Industry Trend Analysis - Weekly Mining & Projects Roundup - AUG 2014

The Bloomberg World Mining Index should remain committed to its upward trajectory over the next few months as the outlook for mining companies' earnings is improved by robust global metal prices. We anticipate a warming of investor sentiment toward mining equities as stronger-than-anticipated Chinese manufacturing data indicates that metals demand from the Asian giant should be resilient over the coming months. This will bolster global metal prices and improve mining companies' earnings, which will be reflected in their share prices. China's HSBC flash purchasing managers' index (PMI) soared to 52.0 in July, well above the consensus estimate of 51.0. The result marks the indicator's highest print since January 2013.

A major ramp up in iron ore supply will partially offset the negative impact on revenue from weaker prices for the world's largest iron ore mining companies, BHP Billiton, Rio Tinto and Vale. We maintain our view for the major diversified miners to outperform their smaller counterparts as the latter are squeezed out of the market by lower prices.

In the gold sector, AngloGold Ashanti's share price is set to perform relatively well as the company successfully restructures in an era of comparatively weak gold prices. AngloGold beat production and cost guidance for Q114 by firstly ramping up output at its two new low-cost mines, secondly shuttering unprofitable capacity and thirdly boosting efficiency across all operations. Production surged to 1.06moz at a total cash cost of USD770/oz, marking AngloGold's strongest Q1 performance in four years. All-in sustaining costs declined by 22% to USD993/oz. We forecast gold prices to average USD1,195/oz over 2014-2018, significantly lower than their 2012 average of USD1,669/oz, which highlights how crucial cost-cutting plans will be for gold miners over the coming quarters.

Bolstered By Buoyant Metal Prices
Bloomberg World Mining Index (Weekly)

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