Where next

• The global economy appears largely immune to the disasters and financial shocks seen so far this year
• The great powerhouses of the US, China continue to show economic growth and the disaster in Japan is seen as galvanising demand and only temporarily slowing GDP in the region.
• While disruption of some component manufacturers is an issue, this is seen as creating opportunity elsewhere.
• We had expected base metals prices to pull back a further 10% but traders forecast new demand for reconstruction and stocks of available metals are steadfastly expensive to buy.
• Lost production in Japan, just-in-time systems and the need to buy on market is holding prices higher in a market which was already supported by investment fund flows.
• US, Chinese, Korean and other growth and a need to replenish stocks as manufacturers take orders is driving new demand growth in many areas.
• China is increasingly playing hard ball with key commodities in efforts to encourage companies to continue to invest in manufacturing facilities.
• This supports extraordinary margins across the mining industry and, barring the potential for another financial collapse should continue to reward shareholders in growth mining companies.

ECONOMIC NEWS

Dow Jones Industrials +0.67% at 12,279.01

Nikkei 225 +2.64% at 9,708.79

HK Hang Seng +1.62% at 23,434.62

US - Figures released yesterday show that US consumer confidence dropped more than forecast in March as fuel costs soared. According to the Conference Board the index fell to a 3 month low of 63.4 from 72 last month.

• Factory order figures are released tomorrow and expectation are that the figure will show a positive level of expansion.

China - PMI figures released on Friday. Expectations are for an expansion, implying that there are still reasons to be optimistic about growth prospects.

• Officials have stated that they intend to boost the development of the machinery industry in the country.

Japan - Figures released this morning show that industrial production in the country rose last month before the earthquake. Factory output climbed 0.4% from January suggesting that the economy was making considerable steps forward before the devasting earthquake.

• Goldman Sachs announced this week that it expects Japan's GDP to shrink next quarter with growth for the year from April coming in at 0.7% revised from 1.3%

South Korea - GDP rose 4.7% yoy in Q4 2010 versus 4.8% yoy in Q3 2010

UK - The British economy shrank less than forecast in the 4^th quarter as the Office for National Statistics announced that services and factory output figures had been revised higher. GDP fell 0.5% form the previous 3 months down from the initial estimate of 0.6%.

• Additionally, figures released yesterday showed that mortgage approvals rose 1.7% in February from January.
• Although a positive revision, the GDP figures are not expected to prompt the Bank of England into raising interest rates before the H2.

Europe - Standard and Poor's have downgraded both Portugal and Greece citing the potential impact of the proposed new bailout rules. For Portugal this is the second downgrade in the space of a week and moves the country to BBB-, 3 steps below Ireland.

• Consumer sentiment figures released later today are expected to show that confidence near a 3 year high.

Canada - Lundin Mining subject to a $4.3bn cash and stock takeover from Equinox is plans to seek alternate bids after ending a rival deal with Inmet as management have rejected the offer.

• According to reports, Lundin management also plan to block hostile bids by issuing shares should another party secure a block exceeding 20%, which seems like it shouldn't be allowed. A UK listed company would not be permitted to carry out such action as it would be viewed as a frustrating action.
• Other potential bidders could include Freeport MacMoRan, although now that Inmet is out of the picture, Lundin will find defending harder.

Ireland - Stress tests tomorrow on the nation's banks are raising expectations that the Irish Government will be forced to take controlling stakes in the Bank of Ireland Plc, Irish Life and Permanent Plc.

Colombia - The Colombian Government has refused Canadian Miner Greystar Resources permission to further develop plans for a mine in the Santurban Paramo region with officials stating that any mining activity in the region has been ruled out completely.

Zimbabwe - As the market digests the prospects of the Indigenization rules, reports are emerging from local media that the government are starting to look for funds to finance the purchases.

• Local miners see the latest move gazetting the indigenisation proposals as poorly presented, open to cronyism and abuse, a repeat of proposals set in Feburary 2010 and an invitation for individual negotiation.
• We are told that four of the five proposed vehicles for indigenisation are effective government agencies. ZMDC, the key government mining company, is also under UN sanction making it impossible for companies to work with.
• Either way, the 51% indigenisation proposal is unrealistic in the mining industry without the firm assurance of pro-rata capital contribution. The legislation is, in effect, bad for business, bad for jobs and bad for mining and bad for Zimbabwe.

Ivory Coast - Republican Forces loyal to internationally recognised winner of the disputed election Alassane Ouattara, have announced that they have successfully seized four towns as they continue to push south.

• To emphasis the lack of cohesion endemic in the country, the UN yesterday reported that the rebels fired a missile at a UN helicopter on a scouting mission in the north of the country. This action suggests that rebel groups are acting independently from Alassane Ouattara.
• Reuters is reporting that Rebels have announced their intentions to "seal the boarder" with Liberia to prevent incumbent President Laurent Gbagbo from recruiting fighters from the neighbouring country.
• The situation in the country is critical and it now appears that an effective state of civil war has developed with no immediate end in sight.

Currency - The Aussie dollar rose to the strongest level against the dollar since its free float in 1983 as the prospect of increasing global demand for commodities pushed the currency higher. The yen fell this morning against all of its major trading partners as global economic sentiment impoved.

US$1.408/eur vs $1.407eur yesterday. Yen83.09/$ vs 81.69/$ SAr6.84$ vs 6.86/$ $1.604GBP vs 1.598/GBP

COMMODITY NEWS

Precious metals:

Gold US$1,421/oz vs US$1,418/oz on yesterday -

• SPDR gold trust holdings remains at 1,211.84 (38.961moz) Current value US$55,208bn

Platinum US$1,750/oz vs US$1,742/oz yesterday -

Palladium US$759/oz vs US$744/oz yesterday -

Silver US$37.33/oz vs US$36.85/oz yesterday -

• According to the US Mint, sales of 1oz American Eagle coins declined last month as demand wanes.

Rhodium US$2,375/oz vs US$2,375/oz yesterday -

Diamonds - Bloomberg is reporting that Rio Tinto wants to grow its diamond business and is actively looking at Africa for investments.

Base metals:

Copper US$9,581/t vs US$9,489/t yesterday - Prices look flat this morning as the dollar strengthens and the market weighs up a slightly cautious Chinese outlook against a more optimistic outlook in the US and the need to replace lost production in Japan.

Aluminium US$2,646/t vs US$2,385/t yesterday -

• The US Commerce Department has imposed new duties on $503m of aluminum products imported from China. Final duties will range from 32.79% to 33.28% In addition anti-subsidy duties on the imports will be as much as 374.15%. The Chinese embassy stated that the duties were "unwelcome" and "not conducive to the health of our trading relations"

Nickel US$26,519/t vs US$26,160/t yesterday -

Zinc US$2,373/t vs US$2,334/t yesterday -

Lead US$2,679/t vs US$2,616/t yesterday -

Tin US$31,700/t vs US$31,099/t yesterday -

Energy:

Oil US$115.15/bbl vs US$114.90/bbl yesterday - Prices are off slightly this morning as that market estimates that stocks in the US are risings implying demand is waning.

Gas US$4.263/MMBTU vs US$4.434/MMBTU yesterday

Coking Coal - China reported to be facing a potential shortage of 56m tonnes this year. The shortage is largely due to the closure of key coking coal mines in Australia following flooding and cyclones.

Uranium US$60.00/lb vs US $60.00/lb last week - BHP has announced that it is progressing plans at Olympic Dam having answered over 4,000 public submissions on a range of issues, and is now at feasibility study phase.

• The company is now awaiting permission from the Commonwealth to publish its SEIS that will allow formal assessment of the projects by respective governments

• If BHP does go ahead with turning this mine into an open pit, then it will have a substantial impact on the uranium supply demand balance. There has been a lot of scepticism whether this phase of development will ever go ahead as it will cost billions of dollars (we hear of some estimates above US$20bn). The expanded mine would produce 750ktpa Cu over a 30 year mine life with associated uranium and gold by-products.
• Canadian government legislation requires that producers of uranium in the country must be majority owned by Canadians, limiting foreign ownership to 49%. Reports indicate that produce Paladin Energy anticipates that the restrictions will be loosened and shouldn't affect its Michelin development.

Other:

Steel - Interfax is reporting that China is developing plans to move a number of steel mills closer to resource hubs as part of the next five year plan in an effort to reduce steel production in urban areas and ease pollution concerns while increasing the distribution of production throughout the country.

Rare Earths - Russia is taking steps to gain a significant position in the market after agreeing to produce RE minerals in Kazakhstan. State controlled Rosatom, signed an agreement on rare earth cooperation with its Kazakh counterpart Kazatomprom according to Interfax.

• Lynas Corp has announced intentions to raise US$325m from investors as part of a plan to double production of REE. The company expects to become the lartgest producer of REE outside of China when it starts production at its 22,000ton a year plant in Malaysia.

Potash - Mosaic Corp is up against environmental groups in Florida over production a its South Fort Meade mine.

• The company is accursed of violating clean water requirements. An injunction has been issued by a Federal judge and the US Army Corps have been accused for issuing the permits. No wonder it is tough to get them to issue permits in other states.
• The case potentially jeopardises further expansion of the mine by a proposed 11,000 acres and highlights the difficulty of mining in the US.

Titanium dioxide - Sakai chemical TiO2 plant in Fukushima prefecture remains closed in Japan. Capacity 60,000tpa. A restart date is not yet known.

COMPANY NEWS

Firestone Diamonds (FDI LN) 30.5p mkt cap £98m - Operational progress

• Liqhobong: Firestone Diamonds has started mining at its recently secured Liqhobong Mine in Lesotho with production started ahead of schedule in February. The company reports that grades are in line with expectations with some more valuable stones recovered in the first 6 weeks of production. Work continues to expand with 0.65mtpa throughput to be achieved in Q2 and 1.3mtpa by year end. Grid power is expected to reach the plant by Q1 next year. Future plans are being accelerated to take capacity to 4.2mtpa with design work underway and start up anticipated in 2013.
• There have been some technical problems with the plant which the company hopes to solve in Q2. At 1.3mtpa management sees revenues of US$43mpa using an average price of US$98/carat as achieved in December. The expanded 4.2mtpa plan is expected to generate revenues of US$140mpa.
• BK11: In Botswana at the company's BK11 kimberlite, the pit has reached a depth of 30m and this quarter plant throughput reached 90% of target capacity of 1.5mtpa, however, crushing and scrubbing circuits have encountered technical problems leading to diamond liberation of 20-30%. Despite the problems, management appear optimistic of reaching 2011 targets. The mining fleet has capacity to move 30ktpd that allows stripping to keep pace with the mine.
• The minimum diamond liberation at BK11 was expected to be around 80% however harder than expected ore has led to the recovered grade of 2.5cpht. Plans to improve the performance are underway with a series of mobile crushing units being secured to process the oversized stockpile that should contain more diamonds. Some of the problems may be a consequence that the plant was not designed to treat BK11, it was an asset that was being previously being used to toll treat alluvials in South Africa (Bonte Koe). We hope that the upgrades will resolve these problems.
• Debt financing: The company has also secured a US$6m credit facility at 6.5% interest for 3 years from Standard Chartered for draw down from April. Discussions are underway with banks concerning a further debt facility to construct plant 2 at Liqhobong.
• Board Movements: COO Tim Wilkes has been promoted to CEO of the company, and previous CEO Philip Kenny is moving to the role of Executive Chairman.

Conclusion: Building and starting mines is tricky and is not known to happen without technical difficulties, the team have two mines to get into production simultaneously which will no doubt be keeping them busy. The fundamentals to the diamond market are strong, however the pressure will be on to ensure that the technical problems are solved quickly otherwise financing could rapidly become a problem with so much work in progress. We look forward to progress and hope the issues are rapidly resolved, although it appears that at Liqhobong the issues are less serious.

Hambledon Mining* (HMB LN) 4.13p mkt cap £21.35m - Drilling update from underground programme

• Underground drilling to validate the resources at Sekisovskoye from 8 holes totaling 1,700m have returned some broad intercepts at good grades, with highlighted results including: Hole D121 - 33m at 4.78 g/t Au, Hole D121 - 60.4m at 5.6 g/t Au, Hole D122 - 8m at 10.75 g/t Au, Hole D122 - 44m at 5.74 g/t Au, Hole D124 - 26.3m at 5.13 g/t Au, Hole D125 - 33m at 4.5g/t Au.
• The company is undertaking a 25,000m drill programme over an 18 month period. Following the completion of the underground decline below the existing 320m level (85m below current open pit), then an extension to the drill programme is planned.
• These latest holes have confirmed the resource geometry and current resource model as well as expanding the known dimensions and volume of zone 8 by 22% which forms one of the main zones identified.
• The Sekisovskoye deposit covers a plan area of 700x160m with steel northeasterly dips with rocks knwn to extend beyond 950m depth. Zones of mineralisation range in thickness from 0.35-30m averaging 2.2m with variable gold and silver content. In situ grades are expected to average 5-6g/t Au and 6-7g/t Ag, and for mining the company is expecting to feed the mill at 4.2g/t, well above the circa 1.2g/t currently being processed from the open pit.
• Golders Associates are undertaking a mine design and infrastructure study that will be used to update the reserves scheduled for an update in December.

* Fairfax acts as Nomad & Broker to Hambledon Mining

Central Rand Gold (CRND LN) 1.36p mkt cap £22m - Survival steps facing acid mine drainage

• Central Rand Gold announced yesterday that it has elected to suspend underground capital development from 30 April once an additional stoping reef has been reached with fewer double voids, if a clear and positive way forward to combat the rising water level is not identified by the end of this month.
• The company has ordered and paid Euro3.5m for submersible pumps with capacity of 72m litres of water per day versus the average daily increase of 55m litres per day which would allow for a lowering of the water table. The pumps would protect the 250m level if installed, however lack of clarity on water issues from the South African government is holding back the progress.
• If the problems are not resolved the company will sell the pumps and review its options.

Conclusion: Troubles continue for this beleaguered company with mining problems where unexpected voids have been found during developments, and the ever rising water that looks likely to render the underground unfeasible.

Perseus Mining (PRU AU) AUS$3.10 Mkt Cap, AUS$1313 - Early start up of Central Ashanti Gold Project in Ghana could push EBITDA up to US$300 a years by 2013-14 according to the company.

Mining this week:

Sable Mining (SBLM LN) 23.5p mkt cap £217m - Results from Lubu indicate coking coal potential

Triple Plate Junction (TPJ LN) 6.5p, mkt cap £19m - Long gold intersection in PNG

European Nickel (ENK LN) 15.38p mkt cap £40.28m - Operational update

Fortescue Metals (FMG AX) - considering listing in Hong Kong

Mount Burgess Mining (MTB AX) - 15.5c, mkt cap A$6m - Copper cobalt anomaly defined at Tsumkwe, Namibia

Rio Tinto (RIO LN) 4,279p mkt cap £87,802m - Bid for Riversdale declared unconditional

Baobab Resources* (BAO LN) 39p mkt cap £64.8m - 3.5km magnetic anomaly may add substantially to resources

Horizonte Minerals (HZM LN) 20.5p mkt cap £57.3m - Drilling update from Araguaia returns high grades

⁺Fairfax employees may have previously held, or currently hold, shares in the companies mentioned in this note.

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