Commodity euphoria for the miners
Pricing strength in bulk commodities and precious metals shines
through yet again. Our preferred mining equity picks focus on the
well diversified (BHP); the inexpensive (Xstrata) and for export bulk
exposure (Felix, Macarthur and Gloucester coals).

Iron ore and coal market tightens
Infrastructure constraints and increased demand have improved the price outlook for
the bulk commodities. Iron ore has enthralled the market, with spot prices landed
into China having almost doubled since the start of 2007. Although higher freight
costs have played a role, ongoing growth in Chinese and Asian demand has been a
significant driver. We are now looking for a 25% increase in iron ore prices and a 20-
25% increase in coal prices. Thermal coal is forecast to post the largest gains due to
reduced Chinese exports, slower growth in Indonesian exports and stronger demand
from cement producers and power generators.
Precious metals set to outperform industrial metals
China remains the common denominator for commodities with a pivotal role in
determining their market outlooks. We expect precious metals to outperform the
industrial metals. Gold is garnering support from the weaker US dollar, with platinum
benefiting from exhaust emission auto-catalysts. Industrial metals through to 2011F
face global supply surpluses, build in inventory and a declining price environment.
Buy exposure to bulk materials with a touch of copper
BHP Billiton remains our preferred investment among the miners with a portfolio
positioned to take advantage of stronger bulk and energy earnings. Xstrata also looks
cheap (~10x PE) with strong cash generation and broadened coal, chrome and PGM
exposure. Alongside these positive recommendations, we have downgraded Rio Tinto
on the back of recent share price gains. In the Australian coal sector, our preference
is for exposure via Felix Resources, Macarthur Coal and Gloucester Coal. All have
exposure to export markets and should benefit from the expected increase in
metallurgical and thermal coal prices.

Contents
G L O B A L M I N I N G 4 O C T O B E R 2 0 0 7 2
E X E C U T I V E S U M M A R Y
Mining strategy – earnings bonanza 3
Our stance towards the miners has not changed much since our review in July.
Our top pick going into the LME Week mating season and 4Q remains BHP Billiton,
but we also think Xstrata could pick up going into 2008.
Annual commodity price assumptions 2006-2001F 7
I N D U S T R Y D Y N A M I C S
Commodity euphoria unleashed 9
Commodity prices remain the talk of the town, but the supply side response is
underway and price fragmentation is already occurring. We expect industrial
metal prices to wane, but bulks and precious to take up the baton.
Aluminium – near term, challenged by record supply 17
Alumina - rising costs to prevent another collapse 22
Copper – flagship metal still sailing majestically 26
Nickel – price plunge a wake-up call for nickel 33
Zinc - faces supply surplus through to decade-end 38
Lead – China holds the key to the lead market 42
Gold – a beacon in the darkness 47
Platinum and palladium - strong strategic focus 53
Coal – prices upgraded as market tightens 58
Iron ore – another bumper year in progress 64
Uranium – price ran too hard, too early 69
S E C T O R D Y N A M I C S
Revisions to our company forecasts 72
Upward revisions to our commodity price profile, notably for iron ore, coal, copper
and precious metals, have led to positive earnings revisions for the miners since
our last review.
C O M P A N Y P R O F I L E S
Xstrata 84
Rio Tinto Plc 96
Anglo American 101
Vedanta Resources 113
Antofagasta 123
A P P E N D I X
Global metals and mining team 128
Guide to commodity applications 129
Glossary of useful mining industry websites 130
Selected websites for industry statistics 131