Good afternoon
soory forgot to post this on Friday...
Biggest change today: Oil is through the roof! Looking very strong on the charts...but will shale start to see a come-back? I think it might well do so, limiting further upside. But for now, Saudi + Russia seem to be driving it hard - preparing Aramco for a nice IPO??
The $ continues it´s run - still, base metals are generally a little better, as are equities...but gold under renewed pressure today. The A$ is trying to make new, recent highs against the Euro..,.Ideal for us: It´s not rising against the US$, to keep Australian commodity producers halfway happy!
Chinese inflation numbers surprised on the upside on Friday...while manufacturing around the world is doing pretty well, adding support to commodity prices. But higher inflation could be to the detriment of China´s growth support, if it´s staying above 3%. US consumer confidence very strong, following Trump´s election.
The CEO of Teck, a large zinc producer, sees prices for the commodity going higher than 1.50 US$/lb from 1.24 today, while they are cautious on copper until deficits arrive in 2018 or 2019. Goldman´s sees it differently - bullish for copper on 6-month view ( 6.200 US$ ), before increasing supply in 2018 will push it down again!
While gold is still not "clean" looking at the charts ( could fall another 80$ or so?? ), I think it´s time to have a look at this years´performance of gold stocks again with a view, to start buying some soon ( numbers as of Friday )
Stock Fall from recent high performance this year
Resolute - 47% + 398%
Beadell - 37% + 146%
Perseus - 16% + 83%
St Barbara - 42% + 53%
Oceana - 32% + 47%
Newcrest - 30% + 45%
Evolution - 39% + 36%
Northern Star - 41% + 24%
Regis - 37% + 17%
I think this table is quite interesting: while all stocks fell roughly the same from the recent high, around 35-40%, Perseus has substantially ourperformed recently! And within this group, Perseus is probably the highest cost producer!! Theoretically, and ceteris paribus, they should have fallen the most in the current enviroment! Partially, the stock might have been re-rated, due to the excellent growth prospects - but do you really pay for growth in a falling market?? As you know, I really do like PRU - but they might be just a bit on the expensive side in the moment - unless there is some corporate action coming up here! They might possibly also reweighted in the US Gold ETF? In any case - perhaps not a bad idea to let a few go. As this email has been forgotten to be posted on Friday - we now have clarity...125 Mill PRU need to be bought for the Index! sell a few at least int that...you can only buy cheap, when having sold high earlier!
On the other side, the benign performance of Regis is a stand-out. The company has done a good job, has low AISC, and has increased reserves following exploration success. Together with SBM and RSG though, they have a very large percentage of their stock ( about 17% ) held in the Gold ETF, which in my view, is a negative and probably is contributing to the weak performance. EVN for example, have only 5.5% of the company held by Van Eck. Nevertheless - in the current enviroment, Regis is yielding probably 4%, and are good value - followed by Evolution, which is having some positive copper exposure via the Ernest Henry-aquisition.
One word of caution: While the HUI Index looks like basing out already, most Australian producers have sort of 15% downside still on the charts - that would go along with another 60-80$ or so downside in the physical gold price. So one might have to be patient for a little longer - but the good days for our gold stocks will return - god knows, what Trump will do, once he is president, and once he will have to deliver good news to a market, which is currently re-rating in expectation of good things to come in the future!
Paringa - placed 8 mill$ at 42ct...enabling them, to not only finish feasibiliyt study on their first mine, incl the second seam, but also giving them some funding for early development from mid-2017.. There will need to be another 40 mill $ funding from somehwre - debt, convertible, equity, strategic investor - we will find out only during the first half 2017. I understand, that a couple of strong institutional investors took up the majority....Important, in my view - these guys are now more actively looking at the smaller sector !
van Eck - based on Index Changes, and of stocks which interest us, they have to buy 85 Mill shares in First Finance ( Chalice selling stake??? ), 83 mill shares of Ramelius, 75 mill shares of Silver Lake, and 128 mill shares of Perseus....People investing into this fund got to be pretty crazy!! Except for Alacer, which should get downweighted, otherwise we will see small up-weightings for Australian names, without having much significance.
Coking Coal prices - have been settled for the March 2017-Quarter at a sensational 285 US$/t, vs current spot of 270m US$....that is pretty amazing. macquarie say, that this price has been achieved vs their VERY recent expectations of 185 US$/t!! This new price leads them to upgrade earnings by 10% for BHP, and 12% for S32. Coupled with the strong oil price, and an iron ore price still trading above 80 US$, it makes BHP look pretty sexy! There will be a few more earnings upgrades coming, I guess!
Stanmore Coal will also profit strongly from these prices.
Kingsgate - produced 18.600 oz in November - that puts them a few thousand oz above budget for the Dec-Quarter. I am assuming, that they can stick to or even exceed their target of having 13 Mill A$ in net cash by 31.12.. There is ongoing wrestling about the mining license - the government has made some adjustments, but they are not suffiecient for KCN to keep going. They have therfore terminate most employees to the end of this month. I guess we will see some more on this.-...tehy continue to be an interesting speculation.
Have a nice evening
WS