Market Update

General - base metals - Paringa - Kasbah - Breaker

Good afternoon

well some strong labour market- and housing activity numbers from late last week, and more optimism on Trump´s positive impact on the US-economy, are still pushing metals higher. I guess Angie Merkel´s decision to run again for her job, are also giving markets a bit more confidence into stability in Europe.

Whatever the reason - all metals are looking as strong as a bull today - and ALL of them would make new closing highs in A$ terms, as they are trading in the moment!! Copepr up nearly 3%, same as nickel, and zinc + lead nearly 2% stronger. And - thank´s god - gold is a touch stronger as well, and will hopefully not dive below 1200 US$, which would be very negative short term for the chartists.

I  find it hard to comprehend, that the A$ is relatively weak against most currencies...but obviously, this is good news in a way for our metal producers. I still believe, though, that the A$ should trade stronger over the next few month, as iron ore at 72 US$, and still very strong coal prices vs expectations from just a few month ago, should drive the Aussie higher. Last but not least, the 50 bill A$/year tourism industry is also profiting from the currency. 

Breaker Resources - late last week announced some good drilling results, along strike from their recent discoveries, and further closing the gap between previously deliniated resources ( well, tehy do not have a formal resource at this stage, due to drilling density ). These results makle up for the slightly disappointing results in late October. The company is certainly making good progress, and since they did the last placement to raise 12 mill A$, also have enough cash in the bank to give their discovery a really good shot - but at this stage, I am not convinced, that they will have a mine. Grades might be a bit on the low side, once you put a a pit-outline around the results so far, apply stripping ratio etc...It´s too early to tell, but just to follow my gut feeling, it´s still a bit skinny for now. 

Paringa - announced an updated BFS today for their two, planned coal mines in Illinois. The so-called No.2 Mine, the Poplar Grove Mine, is planned to produce 1.8 millt of coal, starting in the 3rd Quarter of 2017. Averga e, annual EBITDA should be 39 Mill US$, Total Initial Capex only 40 mill US$. The ungeared NPV8 is 172 Mill US$ or 226 Mill A$, for an IRR of a healthy 35%. These numbers exclude the recently disovered, additional coal seam, which could improve numbers substantially.

The No.2 Mine, once fully developed, could bring production 5,7 millt p.a., average annual EBITDA of 132 Mill US$, and a NPV8 of 500 mill US - or 650 Mill A$. While I have to sell a few shares, whenever the share price makes a jump, this is only for risk-management reasons...Market cap today is only 92 mill A$ - a far cray from NPV even for the first mine...This is a relatively low-risk coal mine developement, and I believe, that the share price still has a long  way to go. 

It will be some time until we will know the effects of the new seam in Poplar Grove - but it should easily add tens of millions of dollars to the NPV. The next big trigger will be the announcement of the financing for the mine...

Kasbah - I mentioned it the other day - their planned tin mine in Marocco has a NPV8 of 109 Mill A$ at today´s tin price....The merger with ASN in Canada should be consumed by the end of this week. ASN´s controlling shareholder will be Pala Investment, which normally would increase the risks for independant shareholders. But once the merger is completed, the World Bank, and Lion Selection will have relatively shareholdings in the combined entity, and should look after interests of minority shareholders. For ASN, this project will give them a new lease of life, since they closed their nickel mine in Vietnam, which needs higher nickel prices. Even if I value the nickel assets at very little, the combined entity would still trade at only about 40% of the tin mines NPV, and under Pala´s leadership, the financing should be a much easier task. Once in production, the mine will be one of very few Western World tin producers, and would probably be trading at a premium to many other base metal stocks. Every 1.000$ / t or approx 5% of tin price increase, would add about 26 mill A$ to the NPV, equal to 50% of the combined company.

Have a nice evening !


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