Market Update

General - Prairie Mining - Orecorp - Genex - zinc stocks

Good afternoon

the Australian $ is rising, interest rates are rising, first signs of some inflation kicking in, iron ore and various coal types are making new recent highs just about every day, base metals ex copper have been very strong this year and are strong again today, steel is racing - and major companies, which are very leveraged because of debt or through the commodities they are producing like Glencore, Teck, Anglo or S32 have had unbelievable runs this year. This has all ingredients of a great bull market - and as usual, the small stocks will be the last to move, and possibly by the most...and at some stage, even the dogs in your portfolio will go for a run!

The Chinese PMI has been a positive surprise today....the economy has been doing very well lately in China, underpinning my belief, that commodity price rises are not only supply-driven, but also demand-driven...The US-PMI has also been slightly better than expected...

Quite surprising to me is the fact, that Australian gold stocks are not moving at all. The big reweighting has happened in the first half, and since then, stocks have given up 30% or so from the highs. That made sense, as they had been running ahead of the fundamentals - and obviously, gold fell by nearly 100$ as well. But at current levels, I can see much value around...stocks like Evolution, Resolute, Perseus or Saracen at levels, which represent value vs the current gold price. Gold has convincingly broken away from the 200-day moving average today, helped by the FBI and a weaker US$.....oh my god...will THIS MAN win the election??????????????

Prairie Mining - just before I left to Australia, they announced the aquisition of the Debiensko Hard Coking Coal Project in Southern Poland. What a coup! This is a strategic asset, in Europe, which imports 80% of it´s hard coking coal from Australia and the US, incurring approx 20$/t in shipping costs. Down to 1100 m, the asset has a so called exploration target of 120 mT to 150 mT...and this is only called that way, as the resource does not need to comply with the modern JORC standard. I very much assume, that it´s there....

It´s very high quality coking coal, similar to good quality, Australian coal - which is regarded as having a very high standard. PDZ have got this asset from the receiver, explaining, why they have got it for the crazy amount of 0.7 mill $ now - 2,2 mill$ deferred - an absolute joke. The Polish coal mining companies are all in a financially very tight position, and nobody else has been looking at it...PDZ with it´s existing Polish asset, and the Polish MD, has been in the front row here, and they have pulled it of. 

The asset is fully permitted, infrastructur at it´s door steps. The project is surrounded by existing mines, owned by JSW, Poland´s largest coking coal producer - a heavily indebted company.

PDZ´s asset could be capable of producing 2-3 millt of high quality coking coal at possibly 50 US$/t ...the current spot price is 256 US$/t, having sky-rocketed from a low of 75$...Nobody sees this price as sustainable in the long run - but a fact is, that good quality hard coking coal is pretty rare, and certainly so in the middle of Europe! Medium term prices of say 150 US$ t for this project are conceivable, and you make do the sums on it yourself...2.5 millt at 50$ could generate 250 mill$ p.a.. Even if teh development of the mione could cost 500 mill$ or so - this could be teh second fantastic asset for PDZ. Their Lublin thermal coal project is a bit of a sleeper - but thermal coal has also more than doubled from the lows, and that project alone should be easily worth PDZ´s share price. Once teh stale bulls have sold, what they want to sell, I can see substantially higher prices for Prairie Mining. Hard to believe - but coal has moved from being the very ugly duckling to a very sexy little thing...

Genex - I have been pushing this company pretty hard over the last 6 month or so, since tehy presented at our little conference in Zurich. I met them in Australia, and I have left their office more bullish than ever! The solar power project, generating 50 MW on Stage 1 of what could ultimately be a 150 MW project, will see financial clsoe very soon, and will be in construction this year - generating by the end of 2017. This is not their major project, but just to show you, how financable these proejcts are: 120 mill$ capex - 105 mill from the banks - 9 mill government grant - that leaves just 6 mill to be financed by equity or some incoming partner, for an asset, which is worth between 30-a nd 50 mill$ or equivalent of toadys market cap, and has a 20 year price guarantee for electricity from the Queensland Government. If they can pull off a similar financing structure for their 350m MW hydro pump project, located at the old Kidston Gold Mine and adjacent to the solar plant, the stock could be worth a multiple of today´s price - and I think it will be! A hydro pump power station effectively is a large battery - pumping water up, when the electricity price is very low at night time, and letting it down, when prices are high in the morning and in the evening, when people come home and get the washing machine started.... South Australia is having major problems with their electricity system, due to the very high percentage of wind and solar being produced. The same could happen in Queensland, where GNX are based. Everybody has a huge interest to see this project come off the ground, and I would expect another government grant for it , of up to 50 mill$. The feasibility study for the hydro pump project should come out any day - it´s overdue.

Heron and Foran - I just wonder what it will take for these companies to go for a run. Zinc has gone through the roof, lead prices are up strongly - and now copper is starting to move and once again, is approaching the 5000$/t resistance level. In the current enviroment, I see a good chance for this level to be cleared some time this year. Both projects are very viable at current prices for the various metals to be produced, and both stocks could be worth multiples of today´s prices, if and when we see some speculation coming into the market for base metal stocks. That has not happened as yet - just buy a few of each and put in the bottom draw! A very similar story to my little Panoramic in nickel - once we see another 15-20% in the nickel price ( and all steel-related minerals/metals are booming currently! ), little PAN should behave like a rocket...

Orecorp - that is a new story from my trip. I have followed teh stock on the side lines for some time, and could not get that excited, as they only own 25% of their project, once tehy have spent 14 mill$ to completion of a DFS. Acacia, the current owner of the project called Nyanzaga in Tansania, can then elect to retain a 75% interest by paying ORR a multiple of it´s expenditure, depending on the NPV of the project. This all sounds a bit complicated, and it certainly has previously put me off. But two things attracted me now: Firstly, the scoping study, finished in August, looks very sexy - and second, there might well be a chance for ORR to go to 51% of the project ( that is a very unsubstantiated rumour ). If the runour is not right, ORR will end up with at least 50 mill$ in cash, and 25% of a proejct, which looks like it will have a very substantial NPV of several hundred mill$. The current market cap of ORR of 83 mill A$ ( and 15 mill in cash )does not reflect this potential at all - and certainly not the upside of ORR gaining a lkarger percentage of the project.

Nyanzaga scoping study is estimating, that the project will produce 220.000 oz for the first 5 years,. and a total of 2.4 mill oz over the initial 13 year mine life ( or 182.000 oz p.a. over 13 years ). Including a 45 mill$ contingency, the costs to build the project has been estimated at 248 Mill US$. This is a sexy project by all means, and the current pre-feasibility study will most probably confirm this ( finsihed in 1st Quarter 2017 ). Management is a mix of very senior people from Equinox ( taken over by barrick for 7 bill$ ), and Mantra ( uranium stock, taken over by some Russian company for 700 mill, if I remember correctly ). I have met with the MD, Matt Yeates, who has been operating as MD of Mantra for several years in Tanzania before - I had a very positive impression. 

Good management, good cash position, big project at average grade of 3.5g gold/t, BUT small holding in the project - though potentially to be increased are adding up to a situation, which in my opinion, is at least 50% undervalued - and potentially much more. But for more definite valuations , we will have to wait for 4-5 month, until the study is out. 

I am holding positions in every stock above, except for in Orecorp.

have a nice evening, lean back and let the bull market work for you!


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