Gold $1,507/oz prices continue to push ahead

• Gold is forming a new firm level above $1,500/oz.
• Debt level and currency concerns appear to be the principal short term drivers
• An ongoing supply / demand imbalance underpins the market as good demand for gold jewellery and investment bars and coins in Asia outweighs mine supply.
• In the absence of net selling bb central banks then the market looks likely to continue to raise prices further to meet physical demand growth.
• The key drivers for the gold price appear to remain in tact and prices look like they should rise through the rest of this year.

We think the Prime Minster deserves a pat on the back for stating the blindingly obvious early this week with regard to his predecessor's potential new role with the IMF:

"You have someone who didn't think we had a debt problem in the UK, when we self-evidently do, they might not be the best person to work out whether other countries around the world have a debt and deficit problem". - Bravo!

Happy Easter

ECONOMIC NEWS

Dow Jones Industrials +1.52% at 12,453.54

Nikkei 225 +0.82% at 9,685.77

HK Hang Seng +1.04% at 24,144.65

China - The Ministry of Industry and Information Technology has announced that China may halt new electrolytic aluminium projects and close down close to 2000 companies across 18 industries as a result of overcapacity and pollution.

• Unofficial figures reported this morning suggest that Chinese consumer confidence rose in the first three months of 2011.
• The country's finance minister announced yesterday a plan to redistribute the wealth created by years of powerful growth, in an attempt to reduce the disproportionate wealth gap through out the country. The plan will centre around raising average wages in certain areas of the country and income tax for the those earning the most.
• The overnight money-market rate has increased the most in 3 months as bank reserve-requirement ratio came effective today, impacting liquidity in the market.

US - The dollar fell to a 15 months low against the euro as a raft of positive company results in the US boosted speculation that country's economic recovery remains on track and as a result improved demand for higher yielding assets.

Germany - Concerns are emerging this morning over business confidence in the country. Figures released this morning showed a marginal fall in confidence suggesting that domestic recovery in consumer demand may continue to lag improving export demand in the coming months.

South Africa - Eskom plans to spend SAr800bn (US$118bn) by 2018 to help meet rising power demand that is expected to remain tight until 2015 when two new power plants are to come on stream.

Mongolia - Country plans to increase the scale of its rail network by 4x is expected to have a major impact on coal, copper and rare earth sales to Japan and south Korea reducing the reliance on China.

Australia - Prime Minister Gillard has pledged to supply Japan with a steady supply of rare earths and natural gas vowing to become the country's major supplier over the coming years.

Ivory Coast - Hopes that fighting in the country would come to a swift end appear to have evaporated with reports emerging that the military forces of new President Ouattara continue to pursue and clash with militia loyal to former President Laurent Gbagbo. The regional and historic North south divide in the country could mean that a resolution will be hard to find.

US$1.463/eur vs $1.442eur yesterday. Yen82.04/$ vs 82.85/$, SAr6.749$ vs 6.785/$ $1.650/GBP vs 1.637/GBP

COMMODITY NEWS

Precious metals:

Gold US$1,507/oz vs US$1,501/oz on yesterday - Prices are up this morning as the dollar weakens and investors sought to gold to preserve value.

• SPDR gold trust holdings fall slightly to 1,230t (39.553moz) from 1,231t (39.582moz) current value US$58,940bn

Platinum US$1,810/oz vs US$1,789/oz yesterday -

• Anglo American, has stated that first quarter platinum production climbed 19%.

Palladium US$767/oz vs US$747/oz yesterday -

Silver US$45.92/oz vs US$44.35/oz yesterday -

Rhodium US$2,325/oz

Base metals:

Copper US$9,610/t vs US$9,450t yesterday - Prices are relatively flat this morning as investors lock in recent gains ahead of the holiday period.

• Reports are emerging that Chinese warehouses have an ample supply of copper suggesting that prices may fall back slightly over the coming weeks. Bloomberg is reporting that there is around 550,000t of copper in Chinese bonded warehouses.
• Anglo American have announced that the devastating flooding in Australia lead to copper production falling 14% in Q1.

Aluminium US$2,449/t vs US$2,780/t yesterday -

Nickel US$26,628t vs US$25,825/t yesterday -

Zinc US$2,358/t vs US$2,355/t yesterday -

Lead US$2,618/t vs US$2,597/t yesterday -

Tin US$32,950/t vs US$32,950/t yesterday -

Energy:

Oil US$124.43/bbl vs US$122.07/bbl yesterday - Prices have moved up again today on the back of the improving outlook in the US for companies stoking prospects that demand will improve.

Natural Gas US$4.338/mmbut vs US$4.295/mmbtu -

Uranium US$57.25 vs US$58.00 last week -

COMPANY NEWS

African Eagle (AFE LN) 10.88p mkt cap £44.5m - Preliminary results to December

• Preliminary results to December outline a year of significant progress in advancing the company's flagship Dutwa project with the resource now at 98.6mt at 0.93% Ni with 46.2mt at 0.93% in the indicated category (JORC).
• Prefeasibility work is on track for Q3 this year that will lead into a BFS. Work thus far outlines a tank leach project at a cash cost of 337c/lb for a capital cost of US$600m producing over 23ktpa of nickel in concentrate over a 25 year mine life. Increasing mine throughput from 3mtpa to 5mtpa would reduce cash costs to 330c/lb and nickel in concentrate to over 36ktpa over a 17 year mine life with a capex of US$840m. These numbers are early stage with considerable work yet to go to firm them up but the results are encouraging.
• The company also has the Zanzui complex that could add to output which management estimates could contain 20mt at 1% Ni. The target is around 60km southwest of Dutwa.
• Management continues to divest the group of non-core assets with the copper assets in Zambia taking longer than expected as the team does not wish to sell it off cheaply.
• In September last year the company raised £3.3m at 3.75p and has since followed this with a £3.7m placing at 15.5p to continue work at Dutwa. At the end of December the company had cash of £3.2m.

Conclusion: The company's share price has drifted back over recent weeks, however, we look forward to updates on progress at Dutwa that would give more confidence in the project and add value.

Firestone Diamonds (FDI LN) 30p mkt cap £97m - Diamond sales return high prices

• The first diamond sale of 2011 has been completed with sales from both Liquobong and BK11 mines which have returned good results form the company.
• 4,850 carats were sold from the Liqhobong main and satellite pipes selling for an average of US$181/carat up 85% from December with larger stones picking up values, although small diamonds, cape yellows and browns saw prices increase 50% over the period. Ore being mined is averaging 34cpht and operating margins are forecast by management to come to over 60%.
• 2,241 carats were sold from BK11 for an average price of US$230/carat up 30% since December 2010. Although excluding diamonds held from 2010 run of mine production averaged US$202/carat up 14% since December. The average stone size is expected to increase in the near future as this quarter the company plans to install new secondary crushing.

Conclusion: These are good results for Firestone Diamonds and demonstrate the robustness of the diamond market which is of note as investors have raised concerns over the impact of the Japanese earthquake on the diamond market. We look towards news on BK11 which is likely to be struggling economically until diamond yields are in line with plan that should be resolved with the new secondary crushing circuit.

ATH Resources (ATH LN) 58.5p mkt cap £23m - Profits warning

• A pre-close trading update outlines a profit warning for the group that has struggled with weather conditions, particularly in Q1 as well as cost pressures from rising oil and gas costs.
• In addition problems at Glenmuckloch continue to impact output with management re-assessing remaining reserves that is likely to lead to a right down of deferred stripping costs of around £2m as the asset is likely to be completed mined out by Autumn.
• Some of the cost pressures from higher oil and gas prices have been mitigated through hedges and the company continues to do this. The weaker sterling will have exacerbated the impact of these costs and with a large portion of output on fixed pre-agreed prices the company is unable to fully benefit from the globally strong coal prices. Although the company is trying complete these lower priced legacy contracts that hold back earnings.
• On a more positive note, management indicated that it is making good progress opening up its new Netherton site and has invested £8m into the asset which is to be the corner stone of future production relegating its historical base in Ayrshire to a secondary position. However, even then the company continues to struggle to boost resources and reserves beyond a few years and this would be one of the best ways to enhance value. The company guides to 1.8mt of sales for this year

Conclusion: This beleaguered UK coal producer continues to struggle with numerous issues and just can't seem to get clear of problems which appear relentless. Most of all and particularly in light of the right down at Glenmuckloch we are concerned over resources and reserves which have always been an issue, and the need to find additional resources grows to ensure the company has a future. In light of the right down, cost pressures and legacy contracts this year will probably end up being a loss or relatively marginal, we'll see what happens to the dividend.

Petropavlovsk (POG LN) 920p, mkt cap £1,729m - Q1 production rises with production from new Malomir mine

BUY (target price under review)

• Petropavlovsk has brought forward its Q1 production figures to arrest the erosion of its stock price in a soft market for equities.
• Gold production is far ahead of expectations for April with Pokrovskiy exceeding management's production estimates by 47% and Pioneer by 14%.
• Costa are also falling and appear again better than management guidance which is now looking to be overly cautious accoutring to the last analyst and investor meeting.
• We are very pleased to see the business performing well after so many delays and frustrations last year. At long last POGs might fly.
• Management today reports Q1 gold production of 75.4k ozs of gold versus 65.6k ozs yoy
• The increase is almost exclusively due to the commissioning of the new Malomir gold mine.
• Pioneer increased its gold production year on year due to a substantial increase in plant throughput counteracting lower grades processed. The Pioneer production figure does not include gold mined last year but not available for sale in 2010.
• Gold sold increased to 124.1koz from 68koz in Q1 last year. The figure is artificially boosted by some very high grade mined at the end of Q4 2010 but not fully processed last year and was not available for sale. This gold was recorded as sold at cost in the 2010 accounts and will incur a significant uplift of around $650-700 per oz.
• This additional gold sold add around $33m to our forecast of Q1 production sold of around $105m to give a Q1 sales forecast of $138m.
• Malomir is said to be on schedule for commissioning in Q3 this year.
• Pioneer sees the discovery of yet another high grade ore column. These columns and their discovery is particularly important for the pioneer gold mine which has expanded throughput in an attempt to maintain gold production levels but which needs feed from higher grade columns to maintain its high gold production levels. In reality each of these higher grade columns equates to significant additional gold production at elevated margins. The ongoing discovery of these columns indicates that the mine could maintain elevated production rates, albeit on a slightly lumpy basis for many years to come. The company will update the Pioneer resource with the IMS later this year.
• Pokrovskiy saw gold production fall to 17.9koz from 29.8koz due to the impact of the
• IRC: is ramping up fast and recorded a 52% increase to 177kt in iron ore production qoq. Also trial shipments of ilmenite were undertaken. The giant K&S iron ore project is said to be on track for commissioning in 2013. IRC now has a market capitalisation of $966m.
• Omchak the alluvial mining joint venture may be sold and a non-binding heads of agreement has been signed with this respect.

Conclusion: It has taken along time for POGs to get to a state whereby production and costs are now better than management expectations. This is mainly due to the delivery of larger scale equipment which is able to make up for lower grades. Costs should now fall below recent cautious management guidance and access to better grades this year should serve to boost production further.

Mining this week:

Kenmare Resources (KMR LN) 49.6p mkt cap £1,192m - Preliminary results to December

Blackthorn Resources (BTR LN) 62.5Ac mkt cap A$66.8m - Update on enhancement work at Perkoa

Stellar Diamonds (STEL LN) 8.38p mkt cap £18m - Bulk sample results from Tongo

Cluff Gold (CLF LN) 97.5p mkt cap £128m - Events in Burkina not affecting operations

Aureus⁺ Mining (AUE LN) 97.5p mkt cap £84m - Progress update plus positive drilling results

European Nickel (ENK LN) 14.75p mkt cap £39m - Operational update

EMED MINING * (EMED LN) 16p mkt cap £110m - Progress on Rio Tinto copper mine project closer to restart

Discovery Metals* (DME LN) 79p mkt cap £213m - Report highlights mine construction & exploration progress

BUY Target price - 94p

Triple Plate Junction (TPJ LN) 8p, mkt cap £24m- Newcrest upgrades Wafi to 40moz target + 15mt contained copper

Gem Diamonds (GEMD LN) 264p mkt cap £365m - Interim management statement

Exco Resources (EXC LN) A$0.685 mkt cap A$237m - Xstrata to acquire Cloncurry Copper project for A$175m

Nyota Minerals (NYO LN) 14.75p mkt cap £77m - Richard Chase to become CEO

IFM (IFL LN) 27p, mkt cap £152m - ferrochrome production rises as prices gain pace

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