Market Update

General - Fortescue - Evolution - Kingsgate - Perseus - Crusader

Good afternoon

who would have thought, that the FBI might be the decisive factor in the US presidential election? I guess the low probability of Trump winning has certainly risen....and I guess that cannot be bad for the gold price . We should shortly see a catch-up of gold mining companies, which have decoupled somewhat from a slowly rising gold price over the last 10 days or so.

LME-week ist starting with a buying spree for base metals!

Back from wonderful Australia and not enjoying the temperatures here!

One thing has been pretty obvious from the latest round of Quarterly Reports, and meetings downunder: Further cost cutting will be very hard to come by! All the easy stuff has been done, and it´s now coming down to deploying new technology, like Big Data etc...and that will not come for free. On the positive side: The resource market has developed some steam over the last few month, and that in itself will be increasing the price pressure for supplies, services, and eventually salaries ( even though the latter is not in sight as yet ).

I made a fantastic trip to visit mining- and transport operations of Fortescue in the Pilbara, which was extremely impressive...FMG has been adopted some of the new technology available, which would have been unthinkable 2-3 years ago. The mine we visited has 54 trucks from Caterpillar, all carrying 230-250t of iron ore on each ride...and none of them have a truck driver!!! Science fiction in mining...!Autonomous trucks have definitely arrived in the mining industry - certainly in large  operations, mining large orebodies. FMG for are still using 15 driver-driven trucks, for mining in areas, which are more difficult - but the days of truck drivers earning 160-180.000 $/year have definitely gone. The company has reaped 20% productivity increases from these accidents, more fuel-efficient etc etc....and as these things are moving 24h the day, all year round, up to 200 drivers are not needed anymore..54 trucks x 2, and these guys work 20 days on - 10 days off...also saving HR-personal, cost of search, mine camps, transport etc etc...massive numbers. Shortly, these trucks will all be "driven" by the control center in Perth ( 1500 km or so from the mine site! ), as most other functions of the plant. 

For readers, who are interested, I can go into much more detail - but to put it short: FMG is a show case of modern, efficient mining - very very impressive. Furthermore, the company has managed to keep this important "big family" spirit, which gets the extra few percent out of people, as they sorrowly enjoy to work for "their" company. I think very few companies outside of the technology space manage to conserve this attitude, once in production - in Australia, and of companies I know reasonably well in the mining space, perhaps only Evolution. (well, poor Panoramic has been a bit like that, but nearly all people have gone now! ). 

I have no doubt, that over the next few years, we will see some of the technology used at FMG at smaller mining operations as well...But still - this will take time.

Australians were generally pretty negative on their country - Turnbull has disappointed many, not delivering on his positive rethoric and good ideas, resulting in most investors/managers I spoke to being quite cautious on the AS$ - but I guess we are all negative on our respective countries, as we experience them every day. I can see no chance for the A$ to retreat, the way prices of iron ore, coal and resources in general have been moving upwards.

The strength of the Chinese economy, and Chinese demand for all commodities has certainly surprised many, and some expectations are now for a continuation of stronger than expected prices for iron ore, coking coal, and thermal coal. The best of this is, that having just gone through the most difficult resource market in 20 years or more, supply discipline is still very much on major miners mind. Some of the "supply" discipline is actually not discipline - it´s just happening as a result of heavy under-investment. I also believe, that this is not going to change for at least the next 12 month - the pressure is still on debt reduction, and on paying dividends for most of the large miners. The strength of iron ore and coal are surprising us nearly every day - and while not getting the headlines so much, base metal prices have ahd a very nice run except for copper - that will have it´s day in 2017!

So - for us, lucky times! I guess most of us own enough stock from having been faithful over the years - we are now reaping the rewards, and I think it might have only just started. The biggest risk to this view got to be some man called Trump. who hopefully will not come out trumps!!!

Evolution - a normal Quarter - but consistently very high costs for Edna May. I would not be surprised, if this mine would be sold - but only once currently implimented measures to cut costs have shown fruition, probably in 1st Quarter 2017. Overall, costs have been about 5% higehr then hoped for, and jake Klein is ramming down the idea of cost containment into his people. The flagship, Cowal , delivered more excellent exploration results, and just today, Emmerson Resources reported very good drilling results from their Tennant Creek properties. EVN own 12% of the copmpany, and are earning 65% of the project, by spending 15 mill$ in exploration ( 10 have been spent so far ). The asset increasingly looks like a mine - but not sure, whether it will make it to be large enough to make a difference for EVN. Evolution is good buying down here - they have made huge progress on average asset quality, and I think the last transaction, this streaming-type deal on Earnest henry, could work out to be very positive, especially, if the expectation of slowly rising copper prices will come true. I am back to a full position in the stock now.

Kingsgate - back on board! The company started trading again - at a miserly 20ct/share! Still a very complex situation...the metallurgical license for the Chatree Mine expires at the end of December. I am sure, that we have a highly corruptz situation here in Thailand - somebody is trsing o get his hands on the mine very cheaply. The asset has 3.5 mill oz in resources - albeit few reserves - and certainyl, the company owns the large plant, which under any circumstances, should be worth something. KCN ahve produced 20.000 oz in October alone, and they are confident of having the Thai subsidiary debt free by the end of the year. That has been a very positive surprise to me - but they better do, as I believe, that the Thai subisidiary has made inter-company loans to Kingsgate as a way to repatriate profits to Australia, which could be called, if necessary. That does create some if not existential, but significant risk. Nueva Esperanza in Chile continues to look good - especially in conjunction with other assets nearby. So at 20ct, KCN could turn out to be a good punt. KCN believe, that tehy have a few asses up their sleeve...let´s wait and see - in any case, this is nothing for risk-adverse investors. One comment from EVERYBODY I spoke to about teh company is, that Ross Symth-Kirk must resign - he is not acceptable any more to Australian institutions - whether wrongly or rightly. I fear the pressure on Ross, whom I have known for a very long time, is increasing...

Perseus - I had a very positive meeting with them. Costs have come down nicely last Quarter, and notwithstanding some downtime this Quarter for some changes to the plant, they should continue to do so from the new year on. PRU are cheap vs the market, and in absolute terms. They also have an excellent growth profile over the next few years, by bringing on in late 2017, and Yaoure especially with 200.000 oz or so in 2020, subject to an updated final feasibility study due by the middle of 2017 calendar year. There is a good chance, that they will be able to finance this without fresh equity - from cashflow and limited bank debt. The stock had underperformed until recently, but that has changed quite dramatically over the last few weeks. I think PRU and it´s management are starting to get the benefit of the doubt - and that´s well deserved!

Crusader - had a better Quarter, for a change! Posse Iron Ore turned around and produced a small operating profit, as September delivered the best month in a long time.The same good performance continued in October, and the company made some positive comments about demand for it´s types of product going forward into 2017. In the medium term, soem asset rationalisation in the area might be the precursor to Posse being sold for something between 3-and 10 mill$. The Jurena project saw good drilling results - small with with very high grades, and the company should issue a new resource statement in due course. Mining permits ahve been received, which is good news, as it can be a real problem in Brazil. The much larger Borborema project is expected to get mining permits in the very near future as well - that would be really good news, opening the door for divestment, or a JV. I still believe, that the parts of the company could be worth significantly than the current market cap, and following the capital raise a few month ago, the stock is not as risky anymore - now debt free.

Have a nice evening - more tomorrow!