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Morning View:

Economic News:

Europe – Moody’s Investor Services has announced debt ratings cuts for 6 European nations including Italy, Spain and Portugal.

·         Additionally the ratings agency indicated that it could well cut France and the UK of their top Aaa ratings on the back of the on going crisis in Europe. 

·         There is a growing perception that the ratings agencies are behind the curve and that the risks have already been priced into the market. 

·         Yesterday European officials welcomed the news that the Greeks had approved further austerity measures, as Athens burned. 

·         Euro area finance Ministers meet again tomorrow to approve the deal. 

·         Speculation is circulating this morning that Germany may not be prepared to approve the deal despite the fact that it was backed by the Greek government. 

US – Forecasts ahead of a report due for release later today indicate that sales at US retailers probably rose by the most in 4 months on the back of growing demand for autos. 

·         The projected 0.8% increase would follow a 0.1% increase in December. 

·         The figure could well be skewed by consumers waiting for post holiday discounts.  

Japan – The Central Bank unexpectedly added 10 trillion yen to its asset purchase program and set an inflation target today.

·         Stocks rose on the back of the announcement. 

·         The BOJ announced that it would target a 1% inflation rate.

·         The overnight lending rate remained at between 0-0.1% 

·         The Japanese economy shrank at an annualised 2.3% in Q4. 

·         Industrial production rose 3.8% in December from 4% in November. 

China – Officials have indicated that that China will begin using a unified system this week to collect industrial, retail, and investment data in an effort to improve the accuracy of Key economic indicators. 

·         A total of 700,000 companies will report their data online directly to a centralized system starting at the end of the week. 

·         This is encouraging – and although the margin for “error” or falsification remains it should allow Chinese officials to provide more accurate data to the market – in theory. 

·         The FT is reporting that China’s defence budget is expected to almost double by 2015. 

·         The country’s official military spending has reportedly increased at double digit rate for all but one of the past 23 years. 

UK – Inflation figures released today were in line with expectations. 

·         Prices in January remained at 3.6%

·         With the threat of a downgrade hanging over the country, despite the positive work being undertaken by the government the question must surely be asked, have ratings agencies had their time in the sun?

·         A UK home price index indicated that the property market remained weak last month as an uncertain economic outlook hampered spending.

·         The FT is reporting that Britain’s trade deficit in cars is at its smallest since 1976. As the country’s automakers profit from buoyant overseas demand. 

·         The UK exports circa 5 in every 6 cars it makes. 

India – New figures show that Indian inflation eased to the lowest level in 23 months in January. 

·         Wholesale price rose 6.55% from a year earlier – down from 7.47% in December. 

·         Indian industrial output rose 1.8% in December from a year earlier. 

·         Recent government predictions indicate in the 12 months through March GDP will climb 6.9%

Australian – Business confidence rose to a 8 month high in January after the central bank cut interest rates twice last year. 

·         The confidence index rose to 4 last month from 3 in December. 

Malaysia – The country’s economic growth is forecast to have cooled as the European debt crisis hampered exports. 

·         New forecasts suggest that GDP rose 4.8% in the 3 months through December from a year earlier compared with 5.8% in the Q3.

·         Industrial production growth accelerated in December. 

·         Inflation slowed to a nine month low of 3%. 

Chile – The country’s Central Bank will probably keep interest rates unchanged today on the back of rising retail sales and a drop in the jobless rate. 

Commodity News:

Precious metals:

Gold US$1,717/oz vs US$1,730/oz yesterday – Gold is off today on Moody’s rating cuts of Italy, Spain, Portugal, Slovakia, Slovenia and Malta and outlook revisions to “negative” for UK and France sending the US dollar up against the euro. 

· Central bank in Ethiopia purchased more gold from artisanal workers in the 2010-2011 period than it had previously planned to do in the 2010-2015 period. The bank bought 6,615kg (212.7koz) of gold during the period compared to the 5,250kg it planned to purchase over 5 years. 

· The move by the National Bank of Ethiopia boosted money supply and accounted for 40% of the increase in Ethiopian inflation. Inflation rate jumped to 40.6% in August last year. 

· Holdings in gold backed ETPs increased to 2,390.07t yesterday, 0.1% or 2.9t away from the record high reached in Dec 13. 

· SPDR gold trust holdings remained at 1.279t (41.110moz) value US$70.673bn. 

Platinum US$1,641/oz vs US$1,664/oz yesterday

· Impala Platinum commenced rehiring today at its Rustenburg mine in South Africa after 17,000 workers were laid off in the course of an illegal strike and production will restart in due course. 

· Anglo American Platinum, the largest producer of the metal, cut its 2012 production forecast and temporarily halts hiring following a 30% drop in annual profits in 2011 and as “depressed” prices are likely to remain this year affected by Euro zone sovereign debt crisis. 

· EPS excluding one-time charges dropped to 13.54 rand (US$1.77) last year form 19.29rand in 2010. Analysts estimates stood at 15.98 rand. 

· Net income decreased by 64% yoy to 3.59bn rand due to one off items and higher power and labour costs. 

· In 2011 nearly 138.2koz of Platinum were lost due to safety stoppages. Total production equalled 2.53moz, below a 2.6moz target. 

· 2012 target production was cut from 2.7moz to 2.5-2.6moz. 

· “The year ahead is expected to be challenging,” CEO of Amplats said. 

· Platinum demand is forecast to grow this year driven by more stringent emissions regulation, although it is unlikely to exceed supply. 

· Safety stoppages, labour disputes and electricity shortages may cut production in Suoth Africa and take prices up to US$1,800/oz in 2012, Amplats said. 

· A price of more than US$1,900/oz is required to attract the substantial capital to finance long term output, Amplats CEO said. At prices of around US$1,600/oz there will be a steady move away from investing. 

Palladium US$698/oz vs US$705/oz yesterday

Silver US$33.53/oz vs US$33.88/oz yesterday

Rhodium US$1,510/oz vs US$1,510/oz yesterday             

Base metals:

Copper US$ 8,400/t vs US$8,567/t yesterday – Copper prices this morning following latest Euro zone credit rating downgrades.

· BHP Billiton and Rio Tinto signed an agreement to proceed with a US$4.5bn expansion of the Escondida copper mine in Chile. 

· BHP will pay US$2.6bn of the cost of a new concentrator and oxide leach operations and Rio will contribute another US$1.4bn. The remainder may be financed by Japan’s Jeco and Jeco 2, minority owners of the mine. 

· The concentrator is expected to become operational in H1 2015 and the leach project to come online by the middle of 2014, BHP Billiton said. 

Aluminium US$ 2,205/t vs US$2,268/t yesterday

Nickel US$ 20,389/t vs US$20,961/t yesterday

· Norilsk Nickel, the largest producer of nickel and palladium, forecast meal prices to rise this quarter on higher investment demand. 

· “Our book was as long as half-a-year when nickel prices peaked in 2007 and as short as one week in 2008 crisis. Now it’s somewhere in the middle,” Anton, Berlin, head of marketing said. 

Zinc US$ 2,057/t vs US$2,104/t yesterday

· Excess supply of zinc in 2012 may lead to a 13% drop in prices according to Bloomberg estimates. 

· Standard Bank expects supply to exceed demand by 539kt this year, the most since 1993. 

· Stockpiles are expected to surge to 2.2mt this year, Barclays Capital said. Supply may grow 3.7% to 13.6mt this year driven by a 7% increase in China. 

· Zinc is up 10% so far this year. 

Lead US$ 2,109/t vs US$2,163/t yesterday

Tin US$ 24,600/t vs US$25,312/t yesterday

Energy:

Oil US$117.93/bbl vs US$117.31/bbl yesterday – Brent spot lifts marginally this morning on news that credit ratings agency Moody’s warns Britain it may loose its AAA rating within a year as well as placing France on watch and speculation that US supplies are increasing alongside dampening demand.

· Brent futures decline and were $116.90bbl (ICE) with U.S crude declined from a US$101bbl spike yesterday trading at US$100.68 this morning. WTI is climbing at US$100.72 and New York Mercantile exchange this morning. 

· Bahrain’s energy minister has stated that he would prefer to see oil prices remain below $110bbl; prices over that could “derail recoveries in a number of fragile western economies”. 

· A U.S. District judge yesterday, allowed BP American depositary receipt holders to pursue claims alleging violations of U.S. securities law, relating to the Gulf of Mexico spill in 2010. 

· Iranian authorities may impose spot inspections on tankers and merchant ships in a tactical move to keep oil prices high by disrupting supply through the Strait of Hormuz 

Natural Gas US$2.446/mmbtu vs US$2.427/mmbtu yesterday – Hyundai Heavy Industries is the largest shipbuilder by value and announced Tuesday that it will deliver 5 LNG ships by the first half of 2015.

· STX Offshore & Shipbuilding Co Ltd. also announced a deal worth $210m to build six oil tankers and another $398m deal to build two LNG ships in Europe. 

· Singapore’s Energy Market Authority is will start consultation talks in March with stakeholders and the public to decide the structure of its LNG market. 

· Singapore’s $1.7bn terminal at Jurong Island is due to be operational by 2Q13 providing capacity for 180,000cm of LNG. 

· The two tanks will process combined a total of 3.5mt of LNG annually to meet rising demand. 

· A third tank could be added by 1Q14 

Uranium US$52.95/lbs vs US$52.95/lbs yesterday – China Guangdong Nuclear Power Corp and its partner China-Africa Development Fund have moved on their course to acquire Extract Resources in a deal worth A1.26bn (US$1.34bn) using Taurus Minerals as their vehicle.

· Taurus is 60% owned by CGNP and 40% by CAD Fund. 

· The acquisition follows the group’s recent success on securing almost 90% of Kalahari Minerals plc. 

· Taurus is offering A$8.65 per Extract share in an all cash bid which, if successful, would provide a controlling stake in the Husab uranium mine in Namibia. 

· Uranium spot prices stay at US$52/lb on UXc. 

Coal – South Africa’s largest fuel port, Richards Bay terminal, coal export prices decreased to a three week low.

· Coal India beat analysts’ estimates as it posted a 54% increase in third-quarter profits, following it increase in prices and production. 

· Xstrata is selling 20% stake of it’s a$6bn (US$6.4bn) Wandoan coal project in Queensland state Surat Basin. 

· Xstrata owns 75% of the mine 

· The deal is aimed at splitting the development risk with a new strategic partner offering offtake rights to at least a fifth of the thermal coal produced. 

Other:

China approved a UBS-State Development & Investment Corp. JV for the first fund to engage in commodity futures trading through a managed account product, according to Bloomberg.

· SDIC is an investment company controlled by the Chinese government. 

· The product will only allow arbitrage trading between local commodity futures. 

ThyssenKrupp, the German steel and engineering group, recorded a worse-than-expected Q1 net loss of €480m versus a net profit of €101m in 2010 due to weaker steel demand in Europe, losses due to delays in the start up of a steel mill in Brazil and a goodwill charge at the marine systems unit.

· Total sales dropped by 2% yoy to €11.1bn in the three months ending Dec 2011 with EPS falling by €1.20 to a loss of €0.89. 

· The company recorded a €357m loss before interest and tax compared to a profit of €273m a year ago and analyst estimates for a €92m profit. 

· Last month, ThyssenKrupp agreed to sell its Inoxum stainless steel operations to Finland’s Outokumpu for €2.7bn. 

Company news:

Aurum Mining (LON;AUR)* – Drilling update for the El Facho structure of the Zamora project, Spain

· The company is progressing with a new 9 hole drill campaign aimed at identifying thicker gold mineralisation in the El Facho structure of its Zamora gold project through its joint venture with Ormonde Mining. 

· The programme follows on from previous drilling (9 holes) that encountered encouraging intersections (12m @ 3.4g/t). 

· Drilling is being performed over a strike length of 600m to test and expand the structure of El Facho. 

· Currently there are 2 drill rigs on the site. 

· 4 holes have been drilled so far for a total of more than 1,000m and the 2 holes are currently in progress. 

· Core samples of the first 2 holes have been sent to the laboratory and the assay results should be available shortly. 

· The company plans to spend around €450,000 on exploration activities performed by the JV by the end of Mar 2012 as part of its commitment to spend a total of €500,000 over an 18 month period to earn a majority stake in 2 permits in the Zamora province and 2 permits in the Salamanca province. 

· A short hole drill programme (3 holes) is also expected at the Peralonso permit area in the Salamanca Province where previous trenching returned promising results including an interval of 5 metres grading 5.4 g/t gold once approvals are received from the provincial administration. 

Conclusion: We are encouraged that the company is making good progress in Spain. We look forward to hearing the results of the drilling campaign in due course. 

*Fairfax act as nomad and broker to Aurum Mining

Minera IRL (LON:MIRL) – Results of feasibility study for the Don Nicolas Project in the Santa Cruz Province of Argentina. 

· Production targeted to commence in Q4 2013. 

· Some highlights of the study include: and IRR of 34.6% pre tax and 22.8% post tax, based on a gold price of $1,250, NPV@ 5% real of $44.7m pre tax and  $25.1m post tax. 

· The company is targeting a steady average of 52,400oz of gold a year and 56,000oz of silver per year.

· The mine life has been stated at 3.6 years. 

· The life of mine cash operating cost, of $528oz gold (post silver credit)

· At Martinetas, exploration potential with a planned 12,000m of RC drilling program scheduled to commence in March with the goal of significantly increasing the mine life. 

· The study to increase production by heap leaching will be due for completion by the second half of 2012. 

· Management are confident that the initial operation is only the starting point at Don Nicolas. 

· Initial focus will all be open pit but there may well be the opportunity to move underground in the future at the Sulfuro deposit. 

· The Environmental Impact Assessment is well advanced and should be completed in imminently. 

Conclusion: This is an important step for the company. We look forward to further news flow and progress from the drilling program as the project moves towards production.                                       

Mining this week: 

Ormonde Mining (LON:ORM) - Update on tungsten DFS and on copper and gold projects

Solomon Gold (LON:SOLG) – Drilling update on the Rannes Gold-Silver project in Queensland, Australia. 

African Minerals (LON:AMI) – Shandong Iron and Steel Group US$1.5bn investment in the Tonklili iron ore project is close to completion.