Morning View:

Miners rise as Fed forecasts interest rates to remain low till 2014 

Gold US$1,712/oz - Copper US$ 8,525/t

· Fed inflation target at 2% - this is a first for a Fed inflation forecast

· First rise in rates will not happen till late 2014

· Room for more QE to stimulate the US economy

· Asian markets rise on potential for increased exports to the US

· European debt negotiations on Greece give hope for crisis resolution by the weekend 

Mining machinery imports into Australia fall sharply in November and December 

· Tyre purchases for mining equipment also fall sharply as iron ore producers adjust to lower demand growth

· Automation of truck and increased use of women drivers could account for some of the fall

· We also feel that demand may have been higher than normal a year earlier

· Q4 iron ore production numbers could also be lower for some miners based on these stats

Economic News:

US - Yesterday the Fed announced that it would maintain rates at current levels for a prolonged period to 2014. 

· Officials had previously stated that rates would be held until mid 2013. 

· The change comes on the back of persistently high unemployment. 

· More QE is still on the table. 

· Additionally a long term inflation goal of 2% was set for the first time. 

· The Fed Chairman stated, “There has certainly been some encouraging news recently, we continue to see headwinds from Europe, coming from the slowing global economy and some other factors as well.” 

· Forecasts for growth were lowered this year to 2.2% - 2.7% down from initial estimates of 2.5%- 2.9% in November. A downgrade that was described as “modest” 

· In conclusion – The fed has prepared the market for 3 years of flexible monetary policy as the economic outlook remain uncertain at best. 

Europe – Talks will resume today on the debt swap to avert a Greek default. 

· The IMF has again suggested that public holders of debt will have to increase their support. 

· Reports indicate that the latest offer from the private holders would lead to an estimated loss of about 69% on the NPV of Greek bonds. 

· The 30 year bonds would reportedly carry a coupon of 4.25% on average. 

· European finance Ministers yesterday signalled they would push for private holders to take larger losses – a move that could well signal further stagnation. 

· According to the Kiel Institute for the World Economy losses on sovereign bonds by Greece’s creditors will not enable the country to gain control of its debt. 

· New forecasts suggest such is of hoarding of cash by European banks corporate defaults may almost double in Europe as companies struggle to refinance debt. 

· S&P estimate that Speculative grade companies have to refinance about 230bn euros through 2015. 

Japan – Asian stocks rose for a second day today after the Fed extended its pledge to keep interest rates low coupled with the prospect of further QE. 

· A former Bank of Japan governor has stated that Ministers should allow the central bank to create a 50-trillion yen fund to buy foreign bonds in an attempt to restrict the yen’s gains. 

· Additionally the Minister stated that using the fund to buy bonds from the European Financial Stability Facility would help mitigate the yen’s advance against the Euro. 

China – Local media is reporting that police have opened fire for the second time in as many days in a Tibetan enclave. The incident is just the latest in a line of political blunders by the Chinese in what is an increasingly sensitive issue of Tibetan independence. 

UK – David Cameron is expected to call for nations to pursue bilateral trade accords. 

Singapore – Industrial production recovered in December as pharmaceutical manufacturing surged countering a slump in electronics output. 

· Manufacturing, which accounts for 1/5+ of the economy, rose 12.6% from a year earlier after a revised 8% decline in November. 

Russia – The central bank’s deputy first minister has announced that Russia will start buying the Australian dollar as an international currency as soon as early February. 

Switzerland – A report by the Financial Stability Board has suggested that the Swiss National bank’s franc limit against the euro could cause the country’s economy to overheat if authorities are not vigilant. 

· The low interest rate coupled with the currency floor could potentially result in excessive credit creation. 

Indonesia – Economic growth may slow to less than 6% in 2012 on the back of a prolonged slump in Europe according to the country’s finance minister. 

· GDP could increase as little as 5.7% on the back of 6.5% in 2011. 

· Capital inflows in the economy are expected to continue to increase in the coming months on the back of the recent investment upgrade. 

Thailand – The Bank of Thailand expects the economy to grow at least 4.8% this year – supported by the reconstruction spending and because of lower than expected growth last year.

South Africa (yesterday’s comment corrected) – SA’s mining industry becomes less attractive to investors on uncertainty over nationalisation, land claims and frequent work disruptions according to the South African Institute of Race Relations.

· In 2006 South Africa ranked 37th out of 64 countries in regards of primary destinations for mining investments. 

· In 2010 it was 67th out of 79 countries according the Fraser Institute. 

Currency – The dollar is off today is expectations increase of further QE from the Fed. 

· The yen is also off today as the turmoil in Europe plays havoc with the demand prospects for Japanese exports poor. 

Commodity News:

Precious:

Gold US$1,712/oz vs US$1,669/oz yesterday – Gold is little changed this morning after a sharp increase yesterday as the US Fed announced it is considering further monetary stimulus and “exceptionally low” interest rates through to the end of 2014.

· Gold is up 9% this year. US dollar is down 1.1% against euro.

· The US Mint sold 114,500oz of American Eagle gold coins in Jan so far, heading towards the largest monthly gain. In 2010, sales were 133,500oz last year.

· Harmony Gold Mining stopped operations at its Doornkop mine, South Africa, following a worker’s fatality yesterday.

· Zoloto Kamchatki, a gold project of Russian billionaire Victor Vekselberg, will not go public until H2 2012.

· SPDR gold trust holdings remained at 1,251t (40.206moz) value US$66.942bn.

Platinum US$1,582/oz vs US$1,553/oz yesterday

· Zimplats workers returned to work on Wednesday. Half of staff went on strike last week demanding higher pay.

· The production has not been affected by the strike. The management did not revise workers’ remuneration. 

Palladium US$693/oz vs US$681/oz yesterday

· Palladium may rally 27% to US$882.5/oz this year according to market estimates.

· The price has already climbed by 23% form a one year low of US$565/oz in Oct.

· Russian inventories are forecast to by 80% to 150kz this year taking the market into a 275koz deficit, Barclays Capital said.

· The market may remain in deficit at least through 2015.

· Investors currently hold 52.9t of palladium, equivalent to around 7-month of Russian mine production, the biggest supplier of the metal.

· Net inflows into palladium ETPs are expected to rise by 160koz in 2012 and by 248koz in 2013 after a 250koz decline last year, according to Morgan Stanley.

· Total supply will drop 7.9% to 6.83moz in 2012 with demand rising by 11% to 9.53moz according to Barclays estimates.

· Net-long positions in futures contracts increased by 6.9% in the week ended Jan 17 to 3,651 contracts, well below the peak of 14,983 contracts in Jul 2011.

· Increasing mining costs and falling head grades are forecast to limit mine production of palladium in the future. In 2010, South African mining costs climbed by 30% in 2010and by 13% in Russia, UBS said. 

Silver US$33.28/oz vs US$32.27/oz yesterday

· The US Mint sold 5.5moz of silver coins so far this month.

Rhodium US$1,338/oz vs US$1,338/oz yesterday                                                     

Base metals:

Copper US$ 8,525/t vs US$8,421/t yesterday – Copper climbed to the highest level in 4 months on expectations of monetary easing in China and after the Fed announced it is determined to keep interest rates at record low at least until 2014.

· LME monitored inventories dropped for a 16th session to 339,750t, the weakest reading since Sep 2009.

Aluminium US$ 2,275/t vs US$2,257/t yesterday

· Alcoa has begun building aluminum-lithium alloys plant adjacent to its Lafayette operations in Indiana, US.

· The plant will be able to produce skin plate and fuselage for commercial air fleet.

· Alcoa forecasts a 10-11% growth in the aerospace sector.

Nickel US$ 21,125/t vs US$20,753/t yesterday

Zinc US$ 2,190/t vs US$2,161/t yesterday

· Goldman Sachs reports zinc is currently trading at its higher end of the cost curve amid a surplus in the market and expect little upside from these levels.

· The metal will be supported by an end in destocking in Europe and Chinese policy easing, the bank said.

Lead US$ 2,298/t vs US$2,268/t yesterday

Tin US$ 22,670/t vs US$22,275/t yesterday

Energy:

Oil US$110.50/bbl vs US$110.27/bbl yesterday – oil gains this morning on speculation that the Federal Reserve plans to keep U.S. interest rates at near-record lows in hope that it stimulates growth, resurging fuel demand.

· U.S. crude futures decline this morning at $100.00 on the New York Mercantile exchange and WTI the same at $99.93 on the London-based ICE futures exchange. 

· Oil deliveries have resumed as administrators PWC gave the nod for fuel trucks at Coryton refinery to start rolling again following discussions with suppliers and customers that included BP. 

· PWC have not said if shipments would run at full capacity. Union sources said that the plant should expect some job losses albeit administrators are confident they will find a buyer for the Essex –based refinery. 

· PWC are dealing with two other sites owned by Petroplus: The oil storage site in Teeside and an R&D site in Swansea after Petroplus credit lines were suspended resulting in a default on $1.75bn (£1.12bn) of debt. 

· Conocophillips has agreed to pay 1bn yuan (£101m) in compensation for damages caused by an oil spill into north east waters off China’s coast last June. 

· Conoco reported fourth-quarter earnings had risen 66% thanks to higher oil prices, despite weaker refining margins and a fall in production. 

Natural Gas US$2.803/mmbtu vs US$2.649/mmbtu yesterday – Prices lift slightly this morning with Henry Hub up at $2.769.

· Chesapeake Energy, accounts of 9% of U.S. gas output and is the second biggest natural gas producer in the U.S., is ramping up efforts to cut back on drilling to ease the decline in gas prices that have been at 10 year lows. 

· The efforts have seen gas prices and producers’ shares surge as much as 10%. Chesapeake plan to idle 24 natural gas rigs by the second quarter, a 69% reduction form 2011. 

· The effects of Chesapeake’s cutbacks depend on other producers slowing production. 

· If more exploration and production is reduced in 2012, this will have a knock on affect in the machinery supply industry that we wrote about in yesterdays note. 

Uranium US$53.45/lbs vs US$53.45/lbs yesterday – A report by the Institute for scientific and international Security has said that Iran does not have the capability to produce enough weapon-grade Uranium this year

· U.S. Governor Bob McDonnell has asked the general assembly to take no action on Uranium mining this year and instead called for a thorough and comprehensive on-site study to be carried out by a to-be created multi agency state workgroup.   

· "While Uranium mining could mean the creation of high-paying jobs for our citizens, a boost for the important nuclear power industry, increased economic development for the region and the generation of significant tax revenue for the entire commonwealth, we must prudently study this issue to ensure that such mining would not impair the health of our people or the condition of our environment.” The Governor said. 

Coal – China has overtaken Japan as the number one importer of coal for the first time in decades a report from Reuters said.

· US' Clean Coal Technologies Inc announced on Wednesday that it has entered into a JV with Jindal Steel & Power to build a plant that will reduce coal moisture at the Indian company's mines in Indonesia. 

Other:

Mining Machinery -Caterpillar, the world’s largest maker of construction and mining equipment is expected to top Wall Streets profit estimates for 4Q11 on resurgent U.S. building industry, as customers replace tired equipment coupled with buoyant mining demands.

· Caterpillar is highly exposed to prices in the mining commodities sector, as between 10 - 20% of revenue is tied to mining machinery. 

· If commodity prices drop so far that it forces miners to slow or even halt expansion plans, then that will have an adverse affect on the whole of the machinery supply industry. 

· The review follows Skelton Sherborne’s comments to Australia’s Associated Press (AAP) where Mr Skelton spoke regarding a drop in mining machinery purchases in Australia, stating that Europe’s financial-crisis is causing similar conditions to what the US sub-prime crisis led to in 2008. 

· As a way of measuring activity Skelton, other than using shipping ports; also launched a tyre index, which showed imports of heavy tyres. 

· Last year machinery tyre supplies were down by just under 20,000 from 70,000 a month. 

· Skelton said that the indices act as their barometer of actual; investment and growth in the mining industry. 

Japanese refineries say the 17% average increase in power costs by Tepco “is a life-or-death issue”. Zinc, copper and Nickel producers hurt by lower refining charges and stronger yen may ask the government for support.

· Tepco announced higher power costs in April last year as the company substituted nuclear power with thermal electricity following an accident at its Fukushima Dai-Chi nuclear station in Mar.

Company news:

Ariana Resources* (LON:AAU) – Update on Red Rabbit and other work in Turkey  

See note published 30 September 2011

http://www.arianaresources.com/

· Ariana Resources are close to completion of their Red Rabbit feasibility study in Turkey. 

· Drilling shows 8.7m @ 2.03g/t gold and 9.9g/t silver from 15m downhole at Arzu South and Arzu North. 

· Tetra Tech, consultants are working of the full feasibility study with design work to modify the open pits to minimise waste moved to reduce operating and capital costs. 

· The feasibility study assumes a gold price of $1,200 oz for gold and $23 oz for silver  using consensus metals price forecasts. 

· Changes to Turkish legislation also requires modification of the feasibility design of the plant tailings facilities which now has to be done by Turkish consultants. 

· There have been a few delays to the design and engineering work as a result of the requirement for additional geotechnical and hydrological drilling consents in the designated area for the Tailings Storage Facility. 

· Good progress has been made in the first of the two stages of the Tailings Storage Facility and the final engineering designs are expected in advance of permitting for construction targeted during H2 2012. 

· Phase 1 project financing at Red Rabbit is completed with the investment of $1.4m by Proccea and a further $0.6m to come from Proccea and Ariana on a 50:50 basis. 

· Phase 2 requires Proccea to fund another $6.6m to compelte its earn into 50% of the project. 

· Capex is estimated to be $28.4m 

· Funding: Zenit bank is to seek a facility of $22m for the development of the mine.  A $2m loan for current development work pending financing of the mine construction and commissioning was also recently arranged with YA Global Master SPV Ltd. 

· Exploration drilling:  work continues at Kiziltepe and continues to show mineralisation at Fidian which now shows a strike of 300m with 100m depth grading from 1g/t to 4.35g/t 

Conclusion:  

· The report shows good progress with feasibility close to completion with Proccea coming in with their first project financing investment. Production was expected to start in late 2012 but will now start in 2013. We expect an initial production of 7,000oz produced and ramp up to 14,400ozpa. Delay in the start relates to the design requirements on the Tailings Storage Facility which the company expect to have in hand with permitting and construction targeted for H2 2012. 

· Cash operating costs are forecast to be around $500-600/oz and the mine should be profitable at below $1,058/oz 

· Gold production should rise to 21,400oz in 2015. The mine is scheduled for an eight year life but exploration is likely to enable further expansion of the gold resource, production rates and mine life. 

* Fairfax analysts recently visited the Ariana trial mine and other licenses 

* Fairfax acts as broker to Ariana Resources

Avocet Mining (LON:AVM) – Fourth Quarter Production Results

· Fourth quarter production for 2011 was 46,102 oz putting gold production for the full year at Inata of 166,744 oz ahead of guidance.

· Cash costs for Q4 2011 was US$773/oz better than Q3 2011 at US$830/oz but higher than the same period in 2010 of US$511/oz.

· Q4 cash costs were helped by an improvement in processing and administration costs while mining costs increased over the quarter.

· A higher stripping ratio of 12.1 in the fourth quarter resulted in higher mining cost per oz this combined with additional maintenance cost resulted in mining cost per tonne increasing in the fourth quarter to US$1.52 per tonne versus US$1.25/tonne in Q3 2011.

· Grades and recoveries were better with Q4 grade of 2.25 g/t versus 2.18 g/t in 2013 – overall grade for 2011 was 2.26 g/t versus 2.66 g/t in 2010.

· In 2012 the company is guiding for mine production of 160,000 oz with cash cost expected to be between US$800 to US$850 per oz.

Conclusion: These numbers will be viewed as a positive as production for the full year is better than guidance and cash cost for the fourth quarter as processing costs benefitted from the increase in production. The processing plant achieved a record quarter with the highest throughput of the quarter with over 654,000 tonnes processed. Guidance for 2012 remains in line with expectations.

Gem Diamonds (LON:GEMD) – Q4 2011 Trading Update

· Letseng – The mine continued to perform strongly with carats recovered for the quarter up by 35% over Q4 2010 to 29,783 carats. 

· This will give a full year production of 112,367 carats up 23% from 2010 at 90,933 carats. 

· Grades improved over the quarter with recovered grades continuing to outperform the resource grade throughout the year. 

· The improved grades were a result of higher than expected ore grades as well as improving blasting fragmentation and process controls. 

· Grade achieved was 1.59 cpht versus 1.3 cpht, a 22% improvement (Q4 2011 carats exclude 2,171 carats recovered from tailings during test work). 

· Ellendale – The mine showed a improvement in performance over the quarter with higher recoveries in November and December as plant modifications and improvements helped with a more consistent performance. 

· Waste stripped increased by 38% from Q4 2010 and grades are up by 12% to 4.30 cpht from 3.85 cpht. 

· Total carats from Ellendale for FY 2011 is 120,302 carats down 27% from FY 2010 of 163,934 carats. 

· Diamond Sales: After sharp price falls in the third quarter of 2012, diamond prices for the less than 10.8 carats recovered by 4% across the board with better quality diamonds recovering by 8%. 

· Larger diamonds which had not impacted by the slowdown in Q3 also saw single digit price improvements in Q4. 

· A total of 46 rough diamonds were recovered at Letseng in the quarter which achieved values in excess of US$20,000 per carat with 12 rough diamonds achieving values in excess of US$40,000 per carat. 

· Carats sold from Letseng increased by 32% over the quarter giving a total of FY 2011 of 107,700 carats with revenues of $299m for FY 2011 up 57% for 2010. 

· At Ellendale revenues for Q4 2011 was $31.2m with carats sold down 38% - for the full year revenues were ahead of 2010 at US$88.7m an increase of 14%. 

· Costs were maintained at Letseng despite increases in fuel and power prices with an improving production at Ellendale improving costs. 

· The group cash position at the end of 31 December was US$158m, US$141 m attributable to Gem Diamonds. 

· The company is guiding to an improvement in Ellendale in 2012 back to the levels achieved in 2010. 

Conclusion: These are good numbers from Gem Diamonds with recovery in Ellendale coming though and forecast to improve in 2012. Diamond prices which fell sharply particularly for small stones have recovered in Q4. With De Beers showing a restrain in production this should help diamond prices stabilise and potentially improve from here.

Lonmin (LON:LMI) – Q1 2012 Financial Year Production Report Show High Safety Related Stoppages

http://www.Lonmin.com/

· Platinum metal in concentrate and refined Platinum production increased by 3.5% and 24.3% respectively on a year on year basis.

· The results were helped by having a healthy stock pile position while mining suffered over the quarter as a result of a number of Section 54 stoppages

· Lost production as a result of Section 54 shut downs was 177,000 tonnes across all operations including joint ventures – this compares to a loss of 21,000 tonnes in Q1 FY 2011.

· Mining Operations: Quarterly production at Marikana produced 2.7 m tonnes during the first quarter of 2012 financial year, a decrease of 50,000 tonnes or 1.8% down on Q1 2011.

· Karee produced 104,000 tonnes 9.4% up on same period last year.

· Western production decreased by 110,000 tonnes down 12.7% on the previous year as a result of putting in a the planned Newman decline.

· Production at Eastern Platinum decreased by 38,000 tonnes or 12.2% as a result of a fatality and social unrest around the Eastern Platinum operations.

· Production at Middelkraal was broadly flat and production at Merensky opencast operations decreased by 75,000 tonnes to 118,000 tonnes.

· Processing: Total tonnes milled was flat at 3 mt as increase in underground tonnes milled was offset by reduction in opencast tonnages.

· Platinum is concentrate from Marikana was 178,131 saleable oz a 1.3% increase over the prior period with total concentrate produced of 186,725 oz a 3.5% increase from the prior year – this reflects the higher grade Merensky ore.

· Total refined production of the quarter was 113,950 oz of saleable Platinum and increase from the prior year of 24.3% as furnace operations normalised.

· Sales: Platinum sales were up 39.8% at 92,863 oz as a result of increased production, stock movement and a depressed sales level in Q1 FY 2011 with prices achieved of $1,136 3.3% lower than the previous quarter.

· The company agreed a two year wage settlement with an increase of 8.5% for each of year 1 and year 2 effective 1 October 2011.

· The company is guiding to 750,000 oz of Platinum production which is in line with previous guidance with the same guidance for costs taking into consideration the 8.5% wage settlement.

Conclusion: Platinum production continues to be challenging as the DMR continues to focus on improving safety at the mines with Section 54 notices. While Lonmin have maintained their production guidance for FY 2012, they have warned that should Section 54 notices persist production and costs will be impacted.

Anglo American reported on Q4 2011 production showed refined Platinum production was down 9% was a result of a higher number of safety stoppages. The company reported 32 safety stoppages in Q2 2011 versus 14 during the four quarter of 2010 and 16 during the third quarter of 2011.

A continuance of safety related stoppages is having an impact on the supply side for a number of Platinum producers  - this is a positive for Platinum prices.

Anglo American (LON:AAL) – Q4 Production Shows Good Iron Ore Production and Diamond Production down by 24%

· Anglo in recognition of the current market conditions have brought forward maintenance and focussed on increasing waste stripping which has resulted in a 24% fall in diamond production for the quarter of 6.5 m carats.

· This is 30% down for Q3 2011 production of 9,305 m carats.

· Iron Ore production increased by 5% to 12.4 mt with Kolomela mine coming into the equation five months ahead of schedule.

· Kolomela is expected to ramp up to a production of 4-5 mtpa in 2012 with a full production capacity of 9 mtpa.

Metals Exploration (LON:MTL) – Update highlights start of earthworks and debt negotiations

http://www.metalsexploration.com/

· Runruno site earthworks started (See website for photos). Full construction time estimated at 15 months.

· Leightons contracted to design and construct the processing plant.

· Debt funding being negotiated on a project finance basis with positive progression.  The deal is now at ‘detailed diligence’ with one of the potential funders. The statement says that the debt package should be finalised in Q1 this year.

· Metallurgical work now shows a projected gold recovery of 93.3% on BIOX and CIL processing from a gravity and flotation plant.  The results are from five out of 12 samples tested so far.

· First gold production is forecast at 53,000 oz in 2013 rising to 106,000 oz from 2014 with a mine life of just over 10 years.

· Consolidation: Management recently bought out the remaining 15% of the mine at US$44.44/reserve oz or 0.86 c/s 0.55p/s 

· The NPV uplift is 5 p/s on our estimation and caused us to raise our valuation in December to 35p/s. 

· Drilling program:  drilling is ongoing at Runruno to extend the current resource and as part of a regional exploration program.

· Runruno South:  Drilling at Runruno South saw a further 5 holes through Q4 to give 3m @3.46 g/t gold and 13m @ 2.28 g/t gold.  Results show good potential for additional resources at Runruno South

· Magnetite Creek shows 24.65m grading 1.01% copper and 0.43g/t gold within a 31m zone averaging 0.85% copper and 0.35 g/t gold.  This is an impressive result and while the intersection is from 229m down the hole it is a good indication of the potential of the area

· Health and safety awards:  Three H&SE awards have been awarded for work in the Philippines.  

•           The 2011 Presidential Mineral Industry Environment Award (Exploration Category);

•           Safest large scale Exploration project; and 

•           Runner-up in the Best Mining Forests Award - Exploration Category.

Conclusion:  The team have made good progress at Runruno with permits acquired and earthworks started.  All is in place to build the mine with the addition of some additional debt.  Leighton are seen to be reliable contractors and the costs should be well set for construction and commissioning of the mine.  New exploration results could add value ahead of commissioning on a mine where much of the technical risk now seems to have been addressed.  We see the company as significantly undervalued at 11p with more than three times upside at this point in time.

Petropavlovsk (LON:POG) – Gold production beats expectations by 5%

Petropavlovsk hold a 65.6% holding in IRC = £207m. IRC market cap = £316m (HK3.8bn).  

· Petropavlovsk produced some 630,100oz of gold last year beating their market forecast by 5%. 

· The team have at last shrugged off the overenthusiastic forecasts of the chief geologist and with some specialist help are now producing more consistently on a new range of more feasible targets. 

· 2012 est:  a new, base case, gold production forecast of 680,999 oz is announced for this year and this does not include potential additional gold production from Albyn and Pioneer. 

· Q4 gold production was particularly good at Pioneer, a mine which was beset with equipment delays just over a year ago. 

· Sales: rose to 676,000oz of gold due to gold which was mined in Q4 2010 but not sold at that time.  The average sales price rose 29% yoy to $1,617/oz 

· Pioneer is now producing consistently better gold grades from its lower grade areas and is maximising returns from its higher grade ore columns.  This and the addition of new larger scale machinery in Q4 2010 has raised tonnages, improved grades and importantly created better grade control to maximise use of the resin plant. 

· Pokrovskiy:  saw falling gold production to 21.7k oz vs 28k oz in Q3 as the main pit nears the end of its life.  Exploration of the Pokrovskiy flanks shows some better 2g/t material which should replace the main pit when it closes this year.  

· Malomir:   grades fell to 2.2g/t in Q4 vs 2.5g/t for the year and 4.9g/t a year earlier.  This more than halved the mine’s gold production as the mine worked through the higher grade central zone.  Construction of the Pressure Oxidisation plant is reported to be on schedule and the mine will start to stockpile sulphide ore for POX production next year. 

· Alluvial operations: 

· Albyn:  produced 1,000oz for Q4 and is ramping up towards a run rate of 130,000 oz pa.  we would expect to see 20-30,000 oz this quarter with full production starting in Q2.  The mine is further to the north and has been struggling to commission in temperatures of -50 Celsius, which is cold by any standards.  Thankfully it has warmed up to some degree and is only at -40 Celsius (must feel like a summers day!).  

· Costs: second half costs were higher than the first half cost of  $659/oz on a total cost basis due to a higher proportion of higher cost alluvial gold production.  Excluding this should show that hard rock costs fell in H2 as gold production rose. 

· The company should update the market further in February on the JORC resource and hopefully an improved grade profile.  We expect the updated resource to show that the geological team have replaced the reserves and resources mined through 2011 and perhaps added a little to the overall known resource.  

Sirius Minerals 

· The company plans to raise £50m that will help the company to take its York Potash Project, UK, to the Definitive Feasibility Study.

· Sirius will drill, core and assay up to 8 additional bore holes.

· Scoping study to be completed in March 21012.

· Maiden resource to be announced in April 2012.

· The preferred processing method will be determined following necessary pilot plant programmes.

· The proceeds will fund options to add mineral and land rights as well as cover research and development expenses, working capital and business overheads.

· Work needs to be done to establish water issues in the strata above the main seams.  

· The York Potash project will involve very substantial capital cost, like many other potash projects, and we await the technical and economic reviews to see if this project may prove viable.

Mining this week: 

Firestone Diamonds (LON:FDI) – Report in The Times on potential merger of Firestone and Stellar Diamonds

Kenmare Resources (LON:KMR) – Moma Mine Update

Vital Metals (ASX:VML) – Trading halt pending drilling results

West African Minerals (LON:WAFM) – Disposal of Ferrum Centrafrique to AXMIN

Caledonia Mining (LON:CMCL) – Production Update and 2012 Outlook for Blanket Mine

Hummingbird Resources* (LON:HUM) – 3moz required to kick start $40m feasibility study

IFM (LON:IFIL) - Quarterly report highlights recovery in sales and ferrochrome production 

Serabi Gold* (LON:SRB) – New funding, proposal to restart Palito and drilling update 

Discovery Metals (LON:DME) – Holdings in the company

Frontier Mining (LON:FML) – Completion of Acquisition of South Benkala Copper project

Goldplat (LON:GDP) – Good Progress on Gold Production and Exploration Projects

Sirius Minerals – SM2 Preliminary Coring Result

West African Minerals Corporation (LON:WAFM) – Directorate Change and subsidiary share buy-back