March 23, 2010

Dear Friend,

We are suspending research coverage of FNX Mining, which we previously rated Overweight, until we can revise our earnings model and update our analysis for the Quadra Mining merger.  Separately, Quadra Mining is slated to speak at our November 9-10, 2010 conference and we visited their Robinson and Carlota copper mines in the U.S. two years ago.

 

We have substituted U.S. Gold's CEO, Rob McEwen, in place of FNX Mining for the 10:40 - 11:20 am on March 24th at our conference as FNX Mining withdrew.  Brett Resources cancelled for the "Core Shack" at 2:20 pm on March 25th due to its acquisition by Osisko.  We substituted Labrador Iron Mines' Chairman and CEO, John Kearney, in place of PolyMet Mining at 10:00 am on March 24th.  The updated agenda for March 24-25th is attached.

 

On March 22nd the World Steel Assn. reported record Chinese steel output breaking the September 2009 record by 6.4%, reaching 1.7 mmt per day.  On March 22nd the Int. Alum. Institute reported record Chinese February aluminum output breaking its November 2009 record by 5.2%,  reaching 46,500 mtpd.

 

Chinese manufacturing appears to be accelerating despite the New Year, lending restraints and interest rate rises.  Higher Shanghai stocks, high exchange inventories globally and lower Chinese nonferrous imports since last October appear to be a "head fake" depleting huge stockpiles as consumption probably is rising with output.

 

These dynamics particularly benefit the six large diversified mines rated Overweight -- BHP Billiton, Rio Tinto, Vale, Xstrata, Anglo American and Teck -- directly via iron ore and met coal sales and indirectly through all the commodities, whose producers benefit generally.

 

Our revised aluminum demand-supply model indicates tightness in 2012, and large inventory declines in 2013-16.  The aluminum market has "hope," and we are warming up despite its current surplus.

 

John C. Tumazos