Gold $1,534/oz - prices smashed through our forecast and appear set to push higher

• Renewed concerns about Spanish sovereign debt
• Japanese Industrial Production forecast downgrades and S&P debt outlook downgraded to negative
• UK consumer confidence index plunged indicating the worst is not over.
• US and UK housing markets looking poor
• US Fed, ongoing stimulus, inflationary concerns and weaker dollar outlook is good for gold

The widening gap between gold mining equity valuations and the gold price must surely start to close as investors return from the extended Easter break.

• Silver prices have risen way beyond expectations and are now making a very meaningful contribution to many mines. This is raising valuations further for many gold and copper miners which produce silver as a by-product.

We recommend:

Shanta Gold* 33p - Target price 71p

Ampella Mining 225c - Target price 450c

Carbine Resources 31c

Discovery Metals* 85p - target price raised today to 1106p from 94p

Medusa Mining* 529p - target price 549p

Petropavolvsk 895p

* Fairfax acts as UK broker and Nomad to these stocks

ECONOMIC NEWS

Dow Jones Industrials +0.76% at 12,690.96

Nikkei 225 +1.63% at 9,849.74

HK Hang Seng -0.37% at 23,804.37

US - FED Chairman Ben Bernanke signalled yesterday that the central bank will maintain monetary stimulus, prompting fears that the dollar will be hit hard and struggle to recover.

• Policy makers yesterday cut the range of estimates for domestic growth in 2011 to 3.1%-3.3% from 3.4-3.9%.
• Additionally the Federal Reserve announced that it was raising its forecast for inflation for the year to between 2.1-2.8%. The new figure is higher than the original estimate of 2%

China - The World Bank has announced that the country's real-estate market is a "particular source of risk" to growth and that should the sector suffer a sustained dip the economy would be hit very hard. The warning comes as authorities told Chinese Banks to conduct more stress tests on their balance sheets.

• Credit Suisse has stated that China may raise interest rates again in early May.
• The National Bureau of statistics yesterday published figures that showed that rural to urban migration is still prevalent with the number of urban dwellers increasing to 665.6m

Japan - The BOJ unsurprisingly left interest rates at a range of 0-0.1% and maintained its US$366bn credit program in place.

• Figures released yesterday showed that the devastating earthquake and tsunami had more of an impact on production in the country than initial thought. Factory output fell 15.3% in March from February coupled with household spending falling 8.5%.
• The BOJ have also cut their growth estimates for the year ending March 2012 to 0.6% from the 1.6% originally estimated in January.
• S&P yesterday cut the outlook for the country's sovereign debt from "stable" to "negative" citing concerns that the rebuild costs in the aftermath of the earthquake last month may well put an additional burden on the country's debt.

UK - Figures released yesterday showed that the economy has not advanced over the last 6 months with growth stagnant at 0.5%.

• Figures released this morning show that UK consumer confidence slumped to its weakest in almost two years. The index of sentiment compiled by GFK NOP ltd fell to -31 in April from -28 in March.

Europe - Fears are re-emerging this morning that Spain is in the process of suffering a "relapse" with regard to its sovereign debt crisis as the cost of insuring the country's bonds rises to the highest level relative to company bonds in more than 3 months.

Germany - Government bonds have risen on the back of the comments made by the FED Open Market Committee that suggesting that growth in the US may well be less than originally forecast for the year.

Libya - As the attention of the world's media turns to London and the Royal Wedding, atrocities continue to unfold in Libya. The Defence Secretary Liam Fox yesterday indicated that British Troops could be deployed to the Libyan border to guard refugees fleeing the violence. It is estimated that close to 30,000 people have fled to Tunisia in the last week alone.

• Additionally David Cameron has reportedly not ruled out the possibility that Britain will participate in arming the rebels.

Namibia - Industry participants are worried that the country is moving towards nationalisation of mining companies as the country's cabinet last week approved proposals to declare uranium, copper, gold, zinc and coal strategic minerals and to give the state exclusive exploration and mining rights over them.

Currency - The dollar has fallen to its lowest level in two years against a basket of currencies as the Federal reserve pledged to maintain low interest rates and demand for higher yielding assets increased.

US$1.483/eur vs $1.467eur yesterday. Yen81.61/$ vs 81.83/$, SAr6.593$ vs 6.685/$ $1.666/GBP vs 1.645/GBP

COMMODITY NEWS

Precious metals:

Gold US$1,532/oz vs US$1,505/oz on yesterday - Prices have taken off today driven mainly by the comments yesterday from the FED and the subsequent inflationary concerns and dollar weakness. Additionally the raft of negative data from the re-emergence of sovereign debt fears for Spain, Japan economic outlook and consumer confidence falling in the UK is all helping drive the price.

• Credit Suisse is now forecasting that gold will hit US$1,650/oz within 12 months.
• The World Gold council has confirmed the widely held suspicion that central banks were net buyers of gold in Q1.
• Rising gold prices have helped Barrick gold beat profit estimates by 1% this year.

• SPDR gold trust holdings remain at 1,229t (39.534moz) current value US$59,716bn

Platinum US$1,822/oz vs US$1,806/oz yesterday -

Palladium US$768/oz vs US$754/oz yesterday -

Silver US$48.25/oz vs US$45.42/oz yesterday -

Rhodium US$2,275/oz

Base metals: The dollar weakness is helping metals prices today.

Copper US$9,446/t vs US$9,432t yesterday - Prices have moved up for the first time this week as the declining dollar encouraged buyers back into the market. However expectations that China will again raise interest rates next week could well rein in prices next week.

Aluminium US$2,775/t vs US$2,742/t yesterday - Prices have moved up to the highest level in over 2.5yrs.

Nickel US$26,938t vs US$26,484/t yesterday -

Zinc US$2,282/t vs US$2,254/t yesterday -

• Bar Cap has forecast that Zinc could decline by more than 5% in the coming weeks as supply comfortably outstrips demand.

Lead US$2,532/t vs US$2,539/t yesterday -

Tin US$32,375/t vs US$32,450/t yesterday -

Energy:

Oil US$125.65/bbl vs US$124.07/bbl yesterday - Prices are up slightly this morning as the comments by the FED improve demand prospects in the US.

• Demand in the US averaged 19.3m barrels over the past 4 weeks.
• As well as announcing that the FED would maintain stimulus, Bernanke also stated that he expects oil prices to stabilise and aid in the fight against inflation.

Natural Gas US$4.418/mmbut vs US$4.390/mmbtu -

Uranium US$55.50 vs US$57.25 last week -

Coal - Macarthur coal ltd, has lifted force majeure and won record prices from customers on the back of the problems caused by the excessive flooding in Australia at the start of the year.

Other:

Iron Ore - Mauritania reportedly produced 1.11mt of iron ore last year according to ministry officials

COMPANY NEWS

Discovery Metals* (DME LN) 85p mkt cap £372m - Zeta drilling shows strong core of high grade copper/silver

BUY Target price raised to - 106p from 94p

• Infill drilling of the ground at the Zeta copper project in Botswana show mineralisation of generally >1% copper with some sections reported at 2.4% and 2.8% over 5m and 4m intersections.
• Underground mining should be helped by the evaluation that the average, drilled, thickness of the Zeta orbody is > 10m thick below the planned open pit. A high grade core appears to around 6m in thickness adding to the likely economic value of the underground mine plan.
• Thirty holes have now intersected the high grade core where grade averages around 2.1% copper. This is better than we expected and feels like positive news for investors.
• Importantly, the drilling appears to verify the scoping study published on 29 March.
• Results from the 18 holes published complete the 54 hole infill drilling program at Zeta, part of the Boseto mining development program.
• Figure 2 and Figure 3 within the press release show the placement of the drill holes along with the intersection of mineralisation against the planned pit outline. The drilling therefore gives an idea of the potential location of the underground operations and may serve to increase the scale of the open cast mine depending on the economics of the operation in future years.
• The results of this drilling may help management expand the current mine plan to 50,000tpa from the current mine plan of 36,000tpa. The identification of higher grade copper ore close to the pit shell may enable the increase of the production schedule relatively quickly again depending on the economics of the mining of this material.
• 'Mining Plus' consultants are now working on the definitive feasibility study for the underground mine which is planned to start production in the third year of operation.
• The underground mine should start just below the bottom of the open pit at between 200-300m depth.
• The Zeta and surrounding projects are developing well and should lead to further resource upgrades over the next few months and to upward revision of the production rate and potential of the Boseto copper mine.
• Target price rise: our target price is raised due to the positive impact of currency movements. The identification of positive drilling results also lead us to forecast better share price performance ahead.
• Investors should note that 1moz of silver is now worth $48m. Increasing our long term silver price assumption of $19/oz to $48/oz adds 20p to our valuation and adds an average of $18mpa to our operating cash flow forecasts.

Conclusion: The identification of the high grade core and of consistent copper grades and mineralisation below the Zeta open pit is good news for Discovery and suggests that copper production could rise substantially from the current 36,000 copper (+ 1mozpa silver) in concentrate production plan. Increasing the mine production rate and potential grade throughput in future years could lead to a significant rise in the company valuation.

Source: Company data, Fairfax estimates

* Fairfax acts as a UK nomad and broker to Discovery Metals.

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

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

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

Corporate - Buy - TP - 549p

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

DISCLAIMER - Non Independent Research

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

DISCLAIMER

This note has been issued by Fairfax I.S. PLC in order to promote its investment services.

This information is a marketing communication for the purpose of the European Markets in Financial Instruments Directive (MiFID) and FSA's Rules. It has not been prepared in accordance with the legal requirements designed to promote the independence or objectivity of investment research.

This document is not based upon detailed analysis by Fairfax of any market; issuer or security named herein and does not constitute a formal research recommendation, either expressly or otherwise.

The value of investments contained herein may go up or down. Where investment is made in currencies other than the base currency of the investment, movements in exchange rates will have an effect on the value, either favourable or unfavourable. Securities issued in emerging markets are typically subject to greater volatility and risk of loss.

This [note] is confidential and is being supplied to you solely for your information and may not be reproduced, redistributed or passed on, directly or indirectly, to any other person or published in whole or in part, for any purpose.

Neither the information nor the opinions expressed herein constitutes, or is to be construed as, an offer or invitation or other solicitation or recommendation to buy or sell investments. This information is for the sole use of Eligible Counterparties and Professional Customers only and is not intended for Retail Clients, as defined by the rules of the Financial Services Authority ("FSA") and subject to Fairfax's Terms of Business as published or communicated to clients from time to time.

It is not investment advice and does not take into account the investment objectives and policies, financial position or portfolio composition of any recipient. This document should not to be relied upon as authoritative or taken in substitution for the exercise of you own commercial judgment. Fairfax I.S. PLC is not responsible for any errors, omissions or for the results obtained from the use of the information in this document.

This document has been prepared on the basis of economic data, trading patterns, actual market news and events, and is only valid on the date of publication. Fairfax does not make any guarantee, representation or warranty, (either expressly or implied), as to the factual accuracy, completeness, or sufficiency of information contained herein. This document has been prepared by the author based upon information sources believed to be reliable and prepared in good faith.

Fairfax's officers, directors and employees may own or have positions in any investment(s) mentioned herein or related thereto and may, from time to time add to, or dispose of, any such investment(s).

Fairfax I.S. PLC is a company registered in England and Wales with company number 5496355 and whose registered office address is 7, Queen Street, Mayfair, London W1J 5PB. Fairfax I.S. PLC is authorised and regulated by the Financial Services Authority whose address is 25, The North Colonnade, Canary Wharf, London E14 5HS and is a Member of the London Stock Exchange plc.

Source: FAIRFAX I.S. PLC