Gold $1,505/oz - prices still holding steady

• Gold prices are holding steady but will surely see some profit taking following their strong run from $1386/oz six weeks ago.
• Ongoing conflict in Lybia, Syria and potential for further conflict in The Yemen etc.. lifts political uncertainty.
• US dollar continues to weaken versus the Euro making Europe increasingly expensive.
• Further falls in US house prices may prompt the US Fed to maintain low rates for longer to give a better foundation to the economic recovery. Many US states appear far from financial stability.
• China may continue to raise rates but this will provide fresh pressure on the yuan / dollar currency rate
• Expect gold to establish a new range of $1,425/oz to over $1,525/oz.

ECONOMIC NEWS

Dow Jones Industrials +0.93% at 12,595.37

Nikkei 225 +1.39% at 9,691.84

HK Hang Seng -0.65% at 23,847.70

China - A looming shortage of electricity has meant that the country's biggest operator, State Grid Corp, is planning to limit supply to businesses operating in the province of Jiangsu.

• Premier Wen has started a 4 day tour around south Asia today in an attempt to try and spur investment from China's southern neighbours.
• The chemical Shanghai Synica has announced that it aims to raise US$221.21m to fund the acquisition of Shanghai Pengxin Mineral Industry Investment corp which holds the rights to the Shituru copper mine in the DRC.
• China - Chinese authorities move to end the truck strike which has blocked roads and ports. The authorities are reported to have offered fee and toll reductions

US - Expectations before a report due for release later today are that durable goods orders rose in March for the second time in 3 months.

• A report compiled by S&P and Case-Shiller has highlighted the problems still facing the Housing market in the US. Home prices in February fell to their lowest level since 2009 as soaring levels of foreclosures weighed on the market. Prices for family homes in the 20 largest cities fell 0.2% from January to February.
• On the positive side, the Index of Consumer Confidence rose to 65.4 this month from 63.8 in March. Previously it hit a 3 year high of 72 in February.
• Dallas Fed Manufacturing Activity falls unexpectedly to 10.5 in April vs 11.5 in March

• March new home sales rise 11.1% to 300k vs 13.5% in February at 270k
• US consumer confidence 65.4 in April vs 63.4 in March
• Richmond Fed manufacturing index slipped to 10 for April vs 20.0 March

Hong Kong - Rising food prices are leading to forecasts that Hong Kong's inflation rate will surpass economic growth this year. The island's consumer price index climbed to 3.97% yoy.

Japan - S&P have cut Japan's sovereign-rating outlook to negative as the reconstruction burden will likely add to the country's sizable debt problems.

• Unsurprisingly retail sales figures released today show the largest decline in 13 years last month as a result of the devastating earthquake and tsunami last month.
• Nationwide Department Store sales fell 14.7% in March yoy

Australia - Consumer prices gained at the fastest pace in 5 years last quarter. The CPI rose 1.6% from the previous 3 months boosting expectations that the central bank will resume rate rises.

UK - Forecasts ahead of figures due to be released later today suggest that Britain's economy grew 0.5% in Q1 2011.

• CBI business optimism for April at 9.0 vs 7.0 for March

Nigeria - The final stage of the Presidential elections has been marred with violence and poll workers fleeing for their lives as riots and violent clashes continue in many parts of the country.

Ivory Coast - The country's new President Alassane Ouattara has announced that an investigation has begun into alleged crimes committed by his predecessor Laurent Gbagbo and his associates.

Currency - The doll dropped to a 16 month low against the euro as speculation mounted that the FED may well consider further easing and possibly a whole new program of QE3. Additionally the Aussie dollar moved to a record on the back of the soaring CPI data.

US$1.467/eur vs $1.459eur yesterday. Yen81.83/$ vs 81.72/$, SAr6.658$ vs 6.734/$ $1.645/GBP vs 1.651/GBP

COMODITY NEWS

Precious metals:

Gold US$1,505/oz vs US$1,503/oz on yesterday - A declining dollar is supporting the gold price this morning.

• Underground work has resumed at Freeport McMoran's Grasberg mine in Indonesia following the accident last week that left one worker dead.

• SPDR gold trust holdings remain at 1,229t (39.534moz) current value US$59,183bn

Platinum US$1,806/oz vs US$1,808/oz yesterday -

Palladium US$754/oz vs US$754/oz yesterday -

Silver US$45.42/oz vs US$45.60/oz yesterday -Prices are off slightly this morning and may come back further as investors lock in recent gains.

Rhodium US$2,325/oz

Base metals:

Copper US$9,432/t vs US$9,465t yesterday - Prices are off this morning as supplies in China outstrip demand.

• China has announced plans to limit blister copper smelting production under 100,000t/year (Dow Jones)

Aluminium US$2,742/t vs US$2,736/t yesterday -

Nickel US$26,484t vs US$26,171/t yesterday - BNP have estimated that Nickel supplies will lag behind demand by 30,000t up from their initial estimate of 20,000t

• Russia has announced plans to tax nickel exports based on LME prices.

Zinc US$2,254/t vs US$2,268/t yesterday -

• China To Limit Zinc Smelting Projects Under 100,000tpa (Dow Jones)

Lead US$2,539/t vs US$2,527/t yesterday -

Tin US$32,450/t vs US$32,450/t yesterday -

Energy:

Oil US$124.07/bbl vs US$123.51/bbl yesterday - Prices are off this morning for the third day as speculation increases that inventories in the US are rising suggesting demand is falling.

Natural Gas US$4.390/mmbut vs US$4.365/mmbtu - Reports are emerging that unidentified attackers have attacked a facility at a pipeline that transports gas from Egypt to Israel and Jordan. Authorities have suspended operations.

Uranium US$55.50 vs US$57.25 last week -

Coal - Coal India has announced that it is not considering cutting prices after some customers protested against recent rises.

Other:

Iron Ore - In Asia the market is experiencing an increase in supply as a result of the ban of exports from the state of Karnataka being lifted last week by authorities in India.

• China Development Bank has announced that it has signed a US$600m loan deal with Aussie Iron Ore Miner Gindalbie Metals. The loan will be used to finance and advance a join venture with Karara Mining in Western Australia.

COMPANY NEWS

Highland Gold (HGM LN) - pretax profits rise to $144m vs $87m

• Highland Gold is now showing the impact of new owners and new management
• The company which part owned by Millhouse an Abramovich vehicle and has raised gold production and sales while maintaining cash costs at the key MNV gold mining operation.
• Gold production rose to 200,028oz versus 163,208/oz
• Cash costs at MNV came in at $496/oz vs $486/oz.
• Novo continued to ramp up production with costs falling $579/oz.
• Cash and equivalents $222m. The company is debt free following the early repayment of $66m last year.
• Belaya Gora
• Unkurtash, Kyrgystan C1 + C2 reserves now at 1.71moz. Mgt will spend $20m this year on Unkurtash.

Conclusion: Highland Gold appears to be progressing well with costs under control as production rises. The challenge is now to ensure longer term production and profit growth from the new projects in progress.

Medusa Mining* (MML LN) 526p mkt cap £976m - Quarterly update demonstrates continued robust performance

Corporate - Buy - TP - 549p

• Medusa's quarterly update to March shows production of 25,114oz at a cash cost of US$191/oz in line with previous quarters and management guidance. The company continues to make considerable progress at the Co-O mine in terms of exploration and development, as well as advancing plans for the expansion to 200,000ozpa. The company ended the quarter with US$92.4m in cash and bullion, more than enough to fund the company's expansion and follows the pay out to shareholders of 5Ac/share.
• Co-O - Gold production came from the milling of 72kt of ore at a grade of 11.58g/t Au with a recovery rate holding at a steady 94%. The company sold 25,911oz gold over the period at an average price of US$1,401/oz generating significant cash.
• Mine development continues a pace with progress made across many fronts including developing the important Saga Sahft and accelerating development to 800m per month from 500m per month in the mine to meet with the shaft development. Development is extending to depth and will be in place to support longer term expansion and mine life. With production continuing uninterrupted the company has surface stockpiles of 7kt and underground broken ore at 55kt.
• The mill expansion of the current processing plant is expected to be completed in late May which will increase leaching capacity to 1,000tpd, with expansion and upgrading of the gold room for this month. This will allow potential production of 120-130kozpa of gold output subject to grade (we model 125kozpa over the next two years).
• The expansion to 200,000ozpa is progressing with permitting in progress that is expected to be complete by late September. We do not anticipate any major issues with this as the company is an established producer in the region and has been operating for a number of years. Arccon has been contracted for the process engineering, plant design and construction supervision for the 750ktpa plant. Following permiting approvals, management expect construction time to take 21 months with full benefits to come through mid 2013.
• To support the growing production base considerable exploration is underway with success demonstrated from recent drilling results which have identified a new exceptionally wide high grade section from underground drilling. Two rigs are actively exploring on surface and four underground. Co-O regional drilling is also being undertaken aggressively with four rigs active in conjunction with trenching.
• Other Exploration - Medusa maintains its aggressive exploration programme across its numerous exploration targets within the company's highly prospective tenement package. Six rigs are drilling at the 650,000oz Bananghilig resource with the aim of delineating sufficient resources to support a 200,000ozpa mine from a lower grade large tonnage disseminated ore body. Three rigs are also active at the Saugon project which looks exciting with results having shown the presence of a range of metals and in particular gold. The company also has other targets to progress such as the Usa and Lingig copper porphryries and narrow gold viens at Anoling.
• Valuation - We value Medusa at maintain our valuation of Medusa at 549p/share. Our gold price assumption uses an average of 1,370/oz for this financial year (ends in June) then US$1,500/oz next year falling to US$1,000/oz by 2016. We have assumed that the expansion to 200,000ozpa takes place over 2014 with production at 125,000oz next year and the following year. We've assumed cash costs of US$210/oz for the expanded operation and capital cost of US$86m for the expansion, as well as sustaining capital at the mine of US$8mpa and US$2mpa on plant and equipment. As Medusa is an established dividend paying gold producer we have applied a 75% premium to the NPV of the Co-O mine (8% discount rate), we would look to raise this premium as details on the expansion plans firm up. To add to the value of Co-O we have also included US$52m for exploration (includes 650,000oz Bananghilig resource), year end cash and bullion holdings that total US$92.4m. Cash generation from Co-O should be more than ample to fund the expansion programme.

Conclusion: The Co-O mine continues to deliver to plan as management keep operations running smoothly and deliver on promises. The growing cash pile being generated ensures that the active programme of development, expansion and exploration across numerous targets are well funded and can be advanced in the appropriate manner. We see further value generation to come from the exciting exploration portfolio, the expansion of Co-O and work that should expand the resource base and extend the mine life. Medusa provides an excellent means for investors to get exposure to gold with a low risk, high margin established asset funding future activities.

* Fairfax acts as advisor to Medusa Mining

Kenmare Resources (KMR LN) 45.43p mkt cap £1,092m - Workers strike forces company to suspend operations at its Moma Mine.

• Workers have staged an "unofficial" strike during annual wage negotiations.
• Company has announced that officials from the Ministry of Mines are now involved to try and bring a swift resolution to the dispute.

Mining this week:

Anglo Asian (AAZ LN) 63.5p, mkt cap £73m- Extension of lease at Ordubad

Equinox (EQN TO) - A$8.36, mkt cap A$7.34bn - Barrick Gold outweighs Minmetals offer with C$8.15/s bid

Rio Tinto (RIO LN) 4,402p mkt cap £90,309m - New agreement signed with Government of Guinea

Hochschild (HOC LN) 630p mkt cap £2,129m - Industrial action at San Jose

Rambler Metals (RMM LN) 36p mkt cap £35m - Production approval received

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