Market Update

Good afternoon

The US$ is playing with the 1.10 Euro-level...also strong against Sterling ( 1.21 today vs a high of 1.70 as recently as 2014! )....not good for gold & base metals! But both are managing to hold their prices in London today - base metals even a bit stronger. Gold is still fighting with the 200-day moving average...what not goes up, has to go I am a little bit cautious for gold in the short term. Having said that, I have used the weakness in EVN to buy some stock...In relative terms, I am sure of doing the right thing - but I continue to feel unsure about the short term direction for the gold price.

This Trump-story in the States is becoming more bizarr by the day....what a country.....

You know me - I always have to enlighten my day with some kind of a bullish story. As you might have read, I have been talking about the bulk´s a bit the last few days...I think this story has way to run - especially in our smaller stocks.

Here you can see the performance of some companies active in coal this year. I am using the 31st of December 2015 as starting date ...that´s way higher than the lows reached in late Jan/early Feb. I am doing this just to give you a feel for the massive bull market in these things, which has gone largely unnoticed:

                    movement since 31.12.2015                         market cap

BHP                            31%                                            117 bill A$

Teck                            354%                                         14 bill Can$

Anglo                          250%                                         13 bill Pound

JSW                            486%                                         7.3 bill Zloty or 1.9 bill US$

Bogdanka                   90%                                          2.1 bill Zloty or 530 mill US$

Whitehaven Coal       400%                                         2.8 bill A$

Alliance Resource      70%                                           1.7 bill US$ 

As you can see - we are talking very serious companies here...not just some exotic little nobodies! and the market for seaborne coking coal I believe is something like 300 millt p.a. - that´s a market of 60 bill US$ at this Quarter´s contract price!                             

Prairie Mining - the company is genuinly bullish about their new aquisition I have been talking about yesterday. They have bought this asset for just under 3 Mill A$...amazing! Apparently, they have been the only serious bidder, who could move on the short time horizon given by the receiver of the previous owner. PDZ will use a very different approach from the big-company approach used by the previous owner...they will develope a much smaller, much cheaper operation. In Poland, we are talking low cash cost of coal production - down to 25-30 US$/t...If you apply these costs and use just half the current coking call price, you can arrive at very significant valuations for such an asset. 

Furthermore, I have digged out some old initiation report from 2015, written by GMP Securities, which used to be a serious, Canadian broker...just based on the Lublin thermal coal project, they arrived at a valuation of 1.05 AS$/share price taget, using just 0,3x NPV10%, at a 80$/t long term thermal coal price!! The coal price used might be very ambitious - but a fact is, that the dirty stuff is trading at 84$/t today! A fact is also, that NOBODY would have ever thought, that thermal coal could go to anything close to todays price in 2016 - and I do not know a single analyst, who had pencilled in 100 $/t for coking coal - that is trading at 215 $ today!!

I am not saying, that we should use these prices to evaluate the long term value of coal assets....but what I am saying is, that stories like Prairie Mining are a fantastic punt! Yes, the stock has moved by 100% this year...But I think they have just started! Unfortunately, I have not been daring enough here, and only have a position of 1.5% of my fund in PDZ - but I won´t sell the few I have any time soon!

Paringa - this is a different kind of story, and with much less potential...but still a great story! Paringa will be producing thermal coal in Ohio in 2018, pending a very limited financing. The market in this stuff is very much a local market,  prices are different, and normally fixed with long term contracts. PNL have the same group backing them - Ian Middlemas etc - but different management. The stock is profiting from a re-awakening of interest in coal assets in the States. Coal to be burnt in power stations will be used in the States for a long time to come, notwithstanding efforts to reduce carbon emissions. Alliance Resource Partners is a much larger entity, and a good example for what Paringa will be doing. Again - respected Australian broker Argonaut published a research report in July 2016, valuing the stock at 0,98AS$, using a 15% discount to a NPV12%.....Paringa are trading at 29ct today, just 10% higher than at the beginning of the year!! You can bet your bottom $, that Australian punters will flogg to this one, if Paririe will continue it´s run ( and it´s already trading 20% higher today in Poland and Germany, than in Australia - with combined turnover of 4 mill shares by early afternoon! )

If you want some research on these stocks, please contact us.

Lucapa - reelased some early numbers from their Quarterly Report: Record production of 8.853 ct , incl 137 specials ( diamonds above 10.8 ct ). Average size of diamonds produced was 1.9ct - also a record, resulting in an average grade of 13.7ct per 100 cubic m. Mining is going gangbusters with the new equipment - 64.700 cubic m. This is great stuff - and the diamond market is improving further, as Alrosa reported today, enabling them to sell some of their stockpile this year. The only negativ I can think of in the moment: The wet season will start in Nov, until April - stock could become a bit quieter, even though they will continue mining.

have a good evening


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