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Morning View:

Economic News:

US – Forecast ahead of a report due for release later today suggest that manufacturing probably expanded in January at a faster pace than in December. 

· Forecasts ahead of the report this afternoon suggest that ISM factory index rose to 54.5 from 53.1 in December. 

· Additionally construction spending is forecast to have increased by 0.5% in December. 

· At 13.15 the ADP employment figures will be released for January. Forecasts suggest that 182,000 jobs were added in January. 

· The ADP figure is usual a good indication as to the more important non farm payroll figure – released on Friday. 

Europe – European stocks are up this morning as the market clings to the positive data coming out of China as a welcome distraction from the European crisis. 

· The Greek PM stated yesterday that he wanted to bring the negotiations on a debt swap deal to a successful conclusion by the end of the week. 

· Reports continue to emerge that creditors are now being offered a “sweetener” tied to a recovery that could ease the impact of accepting a lower coupon. 

· A “sweetener tied to a recover” – This statement leads us to conclude that the “bigger fool theory” is still alive and well.   

· Portugal will sell 105-day and 168-day bills today. 

· S&P increased the number of Portuguese banks on “credit watch negative” yesterday. 

China – Chinese manufacturing improved in January.

· The official PMI increased to 50.5 from 50.3 in December. Any reading above 50 indicates expansion. 

· Further “fine” tuning of government policy will occur this year according to officials which will likely continue to weigh on exports and industrial production. 

· The lunar holiday will likely have helped improve consumer spending last month. 

· The Nations largest real estate website announced that China’s home prices fell for a 5th month in January as the Government continued to control the property market. 

· Stocks fell this morning on the back of the rebound in manufacturing and expectations that monetary policy will not be loosened imminently. 

Australia – PM Gillard has stated that the Australian dollar is likely to “stay relatively high for years to come”

· Australian house prices fell last year by the most on record on the back of the ongoing global economic uncertainty and the knock on effect on consumer sentiment at home.

UK – Nationwide has stated that UK house prices fell for a second month in January to the lowest level in almost a year. 

· The average cost of a home fell 0.2 percent from December to £162,228 

India – The country’s 10 year bonds gained, forcing yields down to the lowest level in 9 months. 

· The country manufacturing grew at the fastest pace in eight months in January. 

· The PMI rose to 57.5 from 54.2 in December. 

· As a result of the figures concerns are increasing over the threat of inflation.   

· India’s trade deficit was $12.7 billion in December, compared with $8.07 billion a year earlier according to official figures today. 

· The rupee looks likely to continue to weaken – not helping the deficit as a result of a lack of capital in the system. 

Indonesia – Figures released today show that inflation slowed for the 5th month in a row in January, supporting the Central Bank’s case for maintaining low interest rates. 

· Consumer prices rose 3.65% last month from a year earlier. 

· Additionally it was announced that exports rose 2.2% in December from a year earlier. 

· Imports rose 24.3% 

Thailand – Inflation slowed for the second straight month in January on the back of lower food prices helping to offset rising energy costs. 

· An index of consumer prices climbed 3.88% from a year earlier. 

· Core inflation which excludes fresh food and fuel prices was 2.75% last month. 

Philippines – The country’s central bank has stated that it is not ruling out another interest rate cut this quarter as substantial liquidity remains in the system. 

Commodity News:

Precious:

Gold US$1,745/oz vs US$1,739/oz yesterday – Gold is up this morning amid falling US dollar index against major currencies.

· China’s gold production increased 5.89%yoy to a record-high of 360.6t in 2011, making it the largest supplier of the precious metal, the China Gold Association said.

· Top 10 producers in China accounted for more than 50% of nation’s total production and nearly 60% of the total supply was provided by 5 top gold producing territories – Shandong, Henan, Jiangxi, Fujian and Inner Mongolia provinces.

· Chinese gold demand was both supported by strong growth in jewellery and investment sectors. Top 2 gold retailers, Caibai and Guohua, recorded a 49.7%yoy increase in sales volumes over the annual week-long Spring Festival in 2011, when families and loved-ones gather and exchange presents.

· The value of transactions in gold related products in the Shanghai Gold Exchange surged 53.45%yoy in 2011.

· The US Mint sold 127koz of American Eagle gold coins in Jan 2012, a 94%increase from sales in Dec and a little short of 133.5moz recorded in Jan 2011.

· Holdings in gold backed ETPs increased to 2,371.85t yesterday.

· SPDR gold trust holdings remained at 1.271t (40.867moz) value US$71.246bn.

Platinum US$1,594/oz vs US$1,624/oz yesterday

· National Spot Exchange, the largest exchange for physical metal trading in India, will launch trading in Platinum contracts within a month on rising investment demand for the metal.

Palladium US$688/oz vs US$693/oz yesterday

Silver US$33.27/oz vs US$33.73/oz yesterday

· Sales of American Eagle silver coins totalled 6.107moz in Jan.

Rhodium US$1,375/oz vs US$1,375/oz yesterday                                                         

Base metals:

Copper US$ 8,395/t vs US$8,465/t yesterday – Copper climbed this morning on encouraging Chinese PMI data in Jan 2012.

· Antofagasta copper production in 2011 exceeded its target of 620,000t and totalled 640,500t, up 23% from 2010.

· The output increased on higer production volumes from its Los Pelambres operations and the launch of the Esperanza project.

· The company plans to raise its output to around 700,000t this year.

· Pan Pacific Copper, Japan’s biggest producer, expects to restart its Saganoseki smelter on Feb 14, following a loss of around 30,000t of production after a fire on Jan 7.

Aluminium US$ 2,246/t vs US$2,292/t yesterday

· US and Canadian aluminum shipments increased by 7.1% to 9.1mt in 2011, the Aluminum Association said.

· Vedanta Aluminium will start new talks with the Indian ministry of environment and forests to seek an approval for an expansion of its alumina refinery to 6mtpy from 1mtpy in Lanjigarh, Orissa.

· Last weekend high court of Orissa rejected a review petition filed by Vedanta in regards of the ministry’s order to halt expansionary works at the local refinery.

Nickel US$ 20,700/t vs US$21,325/t yesterday

· BHP Billiton, the 4th biggest producer of nickel, will cut its mining production in Western Australia by 30% amid weak prices and the strong Australian dollar.

· Ore inventories will be used for nickel concentrate production in the meantime, with output running close to current volumes.

· BHP produced 50,800t of nickel from the related operations in 2011.

Zinc US$ 2,086/t vs US$2,125/t yesterday

Lead US$ 2,213/t vs US$2,274/t yesterday

Tin US$ 24,099/t vs US$24,050/t yesterday

· The Indonesia Commodity & Derivatives Exchange will start trading a physical contract for tin today in a move to create an alternative to the London Metal Exchange.

· The contract is for 5t of tin with purity of 99.9%.

Energy:

Oil US$111.34/bbl vs US$111.37/bbl yesterday – Brent futures remain flat while spot prices trade near lowest point in a week as the American Petroleum Institute (API) indicate oil stockpiles had risen to their highest levels since November, as the U.S. government said consumer confidence and business activity had cooled and that demand was slipping.

· Exxon net profits were up 2% at $9.4bn in the last quarter of 2011. Despite producing 9% less oil, Exxon sales were worth 27% more than in the same period last year. 

· Production has fallen as fields run short coupled with some of Exxon’s contracts being limited on the amount of oil it can produce. 

· Although over $36bn was spent on exploration and studies last year, projects can take years to bring to market. The price of oil has made a big difference! 

· U.S. crude is at $98.62 on the New York Mercantile exchange with WTI at $98.76 on the London-based ICE futures exchange. 

· Borders and Southern Petroleum plc reports to the market that their 61/17-1 exploration well 140km south of the Falkland Islands spudded yesterday. 

· The well will test the Darwin East prospect with operations to take approx. 45 days. 

Natural Gas US$2.461/mmbtu vs US$2.651/mmbtu yesterday – Henry hub was at $2.503

· Shareholders of Italian utility Edison have given their final approval for EDF to acquire them. 

· EDF had planned to start their nuclear energy strategy there, until those plans were scrapped as Italy placed a ban on nuclear energy last year in the wake of the Japanese Fukushima disaster. 

· There will now be a focus on “combined cycle gas turbine” (CCGT) as the gas-fired generation gets set to replace coal in the future. 

· The takeover is now awaiting regulatory approval. EDF has a 50% stake in Edison. Edison has a 7.3% stake in the Adriatic LNG terminal offshore Rovigo, Italy. 

Uranium US$53.45/lbs vs US$53.45/lbs yesterday – the spot price for Ux U308 was is $52/lb

· Paladin Energy the Australian uranium mining company expects prices to climb this year due to a supply deficit.

· Rio Tinto has agreed to sell its stake in Kalahari Minerals to Guangdong Nuclear Power Company, which helps it move one step closer to taking control of the Husab project in Namibia, the fourth largest uranium deposit in the world.

Coal – Barclays Capital have reported that Chinese thermal coal imports are expected to rise by 2% this year as energy demand continues to escalate to feed the countries power generation and domestic transport bottlenecks.

· PT Adro Energy, the second largest coal producer in Indonesia increased production for the full year 2011 by 13% to 47.7mt increasing sales volume to 16% to 50.78mt

Company news:

Ariana Resources (LON:AAU) – New Vein Systems Found at Red Rabbit Project

See note published 30 September 2011

http://www.arianaresources.com/

· Drilling programme between the gap zone of the planned pits at Arzu South and Arzu North have shown a positive result. 

· First results from this zone show 8.7 m drilled at 2.03 g/t gold and 9.9 g/t silver from  a 15 m down hole. 

· The company believe there is potential for a new vein system and have called this “Emel”. 

· The vein systems could  present extensions to their current resources base. 

· A deep drilling exploration programme is planned at Kiziltepe to determine the long term underground potential and extend the mine life beyond 8 years. 

· The drilling programme is for up to 4 holes targeting a depth of up to 400m and is not likely to commence till the 3rd quarter 2012. 

· The company have conducted an extensive review of upcoming licences in Western Turkey and have identified 14 high priority licences. 

Conclusion: Ariana’s ongoing exploration programme continues to bear fruit and shows potential for the resource to increase at Red Rabbit. The shares had a set back on the push back in production plans and we would any setback as a buying opportunity.

ENRC (LON:ENRC) – Operations update for Q4 2011

· Strong results in Alumina and Aluminum, Other Non-Ferrous and Energy divisions on the back of weaker production numbers in Ferroalloys and Iron Ore units amid unplanned repair works.

· The Alumina and Aluminum, and Energy divisions are reported to have operated at full capacity in Q4.

· Alumina and Aluminum: Bauxite extraction increased by 8.5%yoy to 1,421kt in the final quarter 2011. Alumina production was up 3.6%yoy to 428kt due to a rise in alumina refinery capacity to 1.7mtpa in Jul 2011. Primary aluminium production was 63kt in Q4 2011 versus 62kt in Q4 2010.

· Full year 2011 alumina and aluminum production increased by 1.8% and 9.8%, respectively.

· Energy: Electricity generation was up 3.8%yoy and coal extraction was little changed during the quarter. 

· Total power generation increased by 2.1% and sales to third parties were up 14.3% during FY 2011.

· Ferroalloys and Iron Ore divisions operated at below full capacity due to unplanned maintenance.

· Ferroalloys unit: Saleable ferroalloys production was 360kt in Q4, 10% down from previous year. Full year production dropped 2.9% to 1,541kt.

· Ferrochrome production dropped 9.8% yoy to 294kt during the quarter due to an emergency stoppage and repairs of furnace 63 at Aksu, which was back in operation in Dec, and a halt of operations at Tuoli from Sep.

· High carbon ferrochrome production decreased by 11.3% to 259kt during the quarter. FY 2011 production was 1.143kt, down 2.5%.

· Low carbon ferrochrome and ferrosilicochrome production was up 4.8%yoy and 5.0%yoy, respectively, versus Q4 2010. FY 2011 low carbon ferrochrome output was 88kt (+4.8%yoy) and ferrosilicochrome production was 63kt (-27%yoy).

· Ferro-silicon and silicomanganese production dropped by 16.7%yoy and 14.3%yoy, respectively, during the quarter. FY 2011 production was down 2.4% and 2.9%.

· Iron Ore division recorded a drop in ore extraction and primary concentrate production of 3.3%yoy and 3.8%yoy in Q4 2011.

· Total saleable product dropped 6.6%yoy to 3,874kt during the quarter due to a weaker pellet production that decreased by 22.9%yoy on the back of unplanned repairs at the pelletising plant. FY 2011 concentrate production was down 5.33% to 8,937kt, pellet output was down 4.6% to 7,648kt and total product dropped 5.0% to 16,107kt.

· In Other Non-ferrous division copper production surged by 61.9%yoy to 8,080t during the quarter due to higher grades and the installation of 3 tank houses and heap leach pads. FY 2011 production was up 46.1% to 29,609t. 

· Cobalt contained production was off 1.8%yoy to 2,853t during the quarter. FY 2011 production was up 8.4% to 9,647t.

Hummingbird Resources (LON:HUM) – Maiden Resource at Tuzon Deposit Raises Total Resource to 3.7 m oz

· The company announced a maiden resource of 2.05 m oz at the Tuzon prospect which together with Dugbe brings the total resource of the company to 3.8 m oz. 

· The deposit at Tuzon is open in several directions with ongoing drilling to increase the resource. 

· The grades at Tuzon are in line with grades at Dugbe at 1.21 g/t. 

· Tuzon lies 2.6 km east of the existing Dugbe F resource and has the potential to become part of the Dugbe F project with a consistent geology and mineralogy. 

· Mining conditions for the deposit are thought to be favourable as the deposit extends from surface in several closely stacked narrow zones. 

· Further resource potential remains at the project around Dugbe F. 

· The company’s cash position as at 1 January was US$20m and will underpin further exploration work at the project. 

Conclusion: The maiden resource at Tuzon represents a significant increase in the total resource base for Hummingbird and exceeds the company’s target for a resource at Tuzon. Grades are in line with Dugbe which are not particularly high. The company now have a resource above 3 m oz which should propel them to the next stage of looking at the feasibility of developing a mine which the CEO has indicated will cost US$40 m and take two years. The Feasibility Study should establish whether the mining conditions are economic for the size and grade of the deposit.

Mining this week: 

Ampella Mining* (ASX:AMP) – Quarterly report highlights scope for future resources

African Minerals (LON:AMI) -  New Convertible Loan and Refinancing Package

Coal of Africa (LON:CZA) – Quarter end Report for Dec 2011

Impala Platinum (PINK:IMPUF) – New ceo Terence Goodlace appointed to take over from David Brown

Stellar Diamonds (LON:STEL) – Interim Results to 31 Dec 2011

Sumatra Copper & Gold (ASX:SUM) – Fast track to underground mining Quarterly Update

Ampella Mining* (ASX:AMP) – Metallurgical work at Konkera show 88%-98% recovery

Bellzone Mining (LON:BZM) – Forecariah JV Progress Update

Diamond Corp (LON:DCP) – Operational Update

Discovery Metals (LON:DME) – Delisting from AIM, Retaining ASX and Botswana Stock Exchange Listings

Goldplat (LON:GDP) – Operations Update on Recovery Operations

Vital Metals (ASX:VML) – Drill results from Kollo and Boungou look encouraging

Medusa Mining (LON:MML) – Quarterly Activities Report