Fairfax Marketing Report including Hummingbird Resources, Frontier Mining, Caledonia Mining, Ariana Resources plus others

Morning View:

Gold US$1,718/oz - Copper US$ 8,536/t

· Caterpillar ‘CAT’ beat forecasts with a 60% jump in Q4 and forecast that demand should remain strong this year despite slow recovery in construction in the US and Europe this year.  

· CAT sees much demand from replacement of older units and stock replacement by plant hire companies.  

· This indicates new demand is partially due to low interest rates enabling low cost buying of machinery at reduced price levels.

Australian reports show a sharp fall in imports for heavy mining machinery and tyres etc.

· The simple answer is to blame China, as it’s rapid growth started to slow in 2011. 

· Mining companies are risk sensitive and the Eurozone crisis and limits to bank financing appear to have stopped capital programs in their tracks.  

· A risk off approach through the second half of last year was probably caused by Greek debt problems, Chinese fiscal tightening and Eurozone banking concerns.  

· The contrast with the boom of a year earlier is dramatic, but may be a natural consequence of this risk-off trend.

· Time will tell if the risk-off trade is appropriate - the world is changing and change takes time. 

Economic News:

US – Q4 GDP figures will be released later today. Forecasts suggest that GDP rose at a 3% annualised rate in Q4 on the back of a 1.8% expansion in Q3. 

· Additionally forecasts suggest that household purchases which account for about 70% of the economy may have climbed 2.4% 

· Figures released yesterday showed that new home sales fell last month from November. 

· Sales of new homes unexpectedly fell in December, dropping 2.2% to a seasonally adjusted 307,000 annual rate. 

Europe – Policy makers are reportedly preparing to review the size and the terms of the Greek package agreed last year as markets await the outcome of talks with private creditors. 

· Yesterday David Cameron launched the boot in over Europe and took another step away from Germany and France over the debate on a transaction tax. 

· The PM stated that the economic design was seriously flawed and described the transaction tax as “madness” 

· New CDS figures indicate that the chances of Greece defaulting in  the next 5 yeas is around 82% 

· Portuguese bond yields have widened this month on speculation the indebted nation may follow Greece in seeking losses from private investors. 

· The country’s 10 year bond yield is 14.85% 

· The Italian Cabinet is set to approve a number of laws today that should help to ease bureaucracy and boost production. 

France – A new poll shows that Mr Francois Hollande, the socialist challenger to President Sarkozy is up to 20 points ahead of the president ahead of the election in April and May. 

· If the socialist was to win it could well change the dynamic of the Eurozone crisis and France’s relationship with Germany. 

· Additionally it appears that Mr Hollande is set to declare war on financial services… watch this space. 

China – According to the Deputy Director of the Financial and Economic Affairs committee China’s property prices need to decline 30% to reach a reasonable level. 

· Officials have reiterated this year that they will not step away from property curbs, including tighter mortgage requirements. 

· Market forecasts suggest that home transactions will drop 10% in China this year. 

Japan – Retail sales grew at the fastest pace in more than a year as a rebound in consumer spending compensated for falling export demand. 

· Retail sales rose 2.5% in December year on year. 

· Consumer prices fell for a 3rd month as export slump and the stronger yen weighed on the nation’s economic rebound. 

· Consumer prices excluding fresh food dropped 0.1% in December.

UK – Cash payments for scrap metal will be banned and fine “significantly increased” to fight the illegal scrap metal theft and dealing, home Secretary Theresa May said.

India – Speculation that the central bank will scale back debt purchases after lowering reserve requirements for banks is lowering demand for the country’s 10 year bonds. 

· The reserve bank of India has cut the cash reserve ratio to 5.5% from 6%, to add an estimated 320bn rupees to the banking system. 

· Mumbai residential home sales dropped to a 3 year low in Q4 on the back of soaring home prices and higher interest rates. 

· Sales fell by 17% from the previous quarter. 

Brazil – The country’s unemployment rate has plunged to a record low of 4.7% in December highlighting the strength of the labour market. 

· The figure shows a half percentage point drop from November. 

South Africa – Reports are emerging that Government enforced safety stoppages at the country’s Platinum mines have hampered the production performances of the large producers, according to Mining Weekly. 

Thailand – Industrial production fell for the 4th month in December on the back of the devastating flooding. 

· Industrial production index fell 25.8% from a year earlier on the back of a revised 47.2% contraction in November. 

· The Government have indicated that the recovery in output may not materialise until the 3rd quarter. 

· Official figures indicate that production of hard-disk drives slumped 55.7% last month, automobile manufacturing fell 30.4% and electronics output slid 55.9% 

South Korea – Yesterday official figures showed that the country’s economy is cooling more sharply than expected as weak domestic consumption coupled with falling export demand hampered growth. 

· GDP grew at only 0.4% in Q4 2011. 

· Additionally the export growth is forecast to slow to 7.4% in 2012.

Currency – The yen rose against all of most traded counterparts today as the European crisis rumbled on.

· The dollar is also up today as risk aversion increases. 

Commodity News:

Precious:

Gold US$1,718/oz vs US$1,712/oz yesterday – Gold is steady this morning and trading around US$1,720/oz, highest since the beginning of Dec, as the US dollar is heading for a weekly decline against major currencies and falling to a five-week low against the euro.

· Holdings in gold backed ETPs increased 0.1% to 2,359.6t yesterday.

· SPDR gold trust holdings increased to 1.261t (40.546moz) value US$70.001bn from 1,251t (40.206moz) value.

Platinum US$1,604/oz vs US$1,582/oz yesterday

· Impala Platinum fired employees on Wednesday who did not report for duty on Tuesday. The company agreed with the National Union of Mineworkers to provide a chance for dismissed workers to reapply for positions until Friday.

· Only 15% of 5,000 miners who participated an a strike at Rustenburg operations, South Africa, reapplied by Thursday fternoon.

Palladium US$687/oz vs US$693/oz yesterday

Silver US$33.38/oz vs US$33.28/oz yesterday

Rhodium US$1,363/oz vs US$1,338/oz yesterday                                                     

Base metals:

Copper US$ 8,536/t vs US$8,525/t yesterday – Copper is little changed this morning following a surge in prices this week on Chinese imports data and the US Fed extending their policy of near zero interest rates until late 2014.

Aluminium US$ 2,265/t vs US$2,275/t yesterday

· Japanese shipments of rolled-aluminum products declined by 6.1% month on month to 157,497t in Dec, the 7th consecutive monthly drop, the Japan Aluminium Association said today.

Nickel US$ 21,410/t vs US$21,125/t yesterday

Zinc US$ 2,184/t vs US$2,190/t yesterday

Lead US$ 2,310/t vs US$2,298/t yesterday

Tin US$ 24,150/t vs US$22,670/t yesterday

· Tin is the second-best performing commodity of 80 raw materials following a 26% increase in prices this year.

· Sales of consumer electronics accounting for 50% o total demand for tin will exceed US$1tn mark in 2012 according to GfK Digital World and the Arlington, Virginia-based Consumer Electronis Association.

· The market is estimated to record a deficit for a third consecutive year ITRI, an industry group, said. The 9,400t shortage is forecast.

Energy:

Oil US$110.78/bbl vs US$110.50/bbl yesterday – oil has fluctuated this week off of news that the U.S. Federal reserve will keep interest rates low; Europe being further damaged by a halt in supplies of crude oil from Iran; countered by news that Greece and private bond holders will resume talks over a deal

· It’s more likely that any shortfall of supply will be made up from other nations including supply from OPEC members, especially as Libya brings its production closer to pre civil war levels later this year. 

· U.S. crude futures decline this morning at $99.60 on the New York Mercantile exchange and WTI the same at $99.68 on the London-based ICE futures exchange. 

Natural Gas US$2.651/mmbtu vs US$2.803/mmbtu yesterday – Henry Hub was at $2.654.

· Barack Obama urged U.S. shipping companies to become less reliant on foreign oil to power their fleets, in a speech he made to a group of United Parcel workers during his pre election campaigning tour. 

· Obama declared the U.S. “the Saudi Arabia of Natural Gas” and that tapping into the vast reserves could” power our cars and our homes and our factories in a cleaner and cheaper way”. 

· The president plans to offer tax incentives for those companies buying natural gas-powered trucks. 

· UPS have been among the first to move toward an increased use of natural gas vehicles. 

Uranium US$53.45/lbs vs US$53.45/lbs yesterday – Australia’s new Labour leader Mark McGowan’s softening on his stance on Uranium mining restrictions have not gone far enough says The Chamber of Minerals and Energy.

· Presently, existing mines will be allowed to continue operating and others already in the Uranium licensing pipeline will be considered with all new projects denied entry.

· A spokesperson for CME said expenditure on Uranium mining in 2010/11 was more than A$100 million.

· “Uranium exploration should supported new licenses considered”, they said.  

Coal – Coal India Ltd (CIL) will announce a new set of coal prices this month, before the acting chairman N C Jha retires on January 31.

· The decision comes after the ministry formally asked CIL to relook at its January 1 pricing. 

· The chairman has been questioned about the large number of complaints about high ash and moisture content and inconsistent quality in CIL coal compared to international coal, Jha said "for that we have kept band of 300 kcal for each band of grades, while, price for international coal changes in narrow band of 50 kcals". 

Other:

Steel – Posco, one of the largest steelmakers, is planning to build a smaller mill – 8mt instead of 12mt operations - in the eastern state of Odisha, India, than originally planned due to a low availability of vacated land.

· Posco expected to launch the project 6 years ago.

· Farmers who occupied the land for generations refuse to leave.

· It is estimated Posco may need around 2,800 acres of land as the government acquired more than 2,100 acres of land for the project so far.

· Smaller operations may clear the way for Posco to begin construction in the state.

· In Nov India’s steel ministry the nation’s consumption of steel may climb 9% per annum in the next 5 years.

· Nucor, a US steelmaker, beat analysts’ estimates and reported a Q4 profit from a net income loss in 2010. The company forecasts an increase in earnings in Q1 2012 versus the end of 2011 on rising consumption in some sectors.

· Nucor plans a US$1bn capex in 2012, double the amount in 2011 to finance internal growth and a potential expansion into Latin America.

· Nippon Steel, the largest steelmaker by production in Japan, recorded a ¥50bn (US$645.6m) loss a Oct-Dec quarter in 2011 compared to a ¥33.4bn profit in the same period in 2010.

· “Floods in Thailand and falling prices in Asia are having a big impact in the second half”, Nippon Steel said.

· For the full year 2011 the steelmaker cut its profit estimate to ¥70bn from ¥130bn and decreased its sales outlook to ¥4.050tn from ¥4.200tn.

· Turkish hot rolled coil import prices climbed US$20/t to US$660-680/t cfr for Mar delivery from Europe, though amid slower volumes.

Company news:

African Barrick Gold (LON:ABG) – Uplift in Resource at Nyanzaga

· The company announced an uplift in the mineral resource estimate at the Tusker deposit at Nyanzaga Project. 

· The updated in-pit resource is significant at 4.1 m oz of gold – 3.5 m indicated and 0.6 m oz inferred. 

· This represents a fourfold increase from the declared resource of 313 koz indicated and 650 koz inferred. 

· ABG acquired the project in 2010 and since then have undertaken an extensive step-out and infill drilling programme at both the Tusker and Kilimani deposit with the aim of extending the northern, western and southern domains of the project. 

· A total of 91,357 metres have been drilled since May 2010 at the project representing an investment of $21.7m. 

· The drilling has extended known mineralisation and delineated additional resources at surface – further drilling is expected to target higher grade extensions at depth at Tusker. 

· A scoping study for the project is ongoing and is expected to be completed by late Q1 or early Q2 2012. 

· The project is located within the Sengerema District in the Mwanza region approximately 35 km northeast of the Bulyanhulu mine and lies on the northeastern flank of the Sukumaland Archaean Greenstone Belt consisting of a granite-greenstone terrain. 

Mwana Africa* (LON:MWA) – Operations and Exploration Update

· Freda Rebecca Gold Mine – The mine produced 11,573 oz of gold over the quarter ending Dec 2011 achieving a price of $1,679 per oz over the quarter against $1,708 the previous quarter. 

· Gold production was down on the previous quarter by 15% from 13,686 due to processing issues relating to the newly commissioned second mill which is ramping up production.

· Head grades into the mill were slightly lower as a result of short term variation to low grade ore during commissioning of a new mining block and recoveries down from 77% to 71% as a result of down time within the leaching circuit.  

· Any improvement in grade and recovery rates should lead to a marked improvement in gold production and a reduction in cash costs. 

· Cash costs were up to $1,090 per oz versus $886/oz as a result of the short term operational issues and lower volumes. 

· Mechanical failures in both mills have been addressed and leach tank availability has improved during the quarter. 

· Zani Kodo Gold Exploration Project: - Zani Central Target: Drilling was completed at this target which covers 650 m of the Zani-Kodo trend.  Management are targeting 3 m oz of gold ore at Zani Kodo and are looking to extend the prospect along strike to achieve this aim.  The resource is currently at 1.3moz.  Evidence of gold mineralisation exists along some 9km of strike with artisanal workings present on old geological and colonial workings.  

· Results of 13 holes were received in December and indicated a continuity of a broad zone of low grade mineralisation with narrow high grade portions locally. 

· In the central portion of the target near surface a high grade zone is present with a best intersection of 17m at 4.09 g/t including 11m at 6.17 g/t (ZNCDD054). 

· The zone dips to the east and is continuous along strike with 650 m identified to date – the zone remains open at depth and to the south. 

· Drilling in 2012 will continue south of Zani Central at the Gombiri target. 

· Kodo Downdip Extension: Drilling was ongoing in this area and first five holes indicate high grades and widths and drilling will continue to target the downdip extension of the southerly portion of the Kodo Main zone. 

· Bindura Nickel: Assets remain on care and maintenance while the company negotiate with the Zimbabwean government on the issue of indigenization. 

· The Trojan mine remains ready to resume production subject to BNC securing the required restart funding – the mine hoisted 4,698 tonnes of waste and 32 tonnes of ore during the quarter as part of its care and maintenance programme. 

· Total underground development through the care and maintenance program was 1,132 m to end December and should enable a rapid restart to ore mining and haulage.  The milling circuit was largely commissioned last year and the operation is ready to roll once funding for the restart and local indigenisation issues are resolved.  

· Katanga Concessions: Early stage exploration work focussed on Lunsano which hosts a copper anomaly and at Kakosa.  This looks like early stage work although this is a highly prospective area from a discovery perspective.  

· At Lunsano detailed geological mapping using trenching and pitting continued over the quarter with a total of 1927 soil and pit samples dispatched for assaying over the period. 

· Valuation:  We reckon the Freda Rebecca gold mine is worth around 9 pence per share.  We see the Trojan mine and Bindura Nickel assets as offering significant additional value

Conclusion: The improvement in costs seen in the previous quarter have been reversed by operational issues which are expected to be short term and we look forward to seeing cash costs improving as the second mill ramps up.  Now that drilling has been completed at the Zani Central target we expect a resource update which could spark more interest in the project.  

A resolution of issues and funding of the Trojan Nickel mine at Bindura in Zimbabwe would be great news for the company and for Zimbabwe.  Restarting the mine should add good value with potential to restart the larger Bindura Nickel complex.  We reckon there is substantial value at Trojan and Bindura and this added to the value of cash flow from the gold production rates indicates the stock is significantly undervalued.  

*Fairfax analysts visited the Freda Rebecca, Bindura Nickel and Zani Kodo operations in 2009.                                      

Mining this week: 

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

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

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

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

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

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

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

Sirius Minerals – Proposed placing of £50mFirestone Diamonds (FDI LN) 10.6p, mkt cap £39.6m – 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