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COMMODITY NEWSBRIEFS: 8 DECEMBER 2015

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Natasha.Havenga@transnet.net

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COAL SOUTH32 DUVHA COAL SUPPLY MINE 'CHALLENGING' (MiningMx, 8/12/2015) With debt reduction all the rage in the world’s mining sector, it’s significant that South32 cut its indebtedness by a sizeable $206m during its September quarter. This leaves a net amount of $196m still on the balance sheet. Derryn Maade, an analyst for HSBC, argued that a fifth consecutive year of under-performance for mining shares had heightened the competition for investment dollars. In this environment, it was increasingly difficult for mining firms to mark out their attractiveness as something special. "Investors are displaying risk averse tendencies, favouring exposure to strong balance sheets, high quality assets and commodities with relatively strong fundamentals," said Maade. "In our view, South32 benefits from quite a robust balance sheet". Yet the group needs to have this because the metals South32 produces – aluminium, manganese and coal – all have relatively weak medium-term prospects. Of these, its Illawarra Coal and South African manganese assets are currently loss-making. A Colombian mine, Cerro Matoso Nickel, is also losing money. James Oberholzer, an analyst for Macquarie Bank, believes South32 will also seek to expand its $350m cost-out (reduction) target and that Cerro Matoso may join the Ferroalloys manganese smelting business in South Africa in mothballs. "The continued decline in South32’s core commodity prices has put severe pressure on our base case forecasts for the company and the sustainability of some of its core assets including South African manganese, Illawarra and Cerro Matoso," said Oberholzer. "If spot prices don’t improve, then we believe material cuts at Illawarra and closures of Cerro Matoso and South African Manganese look inevitable," he said. South32 has also temporarily shut its Hotazel manganese mine but this would probably be reopened following a strategic review in January, he said. There is also risk at another asset, the thermal coal production of the South African-based, 17 million tonnes a year (mtpa) Wolverkrans Colliery which South32 is battling hard to keep at break-even owing to poor conditions in the seaborne thermal coal market. Whilst it was not facing the difficulties that forced Glencore to put its Optimum Coal Mine into business rescue, it was hoping to avoid cash leakage, said South32’s South African COO and president, Mike Fraser. He acknowledged that the group’s priority at the Wolverkrans Middleburg mining complex was to achieve break-even. Asked by Miningmx to detail operating conditions at its South African coal businesses, Fraser said Khutala was generating a margin, but Wolverkrans was more challenging. "We have two fixed contracts which are Eskom related contracts. The first one is Khutala which is a cost plus operation. We are in conversation on how to extend the life of that operation to tie it to the Kendal [power station] expected life for another 30 years," said Fraser. "We do generate a margin on that operation," he added. "The second power contract we have is to supply coal to the Duvha power station. We supply coal out of our Wolverkrans Middleburg mining complex. About 50% or 8.5mtpa goes to Duvha and the rest to the export market. That is a challenging operation," said Fraser.

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NUM THREATENS STRIKE OVER ARNOT, OPTIMUM COAL CONTRACTS (Engineering News, 8/12/2015) The National Union of Mineworkers (NUM) threatened on Monday to embark on “a massive national strike” unless Eskom addressed its unhappiness over the cancellation of certain coal supply agreements, including one with Exxaro’s Arnot mine, in Mpumalanga. Deputy general secretary William Mabapa described the cancellation of a supply agreement with the cost-plus, tied colliery as calamitous. Eskom was also fingered as being the main belligerent in an ongoing standoff with Optimum colliery, which supplies the Hendrina power station. Optimum entered business rescue earlier in the year. Eskom insists that Optimum, which is owned by Glencore, needs to honour an agreement to supply coal at R150/t until 2018 and had also instituted claims against the company for R1-billion. The rescue practitioners and Glencore have described the arrangement as unsustainable. However, a temporary supply agreement concluded until the end of November has since been extended by the practitioners until the end of December. Exxaro is also at odds with the utility over its notice to terminate a coal supply agreement on December 31, noting that the cancellation notice was delivered amid ongoing negotiations on jointly optimising Arnot’s operations for the supply of coal beyond 2015. But Eskom said that, despite various meetings and commitments, Arnot had failed to meet production targets, which had forced it to allow this contract to expire and to seek an alternative supplier at a lower price. The NUM was particularly aggrieved with the approach being taken by Eskom CEO Brian Molefe, whom the union said was “shedding jobs” as he had at fellow State-owned company Transnet. “Our members are facing a bleak future and there are possible job losses of 1 139 permanent employees excluding contractors with 546 employees at Exxaro Arnot coal mine. This is a calamity,” Mabapa said. “The NUM will embark on a massive national strike to Eskom head office if Brian Molefe does not address concerns of our members,” he added, noting that Molefe had hitherto failed to respond to several letters requesting a meeting. GRAIN PLUNGING RAND AND RISING MAIZE PRICES WILL MAKE FOR BITTER HARVEST (Business Day, 8/12/2015) SA suffered a double bout of bad news yesterday as the rand sank to a new low and the prize of maize hit a 21-month high. The sharp rise in the price of maize and the continued weakening of the rand is threatening to rapidly push up food prices. December white maize futures on the JSE spiked nearly 7% yesterday as the drought begins to take its toll. At R3,720 a tonne white maize, a staple in SA, hit record levels, and is now 74.2% higher since the beginning of the year. This would affect food prices in the short term, said Grain SA CEO Jannie de Villiers. He said the main cause for the spike was the realisation that it was now too late for farmers in the eastern part of the country to plant. He estimated that the total crop at the end of the season was likely to amount to about 8-million tonnes, which was substantially less than the 10.5million tonnes required for domestic consumption. “Still, it is clear that SA will have to import maize next year, which brings us to a further problem,” he said. “Infrastructure at the country’s ports is unlikely to cope with the import requirement. Even if people could afford to buy imported maize, they might not have access to it if the grain cannot get to the inland mills. These two factors are a threat to food security,” Mr de Villiers said. The rand, meanwhile, weakened yesterday to a record low of R14.5635/$, down 1.38% on the day. A ratings downgrade and outlook change to negative on Friday affected sentiment. Importing maize with a softer rand will widen SA’s current account deficit. AgriSA senior economist Thabi Nkosi said that while lower-income groups felt the effect of food prices first, it would affect the entire value chain. “The price and availability of maize is critical to all food,” she said. CHROME & MANGANESE SOUTH32 TO CUT MORE THAN 400 JOBS AT S AFRICAN MANGANESE MINE – UNION (Mining Weekly, 8/12/2015) Australian-listed South32 plans to cut 447 jobs at a South African manganese mine, the National Union of Mineworkers (NUM) said on Monday, in the latest in a slew of layoffs in the embattled industry. The union, which is the country's largest mining labour body, said it had received notice from South32 that the company planned to cut the jobs and called on the mines ministry to "intervene to halt" to prevent the layoffs. NUM said over 1 000 workers are employed at the Hotazel mine in Kuruman, about 550 km (341 miles) south east of Johannesburg. South32 spokesperson Lulu Letlape said the company was consulting with employees through unions on job cuts. Voluntary redundancies and early retirements were being considered to minimize the impact on workers, she said. South32 produces manganese, silver, nickel and coking coal, some of the industrial mainstays that have been hardest hit globally in the wake of China's economic slowdown. South32, which was spun off from BHP Billiton in May, said its review of its South African manganese operations would be completed by December and said its mines were unlikely to restart until January. Mining companies in South Africa are under pressure

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from rising costs and falling prices, forcing companies to close shafts and cut jobs to survive, angering unions, which have opposed the layoffs. See article “SOUTH32 DUVHA COAL SUPPLY MINE 'CHALLENGING' under heading COAL NON-FERROUS METALS ZINC GAINS AS NYRSTAR PLEDGES CUTS TO US OUTPUT (Mineweb, 8/12/2015) Zinc rose for a second day as Nyrstar said it will reduce output at its US operations and warned of further suspensions, aiding prices for the metal that is forecast to fall into deficit in 2016. Europe’s largest refined-zinc producer will lower annual production by 50 000 metric tons of concentrate, the company said in a statement on Monday. Nyrstar will also cut 9 000 tons of refined metal, it said. The changes follow a similar announcement last month by 10 Chinese smelters who agreed to reduce output by 500 000 tons in 2016. Glencore also said in October it will scale back production by a third. Zinc is heading for the biggest annual decline since 2008 after tumbling 28% this year on concern there’s too much supply and not enough demand from China, the biggest consumer of raw materials. The reduction in output increases the likelihood of supply deficits, which Societe Generale forecast at 50 000 tons in 2016 in a December 4 research note. In other metals, copper fell 0.2% to $4 605 a ton, extending losses for the year to 27%. Last week, suppliers including Jiangxi Copper Co and Tongling Nonferrous Metals Group Co pledged to reduce output next year by 350 000 tons. “Production cuts announced by Chinese copper producers may not be enough to support prices, even if the reductions are fully implemented,” Bloomberg Intelligence analysts Yi Zhu and Kenneth Hoffman said in a note on Monday. Nickel and lead advanced. Aluminum and tin were little changed in London. GENERAL RAND FALLS TO RECORD LOW AFTER RATING CUT (Business Report, 8/12/2015) The rand fell to a record against the dollar and bonds tumbled yesterday, sending yields to their highest levels since February 2014, after Fitch Ratings cut South Africa’s credit rating and Standard & Poor’s lowered its outlook on the country’s debt. The rand declined by as much as 1.1 percent to R14.5399 per dollar before paring losses, weakening with most major and emerging market currencies as the greenback rose on speculation a strengthening US economy will boost the pace at which the Federal Reserve increases interest rates. After the latest credit rating reviews, Finance Minister Nhlanhla Nene faces a tough Budget speech next February, where he will need to shore up government finances so as to stop the credit rating agencies from downgrading their assessment of the country’s ability to pay its debts. While Fitch’s decision to downgrade South Africa to BBB- rating, that of S&P to put South Africa on a negative outlook was, however, totally unexpected and a huge shock. John Cairns, a currency strategist at Rand Merchant Bank, said based on how quickly S&P had downgraded other countries in the past, there was a real possibility South Africa would face a full downgrade next year, losing its investment grade status. “S&P highlighted the slow pace of negative growth, the large current account deficit, and the contingent liabilities from state-owned enterprises with weak balance sheets.” CURRENCIES AND PRICES

JSE AS AT 17:00PM 7 DECEMBER 2015

All Share Index 7/12 49,861

+ 576.25 + 1.17%

Industrials Index 7/12 41,448

+ 409.24 + 1.00%

Financials Index 7/12 42,035

+ 494.05 + 1.19%

Top 40 Index 7/12 44,899

+ 551.24 + 1.24%

Industrial 25 Index 7/12 69,606

+ 922.11 + 1.34%

Financial 15 Index 7/12 15,641

+ 205.73 + 1.33%

Resources 10 Index 7/12 25,472

+ 102.68 + 0.40%

Alt-X Index 7/12 1,546

+ 6.86 + 0.45%

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WORLD INDICATORS

FOREX

Rand/Dollar 06:21 14.5242

+ 0.23 + 1.62%

Rand/Pound

06:30 21.8134

+ 0.14 + 0.66%

Rand/Euro 06:30 15.7508

+ 0.12 + 0.79%

COMMODITIES

Gold (usd/oz) 06:21 1,072.90

- 14.40 - 1.32%

Platinum (usd/oz)

06:21 858.35

- 17.63 - 2.01%

Brent (usd/barrel) 06:21 41.02

- 1.98 - 4.60%

WORLD MARKETS

Wall St (DJIA) 7/12 17,731

- 117.12 - 0.66%

Germany (DAX)

7/12 10,886

+ 96.85 + 0.90%

Japan (Nikkei) 06:21 19,499

- 198.75 - 1.01%

3 month

(Business Report, 8/12/2015)

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(TFR Commercial Management: Business Performance Dept)

Petrol/ Diesel Price

YR2015

07-Jan-

15

04-Feb-

15

04-Mar-

15

01-Apr-

15

06-May-

15

03-Jun-

15

01-Jul-

15

05-Aug-

15

02-Sep-

15

07-Oct-

15

04-Nov-

15

02-Dec-

15

COASTAL

95 LRP (c/l) 1083.00 990.00 1086.00 1246.00 1246.00 1293.00 1334.00 1283.00 1214.00 1218.00 1196.00

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95 ULP (c/l) 1083.00 990.00 1086.00 1246.00 1246.00 1293.00 1334.00 1283.00 1214.00 1218.00 1196.00

Diesel 0.05% (c/l) 997.49 895.49 969.49 1090.09 1085.09 1134.09 1138.09 1062.27 1008.27 1061.27 1052.27

Diesel 0.005% (c/l) 1001.89 899.89 973.89 1096.49 1091.49 1137.49 1141.49 1067.67 1016.67 1067.67 1057.67

Illuminating Paraffin (c/l) 697.728 595.728 668.728 690.828 685.828 727.828 733.828 663.828 608.828 658.828 656.828

Liquefied Petroleum Gas

(c/kg) 1829.00 1679.00 1833.00 1918.00 1935.00 2035.00 2091.00 2002.00 1887.00 1898.00 1851.00

GAUTENG

93 LRP (c/l) 1102.00 1009.00 1105.00 1261.00 1261.00 1308.00 1352.00 1301.00 1232.00 1230.00 1208.00

93 ULP (c/l) 1102.00 1009.00 1105.00 1261.00 1261.00 1308.00 1352.00 1301.00 1232.00 1230.00 1208.00

95 ULP (c/l) 1124.00 1031.00 1127.00 1289.00 1289.00 1336.00 1377.00 1326.00 1257.00 1261.00 1239.00

Diesel 0.05% (c/l) 1028.09 926.09 1000.09 1122.79 1117.79 1166.79 1170.79 1094.97 1040.97 1093.97 1084.97

Diesel 0.005% (c/l) 1032.49 930.49 1004.49 1129.19 1124.19 1170.19 1174.19 1100.37 1049.37 1100.37 1090.37

Illuminating Paraffin (c/l) 747.928 645.928 718.928 743.828 738.828 780.828 786.828 716.828 661.828 711.828 709.828

Liquefied Petroleum Gas

(c/kg) 2011.00 1861.00 2015.00 2100.00 2117.00 2217.00 2273.00 2184.00 2069.00 2080.00 2033.00

YR2014

01-Jan-

14

05-Feb-

14

05-Mar-

14

02-Apr-

14

07-May-

14

04-Jun-

14

02-Jul-

14

06-Aug-

14

03-Sep-

14

01-Oct-

14

05-Nov-

14

03-Dec-

14

COASTAL

95 LRP (c/l) 1320.00 1359.00 1395.00 1398.00 1383.00 1361.00 1392.00 1392.00 1325.00 1320.00 1275.00 1206.00

95 ULP (c/l) 1320.00 1359.00 1395.00 1398.00 1383.00 1361.00 1392.00 1392.00 1325.00 1320.00 1275.00 1206.00

Diesel 0.05% (c/l) 1260.55 1284.75 1311.95 1299.15 1269.37 1245.79 1259.79 1254.17 1228.79 1215.79 1154.79 1101.49

Diesel 0.005% (c/l) 1263.95 1288.15 1316.35 1304.55 1274.77 1249.19 1263.19 1258.57 1234.19 1221.19 1161.19 1106.89

Illuminating Paraffin (c/l) 963.828 975.828 991.828 953.028 934.028 924.028 947.028 940.028 921.028 907.028 855.028 805.728

Liquefied Petroleum Gas

(c/kg) 2260.00 2314.00 2372.00 2350.00 2346.00 2319.00 2377.00 2365.00 2257.00 2269.00 2164.00 2039.00

GAUTENG

93 LRP (c/l) 1336.00 1375.00 1411.00 1416.00 1401.00 1379.00 1408.00 1408.00 1341.00 1343.00 1298.00 1229.00

93 ULP (c/l) 1336.00 1375.00 1411.00 1416.00 1401.00 1379.00 1408.00 1408.00 1341.00 1343.00 1298.00 1229.00

95 ULP (c/l) 1357.00 1396.00 1432.00 1439.00 1424.00 1402.00 1433.00 1433.00 1366.00 1361.00 1316.00 1247.00

Diesel 0.05% (c/l) 1287.15 1311.35 1338.55 1329.75 1299.97 1276.39 1290.39 1284.77 1259.39 1246.39 1185.39 1132.09

Diesel 0.005% (c/l) 1290.55 1314.75 1342.95 1335.15 1305.37 1279.79 1293.79 1289.17 1264.79 1251.79 1191.79 1137.49

Illuminating Paraffin (c/l) 1009.728 1021.728 1037.728 1003.228 984.228 974.228 997.228 990.228 971.228 957.228 905.228 855.928

Liquefied Petroleum Gas

(c/kg) 2442.00 2496.00 2554.00 2532.00 2528.00 2501.00 2559.00 2547.00 2439.00 2451.00 2346.00 2221.00

(SAPIA online)

Daily prices for 7 December 2015

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LME Official Prices, US$ per tonne

Contract Aluminium Alloy Aluminium Copper Lead Nickel Tin Zinc NASAAC

Cash Buyer 1605.00 1497.50 4592.00 1685.50 8930.00 14875.00 1537.00 1705.00

Cash Seller & Settlement 1615.00 1498.00 4592.50 1686.00 8940.00 14880.00 1537.50 1706.00

3-months Buyer 1605.00 1508.00 4595.00 1690.00 8960.00 14825.00 1557.00 1715.00

3-months Seller 1615.00 1508.50 4598.00 1692.00 9000.00 14850.00 1558.00 1720.00

Dec 1 Buyer 1605.00 1540.00 4590.00 1705.00 9035.00 1588.00 1755.00

Dec 1 Seller 1615.00 1545.00 4600.00 1710.00 9135.00 1593.00 1765.00

15-months Buyer 14735.00

15-months Seller 14785.00

Dec 2 Buyer 1585.00 4595.00 1730.00 9115.00 1615.00

Dec 2 Seller 1590.00 4605.00 1735.00 9215.00 1620.00

Dec 3 Buyer 1642.00 4590.00 1755.00 9200.00 1633.00

Dec 3 Seller 1647.00 4600.00 1760.00 9300.00 1638.00

(London Metal Exchange, 8/12/2015)

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