INSIDE METALS Thursday, August 22, 2013

CHART OF THE DAY FEATURE

Click on the chart for full-size image 's Peter Munk seeks to regain his Midas touch Peter Munk has long driven the agenda for Barrick Gold Corp , the company he formed in 1983 and built into the world's largest gold pro- ducer, but recent missteps have raised questions about the leadership of a man once seen as a visionary in the industry. Click here to read more..

TODAY’S MARKETS

BASE METALS: London copper rose after data on China's factory ac- tivity improved in August, fuelling expectations the country's economy is stabilising and shoring up expectations of metals demand. Activity in China's vast manufacturing sector hit a four-month high as new orders rebounded, a preliminary private survey showed, reinforcing Click here for LME charts signs of stabilisation in the world's second-largest economy. "The data certainly surprised on the upside, and that should be suppor- TRADING PLACES tive for commodity markets," said analyst Natalie Rampono of ANZ in London Metal Exchange lists new Taiwan port ware- Melbourne. houses PRECIOUS METALS: Gold fell for a second session after minutes from GENERAL NEWS a Federal Reserve policy meeting failed to ease fears the U.S. central bank would begin tapering its economic stimulus from next month. After cost cuts, miners need to do more with less, BHP The minutes of the Fed's July 30-31 meeting, released on Wednesday, says showed that a few officials thought last month it would soon be time to Australia's Fortescue holds back on rail stake sale as slow the pace of their bond buying "somewhat" but others counseled profit soars patience. "I don't think the Fed minutes gave away too much," said Victor Thian- South Africa's main mine union to take strike vote in gold piriya, an analyst at ANZ in Singapore. "Not too much has changed (on sector the outlook for stimulus). But the reaction in Treasury yields and the Brazilian miner Vale says not in talks to buy Batista's dollar is impacting gold." MMX

FOREX: The dollar rose versus the yen after the minutes of the Federal MARKET NEWS Reserve's July meeting did little to alter expectations that the U.S. cen- tral bank may start tapering its monetary stimulus as early as Septem- COPPER: ber. Global refined copper market swings to 17,000 deficit in The greenback extended its gains versus the Japanese currency after a May preliminary private survey showed that activity in China's manufacturing ZINC/LEAD: sector hit a four-month high in August. Korea Zinc buys from LME stocks to honour supply con- "I think the dollar is purely being bought on the back of a widening in tracts-traders interest rate differentials," he said, adding that there was some talk of hedge fund buying of the dollar versus the yen in the early part of the TIN/MINORS: Asian session on Thursday. Uranium miners face new hurdles as Fukushima disaster worsens INSIDE METALS August 22, 2013 FEATURE

Barrick Gold's Peter Munk seeks to regain his Midas touch GAMBLE ON COPPER The insiders all praised Munk, who was born in Hungary and By Euan Rocha escaped the Nazis as a teenager, for his achievement in build- ing Barrick and the tens of millions of dollars he has donated for , Aug 21 (Reuters) - Peter Munk has long driven the healthcare and education in Toronto, where the company is agenda for Barrick Gold Corp , the company he formed in 1983 based. and built into the world's largest gold producer, but recent mis- steps have raised questions about the leadership of a man once However, they criticized some of his more recent decisions, seen as a visionary in the industry. especially Barrick's C$7.3 billion ($7.03 billion) takeover of Af- rica-focused copper miner Equinox in 2011. Munk, who owns a stake of less than a quarter of a percent in the company, still steers Barrick's strategy from his position as Three of the sources said that deal stretched Barrick just as it chairman, and he is now attempting to shore up the miner's po- was developing the huge Pascua-Lama project on the border of sition. But some investors, seizing on what they view as mis- Argentina and Chile, and the Pueblo Viejo gold- project in guided decisions and problems at several mines, are question- the Dominican Republic. ing both the company's direction, and Munk's role. The Equinox takeover triggered the initial slide in Barrick's share In the last two years, gold miners across the globe have been price. Many investors were disenchanted: Stocks of gold miners stung by falling bullion prices and a surge in costs. Barrick has typically attract higher multiples than those of base metal min- fared worse than its rivals, outlining about $13 billion in write- ers, and Barrick has for years marketed itself as the ideal vehi- downs this year alone. cle for gold bugs. Its share price is down nearly 65 percent in two years, outpacing But three of the sources said Munk's push for Equinox came as a 50 percent drop in the NYSE Arca Gold Bugs Index, and a 26 no surprise, given that the he had long sought to transform Bar- percent drop in the price of spot gold. rick into a big diversified miner in the mold of Ltd or BHP Billiton Ltd . While environmental woes at its Pascua-Lama gold-mining pro- ject, high in the Andes, have been the biggest drag on Barrick's In particular, Munk has wanted to boost Barrick's exposure to share price, investors have taken the most issue with its disap- copper, said the insiders, adding that his itch for copper dated pointing push into copper and with a proposal to give Munk's back to the late 1990s, when he pushed several heir apparent, co-chairman John Thornton, an unusually large, times to look at U.S. mining giant Freeport McMoRan Copper & $11.9 million signing bonus. Gold Inc - an initiative code-named Project Orange. In interviews with Reuters, five Barrick insiders said Munk him- But successive management teams repeatedly steered Munk self played a pivotal role in both these decisions. away from a bid and Freeport became too big a target after it bought Phelps Dodge for $25.9 billion in 2007. Neither Munk nor Thornton would comment for this story, and Barrick declined to comment on Munk's role in the decisions. Refocusing on gold, Barrick then twice reached deals to buy No. 2 gold miner, Newmont Mining , first in 2008 and later in 2010, But the high-level insiders, who asked not to be named as they the sources said. Each time Munk scrapped the deal late in the are not authorized to discuss such matters with media, describe game, largely due to differences around how the combined en- a company where Munk - an entrepreneur, real estate mogul tity would be led. and avid skier - has a powerful influence in every major board decision. At other times, the sources said, Munk pushed management to look at the likes of Canadian diversified miner Teck Resources , "The level of deference shown to Peter Munk within Barrick and and Potash Corp , the world's top fertilizer maker. Neither deal its boardroom is surprising," said one source familiar with Bar- panned out. rick's boardroom discussions. Barrick declined to comment on the deals it has explored, as did Only seven of Barrick's 13 directors are independent, a ratio that spokesmen for Freeport, Newmont, Teck and Potash Corp. Barrick says meets New York Stock Exchange rules. But proxy advisory firm Glass Lewis says the board lacks two-thirds inde- pendence - a best practice for big, widely held companies. WARNING ON EQUINOX "It would be nice if we could get a feeling that the board of direc- When Equinox came on the block, four insiders said Munk tors is acting for all shareholders, because there is a feeling, I seized on the deal as a step toward his goal of diversification. At think, that we are dealing with a little bit of a fiefdom," said Cae- a time when several copper miners were up for sale, Barrick sar Bryan, a portfolio manager at Gabelli, which owns some 2.9 outbid a Chinese state-backed entity to take over Equinox. million shares in Barrick Gold. "The whole corporate governance Barrick's management team attempted to warn Munk against and board situation is a little disconcerting." buying Equinox, noting that Barrick had spent months trying to reduce risk in Africa by spinning its mines there into a separate operation called African Barrick Gold PLC , the sources said.

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FEATURE (Continued)

The board approval of the deal is illustrative of Munk's sway in GETTING BACK ON TRACK the boardroom, they said. Two sources said the final board approval came during a 20- Barrick has lately begun to right the ship, say two sources, not- minute conference call with minimal discussion. Asked for com- ing that Thornton, formerly a well-regarded Goldman Sachs ment, Barrick said its board discussed the deal extensively in executive, is taking a more hands-on role as Barrick's co- the weeks before the decision. chairman. Recently he traveled with management to Argentina Yet the deal quickly raised concerns among investors, starting before Barrick outlined a decision to slow work at the expensive with the price Barrick shelled out for Equinox. Pascua-Lama project, a move that will help the company pre- "Outbidding the Chinese on a copper asset in Africa is your first serve capital over the next few years. sign that you've struck a bad deal," said one insider, who noted Ahead of Barrick's annual meeting in April, proxy advisory firm that Chinese companies are very comfortable operating in Africa Glass Lewis told investors not to vote for three directors: An- and own a wide array of projects across the continent. thony Munk, Peter Munk's son and a board member for 17 The price of copper has fallen 23 percent since the deal, and the years; William Birchall, a member for 29 years; and former Ca- transaction has not lived up to its billing. Barrick has halted an nadian Prime Minister , who has been a board expansion at the Lumwana copper mine in Zambia - the crown member since 1993. The firm advised against Anthony Munk jewel of the Equinox portfolio - and delayed the Saudi Arabia and Birchall, saying it was concerned about the level of board Jabal Sayid copper project, also acquired via the deal. independence, and it argued that Mulroney currently sits on too To be sure, Munk's gamble may still pay off in the long run, many boards. All three were elected, but shareholders voted given looming supply issues as China's and other emerging against Barrick's non-binding proposal on executive compensa- economies develop. tion, in particular an $11.9 million signing bonus that was paid to Thornton. That revolt was led by some of Canada's top pension "The Earth's endowment with high grade copper deposits is funds, a group that rarely goes public with their disapproval, and finite," says Bernstein Research analyst Paul Gait. "It is only a 85 percent of the vote was cast against Barrick on the proposal. question of when, not if, that limitation leads to higher real cop- Representatives of the pension funds declined to comment. per prices." But a source at one of the funds said Barrick has since vowed Aaron Regent, Barrick's chief executive at the time of the Equi- to add three new independent members to its board. The new nox deal, was replaced by Jamie Sokalsky in June 2012. nominees are likely to have experience in the mining sector to Regent declined an interview request. tackle a lack of sector expertise on its board, said the source.

GENERAL NEWS

After cost cuts, miners need to do more with less, BHP "When you talk about costs there are two elements. One is how says you tighten your belt and make the easy changes," said Graham Kerr, a BHP veteran put in charge of finance last year. By Clara Ferreira-Marques "The second is productivity," he said in an interview. "Getting more out of your existing people, your equipment and your infra- LONDON, Aug 21 (Reuters) - Mining firms are wooing investors structure. Productivity will deliver more benefits over time, but with aggressive cuts after years of profligate spending, but BHP takes a little more time to be done." Billiton says the greater challenge will be improving productivity, if major producers are to ride an eventual recovery. BHP said this week alongside its report on annual earnings that it had cut $2.7 billion of "controllable" costs - new exploration BHP, Rio Tinto and others big and small have promised share- projects, for example, but not fuel for existing operations. That holders they will slash billions of dollars of spending, shedding figure amounts to a reduction of roughly 7 percent in spending jobs, reining in wages and cutting back on fringe costs, such as per tonne of copper equivalent production. staff travel. The saving - $2.2 billion at the operating level - helped offset an Rio says it tells employees in its iron ore unit to use low-cost $8.9-billion hit to operating profit caused by lower prices for airlines or teleconferencing - a far cry from a time when charter- BHP's products. ing flights to remote mines were the norm and tales abounded of truck drivers on six-figure annual dollar salaries. The bulk of the saving came from cutting back on exploration and development - $1.5 billion out of the $2.7 billion - a decision But that was the easy bit, the chief financial officer of BHP Billi- Kerr is confident carries little risk for the future. ton , the world's largest miner, told Reuters.

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GENERAL NEWS (Continued)

BHP has already been pulling out of regions where mining has Australia's Fortescue holds back on rail stake sale as profit been developed only recently, including parts of west Africa, and soars it has been concentrating instead on its core deposits. Explora- tion is now focused on copper, with no spending planned on By Sonali Paul new, greenfield projects seeking other minerals. MELBOURNE, Aug 22 (Reuters) - Australia's Fortescue Metals "We don't need more iron ore, more energy coal, more nickel," Group , shored up by soaring iron ore output and deep cost Kerr said. "We have our resources in the right location and we cuts, has scrapped a September deadline for selling a stake in understand them very well." its port and rail business, spurning offers it has received so far. Analysts tend to agree the large miners have enough to work on The world no.4 iron ore miner has nearly completed a $9 billion and can afford to slow the search for new deposits, cutting one expansion to triple its output and booked a 67 percent rise in area - exploration - that does not affect current production and half-year profit on Thursday which beat forecasts. where, arguably, they can make up lost time later. It rewarded shareholders with a much bigger dividend than ex- Since smaller firms are struggling to raise cash to develop new pected, armed with strong cash flows which it also plans to use mines, the risks of losing out on a major find are also smaller to start paying down $10 billion in debt. now. Fortescue put a minority stake in its port and rail business, The "The view taken now is no one else is exploring the gaps you Pilbara Infrastructure (TPI), up for sale last December with the are pulling out of," said one London-based industry adviser who aim of raising around $3 billion to pay down debt after a scare spoke on condition of anonymity. "You are not necessarily miss- last year when iron ore prices sank to a three-year low. ing out on the next big opportunity." The iron ore rail line would be the first to be open to outside And the big miners have enough to work on for now. "Rio has investors, and has solid growth prospects as other miners would enough in their larder anyway for the next 10 years, 20 years," pay to use the line rather than build their own. said analyst Paul Gait at Sanford Bernstein in London. The minority stake attracted strong interest, with Fortescue's advisers Macquarie and Lazard scouring the world for potential PRODUCTIVITY bidders, but following an iron ore price recovery, the urgency to Having cut costs, BHP's Kerr said, the challenge now is to get sell eased. more out of existing assets - and this at a time when many min- "We've had significant interest from global infrastructure inves- ers are finding ore grades falling, particularly in copper. tors and that has generated significant offers. However to date BHP plans to spend over $16 billion in 2014 on growth, mainte- they have not met our objectives for value and terms," Chief nance and exploration - below 2013 and less than initially Executive Nev Power told reporters. planned but still a very large share of the $18.2 billion it gener- The company had initially aimed to reach a deal that would al- ated in net operating cash flow in the year to June. low it to retain a majority stake and keep control over the port For some other miners, the drive for efficiency can mean organ- and rail operations by the end of June. It extended that to Sep- isational shifts - the simplification of Anglo American's divisional tember, but Power said on Thursday there is now no deadline. structure, for example. And for all, it has meant a focus on new "It's not shelved. We're in discussions with parties right now," he technology - BHP's new chief executive has compared it to For- said. "We don't expect to see anything in the September quarter mula One's search for constant improvement. but we haven't set a date on it." But for most now, it will mean improving what they get from their existing mines, to permit increased output that can offset lower PROFIT UP prices - and make the most of any future surge in demand. Fortescue's net profit rose to $1.75 billion for the year to June BHP, Kerr said, has improved its comparison of performance from $1.56 billion a year earlier, ahead of analysts' forecasts between sites and has, for example, made truck use at Goon- around $1.68 billion, according to Thomson Reuters I/B/E/S. yella, its Australian coking coal mine, 25 percent more efficient. Based on Reuters calculations, profit for the second-half of the He also highlighted improvements at Escondida in Chile, the year soared to $1.268 billion from $468 million a year earlier. world's largest copper mine, which has increased volumes going The company cut $400 million in costs, which it said was 30 through a concentrator - though BHP was also fortunate to strike percent more than expected. higher-grade ores at the site during the financial year to June. It paid a final dividend of 10 cents a share, compared with ana- And in due course, BHP believes, world demand will improve. lysts' forecasts of 4 cents. "The dividend reflects a couple of "As some of our peers reduce capex, stop projects, stop growth, things -- predominantly the strong underlying financial perform- demand is going to continue to grow in China and we are well ance that we've got in the company and the confidence in that positioned to feed that demand," Kerr said. continuing going forward," Power said.

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GENERAL NEWS (Continued)

Fortescue shipped 80.9 million tonnes of iron ore in the 2013 The auto strike entered its third day on Wednesday and has financial year, up 41 percent on a year earlier, and is on track to affected global carmakers operating in South Africa, including reach a production rate of 155 million tonnes a year in Decem- Toyota , Ford and General Motors . ber. The two opposing sides in the gold sector remain poles apart By comparison, Rio Tinto expects to be producing at 290 million after the weeks of talks, with virtually no narrowing of the gap tonnes a year and BHP Billiton at 220 million tonnes a year by between employers, whose latest offer was a 6 percent hike for end-September. some categories, and unions. Fortescue has been buoyed by an iron ore price recovery to NUM is seeking a basic wage for entry-level underground work- around $139 which has defied market forecasts despite cooler ers of 8,000 rand ($790) a month, a 60 percent increase. Chinese growth, and fueled a 44 percent rally in Fortescue's "We are miles apart and so the only sensible thing to do is em- share price over the past two months. bark on a strike," NUM's Seshoka said. Fortescue's shares rose as much as 4.9 percent to $4.29 on NUM and the small UASA union both walked out of the talks Thursday, while the broader market fell 0.7 percent. and applied for what is known in South Africa as a "certificate of Fortescue said its cash balance was strong enough to allow it to non-resolution" from the government mediator, which was start repaying debt this year, which it would do, with initial pay- granted. This effectively allows them to strike. ments in the hundreds of millions of dollars. NUM's more hardline rival the Association of Mineworkers and "With growth capex effectively done by this year, FMG has the Construction Union (AMCU), with about 17 percent of the gold potential to become a 'cash machine'," Barclays analyst Ephrem labour force, has submitted demands as high as 150 percent. Ravi said in a note last week. President Jacob Zuma and his ruling African National Congress, Fortescue still expects iron ore prices to average between $110 criticised for their handling of violent mines unrest last year in and $130 a tonne for the foreseeable future, although prices are which more than 50 people were killed, are keen to avert more likely to remain volatile, Power said, adding the company re- labour strife ahead of elections next year. mains confident in Chinese demand for seaborne iron ore for South Africa's gold and platinum producers are still recovering the next several decades. from a wave of wildcat strikes in 2012 rooted in a turf war be- tween NUM and AMCU. This cost billions of dollars in lost out- South Africa's main mine union to take strike vote in gold put and triggered damaging sovereign credit downgrades. sector But in contrast with last year, when illegal strikes spun out of control into violence, the wage talks process this year has fol- By Ed Stoddard lowed standard legal procedures and has been generally peaceful, although there have been sporadic murders at mines. JOHANNESBURG, Aug 21 (Reuters) - South Africa's National Union of Mineworkers said on Wednesday it would ballot its members this week on whether to go on strike after gold miners' NO COMPROMISE wage talks stalled, raising the prospect of crippling stoppages in The gold companies, which have slightly raised their starting an industry in terminal decline. offers, say the unions have failed to compromise. "We will go and consult with our members and put it to a vote. "If you look at past years there has been a narrowing of the gap We are going to strike, there is no question about it, I just can't by this stage in the negotiations and we have not seen that yet," say when," NUM spokesman Lesiba Seshoka told Reuters. said Charmane Russell, a spokeswoman for the gold producers The country's chamber of mines said it was still in talks with the which include AngloGold Ashanti , Gold Fields , Harmony and Association of Mineworkers and Construction Union (AMCU) Sibanye Gold . and the Solidarity union, but NUM matters the most as it repre- Inflation data released on Wednesday will do little to cool union sents about 64 percent of the roughly 140,000 gold miners in demands as it showed headline inflation in South Africa acceler- the country. ated to 6.3 percent in July from 5.5 percent in June. Gold mine stoppages would inflict more damage on Africa's Worryingly, food inflation rose by 6.8 percent, a trend which largest economy, which is already losing $60 million a day to a eats into the income of working-class households. strike by 30,000 workers in the car manufacturing sector that The chasm between the two sides underlines growing militancy accounts for 6 percent of gross domestic product. among a black labour force that has seen few improvements in living conditions in the two decades since apartheid ended.

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GENERAL NEWS (Continued)

But companies have little room, with labour accounting for over Brazilian miner Vale says not in talks to buy Batista's MMX 50 percent of costs and gold's spot price about 30 percent lower than the record peak of over $1,920 an ounce it reached BRASILIA, Aug 21 (Reuters) - Brazil's Vale SA , the world's almost two years ago. About half of the country's shafts are los- second-largest miner, is not in talks to buy rival MMX SA , the ing money at these levels, the industry says. mining arm of tycoon Eike Batista's troubled EBX conglomerate, This spells big trouble for a South African sector that accounted Vale's Chief Executive Murilo Ferreira said on Wednesday. for 79 percent of world gold production in 1970. The executive added that MRS Logistica, a local railroad opera- Thomson Reuters GFMS ranked South Africa sixth in global tor that Vale has a minority stake in, analyzed possible partici- output in 2012, when it produced 177.8 tonnes of gold, just 6 pation in MMX's Porto do Sudeste port project but said neither percent of the world total. It was the country's worst year for MRS nor Vale plan to bid for the whole company. bullion production since 1905.

TRADING PLACES

London Metal Exchange lists new Taiwan port warehouses The LME approved the location in June, meaning that ware- houses that meet its specific criteria will be able to take delivery of aluminium, aluminium alloy, copper, lead, nickel, tin and zinc. LONDON, Aug 21 (Reuters) - The London Metal Exchange (LME) has listed six warehouses in its new delivery location, the The LME approves and licenses a global network of ware- Taiwan port of Kaohsiung, effective from Nov. 21, the exchange houses that are in areas of net consumption or along major said on Wednesday. trade routes, so that metal can be delivered against futures po- sitions and consumers can access a local stockpile of metal as The LME approved one warehouse belonging to - a last resort Xstrata owned Pacorini Metals, two for C.Steinweg Warehous- ing, and three for H&M Metal Warehousing.

MARKET NEWS

Global refined copper market swings to 17,000 deficit in "However, anecdotal evidence suggests that the lower import May level was accompanied by a decline in unreported inventories held in bonded warehouses in China, which may have been all or partially directed to domestic industrial use," the ICSG said in LONDON, Aug 21 (Reuters) - The global copper market in May a report. slipped to its first deficit after seven consecutive months of sur- plus to show a 17,000-tonne shortfall, as demand rose in China World refined production increased by around 6.5 percent year- and the United States, the International Copper Study Group on-year in the first five months of 2013, as production rose in (ICSG) said on Wednesday. China, Democratic Republic of Congo and Zambia, while output in the world's second largest refined copper producer Chile It said apparent refined demand from top consumer China in dropped 5.5 percent, the data showed. May was at its highest level since December 2011, while usage in the United States was at its highest since March 2012, out- pacing a steady rise in global refined production. Uranium miners face new hurdles as Fukushima disaster On a seasonally adjusted basis, taking into account historically worsens high demand for seasonal construction, the market in May showed a surplus of 84,000 tonnes, the ICSG said. By James Regan For the period between January and May, the market was in a SYDNEY, Aug 21 (Reuters) - Revelations of more toxic leaks surplus of 228,000 tonnes compared to a deficit of 480,000 ton- from Japan's Fukushima Daiichi nuclear power plant will raise nes last year, the data showed. second-thoughts about Japan's nuclear future, but won't halt the During the period, world usage declined by around 2 percent, long-term global expansion of the industry, the head of a ura- compared to a year earlier, with Chinese demand falling by 3 nium mining company said. percent, due to a 37 percent drop in net imports of refined cop- "It reinvigorates the heightened state of nervousness, it surely per, the ICSG said. will make the Japanese government and nuclear regulatory au- thorities more cautious and conservative in the decisions about the restart," said Vanessa Guthrie, managing director of Austra-

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MARKET NEWS (Continued) lia's Toro Energy Ltd , which expects to start mining uranium in Guthrie expects supplies of uranium to tighten once 24 million Australia in 2016. pounds of secondary uranium is removed under the U.S.- Rus- Japan is set to raise the severity rating of the leak to level 3, or sian Megatons to Megawatts Programme, which ends this year. "serious incident", on an international scale for radiological re- The program is a bilateral nonproliferation agreement to convert leases, underlining a deepening sense of crisis at the site. high-enriched uranium taken from dismantled Russian nuclear The price of uranium, used mainly as fuel for nuclear reactors, weapons into low-enriched-uranium for nuclear fuel. plunged after the March 2011 meltdown at the Fukushima plant 240 km (150 miles) from Tokyo and has struggled to recover Korea Zinc buys from LME stocks to honour supply con- ever since. tracts-traders August uranium futures stood at $35.15 per pound on Wednes- day compared with $68 per pound before the earthquake and By Melanie Burton tsunami that triggered the disaster. SINGAPORE, Aug 21 (Reuters) - Korea Zinc has bought metal However, Guthrie said contract prices between uranium miners from London Metal Exchange stocks in Malaysia to meet con- and buyers standing at around $58-$59 a pound more accu- tractual sales, amid a supply shortage in the region and a pick rately reflect the supply and demand balance than the spot up in Chinese demand, traders said. price. The move by one of Asia's biggest zinc smelters suggests con- Operating costs in the industry range between $22-$25 per sumption of the metal may be slowly improving as the global pound up to the high $40s, Guthrie said. economy revives, and is likely to fan hopes that weak zinc Canadian miner Uranium One Inc , which Russian nuclear cor- prices have found a floor. poration Rosatom plans to consolidate and take private this Korea Zinc booked 10,000 tonnes of Indian origin metal from year, expects uranium prices to almost double in a couple of LME warehouses in Johor last week, several traders said. years amid dwindling supplies. One trader with knowledge of the deal said the company issued Toro is scheduled to start shipping uranium from its Wiluna mine two tenders, of which only a few thousand tonnes were for the under development by mid-2016. This week it acquired a sec- company and its sister smelter Young Poong, with the remain- ond uranium project in Australia from Canada's Mega Uranium ing to be sent to China. Ltd . Metal produced by Korea Zinc and Young Poong is much Guthrie said longer-term projections continue to point to an un- sought after in Asia for its high quality. The smelters tend to sell dersupply of uranium as more nuclear power plants are commis- the output on term contracts direct to customers. sioned, despite the events unfolding in Japan. South Korea has suffered power shortages amid an unusually "I don't believe that this will delay or defer ongoing develop- hot summer, after some of its nuclear reactors were taken off ments of the nuclear industry," Guthrie said. "For example, it will line in May. certainly not cause the Chinese to stop building new plants." Due to peak summer demand for power, the company regularly China has 28 nuclear reactors under construction and 17 in op- schedules maintenance in the third quarter for about two weeks eration, according to the World Nuclear Association. each year, a Korea Zinc official told Reuters. Additional reactors are planned, the association says, resulting The official said the company had no issues meeting its produc- in a four-fold increase in nuclear capacity by 2020. tion targets and no knowledge of supplying customers with In a statement faxed to Reuters, China's Foreign Ministry said it metal from other producers. The official did not elaborate. "hopes that the Japanese side can earnestly take effective steps "The trading market is a bit short of physical supply. Power sup- to put an end to the negative impact of the after-effects of the ply isn't sufficient for the smelting industry, including South Ko- Fukushima nuclear accident." rea," said one industry source in Seoul. In contrast, since the disaster in 2011, Germany, Switzerland At the same time, increased demand has come from long term and Belgium decided to move away from nuclear power alto- customers who are all keen to take maximum volume, traders gether in favour of renewable energy. said. The last of Japan's 54 nuclear reactors was shut down in May "They (Korea Zinc) have flexible tonnages with their customers 2012. Two reactors were restarted in June 2012, and Japan's and their customers are asking for the maximum tonnage," said governing Liberal Democratic Party wants all reactors reacti- one physical metals trader in Singapore. vated if confirmed safe. "They're worried that if everybody asks for it, they would have Still, some 50 countries continue to run and build reactors. problems. They're trying to honour as much of the contracts as they can, so they had to go and buy additional tonnages," he added.

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MARKET NEWS (Continued)

PREMIUMS RISING China's zinc imports jumped by 27.7 percent in the first half from a year ago to 274,682 tonnes. Traders said premiums for zinc in Johor had climbed about $20 Importers have also used zinc imports as a financing tool mostly a tonne in the past week, with estimates at $180-$205 FOT (free in the past year and the purchases rose when LME zinc prices on truck.) fell to about $1,850 a tonne, earlier this month, a trader said. They speculated some of the metal purchased by Korea Zinc Prices now stand at slightly more than $1,980. would be sent to service customers in South East Asia. "All the imports we bought are for financing. Once the metal So far, the activity has yet to show up in LME data for Johor, arrived, we resold to end-users at lower than prices in the do- where there has been no activity since early July. mestic market to obtain cash quickly," said the trader at a Chi- nese trading firm in Shanghai. He added that the firm had paid Zinc consumption in China is set to rise for the rest of 2013, premiums of about $110-$130 for spot zinc imports. buoyed by Beijing's plan to boost rail investment as well as sea- sonal demand, aiding embattled domestic producers and keep- "Financing imports would increase if LME prices fall below ing zinc imports at strong levels. $1,900," he added.

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ANALYTIC CHARTS (Click on the charts for full-size image)

Daily LME Aluminium 3-months Daily LME Copper 3-months

Daily LME Nickel 3-months Daily LME Zinc 3-months

Daily LME Lead 3-months Daily LME Tin 3-months

Daily LME Alloy 3-months Daily LME Nasaac 3-months

9 INSIDE METALS August 22, 2013

MARKET REVIEW

METALS-Copper climbs after China data fuels hopes for China accounts for 40 percent of refined copper demand and demand recovery the power sector is its biggest consumer due to the metal's high conductivity. In other metals, Korea Zinc has bought zinc from London Metal Exchange stocks in Malaysia to meet contractual By Melanie Burton sales, amid a supply shortage in the region and a pick-up in SINGAPORE, Aug 22 (Reuters) - London copper rose after data Chinese demand, traders said. on China's factory activity improved in August, fuelling expecta- tions the country's economy is stabilising and shoring up expec- tations of metals demand. PRECIOUS-Gold slips for second day on stimulus worries Activity in China's vast manufacturing sector hit a four-month high as new orders rebounded, a preliminary private survey By A. Ananthalakshmi showed, reinforcing signs of stabilisation in the world's second- SINGAPORE, Aug 22 (Reuters) - Gold fell for a second session largest economy. after minutes from a Federal Reserve policy meeting failed to "The data certainly surprised on the upside, and that should be ease fears the U.S. central bank would begin tapering its eco- supportive for commodity markets," said analyst Natalie Ram- nomic stimulus from next month. pono of ANZ in Melbourne. The minutes of the Fed's July 30-31 meeting, released on However, she said copper prices were unlikely to jump higher Wednesday, showed that a few officials thought last month it given the metal's hefty rebound in the past month, while swelling would soon be time to slow the pace of their bond buying supply towards year end would also act as a brake on prices. "somewhat" but others counseled patience. The Flash HSBC Purchasing Managers' Index rose to 50.1 from Gold, often bought as a hedge against inflation, initially gained July's final reading of 47.7, which was the weakest in 11 on the minutes due to the lack of consensus, but turned nega- months, although it barely passed the watershed 50 line which tive after U.S. Treasury yields and the dollar rose. demarcates expansion of activities from contraction. "I don't think the Fed minutes gave away too much," said Victor Three-month copper on the London Metal Exchange rallied Thianpiriya, an analyst at ANZ in Singapore. "Not too much has 1.27 percent to $7,332.25 a tonne by 0234 GMT, erasing losses changed (on the outlook for stimulus). But the reaction in Treas- from the previous session. ury yields and the dollar is impacting gold." Copper prices hit the highest in more than 10 weeks at $7,420 a Spot gold had declined 0.2 percent to $1,363.00 an ounce by tonne on Friday, and have rebounded by 11 percent from late 0633 GMT, after falling 0.3 percent the day before. U.S. gold June's three-year trough of $6,602 a tonne. dropped about $7 to $1,362.60. The most-traded December copper contract on the Shanghai Traders said prices could see more downside if they fall below Futures Exchange erased early losses to climb 0.57 percent to $1,355 an ounce, with support near $1,345. 52,690 yuan ($8,600) a tonne. Ten-year U.S. Treasury yields jumped to 2.92 percent, a level last seen in July 2011, as markets interpreted the minutes to FED TIMING mean the Fed did not completely rule out a scale back from next month. The U.S. dollar also edged higher. Muddying the picture for metals is uncertainty over the impact of the U.S. Federal Reserve's plans to start tapering its commodity In June, Fed Chairman Ben Bernanke said the bank expected -friendly stimulus measures, which most expect will commence to trim stimulus later this year and to halt it by mid-2014. Inves- from September. tors widely believe that the tapering would begin in September on the back of improvements in the labour market. Minutes from the latest monetary policy meeting show few Fed officials thought last month it would soon be time to slow the Any scale back of the $85 billion monthly bond purchases by pace of their bond buying "somewhat" but others counselled the Fed would weaken support for gold, which had hit a record patience. In upbeat news for copper demand, China is already high in 2011 due to easy central bank money. building, or has approved, more than half of a $100 billion net- Gold is down nearly 20 percent for the year, but has gained work of high-voltage power lines to connect remote energy pro- about 15 percent since hitting a three-year low of $1,180.71 in ducing regions to the east coast, a top official at the state grid late June. firm told Reuters.

10 INSIDE METALS August 22, 2013

MARKET REVIEW (Continued)

"Most of the gains are due to short-covering and are not based The greenback inched higher versus the euro, which slipped 0.1 on fundamentals," said ANZ's Thianpiriya. "We are due for a percent to about $1.3340 . healthy downward correction." The dollar's strength was more obvious against some emerging ANZ has forecast gold prices to hit $1,380 by the end of the Asian currencies, which have been dented by market expecta- year on strong demand from China and a reversal of big out- tions that the Fed may soon start reducing its bond purchases flows from gold-backed exchange-traded funds. of $85 billion per month. That stimulus had helped spur inflows into emerging markets. FOREX-Dollar gains on Fed tapering view; China data sup- The dollar hit a three-year high versus the Thai baht and Ma- ports Aussie laysian ringgit , and set a four-year high versus the Indonesian rupiah . The dollar also set a record high versus the Indian ru- pee on Thursday. By Masayuki Kitano Some market players say the turmoil in emerging markets is SINGAPORE, Aug 22 (Reuters) - The dollar rose versus the yen increasing the appeal of perceived safe-haven currencies such after the minutes of the Federal Reserve's July meeting did little as the yen. to alter expectations that the U.S. central bank may start taper- ing its monetary stimulus as early as September. Satoshi Okagawa, senior global markets analyst for Sumitomo Mitsui Banking Corporation in Singapore, said the dollar was The greenback extended its gains versus the Japanese cur- stuck in a tug-of-war versus the yen as a result. rency after a preliminary private survey showed that activity in China's manufacturing sector hit a four-month high in August. "There is the flight-to-quality type of yen buying on the one hand, but there is also dollar-buying on the back of rising U.S. The survey reinforced signs of stabilisation in China, triggering a yields," Okagawa said. bounce in the Australian dollar versus the yen. The Fed minutes released on Wednesday showed members of That helped drag the yen broadly lower on the crosses and also the Federal Open Market Committee had different opinions as against the U.S. dollar, which rose 0.6 percent on the day to to when the Fed should start winding down its bond purchases. 98.27 yen . The overall view, however, was that the minutes did not materi- A possible resistance for the dollar is at 98.66 yen, an intraday ally change the market's expectation that the Fed could start high set on Aug. 15. tapering its monetary stimulus as early as September. The greenback seemed to be drawing strength from a push Analysts say August nonfarm payrolls data, due on Sept. 6, will higher in U.S. yields, said Hiroshi Maeba, head of FX trading be closely watched by investors and policymakers to determine Japan for UBS in Tokyo. whether the improvement in the labour market is enough to jus- "I think the dollar is purely being bought on the back of a widen- tify scaling back the stimulus. ing in interest rate differentials," he said, adding that there was The Australian dollar inched up 0.1 percent to $0.8983 , having some talk of hedge fund buying of the dollar versus the yen in bounced from an intraday low of $0.8932. Against the yen, the the early part of the Asian session on Thursday. Aussie dollar rose about 0.7 percent on the day to 88.25 yen . The U.S. 10-year Treasury yield set a fresh two-year high of

2.936 percent on Thursday. Such a rise in yields can increase the attractiveness of dollar-denominated assets.

(Inside Metals is compiled by Pradip Kakoti in Bangalore) For more information: Learn more about our products and services for commodities For questions and comments on Inside Metals click here professionals, click here

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