Market Update

General - Perseus - Independence - Troy

Good afternoon

a few investors getting pretty nervous for their gold holdings...falling like a stone and currently trading at 1126 US$!

Yellen´s commentary to target 3 interest rate hikes next year are creating a few headaches...but let´s face it: 3 further interest rate hikes = 1.5% rate! Is that disturbing? Certainly it´s not, and if equity markets are right with the recent bullish sentiment, the economy will be strong next year, and 1.5% expected as at today, might look only very low by this time next year! Rising interest rates have historically been positive for commodities - obviously, such a scenario normally is the case, when the economy is strong. And the metals are actually holding up quite well today - they are hardly changed.

I fear gold will definitely test 1100, and potentially the recent low of 1050 US$/oz...not funny, but not a drama for most companies. But it´s worthwhile to look at the balance sheet and the cost of production again within your portfolio of gold stocks - if you still have some! The US$ has broken the chart  resistance to the upside, and could go some 15% higher against Euro - well, at least on the charts.Such a scenario - rising rates, rising $, strong economy, would obviously be bearish for gold on all fronts!! 

In hindsight, Resolute have done extremely well in doing this large placement at 1.96 A$/share, which looked like not being needed at the time...with gold at nearly 1100, it might actually be needed!  Same for Troy - had they not raised 40 mill at 0,36 A$ in Okt, they would be running the risk of bancrupcy today! Same for Doray....and I guess a few others!

Evolution, as usual, has done relatively well - ok, they have build up some debt - but they have also bought themselves good exposure to copper, which is looking good, and have sold forward some 630.000 oz at 1634 A$ vs 1530 A$ gold price today. I have run some back-on-the envelope numbers on them...the company should still generate some 290 mill A$ free cash at current price of gold ( 1530 A$ ), after all costs incl exploration and headoffice, but before finance costs for 630 mill A$ of debt - might be 40 Mill A$ in interest, but I do not know. That is a pretty comfortable situation....but on the charts, they are only a buy at around 1.50-1.60 A$/share. And that could happen very quickly, if gold falls another 40-50$....

Perseus - one of my favourites ( even though I just warned of them a few days ago for reason of outperformance..), came out with a pretty bad update today. Production guidance for the current half cut by 10-20.000 oz, due to a longer than planned plant shut-down, and lower than expected grades at Edikan. Sissingue had to cut 20% of the reserve estimate, and will have to change the mine plan...this resulted in lower bank-finance available to build it...and a construction period 4 month longer, to better match the capex with free cash generated from Edikan. 

On the positive side, the upgraded plant is doing very well, and all larger capex ( pre-strip + relocation ) at Edikan has been spent. They have left the guidance for the 1st half cy 2017 unchanged at this stage, at 125-140.000 oz.

Still, this is a reasonably bad announcement for a stock, which has substantially outperformed the market recently.

Troy Resources - yesterday I looked at the stock, as Macquarie had initiated coverage, and I thought, that they had coughed enough bad news , and would be worth accumulating. I was lucky not to write about them, as they updated the market today.....Their open pit experiences some unstable ground conditions of one of their pit walls, which has restricted access to some of their higher grade areas in the pit. That is something nobody wants to hear!!! Guidance for the calendar year has been reduced to 60-65.000 oz from 70.80.000 oz - and obviously, costs will also be higher. These guys are going from nightmare to nightmare! I feel very sorry for the analyst - starting coverage on a day of a warning like the above is very unlucky indeed!! 

Independence Group - came out with a pretty positive update for their Tropicana JV with Anglo today. The plant is running at the increased rate of 7.5 mtpa, and they are targeting an increase to 7.9 mtpa through fine tuning. They have increased the minin rate as well, enabling them to stockpile low grade ore, and process higehr grade material for the enxt 4 years at least, which increases production to around 470.000 oz p.a. ( 30% owned by IGO ). Reserves have been increased by 1.18 mill oz to 3.8 mill oz, and there is more to come next year from Long island and Boston Shaker orebodies. All of the above should have a very positive effect. Just the other day, the company had reported, that the comissioning of their first class nickel mine Nova had started, which will ramp up to full production of nearly 30.000tpa of nickel by the middle of next year. And lastly, their pretty average zinc operation is profiting greatly from high zinc/lead/copper prices. The stock is not that cheap - but they could be a good way early next year to get some safe exposure to a ( hopefully ) bottoming gold market.

Have a nice evening


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