copper US$ 8,377/t vs US$8,325/t yesterday – Copper is slightly off this morning after prices reached a 4-month high of US$8,428/t today, up 11% since the start of this year.

· Freeport-McMoRan beat earnings and revenue forecast as the company announced its Q4 results.

· Net income dropped 59% yoy to 67c a share (US$640m) in Q4 compared to 61c expected.

· Revenue dropped by 26% to US$4.16bn compared to US$3.84bn forecasted.

· 8,000 staff at Grasberg mine, Indonesia, held a strike for 3 months that started on Sep 15. Freeport expects production to reach full capacity during Q1 this year.

· Production costs of copper, gold and molybdenum tripled compared to last year to US$1.57/lb on higher labour, energy and material expenditures, Freeport said. The company expects costs to average US$1.38/lb this year.

· Freeport sold 133koz of gold and 823mlb of copper in Q4. The company plans sales of 3.8bn pounds of copper and 1.2moz of gold this year.

· Copper and copper-alloy proudycts output in Japan was down 12.1% to 60,530t in Dec from 68,748t a year ago.

Aluminium US$ 2,227/t vs US$2,221/t yesterday

Nickel US$ 20,390/t vs US$19,579/t yesterday – Nickel is trading at the highest level since mid-Sep last year on positive economic data from the US, expectations of credit easing in China and comments made by CEO of Norilsk Nickel, the largest producer of the metal, that the company plans to cut production this year.

Zinc US$ 2,033/t vs US$2,013/t yesterday

Lead US$ 2,186/t vs US$2,147/t yesterday

Tin US$ 21,815/t vs US$21,950/t yesterday

Non-ferrous metals sector earnings in China advanced by 52.8% yoy in the first 11 months of 2011 to US$33.48bn, the National Development and Reorm Commission said.

· Mining operations accounted for a 1/3 of all earnings, a 52.3% rise from last year.

· Smelting and processing accounted for other 2/3s of profits, up 53.1% compared to last year.

· National annual production of 10 base metals increased by 10.6% to 34.24mt.

· China plans to limit metals’ supply growth to 8% under the 12th Five-Year Plan and to reach total production of 46mt by 2015.

Energy:

Oil US$111.93/bbl vs US$111.37/bbl yesterday – Oil advances this morning as a BP released a reports stating the U.S. will be energy self-sufficient by 2030

· U.S. crude oil futures decline at $100.67 on the New York Mercantile exchange with WTI down at $100.57 on the London-based ICE futures exchange. 

· Russian- based oil company RusPetro Plc raised £163m in an IPO on Wednesday at 134p per share. The companies share price on its second day is at 127p. 

· The new listing is a positive step to the start of what will be a difficult year for funding and a surprise that it started with a Russian one. RusPetro is trading down at 127p this morning. 

· The company owns three deposits in Siberia with overall developed reserves estimated at 2bn/bbls with extraction capacity of about 4.4k/bbls/d- half of which will be exported. 

Natural Gas US$2.2375/mmbtu vs US$2.476/mmbtu yesterday – Poland’s Treasury Minister Mikolaj Budzanowski says KGHM Polska Miedz SA, a copper producer with the largest European mine, that it should consider investing in shale gas exploration.

Uranium US$53.45/lbs vs US$53.45/lbs yesterday – The International Atomic Energy Agency has reported confirmation that Iran has started the production of Uranium enriched up to 20% in its underground Fordo Fuel Enrichment plant near the city of Qom.  

Coal - OAO Kuzbassrazrezugol, one of Russia’s largest coal producers plans to cut output by 4% this year following last years’ 5% reduction.

Grinrod and Vitol to form joint venture in Southern African coal trading 

· Grinrod, the JSE listed South African freight and shipping company is selling its 35% stake in the Matola Coal Terminal in Maputo port for $68m to Vitol, the oil and energy traders.

· The move reflects the growing significance of the South African export market and logistical challenges in exporting coal and other raw materials

Other:

Iron Ore – Iron ore inventories in Chinese 30 major ports continued to rise this week and were up 1.06% to 98.41mt on Jan 20.

· Buying slowed down towards the Chinese New Year holidays starting next week. Prices are currently at 2-week low.

· Mysteel, Chinese researcher and data provider, forecasts China’s iron ore imports to increase by 7.46% to 720mt in 2012. The agency forecasts prices for Australian Pilbara Blend grading 62.5% iron ore to average US$110/t amid record supply.

· On the contrary, Umetals says despite a record production reported by major miners like Rio Tinto, BHP Billiton and Fortescue Metals Group prices will range in US$130-160/t corridor supported by a lower supply of Indian iron ore due to export tax increase and a new capacity in China’s steel industry coming online.

· Ferrous Resources, a Brazilian iron-ore producer, offered US$2.3bn for MMX Mineracao & Metalicos. 

Company News:

Country review:

Eritrea - The attack that took place near Afar in the north-eastern region of Ethiopia bordering Eritrea resulting in the death of five tourists and the kidnapping of another four has reignited tensions between the two countries.

· Ethiopia has laid the blame squarely on the doorstep of Eritrea which its government strongly refutes. 

· Eritrea declared independence from Ethiopia in 1993. The two countries have battled for many years, most distinctly in a two-year battle in 2000 that cost over 100,000 people their lives. 

· The wars have been based over the demarcation of the shared border. 

· Eritrea is known to have an extensive amount of gold and other mineral deposits and most recently companies have started oil and gas exploration. 

· Much of the resources have been untouched due to the high operational risk in the country and the controversy surrounding accusations that Eritrea has supported terrorist groups such as al-Shabab- Hilary Clinton in 2009 claimed Eritrea was supplying weapons to the militant groups. Sanctions and an arms embargo were imposed because of its refusal to withdraw troops from the border of Djibouti. 

· Eritrea is a single party state and other groups have not been yet allowed to organize- although the constitution written in 1997 provides for the existence of a multi-party political table that has not yet been adopted. 

· The government is stable and has been a mostly a peaceful and emerging African country with modest growth in recent years. 

· Foreign companies are returning to the country and investing in resources. It has a positive future. 

Company news:

African Iron (LON:AKI) - formal acceptance by directors for offer from Exxaro

· Directors have accepted the offer with 1.3m shares taking acceptances to over 20%

· The offer is at A$0.51 per share increasing to A$0.57 cash if Exxaro acquires 75% of African Iron Ore shares on a fully diluted basis. 

· In addition the company are offering A$0.31 cash (ratcheting up to A$0.37 cash on 75% ownership) for the listed warrants. 

· The offer is subject to minimum acceptance of 50% and is fully recommended by the board. 

· Exxaro has entered into a pre-bid agreement with Cape Lambert Resources, African Iron’s largest shareholder in respect of 19.99% of African Iron’s current shares on issue. 

· At A$0.51 cents a share, the bid is valued at A$302m and at the increased offer of A$0.57, $338m – on a fully diluted basis (595.98m shares vs 501.82m undiluted). 

· The offer is open to acceptances until 14th February 2012. 

Conclusion:  We reckon there is room for an increased offer here if shareholders argue for better value

Anglo Asian Mining* (LON:AAZ) – Gedabek gold mine exceeds expectations in Q4 report

· Anglo Asian Q4 update shows further increase in gold production for the quarter to 15,292oz versus 13,166oz in Q3 2011. 

· 57,068oz of gold was produced for the year to end December 2011 from the Gedabek gold mine in Azerbaijan. 

· Gold sold at an average of $1,688/oz through Q4 ’11. 

· Average cash cost of $450/oz maintained through the year.  This figure rises to $535 net of the government gold share if you apply the government production share agreement. 

· Silver production of 6,841oz in Q4 brings the total to 39,068oz for the full year.  Silver credits help to reduce the calculated cash costs.  Copper sales may also reduce costs further when stocks of copper in concentrate are sold. 

· The gold production is impressive considering the early onset of cold weather in the region in Q4 and exceeds company targets. 

· Good grades of gold ore were mined, milled and stacked on the heaps through the year with Q4 showing 191kt grading 3.22g/t vs 843kt for the year grading 3.29g/t.  

· A new agitation leach process is being considered to replace the current heap leach to significantly improve gold recovery rates.  The agitation leach tanks should also shorten residence times while also enabling mining of ore from the area underneath the heap leach pads.  The company could also process unrecovered gold from the leach heap pads through the agitation tanks raising overall recovery rates from this ore and enabling the simple processing of a significant tonnage of low cost gold bearing material.  

· We expect the company to release the results of its study into the cost of installing new agitation tanks and associated plant sometime soon. 

· SART: copper recovery process caught 170t of copper in concentrate in Q4 in addition to 38,392oz silver and 62oz of gold.  SART produced 611t of copper (ahead of 525t target), 134,240oz silver, 832oz gold through 2011. 

· JORC: a new JORC gold resource should be ready by the end of this quarter.  

· Cash: $9.8m 

· Net debt: $3.2m at end 2011, reduced from $25.6m at end 2010.  $13m of debt remains with the International Bank of Azerbaijan.  

Conclusion:  The Gedabek gold mine is performing ahead of expectations and is performing well in terms of costs and cash generation.  Mined grades are been better than forecast and we anticipate a decent upgrade in the calculated JORC gold resource for the year on the back of the recent drilling and evaluation program.  We expect the JORC resource to define a portion of what we see as a much larger orebody and we see this as a first step to proving that this mine could eventually produce around 1moz of gold from its inception over the next 10-15 years.

*Fairfax acts as Nomad and broker to Anglo Asian Mining

**Fairfax analysts visited the Gedabek mine in Azerbaijan late last year  

Kalahari Minerals (LON:KAH) – CGNPC and CADF gain 78.3% of KAH shares = 30.8% of the company

CGNPC = China Guandong Nuclear Power Corporation 

CADF = China’s Africa Development Fund

· Taurus, the subsidiary company set up to manage the offer requires 50% acceptances

· The ASX has allowed Taurus to acquire more than 20% of Extract Resources so long as it makes a downstream offer for Extract.

· The Taurus vehicle must make a full offer for Kalahari within four weeks of receiving over 50% of acceptances for Kalahari.

· While the acceptances seems to come in slowly we do expect the offer to be successful

Mining this week: 

Cluff Gold (LON:CLF) – Drill Results from Yaoure gold project (Angovia), Ivory Coast

Hambledon Mining (LON:HMB) – Drill results from Sekisovskoye

Stellar Diamonds (LON:STEL) – Encouraging Grades and Values at Tongo Project

Archangel Diamond Corporation (Russian liquidation company) – New claims filed in the US court against Lukoil seeking compensation in regards of a lost share in the Grib Pipe, a diamond project in Verkhotina Area, Russia

Nord Gold (private) – Q4 and FY 2011 production results

BHP Billiton (LON:BLT) – Quarterly Exploration & Development Report shows 700% increase in Spence Mine Resource in Northern Chile

Cape Lambert (CFE AU) –  Plans A$500m Iron Ore IPO

Carbine Resources* (CRB AU) 14ASc, mkt cap A$19m – Key exploration director resigns from Carbine

Discovery Metals (LON:DME) - High Grade Copper Zone at Zeta North

North River Resources (LON:NRRP) – Update at Namib Lead Zinc Mine and Agreement on Nuclear Fuels with Extract

Ncondezi Coal Company (LON:NCCL) – Infrastructure Agreement in Mozambique

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

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

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

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

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