Market Update

General - West African - Berkeley - Lucapa - Strike - Paringa

Good afternoon

industrial profits in China rose more than expected, and Chinese authorities approve a 36 bill US$ rail project around Bejing...this is driving metals even higher. Base metals, iron ore and steel are trading at new, recent highs - some of them at multi-year highs. There is a lot of speculative interest in these things - but there also is some fundamantal backing.

By contrast, thermal coal has been down 15-20% over the last few days, as Chinese mines have been allowed to go back to full production some time ago.

Major mining stocks in London are more or less unchanged today - equity investors are obviously seeing current price levels for many commodities as temporary. I am quite sure, that they are right - but then, none of the traded stocks have actually hit levels, which would mirror current spot prices.

West African Resources - have hit another 9m with 94g , and some more, positive holes. Some of the succesfull drilling ahs been outside of the current resource, and one of the best holes ended in strong mineralisation, extending the deepest intersections so far further down. The company is on track for resource estimate some time before Christmas - unless they want to announced it alongside the full feasibility study, which will be announced in January. WAF are still one of my favourite gold stories.

Berkeley - announced, that the recent letetr of intend with a major metal trader has been changed to represent a firm off-take agreement now. That ´s good news - but they also doubled the amount to 2 mill pounds over 5 ears at 43.75 US$/lb vs the current spot market at 18 US$/lb., Very good news for them, increasing the pressure on other´s to do simular deals. They will soon have to make the choice, how much they actually want to sell...many analysts expect long term prices to go up. 

Berkeley expect to have cash costs of 16 US$/lb - so the forward sales give them a nice margin. So far, tehy have sold 10% of full production p.a. for the first few years - I guess they would be happy to go to 40-50%, if someone also commits to invest directly into the project, or the company, to enable full financing of the project. Exploration results should also be available relatively soon. The stock appears well supported at current levels, and good results would hopefully see BKY test recent highs.

Lucapa Diamonds - received the awaited 5-year exploration license for exploration of kimberlites, over an area of 3000 sqkm. They have a mining license for alluvial production in place. This exploration license will now allow them to go full steam ahead on exploring for the "real" source of the diamonds. 

The diamond market has been improving over the last 9 month or so, and the discovery of an economic kimberlite would make them a sure takeover-target. At current levels, LOM are well supported by their existing production of high-value diamonds. The new plant to discover oversized diamonds is now in full operation, and I am also hoping for one or the other positive surprise here.

Strike Energy - ok ok I am always writing the same...or just about the same. Company updated re operations today, which have made real progress. For three weeks now pumps have delivered continously, and if that continues as expected, I am very hopeful for some good news ( = commercial flows ) to be reported before Christmas. The stock is solidly trading above the rights-issue price of 7ct, and I would expect 100% take-up ( existing shareholders can ask for more than their 1:14 entitlement ). Once out of the way, I am hoping for a swift recovery, and as I said above, positive news before Christmas. Even though the stock has been a real dog in anotherwise buyoant resources sector, I am still a very convinced shareholder!

Paringa - the company is currently on a feeling is, that they might well use the much improved market in general, and in PNL specificially, to raise some more money. They will need some more equity to bring the 40 Mill US$-project into production, and also to include the recently discovered, new coal seam into the equation. Valuations in the market are still around 1$...and in my opinion, this stock is much less risky than many others - the main risk being financing risk. If they would raise say 20 mill$ at current levels, this risk would be very much minimized. Long term targets, for once the company will have developed their second mine as well, are much higher than the current 1$ - so one of the larger companies in the area, especially Alliance Resources, must be very tempted to buy this emerging competitor, before they actually do emerge as a significant, new source of supply for the local power industry. I am still holding my quite sizeable position.

Have a nice evening, and let the bull market roll on - but expect some correction ! Nothing goes up in a straight line!


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