Gold $1,542/oz - prices continue to post gains as financial crisis rumbles on

• Gold prices pull back from new all-time high of $1,568/oz seen yesterday.
• Eike Batista, chairman of EBX Group in Brazil forecasts gold will hit $2,500/oz. EBX bought Ventana Gold in March.
• India's rate hike this morning may prompt some margin selling in gold but looks likely to justify investors purchases of gold for protection against rising inflation in developing economies.

Discount between gold prices and gold equities continues to rise as equity markets continue to lag the physical market and political fears prompt selling in low volume markets

ECONOMIC NEWS

Dow Jones Industrials -0.02% at 12,807.36

Nikkei 225 +1.57% at 10,004.20

HK Hang Seng -0.37% at 23,633.25

US - The US has announced that it will have 3 weeks more than originally thought before breaching its borrowing limit allowing more time for authorities to raise the debt ceiling.

• A survey of banks has shown that demand for US mortgages is still falling regardless of an easing in lending conditions.

Pimco ceo warns on potential for new US housing crisis

• Decline in house prices and market activity due to restrictions on mortgage borrowing
• Higher oil prices sap cash out of market and raise inflation prospects

India - REPO rate rises by 50bp to 7.25% a sharper rise than expected sending Indian equities sharply lower

• Wholesale inflation rate for March rises to nearly 9% from 8.3% in February

• The Central Bank had indicated that rate rises were imminent citing inflationary risks increasing as a result of soaring commodity prices.

China - Manufacturing growth slowed last month according to figures released by the Logistics Federation and the Statistics Bureau. The PMI was at 52.9 last month compared to 53.4 in March.

• In the face of continued Government action, figures released this morning show that home prices rose for the 8^th consecutive month in April according to industry participants. The figures will re-affirm sentiment that authorities will continue to impose further curbs in the near future.
• Local media is reporting that the country may face a nationwide power shortage over the next couple of years as the number of coal fired generators being built stalls.

UK - Manufacturing figures will be announced at 09.30. Expectations ahead of the report suggest that figures declined in April from March.

Europe - Figures released yesterday showed that increasing output in Germany and France pushed manufacturing expansion up to a faster pace than forecast last month.

Burkina Faso - Reports are emerging that opposition parties are calling for the long serving President Blaise Compaore to step down as soldiers, police and civilians take to the street in demonstrations and peaceful protests over poor living conditions and rising food and fuel costs.

Chile - According to the country's finance minister, a plan will be proposed to congress that would lead to the end of the state copper company Codelco's contribution of 10% of annual sales to the military.

Russia - Figures released show that manufacturing growth in the country slowed last month on the back of declining exports.

Syria - As the protests continue, Syrian authorities are offering amnesty to opposition groups who are defying calls by authorities to stop taking to the streets. According to human rights activists almost 600 people have been killed since the unrest started 6 weeks ago.

Australia - A ship has collided with a railway bridge, disrupting rail access between the port of Fremantle and Perth.

• Bloomberg is reporting that plans to open certain parts of the Wommera area in South Australia, previously closed due to military activity, could lead to the development of resource projects worth US$38.2bn.

Ivory Coast - It appears former President Laurent Gbagbo has had a change of heart and is calling for those supporters, still fighting in his name to put down their weapons and drop political quarrels in order to help the West African country restart its economy.

Taiwan - GDP climbed 6.19% in the last quarter, prompting authorities to raise the island's inflation forecast for the year, increasing pressure for an interest rate hike.

Currency - The yen is up this morning amid evidence that economic growth on a global scale is moderating. Additionally news of the death of Bin Laden is supporting fears or revenge attacks by extremists and improving demand for safe haven investments. The widening interest rate gap between the US and the rest of the world is widely expected to keep the dollar repressed over the next few months despite it rising this morning.

US$1.476/eur vs $1.483eur yesterday. Yen81.04/$ vs 81.61/$, SAr6.658$ vs 6.593/$ $1.655/GBP vs 1.666/GBP

COMMODITY NEWS

Precious metals:

Gold US$1,542/oz vs US$1,532/oz on yesterday - Prices are off slightly this morning having surged last week as investors lock in profits and the dollar lifts this morning.

• SPDR gold trust holdings remain at 1,229t (39.534moz) current value US$60,682bn

Platinum US$1,860/oz vs US$1,822/oz yesterday -

Palladium US$771/oz vs US$768/oz yesterday -

Silver US$44.89/oz vs US$48.25/oz yesterday - Prices are back up this morning having backed off at the end of last week as investors locked profits.

Rhodium US$2,275/oz unchanged

Base metals:

Prices are off across the board as the dollar climbs slightly and concerns emerge that global growth in the manufacturing sector may well be stalling.

Copper US$9,253/t vs US$9,446t yesterday - Prices have come back this morning as the manufacturing data emerging from China suggests that demand could drop off in the coming months amid Government efforts to curb inflation.

• Zambia has announced that output of copper will increase to 2m tons by 2015 from around 900k currently.

Aluminium US$2,757/t vs US$2,775/t yesterday -

Nickel US$26,650t vs US$26,938/t yesterday -

Zinc US$2,230/t vs US$2,282/t yesterday -

Lead US$2,507/t vs US$2,532/t yesterday -

Tin US$31,890/t vs US$32,375/t yesterday -

Energy:

Oil US$124.52/bbl vs US$125.65/bbl yesterday -Prices are off this morning as concerns emerge over manufacturing growth in the US and China and the knock on impact slowing growth would have on demand.

Natural Gas US$4.693/mmbut vs US$4.390/mmbtu -

Uranium US$55.50 vs US$57.25 last week -

Coal - Benchmark prices for metallurgical coal have risen 47% to a record of US$330/t over the last 3 months as producers recover slowly from torrential rain suffered in Australia at the beginning of the year.

Other:

Steel - Posco has won approval form India's environment ministry for its US12bn factory complex in the country.

• New industry estimates by Nucor Corp have indicated that US demand for steel in construction will not recover to pre recession levels until around 2015.

COMPANY NEWS

Ampella Mining (AMX AU) 206c/s, A$416m - pre-feasibility starts on 2.2moz Konkera gold project

BUY - Target 450c/s

• Ampella has appointed Jeremy Langford as project Manager for the new pre-feasibility study to be undertaken at the Konkera gold resource. Jeremy is experienced in managing gold projects in Ghana and Senegal and was formerly the construction / project manager at ICON Engineering.
• Mintrex, a project development and engineering team are the lead consultancy on the project.
• Ampella announced further drill results at the Konkera project last week highlighting substantial gold grades in the Konkera North prospect and further significant grades and intersections in the Konkera Main deposit.
• Significant gold grades were also reported at the Kouglaga prospect with the best showing a 10m intersection at 3.6g/t of gold.
• Ampella stock has pulled back markedly on news of political unrest in Burkina Faso. Demonstrations by the military and the police over pay have created an air of political uncertainty. Other unions have also planned demonstrations over pay and commodity price levels and while this may help their cause it is unlikely to substantially change the government.
• We have not yet heard reports of disruption to mining or exploration in the country but the thought of any change to this previously stable country has sent prices lower on relatively low volumes.
• Gold royalties: The government proposed raising royalty rates to 5% from 3% last year although this idea was later cancelled.
• It is possible that disruption could force another general election although the opposition is seen as disorganised and a change in government seems unlikely at this stage.

Conclusion: Ampella are offered down on political news in Burkina Faso. We believe the situation is unlikely to threaten the operations or significantly impact the fiscal regime.

http://www.ampella.com.au/public/documents/4/1/110428-1%20Project%20Update.pdf

http://www.ampella.com.au/public/documents/4/1/110503-2%20Ampella%20Project%20Manager%20Appointed%20Final.pdf

www.ampella.com.au/public/documents/4/1/110311-1 Ampella Roadshow Presentation - March 2011.pdf

Centamin Egypt (CEY LN), 130p Mkt cap £1.42bn BUY - Stage 3 commissioning starts

• Commissioning of the secondary crushing circuit at the Sukari gold mine is some two months ahead of schedule.
• Throughput should rise to 5mtpa in August / September
• The company should still be on track to produce some 270,000oz
• Average grades rose to 2.6g/t late last year with recovery rates rising to 90%
• The Sukari open pit contains some 9moz of gold out of a total gold resource of 14moz
• Cash cost of $450-480/oz are forecast for the year but will rise Q on Q to over $500/oz
• There is no debt and no gold hedge in place.
• Ore and waste tonnages are expected to rise through Q2 following a poor Q1 this year
• Ore tonnages are scheduled to fall through the second half as the open pit moves more waste material
• Tonnage milled should rise through the year though with grades falling from around 1.8g/t to 1.5g/t in Q3 and Q4
• Stage 4 expansion to take the plant to 10mpta from 5mtpa requiring a further increase in the tonnage mined at Sukari. Board approval is expected in May.

Conclusion: rising oil prices and increasing volumes of waste to be moved will raise costs at the Sukari open pit

Medusa Mining* (MML LN) 522p mkt cap £975m - Fidelity take stake to over 11%

BUY - target price raised 588p from 549p

• Medusa Mining are one of the most consistent and profitable gold miners in the sector
• The stock had previously been penalised for its lack of gold resource and its narrow vein mining.
• Investors are now beginning to recognise the company for its low cash operating cost base and its exceptional profit margins
• The company is not overly impacted by rising oil / energy costs as its use of largely electric machinery and underground mining methods are among the most energy efficient in the industry
• Investors are now beginning to recognise Medusa for its longer term and relatively consistent profit potential of the Co-O gold mine
• Drilling results at the Co-O gold mine continue to report spectacular grades and the mine looks set to approximately double gold production to 200,000oz pa over the next three-four years
• Substantial upside potential exists in the exploration portfolio. The Bananghilig gold resource contains some 650,000oz
• Cash and gold holdings are over US$43m and more than cover the cost of expansion.
• We are raising our valuation on Medusa stock to 588p from 549p through adjustment to our model and net present value calculation

* Fairfax acts as advisor to Medusa Mining

Mining last 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.

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

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