Market Update

General - Genex - West African - Oz Minerals - Finders Resources - MSCI rebalance

Good afternoon

the day of profit-taking is with us, finally! Iron is down from a crazy price, thermal coal under some pressure...stocks like S32, Whitehaven and BHP saw some profit-taking in Australia, and base metals are now down in London as well.

Not that surprisingly, gold is rebounding a little today, with bonds...this bond/gold trade still ongoing, it seems. Holdings in the Gold ETF fell quite sharply after the election - but I do not believe, that this will last for very long..As I said yesterday - in my opinion, we are having a great buying opportunity for gold here.

Construction and domestic consumption helped Germany to a smaller than expected 0,2% GDP growth, QoQ. Exports contracted slightly, while investment was sloppy as well. German investor confidence rose by more than expected. In the US, Retail sales have been stronger than expected. An interest rate rise in December is a done deal, especially, as it would only be confirming, what the bond market is already pricing in. 

Goldman´s are trying their luck as least they are forecasting a coking coal price of 350 US$ for the 1st Quarter 2017, slowly reducing over the year, as Chinese production comes back on, and as some mines around the world re-open. I think they could be right -only, if we see some heavy flooding in Queensland, limiting mining operations. For 2018, they see an average price of 125 US$. I guess they will be wrong for the first Quarter ( too high! ) and they will be wrong for 2018 as well - too low! 

Resolute will be added to the MSCI Small Cap Index effective close, 30th of Nov. This should have a positive effect, and has had it today! This is the only stock I am following, which will be included/excluded.

Genex - two solar powerstations in Australia, with a combined capacity of 155 MW, were sold in Australia today for a 257 Mill A$ to an infrastructur fund. Transferred to the 50 MW solar plant of Genex, this would equal 66 mill A$%, about 37% more than the current market cap and 15-25 mill A$ more than a recent research report valued it at. I can only repeat: This stock is a great opportunity in my opinion! In this world, projects like the ones from Genex are easily financable, and usually, find some government or government-body, which guarantees the electricity that only very small equity is needed to build them. In the case of the solar plant, the equity will be 5 mill$ for a 120 mill$ project - and valuations for this proejct alone are anywhere between 40-and 60 mill$. The hydro project is 5x larger - and while I do not expect financing conditions to be as favourable as for the solar plant, I think the valuation up-tick will be very considerable as well. The next step for GNX is financial close and start of construction, to be producing power by Dec 2017.

West African - once again announced some excellent drilling results from their M1 South deposit - 5m at 30g, 14m at 12g - and some good resource-conversion holes from M5 deposit. The company is on track for a new resource statement, as well as a full feasibility study in December. For as long as gold does not slip below 1200 US$, I have absolutely no worries here. The stripping ratio for M1 South will end up much much higher than for M5, but excellent grades should this make easily economic with AISC a long long way below 1000 US$/oz. I guess the stock has not been helped by the negative news of Cardinal recently, but it´s much more advanced, and negative surprises here should not be expected. 

Oz Minerals - reserve update today, and announcement of new mine plan. The Prominent Hill plant will be run at full capacity until 2023 by processing all open pit, and stock-piled ore + some underground, and then at reduced capacity and fed by underground only, to at least 2028, at a arte of 3.5-4 millt p.a. The company now has reserves of 75 millt at 1% copper, and 0,6g gold for 740.000t of copper and 1.4 mill oz of gold. Resources are about 2.5x larger than the reserve. The company is confident to convert more resources to reserves in the longer term. Sop far, the market had been expecting a finish to processing in this is obviously a large improvemnt. On thop if this, OZL do own the Carapateena project, which would be a huge benficiary, if copper would be going towards 3$/lb over the next year or two.

Still - the stock is not all that ceap at nearly 8$ today - but in Australia at least, the only, large copper producers are OZL and SFR - so there is very little choice for Australian investors to choose from.  

Finders - at 2.75 US$/lb, and an exchange rate of 0,76 A$ to the US$, these guys will be making cash flow of about 60 Mill A$ before debt service next the end of financial year June 2019, they will be debt free...this stock is very cheap, even though the recent, disappointing and ill-timed placement has diluted us somewhat. Once things have normalized, the stock should trade 50% higher easily. If not for the placement, FND would tarde at 20-21ct - this way, you can buy them at 16ct! Great opportunity, and I declare my interest!

Have a nice evening


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